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 September 30, 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
----------------------------------------------
(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 October 31, 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 - September 30, 1997,
December 31, 1996 and September 30, 1996 3
Consolidated Statements of Operations - For the Three and Nine
Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 30, 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 6-13
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 Matter to a Vote of Security Holders
Item 5. Other Information
SIGNATURES 15
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands) 09/30/97 12/31/96 09/30/96
(unaudited) (audited) (unaudited)
----------- --------- -----------
ASSETS
Cash and cash equivalents
Cash and due from banks $ 1,412 $ 2,126 $ 2,065
Federal funds sold 4,150 5,300 900
-------- -------- --------
Total cash and cash equivalents 5,562 7,426 2,965
Mortgage loans held for sale 190 303 260
Investment securities, available for sale 23,942 10,493 11,977
Loans
Loans 47,106 36,263 29,279
Allowance for possible credit losses (475) (366) (296)
-------- -------- --------
Net loans 46,631 35,897 28,983
Bank premises and equipment, net 2,208 2,080 2,103
Accrued interest receivable 555 306 342
Other assets 183 94 78
-------- -------- --------
Total assets $ 79,271 $ 56,599 $ 46,708
======== ======== ========
LIABILITIES
Deposits
Non-interest bearing deposits $ 8,900 $ 7,583 $ 6,357
Interest bearing deposits 60,835 39,880 34,179
-------- -------- --------
Total deposits 69,735 47,463 40,536
Other liabilities
Mortgage payable 541 554 555
Accrued interest payable 242 127 119
Other liabilities 187 265 107
-------- -------- --------
Total liabilities 70,705 48,409 41,317
STOCKHOLDERS' EQUITY
Common stock - 3,000,000 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 (651) (1,065) (1,124)
Net unrealized loss on securities
available for sale (55) (18) (6)
-------- -------- --------
Total stockholders' equity 8,566 8,190 5,391
Total liabilities and stockholders' equity $ 79,271 $ 56,599 $ 46,708
======== ======== ========
<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 Nine Months Ended
09/30/97 09/30/96 09/30/97 09/30/96
-------- -------- -------- --------
Interest income
Interest and fees on loans $ 1,031 $ 648 $ 2,859 $ 1,699
Interest on investment securities,
available for sale 313 208 844 541
Interest on federal funds and
deposits with banks 55 17 116 78
--------- --------- --------- ---------
Total interest income 1,399 873 3,819 2,318
Interest expense
Interest on deposits 769 440 2,037 1,146
Interest on other liabilities 11 9 32 31
--------- --------- --------- ---------
Total interest expense 780 449 2,069 1,177
Net interest income 619 424 1,750 1,141
Provision for possible credit losses 39 39 112 93
--------- --------- --------- ---------
Net interest income after provision for
possible credit losses 580 385 1,638 1,048
--------- --------- --------- ---------
Non-interest income
Service charges on deposit accounts 34 27 93 65
Fees for other services to customers 7 6 19 13
Gain on the sale of loans 32 34 100 107
Gain on the sale of investment
securities 13 2 13 6
Other income 1 1 4 6
--------- --------- --------- ---------
Total non-interest income 87 70 229 197
Non-interest expenses
Salaries and employee benefits 309 252 900 805
Occupancy and equipment expense 83 57 180 151
Advertising and marketing 27 11 83 68
Stationery and supplies 21 8 52 42
Professional services 21 17 64 48
Data processing 21 15 65 48
FDIC insurance premiums 2 -- 5 1
Other operating expenses 67 35 203 114
--------- --------- --------- ---------
Total non-interest expenses 551 395 1,552 1,277
Income (loss) before provision for income taxes 116 60 315 (32)
Income tax benefit (40) -- (100) --
--------- --------- --------- ---------
Net income (loss) $ 156 $ 60 $ 415 $ (32)
========= ========= ========= =========
Per share data:
Net income (loss) $ 0.16 $ 0.09 $ 0.44 $ (0.05)
Average number of shares outstanding 950,000 674,000 950,000 674,000
<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) Nine Months Ended
09/30/97 09/30/96
-------- --------
Cash flows from operating activities
