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, 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
--------------
(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, 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 - September 30, 1996,
December 31, 1995 and September 30, 1995 3
Consolidated Statements of Operations - For the Three and Nine
Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 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 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) 09/30/96 12/31/95 09/30/95
(unaudited) (audited) (unaudited)
----------- --------- -----------
ASSETS
Cash and cash equivalents
Cash and due from banks $ 2,065 $ 1,342 $ 1,392
Federal funds sold 900 1,200 3,000
-------- -------- --------
Total cash and cash equivalents 2,965 2,542 4,392
Mortgage loans held for sale 260 408 84
Investment securities, available for sale 11,977 10,035 8,988
Loans
Loans 29,279 19,945 16,926
Allowance for possible credit losses (296) (204) (170)
-------- -------- --------
Net loans 28,983 19,741 16,756
Bank premises and equipment, net 2,103 2,013 1,892
Accrued interest receivable 342 290 248
Other assets 78 101 99
-------- -------- --------
Total assets $ 46,708 $ 35,130 $ 32,459
======== ======== ========
LIABILITIES
Deposits
Non-interest bearing deposits $ 6,357 $ 4,073 $ 4,419
Interest bearing deposits 34,179 24,849 21,787
-------- -------- --------
Total deposits 40,536 28,922 26,206
Other liabilities
Mortgage payable 555 569 573
Accrued interest payable 119 92 95
Other liabilities 107 89 59
-------- -------- --------
Total liabilities 41,317 29,672 26,933
STOCKHOLDERS' EQUITY
Common Stock - 1,000,000 shares authorized,
674,000 shares outstanding 6,521 6,521 6,521
Accumulated deficit (1,124) (1,092) (1,007)
Net unrealized gain (loss) on securities
available for sale (6) 29 12
-------- -------- --------
Total stockholders' equity 5,391 5,458 5,526
Total liabilities and
stockholders' equity $ 46,708 $ 35,130 $ 32,459
======== ======== ========
<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
09/30/96 09/30/95 09/30/96 09/30/95
-------- -------- -------- --------
Interest income
Interest and fees on loans $ 648 $ 375 $ 1,699 $ 931
Interest on investment securities,
available for sale 208 132 541 331
Interest on federal funds and deposits
with banks 17 55 78 135
-------- --------- --------- ---------
Total interest income 873 562 2,318 1,397
Interest expense
Interest on deposits 440 274 1,146 652
Interest on other liabilities 9 11 31 34
-------- --------- --------- ---------
Total interest expense 449 285 1,177 686
Net interest income 424 277 1,141 711
Provision for possible credit losses 39 22 93 75
-------- --------- --------- ---------
Net interest income after provision for possible
credit losses 385 255 1,048 636
-------- --------- --------- ---------
Non-interest income
Service charges on deposit accounts 27 10 65 27
Fees for other services to customers 6 6 13 15
Gain on the sale of loans 34 46 107 99
Gain on the sale of investment
securities 2 19 6 19
Other income 1 3 6 8
-------- --------- --------- ---------
Total non-interest income 70 84 197 168
Non-interest expenses
Salaries and employee benefits 252 216 805 633
Occupancy and equipment expense 57 40 151 103
Advertising and marketing 11 11 68 48
Stationery and supplies 8 14 42 49
Professional services 17 14 48 50
FDIC insurance premiums -- (1) 1 13
Other operating expenses 50 37 162 111
-------- --------- --------- ---------
Total non-interest expenses 395 331 1,277 1,007
Income (loss) before provision for federal 60 8 (32) (203)
income tax
Provision for federal income tax -- -- -- --
-------- --------- --------- ---------
Net income (loss) $ 60 $ 8 ($ 32) ($ 203)
======== ========= ========= =========
Per share data:
Net income (loss) $ 0.09 $ 0.01 ($ 0.05) ($ 0.30)
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) Nine Months Ended
09/30/96 09/30/95
-------- --------
Cash flows from operating activities
Interest and fees received $ 2,350 $ 1,360
Interest paid (1,150) (647)
Proceeds from sale of mortgages held for sale 5,633 6,635
Origination of mortgages held for sale (5,338) (6,580)
Cash paid to suppliers and employees (1,118) (1,180)
-------- --------
Net cash provided by (used in) operating
activities 377 (412)
Cash flows from investing activities
Proceeds from maturities of securities
available for sale 5,250 1,825
Proceeds from the sale of securities
available for sale 3,720 3,249
Purchases of securities available for sale (11,003) (6,825)
Increase in loans, net of payments received (9,334) (7,024)
Purchases of property and equipment (187) (332)
-------- --------
Net cash used in investing activities (11,554) (9,107)
Cash flows from financing activities
Net increase in non-interest bearing deposits 2,284 2,052
Net increase in interest bearing deposits 9,330 9,765
Principal payments on mortgage payable (14) (11)
-------- --------
Net cash provided by financing activities 11,600 11,806
Increase in cash and cash equivalents 423 2,287
Cash and cash equivalents at the beginning of the period 2,542 2,105
-------- --------
Cash and cash equivalents at the end of the period $ 2,965 $ 4,392
======== ========
Reconciliation of net loss to net cash provided by
(used in) operating activities
Net loss ($ 32) ($ 203)
Adjustments to reconcile net loss to net cash
used in operating activities
Provision for possible credit losses 93 75
Depreciation and amortization
expense 102 73
Accretion of discount on investment
securities (7) (45)
Amortization of premium on
investment securities 66 18
(Gain) on the sale of investment
securities (6) (19)
(Increase) decrease in mortgages
held for sale 148 (44)
(Increase) in interest receivable (52) (87)
Increase in interest payable 27 39
(Increase) decrease in other assets 20 (54)
Increase (decrease) in other
liabilities 18 (165)
-------- --------
Net cash provided by (used in) operating activities $ 377 ($ 412)
======== ========
<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, 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 I - FINANCIAL INFORMATION
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis are intended to address significant
factors affecting the financial condition and results of operations of the
Corporation. The discussion provides a more comprehensive review of the
financial position and operating results than can be obtained from a reading
of the financial statements and footnotes presented elsewhere in this report.
