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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly period ended June 30, 2005.
 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)
  (Registrants
telephone number, including area code)
  (Former
name, former address and former fiscal year, if changed since last
report)
  þ o
  Class
    
    Shares OutstandingCommon Stock
    
    5,080,130
  o þ




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PagePart I. Financial Information:Item 1. Financial StatementsThe following consolidated financial statements of Dearborn
Bancorp, Inc. and its subsidiary included in this report are:Independent Accountants Report
    
    
    3Consolidated Balance Sheets  June 30, 2005,
December 31, 2004 and June 30, 2004
    
    
    4Consolidated Statements of Income  For the Three and Six
Months Ended June 30, 2005 and 2004
    
    
    5Consolidated Statements of Comprehensive Income   For
the Three and Six Months Ended June 30, 2005 and 2004
    
    
    6Consolidated Statements of Cash Flows  For the
Six Months Ended June 30, 2005 and 2004
    
    
    7Notes to Consolidated Financial Statements
    
    
    8-13Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations, Liquidity and Capital
    
    
    14-28Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29-31Item 4. Controls and Procedures
    
    
    32Part II. Other Information:Pursuant to SEC rules and regulations, the following item(s) are
included with the Form 10-Q Report:Item 4. Submission of Matters to a Vote of Security Holders
    
    
    33Item 6. Exhibits and Reports on Form 8-KPursuant to SEC rules and regulations, the following items are omitted
from this Form 10-Q as inapplicable or to which the answer is negative:Item 1. Legal ProceedingsItem 2. Changes in Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 5 Other InformationSIGNATURES
    
    
    34CEO Certification Pursuant to Section 302CFO Certification Pursuant to Section 302CEO Certification Pursuant to Section 906CFO Certification Pursuant to Section 906
  2




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/s/ Crowe Chizek and Company LLC 
 3




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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS (unaudited)
 (Dollars, in thousands)
    
    06/30/05
    
    12/31/04
    
    06/30/04ASSETSCash and cash equivalentsCash and due from banks
    
    $
    7,655
    
    
    $
    5,946
    
    
    $
    7,759Federal funds sold
    
    
    6,419
    
    
    
    12,640
    
    
    
    3,422Interest bearing deposits with banks
    
    
    6,359
    
    
    
    2,283
    
    
    
    125Total cash and cash equivalents
    
    
    20,433
    
    
    
    20,869
    
    
    
    11,306Mortgage loans held for sale
    
    
    2,373
    
    
    
    1,692
    
    
    
    1,415Securities, available for sale
    
    
    19,498
    
    
    
    21,075
    
    
    
    12,859Federal Home Loan Bank stock
    
    
    1,293
    
    
    
    1,122
    
    
    
    1,098LoansLoans
    
    
    635,718
    
    
    
    587,562
    
    
    
    439,776Allowance for loan loss
    
    
    (6,616
    )
    
    
    (5,884
    )
    
    
    (4,894
    )Net loans
    
    
    629,102
    
    
    
    581,678
    
    
    
    434,882Premises and equipment, net
    
    
    14,004
    
    
    
    13,124
    
    
    
    10,404Real estate owned
    
    
    1,082
    
    
    
    138
    
    
    
    207Goodwill
    
    
    7,093
    
    
    
    7,080
    
    
    
    Other intangible assets
    
    
    825
    
    
    
    902
    
    
    
    Accrued interest receivable
    
    
    2,065
    
    
    
    1,889
    
    
    
    1,431Other assets
    
    
    2,725
    
    
    
    3,093
    
    
    
    1,850Total assets
    
    $
    700,493
    
    
    $
    652,662
    
    
    $
    475,452LIABILITIESDepositsNon-interest bearing deposits
    
    $
    64,393
    
    
    $
    63,065
    
    
    $
    41,565Interest bearing deposits
    
    
    516,222
    
    
    
    477,815
    
    
    
    364,265Total deposits
    
    
    580,615
    
    
    
    540,880
    
    
    
    405,830Other liabilitiesSecurities sold under agreements to repurchase
    
    
    3,201
    
    
    
    4,115
    
    
    
    Federal Home Loan Bank advances
    
    
    25,614
    
    
    
    20,614
    
    
    
    20,638Accrued interest payable
    
    
    1,319
    
    
    
    1,107
    
    
    
    823Other liabilities
    
    
    889
    
    
    
    1,342
    
    
    
    886Subordinated debentures
    
    
    10,000
    
    
    
    10,000
    
    
    
    10,000Total liabilities
    
    
    621,638
    
    
    
    578,058
    
    
    
    438,177STOCKHOLDERS EQUITYCommon stock - 10,000,000 shares authorized,
5,080,130 shares at 06/30/05, 5,033,713 shares at
12/31/04; and 3,458,300 shares at 06/30/04
    
    
    78,685
    
    
    
    74,918
    
    
    
    37,286Retained earnings
    
    
    214
    
    
    
    344
    
    
    
    187Accumulated other comprehensive loss
    
    
    (44
    )
    
    
    (658
    )
    
    
    (198
    )Total stockholders equity
    
    
    78,855
    
    
    
    74,604
    
    
    
