Dearborn Bancorp, Inc.



                              and its subsidiary




                          Community Bank of Dearborn








                                     1998
                                ANNUAL REPORT




<PAGE>


                              Inside Front Cover






                     [This Page Intentionally Left Blank]





<PAGE>


                            Dearborn Bancorp, Inc.

                              and its subsidiary


                          Community Bank of Dearborn


CONTENTS

         Description of Business..........................................4

         Summary of Selected Financial Data...............................5

         Chairman's and President's Letter to Stockholders................6

         Report of Independent Certified Public Accountants...............8

         Consolidated Balance Sheets......................................9

         Consolidated Statements of Income ..............................10

         Consolidated Statements of Comprehensive Income (Loss)..........11

         Consolidated Statements of Stockholders' Equity.................12

         Consolidated Statements of Cash Flows...........................13

         Notes to Consolidated Financial Statements......................14

         Management's Discussion and Analysis............................35

         Dearborn Bancorp, Inc. Directors and Officers...................45

         Community Bank of Dearborn Directors and Officers...............46



                                      3




<PAGE>


DESCRIPTION OF BUSINESS

Dearborn Bancorp, Inc.

Dearborn Bancorp, Inc. (the "Parent Company" and, together with its
subsidiary, the "Corporation") is a registered bank holding company which was
incorporated on September 30, 1992. The primary purpose of the holding
company is to own and operate the subsidiary bank, Community Bank of Dearborn
(the "Bank").

Community Bank of Dearborn

The Bank was incorporated on June 28, 1993 and began operations as a state
chartered commercial bank on February 28, 1994 from its main office located
on Michigan Avenue in Dearborn. On December 20, 1995, a second office located
on West Warren Avenue in Dearborn Heights was opened. On August 11, 1997, a
third office located on Five Mile Road at Sheldon Road in Plymouth Township
was opened. The Bank offers a wide range of financial products and services.
These include checking accounts, savings accounts, money market accounts,
certificates of deposit, business checking, direct deposit, loan services
(commercial, consumer, real estate mortgages), travelers' checks, cashiers'
checks, wire transfers, safety deposits boxes, collection services, and night
depository service. The Bank does not have a trust department.

FORM 10-K AVAILABLE

For a free copy of the Corporation's Form 10-K filed with the U.S. Securities
and Exchange Commission, please direct your request to Mr. Jeffrey L. Karafa,
Dearborn Bancorp, Inc., PO Box 2247, Dearborn, Michigan 48123-2247

ANNUAL MEETING

The Annual Meeting of Stockholders will be held on May 19, 1999, at Park
Place, 23400 Park Avenue, Dearborn, Michigan, at 4:00 p.m.

DEARBORN BANCORP, INC. COMMON STOCK

Dearborn Bancorp, Inc. common stock is listed on the Nasdaq SmallCap Market
and is traded under the symbol "DEAR".

PRINCIPAL MARKET MAKERS

Advest, Inc.
First of Michigan Corporation
Herzog, Heine, Geduld, Inc.
Knight Securities, L.P.
Roney Capital Markets

STOCK TRANSFER AGENT AND REGISTRAR

Shareholders requiring a change of name, address or ownership of stock, as
well as information about shareholder records or lost or stolen certificates
should contact:

Fifth Third Bank
Corporate Trust Division
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Toll Free 1-800-837-2755

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Grant Thornton LLP
26911 Northwestern Highway
Suite 400
Southfield, Michigan 48034


                   QUARTERLY COMMON STOCK PRICE INFORMATION

                                            1998
                            -------------------------------------
                                 High        Low       Close
                            -------------------------------------

Initial public offering (1)    $ 14.00     $   --     $   --
Second quarter                   18.14      14.00      14.46
Third quarter                    14.71      10.54      11.77
Fourth quarter                   13.73       9.80      10.50

(1) Dearborn Bancorp, Inc. began trading on the Nasdaq SmallCap Market on 
    April 8, 1998.

                                      4


<PAGE>
                      SUMMARY OF SELECTED FINANCIAL DATA

The following selected consolidated financial and other data as of and for
each of the five years in the period ended December 31, 1998 are derived from
the Corporation's audited consolidated financial statements. The information
set forth below should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Consolidated Statements
of Financial Condition as of December 31, 1998 and 1997, and the Consolidated
Statements of Operations for the years ended December 31, 1998, 1997 and 1996
are included elsewhere in this Annual Report.

<TABLE>
<CAPTION>
                                                               At or for the years ended December 31,
                                                  ---------------------------------------------------------------
(In thousands, except share data)                       1998        1997        1996         1995       1994 (1)
                                                  ---------------------------------------------------------------
<S>                                                   <C>          <C>         <C>          <C>          <C> 
OPERATIONS
Interest income                                         $8,290      $5,404      $3,314       $2,023         $674
Interest expense                                         4,466       2,998       1,706        1,004          266
                                                      --------     -------     -------      -------      -------
Net interest income                                      3,824       2,406       1,608        1,019          408
Provision for possible credit losses                       120         164         164          114          100
                                                      --------     -------     -------      -------      -------
Net interest income after provision for
     possible credit losses                              3,704       2,242       1,444          905          308
Total non-interest income                                  533         312         284          210           93
Total non-interest expense                               2,941       2,089       1,701        1,403        1,065
                                                      --------     -------     -------      -------      -------
Income (loss) before federal income tax
     provision (benefit)                                 1,296         465          27         (288)        (664)
Income tax provision (benefit)                             346        (145)        ---          ---          ---
                                                      --------     -------     -------      -------      -------
Net income (loss)                                         $950        $610         $27        ($288)       ($664)
                                                      ========     =======     =======      =======      =======

FINANCIAL CONDITION
Total assets                                          $126,755     $86,653     $56,599      $35,130      $20,879
Investment securities, available for sale              $50,211     $29,780     $10,493      $10,035       $7,088
Loans                                                   66,023      52,139      36,263       19,945        9,907
Deposits                                                97,610      75,397      47,463       28,922       14,389
Other borrowings                                           517       2,037         554          569          584
Stockholders' equity                                    27,731       8,752       8,190        5,458        5,626

PER SHARE INFORMATION (2)
Net income per common share - basic and diluted          $0.45       $0.57       $0.04       ($0.38)      ($0.88)
Book value per common share                             $11.21       $8.21       $7.68        $7.22        $7.44
Average shares outstanding  - basic                  2,099,239   1,065,767     756,982      756,134      756,134
Average shares outstanding - diluted                 2,112,866   1,076,922     756,982      756,134      756,134
Shares outstanding at end of period                  2,473,295   1,065,767   1,065,767      756,134      756,134

OTHER DATA
Return on average assets                                  0.81%       0.86%       0.06%       (1.01%)      (5.12%)
Return on average equity                                  4.15%       7.23%       0.50%       (5.20%)     (11.62%)
Net interest margin                                       3.41%       3.60%       3.98%        3.92%        3.55%
Net interest spread                                       2.03%       2.54%       2.92%        2.65%        1.46%
Allowance for possible credit losses to total
    loans                                                 0.95%       1.01%       1.01%        1.02%        1.00%
Nonperforming assets to total assets                      0.33%       0.04%       0.01%        0.21%         ---%
Stockholders' equity to total assets                     21.88%      10.10%      14.47%       15.54%       26.95%
Total interest expense to gross interest income          53.87%      55.48%      51.48%       49.63%       39.47%
Number of Offices                                            3           3           2            2            1
<FN>
(1) Bank operations began on February 28, 1994.

(2) All per share amounts presented have been adjusted to reflect the
    issuance of stock dividends. 
</TABLE>

                                      5


<PAGE>


                      CHAIRMAN'S AND PRESIDENT'S LETTER

To Our Stockholders:

         We have made great strides during the five years that Community Bank
of Dearborn has been open for business. From the time the Bank opened for
business the morning of February 28, 1994, we have grown to $126,755,000 in
total assets, $97,610,000 in total deposits, $66,023,000 in total loans and
$27,731,000 in stockholder's equity. We have expanded from one office to
three and plan to open a fourth in Canton Township in 1999. By every measure,
we have exceeded the projections we made when we organized the company and
applied for a bank charter. Our directors and senior officers are proud of
the progress we have made and pleased to report on our performance in 1998.

         Net income for the year was $950,000 or $0.45 per common share. In
1997, we reported earnings of $610,000 or $0.57 per common share. This is a
56% increase in net income. Per share income decreased due to our highly
successful public offering of 1,380,000 new common shares at a price of $14
per share in April 1998. During 1998, our total assets grew by 46.3%, total
deposits went up by 29.5% and total loans grew by 26.7%.

         Undoubtedly, the most significant event during the year was the
public offering. We now have almost $28 million in our capital accounts.
Today, we have enough capital along with earnings, to support more than $350
million in total assets while qualifying as a well capitalized institution.
Each additional $1 million that we retain in earnings will support another
$12.5 million in total assets.

         Looking ahead to the Company's next five years, the most important
challenge we face is growing assets to employ our capital advantageously
while still not growing so fast that we risk regulatory criticism. If we can
increase total assets at an annually compounded rate of 20%, we should reach
total assets of about $250 million in approximately three and one half years
and approach $500 million in six or seven years. During that time, we hope to
have opportunities to make bank acquisitions, single branch acquisitions and
to expand our mortgage banking activities.

         Alex Sheshunoff, the renowned banking consultant and analyst, has
said that high performance community banking organizations such as Dearborn
Bancorp should maintain an average return on average equity of at least 14%.
We see no reason why we cannot realistically project that we will achieve
that return on a sustainable basis before another five years has passed.

         From the very beginning, our directors have indicated their
intention to ensure that our shareholders receive tangible evidence of
whatever progress our organization has made. Reflecting that philosophy, we
distributed a 10% stock dividend in January, 1998. Then, the board declared
another 2% stock dividend to be distributed in January, 1999. Realistically,
we are some years away from paying cash dividends but the distribution of
stock dividends is, in our opinion, an important step in the right direction.

         There are two primary reasons why we continue to do so well. The
first is our successful marketing program. Its three principal components are
an aggressive officer call program, the use of sophisticated direct mail and
telemarketing and our enormously successful Community Club for those over age
50.

         The second is the change that is taking place in the competitive
environment. Our marketing efforts are made more productive when giant
megabanks that dominate the markets where we do business sometimes fail to
meet the expectations of their customers. Often, the customers of these banks
grow dissatisfied when those institutions use technology and automation as a
means of reducing expenses. As they reduce staff levels, it becomes
increasingly difficult to find an officer who has the authority to make
important decisions and provide definitive answers.

         A local institution such as Community Bank of Dearborn is a welcome
alternative to a megabank for some of these people. Our president's office is
readily accessible on the first floor of our Main Office. Our people have the
authority necessary to be responsive to customer requests they are likely to
receive.


                                      6


<PAGE>
         Our directors meet in Dearborn. They live and work nearby. As they
go about their daily business, they have frequent contact with many of our
customers. They can see the results of the decisions they make as they travel
through the community. We believe that the positive opinions of banking
professionals and investors about Community Bank of Dearborn are reflected in
the number of similar institutions that have opened for business during the
past five years.

