Dearborn Bancorp (DEAR) 10-Q 2006 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly period ended March 31, 2006.

Commission file number 000-24478.

DEARBORN BANCORP, INC.

(Exact name of registrant as specified in its charter)

Michigan	38-3073622
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1360 Porter Street, Dearborn, MI     48124
(Address of principal executive office) (Zip Code)

(313) 565-5700
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of April 30, 2006.

Class	Shares Outstanding
Common Stock	5,445,953

DEARBORN BANCORP, INC.
INDEX

	Page
Part I. Financial Information:
Item 1. Financial Statements
The following consolidated financial statements of Dearborn Bancorp, Inc. and its subsidiary included in this report are:
Report of Independent Registered Public Accounting Firm		3
Consolidated Balance Sheets — March 31, 2006, December 31, 2005 and March 31, 2005		4
Consolidated Statements of Income — For the Three Months Ended March 31, 2006 and 2005		5
Consolidated Statements of Comprehensive Income — For the Three Months Ended March 31, 2006 and 2005		6
Consolidated Statements of Cash Flows — For the Three Months Ended March 31, 2006 and 2005		7
Notes to Consolidated Financial Statements		8-13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital		14-27
Item 3. Quantitative and Qualitative Disclosures about Market Risk		28-30
Item 4. Controls and Procedures		31
Part II. Other Information:
Pursuant to SEC rules and regulations, the following item(s) are included with the Form 10-Q Report:
Item 6. Exhibits and Reports on Form 8-K		32
Pursuant to SEC rules and regulations, the following items are omitted from this Form 10-Q as inapplicable or to which the answer is negative:
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5 Other Information
SIGNATURES		33
CEO Certification pursuant to Section 302
CFO Certification pursuant to Section 302
CEO Certification pursuant to Section 906
CFO Certification pursuant to Section 906

2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Dearborn Bancorp, Inc.
Dearborn, Michigan

We have reviewed the consolidated balance sheets of Dearborn Bancorp, Inc. as of March 31, 2006 and 2005 and the related consolidated statements of income and comprehensive income and the related consolidated statements of cash flows for the three month periods ended March 31, 2006 and 2005. These financial statements are the responsibility of the company’s management.

We conducted our review in accordance with standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

/s/ Crowe Chizek and Company LLC          

Grand Rapids, Michigan
April 30, 2006

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DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (unaudited)

(Dollars, in thousands)	03/31/06			12/31/05			03/31/05
ASSETS
Cash and cash equivalents
Cash and due from banks	$	12,966		$	7,118		$	10,933
Federal funds sold		11,113			2,268			7,214
Interest bearing deposits with banks		23,991			69			412
Total cash and cash equivalents		48,070			9,455			18,559
Mortgage loans held for sale		545			1,041			4,458
Securities, available for sale		11,443			17,153			19,652
Federal Home Loan Bank stock		1,293			1,293			1,134
Loans
Loans		676,233			657,037			612,472
Allowance for loan loss		(6,965	)		(6,808	)		(6,288	)
Net loans		669,268			650,229			606,184
Premises and equipment, net		13,663			13,792			14,017
Real estate owned		177			663			146
Goodwill		5,473			5,473			7,042
Other intangible assets		2,229			2,291			863
Accrued interest receivable		2,455			2,586			2,017
Other assets		2,543			2,521			2,965
Total assets	$	757,159		$	706,497		$	677,037
LIABILITIES
Deposits
Non-interest bearing deposits	$	60,689		$	59,652		$	64,978
Interest bearing deposits		571,548			522,786			482,829
Total deposits		632,237			582,438			547,807
Other liabilities
Federal funds purchased		—			—			16,060
Securities sold under agreements to repurchase		457			1,615			3,083
Federal Home Loan Bank advances		25,588			25,588			20,614
Other liabilities		350			960			1,187
Accrued interest payable		2,158			1,683			1,339
Subordinated debentures		10,000			10,000			10,000
Total liabilities		670,790			622,284			600,090
STOCKHOLDERS’ EQUITY
Common stock — 10,000,000 shares authorized, 5,445,753 shares at 03/31/06, 5,423,556 shares at 12/31/05; and 5,326,090 shares at 03/31/05		84,120			83,944			75,280
Unearned restricted stock awards		(233	)		(260	)		—
Retained earnings		2,519			573			2,109
Accumulated other comprehensive loss		(37	)		(44	)		(442	)
Total stockholders’ equity		86,369			84,213			76,947
Total liabilities and stockholders’ equity	$	757,159		$	706,497		$	677,037

The accompanying notes are an integral part of these consolidated statements.