    37,275Total liabilities and stockholders equity
    
    $
    700,493
    
    
    $
    652,662
    
    
    $
    475,452
  4




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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME (unaudited)
 Three Months Ended
    
    Six Months Ended(In thousands, except share and per share data)
    
    06/30/05
    
    06/30/04
    
    06/30/05
    
    06/30/04Interest incomeInterest on loans, including fees
    
    $
    10,318
    
    
    $
    6,750
    
    
    $
    20,020
    
    
    $
    13,154Interest on securities, available for sale
    
    
    160
    
    
    
    67
    
    
    
    300
    
    
    
    138Interest on federal funds
    
    
    79
    
    
    
    22
    
    
    
    127
    
    
    
    38Interest on deposits with banks
    
    
    81
    
    
    
    10
    
    
    
    83
    
    
    
    17Total interest income
    
    
    10,638
    
    
    
    6,849
    
    
    
    20,530
    
    
    
    13,347Interest expenseInterest on deposits
    
    
    3,491
    
    
    
    1,703
    
    
    
    6,377
    
    
    
    3,363Interest on other borrowings
    
    
    302
    
    
    
    231
    
    
    
    588
    
    
    
    462Interest on subordinated debentures
    
    
    180
    
    
    
    100
    
    
    
    320
    
    
    
    223Total interest expense
    
    
    3,973
    
    
    
    2,034
    
    
    
    7,285
    
    
    
    4,048Net interest income
    
    
    6,665
    
    
    
    4,815
    
    
    
    13,245
    
    
    
    9,299Provision for loan losses
    
    
    279
    
    
    
    281
    
    
    
    743
    
    
    
    505Net interest income after provision for loan losses
    
    
    6,386
    
    
    
    4,534
    
    
    
    12,502
    
    
    
    8,794Non-interest incomeService charges on deposit accounts
    
    
    166
    
    
    
    136
    
    
    
    316
    
    
    
    268Fees for other services to customers
    
    
    17
    
    
    
    46
    
    
    
    49
    
    
    
    58Gain on the sale of loans
    
    
    204
    
    
    
    231
    
    
    
    334
    
    
    
    374Gain (loss) on the sale of other real estate
    
    
    1
    
    
    
    (3
    )
    
    
    88
    
    
    
    (3
    )Other than temporary impairment of securities
    
    
    (696
    )
    
    
    
    
    
    
    (696
    )
    
    
    Other income
    
    
    14
    
    
    
    9
    
    
    
    16
    
    
    
    28Total non-interest income
    
    
    (294
    )
    
    
    419
    
    
    
    107
    
    
    
    725Non-interest expensesSalaries and employee benefits
    
    
    2,339
    
    
    
    1,852
    
    
    
    4,646
    
    
    
    3,669Commissions on the origination of loans
    
    
    66
    
    
    
    87
    
    
    
    131
    
    
    
    150Occupancy and equipment expense
    
    
    613
    
    
    
    365
    
    
    
    1,247
    
    
    
    724Intangible expense
    
    
    39
    
    
    
    
    
    
    
    77
    
    
    
    Advertising and marketing
    
    
    109
    
    
    
    80
    
    
    
    223
    
    
    
    157Stationery and supplies
    
    
    96
    
    
    
    73
    
    
    
    185
    
    
    
    144Professional services
    
    
    180
    
    
    
    99
    
    
    
    379
    
    
    
    214Data processing
    
    
    113
    
    
    
    76
    
    
    
    229
    
    
    
    147Other operating expenses
    
    
    399
    
    
    
    216
    
    
    
    680
    
    
    
    434Total non-interest expenses
    
    
    3,954
    
    
    
    2,848
    
    
    
    7,797
    
    
    
    5,639Income before income tax provision
    
    
    2,138
    
    
    
    2,105
    
    
    
    4,812
    
    
    
    3,880Income tax provision
    
    
    726
    
    
    
    715
    
    
    
    1,635
    
    
    
    1,316Net income
    
    $
    1,412
    
    
    $
    1,390
    
    
    $
    3,177
    
    
    $
    2,564Per share data:Net income  basic
    
    $
    0.28
    
    
    $
    0.40
    
    
    $
    0.63
    
    
    $
    0.75Net income  diluted
    
    $
    0.26
    
    
    $
    0.36
    
    
    $
    0.59
    
    
    $
    0.68Weighted average number of shares outstanding  basic
    
    
    5,074,978
    
    
    
    3,444,881
    
    
    
    5,063,122
    
    
    
    3,431,394Weighted
average number of shares outstanding 
diluted
    
    
    5,418,218
    
    
    
    3,810,506
    
    
    
    5,419,207
    
    
    
    3,779,934
  5




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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
 Three Months Ended
    
    Six Months Ended(In thousands)
    
    06/30/05
    
    06/30/04
    
    06/30/05
    
    06/30/04Net income
    
    $
    1,412
    
    
    $
    1,390
    
    
    $
    3,177
    
    
    $
    2,564Other comprehensive income (loss), net of taxUnrealized gains (losses) on securitiesUnrealized holding gains (losses) arising
during period
    
    
    (95
    )
    
    
    (38
    )
    
    
    233
    
    
    
