Dearborn Bancorp (DEAR) 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly period endedJune 30, 2008.

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

For the transition period from                    to                    

Commission file number 000-24478.

DEARBORN BANCORP, INC.

(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)

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero  Accelerated filerþ  Non-accelerated filer  o
(Do not check if a smaller reporting company) Smaller reporting companyo 

Indicate by check mark if 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 July 31, 2008.

Class	Shares Outstanding
Common Stock	8,055,698

DEARBORN BANCORP, INC.
INDEX

	Page
Part I. Financial Information:
Item 1. Financial Statements
The following consolidated condensed financial statements of Dearborn Bancorp, Inc. and its subsidiary included in this report are:
Report of Independent Registered Public Accounting Firm	3
Consolidated Condensed Balance Sheets – June 30, 2008, December 31, 2007 and June 30, 2007	4
Consolidated Condensed Statements of Income — For the Three and Six Months Ended June 30, 2008 and 2007	5
Consolidated Condensed Statements of Comprehensive Income – For the Three and Six Months Ended June 30, 2008 and 2007	6
Consolidated Condensed Statements of Cash Flows — For the Six Months Ended June 30, 2008 and 2007	7
Notes to Consolidated Condensed Financial Statements	9-18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19-36
Item 3. Quantitative and Qualitative Disclosures about Market Risk	37-39
Item 4. Controls and Procedures	40
Part II. Other Information:
Pursuant to SEC rules and regulations, the following item(s) are included with the Form 10-Q Report:
Item 4. Submission of Matters to a Vote of Security Holders	41
Item 6. Exhibits and Reports on Form 8-K
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 1A. Risk Factors
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 5. Other Information
SIGNATURES	42
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders
Dearborn Bancorp, Inc.
Dearborn, Michigan

We have reviewed the accompanying consolidated condensed balance sheet of Dearborn Bancorp, Inc. as of June 30, 2008 and the related consolidated condensed statements of income and comprehensive income for the three-month and six-month periods ended June 30, 2008 and cash flows for the six month period ended June 30, 2008. These interim financial statements are the responsibility of the Corporation’s management.

We conducted our review in accordance with the standards of 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 consolidated condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

/s/ BKD, LLP

Indianapolis, Indiana
August 8, 2008

3

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED BALANCE SHEETS

	(Unaudited)						(Unaudited)
(Dollars, in thousands)	06/30/08			12/31/07			06/30/07
ASSETS
Cash and cash equivalents
Cash and due from banks	$	12,778		$	7,869		$	13,621
Federal funds sold		1,301			1,495			3,392
Interest bearing deposits with banks		147			118			104
Total cash and cash equivalents		14,226			9,482			17,117
Mortgage loans held for sale		755			1,316			1,136
Investment securities, available for sale		9,381			8,902			11,039
Federal Home Loan Bank stock		3,540			2,072			1,927
Loans
Loans		944,081			952,084			945,554
Allowance for loan loss		(16,638	)		(10,617	)		(9,949	)
Net loans		927,443			941,467			935,605
Premises and equipment, net		21,630			22,782			23,268
Real estate owned		5,411			6,319			3,008
Goodwill		34,028			34,028			32,110
Other intangible assets		10,487			11,133			13,697
Accrued interest receivable		3,757			3,816			3,833
Other assets		7,880			5,664			3,464
Total assets	$	1,038,538		$	1,046,981		$	1,046,204
LIABILITIES
Deposits
Non-interest bearing deposits	$	82,798		$	83,594		$	103,641
Interest bearing deposits		741,124			739,033			727,090
Total deposits		823,922			822,627			830,731
Other liabilities
Federal funds purchased		3,600			30,100			21,200
Securities sold under agreements to repurchase		171			480			288
Federal Home Loan Bank advances		65,401			41,370			37,130
Accrued interest payable		2,047			3,168			757
Other liabilities		1,026			1,688			3,336
Subordinated debentures		10,000			10,000			10,000
Total liabilities		906,167			909,433			903,442
STOCKHOLDERS’ EQUITY
Common stock - 20,000,000 shares authorized, 8,055,698 shares at 06/30/08, 8,222,413 shares at 12/31/07; and 8,614,819 shares at 06/30/07		133,048			134,278			138,230
Retained earnings		(688	)		3,250			4,530
Accumulated other comprehensive loss		11			20			2
Total stockholders’ equity		132,371			137,548			142,762
Total liabilities and stockholders’ equity	$	1,038,538		$	1,046,981		$	1,046,204

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

4

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)

	Three Months Ended						Six Months Ended
(In thousands, except share and per share data)	06/30/08			06/30/07			06/30/08			06/30/07
Interest income
Interest on loans, including fees	$	14,994		$	17,259		$	31,168		$	34,384
Interest on securities, available for sale		109			163			218			341
Interest on federal funds		21			109			36			277
Interest on deposits with banks		1			42			2			42
Total interest income		15,125			17,573			31,424			35,044
Interest expense
Interest on deposits		5,874			8,246			12,902			16,024
Interest on other borrowings		812			507			1,805			1,311
Interest on subordinated debentures		155			225			380			465
Total interest expense		6,841			8,978			15,087			17,800
Net interest income		8,284			8,595			16,337			17,244
Provision for loan losses		8,746			289			9,632			906
Net interest income after provision for loan losses		(462	)		8,306			6,705			16,338
Non-interest income
Service charges on deposit accounts		363			331			743			649
Fees for other services to customers		27			15			66			69
Gain on the sale of loans		51			47			104			101
Write-down of real estate owned		(100	)		(100	)		(300	)		(100	)
Loss on the sale of real estate owned		(469	)		—			(704	)		—
Other than temporary impairment of securities		—			—			—			—
Other income		73			64			147			83
Total non-interest income		(55	)		357			56			802
Non-interest expenses
Salaries and employee benefits		3,284			3,102			6,493			6,654
Occupancy and equipment expense		950			887			1,863			1,845
Intangible expense		322			336			645			672
Advertising and marketing		131			143			254			220
Stationery and supplies		171			232			304			356
Professional services		259			222			485			486
Data processing		232			204			457			328
Defaulted loan expense		511			29			946			159
Other operating expenses		568			424			1,219			846
Total non-interest expenses		6,428			5,579			12,666			11,566
Income before income tax provision		(6,945	)		3,084			(5,905	)		5,574
Income tax provision		(2,331	)		1,079			(1,967	)		1,951
Net income	$	(4,614	)	$	2,005		$	(3,938	)	$	3,623
Per share data:
Net income — basic	$	(0.57	)	$	0.23		$	(0.49	)	$	0.41
Net income — diluted	$	(0.57	)	$	0.22		$	(0.49	)	$	0.40
Weighted average number of shares outstanding – basic		8,051,037			8,769,939			8,095,379			8,833,645
Weighted average number of shares outstanding – diluted		8,051,037			9,005,730			8,095,379			9,085,837