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DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three Months Ended			Three Months Ended
(In thousands, except share and per share data)	03/31/06			03/31/05
Interest income
Interest on loans	$	11,946		$	9,702
Interest on securities, available for sale		163			140
Interest on federal funds		68			48
Interest on deposits with banks		67			2
Total interest income		12,244			9,892
Interest expense
Interest on deposits		4,873			2,886
Interest on other borrowings		320			286
Interest on subordinated debentures		195			140
Total interest expense		5,388			3,312
Net interest income		6,856			6,580
Provision for loan losses		157			464
Net interest income after provision for loan losses		6,699			6,116
Non-interest income
Service charges on deposit accounts		157			150
Fees for other services to customers		13			32
Gain on the sale of loans		81			130
Gain on the sale of other real estate owned		(54	)		87
Other income		11			2
Total non-interest income		208			401
Non-interest expenses
Salaries and employee benefits		2,432			2,307
Commissions on the origination of loans		39			65
Occupancy and equipment expense		630			634
Intangible expense		62			38
Advertising and marketing		88			114
Stationery and supplies		72			89
Professional services		183			199
Data processing		125			116
Other operating expenses		327			281
Total non-interest expenses		3,958			3,843
Income before income tax provision		2,949			2,674
Income tax provision		1,003			909
Net income	$	1,946		$	1,765
Per share data:
Net income — basic	$	0.36		$	0.33
Net income — diluted	$	0.34		$	0.31
Weighted average number of shares outstanding — basic		5,426,236			5,303,532
Weighted average number of shares outstanding — diluted		5,717,455			5,680,575

The accompanying notes are an integral part of these consolidated statements.

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DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended			Three Months Ended
(In thousands)	03/31/06			03/31/05
Net income	$	1,946		$	1,765
Other comprehensive income, net of tax
Unrealized gains on securities
Unrealized holding gains arising during period		11			328
Tax effects		(4	)		(112	)
Other comprehensive income		7			216
Comprehensive income	$	1,953		$	1,981

The accompanying notes are an integral part of these consolidated statements.

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DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended
(In thousands)		3/31/06			3/31/05
Cash flows from operating activities
Interest and fees received		$	12,375		$	9,764
Interest paid			(4,913	)		(3,080	)
Proceeds from sale of mortgage loans held for sale			5,299			8,272
Origination of mortgage loans held for sale			(4,722	)		(10,908	)
Taxes paid			(600	)		(250	)
Gain (loss) on sale of real estate owned			(54	)		87
Cash paid to suppliers and employees			(3,967	)		(4,083	)
Net cash provided by (used in) operating activities			3,418			(198	)
Cash flows from investing activities
Proceeds from calls, maturities and repayments of securities available for sale			5,735			3,289
Purchases of securities available for sale			—			(1,535	)
Purchase of Federal Home Loan Bank stock			—			(12	)
Increase in loans, net of payments received			(19,196	)		(24,970	)
Purchases of property and equipment			(108	)		(1,107	)
Net cash used in investing activities			(13,569	)		(24,335	)
Cash flows from financing activities
Increase in non-interest bearing deposits			1,045			1,913
Increase in interest bearing deposits	��		48,754			5,014
Increase in federal funds payable			—			16,060
Decrease in other borrowings			(1,158	)		(1,032	)
Exercise of stock options			125			268
Net cash provided by financing activities			48,766			22,223
Increase (decrease) in cash and cash equivalents			38,615			(2,310	)
Cash and cash equivalents at the beginning of the period			9,455			20,869
Cash and cash equivalents at the end of the period		$	48,070		$	18,559

The accompanying notes are an integral part of these consolidated financial statements.

7

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	Three Months Ended
(In thousands)	3/31/06			3/31/05
Reconciliation of net income to net cash provided by operating activities
Net income	$	1,946		$	1,765
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		157			464
Depreciation and amortization expense		237			214
Restricted stock award expense		26			—
Stock option expense		12			—
Tax benefit of stock options exercised		40			—
Accretion of discount on investment securities		(21	)		(12	)
Amortization of premium on investment securities		7			9
Amortization of intangible assets		62			38
(Increase) decrease in mortgage loans held for sale		496			(2,766	)
(Increase) decrease in interest receivable		131			(128	)
Increase in interest payable		475			232
Increase in other assets		460			85
Decrease in other liabilities		(610	)		(99	)
Net cash provided by operating activities	$	3,418			($198	)
Supplemental noncash disclosures:
Transfers from loans to real estate owned	$	39		$	904

The accompanying notes are an integral part of these consolidated financial statements.

8

DEARBORN BANCORP, INC.
FORM 10-Q (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.	Accounting and Reporting Policies
	The consolidated financial statements of Dearborn Bancorp, Inc. (the “Corporation”) include the consolidation of its only subsidiary, Community Bank of Dearborn (the “Bank”). The accounting and reporting policies of the Corporation are in accordance with accounting principles generally accepted in the United States of America and conform to practice within the banking industry.
	The consolidated financial statements of the Corporation as of March 31, 2006 and 2005, and December 31, 2005 and for the three month periods ended March 31, 2006 and 2005 reflect all adjustments, consisting of normal recurring items which are in the opinion of management, necessary for a fair presentation of the results for the interim period. The operating results for the quarter are not necessarily indicative of results of operations for the entire year.
	The consolidated financial statements as of March 31, 2006 and 2005, and for the three months ended March 31, 2006 and 2005 included herein have been prepared by the Corporation, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in interim financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and notes thereon included in the Corporation’s 2005 Annual Report to Stockholders on Form 10-K.
	Certain of the Corporation’s accounting policies are important to the portrayal of the Corporation’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these material judgments include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and determining the fair value of securities and other financial instruments and assessing other than temporary impairments of securities.

9

A.