    (334
    )Less: reclassification adjustment for losses
included in net income
    
    
    696
    
    
    
    
    
    
    
    696
    
    
    
    Tax effects
    
    
    (203
    )
    
    
    14
    
    
    
    (315
    )
    
    
    114Other comprehensive income/(loss)
    
    
    398
    
    
    
    (24
    )
    
    
    614
    
    
    
    (220
    )Comprehensive income
    
    $
    1,810
    
    
    $
    1,366
    
    
    $
    3,791
    
    
    $
    2,344
  6




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DEARBORN BANCORP, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 Six Months Ended(In thousands)
    
    6/30/05
    
    6/30/04Cash flows from operating activitiesInterest and fees received
    
    $
    20,155
    
    
    $
    13,368Interest paid
    
    
    (7,073
    )
    
    
    (3,695
    )Taxes paid
    
    
    (1,580
    )
    
    
    (840
    )Proceeds from sale of mortgages held for sale
    
    
    21,295
    
    
    
    22,946Origination of mortgages held for sale
    
    
    (21,642
    )
    
    
    (22,622
    )Cash paid to suppliers and employees
    
    
    (7,889
    )
    
    
    (5,424
    )Net cash provided by operating activities
    
    
    3,266
    
    
    
    3,733Cash flows from investing activitiesProceeds from maturities of securities available for sale
    
    
    5,200
    
    
    
    4,000Proceeds from call of securities available for sale
    
    
    
    
    
    
    10Proceeds from sales of securities available for sale
    
    
    
    
    
    
    2,120Proceeds from repayments of securities available for sale
    
    
    148
    
    
    
    265Purchases of securities available for sale
    
    
    (3,535
    )
    
    
    (2,649
    )Purchases of Federal Home Loan Bank stock
    
    
    (171
    )
    
    
    (25
    )Increase in loans, net of payments received
    
    
    (48,167
    )
    
    
    (38,743
    )Purchases of property and equipment
    
    
    (1,342
    )
    
    
    (5,096
    )Net cash used in investing activities
    
    
    (47,867
    )
    
    
    (40,118
    )Cash flows from financing activitiesNet increase in non-interest bearing deposits
    
    
    1,328
    
    
    
    2,484Net increase in interest bearing deposits
    
    
    38,407
    
    
    
    23,728Net increase of Federal Home Loan Bank advances
    
    
    5,000
    
    
    
    Net decrease in other borrowings
    
    
    (914
    )
    
    
    Stock option exercise
    
    
    344
    
    
    
    330Net cash provided by financing activities
    
    
    44,165
    
    
    
    26,542Decrease in cash and cash equivalents
    
    
    (436
    )
    
    
    (9,843
    )Cash and cash equivalents at the beginning of the period
    
    
    20,869
    
    
    
    21,148Cash and cash equivalents at the end of the period
    
    $
    20,433
    
    
    $
    11,305Reconciliation of net income to net cash provided by
(used in) operating activitiesNet income
    
    $
    3,177
    
    
    $
    2,564Adjustments to reconcile net income to net cash
provided by (used in) operating activitiesProvision for loan losses
    
    
    743
    
    
    
    505Depreciation and amortization expense
    
    
    462
    
    
    
    246Accretion of discount on investment securities
    
    
    (21
    )
    
    
    (2
    )Amortization of premium on investment securities
    
    
    18
    
    
    
    11Recognition of other-than-temporary loss
    
    
    696
    
    
    
    Net change in mortgages held for sale
    
    
    (681
    )
    
    
    90Net change in interest receivable
    
    
    (176
    )
    
    
    42Increase in interest payable
    
    
    212
    
    
    
    69Increase in other assets
    
    
    (828
    )
    
    
    (214
    )Net change in other liabilities
    
    
    (336
    )
    
    
    422Net cash provided by operating activities
    
    $
    3,266
    
    
    $
    3,733
 The accompanying notes are
an integral part of these consolidated statements. 7




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A.
    
    Accounting and Reporting Policies
      8




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##### Table of Contents



A.
    
    Accounting and Reporting Policies (continued)
  Three Months Ended
    
    Six Months Ended06/30/05
    
    06/30/04
    
    06/30/05
    
    06/30/04Net incomeAs reported
    
    $
    1,412
    
    
    $
    1,390
    
    
    $
    3,177
    

    
    $
    2,564Less: stock-based compensation expense
determined under fair value based method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Pro forma
    
    $
    1,412
    
    
    $
    1,390
    
    
    $
    3,177
    
    
    $
    2,555Basic income per shareAs reported
    
    $
    0.28
    
    
    $
    0.40
    
    
    $
    0.63
    
    
    $
    0.75Pro forma
    
    $
    0.28
    
    
    $
    0.40
    
    
    $
    0.63
    
    
    $
    0.74Diluted income per shareAs reported
    
    $
    0.26
    
    
    $
    0.36
    
    
    $
    0.59
    
    
    $
    0.68Pro forma
    
    $
    0.26
    
    
    $
    0.36
    
    
    $
    0.59
    
    
    $
    0.68
  9




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B.
    
    New Accounting Pronouncements
  C.
    