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

5

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three Months Ended						Six Months Ended
(In thousands)	06/30/08			06/30/07			06/30/08			06/30/07
Net income	$	(4,614	)	$	2,005		$	(3,938	)	$	3,623
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during during period		(43	)		(5	)		(14	)		11
Less: reclassification adjustment for losses included in net income		—			—			—			—
Tax effects		15			2			5			(3	)
Other comprehensive income/(loss)		(28	)		(3	)		(9	)		8
Comprehensive income (loss)	$	(4,642	)	$	2,002		$	(3,947	)	$	3,631

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

6

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

	Six Months Ended
(In thousands)	6/30/2008			6/30/2007
Cash flows from operating activities
Interest and fees received	$	31,483		$	34,548
Interest paid		(17,458	)		(18,198	)
Proceeds from sale of mortgages held for sale		12,020			11,303
Origination of mortgages held for sale		(11,278	)		(10,515	)
Taxes refunded (paid)		(181	)		(1,830	)
Cash paid to suppliers and employees		(13,913	)		(12,768	)
Net cash provided by operating activities		673			2,540
Cash flows from investing activities
Proceeds from the sale of securities available for sale		6,850			18,007
Proceeds from calls, maturities and repayments of of securities available for sale		79			2,358
Purchases of securities available for sale		(7,332	)		(25,428	)
Purchase of Federal Home Loan Bank stock		(1,468	)		(639	)
Proceeds from the sale of real estate owned		6,143			—
Increase in loans, net of payments received		2,768			(10,017	)
Purchases of property and equipment		(215	)		(4,966	)
Net cash paid in Fidelity acquisition		—			(32,111	)
Net cash used in investing activities		6,825			(52,796	)
Cash flows from financing activities
Net increase (decrease) in non-interest bearing deposits		(796	)		4,568
Net increase (decrease) in interest bearing deposits		2,091			5,400
Decrease in other borrowings		(309	)		(331	)
Net increase (decrease) in federal funds payable		(26,500	)		(16,100	)
Proceeds from Federal Home Loan Bank advances		24,031			9,802
Purchase of common stock		(1,271	)		(6,263	)
Exercise of stock options		—			58
Tax benefit of stock options exercised		—			209
Net cash provided by financing activities		(2,754	)		(2,657	)
Increase (decrease) in cash and cash equivalents		4,744			(52,913	)
Cash and cash equivalents at the beginning of the period		9,482			70,030
Cash and cash equivalents at the end of the period	$	14,226		$	17,117

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

7

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Continued)

	Six Months Ended
(In thousands)	6/30/2008			6/30/2007
Reconciliation of net income to net cash provided by operating activities
Net income	$	(3,938	)	$	3,623
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		6,021			906
Depreciation and amortization expense		683			703
Restricted stock award expense		28			98
Stock option expense		13			44
Accretion of discount on investment securities		(89	)		(88	)
Amortization of intangible assets		646			672
Decrease in mortgages held for sale		561			687
(Increase) decrease in interest receivable		59			748
Increase (decrease) in interest payable		(1,121	)		(735	)
(Increase) decrease in other assets		(1,528	)		(2,402	)
Decrease in other liabilities		(662	)		(1,716	)
Net cash provided by operating activities	$	673		$	2,540
Supplemental noncash disclosures:
Transfers from loans to real estate owned	$	5,235		$	2,525
Noncash investing activities:
Fidelity Bank acquisition:
Loans acquired					178,052
Bank premises and equipment					9,214
Acquisition intangibles recorded					34,172
Other assets acquired					2,194
Deposits assumed					(187,459	)
Borrowings assumed					(1,767	)
Other liabilities assumed					(2,295	)
				$	32,111

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

8

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.	Accounting and Reporting Policies
	The consolidated condensed financial statements of Dearborn Bancorp, Inc. (the “Corporation”) include the consolidation of its only subsidiary, Fidelity Bank (the “Bank”). The accounting and reporting policies of the Corporation are in accordance with accounting principles generally accepted in the United States of America and conform to practice within the banking industry.
	The consolidated condensed financial statements of the Corporation as of June 30, 2008 and 2007, and December 31, 2007 and for the three and six month periods ended June 30, 2008 and 2007 reflect all adjustments, consisting of normal recurring items which are in the opinion of management, necessary for a fair presentation of the results for the interim period. The consolidated condensed balance sheet of the Corporation as of December 31, 2007 has been derived from the audited consolidated balance sheet as of that date. The operating results for the three and six month periods ended June 30, 2008 are not necessarily indicative of results of operations for the entire year.
	The consolidated condensed financial statements as of June 30, 2008 and 2007, and for the three and six months ended June 30, 2008 and 2007 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 2007 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 (con’t)
	Income Per Share
	Basic income per share is net income divided by the weighted average number of common shares outstanding during the period. Diluted income per share includes the dilutive effect of additional potential common shares issuable under stock options. Income per share is restated for all stock splits and dividends through the date of issue of the financial statements.
	Stock options for 485,993 and 35,244 shares of common stock were not considered in computing diluted earnings per common share for the six months ended June 30, 2008 and 2007, respectively, because they were antidilutive. All share and per share amounts have been adjusted for stock dividends.
	Effect of Newly Issued Accounting Standards
	In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. The standard is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of this statement did not have a material impact on the Corporation’s consolidated financial statements.
	In February 2006, FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Liabilities” (“SFAS 159”). Adoption of SFAS 159 is required for January 1, 2008. This statement allows, but does not require, companies to record certain assets and liabilities at their fair value. The fair value determination is made at the instrument level, so similar assets or liabilities could be partially accounted for using the historical cost method, while other similar assets or liabilities are accounted for using the fair value method. Changes in fair value are recorded through the income statement in subsequent periods. The statement provides for a one time opportunity to transfer existing assets and liabilities to fair value at the point of adoption with a cumulative effect adjustment recorded against equity. After adoption, the election to report assets or liabilities at fair value must be made at the point of their inception. The adoption of this statement did not have a material impact on the Corporation’s consolidated financial statements.

10

A.	Accounting and Reporting Policies (con’t)
	Future Accounting Matters
	Financial Accounting Standards Board Statement No. 141 (SFAS 141R), “Business Combinations (Revised 2007),” was issued in December 2007 and is effective January 1, 2009. SFAS 141R replaces SFAS 141 which applies to all transactions and other events in which one entity obtains control over one or more other businesses. SFAS 141R requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost allocation process required under SFAS 141 whereby the cost of an acquisition was allocated to the individual asset acquired and liabilities assumed based on their estimated fair value. SFAS 141R requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed.
	Under SFAS 141R, the requirements of SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities,” would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting. Instead, that contingency would be subject to the probable and estimable recognition criteria under SFAS 5, “Accounting for Contingencies.” SFAS 141R is not expected to have a significant impact on the Corporation’s financial condition or results of operations.
	Financial Accounting Standards Board Statement No. 160 (SFAS 160), “Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB Statement No. 51,”was issued in December 2007 and establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as a minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts that are attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS 160 is effective for the Corporation on January 1, 2009 and is not expected to have a significant impact on the Corporation’s financial statements.