Interest and fees received $ 3,686 $ 2,350
Interest paid (1,954) (1,150)
Proceeds from sale of mortgages held
for sale 7,908 5,633
Origination of mortgages held for sale (7,695) (5,338)
Cash paid to suppliers and employees (1,508) (1,118)
Net cash provided by operating -------- --------
activities 437 377
Cash flows from investing activities
Proceeds from maturities of securities
available for sale 15,000 5,250
Proceeds from sales of securities
available for sale 2,613 3,720
Purchases of securities available for
sale (31,093) (11,003)
Increase in loans, net of payments
received (10,846) (9,334)
Purchases of property and equipment (234) (187)
-------- --------
Net cash used in investing activities (24,560) (11,554)
Cash flows from financing activities
Net increase in non-interest bearing deposits 1,317 2,284
Net increase in interest bearing deposits 20,955 9,330
Principal payments on mortgage payable (13) (14)
-------- --------
Net cash provided by financing activities 22,259 11,600
Increase (decrease) in cash and cash equivalents (1,864) 423
Cash and cash equivalents at the beginning of the
period 7,426 2,542
-------- --------
Cash and cash equivalents at the end of the period $ 5,562 $ 2,965
======== ========
Reconciliation of net income (loss) to net cash
provided by operating activities
Net income(loss) $ 415 $ (32)
Adjustments to reconcile net income
(loss) to net cash provided by operating activities
Provision for possible credit losses 112 93
Depreciation and amortization expense 111 102
Accretion of discount on investment securities (7) (7)
Amortization of premium on investment securities 12 66
(Gain) on sale of investment securities (13) (6)
Decrease in mortgages held for sale 113 148
(Increase) in interest receivable (249) (52)
Increase in interest payable 115 27
(Increase) decrease in other assets (94) 20
Increase (decrease) in other liabilities (78) 18
-------- --------
Net cash provided by operating activities $ 437 $ 377
======== ========
<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
and nine month periods ended September 30, 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
reported periods 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.
B. New Accounting Pronouncement
The Financial Accounting Standards Board has recently issued
Financial Accounting Standards No. 128, "Earnings Per Share", which
is effective for financial statements issued after December 15, 1997.
Early adoption of the new standard is not permitted. The new standard
eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The adoption
of this new standard is not expected to have a material impact on the
disclosures of earnings per share in the financial statements.
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.
6
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
ANALYSIS OF BALANCE SHEET AND IMPACT UPON OPERATING RESULTS
Average total assets for the three and nine month periods ended September 30,
1997 amounted to $73.1 million and $66.8 million, respectively. Average total
asset for the three and nine month periods ended September 30, 1996 amounted
to $46.2 million and $41.4 million, respectively.
The annualized return on average total assets for the three and nine month
periods ended September 30, 1997 was 0.85% and 0.83%, respectively. The
annualized return on average total assets for the three and nine month
periods ended September 30, 1996 was 0.52% and (0.10%), respectively. The
annualized return on average equity for the three and nine month periods
ended September 30, 1997 was 7.33% and 6.63%, respectively. The annualized
return on average equity for the three and nine month periods ended September
30, 1996 was 4.51% and (0.80%), respectively.
Net interest income was $619,000 and $1,750,000 for the three and nine month
periods ended September 30, 1997, respectively. The annualized net interest
margin for the three and nine month periods ended September 30, 1997, on a
tax equivalent basis, was 3.39% and 3.49%, respectively. Net interest income
was $424,000 and $1,141,000 for the three and nine month periods ended
September 30, 1996, respectively. The annualized net interest margin for the
three and nine month periods ended September 30, 1996, on a tax equivalent
basis, was 3.67% and 3.67%, respectively.