    Securities Available For Sale
  June 30, 2005Gross
    
    Gross
    
    EstimatedAmortized
    
    Unrealized
    
    Unrealized
    
    MarketCost
    
    Gains
    
    Losses
    
    ValueUS Treasury securities
    
    $
    13,699
    
    
    $
    
    
    
    ($
    78
    )
    
    $
    13,621Mortgage backed securities
    
    
    678
    
    
    
    12
    
    
    
    (2
    )
    
    
    688Corporate debt securities
    
    
    1,885
    
    
    
    
    
    
    
    
    
    
    
    1,885FHLMC preferred stock
    
    
    3,304
    
    
    
    
    
    
    
    
    
    
    
    3,304Totals
    
    $
    19,566
    
    
    $
    12
    
    
    ($
    80
    )
    
    $
    19,498
 December 31, 2004Gross
    
    Gross
    
    EstimatedAmortized
    
    Unrealized
    
    Unrealized
    
    MarketCost
    
    Gains
    
    Losses
    
    ValueUS Treasury securities
    
    $
    15,696
    
    
    $
    
    
    
    ($
    62
    )
    
    $
    15,634Mortgage backed securities
    
    
    826
    
    
    
    25
    
    
    
    
    
    
    
    851Corporate debt securities
    
    
    1,550
    
    
    
    
    
    
    
    
    
    
    
    1,550FHLMC preferred stock
    
    
    4,000
    
    
    
    
    
    
    
    (960
    )
    
    
    3,040Totals
    
    $
    22,072
    
    
    $
    25
    
    
    ($
    1,022
    )
    
    $
    21,075
 10




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##### Table of Contents



EstimatedAmortized
    
    MarketCost
    
    ValueDue in three months or less
    
    $
    1,998
    
    
    $
    1,993Due in three months through one year
    
    
    7,697
    
    
    
    7,650Due in over one year through five years
    
    
    4,004
    
    
    
    3,978Due in over five years
    
    
    1,885
    
    
    
    1,885Mortgage backed securities
    
    
    678
    
    
    
    688FHLMC preferred stock
    
    
    3,304
    
    
    
    3,304Totals
    
    $
    19,566
    
    
    $
    19,498
  Investment
category
    
    Fair Value
    
    Unrealized LossUS treasury securities
    
    $
    13,621
    
    
    ($
    78
    )Mortgage backed securities
    
    $
    25
    
    
    ($
    2
    )Total temporarily impaired
    
    $
    13,646
    
    
    ($
    80
    )
     11




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D.
    
    Stock Incentive Plans
 Stock Option Plan
   WeightedAvailable
    
    
    
    
    
    Averagefor
    
    Options
    
    ExerciseGrant
    
    Outstanding
    
    PriceOutstanding at January 1, 2005
    
    
    
    
    
    
    567,502
    
    
    $
    8.75Exercised
    
    
    
    
    
    
    (46,555
    )
    
    
    7.39Outstanding at June 30, 2005
    
    
    
    
    
    
    520,947
    
    
    $
    8.87
  Long-Term Incentive Plan
   12




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##### Table of Contents



Six Months Ended(In thousands, except share and per share data)
    
    6/30/2004Interest income
    
    $
    15,543Interest expense
    
    
    4,692Net interest income
    
    
    10,851Provision for loan loss
    
    
    505Net interest income after provision for loan losses
    
    
    10,346Non-interest income
    
    
    868Non-interest expense
    
    
    6,933Income before income tax provision
    
    
    4,281Income tax provision
    
    
    1,453Net income
    
    $
    2,828Basic earnings per share
    
    $
    0.82Diluted earnings per share
    
    $
    0.75
 13




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PART I    FINANCIAL INFORMATION
 
     14




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##### Table of Contents



General
  Date Opened
    
    Location
    
    Type of officeFebruary 1994
    
    22290 Michigan Avenue
Dearborn, Michigan 48124
    
    Full service retail branch with ATMDecember 1995
    
    24935 West Warren Avenue
Dearborn Heights, Michigan 48127
    
    Full service retail branchAugust 1997
    
    44623 Five Mile Road
Plymouth, Michigan 48170
    
    Full service retail branch with ATMMay 2001
    
    1325 North Canton Center Road
Canton, Michigan 48187
    
    Full service retail branch with ATMDecember 2001
    
    45000 River Ridge Drive
Clinton Township, Michigan 48038
    
    Regional lending centerNovember 2002
    
    19100 Hall Road
Clinton Township, Michigan 48038
    
    Full service retail branch with ATMFebruary 2003
    
    12820 Fort Street
Southgate, Michigan 48195
    
    Full service retail branch with ATMMay 2003
    
    3201 University Drive, Suite 180
Auburn Hills, Michigan 48326
    
    Full service retail branch
Regional lending centerOctober 2004
    
    450 East Michigan Avenue
Saline, MI 48176
    
    Full service retail branch with ATMOctober 2004
    
    250 West Eisenhower Parkway
Ann Arbor, MI 48103
    
    Full service retail branch with ATM
Regional lending centerOctober 2004
    
    2180 West Stadium Blvd.
Ann Arbor, MI 48103
    
    Full service retail branch with ATMDecember 2004
    
    1360 Porter Street
Dearborn, MI 48124
    
    Loan production office
Regional lending center
  Date Formed
    
    Name
    
    Services OfferedAugust 1997
    
    Community Bank Insurance Agency, Inc.
    
