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, 2000.
-----------------------------
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 (I.R.S. Employer
incorporation or organization) Identification No.)
22290 Michigan Avenue, Dearborn, MI 48123-2247
--------------------------------------------------
(Address of principal executive office) (Zip Code)
(313) 274-1000
--------------
(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.
Yes X No
----------- ----------
Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of April 30, 2000.
Class Shares Outstanding
----- ------------------
Common Stock 2,399,451
DEARBORN BANCORP, INC.
INDEX
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: Page
----
Independent Accountants' Report 3
Consolidated Balance Sheets - March 31, 2000,
December 31, 1999 and March 31, 1999 4
Consolidated Statements of Income - For the Three
Months Ended March 31, 2000 and 1999 5
Consolidated Statements of Comprehensive Income - For the
Three Months Ended March 31, 2000 and 1999 6
Consolidated Statements of Cash Flows - For the Three
Months Ended March 31, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Liquidity and Capital 9-21
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 22
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 23
2
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
Dearborn Bancorp, Inc.
Dearborn, Michigan
We have reviewed the consolidated balance sheet of Dearborn Bancorp, Inc. as
of March 31, 2000, and the related consolidated statements of income,
comprehensive income and cash flows for the quarters ended March 31, 2000 and
1999. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
AICPA. 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 generally accepted
auditing standards, 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 accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Grand Rapids, Michigan
May 10, 2000
3
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (unaudited)
(Dollars, in thousands)
03/31/00 12/31/99 03/31/99
--------- --------- ---------
ASSETS
Cash and cash equivalents
Cash and due from banks $ 2,929 $ 2,446 $ 2,705
Federal funds sold 654 4,963 8,542
--------- --------- ---------
Total cash and cash equivalents 3,583 7,409 11,247
Mortgage loans held for sale 540 783 413
Investment securities, available for sale 54,739 55,022 53,899
Federal Home Loan Bank stock 381 381 --
Loans
Loans 93,959 85,390 67,136
Allowance for possible credit losses (880) (781) (706)
--------- --------- ---------
Net loans 93,079 84,609 66,430
Premises and equipment, net 2,711 2,388 2,344
Accrued interest receivable 1,176 1,370 903
Other assets 837 736 449
--------- --------- ---------
Total assets $ 157,046 $ 152,698 $ 135,685
========= ========= =========
LIABILITIES
Deposits
Non-interest bearing deposits $ 14,380 $ 14,859 $ 12,341
Interest bearing deposits 108,837 104,016 94,146
--------- --------- ---------
Total deposits 123,217 118,875 106,487
Other liabilities
Federal funds purchased 1,100 3,000 --
Federal Home Loan Bank advances 4,000 2,000 --
Mortgage payable 486 493 511
Accrued interest payable 543 469 377
Other liabilities 648 601 452
--------- --------- ---------
Total liabilities 129,994 125,438 107,827
STOCKHOLDERS' EQUITY
Common stock - 5,000,000 shares
authorized, 2,404,910 and
2,442,740 shares outstanding
at March 31, 2000 and
December 31, 1999 28,576 28,822 29,015
Accumulated deficit (529) (740) (1,094)
Accumulated other comprehensive loss (995) (822) (63)
--------- --------- ---------
Total stockholders' equity 27,052 27,260 27,858
Total liabilities and
stockholders' equity $ 157,046 $ 152,698 $ 135,685
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
4
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Three Months
(In thousands, except share and per share data) Ended Ended
03/31/00 03/31/99
----------- -----------
Interest income
Interest on loans $ 1,909 $ 1,409
Interest on investment securities,
available for sale 794 651
Interest on federal funds and
deposits with banks 22 76
----------- -----------
Total interest income 2,725 2,136
Interest expense
Interest on deposits 1,321 1,052
Interest on other borrowings 60 9
----------- -----------
Total interest expense 1,381 1,061
Net interest income 1,344 1,075
Provision for possible credit losses 115 82
----------- -----------
Net interest income after provision for
possible credit losses 1,229 993
----------- -----------
Non-interest income
Service charges on deposit accounts 58 41
Fees for other services to customers 6 7
Gain on the sale of loans 61 100
Other income (1) --
----------- -----------
Total non-interest income 124 148
Non-interest expenses
Salaries and employee benefits 591 526
Occupancy and equipment expense 147 107
Advertising and marketing 31 18
Stationery and supplies 42 32
Professional services 65 53
Data processing 35 36
FDIC insurance premiums 6 3
Other operating expenses 116 97
----------- -----------
Total non-interest expenses 1,033 872
Income before income tax provision 320 269
Income tax provision 109 93
----------- -----------
Net income $ 211 $ 176
=========== ===========
Share and per share data:
Net income - basic and diluted $ 0.09 $ 0.07
Weighted average number of
shares outstanding - basic 2,423,365 2,473,295
Weighted average number of
shares outstanding - diluted 2,423,365 2,475,577
The accompanying notes are an integral part of these consolidated financial
statements.