Accounting and Reporting Policies (continued)

The Corporation adopted FAS 123, Revised on January 1, 2006. FAS 123, Revised, requires companies to record compensation cost for stock options provided to employees in return for employment service. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employment service period, which is normally the vesting period of the options. This will apply to awards granted or modified in fiscal years beginning in 2006. The effect on results of operations will depend on the level of future option grants and the calculation of the fair value of the options granted at such future date, as well as the vesting periods provided, and so cannot currently be predicted. Options granted under the 2005 Long Term Incentive Plan were “variable”, as defined by FAS 123. Upon adoption of FAS 123, Revised, the remaining unrecognized fair value of these options will be expensed over the remaining service period. Any income tax benefit for the exercise of stock options in excess of income tax expense for financial reporting purposes will be classified as a cash inflow for financing activities and a cash outflow for operating activities in the statement of cash flows. For additional information regarding the Corporation’s incentive stock plans, refer to Note C.

10

B.	Securities Available For Sale
	The amortized cost and fair value of securities available for sale are as follows (in thousands):

	March 31, 2006
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
US Treasury securities	$	10,979	$	—		($55	)	$	10,924
Mortgage backed securities		520		—		(1	)		519
Totals	$	11,499	$	—		($56	)	$	11,443

	December 31, 2005
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
US Treasury securities	$	16,665	$	—		($68	)	$	16,597
Mortgage backed securities		555		2		(1	)		556
Totals	$	17,220	$	2		($69	)	$	17,153

The amortized cost and fair value of securities available for sale at March 31, 2006 by contractual maturity are shown below (in thousands):

	Amortized		Fair
	Cost		Value
Due in three months or less	$	2,991	$	2,987
Due in three months through one year		4,002		3,972
Due in over one year through five years		3,986		3,965
Mortgage backed securities		520		519
Totals	$	11,499	$	11,443

11

The entire portfolio has a net unrealized loss of $56,000 at March 31, 2006. Securities with unrealized losses at March 31, 2006, aggregated by investment category and the length of time that the securities have been in a continuous loss position, are as follows (in thousands):

Investment category	Fair Value		Unrealized Loss
US treasury securities	$	10,924		($55	)
FHLMC preferred stock		519		(1	)
Total temporarily impaired	$	11,443		($56	)

Length of time in a continuous loss position	Fair Value		Unrealized Loss
Less than one year	$	8,465		($32	)
One to three years		2,978		(24	)
Total temporarily impaired	$	11,443		($56	)

Unrealized losses on securities, available for sale at March 31, 2006 have not been recognized because these securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable future, and the decline in fair value is believed to be largely due to changes in interest rates. The fair value is expected to recover as the bonds approach their maturity date.

The Corporation does not hold any securities in the “Held to Maturity” category nor does the Corporation hold or utilize derivatives.

12

C.	Incentive Stock Plans
	Incentive stock awards have been granted to officers and employees under two Incentive Stock Plans. The first plan is the 1994 Stock Option Plan. Options to buy common stock have been granted to officers and employees under the 1994 Stock Option Plan, which provides for issue of up to 738,729 shares. Exercise price is the market price at date of grant. The maximum option term is ten years, and options vest fully after six months from the date of grant. If an option expires or terminates without having been exercised, such option becomes available for future grant under the Plan.
	A summary of the option activity in the 1994 Plan follows:

						Weighted
	Available					Average
	for		Options			Exercise
	Grant		Outstanding			Price
Outstanding at January 1, 2006		—		469,057		$	8.82
Exercised		—		(22,197	)		5.54
Outstanding at March 31, 2006		—		446,860		$	8.99

For the options outstanding at March 31, 2006, the range of exercise prices was $4.61 to $16.15 per share with a weighted-average remaining contractual term of 5.2 years. At March 31, 2006, 446,860 options were exercisable at weighted average exercise price of $8.99 per share. There were 15,841 antidilutive options outstanding for the quarter ended March 31, 2006. There were no antidilutive options for the quarter ended March 31, 2005. The intrinsic value of options exercised during the quarter was approximately $415,000 and the intrinsic value of options outstanding at March 31, 2006 was approximately $6,037,000.

During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan, up to 315,000 shares will be granted to officers and employees of the Bank. This plan provides that stock awards may take the form of any combination of options, restricted shares, restricted share units or performance awards.

The administration of the plan, including the granting of awards and the nature of those awards is determined by the Corporation’s Compensation Committee. In October of 2005, the Corporation’s Board of Directors approved grants of stock options and restricted stock. The awards have a term of ten years and typically vest fully three years from the grant date. In order for vesting to occur, the Corporation must meet certain performance criteria over the vesting period. The expected compensation cost of the 2005 plan is being calculated assuming the Corporation’s attainment of “target” performance goals over the vesting period of the options. The actual cost of these awards could range from zero to 150% of the currently recorded compensation cost, depending on the Corporation’s actual performance.