11

A.	Accounting and Reporting Policies (con’t)
	Financial Accounting Standards Board Statement No. 161 (SFAS 161),“Disclosures About Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,”was issued in March 2008 and amends and expands the disclosure requirements of SFAS 133 to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under SFAS 133 and its related interpretations, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for the Corporation on January 1, 2009 and is not expected to have a significant impact on the Corporation’s financial statements.
B.	Securities Available For Sale
	The amortized cost and fair value of securities available for sale are as follows (in thousands):

	June 30, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
US Treasury securities	$	6,829	$	2		($2	)	$	6,829
US Government sponsored equity securities		1,004		7		—			1,011
Municipal securities		1,306		19		(13	)		1,312
Mortgage backed securities		226		3		—			229
Totals	$	9,365	$	31		($15	)	$	9,381

	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
US Treasury securities	$	6,800	$	15		($10	)	$	6,805
US Government sponsored equity securities		1,009		4		—			1,013
Municipal securities		758		16		—			774
Mortgage backed securities		305		5		—			310
Totals	$	8,872	$	40		($10	)	$	8,902

12

B.	Securities Available for Sale (con’t)
	The amortized cost and fair value of securities available for sale at June 30, 2008 by contractual maturity are shown below (in thousands):

	Amortized		Fair
	Cost		Value
Due in less than one year	$	7,833	$	7,841
Due in one year through five years		1,024		1,037
Due in greater than five years		282		274
Mortgage backed securities		226		229
Totals	$	9,365	$	9,381

The entire portfolio has a net unrealized gain of $16,000 at June 30, 2008. Securities with unrealized losses at June 30, 2008, aggregated by investment category are as follows (in thousands):

	Fair		Unrealized
	Value		Loss
US Treasury securities	$	2,985	$	(2	)
Municipal securities		535		(13	)
Total temporarily impaired	$	3,520	$	(15	)

Unrealized losses on securities, available for sale at June 30, 2008 have not been realized 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. These securities have been in a continuous loss position for less than one year.

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

13

C. Loans

Non-performing loans and impaired loans are defined differently. Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The aggregate balance in impaired loans are as follows (in thousands):

	06/30/08		12/31/07		06/30/07
Impaired loans with no allocated allowance for loan losses	$	58,386	$	27,817	$	18,482
Impaired loans with allocated allowance for loan losses		35,607		10,816		23,791
Total	$	93,993	$	38,633	$	42,273
Amount of the allowance for loan loss allocated	$	8,102	$	879	$	2,999

D. 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.

A summary of the option activity in the 1994 Plan follows:

						Weighted
	Available					Average
	for		Options			Exercise
	Grant		Outstanding			Price
Outstanding at January 1, 2008		—		453,682		$	8.29
Forfeited				(20,149	)		7.45
Outstanding at June 30, 2008		—		433,533		$	8.33

For the options outstanding at June 30, 2008, the range of exercise prices was $4.18 to $14.65 per share with a weighted-average remaining contractual term of 3.2 years. At June 30, 2008, 433,533 options were exercisable at weighted average exercise price of $8.33 per share. There were no options exercised during the quarter. The options outstanding at June 30, 2008 have no intrinsic value.

During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan, up to 347,248 shares may be granted to officers and employees of the Bank. This plan provides that stock awards may take the form of any combination of options, restricted shares, restricted share units or performance awards.

14

D. Incentive Stock Plans (con’t)

The administration of the plan, including the granting of awards and the nature of those awards is determined by the Corporation’s Compensation Committee. The Corporation’s Board of Directors approved grants of stock options and restricted stock in 2005 and 2006. 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 awards. The actual cost of these awards could range from zero to 100% of the currently recorded compensation cost, depending on the Corporation’s actual performance. The awards that were granted in 2005 vested on June 30, 2008 and the actual cost of these awards was 100% of the currently recorded compensation cost.

Stock Options Granted — The incentive stock options were granted with exercise prices equal to market prices on the day of grant. At June 30, 2008, there were 26,518 stock options outstanding with a weighted average exercise price of $13.06. At June 30, 2008, 8,733 stock options vested fully. On June 30, 2009, the 17,785 stock options are scheduled to vest fully. Stock option activity during the period is listed below:

				Weighted
				Average Modified
	Number			Exercise
	of Shares			Price
Outstanding at January 1, 2008		35,251		$	13.06
Shares Forfeited — Stock Options		(8,733	)	$	13.06
Outstanding at June 30, 2008		26,518		$	13.06
Options exercisable		8,733

The Corporation recognized stock option compensation expense of $13,000 during the six months ended June 30, 2008. Compensation cost of $14,000 and $7,000 is expected to be recognized during 2008 and 2009, respectively.

15

D. Incentive Stock Plans (con’t)

Restricted Stock Grants — Restricted stock was awarded to officers in 2005 and 2006. The restricted stock is eligible to vest three years from grant date. Upon full vesting, restricted shares are transferred to common shares. On June 30, 2008, 6,223 restricted             shares vested fully and were transferred to common shares. At June 30, 2008, there were 11,510 shares of restricted stock outstanding. The restricted stock activity for the period is listed below:

	Number			Modification Date
	of Shares			Value per Share
Outstanding at December 31, 2007		23,956		$	13.06
Restricted Shares Forfeited		(6,223	)
Restricted Shares transferred to Common Shares		(6,223	)
Outstanding at June 30, 2008		11,510		$	13.06

The Corporation recognized restricted stock compensation expense of $28,000 during the six months ended June 30, 2008. Compensation cost of $27,000 and $13,000 is expected to be recognized during 2008 and 2009, respectively.

E. Fair Value of Assets and Liabilities

Effective January 1, 2008, the Corporation adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 has been applied prospectively as of the beginning of 2008.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 –	Quoted prices in active markets for identical assets or liabilities
Level 2 –	Observable inputs other than Level 1 prices, such as quoted prices for similar similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3 –	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

16

E. Fair Value of Assets and Liabilities ( con’t)

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to our valuation hierarchy.

Securities available for sale

Fair values of securities, available for sale are estimated by a third party using inputs that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy.

The following table presents the fair value measurements of the Corporation’s assets and liabilities recognized in the accompanying balance sheet measured at fair value on a recurring basis and the level within the SFAS 157 fair value hierarchy in which the fair value measurements fall at June 30, 2008 (in thousands):

					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Securities, available for sale	$	9,381	$	6,829	$	2,552	$	—

The change in unrealized gains on securities, available for sale during the six months ended June 30, 2008 was ($14,000).