5
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Three Months Three Months
(In thousands) Ended Ended
03/31/00 03/31/99
-------- --------
Net income $ 211 $ 176
Other comprehensive loss, net of tax
Unrealized gains (losses) on securities
Unrealized holding gains (losses)
arising during period (260) (81)
Less: reclassification adjustment
for gains included in net income -- --
Tax effects 87 32
----- -----
Other comprehensive loss (173) (49)
----- -----
Comprehensive income $ 38 $ 127
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
6
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands) Three Months Three Months
Ended Ended
3/31/00 3/31/99
-------- --------
Cash flows from operating activities
Interest and fees received $ 2,919 $ 2,167
Interest paid (1,307) (1,022)
Taxes paid (87) (195)
Proceeds from sale of mortgages held for sale 4,256 6,744
Origination of mortgages held for sale (3,952) (5,846)
Cash paid to suppliers and employees (862) (828)
-------- --------
Net cash provided by operating activities 967 1,020
Cash flows from investing activities
Proceeds from maturities of securities available for sale -- 23,437
Proceeds from sales of securities available for sale -- 2,400
Purchases of securities available for sale (5) (29,634)
Increase in loans, net of payments received (8,585) (1,113)
Purchases of property and equipment (392) (26)
-------- --------
Net cash (used in) investing activities (8,982) (4,936)
Cash flows from financing activities
Net increase (decrease) in non-interest bearing deposits (479) 1,199
Net increase in interest bearing deposits 4,821 7,716
Decrease in federal funds purchased (1,900) --
Increase in Federal Home Loan Bank advances 2,000 --
Principal payments on mortgage payable (7) (6)
Purchase of treasury stock (246) --
-------- --------
Net cash provided by financing activities 4,189 8,909
Increase (decrease) in cash and cash equivalents (3,826) 4,993
Cash and cash equivalents at the beginning of the period 7,409 6,254
-------- --------
Cash and cash equivalents at the end of the period $ 3,583 $ 11,247
======== ========
Reconciliation of net income to net cash provided by
operating activities
Net income $ 211 $ 176
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for possible credit losses 115 82
Depreciation and amortization expense 69 47
Accretion of discount on investment securities (1) --
Amortization of premium on investment
securities 29 35
Decrease in mortgages held for sale 243 798
Decrease in interest receivable 194 30
Increase in interest payable 74 39
(Increase) in other assets (13) (75)
Increase (decrease) in other liabilities 46 (112)
-------- --------
Net cash provided by operating activities $ 967 $ 1,020
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
7
DEARBORN BANCORP, INC. AND SUBSIDIARY
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
generally accepted accounting principles and conform to practice
within the banking industry.
The consolidated financial statements of the Corporation as of March
31, 2000 and December 31, 1999 and for the three month periods ended
March 31, 2000 and 1999 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 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 financial
statements prepared in accordance with generally accepted accounting
principles 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 1999 Annual Report to Stockholders on Form
10-K.
B. STOCK OPTION PLAN
Options to buy common stock are granted to officers and employees
under a Stock Option Plan which provides for issue of up to 255,000
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.
8
A summary of the option activity is as follows:
Weighted
Weighted Average Fair
Available Average Value of
for Options Exercise Options
Grant Outstanding Price Granted
--------- ----------- -------- -----------
Outstanding at January 1, 1998 208,998 46,002 $ 8.91
Granted (33,150) 33,150 12.75 6.28
------- ------ --------
Outstanding at December 31, 1998 175,848 79,152 10.52
Granted (71,000) 71,000 11.23 4.01
------- ------ --------
Outstanding at December 31, 1999 104,848 150,152 10.85
Granted (60,500) 60,500 6.81 3.11
------- ------ --------
Outstanding at March 31, 2000 44,348 210,652 9.69
======= ======= ========
For the options outstanding at March 31, 2000, the range of exercise
prices was $6.81 to $12.75 per share with a weighted-average
remaining contractual term of 8.6 years. At March 31, 2000, 150,152
options were exercisable at weighted average exercise prices of
$10.85 per share.