Loans
- -----
Major categories of loans included in the loan portfolio are as follows (in
thousands):
09/30/97 12/31/96 09/30/96
-------- -------- --------
Consumer loans $12,341 $ 8,877 $ 7,263
Commercial, financial, & other 8,180 7,199 6,183
Commercial real estate construction 1,765 1,971 761
Commercial real estate mortgages 8,560 6,384 5,226
Residential real estate mortgages 16,260 11,832 9,846
------- ------- -------
47,106 36,263 29,279
Less allowance for possible credit losses 475 366 296
------- ------- -------
$46,631 $35,897 $28,983
======= ======= =======
7
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Average total loans for the nine month periods ended September 30, 1997 and
1996, amounted to $41.1 million and $23.3 million, respectively. Interest
income on total loans was $2,859,000 and $1,699,000, respectively, as of
September 30, 1997 and 1996, resulting in an effective yield of 9.26% and
9.72% 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):
09/30/97 12/31/96 09/30/96
-------- -------- --------
Non-accrual loans $9 $8 $9
Renegotiated loans -- -- --
Other real estate owned -- -- --
------ ------ ----
$9 $8 $9
====== ====== ====
Allowance and Provision for Possible Credit Losses
- --------------------------------------------------
The following is an analysis of the allowance for possible credit losses (in
thousands):
09/30/97 09/30/96
-------- --------
Balance, beginning of year $ 366 $ 204
Provision for possible credit losses
charged to operations 112 93
-------- --------
478 297
Loans charged off (3) (3)
Recoveries of loans charged off -- 2
-------- --------
Balance, September 30 $ 475 $ 296
======== ========
As a percent of total loans 1.01% 1.01%
======== ========
Ratios (amounts in thousands):
Net charge-offs to total loans, annualized ---% ---%
Average allowance for possible loan losses 413 235
Average total loans, gross 41,145 23,258
Average allowance to average total loans 1.00% 1.01%
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):
September 30, 1997
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- ---------- -------------
US Treasury securities $ 2,000 $2 $ (2) $ 2,000
US Government agency securities 21,997 --- (55) 21,942
-------- ------- ---- -------
Totals $23,997 $2 $(57) $23,942
======= ======= ==== =======
September 30, 1996
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- ---------- -------------
US Treasury securities $ 3,009 $ 3 $ (3) $ 3,009
US Government agency securities 8,974 9 (15) 8,968
-------- ------- ---- -------
Totals $11,983 $12 $ (18) $11,977
======= ======= ==== =======
Investment securities available for sale averaged $18.4 million and $12.4
million for the nine months ended September 30, 1997 and 1996, respectively.
Interest income as of September 30, 1997 and 1996 for securities available
for sale was $844,000 and $541,000, respectively, which resulted in an
effective yield of 6.41% and 5.84%.
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 $2.8 million and $1.9 million for the nine month
periods ended September 30, 1997 and 1996, respectively. Income on these
short-term assets as of September 30, 1997 and 1996 was $116,000 and $78,000,
respectively, which resulted in an effective yield of 5.52% and 5.37%.
9
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Liabilities and Interest Expense
- --------------------------------
The following is a summary of the distribution of deposits (in thousands):
09/30/97 12/31/96 09/30/96
-------- -------- --------
Non-interest bearing:
Demand $ 8,900 $ 7,583 $ 6,357
======= ======= =======
Interest bearing:
Checking $ 756 $ 977 $ 628
Money market 5,924 5,977 5,046
Savings 1,371 1,240 1,130
Time, under $100,000 32,726 19,048 14,612
Time, $100,000 and over 20,058 12,638 12,763
------- ------- -------
$60,835 $39,880 $34,179
======= ======= =======
Average total deposits and average interest bearing deposits for the nine
month period ended September 30, 1997 amounted to $57.6 million and $49.8
million, respectively. In comparison, average total deposits and average
interest bearing deposits for the nine month period ended September 30, 1996
were $35.3 million and $29.5 million, respectively. Total interest expense
for deposits was $2,037,000 for the nine month period ended September 30,
1997, resulting in an effective interest rate of 4.72% on total deposits and
5.45% on interest bearing deposits. In comparison, total interest expense for
deposits was $1,146,000 for the nine month period ended September 30, 1996,
resulting in an effective yield of 4.32% on total deposits and 5.18% on
interest bearing deposits.
For the nine month periods ended September 30, 1997 and 1996:
Non-interest bearing deposits had an average balance of $7.8 million
and $5.9 million, respectively.
Average interest bearing checking deposits were $0.8 million and $0.8
million, respectively, with associated interest expense of $12,000
and $11,000 resulting in an effective interest rate of 1.89% and
1.86%.
Average money market deposits were $7.2 million and $5.4 million,
respectively, with associated interest expense of $222,000 and
$171,000 resulting in an effective interest rate of 4.11% and 4.22%.