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,
1996 amounted to $46.2 million and $41.4 million, respectively. Average total
asset for the three and nine month periods ended September 30, 1995 amounted
to $30.9 million and $26.6 million, 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 total assets for the three and nine month periods
ended September 30, 1995 was 0.10% and (1.02%), 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. The annualized return on average
equity for the three and nine month periods ended September 30, 1995 was 0.58%
and (4.87%), 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. Net interest income was
$277,000 and $711,000 for the three and nine month periods ended September 30,
1995, respectively. The annualized net interest margin for the three and nine
month periods ended September 30, 1995, on a tax equivalent basis, was 3.91%
and 3.96%, respectively.
Loans
Major categories of loans included in the loan portfolio are as follows (in
thousands):
09/30/96 12/31/95 09/30/95
-------- -------- --------
Consumer loans $ 7,263 $ 4,620 $ 4,148
Commercial, financial, & other 6,183 5,375 4,203
Commercial real estate construction 761 961 1,083
Commercial real estate mortgages 5,226 2,676 2,422
Residential real estate mortgages 9,846 6,313 5,070
------- ------- -------
29,279 19,945 16,926
Less allowance for possible credit losses 296 204 170
------- ------- -------
$28,983 $19,741 $16,756
======= ======= =======
7
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Average total loans for the nine month periods ended September 30, 1996 and
1995, amounted to $23.3 million and $13.0 million, respectively. Interest
income on total loans was $1,699,000 and $931,000, respectively, as of
September 30, 1996 and 1995, resulting in an effective yield of 9.72% and
9.58% 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):
09/30/96 12/31/95 09/30/95
-------- -------- --------
Non-accrual loans $ 9 $43 $22
Renegotiated loans -- -- --
Other real estate owned -- -- --
--- --- ---
$ 9 $43 $22
=== === ===
Allowance and Provision for Possible Credit Losses
The following is an analysis of the allowance for possible credit losses (in
thousands):
09/30/96 09/30/95
-------- --------
Balance, beginning of year $ 204 $ 100
Provision for possible credit losses
charged to operations 93 75
-------- --------
297 175
Loans charged off (3) (5)
Recoveries of loans charged off 2 --
-------- --------
Balance, September 30 $ 296 $ 170
======== ========
As a percent of total loans 1.01% 1.00%
======== ========
Ratios (amounts in thousands):
Net charge-offs to total loans, annualized --% 0.03%
Average allowance for possible loan losses 235 130
Average total loans, gross 23,258 12,992
Average allowance to average total loans 1.01% 1.00%
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, 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
======= ======= ======= =======
September 30, 1996
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
US Treasury securities $ 5,117 $ 9 $ -- $ 5,126
US Government agency securities 3,859 3 -- $ 3,862
------- ------- ------- -------
Totals $ 8,976 $ 12 $ 0 $ 8,988
======= ======= ======= =======
Investment securities available for sale averaged $12.4 million and $7.9
million for the nine months ended September 30, 1996 and 1995, respectively.
Interest income as of September 30, 1996 and 1995 for securities available for
sale was $541,000 and $331,000, respectively, which resulted in an effective
yield of 5.84% and 5.57%.
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 $1.9 million and $3.1 million for the nine month
periods ended September 30, 1996 and 1995, respectively. Income on these
short-term assets as of September 30, 1996 and 1995 was $78,000 and $135,000,
respectively, which resulted in an effective yield of 5.37% and 5.90%.