Had compensation cost for stock options been measured using the fair
value method of FASB Statement No. 123, net income and earnings per
share would have been the pro forma amounts indicated below for the
three months ended March 31, 2000 and 1999 (in thousands, except per
share data). The pro forma effects may increase in the future if
more options are granted.
For the Three Months Ended March 31,
2000 1999
----- -----
Net income
As reported $211 $176
Pro forma 136 83
Basic and diluted income per share
As reported $0.09 $0.07
Pro forma $0.06 $0.03
----- -----
9
The pro forma effects are computed with option pricing models,
using the following weighted average assumptions as of grant date.
2000 1999
------- -------
Risk-free interest rate 6.76% 4.94%
Expected option life 9 years 9 years
Dividend yield 0.00% 0.00%
Expected volatility of stock price 33.45% 33.45%
All share and per share amounts have been adjusted for stock
dividends.
PART 1 - 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.
10
General
The Corporation was formed in 1992 and the Bank was formed in 1993. Principal
operations of the Bank commenced on February 28, 1994 when the Bank opened
for business at its main office, located at 22290 Michigan Avenue, Dearborn,
Michigan. On December 20, 1995, the Bank opened its second office, located at
24935 West Warren Avenue, Dearborn Heights, Michigan. On August 11, 1997, the
Bank opened its third office, located at 44623 Five Mile Road, Plymouth
Township, Michigan. The Bank is in the process of constructing an office,
located at 1325 N. Canton Center Road, Canton Township, Michigan, which is
expected to open in the fourth quarter of 2000.
Results of Operations
The Corporation reported net income of $211,000 for the three-month period
ended March 31, 2000, compared to net income of $176,000 for the three-month
period ended March 31, 1999. The increase in net income was primarily due to
the positive impact of net interest income due primarily to significant
growth in the volume of loans, partially offset by growth in deposits and
Federal Home Loan Bank advances.
Net Interest Income
2000 Compared to 1999. Net interest income for the three month period ended
March 31, 2000 was $1,344,000 compared to $1,075,000 for the same period
ended March 31, 1999, an increase of $269,000 or 25%. This increase was
caused primarily by an increase in average earning assets of $24.6 million
between the periods while interest-bearing liabilities grew by $22.2 million.
At the same time the Corporation's interest rate spread increased to 2.41% in
2000 from 2.15% in 1999. The Corporation's net interest margin increased in
2000 to 3.68% from 3.52% in 1999. The Corporation's increase in interest rate
spread and net interest margin was primarily a result of growth in the loan
and investment securities portfolios in an increasing interest rate
environment.
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.
11
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 March 31, Three months ended March 31,
2000 1999
-------------------------------- --------------------------------
Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate
---------- --------- --------- ---------- -------- ---------
Assets
Federal funds sold and
interest-bearing
deposits with banks $ 1,582 $ 22 5.59% $ 5,580 $ 76 5.45%
Investment securities, available
for sale 55,259 794 5.78% 48,695 651 5.36%
Loans 90,159 1,909 8.52% 68,081 1,409 8.28%
-------- ------ ---- -------- ------ ----
Sub-total earning assets 147,000 2,725 7.46% 122,356 2,136 6.99%
Other assets 6,043 5,365
-------- --------
Total assets $153,043 $127,721
======== ========
Liabilities and stockholders' equity
Interest bearing deposits $106,123 $1,321 5.01% $87,308 $1,052 4.82%
Other borrowings 3,943 60 6.12% 514 9 7.00%
-------- ------ ---- -------- ------ ----
Sub-total interest bearing
liabilities 110,066 1,381 5.05% 87,822 1,061 4.83%
Non-interest bearing deposits 14,667 11,161
Other liabilities 1,128 961
Stockholders' equity 27,182 27,777
-------- --------
Total liabilities and
stockholders' equity $153,043 $127,721
======== ========
Net interest income $1,344 $1,075
====== ======
Net interest rate spread 2.41% 2.16%
==== ====
Net interest margin on
earning assets 3.68% 3.52%
==== ====
12
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,
2000/1999
Change in Interest Due to:
-----------------------------
Average Average Net
(In thousands) Balance Rate Change
------- ------- ------
Assets
Federal funds sold and interest-bearing
deposits with banks ($56) $2 ($54)
Investment securities, available for sale 91 52 143
Loans 460 40 500
---- --- ----
Total earning assets $495 $94 $589
==== === ====
Liabilities
Interest bearing deposits $228 $41 $269
Other borrowings 52 (1) 51
---- --- ----
Total interest bearing liabilities $280 $40 $320
==== === ====
Net interest income $269
====
Net interest rate spread 0.25%
====
Net interest margin on earning assets 0.16%
====
Provision for Possible Credit Losses
2000 Compared to 1999. The provision for possible credit losses was $115,000
for the three month period ended March 31, 2000, compared to $82,000 for the
same period in 1999, an increase of $33,000 or 40% for the period. The
Corporation has increased its provision for possible credit losses as a
result of loan growth. The provision for possible credit losses was based
upon management's assessment of relevant factors, including types and amounts
of non-performing loans, historical and anticipated loss experience on such
types of loans, and current and projected economic conditions.
