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, 1997.
---------------
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
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(Address of principal executive office) (Zip Code)
(313) 274-1000
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(Registrant's telephone number, including area code)
N/A
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(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, 1997.
Class Shares Outstanding
----- ------------------
Common Stock 950,000
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
----
Consolidated Balance Sheets - March 31, 1997,
December 31, 1996 and March 31, 1996 3
Consolidated Statements of Operations - For the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows - For the Three
Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, Liquidity, and Capital 7-13
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 14
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 the Rights of the Company's Security Holders
Item 3. Defaults by the Company on its Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
SIGNATURES 15
2
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands) 03/31/97 12/31/96 03/31/96
(unaudited) (audited) (unaudited)
----------- --------- -----------
ASSETS
Cash and cash equivalents
Cash and due from banks $ 1,229 $ 2,126 $ 1,609
Federal funds sold 1,600 5,300 2,100
-------- -------- --------
Total cash and cash equivalents 2,829 7,426 3,709
Mortgage loans held for sale 334 303 --
Investment securities, available for sale 19,389 10,493 10,022
Loans
Loans 40,119 36,263 20,491
Allowance for possible credit losses (405) (366) (219)
-------- -------- --------
Net loans 39,714 35,897 20,272
Bank premises and equipment, net 2,057 2,080 2,130
Accrued interest receivable 637 306 279
Other assets 122 94 99
-------- -------- --------
Total assets $ 65,082 $ 56,599 $ 36,511
======== ======== ========
LIABILITIES
Deposits
Non-interest bearing deposits $ 7,806 $ 7,583 $ 6,164
Interest bearing deposits 48,268 39,880 24,289
-------- -------- --------
Total deposits 56,074 47,463 30,453
Other liabilities
Mortgage payable 549 554 565
Accrued interest payable 151 127 91
Other liabilities 104 265 58
-------- -------- --------
Total liabilities 56,878 48,409 31,167
STOCKHOLDERS' EQUITY
Common stock - 1,000,000 shares
authorized,
950,000 shares outstanding in 1997 and
674,000 shares outstanding in 1996 9,272 6,521 6,521
Common stock subscribed but unissued,
276,000 shares in 1996 -- 2,752 --
Accumulated deficit (952) (1,065) (1,179)
Net unrealized gain (loss) on securities
available for sale (116) (18) 2
-------- -------- --------
Total stockholders' equity 8,204 8,190 5,344
Total liabilities and
stockholders' equity $ 65,082 $ 56,599 $ 36,511
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
3
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per share data) Three Months Ended
03/31/97 03/31/96
---------- -------------
Interest income
Interest and fees on loans $ 869 $ 490
Interest on investment securities,
available for sale 229 144
Interest on federal funds and deposits
with banks 25 21
--------- ---------
Total interest income 1,123 655
Interest expense
Interest on deposits 578 319
Interest on other liabilities 11 11
--------- ---------
Total interest expense 589 330
Net interest income 534 325
Provision for possible credit losses 39 18
--------- ---------
Net interest income after provision for possible 495 307
credit losses
--------- ---------
Non-interest income
Service charges on deposit accounts 30 16
Fees for other services to customers 7 4
Gain on the sale of loans 34 46
Other income 1 3
--------- ---------
Total non-interest income 72 69
Non-interest expenses
Salaries and employee benefits 281 289
Occupancy and equipment expense 51 51
Advertising and marketing 30 30
Stationery and supplies 17 15
Professional services 17 15
Data processing 20 17
FDIC insurance premiums -- --
Other operating expenses 63 46
--------- ---------
Total non-interest expenses 479 463
Income (loss) before income taxes benefit 88 (87)
Income tax benefit (25) --
--------- ---------
Net income (loss) $ 113 $ (87)
========= =========
Per share data:
Net income (loss) $ 0.12 $ (0.13)
Average number of shares outstanding 950,000 674,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
4
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands) Three Months Ended
03/31/97 03/31/96
-------- --------
Cash flows from operating activities
Interest and fees received $ 830 $ 689
Interest paid (565) (331)
Proceeds from sale of mortgages held for sale 2,654 2,185
Origination of mortgages held for sale (2,651) (1,731)
Cash paid to suppliers and employees (607) (446)
Net cash provided by (used in) operating -------- --------
activities (339) 366
Cash flows from investing activities
Proceeds from maturities of securities
available for sale 3,000 2,000
Proceeds from sales of securities available
for sale 595 --
Purchases of securities available for sale (12,592) (2,033)
Increase in loans, net of payments received (3,856) (546)
Purchases of property and equipment (11) (147)
-------- --------
Net cash used in investing activities (12,864) (726)
Cash flows from financing activities
Net increase in non-interest bearing deposits 223 2,091