Impaired Loans

Loan impairment is reported when full payment under the loan terms is not expected. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectability of the loan is confirmed. During the six month period ended June 30, 2008, certain impaired loans were partially charged-off or re-evaluated. This valuation would be considered Level 3, consisting of appraisals of underlying collateral and discounted cash flow analysis.

17

E. Fair Value of Assets and Liabilities ( con’t)

The following table presents the fair value measurements of the Corporation’s assets and liabilities recognized in the accompanying balance sheet measured at fair value on a non-recurring basis and the level within the SFAS 157 fair value hierarchy in which the fair value measurements fall at June 30, 2008 (in thousands):

			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
Loans	$	27,672	$	—	$	—	$	27,672

18

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.

19

Company Overview

Dearborn Bancorp, Inc. was incorporated as a Michigan business corporation on September 30, 1992. The Corporation was formed to acquire all of the Bank’s issued and outstanding stock and to engage in the business of a bank holding corporation under the Bank Holding Company Act of 1956, as amended (the “Act”).

Community Bank of Dearborn (the “Bank”), a Michigan banking corporation, commenced business on February 28, 1994 in Dearborn, Michigan. On April 30, 2007, Community Bank of Dearborn was renamed Fidelity Bank. Management believes that its new name, Fidelity Bank represents a more accurate portrayal to our customers and prospects of the financial products and services offered by the Bank and the Bank’s market area.

The Bank is the only commercial bank headquartered in Dearborn, Michigan and offers a full line of loan and deposit products and services. The Bank offers excellent customer service to its loan and deposit customers and maintains strong relationships with the communities served by the Bank. The Bank emphasizes strong loan quality, excellent customer service and efficient operations in order to maximize profitability and shareholder value.

Subsequent to the commencement of business in Dearborn, Michigan in 1994, the Bank opened five additional offices in Wayne County, Michigan. Since 2001, the Bank opened two offices in Macomb County, Michigan and in 2003, the Bank opened an office in Oakland County, Michigan.

In 2004, the Corporation acquired the Bank of Washtenaw from Pavillion Bancorp. The Bank of Washtenaw’s three banking offices, all of which are located in Washtenaw County, Michigan were successfully consolidated into the Bank.

In 2007, the Corporation acquired Fidelity Financial Corporation of Michigan (Fidelity), a commercial bank with seven offices in Oakland County, Michigan. The acquisition has significantly expanded the Bank’s presence in Oakland County, Michigan. Management believes that the acquisition will be beneficial to the Bank’s customers and the Corporation’s shareholders. Additionally, the Bank opened a full service banking office in Shelby Township, Michigan on April 30, 2007. The Bank currently operates nineteen banking offices in Wayne, Macomb, Oakland and Washtenaw Counties, Michigan.

The Bank has also formed two 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
March 2002	Community Bank Audit Services, Inc.	Internal auditing and compliance
		services for financial institutions

The date opened, branch location and branch type of each branch is listed on the following page:

20

Date Opened	Location	Type of office
February 1994	22290 Michigan Avenue Dearborn, Michigan 48123	Full service retail branch with ATM Regional lending center
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
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 certer
October 2004	2180 West Stadium Blvd. Ann Arbor, MI 48103	Full service retail branch with ATM
December 2004	1360 Porter Street Dearborn, MI 48123	Loan production office Regional lending center
January 2007	1040 E. Maple Birmingham, MI 48009	Full service retail branch with ATM Regional lending certer
January 2007	3681 W. Maple Birmingham, MI 48301	Full service retail branch with ATM
January 2007	30700 Telegraph Bingham Farms, MI 48025	Full service retail branch with ATM
January 2007	20000 Twelve Mile Road Southfield, MI 48076	Full service retail branch with ATM
January 2007	26555 Evergreen Southfield, MI 48076	Full service retail branch with ATM
January 2007	200 Galleria Officenter Southfield, MI 48034	Full service retail branch with ATM
April 2007	7755 23 Mile Road Shelby Township, MI 48075	Full service retail branch with ATM

21

The Bank has sustained substantial asset growth. The expansion of our commercial banking department has been a primary element in the Bank’s asset growth. This growth has been funded primarily by deposits. The Corporation expects to continue its growth in the Metropolitan Detroit market and look for additional acquisitions as they become available.

The Corporation’s earnings depend primarily on net interest income. Management strives to maximize net interest income through monitoring the economic and competitive environment and making appropriate adjustments in the characteristics and pricing of our products and services.

Other factors that contribute significantly to our earnings are the maintenance of asset quality and efficient operations. Management continually monitors the quality of the loan portfolio and the impact of the economic and competitive environment and takes appropriate measures to maintain asset quality.

The Bank’s market area consists primarily of the Metropolitan Detroit area. This is a large real estate market and the Bank’s loan portfolio accounts for less than one percent of this market. The Detroit real estate market has been negatively impacted by the unfavorable economic conditions in the State of Michigan. Despite the local economy and its impact on most industries, many local industries and economies are performing well. The Bank has maintained strong underwriting guidelines and utilizes a diligent loan review process.

The Corporation recorded a net loss of ($4,614,000) and ($3,938,000) during the three and six month periods ended June 30, 2008. The primary factor affecting net income during the period was the provision for loan losses which amounted to $8,746,000 and $9,432,000 for the three and six month periods ended June 30, 2008. The increase in the provision for loan loss was primarily the result of the charge-off of several loans during the period and the deterioration of the collateral values of real estate that secures many loans in the Bank’s portfolio. Net charge-offs amounted to $2,857,000 and $3,611,000 during the three and six month periods ended June 30, 2008.

Another significant factor was the costs related to real estate owned, which included defaulted loan expense of $568,000 and $1,219,000, write-downs to real estate owned of $100,000 and $300,000 and losses on the sale of real estate of $469,000 and $704,000 for the three and six month periods ended June 30, 2008, respectively. Compression of net interest income during the period was also a significant factor in the decline in net income. The decrease in net interest income was the result of the increasing amount of non-performing loans and competitive pricing pressure in both loan and deposit generation.

22

Results of Operations

The Corporation reported a net loss of ($4,614,000) and ($3,938,000) for the three month and six month periods ended June 30, 2008, compared to net income of $2,005,000 and $3,623,000 for the three and six month periods ended June 30, 2007, a decrease of $6,619,000 or 330% for the three month period and $7,561,000 or 209% for the six month period. The decrease in net income was primarily due to the increase in provision for loan loss. Other factors were the increased costs related to real estate owned and the decline in net interest income.

