10-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2010

or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from __________ to __________

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 incorporation or organization)	(I.R.S. employer identification no.)

1360 Porter Street, Dearborn, MI	48124
(Address of principal executive office)	(Zip code)

(313) 565-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock	The Nasdaq Stock Market, LLC

Securities registered pursuant to section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act

Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Small reporting company þ

Indicate by check mark if the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.

Yes o No þ

The aggregate market value of the common equity held by non-affiliates of the registrant computed by reference to the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second quarter, was approximately $12,128,070.

As of March 18, 2011, 7,685,706 shares of common stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2010 Annual Report to Stockholders of the Registrant are incorporated in Parts I, II and IV of this report. Portions of the definitive Proxy Statement of the Registrant dated April 15, 2011, to be filed pursuant to Regulation 14A, are incorporated by reference in Part III of this report.

TABLE OF CONTENTS

PART I		3
Item 1.	Business	3
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	21
Item 3.	Legal Proceedings	22
Item 4.	Reserved	22
PART II		22
Item 5.	Market for Registrant’s Common Equity, and Related Stockholder Matters	22
Item 6.	Selected Financial Data	22
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 7A.	Quantitative and Qualitative Disclosure about Market Risk.	22
Item 8.	Financial Statements and Supplementary Data	22
Items 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	22
Item 9A.	Controls and Procedures	22
Item 9B.	Other Information	23
PART III		23
Item 10.	Directors and Executive Officers of the Registrant	23
Item 11.	Executive Compensation	23
Item 12.	Security Ownership of Certain Beneficial Owners and Management	23
Item 13.	Certain Relationships and Related Transactions	24
Item 14.	Principal Accountant Fees and Services	24
PART IV		24
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	24
Form 10-K Signatures		27
Exhibit Index		28
2010 Annual Report to Stockholders
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Rule 13a-14(a) CEO Certification
Rule 13a-14(a) CFO Certification
CEO Certification Pursuant to Section 906
CFO Certification Pursuant to Section 906

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DEARBORN BANCORP, INC.
FORM 10-K

PART I

Forward Looking Statements

     The following discussion contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation and Bank. Words such as “anticipates”, “believes”, “estimates”, “expects”, “forecasts”, “intends”, “is likely”, “plans”, “projects”, variations of such words and similar expressions are intended to identify such forward- looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

     Future Factors include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economy. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

Item 1. Business

     Dearborn Bancorp, Inc. (the “Corporation”), a Michigan corporation, is a bank holding corporation owning all the common stock of Fidelity Bank (the “Bank’) , a Michigan banking corporation which commenced business on February 28, 1994. Fidelity Bank was previously known as the Community Bank of Dearborn. The Bank is the only commercial bank headquartered in Dearborn, Michigan and conducts business primarily in Wayne, Macomb, Oakland and Washtenaw Counties, Michigan.

Background

     The liberalization of Michigan’s branch banking laws, together with the expansion of interstate banking, has led to substantial consolidation of the banking industry in Michigan, including within the county in which the Bank has its executive offices. In the past, several of the financial institutions within the primary market area of the Bank have either been acquired by or merged with larger financial institutions or out-of-state financial institutions. In some cases, when these consolidations occurred, local boards of directors were dissolved and local management relocated or in some cases terminated and has, in some cases, resulted in policy and credit decisions being centralized away from local management.

     In the opinion of the Corporation’s management, this situation has created a favorable opportunity for a local commercial bank with local management and directors. Management of the Corporation believes that such a bank attracts those customers who wish to conduct business with a locally managed institution that demonstrates an active interest in their business and personal financial affairs. The Corporation believes that a locally managed institution, in many cases, will be able to deliver more timely responses to customer requests, provide customized financial products and services and offer customers the personal attention of the Bank’s senior banking officers. The Bank seeks to take advantage of this opportunity by emphasizing in its marketing plan the Bank’s local management and the Bank’s ties and commitment to its market area.

     The Corporation was incorporated as a Michigan business corporation on September 30, 1992. The Corporation was formed to acquire all of the Bank’s issued and outstanding stock and to engage in the business of a bank holding corporation under the Bank Holding Company Act of 1956, as amended (the “Act”).

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     The executive offices of the Corporation and the Bank are located at 1360 Porter Street, Dearborn, Michigan 48124, telephone number (313) 565-5700. The Bank’s the website address is www.fidbank.com. The investor relations page of the website can be directly accessed at www.dearbornbancorp.com.