Net increase (decrease) in interest bearing
deposits 8,388 (560)
Principal payments on mortgage payable (5) (4)
-------- --------
Net cash provided by financing activities 8,606 1,527
Increase (decrease) in cash and cash equivalents (4,597) 1,167
Cash and cash equivalents at the beginning of the period 7,426 2,542
-------- --------
Cash and cash equivalents at the end of the period $ 2,829 $ 3,709
======== ========
Reconciliation of net income (loss) to net cash used in
operating activities
Net income (loss) $ 113 $ (87)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Provision for possible credit losses 39 18
Depreciation and amortization expense 35 32
Accretion of discount on investment
securities (2) --
Amortization of premium on
investment securities 5 16
(Increase) decrease in mortgages
held for sale (31) 408
(Increase) decrease in interest
receivable (331) 11
Increase (decrease) in interest
payable 24 (1)
(Increase) in other assets (30) --
(Decrease) in other liabilities (161) (31)
-------- --------
Net cash provided by (used in) operating activities $ (339) $ 366
======== ========
<FN>
The accompanying notes are an integral part of these consolidated statements.
5
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting and Reporting Policies
The 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 unaudited financial statements of the Corporation for the three
month periods ended March 31, 1997 and 1996 reflect all adjustments,
consisting of normal recurring items which are, in the opinion of
management, necessary to present a fair statement 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 1996 Annual Report to Stockholders.
6
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
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.
ANALYSIS OF BALANCE SHEET AND IMPACT UPON OPERATING RESULTS
Average total assets for the three month periods ended March 31, 1997 and
1996 amounted to $59.7 million and $35.6 million, respectively.
The annualized return on average total assets for the three periods ended
March 31, 1997 and 1996 was 0.76% and (0.97%), respectively. The annualized
return on average equity for the three month periods ended March 31, 1997 and
1996 was 5.56% and (6.40%), respectively.
Net interest income was $534,000 and $325,000 for the three month periods
ended March 31, 1997 and 1996, respectively. The annualized net interest
margin for the three month periods ended March 31, 1997 and 1996, on a tax
equivalent basis, was 3.62% and 3.65%, respectively.
Loans
Major categories of loans included in the loan portfolio are as follows (in
thousands):
03/31/97 12/31/96 03/31/96
-------- -------- --------
Consumer loans $ 9,544 $ 8,877 $ 4,486
Commercial, financial, & other 7,161 7,199 6,007
Commercial real estate construction 2,571 1,971 442
Commercial real estate mortgages 8,034 6,384 2,615
Residential real estate mortgages 12,809 11,832 6,941
------- ------- -------
40,119 36,263 20,491
Less allowance for possible credit losses 405 366 219
------- ------- -------
$39,714 $35,897 $20,272
======= ======= =======
7
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Average total loans for the three month periods ended March 31, 1997 and 1996
amounted to $38.5 million and $20.5 million, respectively. Interest income on
total loans was $869,000 and $490,000, respectively, as of March 31, 1997 and
1996, resulting in an effective yield of 9.16% and 9.53% on a tax equivalent
basis.
Non-Performing Assets and Problem Loans
The following is a summary of non-performing assets and problems loans (in
thousands):
03/31/97 12/31/96 03/31/96
Non-accrual loans $6 $8 $35
Renegotiated loans -- -- --
Other real estate owned -- -- --
---- ---- ----
$6 $8 $35
==== ===== ====
Allowance and Provision for Possible Credit Losses
The following is an analysis of the allowance for possible credit losses (in
thousands):
03/31/96 03/31/96
-------- --------
Balance, beginning of year $ 366 $ 204
Provision for possible credit losses
charged to operations 39 18
------- -------
405 222
Loans charged off -- 3
------- -------
Balance, March 31 $ 405 $ 219
======= =======
As a percent of total loans 1.07% 1.07%
======= =======
Ratios (amounts in thousands):
Net charge-offs to total loans, annualized ---% ---%
Average allowance for possible loan losses 378 210
Average total loans, gross 38,466 20,543
Average allowance to average total loans 0.98% 1.02%
8
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Investment Securities Available for Sale
The amortized cost and estimated market value of investments in debt
securities available for sale are as follows (in thousands):
March 31, 1997
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ---------
US Treasury securities $ 3,001 $--- $ (29) $ 2,972
US Government agency securities 16,503 1 (87) 16,417
------- ------- ------- --------
Totals $19,504 $ 1 $(116) $19,389
======= ======= ======= ========
March 31, 1996
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ---------- ------------
US Treasury securities $ 4,986 $ 7 $ (9) $ 4,984
US Government agency securities 5,034 10 (6) 5,038
-------- ------- ------- -------
Totals $10,020 $17 $ (15) $10,022
======== ======= ======= =======
Investment securities available for sale averaged $15.5 million and $9.9
million for the three months ended March 31, 1996 and 1995, respectively.