    Limited insurance related activitiesMay 2001
    
    Community Bank Mortgage, Inc.
    
    Origination of commercial and
residential mortgage loansMarch 2002
    
    Community Bank Audit Services, Inc.
    
    Internal auditing and compliance
services for financial institutions
 15




---



##### Table of Contents



Results of Operations
  Net Interest Income
 2005 Compared to 2004.
 Average Balances, Interest Rates and Yields.
 16




---



##### Table of Contents



Three months ended
    
    Three months endedJune 30, 2005
    
    June 30, 2004Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    11,011
    
    
    $
    81
    
    
    
    2.95%
    
    
    $
    4,672
    
    
    $
    10
    
    
    
    0.86%Federal funds sold
    
    $
    10,301
    
    
    
    79
    
    
    
    3.08%
    
    
    $
    8,800
    
    
    
    22
    
    
    
    1.01%Investment securities, available for sale
    
    
    20,870
    
    
    
    160
    
    
    
    3.08%
    
    
    
    13,449
    
    
    
    67
    
    
    
    2.00%Loans
    
    
    626,105
    
    
    
    10,318
    
    
    
    6.61%
    
    
    
    428,498
    
    
    
    6,750
    
    
    
    6.34%Sub-total earning assets
    
    
    668,287
    
    
    
    10,638
    
    
    
    6.38%
    
    
    
    455,419
    
    
    
    6,849
    
    
    
    6.05%Other assets
    
    
    30,685
    
    
    
    
    
    
    
    
    
    
    
    19,137Total assets
    
    $
    698,972
    
    
    
    
    
    
    
    
    
    
    $
    474,556Liabilities and stockholders equityInterest bearing deposits
    
    $
    515,757
    
    
    $
    3,491
    
    
    
    2.71%
    
    
    $
    364,424
    
    
    $
    1,703
    
    
    
    1.88%Other borrowings
    
    
    39,237
    
    
    
    482
    
    
    
    4.93%
    
    
    
    30,638
    
    
    
    331
    
    
    
    4.35%Sub-total interest bearing liabilities
    
    
    554,994
    
    
    
    3,973
    
    
    
    2.87%
    
    
    
    395,062
    
    
    
    2,034
    
    
    
    2.07%Non-interest bearing deposits
    
    
    63,734
    
    
    
    
    
    
    
    
    
    
    
    41,692Other liabilities
    
    
    2,057
    
    
    
    
    
    
    
    
    
    
    
    925Stockholders equity
    
    
    78,187
    
    
    
    
    
    
    
    
    
    
    
    36,877Total liabilities and stockholders equity
    
    $
    698,972
    
    
    
    
    
    
    
    
    
    
    $
    474,556Net interest income
    
    
    
    
    
    $
    6,665
    
    
    
    
    
    
    
    
    
    
    $
    4,815Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.51%
    
    
    
    
    
    
    
    
    
    
    
    3.98%Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    4.00%
    
    
    
    
    
    
    
    
    
    
    
    4.25%
 17




---



##### Table of Contents



Six Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2004Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    Average(In thousands)
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateAssetsInterest-bearing deposits with banks
    
    $
    5,761
    
    
    $
    83
    
    
    
    2.91%
    
    
    $
    3,651
    
    
    $
    17
    
    
    
    0.94%Federal funds sold
    
    $
    9,280
    
    
    
    127
    
    
    
    2.76%
    
    
    $
    8,036
    
    
    
    38
    
    
    
    0.96%Investment securities, available for sale
    
    
    21,284
    
    
    
    300
    
    
    
    2.84%
    
    
    
    14,119
    
    
    
    138
    
    
    
    1.98%Loans
    
    
    615,133
    
    
    
    20,020
    
    
    
    6.56%
    
    
    
    420,622
    
    
    
    13,154
    
    
    
    6.32%Sub-total earning assets
    
    
    651,458
    
    
    
    20,530
    
    
    
    6.36%
    
    
    
    446,428
    
    
    
    13,347
    
    
    
    6.05%Other assets
    
    
    30,799
    
    
    
    
    
    
    
    
    
    
    
    17,411Total assets
    
    $
    682,257
    
    
    
    
    
    
    
    
    
    
    $
    463,839Liabilities and stockholders equityInterest bearing deposits
    
    $
    499,167
    
    
    $
    6,377
    
    
    
    2.58%
    
    
    $
    356,679
    
    
    $
    3,363
    
    
    
    1.91%Other borrowings
    
    
    40,572
    
    
    
    908
    
    
    
    4.51%
    
    
    
    30,638
    
    
    
    685
    
    
    
    4.52%Sub-total interest bearing liabilities
    
    
    539,739
    
    
    
    7,285
    
    
    
    2.72%
    
    
    
    387,317
    
    
    
    4,048
    
    
    
    2.11%Non-interest bearing deposits
    
    
    63,337
    
    
    
    
    
    
    
    
    
    
    
    39,204Other liabilities
    
    
    2,043
    
    
    
    
    
    
    
    
    
    
    
    1,096Stockholders equity
    
    
    77,138
    
    
    