         And so we look forward to the beginning of a new millenium with
confidence and optimism. Much of the credit for the success we have achieved
is due to our shareholders. The directors and senior officers join us in
thanking you for your contributions to the success we have made.



                                  Sincerely,



                                John E. Demmer
                            Chairman of the Board



                               Michael J. Ross
                                  President


                                      7




<PAGE>




              Report of Independent Certified Public Accountants




Board of Directors
Dearborn Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of Dearborn
Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income (loss),
stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Dearborn Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997,
and the consolidated results of their operations and their consolidated cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.




/s/  Grant Thornton LLP

Detroit, Michigan
February 17, 1999



                                      8




<PAGE>

<TABLE>
<CAPTION>

                    DEARBORN BANCORP, INC. AND SUBSIDIARY

                         CONSOLIDATED BALANCE SHEETS

(In thousands)                                                 December 31,
                                                          ----------------------
                                                             1998         1997
                                                          ---------    ---------
<S>                                                       <C>          <C>      
ASSETS
Cash and cash equivalents
          Cash and due from banks                         $   2,259    $   1,406
          Federal funds sold                                  3,995          254
                                                          ---------    ---------
                    Total cash and cash equivalents           6,254        1,660

Mortgage loans held for sale                                  1,211          347
Investment securities, available for sale                    50,211       29,780
Loans
          Loans                                              66,023       52,139
          Allowance for possible credit losses                 (627)        (522)
                                                          ---------    ---------
                    Net loans                                65,396       51,617

Bank premises and equipment, net                              2,378        2,296
Accrued interest receivable                                     933          723
Other assets                                                    372          230
                                                          ---------    ---------
                    Total assets                          $ 126,755    $  86,653
                                                          =========    =========
LIABILITIES
Deposits
          Non-interest bearing deposits                   $  11,142    $   8,587
          Interest bearing deposits                          86,468       66,810
                                                          ---------    ---------
                    Total deposits                           97,610       75,397

Other liabilities
          Federal funds purchased                                --        1,500
          Mortgage payable                                      517          537
          Accrued interest payable                              338          310
          Other liabilities                                     559          157
                                                          ---------    ---------
                    Total liabilities                        99,024       77,901
                                                          ---------    ---------

Contingencies                                                    --           --

STOCKHOLDERS' EQUITY
          Common stock - 5,000,000 shares authorized,
                   2,473,295 and 1,065,767 
                   shares outstanding
                   In 1998 and 1997, respectively            29,015       10,506
          Accumulated deficit                                (1,270)      (1,689)
          Accumulated comprehensive loss                        (14)         (65)
                                                          ---------    ---------
                    Total stockholders' equity               27,731        8,752
                                                          ---------    ---------
                    Total liabilities and stockholders'
                             equity                       $ 126,755    $  86,653
                                                          =========    =========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</TABLE>


                                      9



<PAGE>

<TABLE>
<CAPTION>

                    DEARBORN BANCORP, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)                                  Years Ended December 31,
                                                           ---------------------------------------
                                                             1998          1997           1996
                                                          -----------   -----------    -----------
<S>                                                       <C>           <C>            <C>        
Interest income
          Interest on loans                               $     5,259   $     3,981    $     2,466
          Interest on investment securities, available
               for sale                                         2,504         1,235            733
          Interest on federal funds and deposits with 
               banks                                              527           188            115
                                                          -----------   -----------    -----------
                    Total interest income                       8,290         5,404          3,314

Interest expense
          Interest on deposits                                  4,425         2,955          1,662
          Interest on other liabilities                            41            43             44
                                                          -----------   -----------    -----------
                    Total interest expense                      4,466         2,998          1,706

                    Net interest income                         3,824         2,406          1,608
Provision for possible credit losses                              120           164            164
                                                          -----------   -----------    -----------
Net interest income after provision for possible credit
     losses                                                     3,704         2,242          1,444
                                                          -----------   -----------    -----------
Non-interest income
           Service charges on deposit accounts                    141           124             92
           Fees for other services to customers                    23            26             19
           Gain on the sale of loans                              286           144            130
           Gain on the sale of investment securities               71            13             37
           Other income                                            12             5              6
                                                          -----------   -----------    -----------
                    Total non-interest income                     533           312            284

Non-interest expenses
           Salaries and employee benefits                       1,700         1,218          1,060
           Occupancy and equipment expense                        411           267            198
           Advertising and marketing                               85           105             93
           Stationery and supplies                                120            80             56
           Professional services                                  159            99             63
           Data processing                                        123            90             71
           FDIC insurance premiums                                 10             7              2
           Other operating expenses                               333           223            158
                                                          -----------   -----------    -----------
                    Total non-interest expenses                 2,941         2,089          1,701
                                                          -----------   -----------    -----------

Income before federal income tax provision (benefit)            1,296           465             27
Income tax provision (benefit)                                    346          (145)            --
                                                          -----------   -----------    -----------

Net income                                                $       950   $       610    $        27
                                                          ===========   ===========    ===========

Per share data:
Net income - basic and diluted                            $      0.45   $      0.57    $      0.04

Weighted average number of shares outstanding - basic       2,099,239     1,065,767        756,982
Weighted average number of shares outstanding - diluted     2,112,866     1,076,922        756,982
<FN>
The accompanying notes are an integral part of these consolidated statements.
</TABLE>



                                      10




<PAGE>

<TABLE>
<CAPTION>

                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)                                                       Years Ended December 31,
                                                                    -------------------------
                                                                     1998     1997      1996
                                                                    ------   ------    ------
<S>                                                                 <C>      <C>       <C>   
Net income                                                          $  950   $  610    $   27
Other comprehensive income, net of tax
     Unrealized gains (losses) on securities
          Unrealized holding gains (losses) arising during period       98      (34)      (10)
          Less:  reclassification adjustment for gains included
               in net income                                            47       13        37
                                                                    ------   ------    ------
Other comprehensive income (loss)                                       51      (47)      (47)
                                                                    ------   ------    ------

Comprehensive income (loss)                                         $1,001   $  563    ($  20)
                                                                    ======   ======    ======

<FN>
The accompanying notes are an integral part of these consolidated statements.
</TABLE>


                                     11



<PAGE>

<TABLE>
<CAPTION>
                    DEARBORN BANCORP, INC. AND SUBSIDIARY

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                               Common
                                                                Stock
                                                              Subscribed                    Accumulated       Total
                                                  Common          but        Accumulated   Comprehensive  Stockholder's
(In thousands, except shares)                      Stock       Unissued        Deficit     Income (Loss)      Equity
                                                -----------  ------------  --------------  -------------  -------------
<S>                                             <C>             <C>          <C>            <C>            <C>        
Balance, January 1, 1996                        $     6,521     $      --    ($    1,092)   $        29    $     5,458

          309,634 shares of common stock
                    subscribed (net of
                    offering costs of $8),
                    but unissued                         --         2,752             --             --          2,752

          Net income                                     --            --             27             --             27

          Other comprehensive loss                       --            --             --            (47)           (47)
                                                -----------   -----------    -----------    -----------    -----------

Balance, December 31, 1996                            6,521         2,752         (1,065)           (18)         8,190

          309,634 shares of subscribed common
                   stock issued (net of
                   additional
                   offering costs of $1)              2,751        (2,752)            --             --             (1)

         10% stock dividend declared
                   December 16, 1997, 
                   payable January 30, 1998           1,234            --         (1,234)            --             --

          Net income                                     --            --            610             --            610

          Other comprehensive loss                       --            --             --            (47)           (47)
                                                -----------   -----------    -----------    -----------    -----------

Balance, December 31, 1997                           10,506            --         (1,689)           (65)         8,752

          Initial public offering of
                   1,407,527 shares
                   of common stock (net of
                   offering costs of $1,342)         17,978            --             --             --         17,978

          2% stock dividend declared
                    December 15, 1998, 
                    payable January 15, 1999            531            --           (531)            --             --

          Net income                                     --            --            950             --            950

          Other comprehensive income                     --            --             --             51             51
                                                -----------   -----------    -----------    -----------    -----------
Balance, December 31, 1998                      $    29,015   $        --    ($    1,270)   ($       14)   $    27,731
                                                ===========   ===========    ===========    ===========    ===========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</TABLE>

                                      12




<PAGE>


<TABLE>
<CAPTION>
                    DEARBORN BANCORP, INC. AND SUBSIDIARY

                    CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)                                                    Years Ended December 31,
                                                           ------------------------------------
                                                               1998         1997         1996
                                                            ---------    ---------    ---------
<S>                                                         <C>          <C>          <C>      
Cash flows from operating activities
          Interest and fees received                        $   8,256    $   5,142    $   3,415
          Interest paid                                        (4,438)      (2,815)      (1,671)
          Proceeds from sale of mortgages held for sale        21,279       11,209        7,648
          Origination of mortgages held for sale              (21,857)     (11,109)      (7,413)
          Cash paid to suppliers and employees                 (2,782)      (2,032)      (1,330)
                                                            ---------    ---------    ---------
          Net cash provided by operating activities               458          395          649

Cash flows from investing activities
          Proceeds from the sale of securities available
              for sale                                         36,572        2,613        8,735
          Proceeds from maturities of securities
              available for sale                               52,808       19,500        9,250
          Purchases of securities available for sale         (109,690)     (41,438)     (18,514)
          Increase in loans, net of payments received         (13,899)     (15,884)     (16,320)
          Purchases of property and equipment                    (326)        (369)        (194)
                                                            ---------    ---------    ---------
          Net cash used in investing activities               (34,535)     (35,578)     (17,043)

Cash flows from financing activities
          Net increase in non-interest bearing deposits         2,555        1,004        3,510
          Net increase in interest bearing deposits            19,658       26,930       15,031
          (Decrease) increase in federal funds purchased       (1,500)       1,500           --
          Principal payments on mortgage payable                  (20)         (17)         (15)
          Initial public offering of common stock              17,978           --           --
          Common stock subscriptions received                      --           --        2,752
                                                            ---------    ---------    ---------
          Net cash provided by financing activities            38,671       29,417       21,278

Increase (decrease) in cash and cash equivalents                4,594       (5,766)       4,884
Cash and cash equivalents at the beginning of the period        1,660        7,426        2,542
                                                            ---------    ---------    ---------

Cash and cash equivalents at the end of the period          $   6,254    $   1,660    $   7,426
                                                            =========    =========    =========

Reconciliation of net income to net cash provided by
          operating activities
Net income                                                  $     950    $     610    $      27
          Adjustments to reconcile net income to net cash
                    provided by operating activities
                    Provision for possible credit losses          120          164          164
                    Depreciation and amortization expense         244          158          133
                    Accretion of discount on investment     
                          securities                              (22)          (6)         (11)
                    Amortization of premium on investment   
                          securities                               23           10           72
                    Gain on the sale of investment                (71)         (13)         (37)
                          securities
                    (Increase) decrease in mortgages held   
                          for sale                               (864)         (44)         105
                    Increase in interest receivable              (210)        (417)         (16)
                    Increase in interest payable                   28          183           35
                    (Increase) decrease in other assets          (142)        (142)           1
                    Increase (decrease) in other  
                          liabilities                             402         (108)         176
                                                            ---------    ---------    ---------
Net cash provided by operating activities                   $     458    $     395    $     649
                                                            =========    =========    =========
<FN>
The accompanying notes are an integral part of these consolidated statements.
</TABLE>



                                      13



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                       December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A summary of the significant accounting policies consistently
         applied in the preparation of the accompanying consolidated
         financial statements follows.