13

C.	Incentive Stock Plans (con’t)
	Stock Options Granted — The incentive stock options were granted with exercise prices equal to market prices on the day of grant. At March 31, 2006, there were 15,839 stock options granted with a weighted average exercise price of $22.96. These options are eligible to vest fully on June 30, 2008.
	During the three months ended March 31, 2006, the Corporation recognized stock option compensation expense of $12,000. The stock options vest on June 30, 2008. Compensation cost of $49,000, $49,000 and $24,000 is expected to be recognized during 2006, 2007 and 2008, respectively.
	Restricted Stock Grants — Restricted stock totaling 11,649 shares were granted to officers on October 12, 2005. The restricted stock vests on June 30, 2008. Compensation cost of $26,000 and a tax benefit of $9,000 was recognized during the three months ended March 31, 2006. Compensation cost of $104,000, $104,000 and $52,000 will be recognized during 2006, 2007 and 2008, respectively.
	FAS 123, Revised, adopted January 1, 2006 requires certain additional disclosures beyond what was included in the Corporation’s 2005 Annual Report. The intrinsic value of options exercised during 2003, 2004 and 2005 were $572,000, $1,280,000 and $1,592,000, respectively. The intrinsic value of options outstanding at December 31, 2005 was $7,472,000 for options issued under the 1994 Stock Option Plan and $27,000 for options issued under the 2005 Long-Term Incentive Plan. The fair value of options vesting during 2003 and 2004 was $792,000 and $9,000, respectively. No options vested in 2005. Shares issued for option exercises are expected to come from authorized but unissued shares.

14

PART I — FINANCIAL INFORMATION

ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis are intended to address significant factors affecting the financial condition and results of operations of the Corporation. The discussion provides a more comprehensive review of the financial position and operating results than can be obtained from a reading of the financial statements and footnotes presented elsewhere in this report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation and Bank. Words such as “anticipates”, “believes”, “estimates”, “expects”, “forecasts”, “intends”, “is likely”, “plans”, “projects”, variations of such words and similar expressions are intended to identify such forward- looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

Future Factors include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economy. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

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General

The Corporation was formed in 1992 and the Bank was formed in 1993. Subsequently, the Bank has opened offices in several communities in Southeastern Michigan. The Corporation acquired the Bank of Washtenaw on October 29, 2004. The three branches, previously operated by the Bank of Washtenaw have been consolidated into the operations of the Bank. The date opened, branch location and branch type of each branch is listed below:

Date Opened	Location	Type of office
February 1994	22290 Michigan Avenue Dearborn, Michigan 48124	Full service retail branch with ATM
December 1995	24935 West Warren Avenue Dearborn Heights, Michigan 48127	Full service retail branch
August 1997	44623 Five Mile Road Plymouth, Michigan 48170	Full service retail branch with ATM
May 2001	1325 North Canton Center Road Canton, Michigan 48187	Full service retail branch with ATM
December 2001	45000 River Ridge Drive Clinton Township, Michigan 48038	Regional lending center
November 2002	19100 Hall Road Clinton Township, Michigan 48038	Full service retail branch with ATM
February 2003	12820 Fort Street Southgate, Michigan 48195	Full service retail branch with ATM
May 2003	3201 University Drive, Suite 180 Auburn Hills, Michigan 48326	Full service retail branch Regional lending center
October 2004	450 East Michigan Avenue Saline, MI 48176	Full service retail branch with ATM
October 2004	250 West Eisenhower Parkway Ann Arbor, MI 48103	Full service retail branch with ATM Regional lending center
October 2004	2180 West Stadium Blvd. Ann Arbor, MI 48103	Full service retail branch with ATM
December 2004	1360 Porter Street Dearborn, MI 48124	Loan production office Regional lending center

The Bank has also formed three subsidiaries that offer additional or specialized services to the Bank’s customers. The Bank’s subsidiaries, their formation date and the type of services offered are listed below:

Date Formed	Name	Services Offered
August 1997	Community Bank Insurance Agency, Inc.	Limited insurance related activities
May 2001	Community Bank Mortgage, Inc.	Origination of commercial and residential mortgage loans
March 2002	Community Bank Audit Services, Inc.	Internal auditing and compliance services for financial institutions

16

Results of Operations

The Corporation reported net income of $1,946,000 for the three month period ended March 31, 2006, compared to net income of $1,765,000 for the three month period ended March 31, 2005 an increase of $181,000 or 10%. The increase in net income was primarily due to the improvement in net interest income after provision for loan loss. The improvement in net interest income was primarily due to the increase in the commercial real estate loan and other commercial loan portfolios during the period. The increase in loans was partially funded with short term investments such as interest bearing deposits with banks, federal funds sold and floating rate securities, which carry a lower yield than loans.

Net Interest Income

2006 Compared to 2005.As noted on the two charts on the following pages, net interest income for the three month period ended March 31, 2006 was $6,856,000, compared to $6,580,000 for the same period ended March 31, 2005, an increase of $276,000 or 4%. This increase was caused primarily by the volume of interest earning assets and interest bearing liabilities and partially offset by the decreasing interest rate spread between interest earning assets and interest bearing liabilities. The Corporation’s interest rate spread was 3.38% for the three month period ended March 31, 2006, compared to 3.76% for the same period in 2005. The Corporation’s net interest margin was 4.02% for the three month period ended March 31, 2006, compared to 4.21% for the same period in 2005.

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.

17

The following table sets forth certain information relating to the Corporation’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 loan category.