    
    
    
    
    
    
    
    
    36,222Total liabilities and stockholders equity
    
    $
    682,257
    
    
    
    
    
    
    
    
    
    
    $
    463,839Net interest income
    
    
    
    
    
    $
    13,245
    
    
    
    
    
    
    
    
    
    
    $
    9,299Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.64%
    
    
    
    
    
    
    
    
    
    
    
    3.94%Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    4.10%
    
    
    
    
    
    
    
    
    
    
    
    4.21%
 18




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##### Table of Contents



Rate/Volume Analysis.
 Three Months Ended
    
    Six Months Ended2005/2004
    
    
    
    
    
    
    
    
    
    2005/2004Change 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
    
    $
    47
    
    
    $
    24
    
    
    $
    71
    
    
    $
    30
    
    
    $
    36
    
    
    $
    66Federal funds sold
    
    
    11
    
    
    
    46
    
    
    
    57
    
    
    
    17
    
    
    
    72
    
    
    
    89Investment securities, available for sale
    
    
    57
    
    
    
    36
    
    
    
    93
    
    
    
    98
    
    
    
    64
    
    
    
    162Loans
    
    
    3,274
    
    
    
    294
    
    
    
    3,568
    
    
    
    6,361
    
    
    
    505
    
    
    
    6,866Total earning assets
    
    $
    3,389
    
    
    $
    400
    
    
    $
    3,789
    
    
    $
    6,506
    
    
    $
    677
    
    
    $
    7,183LiabilitiesInterest bearing deposits
    
    $
    1,027
    
    
    $
    761
    
    
    $
    1,788
    
    
    $
    1,820
    
    
    $
    1,194
    
    
    $
    3,014Other borrowings
    
    
    
    
    
    
    45
    
    
    
    151
    
    
    
    
    
    
    
    (1
    )
    
    
    223Total interest bearing liabilities
    
    $
    1,027
    
    
    $
    806
    
    
    $
    1,939
    
    
    $
    1,820
    
    
    $
    1,193
    
    
    $
    3,237Net interest income
    
    
    
    
    
    
    
    
    
    
    1,850
    
    
    
    
    
    
    
    
    
    
    
    3,946Net interest rate spread
    
    
    
    
    
    
    
    
    
    
    (0.47
    %)
    
    
    
    
    
    
    
    
    
    
    (0.30
    %)Net interest margin on earning assets
    
    
    
    
    
    
    
    
    
    
    (0.25
    %)
    
    
    
    
    
    
    
    
    
    
    (0.11
    %)
 Provision for Loan Losses
 2005 Compared to 2004.
 19




---



##### Table of Contents



Other Than Temporary Impairment of Securities
    Market ValueRate
    
    (per share)3/23/2001
    
    
    4.50
    %
    
    $
    50.004/1/2002
    
    
    2.82
    %
    
    $
    50.004/1/2003
    
    
    1.14
    %
    
    $
    50.004/1/2004
    
    
    1.14
    %
    
    $
    46.256/30/2004
    
    
    1.14
    %
    
    $
    46.059/30/2004
    
    
    1.14
    %
    
    $
    39.0012/31/2004
    
    
    1.14
    %
    
    $
    38.003/31/2005
    
    
    1.14
    %
    
    $
    42.756/30/2005
    
    
    3.64
    %
    
    $
    41.30
   20




---



##### Table of Contents



Non-interest Income
 2005 Compared to 2004.
 Non-interest Expense
 2005 Compared to 2004.
  Income Tax Provision
 2005 Compared to 2004.
 21




---



##### Table of Contents



Comparison of Financial Condition at June 30, 2005 and December 31, 2004
 Assets.
 Federal Funds Sold.
 Interest bearing deposits with banks.
 Mortgage Loans Held for Sale.
 Securities  Available for Sale.
  Federal Home Loan Bank Stock.
 22




---



##### Table of Contents



Loans.
 6/30/05
    
    12/31/04
    
    6/30/04Consumer loans
    
    $
    41,082
    
    
    $
    42,149
    
    
    $
    26,045Commercial, financial, & other
    
    
    132,058
    
    
    
    129,103
    
    
    
    76,067Commercial real estate construction
    
    
    89,572
    
    
    
    72,286
    
    
    
    55,933Commercial real estate mortgages
    
    
    326,332
    
    
    
    296,934
    
    
    
    235,471Residential real estate mortgages
    
    
    46,674
    
    
    
    47,090
    
    
    
    46,260635,718
    
    
    
    587,562
    
    
    
    439,776Allowance for loan losses
    
    
    (6,616
    )
    
    
    (5,884
    )
    
    
    (4,894
    )$
    629,102
    
    
    $
    581,678
    
    
    $
    434,882
  6/30/05
    
    12/31/04
    
    6/30/04Over 90 days past due and still accruing
    
    $
    134
    
    
    $
    143
    
    
    $
    85Non-accrual loans
    
    
    972
    
    
    
    2,956
    
    
    
    1,674Real estate owned
    
    
    1,082
    
    
    
    136
    
    
    
    201Other repossessed assets
    
    
    
    
    
    
    2
    
    
    
