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 June 30, 1996.
--------------
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 Identification No.)
incorporation or organization)
22290 Michigan Avenue, Dearborn, MI 48123-2247
----------------------------------------------
(Address of principal executive office) (Zip Code)
(313) 274-1000
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(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 July 31, 1996.
Class Shares Outstanding
----- ------------------
Common Stock 674,000
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 - June 30, 1996,
December 31, 1995 and June 30, 1995 3
Consolidated Statements of Operations - For the Three and Six
Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - For the Six
Months Ended June 30, 1996 and 1995 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 4. Submission of Matters to a Vote of
Security Holders 14
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 5. Other Information
SIGNATURES 15
2
DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands) 06/30/96 12/31/95 06/30/95
(unaudited) (audited) (unaudited)
----------- --------- -----------
ASSETS
Cash and cash equivalents
Cash and due from banks $ 952 $ 1,342 $ 835
Federal funds sold 2,150 1,200 3,510
---------- --------- -------
Total cash and cash equivalents 3,102 2,542 4,345
Mortgage loans held for sale 170 408 1,184
Investment securities, available for sale 14,241 10,035 8,168
Loans
Loans 25,186 19,945 14,082
Allowance for possible credit losses (255) (204) (153)
---------- --------- -------
Net loans 24,931 19,741 13,929
Bank premises and equipment, net 2,118 2,013 1,664
Accrued interest receivable 374 290 166
Other assets 89 101 72
---------- --------- -------
Total assets $ 45,025 $ 35,130 $29,528
========== ========= =======
LIABILITIES
Deposits
Non-interest bearing deposits $ 8,276 $ 4,073 $ 4,559
Interest bearing deposits 30,704 24,849 18,701
---------- --------- -------
Total deposits 38,980 28,922 23,260
Other liabilities
Mortgage payable 562 569 576
Accrued interest payable 86 92 79
Other liabilities 95 89 82
---------- --------- -------
Total liabilities 39,723 29,672 3,997
STOCKHOLDERS' EQUITY
Common Stock - 1,000,000 shares authorized,
674,000 shares outstanding 6,521 6,521 6,521
Accumulated deficit (1,184) (1,092) (1,015)
Net unrealized gain (loss) on securities available
for sale (35) 29 25
---------- --------- -------
Total stockholders' equity 5,302 5,458 5,531
Total liabilities and stockholders' equity $ 45,025 $ 35,130 $29,528
========== ========= =======
<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 Six Months Ended
06/30/96 06/30/95 06/30/96 06/30/95
-------- -------- -------- --------
Interest income
Interest and fees on loans $ 562 $ 304 $ 1,052 $ 556
Interest on investment securities, available for
sale 190 107 334 199
Interest on federal funds and deposits with banks 40 44 61 79
------- ------- ------- -------
Total interest income 792 455 1,447 834
Interest expense
Interest on deposits 387 215 706 378
Interest on other liabilities 11 11 22 22
------- ------- ------- -------
Total interest expense 398 226 728 400
Net interest income 394 229 719 434
Provision for possible credit losses 36 36 54 53
------- ------- ------- -------
Net interest income after provision for possible credit
losses 358 193 665 381
------- ------- ------- -------
Non-interest income
Service charges on deposit accounts 22 9 38 17
Fees for other services to customers 3 4 7 9
Gain on the sale of loans 26 40 72 53
Gain on the sale of investment securities 4 -- 4 --
Other income 2 2 5 5
------- ------- ------- -------
Total non-interest income 57 55 126 84
Non-interest expenses
Salaries and employee benefits 264 207 554 417
Occupancy and equipment expense 44 31 94 63
Advertising and marketing 28 19 58 37
Stationery and supplies 18 17 33 34
Professional services 16 20 31 36
FDIC insurance premiums 1 7 1 14
Other operating expenses 49 36 112 75
------- ------- ------- -------
Total non-interest expenses 420 337 883 676