	Three months ended							Three months ended
	March 31, 2006							March 31, 2005
	Average				Average			Average				Average
(In thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Interest bearing deposits with banks	$	5,558	$	67		4.89	%	$	453	$	2		1.79	%
Federal funds sold		5,975		68		4.62	%		8,248		48		2.36	%
Securities, available for sale		16,949		163		3.90	%		21,702		140		2.62	%
Loans		663,597		11,946		7.30	%		604,039		9,702		6.51	%
Sub-total earning assets		692,079		12,244		7.17	%		634,442		9,892		6.32	%
Other assets		30,072							30,915
Total assets	$	722,151						$	665,357
Liabilities and stockholders’ equity
Interest bearing deposits		537,436		4,873		3.68	%		482,392		2,886		2.43	%
Other borrowings		38,951		515		5.36	%		41,922		426		4.12	%
Sub-total interest bearing liabilities		576,387		5,388		3.79	%		524,314		3,312		2.56	%
Non-interest bearing deposits		57,795							62,936
Other liabilities		2,226							2,031
Stockholders’ equity		85,743							76,075
Total liabilities and stockholders’ equity	$	722,151						$	665,357
Net interest income			$	6,856						$	6,580
Net interest rate spread						3.38	%						3.76	%
Net interest margin on earning assets						4.02	%						4.21	%

18

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.

	Three Months Ended March 31, 2006/2005
	Change in Interest Due to:
	Average			Average		Net
(In thousands)	Balance			Rate		Change
Assets
Interest bearing deposits with banks	$	62		$	3	$	65
Federal funds sold		(26	)		46		20
Investment securities, available for sale		(46	)		69		23
Loans		1,072			1,172		2,244
Total earning assets	$	1,062		$	1,290	$	2,352
Liabilities
Interest bearing deposits	$	499		$	1,488	$	1,987
Other borrowings		(39	)		128		89
Total interest bearing liabilities	$	460		$	1,616	$	2,076
Net interest income						$	276
Net interest rate spread							(0.38	%)
Net interest margin on earning assets							(0.19	%)

Provision for Loan Losses

2006 Compared to 2005.The provision for loan losses was $157,000 for the three month period ended March 31, 2006, compared to $464,000 for the same period in 2005, a decrease of $307,000 or 66%. The provision for loan losses for the three month period ended March 31, 2006 is based on the internal analysis of the adequacy of the allowance for loan losses. The provision for loan losses was based upon management’s assessment of relevant factors, including types and amounts of non-performing loans, historical loss experience on such types of loans, and current economic conditions. The decrease in provision during 2006 was driven by changes in loan growth and the fact that during the first quarter of 2006, the Corporation recorded net charge-offs of $0 verses net charge-offs of $60,000 in the first quarter of 2005.

19

Non-interest Income

2006 Compared to 2005.Non-interest income was $208,000 for the three month period ended March 31, 2006, compared to $401,000 for the same period in 2005, a decrease of $193,000 or 48% for the period. The increase was primarily due to the decrease in the gain on the sale of real estate during the period. The Bank recognized a loss of $54,000 on the sale of a residential property during the first quarter of 2006, compared to the recognition of a gain of $87,000 during the first quarter of 2005 on the sale of a commercial building.

Non-interest Expense

2006 Compared to 2005.Non-interest expense was $3,958,000 for the three month period ended March 31, 2006, compared to $3,843,000 for the same period in 2005, an increase of $115,000 or 3% for the period. The largest component of non-interest expense was salaries and employee benefits which amounted to $2,432,000 for the three month period ended March 31, 2006, compared to $2,307,000 for the same period in 2005. The primary factors for the increase in salaries and benefits expense was the expansion of the retail banking department. As of March 31, 2006, the number of full time equivalent employees was 154 compared to 148 as of March 31, 2005. Salaries and employee benefits will continue to increase as a result of general staff increases.

The second largest component of non-interest expense was occupancy and equipment expense. Occupancy and equipment expense amounted to $630,000 for the three month period ended March 31, 2006, compared to $634,000 for the same period in 2005, a decrease of $4,000 or 1%.

Income Tax Provision

2006 Compared to 2005.The income tax expense was $1,003,000 for the three month period ended March 31, 2006, compared to $909,000 for the same period in 2005, an increase of $94,000 or 10% for the period. The increase was primarily a result of increased pre-tax income.

20

Comparison of Financial Condition at March 31, 2006 and December 31, 2005

Assets.Total assets at March 31, 2006 were $757,159,000 compared to $706,497,000 at December 31, 2005, an increase of $50,662,000 or 7%. The increase was primarily due to the increase in federal funds sold, interest bearing deposits with banks and loans during the period. The increase in federal funds and interest bearing deposits with banks is the result of an increase in deposits. These funds are invested in short-term investments until they can be deployed into loans

Federal Funds Sold.Total federal funds sold at March 31, 2006 were $11,113,000 compared to $2,268,000 at December 31, 2005, an increase of $8,845,000 or 390%. The increase in federal funds is the result of an increase in deposits. These funds are invested in these short-term investments until they can be deployed into loans

Interest bearing deposits with banks.Total interest bearing deposits with banks at March 31, 2006 were $23,991,000 compared to $69,000 at December 31, 2005, an increase of $23,922,000. This investment was established to provide the Corporation with an alternate short term investment option. This short term investment is a variable-rate certificate of deposit with the Federal Home Loan Bank of Indianapolis that carries a similar rate of return to federal funds sold. The increase in interest bearing deposits with banks is the result of an increase in deposits. These funds are invested in these short-term investments until they can be deployed into loans

Mortgage Loans Held for Sale.Total mortgage loans held for sale at March 31, 2006 were $545,000 compared to $1,041,000 at December 31, 2005, a decrease of $496,000 or 48%. This decrease was a result of the decrease in the level of residential real estate mortgage loans waiting to be purchased by mortgage correspondents.