Business of the Corporation

     The primary purpose of the Corporation is the ownership of the Bank. In the future, the Corporation may form or acquire other subsidiaries as permitted under the Act and the regulations of the Federal Reserve.

Business of the Bank

     Principal operations of the Bank commenced on February 28, 1994 when the Bank opened for business at its main office, located at 22290 Michigan Avenue, Dearborn, Michigan. The Bank, through its main office, branch offices and regional lending centers, emphasizes and offers highly personalized service to its customers. A listing of office locations is set forth under the caption “Fidelity Bank Locations” in the 2010 Annual Report to Stockholders and is incorporated herein by reference.

     On January 4, 2007, the Corporation acquired Fidelity Financial Corporation of Michigan (Fidelity), a commercial bank with seven offices in Oakland County, Michigan. The acquisition significantly expands the Bank’s presence in Oakland County, Michigan. Management believes that the acquisition has been beneficial to the Bank’s customers and the Corporation’s shareholders.

     The customer service officers are well-trained, experienced bank officers who fill the needs of the customers and handle the requests of their customers in a professional manner. The management of the Corporation and the Bank believe that it is important to the success of the Bank’s strategy to create long-term relationships between customers and Bank employees. The Bank’s senior management holds regular staff information meetings so that all employees are given information regarding the Bank’s plans and objectives, and employees are offered the opportunity to make suggestions to improve the Bank’s performance. The management of the Bank believes that this approach creates a commitment by all employees to the Bank’s success.

     The Bank offers a wide range of financial products and services. These include checking accounts, savings accounts, money market accounts, certificates of deposit, business checking, direct deposit, loan services (commercial, consumer, real estate mortgages), travelers’ checks, cashiers’ checks, wire transfers, safety deposit boxes, online banking, telephone banking, collection services, and night depository services. The Bank offers check imaging options including statements on CD ROM and online banking services to its customers.. The Bank does not have a trust department.

     On August 19, 1997, the Bank purchased a shell insurance agency and renamed the agency Community Bank Insurance Agency, Inc. Community Bank Insurance Agency’s primary functions are to act as the sales agent for the Corporation’s own insurance policies and to hold a minority interest in MBT Title Services, LLC, a title insurance company, which allows the Bank to offer title insurance to its customers.

     On March 26, 2002, the Bank formed Community Bank Audit Services, Inc., a company that provides internal audit and compliance consulting to other small community banks.

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Business Strategy

     Maintain High Quality Operations. Since commencing operations, excellent customer service and strong underwriting of potential borrowers has been emphasized. We will continue to emphasize high asset quality and offer superior customer service. We will focus on improving loan quality by utilizing commercial lenders and loan workout professionals to manage our loan portfolio. We believe that the demographics and growth characteristics within the communities we serve should also provide significant opportunities for us to improve our loan and deposit relationships at our existing offices.

     Emphasize Relationship Banking. We strive to maintain a strong commitment to relationship banking. Our goal is to attract small to medium-sized businesses, as well as individuals as customers who wish to conduct business with a local commercial bank that demonstrates an active interest in their business and personal affairs. We are becoming increasingly sophisticated in our ability to analyze our customer relationships, which increases our ability to recognize the opportunity to offer additional products and services that will expand each relationship. We believe our ability to deliver products and services in a highly personalized manner helps differentiate us from larger, regional banks operating in our market area.

     Maintain Strong Level of Capital. A Bank’s level of capitalization is a primary factor in the level of the regulatory pressures faced by financial institutions. We should maintain sufficient levels of capital to be categorized as “Well-Capitalized”. When capital levels fall below this level due to business conditions, management will take actions necessary to improve capital levels. Maintenance of the level of capital required to be categorized as “well-capitalized” provides management with the flexibility to take advantage of business opportunities, reduces the cost of FDIC deposit insurance and limits regulatory restrictions.

     Hire Experienced, Local Bankers. Our strategy has revolved around the hiring of experienced, local banking professionals and relationship managers to run our offices, call on customers and originate loans and deposits. We encourage our employees to be active in community affairs and business, trade and service organizations. Our senior loan officers have an average of over 20 years of experience in the financial services industry and have operated in our market area through a wide range of economic cycles and lending market conditions. We believe that the recruitment of banking professionals with significant experience in, and knowledge of, our markets facilitates our growth and partially mitigates the credit risk associated with our loan portfolio.