13
Non-interest Income
2000 Compared to 1999. Non-interest income was $124,000 for the three month
period ended March 31, 2000, compared to $148,000 for the same period in
1999, a decrease of $24,000 or 16% for the period. The decrease was primarily
due to a lower volume of mortgage loans sold in an increasing interest rate
environment.
Non-interest Expense
2000 Compared to 1999. Non-interest expense was $1,033,000 for the three
month period ended March 31, 2000, compared to $872,000 for the same period
in 1999, an increase of $161,000 or 18% for the period. The largest
components of non-interest expense were salaries and employee benefits which
amounted to $591,000 and occupancy and equipment expense which amounted to
$147,000 for the three-month period ended March 31, 2000. For the same period
in 1999, salaries and employee benefits was $526,000 and occupancy and
equipment expense was $107,000. The primary factor for the increase in
salaries and employee benefits was the addition of two executive officers,
one to support loan growth and one to support deposit growth, to the Bank
during 1999. As of March 31, 2000, the number of full time equivalent
employees was 40 as compared to 38 as of March 31, 1999. The increase in
occupancy and equipment expense was the result of general building
maintenance in the first quarter of 2000 and additional depreciation expense
on equipment purchased as a result of Year 2000 concerns during 1999.
Income Tax Provision
2000 Compared to 1999. The income tax expense was $109,000 for the
three-month period ended March 31, 2000, compared to $93,000 for the same
period in 1999. The increase was a result of increased pre-tax income.
Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Assets. Total assets at March 31, 2000 were $157.0 million compared to $152.7
million at December 31, 1999, an increase of $4.3 million or 3%. The increase
was primarily due to increases in consumer loan and commercial real estate
loan volume.
Federal Funds Sold. Total federal funds sold at March 31, 2000 were $654,000
compared to $5.0 million at December 31, 1999, a decrease of $4.3 million or
87%. The decrease was primarily due to the funding of new consumer and
commercial real estate loans.
Mortgage Loans Held for Sale. Total mortgage loans held for sale at March 31,
2000 were $540,000 compared to $783,000 at December 31, 1999, a decrease of
$243,000 or 31%. This decrease was a result of normal fluctuation in the
timing of closing and delivery of loans to the secondary market.
14
Investment Securities - Available for Sale. Total investment securities -
available for sale, at March 31, 2000 were $54.7 million compared to $55.0
million at December 31, 1999, a decrease of $283,000 or 0.5%. The decrease
was primarily a result of a lower fair market valuation of the portfolio in
an increasing interest rate environment. All securities within the
Corporation's portfolio are U.S. Treasury issues, U.S. Government sponsored
agency issues, municipal obligations carrying ratings of Aaa or better or
money market mutual funds. The Corporation does not hold any securities in
the "Held to Maturity" category nor does the Corporation hold or utilize
derivatives.