Loss before provision for federal income tax (5) (89) (92) (211)
Provision for federal income tax -- -- -- --
------- ------- ------- -------
Net loss ($5) ($89) ($92) ($211)
======= ======= ======= =======
Per share data:
Net loss ($0.01) ($0.13) ($0.14) ($0.31)
Average number of shares outstanding 674,000 674,000 674,000 674,000
<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) Six Months Ended
06/30/96 06/30/95
-------- --------
Cash flows from operating activities
Interest and fees received $ 1,413 $ 860
Interest paid (734) (377)
Proceeds from sale of mortgages held for sale 3,760 3,453
Origination of mortgages held for sale (3,450) (4,544)
Cash paid to suppliers and employees (758) (824)
-------- --------
Net cash provided by (used in) operating activities 231 (1,432)
Cash flows from investing activities
Proceeds from maturities of securities available for sale 2,000 1,825
Proceeds from the sale of securities available for sale 1,709 --
Purchases of securities available for sale (8,020) (2,762)
Increase in loans, net of payments received (5,244) (4,175)
Purchases of property and equipment (167) (79)
-------- --------
Net cash used in investing activities (9,722) (5,191)
Cash flows from financing activities
Net increase in non-interest bearing deposits 4,203 2,192
Net increase (decrease) in interest bearing deposits 5,855 6,679
Principal payments on mortgage payable (7) (8)
-------- --------
Net cash provided by financing activities 10,051 8,863
Increase in cash and cash equivalents 560 2,240
Cash and cash equivalents at the beginning of the period 2,542 2,105
-------- --------
Cash and cash equivalents at the end of the period $ 3,102 $ 4,345
======== ========
Reconciliation of net loss to net cash provided by (used in)
operating activities
Net loss ($92) ($211)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Provision for possible credit losses 54 53
Depreciation and amortization expense 65 47
Accretion of discount on investment securities (2) (32)
Amortization of premium on investment securities 47 4
(Gain) on the sale of investment securities (4) ---
(Increase) decrease in mortgages held for sale 238 (1,144)
(Increase) in interest receivable (84) (5)
Increase (decrease) in interest payable (6) 23
(Increase) decrease in other assets 9 (25)
Increase (decrease) in other liabilities 6 (142)
-------- --------
Net cash provided by (used in) operating activities $ 231 $ (1,432)
======== ========
<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 six month periods ended June 30, 1996 and 1995 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 1995 Annual Report to Stockholders.
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 six month periods ended June 30, 1996
amounted to $42.4 million and $39.0 million, respectively. Average total asset
for the three and six month periods ended June 30, 1995 amounted to $26.3
million and $24.4 million, respectively.
The annualized return on average total assets for the three and six month
periods ended June 30, 1996 was (0.05%) and (0.46%), respectively. The
annualized return on average total assets for the three and six month periods
ended June 30, 1995 was (1.36%) and (1.73%), respectively. The annualized
return on average equity for the three and six month periods ended June 30,
1996 was (0.38%) and (3.36%), respectively. The annualized return on average
equity for the three and six month periods ended June 30, 1995 was (6.43%) and
(7.59%), respectively.
Net interest income was $394,000 and $719,000 for the three and six month
periods ended June 30, 1996, respectively. The annualized net interest margin
for the three and six month periods ended June 30, 1996, on a tax equivalent
basis, was 3.72% and 3.69%, respectively. Net interest income was $229,000 and
$434,000 for the three and six month periods ended June 30, 1995,
respectively. The annualized net interest margin for the three and six month
periods ended June 30, 1995, on a tax equivalent basis, was 3.88% and 3.99%,
respectively.