     Capitalize on Consolidation in Our Market. Several of the financial institutions within our market area have either been acquired by, or merged with, larger or out-of-state financial institutions. These acquisitions have included: Royal Bank of Scotland Group, Plc’s acquisition of Charter One Financial, Inc., J.P. Morgan Chase & Co.’s acquisition of Bank One Corporation, Fifth Third Bancorp’s acquisition of Old Kent Financial Corporation and Bank of America’s acquisition of Lasalle Bank. In some cases, when these consolidations occurred, the ensuing employee and customer disruptions created opportunities for us to attract experienced personnel and establish relationships with customers wishing to conduct business with a locally-managed institution with strong ties to the community. We have positioned ourselves to capitalize on business opportunities that may result from customer dislocation associated with these and future consolidations.

     Control Our Operating Costs. Our practice of employing fewer, but highly qualified and productive individuals at all levels of the organization is key to maintaining a decentralized management structure. These individuals are able to manage large loan portfolios, which increases interest income while controlling personnel costs. Additionally, we continue to enhance our operating procedures and in 2004 we opened an operations center in Allen Park, Michigan that consolidated many of our administrative and support functions. This facility houses our data processing, accounting, auditing, compliance and customer support activities.

     Focus on Commercial Real Estate Lending. While we offer a full range of consumer and commercial loan products, our primary lending focus will continue to be providing local businesses with loans secured by owner-occupied real estate. Typically, we seek commercial real estate lending relationships with customers borrowing from $500,000 to $4 million. Although our legal lending limit was approximately $9 million as of December 31, 2010, our Board of Directors has set our current in-house lending limit at $6 million. Our in-house limit accommodates the vast majority of lending opportunities we encounter. If local businesses have credit needs beyond the scope of our in-house lending capacity, we may participate out a portion of the credit with other financial institutions in order to accommodate our customers’ needs. As of December 31, 2010, commercial real estate loans comprised 75% of our loan portfolio.

5

Market Area

     Our current market area includes Wayne, Oakland, Macomb and Washtenaw Counties, which are all located in southeastern Michigan. We currently have offices in the following communities: Ann Arbor, Auburn Hills, Bingham Farms, Birmingham, Bloomfield Township, Canton Township, Clinton Township, Dearborn, Dearborn Heights, Plymouth Township, Saline, Shelby Township, Southfield and Southgate, Michigan. Our market area has a diverse economy based primarily on manufacturing, retail and service businesses and contains the headquarters for twenty-three Fortune 500 companies. According to 2000 U.S. Census Data, the populations of Wayne (excluding the City of Detroit), Oakland, Macomb and Washtenaw Counties totaled 3,414,967, while median household incomes for such counties were $50,848, $69,794, $58,598 and $59,069, respectively.

     Our market area represents a significant banking market in the State of Michigan. According to the FDIC, total deposits in Wayne (excluding the City of Detroit), Macomb, Washtenaw, and Oakland Counties, including those of banks and thrifts, were approximately $72.7 billion as of June 30, 2010, which accounted for approximately 46.7% of the total deposit market share in the State of Michigan and has increased approximately 44.0% from $50.5 billion in deposits as of June 30, 2000.

Marketing Plan

     The Bank’s marketing plan emphasizes direct sales calls by Bank officers and branch managers and specific telemarketing programs involving branch personnel. The marketing plan also focuses on the concepts of corporate citizenship and personal interaction within the communities the Bank serves through promotion of, and active participation in a number of civic organizations and ongoing community activities. Management believes that these efforts establish the identity and philosophy of the Bank within the communities it serves and allows bank officers and employees to personally interact with local business leaders and members of the public.

     The Bank has two primary target markets: personal banking services, with an emphasis on individual deposit accounts and single-family residential lending; and business banking services, with an emphasis on deposit and loan products designed for small- to medium-sized businesses.

     Community Club. At inception, the Bank established a “Community Club” which has become an important marketing initiative to increase the Bank’s total deposits. The Community Club is targeted at individuals 50 years of age or older. As of December 31, 2010, the Community Club had over 6,700 members who accounted for total deposits of $597.6 million, or 73% of the Bank’s total deposits.

     Among other things, membership in the Community Club entitles the customer to increased personal attention and service by Bank staff. The Bank also hosts local community events and educational seminars which have been well-received by the Community Club members. Management believes that the success of the Community Club and the Bank’s continued efforts to expand the benefits of the program will foster an increase in the number of Community Club members and deposit accounts.