Securities — Available for Sale.Total securities, available for sale, at March 31, 2006 were $11,443,000 compared to $17,153,000 at December 31, 2005, a decrease of $5,710,000 or 33%. The decrease was due to the maturity of securities, available for sale during 2006. The funds from the maturity of these securities were invested into federal funds sold until they can be utilized to fund loan volume.

Please refer to Note B of the Notes to Consolidated Financial Statements for the amortized cost and estimated market value of securities, available for sale. The entire portfolio has a net unrealized loss of $56,000. The unrealized loss is reflected by an adjustment to stockholders’ equity.

Federal Home Loan Bank Stock.Federal Home Loan Bank stock was valued at $1,293,000 at March 31, 2006 and 2005.

21

Loans.Total loans at March 31, 2006 were $676,233,000 compared to $657,037,000 at December 31, 2005, an increase of $19,196,000 or 3%. The increase was primarily due to the continued growth of the Bank’s commercial real estate loan portfolios during the past twelve months. Major categories of loans included in the loan portfolio are as follows (in thousands):

	03/31/06			12/31/05			03/31/05
Consumer loans	$	31,010		$	35,041		$	42,464
Commercial, financial, & other		104,515			110,805			121,126
Commercial real estate construction		127,224			118,358			86,343
Commercial real estate mortgages		366,601			345,536			316,927
Residential real estate mortgages		46,883			47,297			45,612
		676,233			657,037			612,472
Allowance for loan losses		(6,965	)		(6,808	)		(6,288	)
	$	669,268		$	650,229		$	606,184

The following is a summary of non-performing assets and problems loans (in thousands):

	03/31/06		12/31/05		03/31/05
Over 90 days past due and still accruing	$	29	$	189	$	40
Non-accrual loans		1,169		984		1,868
Total non-performing loans		1,198		1,173		1,908
Real estate owned		175		661		146
Other repossessed assets		2		2		2
Other non-performing assets		177		663		148
Total non-performing assets	$	1,375	$	1,836	$	2,056

Non-accrual loans at March 31, 2006 were $1,169,000. The distribution of non-accrual loans by loan type is as follows:

	Number of
	Loans		Balance
Consumer loans		2	$	69
Commercial, financial, & other		3		382
Commercial real estate mortgages		4		401
Residential real estate mortgages		3		317
Total non-accrual loans		12	$	1,169

22

Allowance for Loan Losses.The allowance for loan losses was $6,965,000 at March 31, 2006 compared to $6,808,000 at December 31, 2005, an increase of $157,000 or 2%. The increase resulted primarily from provisions less net charge-offs recorded during the quarter. The allowance for loan losses was based upon management’s assessment of relevant factors, including loan growth, types and amounts of non-performing loans, historical and anticipated loss experience on such types of loans, and current economic conditions.

The following is an analysis of the allowance for loan losses (in thousands):

	Quarter Ended			Year Ended			Quarter Ended
	03/31/06			12/31/05			03/31/05
Balance, beginning of year	$	6,808		$	5,884		$	5,884
Charge-offs:
Consumer loans		—			112			51
Commercial, financial & other		34			169			43
Commercial real estate construction		—			—			—
Commercial real estate mortgages		36			86			—
Residential real estate mortgages		10			—			—
Recoveries:
Consumer loans		5			37			7
Commercial, financial & other		72			131			18
Commercial real estate construction		—			—			—
Commercial real estate mortgages		3			10			9
Residential real estate mortgages		—			32			—
Net charge-offs		—			157			60
Additions charged to operations		157			1,081			464
Balance, end of period	$	6,965		$	6,808		$	6,288
Allowance to total loans		1.03	%		1.04	%		1.03	%
Allowance to nonperforming assets		505.44	%		370.81	%		305.84	%
Net charge-offs to average loans		0.00	%		0.02	%		0.01	%

23

Premises and Equipment.Bank premises and equipment at March 31, 2006 were $13,663,000 compared to $13,792,000 at December 31, 2005, a decrease of $129,000 or 1%.

Real estate owned.Real estate owned at March 31, 2006 was $177,000 compared to $663,000 at December 31, 2005, a decrease of $486,000 or 73%. Real estate owned at March 31, 2006 is comprised of three residential properties with an appraised value of $210,000. The Bank expects to sell these properties during 2006.

Goodwill and other intangible assets.Goodwill and other intangible assets were $7,702,000 at March 31, 2006 compared to $7,764,000 at December 31, 2005. The Bank has intangible assets for the estimated value of core deposit accounts and borrower relationships acquired in the acquisition of the Bank of Washtenaw. The intangible values represent the present value of the net revenue streams attributable to these intangibles. The core deposit intangible was valued at $929,000 and is being amortized over a period of ten years. The borrower relationship intangible was valued to $1,620,000 and is being amortized over a period of 17 years. At March 31, 2006, the core deposit intangible and borrower relationship intangible amounted to $718,000 and $1,511,000, respectively.