Interest income as of March 31, 1997 and 1996 for securities available for
sale was $229,000 and $144,000, respectively, which resulted in an effective
yields of 6.00% and 5.83%.
Investment Securities Held to Maturity
The Corporation has no investment securities classified in the held to
maturity category.
Federal Funds Sold
Federal funds sold averaged $1.8 million and $1.6 million for the three month
periods ended March 31, 1997 and 1996, respectively. Income on these
short-term assets as of March 31, 1997 and 1996 was $25,000 and $21,000,
respectively, which resulted in an effective yields of 5.68% and 5.25%.
9
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Liabilities and Interest Expense
The following is a summary of the distribution of deposits (in thousands):
03/31/97 12/31/96 03/31/96
-------- -------- --------
Non-interest bearing:
Demand $ 7,806 $ 7,583 $ 6,164
======= ======= =======
Interest bearing:
Checking $ 797 $ 977 $ 773
Money market 6,432 5,977 4,634
Savings 1,379 1,240 1,135
Time, under $100,000 23,700 19,048 8,044
Time, $100,000 and over 15,960 12,638 9,703
------- ------- -------
$48,268 $39,880 $24,289
======= ======= =======
Average total deposits and average interest bearing deposits for the three
month period ended March 31, 1997 amounted to $50.7 million and $43.6
million, respectively. In comparison, average total deposits and average
interest bearing deposits for the three month period ended March 31, 1996
were $29.5 million and $24.8 million, respectively. Total interest expense
for deposits was $578,000 for the three month period ended March 31, 1997,
resulting in an effective interest rate of 4.62% on total deposits and 5.37%
on interest bearing deposits. In comparison, total interest expense for
deposits was $319,000 for the three month period ended March 31, 1996,
resulting in an effective yield of 4.33% on total deposits and 5.16% on
interest bearing deposits.
For the three month periods ended March 31, 1997 and 1996:
Non-interest bearing deposits had an average balance of $7.1 million
and $4.7 million, respectively.
Average interest bearing checking deposits were $0.9 million and $0.7
million, respectively, with associated interest expense of $4,000 and
$3,000 resulting in an effective interest rate of 1.88% and 1.88%.
Average money market deposits were $7.1 million and $5.7 million,
respectively, with associated interest expense of $72,000 and $61,000
resulting in an effective interest rate of 4.17% and 4.28%.
10
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Average savings deposits were $1.3 million and $1.2 million,
respectively, with associated interest expense of $8,000 and $7,000
resulting in an effective interest rate of 2.50% and 2.50%.
Interest bearing time deposits had an average balance of $34.4
million and $17.1 million, respectively, with associated interest
expense of $493,000 and $247,000 which resulted in an effective
interest rate of 5.82% and 5.76%.
Average interest bearing other liabilities consisted of mortgage indebtedness
and federal funds purchased for the three month periods ended March 31, 1997
and 1996. The average balance was $552,000 and $567,000, respectively, with
associated interest expense of $11,000 and $11,000 resulting in an effective
interest rate of 7.75% and 7.75%.
Non-Interest Income
Total non-interest income for the three month periods ended March 31, 1995
and 1996 amounted to $72,000 and $69,000, respectively. The primary component
of non-interest income consisted of gain on the sale of residential mortgages
in the amount of $34,000 and $46,000 for the three month periods ended March
31, 1997 and 1996, respectively.