The increase in provision for loan loss is the result of $3,611,000 in net charge-offs during the year and increased risk in the loan portfolio, primarily due to the impact of poor economic conditions. The increased costs related to real estate owned were comprised of write-downs to the values of specific properties, losses recognized upon the sale of specific properties and increased holding costs of real estate owned, which were comprised primarily of the payment of property taxes and insurance and increased maintenance costs. The decrease in net interest income is primarily due to the transfer of performing loans to non-accrual status.

Net Interest Income

2008 Compared to 2007.As noted on the two charts on the following pages, net interest income for the three and six month periods ended June 30, 2008 was $8,284,000 and $16,337,000, compared to $8,595,000 and $17,244,000 for the same periods in 2007, a decrease of $311,000 or 4% for the three month period and $907,000 or 5% for the six month period. This decrease was caused primarily by the decreasing yield on loans caused by the increase in non-performing loans. The Corporation’s interest rate spread was 2.95% and 2.85% for the three and six month periods June 30, 2008, compared to 2.81% and 2.82 for the same periods in 2007. The Corporation’s net interest margin was 3.45% and 3.40% for the three and six month periods ended June 30, 2008, compared to 3.58% and 3.59 for the same periods in 2007.

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.

23

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 June 30,							Three months ended June 30,
	2008							2007
	Average				Average			Average				Average
(In thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Interest-bearing deposits with banks	$	206	$	1		1.95	%	$	3,570	$	42		4.73	%
Federal funds sold		4,802		21		1.76	%		8,344		109		5.25	%
Investment securities, available for sale		12,838		109		3.41	%		12,883		163		5.09	%
Loans		948,591		14,994		6.36	%		941,259		17,259		7.37	%
Sub-total earning assets		966,437		15,125		6.29	%		966,056		17,573		7.32	%
Other assets		81,986							83,599
Total assets	$	1,048,423						$	1,049,655
Liabilities and stockholders’ equity
Interest bearing deposits	$	723,733	$	5,874		3.26	%	$	749,303	$	8,246		4.43	%
Other borrowings		99,957		967		3.89	%		51,699		732		5.69	%
Sub-total interest bearing liabilities		823,690		6,841		3.34	%		801,002		8,978		4.51	%
Non-interest bearing deposits		83,614							99,918
Other liabilities		3,117							4,910
Stockholders’ equity		138,002							143,825
Total liabilities and stockholders’ equity	$	1,048,423						$	1,049,655
Net interest income			$	8,284						$	8,595
Net interest rate spread						2.95	%						2.81	%
Net interest margin on earning assets						3.45	%						3.58	%

24

	Six months ended June 30,							Six months ended June 30,
	2008							2007
	Average				Average			Average				Average
(In thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Interest-bearing deposits with banks	$	193	$	2		2.08	%	$	1,934	$	42		4.36	%
Federal funds sold		3,427		36		2.11	%		9,321		277		5.96	%
Investment securities, available for sale		12,393		218		3.53	%		13,657		341		5.01	%
Loans		948,000		31,168		6.59	%		938,786		34,384		7.35	%
Sub-total earning assets		964,013		31,424		6.54	%		963,698		35,044		7.29	%
Other assets		82,192							80,859
Total assets	$	1,046,205						$	1,044,557
Liabilities and stockholders’ equity
Interest bearing deposits	$	714,982	$	12,902		3.62	%	$	737,350	$	16,024		4.36	%
Other borrowings		106,275		2,185		4.12	%		61,353		1,776		5.81	%
Sub-total interest bearing liabilities		821,257		15,087		3.68	%		798,703		17,800		4.47	%
Non-interest bearing deposits		83,233							96,093
Other liabilities		3,674							4,693
Stockholders’ equity		138,041							145,068
Total liabilities and stockholders’ equity	$	1,046,205						$	1,044,557
Net interest income			$	16,337						$	17,244
Net interest rate spread						2.85	%						2.82	%
Net interest margin on earning assets						3.40	%						3.59	%

25

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									Six Months Ended
	2008/2007									2008/2007
	Change in Interest Due to:									Change in Interest Due to:
	Average			Average			Net			Average			Average			Net
(In thousands)	Balance			Rate			Change			Balance			Rate			Change
Assets
Interest bearing deposits with banks	$	(16	)	$	(25	)	$	(41	)	$	(18	)	$	(22	)	$	(40	)
Federal funds sold		(15	)		(73	)		(88	)		(61	)		(180	)		(241	)
Investment securities, available for sale		—			(54	)		(54	)		(25	)		(98	)		(123	)
Loans		129			(2,394	)		(2,265	)		312			(3,528	)		(3,216	)
Total earning assets	$	98		$	(2,546	)	$	(2,448	)	$	208		$	(3,828	)	$	(3,620	)
Liabilities
Interest bearing deposits	$	(196	)	$	(2,176	)	$	(2,372	)	$	(396	)	$	(2,726	)	$	(3,122	)
Other borrowings		468			(233	)		235			925			(516	)		409
Total interest bearing liabilities	$	272		$	(2,409	)	$	(2,137	)	$	529		$	(3,242	)	$	(2,713	)
Net interest income							$	(311	)							$	(907	)
Net interest rate spread								0.15	%								0.03	%
Net interest margin on earning assets								(0.13	%)								(0.19	%)

Provision for Loan Losses

2008 Compared to 2007.The provision for loan losses was $8,746,000 and $9,632,000 for the three and six month periods ended June 30, 2008, compared to $289,000 and $906,000 for the same periods in 2007, an increase of $8,457,000 or 2926% for the three month period and $8,726,000 or 963% for the six month period. The provision for loan losses for the three and six month periods ended June 30, 2008 is based on the internal analysis of the adequacy of the allowance for loan losses. The increase in the provision for loan loss was primarily the result of the charge-off of several loans during the period and the deterioration of the collateral values of real estate that secures many loans in the Bank’s portfolio. Net charge-offs amounted to $2,857,000 and $3,611,000 during the three and six month periods ended June 30, 2008. 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.

26

Non-interest Income

2008 Compared to 2007.Non-interest income was ($55,000) and $56,000 for the three and six month periods ended June 30, 2008, compared to $357,000 and $802,000 for the same periods in 2007, a decrease of $412,000 or 115% for the three month period and $746,000 or 93% for the six month period. The decrease was entirely due to the write-down of real estate owned and the loss on the sale of real estate owned. The loss on the sale of real estate owned was the result of the sale of eleven bank-owned properties.

When these transactions related to real estate owned are excluded, non-interest income for the three and six months ended June 30, 2008 amounts to $514,000 and $1,060,000 compared to $457,000 and $902,000 during the same period in 2007, an increase of $57,000 or 12% for the three month period and $158,000 or 18% for the six month period. This increase is primarily caused by the increase in service charges on deposit accounts.