Loans
Major categories of loans included in the loan portfolio are as follows (in
thousands):
06/30/96 12/31/95 06/30/95
-------- -------- --------
Consumer loans $ 5,522 $ 4,620 $ 2,607
Commercial, financial, & other 5,589 5,375 3,901
Commercial real estate construction 260 961 1,014
Commercial real estate mortgages 4,501 2,676 1,853
Residential real estate mortgages 9,314 6,313 4,707
-------- -------- -------
25,186 19,945 14,082
Less allowance for possible credit losses 255 204 153
-------- -------- -------
$ 24,931 $ 19,741 $13,929
======== ======== =======
7
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Average total loans for the six month periods ended June 30, 1996 and 1995,
amounted to $21.4 million and $11.6 million, respectively. Interest income on
total loans was $1,052,000 and $556,000, respectively, as of June 30, 1996 and
1995, resulting in an effective yield of 9.83% and 9.49% 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):
06/30/96 12/31/95 06/30/95
-------- -------- --------
Non-accrual loans $ 9 $ 43 $ 41
Renegotiated loans -- -- --
Other real estate owned -- -- --
------ ------ -----
$ 9 $ 43 $ 41
====== ====== =====
Allowance and Provision for Possible Credit Losses
The following is an analysis of the allowance for possible credit losses (in
thousands):
06/30/96 06/30/95
-------- --------
Balance, beginning of year $ 204 $ 100
Provision for possible credit losses
charged to operations 54 53
------ ------
258 153
Loans charged off 3 --
====== ======
Balance, June 30 $ 255 $ 153
====== ======
As a percent of total loans 1.01% 1.09%
====== ======
Ratios (amounts in thousands):
Net charge-offs to total loans, annualized 0.02% --%
Average allowance for possible loan losses 219 115
Average total loans, gross 21,409 11,616
Average allowance to average total loans 1.02% 0.99%
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):
June 30, 1996
-------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
US Treasury securities $ 5,273 $ 1 ($9) $ 5,265
US Government agency securities 9,003 3 (30) 8,976
--------- -------- ------ --------
Totals $ 14,276 $ 4 ($39) $ 14,241
========= ======== ======= ========
June 30, 1995
-------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
US Treasury securities $ 7,330 $ 28 ($3) $ 7,355
US Government agency securities 813 -- -- $ 813
--------- -------- --- --------
Totals $ 8,143 $ 28 ($3) $ 8,168
========= ========= === ========
Investment securities available for sale averaged $11.5 million and $7.4
million for the six months ended June 30, 1996 and 1995, respectively.
Interest income as of June 30, 1996 and 1995 for securities available for sale
was $334,000 and $199,000, respectively, which resulted in an effective yield
of 5.82% and 5.42%.
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 $2.3 million and $2.7 million for the six month
periods ended June 30, 1996 and 1995, respectively. Income on these short-term
assets as of June 30, 1996 and 1995 was $61,000 and $79,000, respectively,
which resulted in an effective yield of 5.33% and 5.93%.
9
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Liabilities and Interest Expense
The following is a summary of the distribution of deposits (in thousands):
06/30/96 12/31/95 06/30/95
-------- -------- --------
Non-interest bearing:
Demand $ 8,276 $ 4,073 $ 4,559
======== ======== ========
Interest bearing:
Checking $ 735 676 $ 731
Money market 3,777 7,088 2,937
Savings 1,227 1,073 977
Time, under $100,000 13,350 6,673 5,904
Time, $100,000 and over 11,615 9,339 8,152
-------- -------- --------
$ 30,704 $ 24,849 $ 18,701
======== ======== ========
Average total deposits and average interest bearing deposits for the six month
period ended June 30, 1996 amounted to $32.9 million and $27.5 million,
respectively. In comparison, average total deposits and average interest
bearing deposits for the six month period ended June 30, 1995 were $18.1
million and $15.3 million, respectively. Total interest expense for deposits
was $706,000 for the six month period ended June 30, 1996, resulting in an
effective interest rate of 4.29% on total deposits and 5.16% on interest
bearing deposits. In comparison, total interest expense for deposits was
$378,000 for the six month period ended June 30, 1995, resulting in an
effective yield of 4.20% on total deposits and 4.98% on interest bearing
deposits.
For the six month periods ended June 30, 1996 and 1995:
Non-interest bearing deposits had an average balance of $5.5 million
and $2.8 million, respectively.
Average interest bearing checking deposits were $0.8 million and $0.5
million, respectively, with associated interest expense of $7,000 and
$5,000 resulting in an effective interest rate of 1.86% and 1.90%.
Average money market deposits were $5.5 million and $2.3 million,
respectively, with associated interest expense of $118,000 and
$47,000 resulting in an effective interest rate of 4.24% and 4.09%.
10
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Average savings deposits were $1.2 million and $1.0 million,
respectively, with associated interest expense of $15,000 and $12,000
resulting in an effective interest rate of 2.50% and 2.50%.