10
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Average savings deposits were $1.4 million and $1.2 million,
respectively, with associated interest expense of $25,000 and $23,000
resulting in an effective interest rate of 2.50% and 2.50%.
Interest bearing time deposits had an average balance of $40.4
million and $22.1 million, respectively, with associated interest
expense of $1,778,000 and $942,000 which resulted in an effective
interest rate of 5.87% and 5.68%.
Average interest bearing other liabilities consisted of mortgage indebtedness
and federal funds purchased for the nine month periods ended September 30,
1997 and 1996. The average balance was $555,000 and $567,000, respectively,
with associated interest expense of $32,000 and $31,000 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 September 30,
1997 and 1996 amounted to $87,000 and $70,000, respectively. For the nine
month periods ended September 30, 1997 and 1996, non-interest income totaled
$229,000 and $197,000, respectively. The primary components of non-interest
income consisted of gain on the sale of residential mortgages in the amount
of $34,000 and $68,000 and service charges on deposit accounts in the amount
of $34,000 and $93,000 for the three and nine month periods ended September
30, 1997, respectively.
Non-Interest Expenses
- ---------------------
Total non-interest expenses for the three month periods ended September 30,
1997 and 1996 amounted to $551,000 and $395,000, respectively. For the nine
month periods ended September 30, 1997 and 1996, non-interest expenses
amounted to $1,552,000 and $1,277,000, respectively. The largest component of
non-interest expenses consisted of salaries and employee benefits. For the
nine month period ended September 30, 1997 the number of full time equivalent
employees was 26, resulting in a salaries and employee benefits expense of
$900,000. For the nine month period ended September 30, 1996, the number of
full time equivalent employees was 24, resulting in a salaries and employee
benefits expense of $805,000.
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 September 30, 1997, total
earning assets exceeded interest bearing liabilities by $14.0 million. The
excess was funded by non-interest bearing demand deposits and stockholders'
equity. The Rate Sensitivity Analysis / Gap Analysis as of September 30, 1997
is presented in the following table.
Interest Rate Sensitivity Period
-------------------------------------------------------------
1-90 91-365 1-5 Over
Days Days Years 5 Years Total
---------- -------- -------- -------- ----------
Earning assets
Federal funds sold $ 4,150 $ --- $ --- $ --- $ 4,150
Mortgage loans held for sale 190 --- --- --- 190
Securities available for sale --- 998 22,944 --- 23,942
Total loans, net of non-accrual 9,805 8,798 28,008 486 47,097
------- ------- ------- ------ -------
Total earning assets 14,145 9,796 50,952 486 75,379
Interest bearing liabilities
Total interest bearing deposits 8,305 30,031 22,499 --- 60,835
Mortgage payable --- --- --- 541 541
------- ------ ------- ------ -------
Total interest bearing liabilities 8,305 30,031 22,499 541 61,376
Net asset (liability) funding gap 5,840 (20,235) 28,453 (55) $14,003
------- ------- ------- ------ =======
Cumulative net asset (liability)
funding gap $5,840 $(14,395) $14,058 $14,003
======= ========= ======= ======
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 September 30, 1997, the
Corporation had $4.2 million in federal funds sold and securities classified
as available for sale of $23.9 million. Those securities with maturities
within one year totaled $1.0 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 $8.6 million as of September 30, 1997. Primary capital for the
Corporation, consisting of stockholders' equity and the allowance for
possible loan losses, totaled $9.0 million. Primary capital to total assets
was 11.4%.
The following is a presentation of the Corporation's regulatory capital
ratios:
Minimum
Regulatory
09/30/97 09/30/96 Guidelines
-------- -------- ----------
Risk-Based Capital Ratios
Tier 1 Capital 18.24% 18.86% 4.00%
Total Capital 19.24% 19.89% 8.00%
Leverage Ratio 11.80% 11.68% 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 September 30, 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)(1) Financial Statements:
The following consolidated financial statements of Dearborn Bancorp,
Inc. and its subsidiary included in this report are:
Consolidated Balance Sheets - September 30, 1997, December 31, 1996
and September 30, 1996
Consolidated Statements of Operations - For the Three and Nine Months
Ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1997 and 1996
Notes to Consolidated Financial Statements
(b) A Form 8-K Report was not filed during the three months ended September
30, 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: November 3, 1997