Non-interest Expense

2008 Compared to 2007.Non-interest expense was $6,428,000 and $12,666,000 for the three and six month periods ended June 30, 2008, compared to $5,579,000 and $11,566,000 for the same periods in 2007, an increase of $849,000 or 15% for the three month period and $1,100,000 or 10% for the six month period. The increase was primarily due to defaulted loan expense which amounted to $511,000 and $946,000 during the three and six month periods ended June 30, 2008 compared to $29,000 and $159,000 during the same periods in 2007, an increase of $482,000 or 1662% for the three month period and $787,000 or 495% for the six month period. This increase was primarily due to the payment of property taxes and insurance in 2008 for real estate owned.

The largest component of non-interest expense was salaries and employee benefits which amounted to $3,284,000 and $6,493,000 for the three and six month periods ended June 30, 2008, compared to $3,102,000 and $6,654,000 for the same periods in 2007, an increase of $182,000 or 6% for the three month period and a decrease of $161,000 or 2% for the six month period. The primary factor for the decrease in salaries and benefits expense during the six month period was the cost of severance payments made to former employees of Fidelity during the three months ended March 31, 2007. As of June 30, 2008, the number of full time equivalent employees was 218 compared to 214 as of June 30, 2007. Salaries and employee benefits are expected to increase as a result of general staff increases.

Income Tax Provision

2008 Compared to 2007.The income tax benefit was $2,331,000 and $1,967,000 for the three and six month periods ended June 30, 2008, compared to income tax expense of $1,079,000 and $1,951,000 for the same period in 2007. The decrease was primarily a result of the pre-tax loss during the three and six month periods ended June 30, 2008.

27

Comparison of Financial Condition at June 30, 2008 and December 31, 2007

Assets.Total assets at June 30, 2008 were $1,038,538,000 compared to $1,046,981,000 at December 31, 2007, a decrease of $8,443,000 or 1%. The decrease was primarily due to the decrease in loans.

Federal Funds Sold.Total federal funds sold at June 30, 2008 were $1,301,000 compared to $1,495,000 at December 31, 2007, a decrease of $194,000 or 12%. The decrease in federal funds sold is the result of normal fluctuations in overnight operating balances that are carried at various correspondent banks.

Interest bearing deposits with banks.Total interest bearing deposits with banks at June 30, 2008 were $147,000 compared to $118,000 at December 31, 2007, an increase of $29,000 or 25%. 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 decrease in interest bearing deposits with banks is the result of normal operating activities.

Mortgage Loans Held for Sale.Total mortgage loans held for sale at June 30, 2008 were $755,000 compared to $1,316,000 at December 31, 2007, a decrease of $561,000 or 43%. 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 June 30, 2008 were $9,381,000 compared to $8,902,000 at December 31, 2007, an increase of $479,000 or 5%.

Please refer to Note B of the Notes to Consolidated Condensed Financial Statements for the amortized cost and estimated market value of securities, available for sale. The entire portfolio has a net unrealized gain of $16,000 at June 30, 2008. The unrealized gain, net of tax is reflected by an adjustment to stockholders’ equity.

Federal Home Loan Bank Stock.Federal Home Loan Bank stock was valued at $3,540,000 at June 30, 2008 compared to $2,072,000 at December 31, 2007, an increase of $1,468,000 or 71%. Additional Federal Home Loan Bank stock was purchased as a result of securing additional advances from the Federal Home Loan Bank.

Loans.Total loans at June 30, 2008 were $944,081,000 compared to $952,084,000 at December 31, 2007, a decrease of $8,003,000 or 1%. The decrease was primarily due to the transfer of loans to real estate owned. Major categories of loans included in the loan portfolio are as follows (in thousands):

28

	06/30/08			12/31/07			06/30/07
Consumer loans	$	33,206		$	35,833		$	35,666
Commercial, financial, & other		170,402			174,958			181,099
Land development loans — residential property		60,170			63,639			67,025
Land development loans — non residential property		21,000			10,156			12,078
Commercial real estate construction — residential property		20,605			33,768			33,961
Commercial real estate construction — non residential property		35,087			40,187			34,834
Commercial real estate mortgages		549,145			539,306			527,805
Residential real estate mortgages		54,466			54,237			53,086
		944,081			952,084			945,554
Allowance for loan losses		(16,638	)		(10,617	)		(9,949	)
	$	927,443		$	941,467		$	935,605

Non-performing loans and impaired loans are defined differently. Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The aggregate balance in impaired loans are as follows (in thousands):

	06/30/08		12/31/07		06/30/07
Impaired loans with no allocated allowance for loan losses	$	58,386	$	27,817	$	18,482
Impaired loans with allocated allowance for loan losses		35,607		10,816		23,791
Total	$	93,993	$	38,633	$	42,273
Amount of the allowance for loan loss allocated	$	8,102	$	879	$	2,999

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

	06/30/08		12/31/07		06/30/07
Troubled debt restructuring		13,145		21,077		—
Over 90 days past due and still accruing		7,319		884		2,217
Non-accrual loans		36,195		18,117		14,941
Total non-performing loans		56,659		40,078		17,158
Real estate owned		5,411		6,319		3,008
Other repossessed assets		—		—		—
Other non-performing assets		5,411		6,319		3,008
Total non-performing assets	$	62,070	$	46,397	$	20,166

29

Non-accrual loans at June 30, 2008 were $36,195,000, compared to $18,117,000 at December 31, 2007. The increase in non-accrual loans during the period was primarily due to the downgrading of 41 loans $25,372,000 less twenty-eight loans for $7,100,000 that were transferred to real estate owned or repayed. The Bank’s impairment analysis indicated that the loans downgraded to non-accrual status during the period required a specific allowance of $3,461,000 in the allowance for loan losses at June 30, 2008. The distribution of loans added to non-accrual status by loan type (in thousands) is as follows:

	Number of
	Loans		Balance
Consumer loans		—	$	—
Commercial, financial, & other		11		1,542
Land development loans — residential property		2		5,748
Land development loans — non residential property		—		—
Commercial real estate construction — residential property		4		6,492
Commercial real estate construction — non residential property		—		—
Commercial real estate mortgages		18		10,571
Residential real estate mortgages		6		1,019
Total non-accrual loans		41	$	25,372

The distribution of non-accrual loans by loan type (in thousands) is as follows:

	Number of
	Loans		Balance
Consumer loans		3	$	161
Commercial, financial, & other		17		2,196
Land development loans — residential property		7		9,422
Land development loans — non residential property		1		3,950
Commercial real estate construction — residential property		1		5,098
Commercial real estate construction — non residential property		5		3,213
Commercial real estate mortgages		20		10,713
Residential real estate mortgages		10		1,442
Total non-accrual loans		64	$	36,195

Loans over 90 days past due and still accruing at June 30, 2008 were $7,319,000 compared to $884,000 at December 31, 2007. These loans have not been transferred to non-accrual status generally because there is an expectation that the resolution of the cause of the delinquent status of the loan is imminent. The increase during the period was primarily due to classification of two construction loans and five commercial real estate loans that amount to $6,045,000 as over 90 days past due and still accruing. The construction loans have a balance of $1,077,000 and are well collateralized. Full payment on one of the commercial real estate loans with a balance of $2,179,000 is expected as the sale of the underlying collateral is currently being considered. Three commercial real estate loans amounting to $1,354,000 are well collateralized and are currently making payments. Two commercial real estate loans amounting to $1,435,000 will be transferred to non-accrual during the third quarter of 2008. These loans required a specific allowance of $167,000 in the allowance for loan losses at June 30, 2008.