Interest bearing time deposits had an average balance of $20.0
million and $11.5 million, respectively, with associated interest
expense of $566,000 and $315,000 which resulted in an effective
interest rate of 5.68% and 5.52%.
Average interest bearing other liabilities consisted solely of mortgage
indebtedness for the six month periods ended June 30, 1996 and 1995. The
average balance was $552,000 and $580,000, respectively, with associated
interest expense of $22,000 and $22,000 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 June 30, 1996 and
1995 amounted to $57,000 and $55,000, respectively. For the six month periods
ended June 30, 1996 and 1995, non-interest income totaled $126,000 and
$84,000, respectively. The primary component of non-interest income consisted
of gain on the sale of residential mortgages in the amount of $26,000 and
$72,000 for the three and six month periods ended June 30, 1996, respectively.
Non-Interest Expenses
Total non-interest expenses for the three month periods ended June 30, 1996
and 1995 amounted to $420,000 and $337,000, respectively. For the six month
periods ended June 30, 1996 and 1995, non-interest expenses amounted to
$883,000 and $676,000, respectively. The largest component of non-interest
expenses consisted of salaries and employee benefits. For the six month period
ended June 30, 1996 the number of full time equivalent employees was 24,
resulting in a salaries and employee benefits expense of $554,000. For the six
month period ended June 30, 1995, the number of full time equivalent employees
was 20, resulting in a salaries and employee benefits expense of $417,000.
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 June 30, 1996, total earning
assets exceeded interest bearing liabilities by $10.5 million. The excess was
funded by non-interest bearing demand deposits and stockholders' equity. The
Rate Sensitivity Analysis / Gap Analysis as of June 30, 1996 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
-------- ------ ------ -------- -------
Federal funds sold $ 2,150 $ -- $ -- $ -- $ 2,150
Mortgage loans held for sale 170 -- -- -- 170
Securities available for sale 3,257 3,028 7,956 -- 14,241
Total loans, net of non-accrual 7,189 5,541 10,921 1,526 25,177
------- ------- ------- ------- -------
Total earning assets 12,766 8,569 18,877 1,526 41,738
Interest bearing liabilities
Total interest bearing deposits 4,583 20,654 5,467 -- 30,704
Mortgage payable -- -- -- 562 562
------- ------- ------- ------- -------
Total interest bearing liabilities 4,583 20,654 5,467 562 31,266
Net asset (liability) funding gap 8,183 (12,085) 13,410 964 10,472
------- ------- ------- ------- -------
Cumulative net asset (liability) funding gap $ 8,183 $(3,902) $ 9,508 $10,472 $ --
======= ======= ======= ======= =======
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 June 30, 1996, the
Corporation had $2.2 million in federal funds sold and securities classified
as available for sale of $14.2 million. Those securities with maturities
within one year totaled $6.3 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 $5.3 million as of June 30, 1996. Primary capital for the
Corporation, consisting of stockholders' equity and the allowance for possible
loan losses, totaled $5.6 million. Primary capital to total assets was 12.3%.
The following is a presentation of the Corporation's regulatory capital
ratios:
Minimum
Regulatory
06/30/96 Guidelines
-------- ----------
Risk-Based Capital Ratios
Tier 1 Capital 21.30% 4.00%
Total Capital 22.32% 8.00%
Leverage Ratio 12.60% 3.00%
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 June 30, 1996, the Corporation is well capitalized.
13
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
PART 2 - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Corporation held its regular annual meeting of stockholders on
May 21, 1996. At this meeting, an election was held for four
directors, to serve three year terms expiring in 1999. The voting
results for each nominee were as follows:
Nominee Total For Total Withheld
------- --------- --------------
Wilber M. Brucker, Jr. 480,924 None
Bradley F. Keller 480,924 None
Steven M. Kirkpatrick 480,924 None
Ronnie J. Story 480,924 None
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 - June 30, 1996, December 31, 1995 and
June 30, 1995
Consolidated Statements of Operations - For the Three and Six Months
Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 1996 and 1995
Notes to Consolidated Financial Statements
(b) A Form 8-K Report was not filed during the three months ended June
30, 1996.
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: August 1, 1996