The balance of the acquisition price in excess of the fair market value of the assets and liabilities acquired, including intangible assets, was recorded as goodwill and totaled $5.5 million. Goodwill is defined as an intangible asset with an indefinite useful life, and as such, is not amortized, but is required to be tested annually for impairment of the value. If impaired, an impairment loss must be recorded for the value equal to the excess of the asset’s carrying value over its fair value. There was no impairment at December 31, 2005, when goodwill was most recently tested for impairment.

Accrued Interest Receivable.Accrued interest receivable at March 31, 2006 was $2,455,000 compared to $2,586,000 at December 31, 2005, a decrease of $131,000 or 5%. The decrease was primarily due to the decrease in the Bank’s investment portfolio.

Other Assets. Other assets at March 31, 2006 were $2,543,000 compared to $2,521,000 at December 31, 2005, an increase of $22,000 or 1%. The decrease was primarily due to changes in deferred tax assets.

24

Deposits.Total deposits at March 31, 2006 were $632,237,000 compared to $582,438,000 at December 31, 2005, an increase of $49,799,000 or 9%. The following is a summary of the distribution of deposits (in thousands):

	03/31/06		12/31/05		03/31/05
Non-interest bearing:
Demand	$	60,689	$	59,652	$	64,978
Interest bearing:
Checking	$	75,530	$	13,413	$	14,140
Money market		22,311		26,514		60,531
Savings		56,784		69,503		77,297
Time, under $100,000		146,537		151,038		131,767
Time, $100,000 and over		270,386		262,318		199,094
		571,548		522,786		482,829
Total deposits	$	632,237	$	582,438	$	547,807

Management continues to implement a strategy to change the mix of the deposit portfolio by focusing more heavily on savings and institutional deposits. The increase in deposits was primarily due to normal business development, marketing, telemarketing, referral programs and growth strategies which included a weeklong celebration in March 2006 that highlighted the Bank’s Anniversary and the introduction of a new interest checking product. Management expects deposits to grow at a more moderate rate during the remainder of 2006.

The Bank has enacted a strategy to utilize public funds to a higher degree. The Bank will also utilize brokered deposits. The Bank has designated a public funds officer to coordinate and manage these efforts. Public funds consist of interest checking and time deposits of local governmental units. They are the result of strong relationships between the Bank and the communities in the Bank’s marketing area and are considered by the Bank to be core deposits. The following is a summary of the distribution of municipal deposits (in thousands):

	03/31/06		12/31/05		03/31/05
Interest bearing checking	$	1,004	$	1,020	$	2,986
Time, $100,000 and over		92,586		85,236		67,187
Total municipal deposits	$	93,590	$	86,256	$	70,173

Brokered deposits are included in the Time, $100,000 and over category. Brokered deposits were $45,410,000, $45,140,000 and $19,390,000 at March 31, 2006, December 31, 2005 and March 31, 2005, respectively.

25

Federal Funds Purchased. Federal funds purchased were $0 at March 31, 2006 and December 31, 2005. The Bank maintains federal funds purchase credit facilities with several financial institutions as additional sources of funds that the Bank may utilize for short-term liquidity purposes.

Securities Sold Under Agreement to Repurchase. Securities sold under agreements to repurchase at March 31, 2006 were $457,000 compared to $1,615,000 at December 31, 2005, a decrease of $1,158,000 or 72%. These repurchase agreements are secured by securities held by the Bank.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances were $25,588,000 at March 31, 2006 and December 31, 2005.

Accrued Interest Payable. Accrued interest payable at March 31, 2006 was $2,158,000 compared to $1,683,000 at December 31, 2005, an increase of $475,000 or 28%. The increase was primarily due to the increase in the amount and the average rate of interest bearing deposits during the period.

Other Liabilities. Other liabilities at March 31, 2006 were $350,000 compared to $960,000 at December 31, 2005, a decrease of $610,000 or 64%. The decrease was primarily due to the decrease in expenses payable during the period.

Subordinated Debentures. Subordinated debentures were $10,000,000 at March 31, 2006 and December 31, 2005.On December 19, 2002, the Corporation issued $10,000,000 of floating rate obligated mandatory redeemable securities through a special purpose entity as part of a pooled offering. The securities have a term of thirty years. The Corporation may redeem the securities after five years at face value. They are considered to be Tier 1 capital for regulatory capital purposes. The funds from the issue of these securities were invested into securities available for sale until they can be invested into the Bank subsidiary to allow for additional growth. Debt issue costs of $300,000 have been capitalized and are being amortized over the term of the securities. Unamortized debt issuance costs were $267,000 at March 31, 2006.

26

Capital

Stockholders’ equity at March 31, 2006 was $86,369,000 compared to $84,213,000 as of December 31, 2005, an increase of $2,156,000 or 3%.