Non-Interest Expenses
Total non-interest expenses for the three month periods ended March 31, 1997
and 1996 amounted to $479,000 and $463,000, respectively. The largest
component of non-interest expenses consisted of salaries and employee
benefits. For the three month period ended March 31, 1997 the number of full
time equivalent employees was 25, resulting in a salaries and employee
benefits expense of $281,000. For the three month period ended March 31,
1996, the number of full time equivalent employees was 25, resulting in a
salaries and employee benefits expense of $289,000.
11
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Rate Sensitivity Analysis / Gap Analysis
The relationship between earning assets and liabilities considered to be
interest rate sensitive within given maturity ranges is called the asset or
liability funding gap depending on whether such earning assets exceed or are
exceeded by interest sensitive liabilities. As of March 31, 1997, total
earning assets exceeded interest bearing liabilities by $12.6 million. The
excess was funded by non-interest bearing demand deposits and stockholders'
equity. The Rate Sensitivity Analysis / Gap Analysis as of March 31, 1997 is
presented in the following table.
Interest Rate Sensitivity Period
-------------------------------------------------------
In thousands) 1-90 91-365 1-5 Over
Days Days Years 5 Years Total
---------- ---------- -------------------- ------------
Earning assets
Federal funds sold $ 1,600 $ -- $ -- $ -- $ 1,600
Mortgage loans held for sale 334 -- -- -- 334
Securities available for sale 2,001 1,993 15,395 -- 19,389
Total loans, net of
non-accrual 9,961 7,081 22,142 929 40,113
-------- -------- -------- -------- --------
Total earning assets 13,896 9,074 37,537 929 61,436
Interest bearing liabilities
Total interest bearing 13,510 18,809 15,948 -- 48,267
deposits
Mortgage payable -- -- -- 549 549
-------- -------- -------- -------- --------
Total interest bearing liabilities 13,510 18,809 15,948 549 48,816
Net asset (liability) funding gap 386 (9,735) 21,589 380 $ 12,620
-------- -------- -------- -------- ========
Cumulative net asset (liability)
funding gap $ 386 $(9,349) $ 12,240 $ 12,620
======== ======== ======== ========
This table presents earning assets and interest bearing liabilities by
maturity or the earliest repricing opportunities. Non-maturity interest
bearing deposits are distributed across a basic gap schedule as proposed by
FFIEC Financial Institutions Letter 65-93, dated September 20, 1993.
12
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
LIQUIDITY
The Corporation maintains a liquid position. As of March 31, 1997, the
Corporation had $1.6 million in federal funds sold and securities classified
as available for sale of $19.4 million. Those securities with maturities
within one year totaled $4.0 million. Loan repayments provide another source
of liquidity. The Corporation is continuing to build a stable customer base
of core deposits and has proven the ability to attract deposits within the
Corporation's market area. The liquidity of the Corporation and its
subsidiary provides flexibility to meet credit-worthy loan requests and
deposit fluctuations.
CAPITAL
The Corporation maintains a strong capital base. Consolidated stockholders'
equity totaled $8.2 million as of March 31, 1997. Primary capital for the
Corporation, consisting of stockholders' equity and the allowance for
possible loan losses, totaled $8.6 million. Primary capital to total assets
was 13.2%.
The following is a presentation of the Corporation's regulatory capital
ratios:
Minimum
Regulatory
03/31/97 03/31/96 Guidelines
-------- -------- ----------
Risk-Based Capital Ratios
Tier 1 Capital 21.19% 25.91% 4.00%
Total Capital 22.22% 26.97% 8.00%
Leverage Ratio 13.95% 14.64% 4.00%
The Federal Deposit Insurance Corporation Improvement Act of 1991 established
five capital tiers for banks. Pursuant to that statute the federal bank
regulatory agencies have defined the five capital tiers for banks. Under
these regulations, a bank is defined to be well capitalized, the highest
tier, if it maintains a Tier 1 Capital ratio of at least 6 percent, a Total
Capital ratio of at least 10 percent and a Leverage Ratio of at least 5
percent. Based on the regulatory ratios at March 31, 1997, the Corporation is
well capitalized.
13
DEARBORN BANCORP, INC.
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, 1997, December 31, 1996 and
March 31, 1996
Consolidated Statements of Operations - For the Three Months Ended
March 31, 1997 and 1996
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1997 and 1996
Notes to Consolidated Financial Statements
(b) A Form 8-K Report was not filed during the three months ended March
31, 1997.
14
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/ Donald G. Karcher
-------------------------------------
Donald G. Karcher
Treasurer and Chief Financial Officer
Date: May 1, 1997
15