30

Loans that qualify as troubled debt restructuring amounted to $13,145,000 and $21,077,000 at June 30, 2008 and December 31, 2007, respectively. These loans qualified as troubled debt restructuring primarily due to the temporary change in payment type from principal and interest to interest only or the renewal of interest reserves when current loan to value ratios were outside of our loan policy. The decrease in loans qualified as troubled debt restructuring from December 31, 2007 to June 30, 2008 is due to the fact that these loans are performing in compliance with the restructured terms. One loan that was classified as troubled debt restructuring at December 31, 2007 with balances of $3,379,000 is not in compliance with their renegotiated terms. This loan is categorized as non-accrual at June 30, 2008. The remainder of the loans categorized as troubled debt restructuring at December 31, 2007 are in compliance with their modified terms and therefore, are not considered to be troubled debt restructuring at June 30, 2008. The specific allowance of loans categorized as troubled debt restructuring was $0 and $300,000 at June 30, 2008 and December 31, 2007, respectively.

The value of the collateral that supports our construction and commercial real estate loan portfolio has deteriorated significantly primarily due to the economic conditions in Southeast Michigan. At the time of origination, these loans were well-collateralized loans with well established real estate developers and home builders. The Bank has formed a committee that meets bi-weekly to discuss non-performing assets and added three commercial lenders specializing in dealing with workout situations. These lenders are responsible for monitoring these loans and dealing with those loans that might become troubled as well as disposing of properties that have been transferred to real estate owned. The Corporation’s strong capital position allows management to deal aggressively with the asset problems that have already been identified as well as those that may develop in the future.

Allowance for Loan Losses.The allowance for loan losses was $16,638,000 at June 30, 2008 compared to $10,617,000 at December 31, 2007, an increase of $6,021,000 or 57%. 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.

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

	Six Months						Six Months
	Ended			Year Ended			Ended
	06/30/08			12/31/07			06/30/07
Balance, beginning of year	$	10,617		$	7,775		$	7,775
Allowance on loans acquired		—			1,704			1,704
Charge-offs:
Consumer loans		176			226			87
Commercial, financial & other		3,127			914			84
Land development loans — residential property		—			1,665			143
Land development loans — non residential property		—			—			—
Commercial real estate construction — residential property		58			1,291			—
Commercial real estate construction — non residential property		—			—			—
Commercial real estate mortgages		190			662			—
Residential real estate mortgages		106			320			320
Recoveries:
Consumer loans		11			25			6
Commercial, financial & other		31			224			174
Land development loans — residential property		—			—			—
Land development loans — non residential property		—			—			—
Commercial real estate construction — residential property		—			6			—
Commercial real estate construction — non residential property		—			—			—
Commercial real estate mortgages		4			140			20
Residential real estate mortgages		—			—			—
Net charge-offs (recoveries)		3,611			4,683			436
Provision for loan losses		9,632			5,821			906
Balance, end of period	$	16,638		$	10,617		$	9,949
Allowance to total loans		1.76	%		1.12	%		1.05	%

Premises and Equipment.Bank premises and equipment at June 30, 2008 were $21,630,000 compared to $22,782,000 at December 31, 2007, a decrease of $1,152,000 or 5%. The decrease is primarily due to the transfer of a building to other assets and depreciation during the period.

Real estate owned.Real estate owned at June 30, 2008 was $5,411,000 compared to $6,319,000 at December 31, 2007, a decrease of $908,000 or 15%. Real estate owned at June 30, 2008 is comprised of eleven residential properties, three commercial properties, eighteen building lots and two acres of vacant commercial land. The estimated market value of real estate owned at June 30, 2008 was approximately $7,500,000.

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Goodwill and other intangible assets.Goodwill and other intangible assets were $44,515,000 at June 30, 2008 compared to $45,161,000 at December 31, 2007, a decrease of $646,000 or 1%. 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 and Fidelity. The intangible values represent the present value of the net revenue streams attributable to these intangibles. The gross carrying amount and accumulated amortization of these intangible assets at June 30, 2008 was as follows (in thousands):

	Gross
	Carrying		Accumulated
	Amount		Amortization
Core deposit intangible from acquisition of:
Bank of Washtenaw	$	929	$	439
Fidelity Financial Corporation of Michigan		6,863		1,180
Total core deposit intangible	$	7,792	$	1,619
Borrower relationship intangible from acquisition of:
Bank of Washtenaw	$	1,620	$	453
Fidelity Financial Corporation of Michigan		3,558		411
Total borrower relationship intangible	$	5,178	$	864
Total intangible assets	$	12,970	$	2,483

The core deposit intangible is being amortized over a period of ten years and the borrower relationship intangible is being amortized over a period of 17 years. At June 30, 2008, the core deposit intangible and borrower relationship intangible amounted to $6,173,000 and $4,314,000, 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 $34,028,000. 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, 2007, when goodwill was most recently tested for impairment. Management analyzes the impairment of goodwill quarterly. Based on Management’s Step 1 analysis of goodwill at June 30, 2008, there is no impairment of goodwill.

Accrued Interest Receivable.Accrued interest receivable at June 30, 2008 was $3,757,000 compared to $3,816,000 at December 31, 2007, a decrease of $59,000 or 2%. The decrease was primarily due to the decrease in loans.

Other Assets. Other assets at June 30, 2008 were $7,880,000 compared to $5,664,000 at December 31, 2007, an increase of $2,216,000 or 39%. The decrease was primarily due to changes in deferred tax assets and the transfer of a building available for sale.

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Deposits.Total deposits at June 30, 2008 were $823,922,000 compared to $822,627,000 at December 31, 2007, an increase of $1,295,000. The following is a summary of the distribution of deposits (in thousands):

	06/30/08		12/31/07		06/30/07
Non-interest bearing:
Demand	$	82,798	$	83,594	$	103,641
Interest bearing:
Checking	$	78,865	$	65,196	$	71,454
Money market		99,761		106,145		121,795
Savings		68,431		29,814		35,097
Time, under $100,000		187,628		193,852		158,689
Time, $100,000 and over		306,439		344,026		340,055
		741,124		739,033		727,090
Total deposits	$	823,922	$	822,627	$	830,731

The increase in deposits was primarily due to the shifting between deposit categories as interest rates stabilized. Deposits in the Time, $100,000 and over category matured and were not renewed. These funds were replaced primarily by other retail deposits in the interest bearing checking and savings categories. Management continues to implement a strategy to change the mix of the deposit portfolio by focusing more heavily on transaction accounts. The Bank recently completed a weeklong celebration in March 2008 that highlighted the Bank’s Anniversary and the promotion of a demand deposit product. Management expects deposits to grow marginally during the remainder of 2008.