         Basis of Presentation and Operations

         Dearborn Bancorp, Inc. (the Corporation) was incorporated in
         Michigan during 1992. The Corporation's subsidiary, Community Bank
         of Dearborn (the Bank), began operations on February 28, 1994. The
         Bank operates three community banking offices in Dearborn, Dearborn
         Heights and Plymouth, Michigan, offering a full range of banking
         services to individuals and businesses.

         Principles of Consolidation

         The consolidated financial statements include the accounts of
         Dearborn Bancorp, Inc. and its wholly-owned subsidiary, Community
         Bank of Dearborn. All significant intercompany transactions are
         eliminated in consolidation.

         Cash Equivalents

         For purposes of the consolidated statements of cash flows, the
         Corporation considers cash on hand, cash due from banks, and federal
         funds sold to be cash equivalents.

         Mortgages Held for Sale

         Mortgages held for sale are carried at the lower of cost or market.
         Market value is determined on the basis of existing forward delivery
         contracts.

         Investment Securities 

         When securities are purchased and the Corporation intends to hold
         the securities for an indefinite period of time but not necessarily
         to maturity, they are classified as available for sale and carried
         at market value. Any decision to sell a security available for sale
         would be based on various factors, including significant movements
         in interest rates, changes in the maturity mix of the Corporation's
         assets and liabilities, liquidity demands, regulatory capital
         considerations, and other similar factors. Cost is adjusted for
         amortization of premiums and accretion of discounts to maturity.
         Unrealized gains and losses for available for sale securities are
         excluded from income and recorded as an amount, net of tax, as a
         separate component of comprehensive income. All of the Corporation's
         securities are classified as available for sale.

         Interest Income on Loans

         Interest on loans is accrued and credited to income based upon the
         principal amount outstanding. The accrual of interest on loans is
         discontinued when, in the opinion of management, there is an
         indication that the borrower may be unable to meet payments as they
         become due. Upon such discontinuance, all unpaid interest accrued is
         reversed. Interest accruals are generally resumed when all
         delinquent principal and interest has been brought current or the
         loan becomes both well secured and in the process of collection.


                                      14




<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

         Allowance for Possible Credit Losses

         The allowance is maintained at a level considered by management to
         be adequate to provide for reasonably foreseeable loan losses based
         on an evaluation of the loan portfolio, loan loss experience and the
         economic environment.

         Loan Impairment

         A loan is identified as impaired when it is probable in the opinion
         of management that interest and principal may not be collected
         according to the contractual terms of the loan agreement.

         Bank Premises and Equipment

         Bank premises and equipment are stated at cost less accumulated
         depreciation. Depreciation is computed using the straight-line
         method over the estimated useful lives of the assets as follows:

                  Building and improvements - 5 to 30 years 
                  Furniture and equipment - 5 to 10 years

         Income Taxes

         The Corporation files a consolidated federal income tax return. The
         Corporation uses the asset and liability method of accounting for
         income taxes. Deferred tax assets and liabilities are recorded based
         on the difference between the tax bases of assets and liabilities
         and their carrying amounts for financial reporting purposes. Tax
         planning strategies are utilized in the computation of deferred
         federal income taxes. In addition, the current or deferred tax
         consequences of a transaction is measured by applying the provisions
         of enacted tax laws to determine the amount of taxes receivable or
         payable, currently or in future years.

         Stock Options

         The Financial Accounting Standards Board (the "FASB") issued
         Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS
         No. 123") effective for transactions entered into during 1996 and
         thereafter. The statement establishes a fair market value method of
         accounting for employee stock options and similar equity instruments
         such as warrants, and encourages all companies to adopt that method
         of accounting for all their employee stock option plans. However,
         the statement allows companies to continue measuring compensation
         cost for such plans using accounting guidance in place prior to SFAS
         No. 123. Companies that elect to remain with the former method of
         accounting must make pro forma disclosures of net income and income
         per share as if the fair value method provided for in SFAS No. 123
         had been adopted. The Corporation has not adopted the fair value
         provisions of SFAS No. 123 but has disclosed the pro forma effects
         in accordance with the previous pronouncement.



                                      15




<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

         Stock Dividends

         The Corporation accounts for stock dividends by capitalizing
         retained earnings in an amount equal to the fair value of the
         additional shares issued. All share and per share amounts are
         retroactively adjusted for stock dividends.

         The Corporation declared a 2% stock dividend payable January 15,
         1999, to shareholders of record as of December 24, 1998.
         Accordingly, per share amounts for 1998, 1997 and 1996 have been
         adjusted to reflect the dividend.

         Income Per Share

         Basic income per share excludes dilution and is computed by dividing
         income available to common shareholders by the weighted average
         common shares outstanding for the period. Diluted income per share
         reflects the potential dilution that could occur if securities or
         other contracts to issue common stock were exercised and converted
         into common stock or resulted in the issuance of common stock that
         then shared in the income of the entity.

         Comprehensive Income

         The FASB has issued SFAS No. 130, "Comprehensive Income." The
         statement requires that entities present items of other
         comprehensive income in a financial statement with the same
         prominence as other financial statements. The Corporation adopted
         SFAS No. 130 in 1998.

         Use of Estimates

         In the preparation of financial statements, management is required
         to make estimates and assumptions that affect reported amounts of
         assets and liabilities and the disclosure of contingent assets and
         liabilities at the date of the financial statements and revenues and
         expenses during the reporting period. Actual results could differ
         from those estimates. Estimates that are more susceptible to change
         in the near term include the allowance for possible credit losses
         and fair value of certain financial instruments.



                                      16




<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE B - INVESTMENT SECURITIES - AVAILABLE FOR SALE

         The amortized cost and estimated market value of investment
         securities - available for sale are as follows (in thousands):

<TABLE>
<CAPTION>
                                                           December 31, 1998
                                 ------------------------------------------------------------------
                                                       Gross            Gross            Estimated
                                   Amortized        Unrealized       Unrealized            Market
                                     Cost              Gains           Losses              Value
                                   ---------        ----------       ----------          ----------
<S>                                 <C>             <C>               <C>                 <C>    
US Treasury securities              $ 2,013               --          ($    1)            $ 2,012
US Government agency securities      31,682               --              (20)             31,662
Corporate debt securities            16,537               --               --              16,537
                                    -------          -------          -------             -------
          Totals                    $50,232          $     0          ($   21)            $50,211
                                    =======          =======          =======             =======
<CAPTION>
                                                          December 31, 1997
                                 ------------------------------------------------------------------
                                                       Gross            Gross            Estimated
                                   Amortized        Unrealized       Unrealized            Market
                                     Cost              Gains           Losses              Value
                                   ---------        ----------       ----------          ----------
<S>                                <C>              <C>                <C>                <C>    
US Treasury securities             $ 2,001          $     2            $    --            $ 2,003
US Government agency securities     27,844               --                (67)            27,777
                                   -------          -------            -------            -------
          Totals                   $29,845          $     2            ($   67)           $29,780
                                   =======          =======            =======            =======
</TABLE>

The amortized cost and estimated market value of investment
securities - available for sale at December 31, 1998 by contractual
maturity, are shown below (in thousands):


                                                                Estimated
                                               Amortized          Market
                                                  Cost            Value
                                               ---------        ----------
Due through one year                            $ 2,013          $ 2,012
Due in one year through five years               31,682           31,662
Due in five years through thirty years           16,537           16,537
                                                -------          -------
          Totals                                $50,232          $50,211
                                                =======          =======


                                      17



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE B - INVESTMENT SECURITIES - AVAILABLE FOR SALE  (Continued)

         Securities having an amortized cost of $2,013,216 and a market value
         of $2,011,875 were pledged to secure public deposits. Securities
         having an amortized cost of $2,003,976 and a market value of
         $2,000,625 were pledged to secure treasury, tax and loan payments
         with the Federal Reserve Bank of Chicago.


NOTE C - LOANS

         Major categories of loans included in the portfolio at December 31
         are as follows (in thousands):


                                         1998        1997
                                       --------    --------

Consumer loans                         $ 12,434    $ 12,705
Commercial, financial, & other           14,843      10,668
Commercial real estate construction       2,619       1,746
Commercial real estate mortgages         12,478       9,796
Residential real estate mortgages        23,649      17,224
                                       --------    --------

                                         66,023      52,139
Allowance for possible credit losses       (627)       (522)
                                       --------    --------

                                       $ 65,396    $ 51,617
                                       ========    ========


                                     18



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996

NOTE C - LOANS (Continued)

Final loan maturities and rate sensitivity of the loan portfolio at December
31, 1998 are as follows (in thousands):


<TABLE>
<CAPTION>
                                       Within     Three to    One to      After
                                       Three       Twelve      Five       Five
                                       Months      Months      Years      Years        Total
                                      -------     -------     -------     ------       -----
<S>                                   <C>         <C>         <C>         <C>         <C>    
Consumer loans                        $ 2,327     $ 1,024     $ 8,927     $    85     $12,363
Commercial, financial & other           7,009         628       7,174          --      14,811
Commercial real estate
construction                              669       1,632         318          --       2,619
Commercial real estate mortgages          661       1,403      10,260         154      12,478
Residential real estate mortgages       1,023       5,352      10,722       6,245      23,342
                                      -------     -------     -------     -------     -------
                                      $11,689     $10,039     $37,401     $ 6,484      65,613
                                      =======     =======     =======     =======    
Non-accrual loans                                                                         410
                                                                                      -------
          Total loans                                                                 $66,023
                                                                                      =======
Loans at fixed interest rates         $   837     $ 1,569     $27,142       4,724     $34,272
Loans at variable interest rates       10,852       8,470      10,259       1,760      31,341
                                      -------     -------     -------     -------     -------
                                      $11,689     $10,039     $37,401     $ 6,484      65,613
                                      =======     =======     =======     =======
Non-accrual loans                                                                         410
                                                                                      -------
          Total loans                                                                 $66,023
                                                                                      =======
</TABLE>

         Certain directors of the Corporation, including their associates,
         were loan customers of the Bank during 1998. Such loans were made in
         the ordinary course of business at the Bank's normal credit terms
         and interest rates, and do not represent more than a normal risk of
         collection. Total loans to these persons at December 31, 1998
         amounted to $2,716,000. During 1998, $1,671,000 of new loans were
         made and repayments totaled $944,000. These loans aggregated to 10%
         of consolidated stockholder's equity as of December 31, 1998.