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     Business Financial Services. The Bank’s business marketing efforts are directed by senior management, including Michael J. Ross, Warren R. Musson and Jeffrey J. Wolber. Lee Freeland as Vice President of Sales Administration is responsible for administering and coordinating the retail business development efforts of the Bank.

     The Bank has developed a one-on-one marketing approach for existing and prospective customers alike. Utilizing the Bank’s database, existing clients are identified to determine their current banking products, services provided, and for additional cross selling opportunities to enhance the account relationship. With the calling efforts of our branch managers, business development and lending officers, bank personnel conduct on-site client interviews with the responsibility of creating new business opportunities for the Bank.

     In addition to its marketing program, the Bank’s officers maintain contact with existing customers, local attorneys, accountants and other representatives in the local community that may be in a position to refer business to the Bank. The Bank also encourages and supports its officers and employees to join and participate in various community organizations and events.

     Through their many years of business and community leadership, each of the Corporation’s Directors has been, and will continue to be, a strong source of referrals for the Bank.

     Consumer Financial Services. The Bank originates residential real estate loans primarily through its retail branch facilities. Branch managers and mortgage loan originators develop new residential mortgage applications from several sources including real estate brokers, insurance agents, accountants, attorneys, existing residential mortgage customers and other customers of the Bank. An extensive telemarketing effort generates potential customers as a result of these contacts.

     The Bank, as a result of its secondary market operations, is able to offer a variety of loan products that serve the needs of its customers. The Bank also provides loans that it holds in its own portfolio on those transactions that evidence satisfactory credit quality and income but are unable to be sold in the secondary market for various reasons. The Bank does not originate sub-prime mortgages for its portfolio.

     Management believes that cross-selling of the Bank’s products and services to its existing customers is vital to expanding account relationships, generating additional sales opportunities and increasing fee income.

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Loan Policy

     As a routine part of the Bank’s business, the Bank makes loans to individuals and businesses located within the Bank’s market area. The loan policy of the Bank states that the function of the lending operation is two-fold: to provide a means for the investment of funds at a profitable rate of return with an acceptable degree of risk, and to meet the credit needs of the responsible businesses and individuals who are customers of the Bank. However, the Board of Directors of the Bank recognizes that in the normal business of lending, some losses on loans will be inevitable and should be considered a part of the normal cost of doing business. Under the loan policy, individual lending authority for loans in excess of $100,000 is granted to a limited number of officers, each of whom has over 25 years of banking experience. Currently this group includes Michael J. Ross and Warren R. Musson. They are authorized to lend up to $100,000 unsecured and $1,000,000 for collateralized loans. Historically, these authorities have been used sparingly.

     The Bank’s loan policy anticipates that priorities in extending loans will change from time to time as interest rates, market conditions and competitive factors change. The policy sets forth guidelines on a nondiscriminatory basis for lending in accordance with applicable laws and regulations. The policy describes various criteria in granting loans, including the ability to pay; the character of the customer; evidence of financial responsibility; purpose of the loan; knowledge of collateral and its value; terms of repayment; source of repayment; payment history; and economic conditions.

     The loan policy specifies individual lending limits for certain officers up to a maximum of $25,000 for unsecured loans and $100,000 for secured loans. When certain officers have the approval of certain other officers, these limits may be increased to $100,000 for unsecured loans and $500,000 for secured loans. Loans of greater than $500,000 normally require the approval of our Loan Committee unless approved by Michael J. Ross or Warren R. Musson up to their authorized limits and loans greater than $1,000,000 require the approval of our Executive Loan Committee, which requires the attendance of at least three outside members of the Bank’s Board of Directors for a quorum. Loans in excess of $6,000,000 up to the legal maximum authorized by law require the approval of our Board of Directors.

     The loan policy also limits the amount of funds that may be loaned against specified types of collateral including: listed securities with a share price greater than $10 — not greater than 80% loan to value; listed securities with a share price less that or equal to $10 — not greater than 50% loan to value; U.S. Government securities — not greater than 90% loan to value; Municipal securities — not greater that 80% loan to value; and insured bank deposits — not greater than 100% loan to value. As to loans secured principally by real estate, the policy complies with the FIRREA Act of 1989 and subsequent interagency appraisal and evaluation guidelines regarding appraisals of the property offered as collateral by licensed independent appraisers. The loan policy also provides general guidelines as to collateral, provides for environmental reviews, contains specific limitations with respect to loans to employees, executive officers and directors, provides for problem loan identification, establishes a policy for the maintenance of a loan loss reserve, provides for loan reviews and sets forth policies for mortgage lending and other matters relating to the Bank’s lending business.