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

											Minimum
											To Be Well Capitalized
						Minimum for Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2006
Total capital (to risk weighted assets)
Consolidated	$	95,648		13.35	%	$	57,317		8.00	%	$	71,646		10.00	%
Bank		78,240		11.00	%		56,917		8.00	%		71,147		10.00	%
Tier 1 capital (to risk weighted assets)
Consolidated		88,683		12.38	%		28,658		4.00	%		42,988		6.00	%
Bank		71,275		10.02	%		28,459		4.00	%		42,688		6.00	%
Tier 1 capital (to average assets)
Consolidated		88,683		12.41	%		28,578		4.00	%		35,722		5.00	%
Bank		71,275		10.22	%		27,904		4.00	%		34,880		5.00	%
As of December 31, 2005
Total capital (to risk weighted assets)
Consolidated	$	93,281		13.29	%	$	56,147		8.00	%	$	70,184		10.00	%
Bank		75,918		10.89	%		55,756		8.00	%		69,695		10.00	%
Tier 1 capital (to risk weighted assets)
Consolidated		86,472		12.32	%		28,073		4.00	%		42,110		6.00	%
Bank		69,109		9.92	%		27,878		4.00	%		41,817		6.00	%
Tier 1 capital (to average assets)
Consolidated		86,472		12.32	%		28,074		4.00	%		35,092		5.00	%
Bank		69,109		10.09	%		27,400		4.00	%		34,250		5.00	%

Based on the respective regulatory capital ratios at March 31, 2006 and December 31, 2005, the Corporation and Bank are considered well capitalized.

27

PART I — FINANCIAL INFORMATION

ITEM 3. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity Analysis.The Corporation has sought to manage its exposure to changes in interest rates by matching the effective maturities or repricing characteristics of the Corporation’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 Corporation’s assets mature or reprice more quickly or to a greater extent that its liabilities, the Corporation’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 Corporation’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.

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.

28

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 Corporation’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 declining interest rates, the Corporation’s assets would tend to prepay faster than originally expected thus decreasing the negative gap position. In addition, some of the Corporation’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 March 31, 2006, which are expected to mature or reprice in each of the time periods shown below.

	Interest Rate Sensitivity Period
	1-90		91-365			1-5		Over
(In thousands)	Days		Days			Years		5 Years		Total
Earning assets
Federal funds sold	$	11,113	$	—		$	—	$	—	$	11,113
Interest bearing deposits with banks		23,991		—			—		—		23,991
Mortgage loans held for sale		545		—			—		—		545
Securities available for sale		2,988		3,971			3,965		519		11,443
Federal Home Loan Bank stock		1,293		—			—		—		1,293
Total loans, net of non-accrual		264,289		45,231			329,947		35,597		675,064
Total earning assets		304,219		49,202			333,912		36,116		723,449
Interest bearing liabilities
Total interest bearing deposits		279,546		199,912			92,090		—		571,548
Federal Home Loan Bank advances		—		10,000			15,588		—		25,588
Other borrowings		457		—			—		—		457
Subordinated debentures		10,000		—			—		—		10,000
Total interest bearing liabilities		290,003		209,912			107,678		—		607,593
Net asset (liability) funding gap		14,216		(160,710	)		226,234		36,116	$	115,856
Cumulative net asset (liability) funding gap	$	14,216		($146,494	)	$	79,740	$	115,856

29

Liquidity.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 include federal funds sold, securities available for sale, loan repayments, core deposits, Federal Home Loan Bank advances and a federal funds purchase credit facility.

The following tables provide information about the Bank’s contractual obligations and commitments at March 31, 2006 (in thousands):

Contractual Obligations

	Payments Due By Period
	Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years		Total
Securities sold under agreements to repurchase	$	545	$	—	$	—	$	—	$	545
Certificates of deposit		324,833		63,406		28,684		—		416,923
Long-term borrowings		10,027		15,561		—		—		25,588
Lease commitments		593		919		788		216		2,516
Subordinated debentures		—		—		—		10,000		10,000
Totals	$	335,998	$	79,886	$	29,472	$	10,216	$	455,572

Unused Loan Commitments and Letters of Credit

	Amount Of Commitment Expiration Per Period
	Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years		Total
Unused loan commitments	$	127,066	$	29,128	$	5,300	$	26,012	$	187,506
Standby letters of credit		2,408		2,289		992		—		5,689
Totals	$	129,474	$	31,417	$	6,292	$	26,012	$	193,195

30

DEARBORN BANCORP, INC. AND SUBSIDIARY
FORM 10-Q (continued)

Item 4.Controls and Procedures

Disclosure Controls and Procedures—As of the end of the period covered by this report, the registrant carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures. Based on the review of the disclosure controls of the registrant, the Chief Executive Officer and the Chief Financial Officer have concluded that the registrant’s disclosure controls and procedures were effective as of March 31, 2006.

Internal Controls Over Financial Reporting — There has been no change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting.

31

PART II — OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS IN FORM 8-K.

(a)	Exhibits
	Exhibit 31.1	CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit 31.2	CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	Exhibit 32.1	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	Exhibit 32.2	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)	A Form 8-K Report, dated January 17, 2006 was filed during the quarter ended March 31, 2006.
	A Form 8-K Report, dated January 26, 2006 was filed during the quarter ended March 31, 2006.
	A Form 8-K Report, dated March 21, 2006 was filed during the quarter ended March 31, 2006.

32

DEARBORN BANCORP, INC.
FORM 10-Q (continued)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dearborn Bancorp, Inc.

(Registrant)

/s/ John E. Demmer

John E. Demmer

Chairman

/s/ Michael J. Ross

Michael J. Ross

President and Chief Executive Officer

/s/ Jeffrey L. Karafa

Jeffrey L. Karafa

Treasurer and Chief Financial Officer

Date: May 8, 2006

33

EXHIBIT INDEX

Ex. No.	Description
Exhibit 31.1	CEO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2	CFO Certification. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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