                                      19



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE C - LOANS  (Continued)

         Transactions in the allowance for possible credit losses for the
         years ended December 31 are as follows (in thousands):


                                     1998        1997        1996
                                     ----        ----        ----
Balance, beginning of year           $ 522       $ 366       $ 204
Charge-offs:
     Consumer loans                    (15)         (8)         (4)

Recoveries:
     Consumer loans                     --          --           2
                                     -----       -----       -----

Net charge-offs                        (15)         (8)         (2)

Additions charged to operations        120         164         164
                                     -----       -----       -----

Balance at end of period             $ 627       $ 522       $ 366
                                     =====       =====       =====

Allowance to total loans              0.95%       1.01%       1.01%
                                     =====       =====       =====

Net charge-offs to average loans      0.03%       0.02%       0.01%
                                     =====       =====       =====





                                      20



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE C - LOANS  (Continued)

         The allocation of the allowance for possible credit losses as of
         December 31, are as follows (in thousands):

<TABLE>
<CAPTION>
                                               1998                   1997                    1996
                                     ----------------------- ----------------------- ----------------------
                                                Percent of              Percent of              Percent of
                                                 loans in                loans in                loans in
                                                   each                    each                    each
                                               category to             category to             category to
                                      Amount   total loans    Amount   total loans    Amount   total loans
                                      ------   -----------    ------   -----------    ------   ------------
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>    
Consumer loans                        $   20       18.83%     $   15       24.37%     $    8       24.48%
Commercial, financial & other            266       22.48%          7       20.46%          5       19.85%
Commercial real estate
construction                               2        3.39%          1        3.35%          1        5.44%
Commercial real estate mortgages           9       18.90%          7       18.79%          4       17.60%
Residential real estate mortgages        101       36.40%         12       33.03%          8       32.63%
Unallocated                              229         N/A         480         N/A         340         N/A
                                      ------      ------      ------      ------      ------      ------ 
                                      $  627      100.00%     $  522      100.00%     $  366      100.00%
                                      ======      ======      ======      ======      ======      ======
</TABLE>

         The aggregate balances on nonperforming loans and the reduction of
         interest income associated with these loans at December 31, are as
         follows (in thousands):

                                                  1998      1997      1996
                                                  ----      ----      ----

Over 90 days past due and still accruing          $  2      $ 25      $---
Non-accrual loans                                  410        11         8
                                                  ----      ----      ----

Total nonperforming assets                        $412      $ 36      $  8
                                                  ====      ====      ====

As a percentage of total loans                    0.62%     0.07%     0.02%
                                                  ====      ====      ====

Income in accordance with original loan terms     $ 20      $  2      $  1
Income recognized                                   --        --        --
                                                  ----      ----      ----

Reduction in interest income                      $ 20      $  2      $  1
                                                  ====      ====      ====


                                      21



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE D - BANK PREMISES AND EQUIPMENT

         Bank premises and equipment are comprised of the following at
         December 31 (in thousands):

                                   1998       1997
                                  ------     ------

Land and improvements             $  394     $  394
Building and improvements          1,595      1,579
Furniture and equipment            1,052        742
                                  ------     ------
                                   3,041      2,715

Less accumulated depreciation        663        419
                                  ------     ------

                                  $2,378     $2,296
                                  ======     ======



NOTE E - DEPOSITS

         The following is a summary of the distribution and weighted average
         interest rate of deposits at December 31 (in thousands):


<TABLE>
<CAPTION>
                                                 1998                          1997
                                       -------------------------     ------------------------
                                                       Weighted                      Weighted
                                                       Average                       Average
                                       Amount            Rate        Amount            Rate
                                       ------          ---------     ------          --------
<S>                                   <C>                <C>         <C>               <C>
Non-interest bearing:
      Demand                          $11,142             --         $ 8,587            --
                                      =======                        =======



Interest bearing:
     Checking                         $ 3,630            2.96%       $ 1,274           2.92%
     Money market                      11,215            3.39%         6,787           3.98%
     Savings                            2,079            2.50%         1,529           2.50%
     Time, under $100,000              42,790            5.51%        36,114           6.01%
     Time, $100,000 and over
        Non-volatile priced            13,493            5.54%        12,055           6.00%
        Volatile priced                13,261            5.36%         9,051           5.84%
                                      -------                        -------
                                      $86,468                        $66,810
                                      =======                        =======
</TABLE>



                                      22



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996

NOTE E - DEPOSITS  (Continued)

         Final maturities of time deposits of $100,000 and greater at
         December 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                          Non-volatile       Volatile
                                             priced           Priced             Total
                                          ------------       ---------           -----
<S>                                           <C>              <C>              <C>    
Due in three months or less                   $ 4,138          $ 5,911          $10,049
Due in three months through one year            4,594            7,203           11,797
Due in one year through five years              4,761              147            4,908
                                              -------          -------          -------

          Totals                              $13,493          $13,261          $26,754
                                              =======          =======          =======
</TABLE>

         Time deposits of $100,000 and greater that are non-volatile priced
         are time deposits that are priced using retail rates and would be
         considered by the Bank as core deposits except for the fact that
         they are issued in denominations of $100,000 or more. Volatile
         priced time deposits of $100,000 and greater are time deposits that
         are priced using wholesale rates and are typically referred to as
         jumbo time deposits.


NOTE F - MORTGAGE PAYABLE

         The mortgage payable with a bank matures September 1, 2012 and
         requires monthly installments of $4,925 including interest at 6.82%
         per annum. Effective September, 2003 the interest rate will be
         computed annually at 2.5% plus the five year treasury rate. The note
         is collateralized by a first real estate mortgage on a building and
         land.

         Aggregate principal payments for the five years following December
         31, 1998 and thereafter are as follows (in thousands):

1999                 $25 
                         
2000                  26 
                         
2001                  28 
                         
2002                  30 
                         
2003                  31 
                         
Thereafter           377 
                    ---- 
                         
                    $517 
                    ==== 



                                      23



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE G - FEDERAL FUNDS PURCHASED

         The Bank has entered into federal funds credit lines with other
         banks in the amount of $4,500,000 to provide additional flexibility
         in the daily management of liquidity. The outstanding balance of the
         federal funds credit line at December 31, 1997 was $1,500,000 and
         was repaid on January 5, 1998.


NOTE H - INCOME TAXES

         The federal tax provision consists of the following (in thousands):

             1998      1997     1996
            -----     -----     ----

Current     $ 119     $ --      $ --
Deferred      227      (145)      --
            -----     -----     ---- 
            $ 346     ($145)    $ --
            =====     =====     ====



         The reconciliation of the effective income tax rate to the federal
         statutory tax rate is as follows:

                                  1998     1997     1996
                                   ---      ---      ---

Federal income tax rate             34%      34%     (34%)
Effect of net operating loss
     carryforward and valuation
     Allowance                      (5)     (63)     (26)
Effect of graduated tax rates       --       --      (18)
Other                               (2)      (2)      10
                                   ---      ---      ---
     Effective tax rate             27%     (31%)     --%
                                   ===      ===      ===




                                      24



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE H - INCOME TAXES  (Continued)

         The details of the net deferred tax asset (liability) are as follows
         at December 31, (in thousands):

                                               1998      1997
                                              -----     -----

Deferred tax assets
          Provision for possible credit  
                    losses                    $ 200     $ 163
          Unrealized losses on securities
                    available for sale            8        23
          Net operating loss carryforwards       --       282
          Other                                  --         4
                                              -----     -----

                    Total deferred tax
                          assets                208       472

Deferred tax liabilities
          Accretion of discounts on
                    securities available
                    for sale                     --        (4)
          Deferred loan fees                    (91)      (72)
          Premises and equipment                (57)      (72)
          Accrual to cash conversion           (140)     (115)
          Unrealized gain on securities
                    available for sale           (2)       (1)
                                              -----     -----

                    Total deferred tax  
                             liabilities       (290)     (264)
                                              -----     -----

Net deferred tax asset (liability) before
          valuation allowance                   (82)      208

Valuation allowance                              --       (63)
                                              -----     -----

Net deferred tax asset (liability)            ($ 82)    $ 145
                                              =====     =====


         The tax benefit of the unrealized losses on securities available for
         sale, net of the valuation allowance, was charged directly to its
         related component of stockholders' equity.

         At December 31, 1998 the Corporation had utilized all net operating
         loss carryforwards.



                                      25




<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE I - FINANCIAL INSTRUMENTS

         Fair Value of Financial Instruments

         The estimated fair value of the Corporation's financial instruments
         at December 31, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                      1998                           1997
                                            ------------------------       ------------------------
                                                           Estimated                      Estimated
                                            Carrying         Fair          Carrying         Fair
                                             Amount          Value          Amount          Value
                                            --------       ---------       --------       ---------
<S>                                         <C>             <C>             <C>             <C>    
Assets:
          Cash and cash equivalents         $ 6,254         $ 6,254         $ 1,660         $ 1,660
          Loans held for sale                 1,211           1,229             347             349
          Securities                         50,211          50,211          29,780          29,780
          Loans                              65,396          65,221          51,617          51,020

Liabilities:
          Deposits                           97,610          97,424          75,397          75,507
          Federal funds purchased                --              --           1,500           1,500
          Mortgage Payable                      517             517             537             537
</TABLE>

         The following methods and assumptions were used by the Corporation
         in estimating its fair value disclosure for financial instruments:

         Cash and cash equivalents: The carrying amounts reported in the
         balance sheet for cash and short-term instruments approximate those
         assets' fair values.

         Loans held for sale: The market value of these loans represents
         estimated fair value. The market value is determined in the
         aggregate on the basis of existing forward delivery commitments.



                                      26





<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996

NOTE I - FINANCIAL INSTRUMENTS  (Continued)

         Fair Value of Financial Instruments  (Continued)

         Investment securities: Fair values for investment securities are
         based on quoted market prices, where available. If quoted market
         prices are not available, fair values are based on quoted market
         prices of comparable instruments.

         Loans: For variable rate loans that reprice frequently and with no
         significant change in credit risk, fair values are based on carrying
         values. The fair values for other loans are estimated using
         discounted cash flow analysis, using interest rates currently being
         offered for loans with similar terms to borrowers of similar credit
         quality. The carrying amount of accrued interest receivable
         approximates its fair value.

         Off-balance-sheet instruments: The Corporation's off-balance-sheet
         instruments approximate their fair values.

         Deposit liabilities: The fair values disclosed for demand deposits
         are, by definition, equal to the amount payable on demand at the
         reporting date. Fair values for fixed rate certificates of deposit
         are estimated using a discounted cash flow calculation that applies
         interest rates currently being offered on similar certificates. The
         carrying amount of accrued interest payable approximates its fair
         value.

         Mortgage payable: The fair value of the Corporation's mortgage
         payable is estimated using discounted cash flow analysis, based on
         the Corporation's current incremental borrowing rate for similar
         types of borrowing arrangements.

         Limitations: Fair value estimates are made at a specific point in
         time, based on relevant market information and information about the
         financial instrument. These estimates do not reflect any premium or
         discount that could result from offering for sale, at one time, the
         Corporation's entire holdings of a particular financial instrument.
         Because no market exists for a significant portion of the
         Corporation's financial instruments, fair value estimates are based
         on management's judgments regarding future expected loss experience,
         current economic conditions, risk characteristics and other factors.
         These estimates are subjective in nature and involve uncertainties
         and matters of significant judgment and therefore cannot be
         determined with precision. Changes in assumptions could
         significantly affect the estimates.

         Off-Balance-Sheet Risk

         The Corporation is party to financial instruments with
         off-balance-sheet risk in the normal course of business to meet the
         financing needs of its customers and to reduce its own exposure to
         fluctuations in interest rates. These financial instruments include
         commitments to extend credit and financial guarantees. These
         instruments involve, to varying degrees, elements of credit and
         interest rate risk that are not recognized in the consolidated
         statements of operations.