    6$
    2,188
    
    
    $
    3,237
    
    
    $
    1,966
  Number of Loans
    
    BalanceConsumer loans
    
    
    2
    
    
    $
    51Commercial, financial, & other
    
    
    3
    
    
    
    485Commercial real estate construction
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    5
    
    
    
    329Residential real estate mortgages
    
    
    1
    
    
    
    107Total non-accrual loans
    
    
    11
    
    
    $
    972
 23




---



##### Table of Contents



Allowance for Loan Losses.
  Six MonthsEnded
    
    Year Ended
    
    Six MonthsEnded6/30/05
    
    12/31/04
    
    6/30/04Balance, beginning of year
    
    $
    5,884
    
    
    $
    4,314
    
    
    $
    4,314Allowance on loans acquired
    
    
    
    
    
    
    184
    
    
    
    Charge-offs:Consumer loans
    
    
    71
    
    
    
    31
    
    
    
    5Commercial, financial & other
    
    
    95
    
    
    
    
    
    
    
    Commercial real estate
construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    6
    
    
    
    100
    
    
    
    Residential real estate mortgages
    
    
    
    
    
    
    
    
    
    
    32Recoveries:Consumer loans
    
    
    9
    
    
    
    13
    
    
    
    11Commercial, financial & other
    
    
    111
    
    
    
    104
    
    
    
    40Commercial real estate
construction
    
    
    
    
    
    
    
    
    
    
    Commercial real estate mortgages
    
    
    9
    
    
    
    
    
    
    
    61Residential real estate mortgages
    
    
    32
    
    
    
    
    
    
    
    Net charge-offs (recoveries)
    
    
    11
    
    
    
    14
    
    
    
    (75
    )Additions charged to operations
    
    
    743
    
    
    
    1,400
    
    
    
    505Balance, end of period
    
    $
    6,616
    
    
    $
    5,884
    
    
    $
    4,894Allowance to total loans
    
    
    1.04
    %
    
    
    1.00
    %
    
    
    1.11
    %Allowance to nonperforming assets
    
    
    302.38
    %
    
    
    181.77
    %
    
    
    248.93
    %Net charge-offs (recoveries)
to average loans
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    (0.02
    %)
 24




---



##### Table of Contents



Premises and Equipment.
 Real estate owned.
 Goodwill and other intangible assets.
  Accrued Interest Receivable.
 Other Assets
 25




---



##### Table of Contents



Deposits.
 6/30/05
    
    12/31/04
    
    6/30/04Non-interest bearing:Demand
    
    $
    64,393
    
    
    $
    63,065
    
    
    $
    41,565Interest bearing:Checking
    
    $
    14,443
    
    
    $
    15,400
    
    
    $
    19,472Money market
    
    
    59,729
    
    
    
    54,957
    
    
    
    15,232Savings
    
    
    74,267
    
    
    
    83,773
    
    
    
    110,251Time, under $100,000
    
    
    143,538
    
    
    
    124,448
    
    
    
    74,041Time, $100,000 and over
    
    
    224,245
    
    
    
    199,237
    
    
    
    145,269516,222
    
    
    
    477,815
    
    
    
    364,265Total deposits
    
    $
    580,615
    
    
    $
    540,880
    
    
    $
    405,830
   6/30/05
    
    12/31/04
    
    6/30/04Interest bearing checking
    
    $
    2,677
    
    
    $
    2,633
    
    
    $
    8,781Time, $100,000 and over
    
    
    76,997
    
    
    
    71,058
    
    
    
    57,586Total municipal deposits
    
    $
    79,674
    
    
    $
    73,691
    
    
    $
    66,367
  26




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##### Table of Contents



Securities Sold Under Agreement to Repurchase
 Federal Home Loan Bank Advances
 Accrued Interest Payable
 Other Liabilities
 Subordinated Debentures .
 27




---



##### Table of Contents



Capital
   MinimumTo Be Well CapitalizedMinimum for Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of June 30, 2005Total capital(to risk weighted assets)Consolidated
    
    
    87,598
    
    
    
    13.11
    %
    
    
    53,441
    
    
    
    8.00
    %
    
    
    66,802
    
    
    
    10.00
    %Bank
    
    
    70,864
    
    
    
    10.71
    %
    
    
    52,925
    
    
    
    8.00
    %
    
    
    66,156
    
    
    
    10.00
    %Tier 1 capital(to risk weighted assets)Consolidated
    
    
    80,982
    
    
    
    12.12
    %
    
    
    26,721
    
    
    
    4.00
    %
    
    
    40,081
    
    
    
    6.00
    %Bank
    
    
    64,248
    
    
    
    9.71
    %
    
    
    26,462
    
    
    
    4.00
    %
    
    
    39,693
    
    
    
    6.00
    %Tier 1 capital(to average assets)Consolidated
    
    
    80,982
    
    
    
    11.59
    %
    
    
    27,959
    
    
    
    4.00
    %
    
    
    34,949
    
    
    
    5.00
    %Bank
    
    
    64,248
    
    
    
    9.42
    %
    
    
    27,276
    
    
    
    4.00
    %
    
    
    34,095
    
    
    
    5.00
    %As of December 31, 2004Total capital(to risk weighted assets)Consolidated
    