The amortized cost and estimated market value of investments in debt
securities available for sale are as follows (in thousands):
March 31, 2000
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ---------
US Treasury securities $ 2,296 $ -- ($ 76) $ 2,220
US Government agency securities 53,818 -- (1,427) 52,391
Municipal bonds 125 (2) 123
Money market mutual funds 5 -- -- 5
------- ----- ------- -------
Totals $56,244 $ -- ($1,505) $54,739
======= ===== ======= =======
December 31, 1999
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ---------
US Treasury securities $ 2,320 $ -- ($ 76) $ 2,244
US Government agency securities 53,822 -- (1,167) 52,655
Municipal bonds 125 -- (2) 123
------- ---- ------- -------
Totals $56,267 $ -- ($1,245) $55,022
======= ==== ======= =======
Federal Home Loan Bank Stock. Federal Home Loan Bank stock was valued at
$381,000 at March 31, 2000 and December 31, 1999.
15
Loans. Total loans at March 31, 2000 were $94.0 million compared to $85.4
million at December 31, 1999, an increase of $8.6 million or 10% and $67.1
million at March 31, 1999, an increase of $26.9 million or 40%. Major
categories of loans included in the loan portfolio are as follows (in
thousands):
03/31/00 12/31/99 03/31/99
-------- -------- --------
Consumer loans $ 12,909 $ 10,967 $ 11,162
Commercial, financial, & other 20,828 20,563 17,927
Commercial real estate construction 2,439 3,656 3,092
Commercial real estate mortgages 29,989 23,103 11,898
Residential real estate mortgages 27,794 27,101 23,057
-------- -------- --------
93,959 85,390 67,136
Allowance for possible credit losses (880) (781) (706)
-------- -------- --------
$ 93,079 $ 84,609 $ 66,430
======== ======== ========
The following is a summary of non-performing assets and problems loans (in
thousands):
03/31/00 12/31/99 03/31/99
-------- -------- --------
Over 90 days past due and still accruing $ -- $ 190 $ 141
Non-accrual loans 963 105 885
Renegotiated loans -- -- --
Other real estate owned -- -- --
---- ------ ------
$963 $ 295 $1,026
==== ====== ======
Non-accrual loans at March 31, 2000 were $963,000, of which, $362,000 were
well secured by residential real estate and $513,000 were secured by
equipment and or personal guarantees of individuals of substance. The
increase in non-accrual loans consisted of a $296,000 slow paying residential
mortgage, a $66,000 residential mortgage in bankruptcy proceedings and a
$507,000 secured commercial loan placed into involuntary bankruptcy by its
creditors.
16
Allowance for Possible Credit Losses. The allowance for possible credit
losses at March 31, 2000 was $880,000 compared to $781,000 at December 31,
1999, an increase of $99,000 or 13%. The increase in the allowance for
possible credit 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 and projected economic conditions.
The following is an analysis of the allowance for possible credit losses (in
thousands):
Quarter Ended Year Ended Quarter Ended
03/31/00 12/31/99 03/31/99
------------- ---------- -------------
Balance, beginning of year $ 781 $ 627 $ 627
Charge-offs:
Consumer loans (16) (55) (3)
Commercial loans -- (584) --
Recoveries:
Consumer loans -- 21 --
----- ------ -----
Net charge-offs (16) (618) (3)
Additions charged to operations 115 772 82
----- ------ -----
Balance, end of period $ 880 $ 781 $ 706
===== ====== =====
Allowance to total loans 0.94% 0.91% 1.05%
===== ====== =====
Allowance to non-performing assets 91.38% 264.75% 68.81%
===== ====== =====
Net charge-offs to average loans 0.02% 0.84% 0.01%
===== ====== =====
Premises and Equipment. Bank premises and equipment at March 31, 2000 was
$2.7 million compared to $2.4 million at December 31, 1999, an increase of
$323,000 or 14%. The increase in premises and equipment was due to the
purchase of land for the Bank's Canton Township office.
Accrued Interest Receivable. Accrued interest receivable at March 31, 2000
was $1.2 million compared to $1.4 million at December 31, 1999, a decrease of
$194,000 or 14%. The decrease was primarily due to the timing of semi-annual
interest payments accrued on investment securities - available for sale.
Other Assets. Other assets at March 31, 2000 were $837,000 compared to
$736,000 at December 31, 1999, an increase of $101,000 or 14%. The increase
was primarily due to an increase in deferred tax assets, primarily related to
the increase in the unrealized loss on securities available for sale.