         Exposure to credit loss in the event of nonperformance by the other
         party to the financial instrument for commitments to extend credit
         and financial guarantees written is represented by the contractual
         notational amount of those items. The Corporation generally requires
         collateral to support such financial instruments in excess of the
         contractual notational amount of those instruments and, therefore,
         is in a fully collateralized position.


                                      27



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996



NOTE I - FINANCIAL INSTRUMENTS  (Continued)

         Off-Balance-Sheet Risk  (Continued)

         The Corporation has outstanding loan commitments aggregating
         $9,367,000 and outstanding financial standby letters of credit
         aggregating $498,000 at December 31, 1998.

         Commitments to extend credit are agreements to lend to a customer as
         long as there are no violations of any condition established in the
         contract. Commitments generally have fixed expiration dates or other
         termination clauses and may require a payment of a fee. Since
         portions of the commitments are expected to expire without being
         drawn upon, the total commitments do not necessarily represent
         future cash requirements. The Corporation evaluates each customer's
         creditworthiness on a case by case basis. The amount of collateral
         obtained upon extension of credit is based on management's credit
         evaluation of the customer.

         The Corporation originates primarily residential and commercial real
         estate loans, commercial loans, and installment loans. The
         Corporation estimates that 64% of the loan portfolio is based in
         Wayne County, 22% in Oakland County, and the remainder primarily
         distributed throughout Michigan.

         At December 31, 1998, the Corporation has consumer loans secured by
         real estate aggregating approximately $2,632,000 and construction
         loans relating to commercial, residential, and land development
         properties of $2,619,000.

NOTE J - EMPLOYEE BENEFIT PLANS

         During 1996, the Bank established a 401(k) plan for its employees.
         All employees are eligible to participate in the 401(k) after
         completion of age and service requirements. An employee can be
         enrolled as a participant on the first "Enrollment Date" after
         reaching age 18 and completing six months of service. Contributions
         to the plan by the Bank are discretionary. As of October 1, 1998,
         the Corporation began matching 50% of the first 6% of employee
         contributions to the plan. During 1998, matching contributions to
         the plan totalled $7,000.

NOTE K - REGULATORY MATTERS

         The Bank is subject to various regulatory capital requirements
         administered by the federal banking agencies. Failure to meet
         minimum capital requirements can initiate certain mandatory - and
         possibly additional discretionary - actions by regulators that, if
         undertaken, could have a direct material effect on the Bank's
         financial statements. Under capital adequacy guidelines and the
         regulatory framework for prompt corrective action, the Bank must
         meet specific capital guidelines that involve quantitative measures
         of the Bank's assets, liabilities, and certain off-balance-sheet
         items as calculated under regulatory accounting practices. The
         Bank's capital amounts and classifications are also subject to
         qualitative judgments by the regulators about components, risk
         weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
         adequacy require the Bank to maintain minimum amounts and ratios
         (set forth in the table below) of total and Tier 1 capital (as
         defined in the regulations) to risk-weighted assets (as defined),
         and of Tier 1 capital (as defined) to average assets (as defined).

                                      28




<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE K - REGULATORY MATTERS (Continued)

         The following is a presentation of the Bank's regulatory capital
ratios (in thousands):

<TABLE>
<CAPTION>
                                                          Minimum For Capital          Minimum
                                          Actual           Adequacy Purposes   To Be Well Capitalized
                                   -------------------    -------------------  -----------------------
                                   Amount        Ratio    Amount        Ratio    Amount         Ratio
                                   ------        -----    ------        -----    ------         -----
<S>                               <C>            <C>      <C>            <C>     <C>            <C>  
As of December 31, 1998
    Total capital
         (to risk weighted
         assets)                  $10,622        16.2%    $ 5,245        8.0%    $ 6,557        10.0%
    Tier I capital
         (to risk weighted
         assets)                    9,995        15.2%      2,623        4.0%      3,934         6.0%
    Tier I capital
         (to average assets)        9,995         9.0%      4,438        4.0%      5,547         5.0%

As of December 31, 1997
    Total capital
         (to risk weighted
         assets)                    7,963        16.1%      3,964        8.0%      4,955        10.0%
    Tier I capital
         (to risk weighted
         assets)                    7,441        15.0%      1,982        4.0%      2,972         6.0%
    Tier I capital
         (to average assets)        7,441         9.1%      3,282        4.0%      4,102         5.0%
</TABLE>

         Based on the respective regulatory capital ratios at December 31,
         1998 and 1997, the Bank is well capitalized.


NOTE L - COMMON STOCK SUBSCRIBED

         On November 15, 1996, the Corporation issued an offering memorandum,
         which included an over-subscription privilege, to those stockholders
         who were residents of the State of Michigan. The offering memorandum
         gave those stockholders the right to subscribe to 309,634 shares of
         common stock at a price of $8.91 per share. All rights expired on
         December 31, 1996.

         At the close of business on December 31, 1996, the Corporation had
         received requests to purchase 325,956 shares of common stock. In
         accordance with the Corporation's offering memorandum, $2,760,000
         was recorded as common stock subscribed, representing 309,634 shares
         of common stock and $145,490 was recorded as an oversubscription
         rights payable in other liabilities. On January 21, 1997, the common
         stock subscribed was formally issued.

NOTE M - COMMON STOCK OFFERING

         On April 8, 1998, the Corporation completed its initial public
         offering of 1,407,527 shares of common stock at a price of $13.73
         per share and began trading on the Nasdaq SmallCap Market.



                                      29



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE N - STOCK OPTION PLAN

         During 1994, the Corporation adopted a stock option plan to enable
         key employees of the Corporation and its subsidiaries to participate
         in the Corporation's future growth and profitability by the granting
         of long-term performance-based incentive compensation. As of
         December 31, 1996, 56,100 shares of common stock were authorized
         with no options granted.

         During 1997, the stock option plan was amended to allow up to
         168,300 shares to be granted. Also in 1997, the Corporation issued
         46,002 options at an exercise price of $8.91. No options were
         exercised, expired or terminated during 1997.

         During 1998, the stock option plan was amended to allow up to
         255,000 shares to be granted. Also in 1998, the Corporation issued
         33,150 options at an exercise price of $12.75. No options were
         exercised, expired or terminated during 1998. At December 31, 1998,
         79,152 options were outstanding and 175,848 options were available
         for grant.

         Granted options expire no later than ten years after the date of
         grant, may not be exercised for six months after the date of grant
         and are granted at a price of not less than the fair market value of
         the Corporation's share price on the date of grant. If an option
         expires or terminates without having been exercised, such option
         will be available for future grant under the plan.

         The Corporation accounts for the stock option plan under Accounting
         Principles Board Option No. 25, "Accounting for Stock Issued to
         Employees." No compensation costs have been recognized for the plan.
         Had compensation costs for the plan been determined based on the
         fair value of the options at the grant date consistent with the
         method of SFAS No. 123, the Corporation's net income per share for
         the years ended December 31, 1998 and 1997 would have been as
         follows (in thousands, except per share data):

                                                         1998            1997
                                                         ----            ----
         Net income
                   As reported                           $950            $610
                   Pro forma                              813             419
         Basic and diluted income per share
                   As reported                          $0.45           $0.57
                   Pro forma                             0.38            0.39

         The fair value of each option grant is estimated on the date of
         grant using the Black-Scholes options-pricing model with the
         following weighted-average assumptions used for grants in 1998 and
         1997: dividend yield of 0.00%; expected volatility of 22.38% and
         51.23% for 1998 and 1997, respectively; risk-free interest rate of
         5.79% and 6.67% for 1998 and 1997, respectively; and expected lives
         of ten years. All information presented with respect to stock
         options has been adjusted for the effects of the stock dividend.


                                      30



<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE O - INCOME PER SHARE

         The following is a reconciliation of the numerator and denominator
         of the basic and diluted income per share calculation for the years
         ended December 31, 1998 and 1997 (in thousands, except share data);

<TABLE>
<CAPTION>
                                                        1998                                         1997
                                       ---------------------------------------       --------------------------------------
                                         Income          Shares      Per Share         Income        Shares       Per Share
                                       (Numerator)   (Denominator)     Amount        (Numerator)  (Denominator)     Amount
                                       -----------   -------------   ---------       -----------  -------------   ---------
<S>                                    <C>             <C>              <C>           <C>            <C>            <C>  
Basic income per share
          Net income available         $     950       2,099,239        $0.45         $     610      1,065,767      $0.57

Effect of dilutive options                    --          13,627           --                --         11,155         --
                                       ---------       ---------        -----         ---------      ---------      -----

Diluted income per share
          Net income to
          stockholders
          plus assumed
          conversions                  $     950       2,112,866        $0.45         $     610      1,076,922      $0.57
                                       =========       =========        =====         =========      =========      =====
</TABLE>


NOTE P - CONTINGENCIES

         LEGAL

         From time to time, the Corporation and the Bank are parties to
         various legal proceedings incidental to their business. At December
         31, 1998, there were no legal proceedings which management
         anticipates would have a material adverse effect on the Corporation.

         YEAR 2000

         The Year 2000 issue relates to limitations in computer systems and
         applications that may prevent proper recognition of the Year 2000.
         The potential effect of the Year 2000 issue on the Corporation and
         its business partners will not be fully determinable until the Year
         2000 and thereafter. If Year 2000 modifications are not properly
         completed either by the Corporation or entities with which the
         Corporation conducts business, the Corporation's revenues and
         financial condition could be adversely impacted.


                                     31


<PAGE>
                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE Q - ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARDS

         The FASB has issued SFAS No. 133, "Accounting for Derivative
         Instruments and Hedging Activities." The statement requires that an
         entity recognize all derivatives as either assets or liabilities on
         the balance sheet and measure those instruments at fair value. The
         statement is effective January 1, 2000 for the Corporation; however,
         management does not expect this pronouncement to have a significant
         impact on the Corporation's financial position.

         The FASB has issued SFAS No. 134, "Accounting for Mortgage-Backed
         Securities Retained after the Securitization of Mortgage Loans Held
         for Sale by a Mortgage Banking Enterprise. The statement requires
         that an entity engaged in mortgage banking activities classify
         resulting mortgage-backed securities and other retained interests
         based on its ability and intent to sell or hold those investments.
         This statement is effective in 1999 for the Corporation: however,
         management does not expect this pronouncement to have an impact on
         the Corporation's financial position.




                                      32





<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996

NOTE R - PARENT ONLY CONDENSED FINANCIAL INFORMATION

         The condensed financial information that follows presents the
         financial condition of the parent company, Dearborn Bancorp, Inc.,
         along with the results of its operations and its cash flows.