    
    81,868
    
    
    
    13.27
    %
    
    
    49,360
    
    
    
    8.00
    %
    
    
    61,700
    
    
    
    10.00
    %Bank
    
    
    63,986
    
    
    
    10.47
    %
    
    
    48,913
    
    
    
    8.00
    %
    
    
    61,141
    
    
    
    10.00
    %Tier 1 capital(to risk weighted assets)Consolidated
    
    
    75,984
    
    
    
    12.32
    %
    
    
    24,680
    
    
    
    4.00
    %
    
    
    37,020
    
    
    
    6.00
    %Bank
    
    
    58,102
    
    
    
    9.50
    %
    
    
    24,457
    
    
    
    4.00
    %
    

    
    36,685
    
    
    
    6.00
    %Tier 1 capital(to average assets)Consolidated
    
    
    75,984
    
    
    
    12.12
    %
    
    
    25,079
    
    
    
    4.00
    %
    
    
    31,348
    
    
    
    5.00
    %Bank
    
    
    58,102
    
    
    
    9.78
    %
    
    
    23,765
    
    
    
    4.00
    %
    
    
    29,706
    
    
    
    5.00
    %
  28




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##### Table of Contents



PART I    FINANCIAL INFORMATION
 
 
 ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Sensitivity Analysis.
   29




---



##### Table of Contents



Interest Rate Sensitivity Period1-90
    
    91-365
    
    1-5
    
    Over(In thousands)
    
    Days
    
    Days
    
    Years
    
    5 Years
    
    TotalEarning assetsFederal funds sold
    
    $
    6,419
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,419Interest bearing deposits with Banks
    
    
    6,359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,359Mortgage loans held for sale
    
    
    2,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,373Securities available for sale
    
    
    3,878
    
    
    
    12,979
    
    
    
    1,979
    
    
    
    662
    
    
    
    19,498Federal Home Loan Bank stock
    
    
    1,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,293Total loans, net of non-accrual
    
    
    290,594
    
    
    
    22,283
    
    
    
    296,053
    
    
    
    25,816
    
    
    
    634,746Total earning assets
    
    
    310,916
    
    
    
    35,262
    
    
    
    298,032
    
    
    
    26,478
    
    
    
    670,688Interest bearing liabilitiesTotal interest bearing deposits
    
    
    261,153
    
    
    
    143,866
    
    
    
    111,203
    
    
    
    
    
    
    
    516,222Federal Home Loan Bank advances
    
    
    
    
    
    
    15,589
    
    
    
    10,000
    
    
    
    
    
    
    
    25,589Other Borrowings
    
    
    3,201
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,201Trust preferred securities
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000Total interest bearing liabilities
    
    
    274,354
    
    
    
    159,455
    
    
    
    121,203
    
    
    
    
    
    
    
    555,012Net asset (liability) funding gap
    
    
    36,562
    
    
    
    (124,193
    )
    
    
    176,829
    
    
    
    26,478
    
    
    $
    115,676Cumulative net asset (liability) funding gap
    
    $
    36,562
    
    
    $
    (87,631
    )
    
    $
    89,198
    
    
    $
    115,676
 30




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##### Table of Contents



Liquidity.
   Payments Due By PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalSecurities sold under
agreements to repurchase
    
    $
    3,201
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,201Certificates of deposit
    
    
    256,580
    
    
    
    95,476
    
    
    
    15,727
    
    
    
    
    
    
    
    367,783Long-term borrowings
    
    
    25
    
    
    
    15,589
    
    
    
    10,000
    
    
    
    
    
    
    
    25,614Lease commitments
    
    
    614
    
    
    
    1,017
    
    
    
    865
    
    
    
    404
    
    
    
    2,900Subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    10,000Totals
    
    $
    260,420
    
    
    $
    112,082
    
    
    $
    26,592
    
    
    $
    10,404
    
    
    $
    409,498Unused 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
    
    $
    68,834
    
    
    $
    19,457
    
    
    $
    2,685
    
    
    $
    33,058
    
    
    $
    124,034Standby letters of credit
    
    
    1,274
    
    
    
    3,498
    
    
    
    992
    
    
    
    
    
    
    
    5,764Totals
    
    $
    70,108
    
    
    $
    22,955
    
    
    $
    3,677
    
    
    $
    33,058
    
    
    $
    129,798
 31




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure
Controls and Procedures
 Internal
Controls Over Financial Reporting
 32




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##### Table of Contents



PART II    OTHER INFORMATION
 
    Nominee
    
    Total ForWilliam J. Demmer
    
    
    4,117,130Bradley F. Keller
    
    
    4,385,270Richard Nordstrom
    
    
    4,226,443Ronnie J. Story
    
    
    4,497,109
   
  (a)
    
    ExhibitsExhibit 10 (a)
    
    2005 Long-Term Incentive PlanExhibit 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)
    
    Two Form 8-K Reports, dated April 19, 2005 and May 17, 2005 were filed during the quarter
ended June 30, 2005.
 33




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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
  34




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##### Table of Contents



Exhibit no.
    
    Exhibit DescriptionExhibit 10(a)
    
    2005 Long-Term Incentive PlanExhibit 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.