17
Deposits. Total deposits at March 31, 2000 were $123.2 million compared to
$118.9 million at December 31, 1999, an increase of $4.3 million or 4% and
$106.5 million at March 31, 1999, an increase of $16.7 million or 16%. The
following is a summary of the distribution of deposits (in thousands):
03/31/00 12/31/99 03/31/99
-------- -------- --------
Non-interest bearing:
Demand $ 14,380 $ 14,859 $ 12,341
======== ======== ========
Interest bearing:
Checking $ 5,302 $ 5,391 $ 3,381
Money market 15,007 13,013 14,783
Savings 3,827 3,109 2,472
Time, under $100,000 40,935 40,984 45,137
Time, $100,000 and over 43,766 41,519 28,373
-------- -------- --------
$108,837 $104,016 $ 94,146
======== ======== ========
The increase in deposits was primarily due to normal business development,
marketing, telemarketing, referral programs and growth strategies which
included an annual birthday celebration and major marketing campaign in March
2000. The increase in deposits was used to fund loans.
Federal Funds Purchased. Federal funds purchased at March 31, 2000 were $1.1
million compared to $3.0 million at December 31, 1999, a decrease of $1.9
million or 63%. During the first quarter of 2000, federal funds purchased
were replaced by Federal Home Loan Bank advances.
Federal Home Loan Bank Advances. Federal Home Loan Bank advances at March 31,
2000 were $4.0 million compared to $2.0 million at December 31, 1999, an
increase of $2.0 million or 100%. An increase in advances was used to pay-off
federal funds purchased.
Mortgage Payable. Mortgage payable at March 31, 2000 was $486,000 compared to
$493,000 at December 31, 1999, a decrease of $7,000 or 1%. The decrease in
mortgage payable was a result of making standard monthly payments.
Accrued Interest Payable. Accrued interest payable at March 31, 2000 was
$543,000 compared to $469,000 at December 31, 1999, an increase of $74,000 or
16%. The increase was due to the increase in the volume of time deposits.
Other Liabilities. Other liabilities at March 31, 2000 were $648,000 compared
to $601,000 at December 31, 1999, an increase of $47,000 or 8%. The increase
was due to federal income taxes accrued but not yet remitted.
18
Capital
Stockholders' equity at March 31, 2000 was $27.1 million compared to $27.3
million as of December 31, 1999, a decrease of $0.2 million or 1%. In
November of 1999, the Corporation announced that it would repurchase up to
125,000 shares of its outstanding common stock at a price range of $5.00 to
$13.00 per share, which represents approximately five percent of the
outstanding common stock. Through March 31, 2000, the Corporation was able to
repurchase 68,385 shares within Securities and Exchange Commission guidelines
primarily related to the volume of market activity. Considering that the
Corporation's stock closed at $6.688 per share on March 31, 2000,
representing a 60 percent market to book ratio, management believes that its
stock is highly undervalued. Given such bargain market prices, the
Corporation will continue to repurchase shares during 2000.
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, 2000
Total capital
(to risk weighted assets)
Consolidated 28,927 34.2% 6,767 8.0% 8,458 10.0%
Bank 13,079 15.8% 6,622 8.0% 8,278 10.0%
Tier 1 capital
(to risk weighted assets)
Consolidated 28,047 33.2% 3,379 4.0% 5,069 6.0%
Bank 12,198 14.7% 3,319 4.0% 4,979 6.0%
Tier 1 capital
(to average assets)
Consolidated 28,047 18.3% 6,130 4.0% 7,663 5.0%
Bank 12,198 8.7% 5,608 4.0% 7,010 5.0%
As of December 31, 1999
Total capital
(to risk weighted assets)
Consolidated 28,864 32.1% 7,193 8.0% 8,992 10.0%
Bank 12,878 15.1% 6,824 8.0% 8,531 10.0%
Tier 1 capital
(to risk weighted assets)
Consolidated 28,083 31.2% 3,597 4.0% 5,395 6.0%
Bank 12,097 14.2% 3,412 4.0% 5,118 6.0%
Tier 1 capital
(to average assets)
Consolidated 28,083 19.2% 5,860 4.0% 7,325 5.0%
Bank 12,097 9.2% 5,255 4.0% 6,568 5.0%
Based on the respective regulatory capital ratios at March 31, 2000 and
December 31, 1999, the Corporation and Bank are considered well capitalized.