                           CONDENSED BALANCE SHEETS

(In thousands)                                             December 31,
                                                        ------------------
                                                         1998       1997
                                                        -------    -------
ASSETS
          Cash and cash equivalents                     $ 2,185    $   181
          Investment securities                          14,460          0
          Investment in subsidiary                        9,985      7,376
          Other assets                                    1,803      1,741
                                                        -------    -------
          Total assets                                  $28,433    $ 9,298
                                                        =======    =======

LIABILITIES AND
     STOCKHOLDERS' EQUITY
          Mortgage payable                              $   517    $   537
          Other liabilities                                 185          9
          Stockholders' equity                           27,731      8,752
                                                        -------    -------
          Total liabilities and stockholder's equity    $28,433    $ 9,298
                                                        =======    =======



                        CONDENSED STATEMENTS OF INCOME

       (In thousands)                        Years Ended December 31,
                                             ------------------------
                                             1998      1997      1996
                                             ----      ----      ----

Operating income                             $ 655     $  58     $  35
Operating expenses                            (259)      (68)      (60)
                                             -----     -----     -----

Net income (loss) before equity in
      undistributed income  of subsidiary      396       (10)      (25)
Equity in undistributed income
          of subsidiary                        554       620        52
                                             -----     -----     -----

                    Net income               $ 950     $ 610     $  27
                                             =====     =====     =====



                                      33




<PAGE>


                    DEARBORN BANCORP, INC. AND SUBSIDIARY

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                       December 31, 1998, 1997 and 1996


NOTE R - PARENT ONLY CONDENSED FINANCIAL INFORMATION  (Continued)

<TABLE>
<CAPTION>
                      CONDENSED STATEMENTS OF CASH FLOWS


(In thousands)                                    Years Ended December 31,
                                             ----------------------------------
                                               1998         1997         1996
                                             --------     --------     --------
<S>                                          <C>          <C>          <C>     
Cash flows from operating activities
          Net income                      
          Adjustments to reconcile net
            income to net cash provided by
            operating activities             $    950     $    610     $     27
               Equity in undistributed
                     income of subsidiary        (554)        (620)         (52)
               Other                              114           66           61
                                             --------     --------     --------
Net cash flows provided by
          operating activities                    510           56           36

Cash flows from investing activities
          Investment in subsidiary             (2,004)      (2,600)        (850)
          Investment in securities            (20,608)      (1,000)          --
          Maturity of securities                4,150        1.000           --
          Sale of securities                    1,998           --          703
          Property and equipment acquired          --          (14)        (101)
                                             --------     --------     --------
Net cash flows used in
          investing activities                (16,464)      (2,614)        (248)

Cash flows from financing activities
          Proceeds from sale of common
                    stock                      17,978           --        2,752
          Proceeds due stockholders on
                    Oversubscription of
                    stock                          --         (145)         145
          Reduction of mortgage payable           (20)         (17)         (15)
                                             --------     --------     --------
Net cash flows provided by (used in)
          financing activities                 17,958         (162)       2,882

Increase (decrease) in cash and
          cash equivalents                      2,004       (2,720)       2,670
Cash and cash equivalents at
          beginning of year                       181        2,901          231
                                             --------     --------     --------

Cash and cash equivalents at end of year     $  2,185     $    181     $  2,901
                                             ========     ========     ========
</TABLE>


                                      34



<PAGE>


       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                            RESULTS OF OPERATIONS


General

The Company was formed in 1992 and the Bank was formed in 1993. Principal
operations of the Bank commenced on February 28, 1994 when the Bank opened
for business at its main office, located at 22290 Michigan Avenue, Dearborn,
Michigan. During December 1995, the Bank opened its second office, located at
24935 West Warren Avenue, Dearborn Heights, Michigan. In August 1997, the
Bank opened its third office, located at 44623 Five Mile Road, Plymouth
Township, Michigan.

Forward Looking Statements

Certain information contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations may be deemed to be
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995 and are subject to the Act's safe harbor
provisions. These statements are based on current expectations and involve a
number of risks and uncertainties. Actual results could differ materially and
adversely from those described in the forward-looking statements as a result
of various factors outside the control of the Corporation, including but not
limited to the following: the risk of non-payment of loans, changes in
prevailing economic conditions causing declines in real estate values, rapid
changes in interest rates and the monetary and fiscal policies of the federal
government, and strong competition for deposits, loans and other financial
services from competitors.

Results of Operations

The Company reported net income of $950,000 in 1998 compared to net income of
$610,000 in 1997 and net income of $27,000 in 1996. The improvement each year
was primarily a factor of growth in the volume of investments, loans and
deposits and the corresponding net interest income associated with the
increased volumes.

Net Interest Income

1998 Compared to 1997. Net interest income for the period ended December 31,
1998 was $3.8 million compared to $2.4 million for the period ended December
31, 1997, an increase of $1.4 million or 58%. This increase was caused
primarily by an increase in average earning assets of $45.1 million between
the periods while interest-bearing liabilities grew by $29.1 million. At the
same time the Company's interest rate spread decreased to 2.03% in 1998 from
2.54% in 1997. The Company's net interest margin also decreased in 1998 to
3.41% from 3.60% in 1997. However, the decreases in net interest spread and
net interest margin were offset by increases in the volume of net earning
assets. The Company's decrease in interest rate spread and net interest
margin was a direct result of the repositioning of investment funds and
decreases in loan yields due to declining interest rates.

1997 Compared to 1996. Net interest income for the period ended December 31,
1997 was $2.4 million compared to $1.6 million for the period ended December
31, 1996, an increase of $0.8 million or 50%. This increase was caused
primarily by an increase in average earning assets of $26.5 million between
the periods while interest-bearing liabilities grew by $21.9 million. At the
same time the Company's interest rate spread decreased to 2.54% in 1997 from
2.92% in 1996. The Company's net interest margin also decreased in 1997 to
3.60% from 3.98% in 1996. However, the decreases in net interest spread and
net interest margin were offset by increases in the volume of net earning
assets. The Company's decrease in interest rate spread and net interest
margin was a direct result of aggressive time deposit gathering at premium
rates and the direct reinvestment of those funds into investment securities
with similar interest rates until the funds could be redeployed into quality
loans with higher yields.

Average Balances, Interest Rates and Yields. Net interest income is affected
by the difference ("interest rate spread") between rates of interest earned
on interest-earning assets and rates of interest paid on interest-bearing
liabilities and the relative amounts of interest-bearing liabilities and
interest-earning assets. When the total of interest-earning assets
approximates or exceeds the total of interest-bearing liabilities, any
positive interest rate spread will generate net interest income. Financial
institutions have traditionally used interest rate spreads as a measure of
net interest income. Another indication of an institution's net interest
income is its "net yield on interest-earning assets" or "net interest
margin," which is net interest income divided by average interest-earning
assets.

                                      35



<PAGE>



The following table sets forth certain information relating to the Company's
consolidated average interest-earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost of liabilities for
the periods indicated. Such yields and costs are derived by dividing income
or expense by the average daily balance of assets or liabilities,
respectively, for the periods presented. During the periods indicated,
non-accruing loans, if any, are included in the net loan category.

<TABLE>
<CAPTION>
                                                  Year Ended December 31, 1998   Year Ended December 31, 1997
                                                 ------------------------------  ----------------------------
                                                  Average             Average     Average           Average
(In thousands)                                    Balance   Interest    Rate      Balance  Interest  Rate
                                                 ---------- --------  ---------  --------  -------- -------
<S>                                               <C>        <C>        <C>     <C>        <C>        <C>  
Assets
          Federal funds sold and interest
                    bearing deposits with banks   $  9,827   $    527   5.36%   $  3,351   $    188   5.61%
          Investment securities, available for  
                    sale                            42,853      2,504   5.84%     20,031      1,235   6.17%
          Loans                                     59,355      5,259   8.86%     43,533      3,981   9.14%
                                                  --------   --------   ----    --------   --------   ----
                    Sub-total earning assets       112,035      8,290   7.40%     66,915      5,404   8.08%
          Other assets                               5,273                         4,361
                                                  --------                      --------
                    Total assets                  $117,308                      $ 71,276
                                                  ========                      ========

Liabilities and stockholders' equity
          Interest bearing deposits               $ 82,702   $  4,425   5.35%   $ 53,559   $  2,955   5.52%
          Other borrowings                             505         41   8.12%        582         43   7.39%
                                                  --------   --------   ----    --------   --------   ----
                    Sub-total interest bearing
                              liabilities           83,207      4,466   5.37%     54,141      2,998   5.54%
          Non-interest bearing deposits             10,706                         8,374
          Other liabilities                            509                           322
          Stockholders' equity                      22,886                         8,439
                                                  --------                      --------

                    Total liabilities and   
                              stockholders' 
                              equity              $117,308                      $ 71,276
                                                  ========                      ========

                    Net interest income                      $  3,824                      $ 2,406
                                                             ========                      =======

                    Net interest rate spread                            2.03%                         2.54%
                                                                        ====                          ====

                    Net interest margin on  
                              earning assets                            3.41%                         3.60%
                                                                        ====                          ====
</TABLE>





                                      36



<PAGE>


<TABLE>
<CAPTION>


(Continued)                                      Year Ended  December 31, 1996
                                                 -----------------------------
                                                 Average               Average
(In thousands)                                   Balance    Interest     Rate
                                                 -------    --------   -------
<S>                                               <C>       <C>          <C>  
Assets
          Federal funds sold and interest
                    Bearing deposits with banks   $ 2,137   $   115      5.38%
          Investment securities, available for 
                    sale                           12,400       733      5.91%
          Loans                                    25,835     2,466      9.55%
                                                  -------   -------      ----
                    Sub-total earning assets       40,372     3,314      8.21%
          Other assets                              3,618
                                                  -------

                    Total assets                  $43,990
                                                  =======

Liabilities and stockholders' equity
          Interest bearing deposits               $31,713   $ 1,662      5.24%
          Other borrowings                            564        44      7.80%
                                                  -------   -------      ----
                    Sub-total interest bearing
                          liabilities              32,277     1,706      5.29%
          Non-interest bearing deposits             6,142
          Other liabilities                           210
          Stockholders' equity                      5,361
                                                  -------

                    Total liabilities and 
                          stockholders' 
                          equity                  $43,990
                                                  =======

                    Net interest income                     $ 1,608
                                                            =======

                    Net interest rate spread                             2.92%
                                                                         ====

                    Net interest margin on
                           earning assets                                3.98%
                                                                         ====
</TABLE>



                                      37



<PAGE>

Rate/Volume Analysis. The following table analyzes net interest income in
terms of changes in the volume of interest-earning assets and
interest-bearing liabilities and changes in yields and rates. The table
reflects the extent to which changes in the interest income and interest
expense are attributable to changes in volume (changes in volume multiplied
by prior year rate) and changes in rate (changes in rate multiplied by prior
year volume). Changes attributable to the combined impact of volume and rate
have been allocated proportionately to changes due to volume and changes due
to rate.