9
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
Liabilities and Interest Expense
The following is a summary of the distribution of deposits (in thousands):
09/30/96 12/31/95 09/30/95
-------- -------- --------
Non-interest bearing:
Demand $ 6,357 $ 4,073 $ 4,419
======= ======= =======
Interest bearing:
Checking $ 628 $ 676 $ 587
Money market 5,046 7,088 5,246
Savings 1,130 1,073 991
Time, under $100,000 14,612 6,673 6,112
Time, $100,000 and over 12,763 9,339 8,851
------- ------- -------
$34,179 $24,849 $21,787
======= ======= =======
Average total deposits and average interest bearing deposits for the nine
month period ended September 30, 1996 amounted to $35.3 million and $29.5
million, respectively. In comparison, average total deposits and average
interest bearing deposits for the nine month period ended September 30, 1995
were $20.3 million and $17.1 million, respectively. Total interest expense for
deposits was $1,146,000 for the nine month period ended September 30, 1996,
resulting in an effective interest rate of 4.32% on total deposits and 5.18%
on interest bearing deposits. In comparison, total interest expense for
deposits was $652,000 for the nine month period ended September 30, 1995,
resulting in an effective yield of 4.28% on total deposits and 5.08% on
interest bearing deposits.
For the nine month periods ended September 30, 1996 and 1995:
Non-interest bearing deposits had an average balance of $5.9 million
and $3.2 million, respectively.
Average interest bearing checking deposits were $0.8 million and $0.6
million, respectively, with associated interest expense of $11,000 and
$8,000 resulting in an effective interest rate of 1.86% and 1.92%.
Average money market deposits were $5.4 million and $3.1 million,
respectively, with associated interest expense of $171,000 and $96,000
resulting in an effective interest rate of 4.22% and 4.17%.
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 $23,000 and $18,000
resulting in an effective interest rate of 2.50% and 2.50%.
Interest bearing time deposits had an average balance of $22.1 million
and $12.6 million, respectively, with associated interest expense of
$942,000 and $530,000 which resulted in an effective interest rate of
5.68% and 5.62%.
Average interest bearing other liabilities consisted of mortgage indebtedness
and federal funds purchased for the nine month periods ended September 30,
1996 and 1995. The average balance was $567,000 and $577,000, respectively,
with associated interest expense of $31,000 and $34,000 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, 1996
and 1995 amounted to $70,000 and $84,000, respectively. For the nine month
periods ended September 30, 1996 and 1995, non-interest income totaled
$197,000 and $168,000, respectively. The primary component of non-interest
income consisted of gain on the sale of residential mortgages in the amount of
$34,000 and $107,000 for the three and nine month periods ended September 30,
1996, respectively.
Non-Interest Expenses
Total non-interest expenses for the three month periods ended September 30,
1996 and 1995 amounted to $395,000 and $331,000, respectively. For the nine
month periods ended September 30, 1996 and 1995, non-interest expenses
amounted to $1,277,000 and $1,007,000, respectively. The largest component of
non-interest expenses consisted of salaries and employee benefits. 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. For the nine month period ended September 30, 1995, the number of
full time equivalent employees was 21, resulting in a salaries and employee
benefits expense of $633,000.
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, 1996, total
earning assets exceeded interest bearing liabilities by $7.7 million. The
excess was funded by non-interest bearing demand deposits and stockholders'
equity. The Rate Sensitivity Analysis / Gap Analysis as of September 30, 1996
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 $ 900 $ -- $ -- $ -- $ 900
Mortgage loans held for
sale 260 -- -- -- 260
Securities available for
sale -- 3,001 8,976 -- 11,977
Total loans, net of
non-accrual 6,522 7,944 13,935 869 29,270
-------- -------- -------- -------- --------
Total earning assets 7,682 10,945 22,911 869 42,407
Interest bearing liabilities
Total interest bearing
deposits 13,293 16,351 4,535 -- 34,179
Mortgage payable -- -- -- 555 555
-------- -------- -------- -------- --------
Total interest bearing liabilities 13,293 16,351 4,535 555 34,734
Net asset (liability) funding gap (5,611) (5,406) 18,376 314 7,673
-------- -------- -------- -------- --------
Cumulative net asset (liability)
funding gap ($ 5,611) ($11,017) $ 7,359 $ 7,673 $ --
======== ======== ======== ======== ========
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, 1996, the
Corporation had $0.9 million in federal funds sold and securities classified
as available for sale of $12.0 million. Those securities with maturities
within one year totaled $3.0 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 $5.4 million as of September 30, 1996. Primary capital for the
Corporation, consisting of stockholders' equity and the allowance for possible
credit losses, totaled $5.7 million.
Primary capital to total assets was 12.2%.
The following is a presentation of the Corporation's regulatory capital
ratios:
Minimum
Regulatory
09/30/96 Guidelines
-------- ----------
Risk-Based Capital Ratios
Tier 1 Capital 18.86% 4.00%
Total Capital 19.89% 8.00%
Leverage Ratio 11.68% 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 September 30, 1996, the Corporation is well
capitalized.
13
DEARBORN BANCORP, INC.
FORM 10-Q (continued)
PART II - 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 - September 30, 1996, December 31, 1995
and September 30, 1995
Consolidated Statements of Operations - For the Three and Nine Months
Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1995
Notes to Consolidated Financial Statements
(b) A Form 8-K Report was not filed during the three months ended
September 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: November 1, 1996
15