19
Liquidity and Asset and Liability Management
Liquidity refers to readily available funds to meet the needs of borrowers
and depositors. Levels of liquidity are closely monitored in conjunction with
loan funding requirements and deposit outflows. Adequate liquidity protects
institutions from raising funds under duress at excessive expense and
provides a necessary cushion for occasional unpredictable aberrations in
demand. While adequate liquidity is imperative, excessive liquidity in lower
yielding cash investments or other easily marketable assets reduces potential
interest income. Thus, an appropriate balance must be maintained to protect
the institution and at the same time, prudently maximize income
opportunities. Sources of liquidity from both assets and liabilities include
federal funds sold, securities available for sale, loan repayments, core
deposits and a federal funds purchase credit facility.
The Corporation has sought to manage its exposure to changes in interest
rates by matching more closely 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.
Interest Rate Sensitivity Analysis. The matching of assets and liabilities
may be analyzed by examining the extent to which such assets and liabilities
are "interest rate sensitive" and by monitoring an institution's interest
rate sensitivity "gap." An asset or liability is said to be interest rate
sensitive within a specific period if it will mature or reprice within that
period. The interest rate sensitivity "gap" is the difference between the
amount of interest-earning assets maturing or repricing within a specific
time period and the amount of interest-bearing liabilities maturing or
repricing within that time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities, and is considered negative when the amount of interest
rate sensitive liabilities exceed the amount of interest rate sensitive
assets. During a period of rising interest rates, a negative gap would be
expected to adversely affect net interest income while a positive gap would
be expected to result in an increase in net interest income, while conversely
during a period of declining interest rates, a negative gap would be expected
to result in an increase in net interest income and a positive gap would be
expected to adversely affect net interest income.
20
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, 2000, which are
expected to mature or reprice in each of the time periods shown below. For
the purposes of this table, the maturity or repricing periods of other
interest bearing deposits are based upon industry experience as determined by
the Corporation's regulators. These rates are not the contractual repricing
periods, which are shorter than what is shown, as management has broad
discretion in repricing these deposits.
DEARBORN BANCORP, INC. AND SUBSIDIARY
RATE SENSITIVITY ANALYSIS / GAP ANALYSIS
Interest Rate Sensitivity Period
------------------------------------------------------
(In thousands) 1-90 91-365 1-5 Over
Days Days Years 5 Years Total
-------- -------- -------- -------- --------
Earning assets
Federal funds sold $ 654 $ -- $ -- $ -- $ 654
Mortgage loans held for sale 540 -- -- -- 540
Securities available for sale 5 -- 54,734 -- 54,739
Federal Home Loan Bank stock 381 -- -- -- 381
Total loans, net of non-accrual 19,087 7,412 53,874 12,623 92,996
-------- -------- -------- -------- --------
Total earning assets 20,667 7,412 108,608 12,623 149,310
Interest bearing liabilities
Time deposits 31,400 39,917 13,384 -- 84,701
Other interest bearing deposits 2,707 8,122 13,307 -- 24,136
Federal funds purchased 1,100 -- -- -- 1,100
Federal Home Loan Bank advances 4,000 -- -- -- 4,000
Mortgage payable -- -- -- 486 486
-------- -------- -------- -------- --------
Total interest bearing liabilities 39,207 48,039 26,691 486 114,423
Net asset (liability) funding gap (18,540) (40,627) 81,917 12,137 $ 34,887
-------- -------- -------- -------- ========
Cumulative net asset (liability) funding gap ($18,540) ($59,167) $ 22,750 $ 34,887
======== ======== ======== ========
21
DEARBORN BANCORP, INC. AND SUBSIDIARY
FORM 10-Q (continued)
PART 2 - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS IN FORM 8-K.
(a) Financial Statements:
The following consolidated financial statements of Dearborn
Bancorp, Inc. and its subsidiary included in this report are:
Consolidated Balance Sheets - March 31, 2000, December 31, 1999 and
March 31, 1999
Consolidated Statements of Income - For the Three Months Ended
March 31, 2000 and 1999
Consolidated Statements of Comprehensive Income - For the Three
Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 2000 and 1999
Notes to Consolidated Financial Statements
(b) Exhibits
Financial Data Schedule
(c) A Form 8-K Report was not filed during the three months ended
March 31, 2000.
22
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 and Chief Executive Officer
/s/ Michael J. Ross
-------------------------------
Michael J. Ross
President
/s/ Jeffrey L. Karafa
-------------------------------
Jeffrey L. Karafa
Treasurer and Chief Financial Officer
Date: May 10, 2000