<TABLE>
<CAPTION>
                                                      1998/1997                        1997/1996
                                              Change in Interest Due to:        Change in Interest Due to:
                                           -------------------------------    -----------------------------
                                            Average    Average     Net        Average    Average      Net
(In thousands)                              Balance      Rate     Change      Balance      Rate     Change
                                           ----------- --------- ---------    ---------  --------- --------
<S>                                          <C>        <C>        <C>         <C>       <C>        <C>    
Assets
          Federal funds sold and interest
                    bearing deposits with
                    banks                    $   347    ($    8)   $   339     $    68   $     5    $    73
          Investment securities,      
                    available for sale         1,334        (65)     1,269         470        32        502
          Loans                                1,402       (124)     1,278       1,619      (104)     1,515
                                             -------    -------    -------     -------   -------    -------
Total earning assets                         $ 3,083    ($  197)   $ 2,886     $ 2,157   ($   67)   $ 2,090
                                             =======    =======    =======     =======   =======    =======

Liabilities
          Interest bearing deposits          $ 1,559    ($   89)   $ 1,470     $ 1,206   $    87    $ 1,293
          Other borrowings                        (6)         4         (2)          1        (2)        (1)
                                             -------    -------    -------     -------   -------    -------
Total interest bearing liabilities           $ 1,553    ($   85)   $ 1,468     $ 1,207   $    85    $ 1,292
                                             =======    =======    =======     =======   =======    =======

                Net interest income                                $ 1,418                          $   798
                                                                   =======                          =======

                  Net interest rate spread                           (0.51%)                          (0.38%)
                                                                   =======                          =======

                Net interest margin on
                            earning assets                           (0.19%)                          (0.39%)
                                                                   =======                          =======
</TABLE>


Provision for Possible Credit Losses

1998 Compared to 1997. The provision for possible credit losses was $120,000
in 1998, compared to $164,000 in 1997. The provision for possible credit
losses was based upon management's assessment of relevant factors, including
types and amounts of non-performing loans, historical and anticipated loss
experience on such types of loans, and current and projected economic
conditions. Refer to Note C of the Notes to Consolidated Financial Statements
for additional information.

1997 Compared to 1996. The provision for possible credit losses was $164,000
in both 1997 and 1996. The provision for possible credit losses was based
upon management's assessment of relevant factors, including types and amounts
of non-performing loans, historical and anticipated loss experience on such
types of loans, and current and projected economic conditions. Refer to Note
C of the Notes to Consolidated Financial Statements for additional
information.



                                      38




<PAGE>


Non-interest Income

1998 Compared to 1997. Non-interest income was $533,000 in 1998 compared to
$312,000 in 1997, an increase of $221,000 or 71%. This increase was primarily
due to gain on sale of loans and service charges on deposit accounts as a
result of an increase in the volume of these accounts.

1997 Compared to 1996. Non-interest income was $312,000 in 1997 compared to
$284,000 in 1996, an increase of $28,000 or 10%. This increase was primarily
due to service charges on deposit accounts as a result of an increase in the
volume of these accounts.


Non-interest Expense

1998 Compared to 1997. Non-interest expense was $2.9 million in 1998 compared
to $2.1 million in 1997, an increase of $0.8 million or 38%. The largest
components of non-interest expense in 1998 were salaries and employee
benefits which amounted to $1.7 million and occupancy and equipment expense
which amounted to $411,000. In 1997, salaries and employee benefits and
occupancy and equipment expense were $1.2 million and $267,000, respectively.
The primary factor for these increases was the opening of the Bank's office
in Plymouth Township in August 1997 and the expansion of the operations and
lending departments in 1998. As of December 31, 1998, the number of full time
equivalent employees was 36 as compared to 26 as of December 31, 1997.

1997 Compared to 1996. Non-interest expense was $2.1 million in 1997 compared
to $1.7 million in 1996, an increase of $0.4 million or 24%. The largest
components of non-interest expense were salaries and employee benefits which
amounted to $1.2 million and occupancy and equipment expense in 1997 which
amounted to $267,000. In 1996, salaries and employee benefits and occupancy
and equipment expense were $1.1 million and $198,000, respectively. The
primary factor for these increases was the opening of the Bank's office in
Plymouth Township in August 1997. As of December 31, 1997, the number of full
time equivalent employees was 26 as compared to 23 as of December 31, 1996.


Income Tax Provision

1998 Compared to 1997. The income tax expense for 1998 was $346,000, compared
to an income tax benefit of $145,000 in 1997, an increase of $491,000. Refer
to Note H of the Notes to Consolidated Financial Statements for additional
information.

1997 Compared to 1996. The income tax benefit for 1997 was $145,000, compared
to $0 in 1996. During 1997, the Bank recognized a $145,000 tax benefit from
the change in valuation allowance against a deferred tax asset related to net
operating loss carryforwards. Refer to Note H of the Notes to Consolidated
Financial Statements for additional information.


Comparison of Financial Condition at December 31, 1998 and December 31, 1997

Assets. Total assets at December 31, 1998 were $126.8 million compared to
$86.7 million at December 31, 1997, an increase of $40.1 million or 46%. The
increase was primarily due to increases in investment securities - available
for sale and loans.

Investment Securities - Available for Sale. Total investment securities -
available for sale, at December 31, 1998 were $50.2 million compared to $29.8
million at December 31, 1997, an increase of $20.4 million or 68%. During
1998 the Company purchased $109.7 million in securities and $52.8 million of
securities were called or matured during the year. In addition, the Company
sold securities of $36.6 million and recognized gain on such sales in the
amount of $71,000. The increase in deposits has enabled the Company to invest
in investment securities - available for sale until such time as quality loan
opportunities become available. All securities within the Company's U.S.
treasury or U.S. government sponsored agency portfolios carry AAA ratings.
All securities within the company's corporate debt portfolio carry AA2
ratings or better, are secured by an underlying letter of credit and have a 5
business day put option. The Company does not hold any securities in the
"Held to Maturity" category nor does the Company hold or utilize derivatives.
Refer to Note B of the Notes to Consolidated Financial Statements for
additional information.

                                      39



<PAGE>



Loans. Total loans at December 31, 1998 were $66.0 million compared to $52.1
million at December 31, 1997, an increase of $13.9 million or 27%. The
components of the outstanding balances and percentage increase in loans from
1998 to 1997 are as follows:

<TABLE>
<CAPTION>
                                     December 31, 1998    December 31, 1997
                                    -------------------   ------------------      Percent
                                    Balance     Percent   Balance     Percent     Increase 
                                    -------     -------   -------     -------     -------- 
<S>                                 <C>         <C>       <C>         <C>         <C>    
Consumer loans                      $12,434      18.83%   $12,705      24.37%     (2.13%)
Commercial, financial, & other       14,843      22.48%    10,668      20.46%     39.14%
Commercial real estate                2,619       3.39%     1,746       3.35%     50.00%
construction
Commercial real estate mortgages     12,478      18.90%     9,796      18.79%     27.38%
Residential real estate mortgages    23,649      36.40%    17,224      33.03%     37.30%
                                    -------     ------    -------     ------      -----

                                    $66,023     100.00%   $52,139     100.00%     26.63%
                                    =======     ======    =======     ======      =====
</TABLE>

Refer to Note C of the Notes to Consolidated Financial Statements for
additional information.

Allowance for Possible Credit Losses. The allowance for possible credit
losses at December 31, 1998 was $627,000 compared to $522,000 at December 31,
1997, an increase of $105,000 or 20%. The increase in the allowance for
possible credit losses was based upon management's assessment of relevant
factors, including types and amounts of non-performing loans, historical and
anticipated loss experience on such types of loans, and current and projected
economic conditions. Refer to Note C of the Notes to Consolidated Financial
Statements for additional information.

Bank Premises and Equipment. Bank premises and equipment at December 31, 1998
was $2.4 million compared to $2.3 million at December 31, 1997, an increase
of $0.1 million or 4%. This increase reflects the Bank's investment in
technology.

Accrued Interest Receivable. Accrued interest receivable at December 31, 1998
was $933,000 compared to $723,000 at December 31, 1997, an increase of
$210,000 or 29%. The increase was due to increased loan volume and the
increased volume of investments securities - available for sale, for which
interest is receivable semi-annually.

Other Assets. Other assets at December 31, 1998 were $372,000 compared to
$230,000 at December 31, 1997, an increase of $142,000 or 62%. The increase
was primarily due to increases in prepaid insurance and prepaid maintenance
contracts.



                                      40



<PAGE>



Deposits. Total deposits at December 31, 1998 were $97.6 million compared to
$75.4 million at December 31, 1997, an increase of $22.2 million or 29%. The
components of the outstanding balances and percentage increase in deposits
from 1998 to 1997 are as follows:

<TABLE>
<CAPTION>
                                       December 31, 1998            December 31, 1998
                                 ---------------------------   ---------------------------
                                    Balance          Percent     Balance           Percent  Increase/(Decrease)
                                    -------          -------     -------           -------  -------------------

<S>                              <C>                 <C>       <C>                 <C>            <C>
Non-interest bearing:
           Demand                $    11,142          11.41%   $     8,587          11.39%         29.75%

Interest bearing:
            Checking             $     3,630           3.72%   $     1,274           1.69%        184.93%
            Money market              11,215          11.49%         6,787           9.00%         65.24%
            Savings                    2,079           2.13%         1,529           2.03%         35.97%
            Time, under
               $100,000               42,790          43.84%        36,114          47.90%         18.49%
            Time, $100,000
               and over
                  Non-volatile
                     priced           13,493          13.82%        12,055          15.99%         11.93%
                  Volatile 
                     priced           13,261          13.59%         9,051          12.00%         46.51%
                                 -----------         ------    -----------         ------         ------

                                 $    97,610         100.00%   $    75,397         100.00%         29.46%
                                 ===========         ======    ===========         ======         ======
</TABLE>


The increase in deposits was primarily due to growth in time deposits. During
1998, the Bank completed one major marketing campaign, an annual birthday
celebration in March, offering a premium rate of interest on time deposits.
This campaign raised in excess of $8 million in new deposits in a period of
approximately two weeks. Additional growth in all types of deposits was
achieved via normal marketing, telemarketing, referral and visitation
programs. The increase in deposits enabled the Company to invest the funds in
loans and investment securities - available for sale.

Federal Funds Purchased. There were no federal funds purchased at December
31, 1998 compared to $1.5 million at December 31, 1997. The Bank's federal
funds position in 1997 was a result of the Bank's need for liquidity to fund
an unanticipated $1.5 million outgoing wire transfer for a large customer
late in the day on December 31, 1997 and was repaid January 5, 1998.

Accrued Interest Payable. Accrued interest payable at December 31, 1998 was
$338,000 compared to $310,000 at December 31, 1997. The increase was due to
the increase in the volume of time deposits during 1998.



                                      41



<PAGE>



Capital

Stockholders' equity at December 31, 1998 was $27.7 million compared to $8.8
million as of December 31, 1997, an increase of $18.9 million or 215%. At
December 31, 1998, the Bank exceeded all applicable regulatory capital
requirements. The increase in Capital was primarily due to an initial public
offering of common stock on April 8, 1998. Refer to Note K and Note M of the
Notes to Consolidated Financial Statements for further information.

Liquidity and Asset and Liability Management

Liquidity refers to readily available funds to meet the needs of borrowers
and depositors. Levels of liquidity are closely monitored in conjunction with
loan funding requirements and deposit outflows. Adequate liquidity protects
institutions from raising funds under duress at excessive expense and
provides a necessary cushion for occasional unpredictable aberrations in
demand. While adequate liquidity is imperative, excessive liquidity in lower
yielding cash investments or other easily marketable assets reduces potential
interest income. Thus, an appropriate balance must be maintained to protect
the institution and at the same time, prudently maximize income
opportunities. Sources of liquidity from both assets and liabilities includes
federal funds sold, securities available for sale, loan repayments, core
deposits and a federal funds purchase credit facility.