The Bank has enacted a strategy to utilize retail deposits, public funds and brokered deposits as the primary funding source for the Bank’s growth. The mix of these sources is determined by the Bank’s Asset and Liability Committee. The Bank has designated a public funds officer to coordinate and manage efforts to utilize public funds and brokered deposits. 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):

	06/30/08		12/31/07		06/30/07
Interest bearing checking	$	1,728	$	1,740	$	1,768
Time, $100,000 and over		96,339		109,695		112,947
Total municipal deposits	$	98,067	$	111,435	$	114,715

Brokered deposits are included in the Time, $100,000 and over category. Brokered deposits were $31,932,000, $32,800,000 and $53,737,000 at June 30, 2008, December 31, 2007 and June 30, 2007, respectively.

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Federal Funds Purchased. Federal funds purchased were $3,600,000 at June 30, 2008, compared to $30,100,000 at December 31, 2007, a decrease of $26,500,000 or 88%. 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 June 30, 2008 were $171,000 compared to $480,000 at December 31, 2007, a decrease of $309,000 or 64%. These repurchase agreements are secured by securities held by the Bank.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances were $65,401,000 at June 30, 2008 compared to $41,370,000 at December 31, 2007, an increase of $24,031,000 or 58%. The increase was primarily due to the borrowing of additional advances by the Bank during the period.

Accrued Interest Payable. Accrued interest payable at June 30, 2008 was $2,047,000 compared to $3,168,000 at December 31, 2007, a decrease of $1,121,000 or 35%. The decrease was primarily due to the decreasing cost of deposits.

Other Liabilities. Other liabilities at June 30, 2008 were $1,026,000 compared to $1,688,000 at December 31, 2007, a decrease of $662,000 or 39%. The decrease was primarily due to the increase in expenses payable during the period.

Subordinated Debentures. Subordinated debentures were $10,000,000 at June 30, 2008 and December 31, 2007.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 entirely amortized.

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Capital

Stockholders’ equity at June 30, 2008 was $132,371,000 compared to $137,548,000 as of December 31, 2007, a decrease of $5,177,000 or 3%. The decrease was primarily due to the net loss during the period and the repurchase of 131,000 common shares by the Corporation during the period.

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 June 30, 2008
Total capital
(to risk weighted assets)
Consolidated		109,960		11.46	%		76,770		8.00	%		N/A		N/A
Bank		107,192		11.20	%		76,595		8.00	%		95,743		10.00	%
Tier 1 capital
(to risk weighted assets)
Consolidated		97,934		10.21	%		38,385		4.00	%		N/A		N/A
Bank		95,166		9.94	%		38,297		4.00	%		57,446		6.00	%
Tier 1 capital
(to average assets)
Consolidated		97,934		9.76	%		40,156		4.00	%		N/A		N/A
Bank		95,166		9.52	%		39,985		4.00	%		49,981		5.00	%
As of December 31, 2007
Total capital
(to risk weighted assets)
Consolidated		112,984		11.57	%		78,108		8.00	%		N/A		N/A
Bank		110,486		11.34	%		77,972		8.00	%		97,465		10.00	%
Tier 1 capital
(to risk weighted assets)
Consolidated		102,367		10.48	%		39,054		4.00	%		N/A		N/A
Bank		99,869		10.25	%		38,956		4.00	%		58,479		6.00	%
Tier 1 capital
(to average assets)
Consolidated		102,367		10.15	%		40,334		4.00	%		N/A		N/A
Bank		99,869		9.99	%		39,989		4.00	%		49,987		5.00	%

Based on the respective regulatory capital ratios at June 30, 2008 and December 31, 2007, the Bank is considered well capitalized.

36

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.

37

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 June 30, 2008, 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	$	1,301		$	—		$	—	$	—	$	1,301
Interest bearing deposits with Banks		147			—			—		—		147
Mortgage loans held for sale		755			—			—		—		755
Securities available for sale		5,090			2,751			1,266		274		9,381
Federal Home Loan Bank stock		3,540			—			—		—		3,540
Total loans, net of non-accrual		269,903			91,355			500,327		45,855		907,440
Total earning assets		280,736			94,106			501,593		46,129		922,564
Interest bearing liabilities
Total interest bearing deposits		469,808			194,203			76,677		436		741,124
Federal Home Loan Bank advances		0			25,264			40,137		—		65,401
Other Borrowings		3,771			—			—		—		3,771
Subordinated debentures		10,000			—			—		—		10,000
Total interest bearing liabilities		483,579			219,467			116,814		436		820,296
Net asset (liability) funding gap		(202,843	)		(125,361	)		384,779		45,693	$	102,268
Cumulative net asset (liability) funding gap	$	(202,843	)	$	(328,204	)	$	56,575	$	102,268

38

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 June 30, 2008 (in thousands):

Contractual Obligations

	Payments Due By Period
	Less Than				3-5		Over 5
	1 Year		1-3 Years		Years		Years		Total
Securities sold under agreements to repurchase	$	172		—		—		—	$	172
Certificates of deposit		416,953		72,634		4,043		436		494,066
Long-term borrowings		25,264		29,802		10,335		—		65,401
Lease commitments		788		29,802		10,336		0		40,926
Subordinated debentures		—		—		—		10,000		10,000
Totals	$	443,177	$	132,238	$	24,714	$	10,436	$	610,565

Unused Loan Commitments and Letters of Credit

	Amount Of Commitment Expiration Per Period
	Less Than				3-5		Over 5
	1 Year		1-3 Years		Years		Years		Total
Unused loan commitments	$	94,514	$	11,057	$	11,769	$	15,444	$	132,784
Standby letters of credit		6,582		1,069		—		—		7,651
Totals	$	101,096	$	12,126	$	11,769	$	15,444	$	140,435

39

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 June 30, 2008.

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.

40

PART II — OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

The Corporation held its regular annual meeting of stockholders on May 20, 2008. The first matter for consideration was the re-election of directors. Three directors were re-elected to serve three year terms expiring in 2011. The voting results were as follows:

Nominee	Total For
William J. Demmer		7,062,261
Bradley F. Keller		7,874,247
Jeffrey G. Longstreth		7,980,235

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 April 15, 2008 was filed during the quarter ended June 30, 2008.

41

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: August 8, 2008

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