The Company has sought to manage its exposure to changes in interest rates by
matching more closely the effective maturities or repricing characteristics
of the Company's interest-earning assets and interest-bearing liabilities.
The matching of the assets and liabilities may be analyzed by examining the
extent to which the assets and liabilities are interest rate sensitive and by
monitoring the expected effects of interest rate changes on net interest
income.

An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Company's
assets mature or reprice more quickly or to a greater extent that its
liabilities, the Company's net portfolio value and net interest income would
tend to increase during periods of rising interest rates but decrease during
periods of falling interest rates. If the Company's assets mature or reprice
more slowly or to a lesser extent than its liabilities, its net portfolio
value and net interest income would tend to decrease during periods of rising
interest rates but increase during periods of falling interest rates.

Interest Rate Sensitivity Analysis. The matching of assets and liabilities
may be analyzed by examining the extent to which such assets and liabilities
are "interest rate sensitive" and by monitoring an institution's interest
rate sensitivity "gap." An asset or liability is said to be interest rate
sensitive within a specific period if it will mature or reprice within that
period. The interest rate sensitivity "gap" is the difference between the
amount of interest-earning assets maturing or repricing within a specific
time period and the amount of interest-bearing liabilities maturing or
repricing within that time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities, and is considered negative when the amount of interest
rate sensitive liabilities exceed the amount of interest rate sensitive
assets. During a period of rising interest rates, a negative gap would be
expected to adversely affect net interest income while a positive gap would
be expected to result in an increase in net interest income, while conversely
during a period of declining interest rates, a negative gap would be expected
to result in an increase in net interest income and a positive gap would be
expected to adversely affect net interest income.



                                      42



<PAGE>



Different types of assets and liabilities with the same or similar maturities
may react differently to changes in overall market rates or conditions, and
thus changes in interest rates may affect net interest income positively or
negatively even if an institution were perfectly matched in each maturity
category. Additionally, the gap analysis does not consider the many factors
as banking interest rates move. While the interest rate sensitivity gap is a
useful measurement and contributes toward effective asset and liability
management, it is difficult to predict the effect of changing interest rates
solely on that measure, without accounting for alterations in the maturity or
repricing characteristics of the balance sheet that occur during changes in
market interest rates. During periods of rising interest rates, the Company's
assets tend to have prepayments that are slower than those in an interest
rate sensitivity gap and would increase the negative gap position.
Conversely, during a period of falling interest rates, the Company's assets
would tend to prepay faster than originally expected thus decreasing the
negative gap position. In addition, some of the Company's assets, such as
adjustable rate mortgages, have caps on the amount by which their interest
rates can change in any single period, and therefore may not reprice as
quickly as liabilities in the same maturity category.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1998 which are
expected to mature or reprice in each of the time periods shown.

<TABLE>
<CAPTION>
                    DEARBORN BANCORP, INC. AND SUBSIDIARY

                   RATE SENSITIVITY ANALYSIS / GAP ANALYSIS

                                                          Interest Rate Sensitivity Period
                                               -----------------------------------------------------
(In thousands)                                   1-90      91-365       1-5        Over
                                                 Days       Days       Years      5 Years    Total
                                               --------   --------    --------   --------   --------
<S>                                            <C>         <C>        <C>         <C>       <C>     
Earning assets
          Federal funds sold                   $  3,995    $    --    $     --    $    --   $  3,995
          Mortgage loans held for sale            1,211         --          --         --      1,211
          Securities available for sale          16,537      2,013      31,661         --     50,211
          Total loans, net of non-accrual        13,428      8,519      39,230      4,846     66,023
                                               --------   --------    --------   --------   --------
Total earning assets                             35,171     10,532      70,891      4,846    121,440

Interest bearing liabilities
          Total interest bearing deposits        23,838     37,546      25,084         --     86,468
          Mortgage payable                           --         --          --        517        517
                                               --------   --------    --------   --------   --------
Total interest bearing liabilities               23,838     37,546      25,084        517     86,985

Net asset (liability) funding gap                11,333    (27,014)     45,807      4,329   $ 34,455
                                               --------   --------    --------   --------   ========

Cumulative net asset (liability) funding gap   $ 11,333   ($15,681)   $ 30,126   $ 34,455
                                               ========   ========    ========   ========
</TABLE>


                                     43



<PAGE>


Impact of Inflation and Changing Prices

The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on
the Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.


Year 2000 Problem

The Corporation is aware of the current concerns throughout the business
community of reliance upon computer software programs that do not properly
recognize the year 2000 in date formats, often referred to as the "Year 2000
Problem." The Year 2000 Problem is the result of software being written using
two digits rather than four digits to define the application year (i.e., "98"
rather than "1998"). A failure by a business to properly identify and correct
a Year 2000 Problem in its operations could result in system failures or
miscalculations. In turn, this could result in disruptions of operations,
including among other things a temporary inability to process transactions,
send invoices or otherwise engage in routine business transactions on a
day-to-day basis.

The Corporation began to prepare for the Year 2000 project in 1997. The plan
began with an internal evaluation of equipment, software applications and
vendor supplied products. The Corporation's main data processing vendor has
represented that it is compliant at December 31, 1998, and regularly provides
updates on its progress to the Corporation. The Corporation has a written
plan which is regularly updated and reported to the Board of Directors. The
testing phase of the plan was essentially complete on December 31, 1998. The
current phase of the plan is testing systems and equipment. The Corporation
has also been gathering information from significant borrowers and
depositors, to help mitigate any risk posed to the Bank by their
non-compliance.

During 1998, the Corporation has made expenditures of $313,000, of which
$65,000 was charged to expense for depreciation, testing and employee wages
to upgrade non-compliant personal computer workstations, software and local
area networks. In 1999, the Corporation expects to incur $99,000 in expenses
related to depreciation, testing costs and employee wages. In August 1998,
the Corporation made a capital expenditure of $151,000 to purchase a new
mainframe computer to accommodate the growth of the corporation. The
mainframe was certified Year 2000 Compliant at the time of delivery.
Additionally, if the Corporation (or its customers or vendors) are unable to
remedy any potential Year 2000 problems in a timely manner, there could be a
material adverse effect on the Corporation's business. The Corporation has a
written contingency plan in place should testing fail on any given computer
application. Based on information that is currently available, the
Corporation does not anticipate that the cost of achieving Year 2000
compliance will have a material effect on its capital resources, results of
operations, or liquidity as presented herein.




                                      44



<PAGE>



                            DEARBORN BANCORP, INC.

                            DIRECTORS AND OFFICERS



DIRECTORS

WILBER M. BRUCKER, JR.
Retired, Attorney

MARGARET I. CAMPBELL
Retired, Consultant

JOHN E. DEMMER
Chairman of the Board and
     Chief Executive Officer
Jack Demmer Ford, Inc. and
Jack Demmer Leasing

MICHAEL V. DORIAN, JR.
Vice President
Mike Dorian Ford

DAVID HIMICK
Financial Consultant

DONALD G. KARCHER
Chairman of the Board
Karcher Agency, Inc.

BRADLEY F. KELLER
President
Braden Associates, Inc. and
MultiGard Properties, Ltd.

JEFFREY G. LONGSTRETH
President
Prudential Christie Real Estate

RICHARD NORDSTROM
Retired, Architect

MICHAEL J. ROSS
President and Chief Executive Officer
Community Bank of Dearborn

DR. ROBERT C. SCHWYN
Physician

RONNIE J. STORY
President and Chief Executive Officer
Story Development Corp. and Story Brothers Grading & Excavating

OFFICERS

JOHN E. DEMMER
Chairman of the Board and
     Chief Executive Officer

RICHARD NORDSTROM
Vice Chairman

MICHAEL J. ROSS
President

JEFFREY L. KARAFA
Vice President and Treasurer

DONALD G. KARCHER
Vice President

WILBER M. BRUCKER, JR.
Secretary




                                      45




<PAGE>


                          COMMUNITY BANK OF DEARBORN

                            DIRECTORS AND OFFICERS



DIRECTORS

WILBER M. BRUCKER, JR.
Retired, Attorney

MARGARET I. CAMPBELL
Retired, Consultant

JOHN E. DEMMER
Chairman of the Board and
     Chief Executive Officer
Jack Demmer Ford, Inc. and
Jack Demmer Leasing

MICHAEL V. DORIAN,  JR.
Vice President
Mike Dorian Ford

DAVID HIMICK
Financial Consultant

DONALD G. KARCHER
Chairman of the Board
Karcher Agency, Inc.

BRADLEY F. KELLER
President
Braden Associates, Inc. and
MultiGard Properties, Ltd.

JEFFREY G. LONGSTRETH
President
Prudential Christie Real Estate

RICHARD NORDSTROM
Retired, Architect

MICHAEL J. ROSS
President and Chief Executive Officer
Community Bank of Dearborn

DR. ROBERT C. SCHWYN
Physician

RONNIE J. STORY
President and Chief Executive Officer
Story Development Corp. and Story
Brothers Grading & Excavating

OFFICERS

JOHN E. DEMMER
Chairman of the Board

MICHAEL J. ROSS
President
Chief Executive Officer

TIMOTHY J. CUTTLE
Executive Vice President
Chief Lending Officer

JEFFREY L. KARAFA
Vice President
Cashier

BRIAN A. MAMO
Vice President
Commercial Lending

JEFFREY J. WOLBER
Vice President
Retail Administration

GARY AMES JR.
Controller

NANCY M. BARON
Compliance Officer

WILBER M. BRUCKER, JR.
Secretary

DANIEL A. BZURA
Branch Officer

SAMANTHA J.  MAZIASZ
Bank Administration Officer

LARRY D. MORSE
Credit Officer

DENIS T. NISSLE
Private Banking Officer

STEVEN P. SLADE
Consumer Banking Officer

DENISE STAFFELD
Mortgage Loan Officer



                                      46


<PAGE>

                          COMMUNITY BANK OF DEARBORN

                               BRANCH LOCATIONS



<TABLE>
<S>                                         <C>
Main Office                                 Hours:   9:30 AM - 4:30 PM  Monday through Friday
22290 Michigan Avenue                                9:30 AM - 6:00 PM  Friday
PO Box 2247                                          9:30 AM - 1:00 PM  Saturday, Drive-In Only
Dearborn, Michigan  48123-2247
Phone:   (313)  274-1000
Fax:     (313)  274-5050
Cynthia A. Pizzo, Branch Officer



Warren Avenue and Silvery Lane              Hours:   9:00 AM - 4:30 PM  Monday through Thursday
24935 West Warren Avenue                             9:00 AM - 6:00 PM  Friday
Dearborn Heights, Michigan  48127
Phone:   (313)  724-0100
Fax:     (313)  724-1010
Daniel A. Bzura, Branch Officer



Five Mile and Sheldon Road                  Hours:   9:00 AM - 4:30 PM  Monday through Thursday
44623 Five Mile                                      9:00 AM - 6:00 PM  Friday
Plymouth, Michigan  48170                            9:30 AM - 1:00 PM  Saturday, Walk-Up Window
Phone:   (734)  454-1000
Fax:     (734)  454-0123
Trudy J. Anderson, Branch Manager
</TABLE>



                                      47


<PAGE>




                            DEARBORN BANCORP, INC.
                            22290 Michigan Avenue
                                 PO Box 2247
                        Dearborn, Michigan 48123-2247

                            Phone: (313) 274-1000