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Lending Practices

     Commercial Loans. Our commercial lending group originates commercial loans primarily in Wayne, Oakland, Macomb and Washtenaw Counties in southeastern Michigan. Commercial loans are originated by a group of lending officers with the assistance of Michael J. Ross and Warren R. Musson. Loans are originated for general business purposes, including working capital, accounts receivable financing, machinery and equipment acquisition, and commercial real estate financing including new construction.

     Working capital loans are often structured as a line of credit and are reviewed periodically in connection with the borrower’s year-end financial reporting. These loans generally are secured by all of the assets of the borrower, a personal guaranty of the owners and have an interest rate plus a margin tied to the Fidelity Bank prime rate. Loans for machinery and equipment purposes typically have a maturity of five to seven years and are fully amortizing. Commercial real estate loans are usually written with a five-year maturity and are amortized over a fifteen to twenty-year period. Commercial real estate loans may have an interest rate that is fixed to maturity or float with a margin over the prime rate or another index. All loans typically contain a pre-payment premium and many floating rate loans contain interest rate floors to protect the Bank’s net interest margin.

     We evaluate all aspects of a commercial loan transaction in order to minimize credit and interest rate risk. Underwriting includes an assessment of management, products, markets, cash flow, capital, income and collateral. The analysis includes a review of historical and projected financial results. Appraisals are normally obtained by licensed independent appraisers who are well known to us on transactions involving real estate and, in some cases, equipment.

     Commercial real estate lending has historically involved more risk than residential lending, because loan balances are greater and repayment is dependent upon the borrower’s operations. We attempt to minimize risk associated with these transactions by limiting our exposure to existing well-known customers and new customers with an established profitable history. Risk is further reduced by limiting the concentration of credit to any one borrower as well as the type of commercial real estate financed.

     The Bank has established a Special Assets Group within the Lending Department. This group consists of a Group Manager and five workout officers. Two of these workout officers are attorneys licensed to practice law in the State of Michigan. These professionals are responsible for the management of non-performing loans and the disposal of non-performing assets. Additionally, the Bank has formed a Special Assets Committee that meets bi-weekly. This Committee consists of the Head of Lending, Head of Credit and the Special Assets Manager and workout officers. This Committee discusses the status of these non-performing assets and strategies and actions concerning these assets that would further the Bank’s interests.

     Residential Real Estate Loans. We originate residential real estate loans in our market area according to secondary market underwriting standards. These loans provide borrowers with a fixed interest rate with terms up to thirty years. Loans are sold on a servicing released basis in the secondary market with all interest rate risk and credit risk passed to the purchaser. The Bank from time to time may elect to underwrite certain residential real estate loans to be held in its own loan portfolio. These loans are generally underwritten with the same standards that apply to the secondary market. The majority of the portfolio loans have a fixed rate of interest for the first five years, then the interest rate is indexed to the one-year treasury rate and adjusts annually. Underwriting standards include verifying the income of potential borrowers and confirming their ability to repay. It has not been our practice to make “no document” loans or other sub-prime loans.

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     Consumer Loans. We originate consumer loans for a wide variety of personal financial requirements. Consumer loans include home equity lines of credit, and loans secured by new and used automobiles, boats, savings accounts as well as overdraft protection for checking account customers. We also purchase retail installment loans from a select list of automobile dealerships located primarily in our market.

     Consumer loans, except for home equity lines of credit, generally have shorter terms and higher interest rates than residential mortgage loans and usually involve more credit risk than mortgage loans because of the type and nature of the collateral. While we do not utilize a formal credit scoring system, we believe our loans are underwritten carefully, with a strong emphasis on the amount of the down payment, credit quality, employment stability, and monthly income. These loans are generally repaid on a monthly repayment schedule with the source of repayment tied to the borrower’s periodic income. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and are thus likely to be adversely affected by job loss, illness and personal bankruptcy. In many cases, repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan balance because of depreciation of the underlying collateral. We believe that the generally higher yields earned on consumer loans compensate for the increased credit risk associated with such loans and that consumer loans are important to our efforts to serve the credit needs of the communities and customers that we serve.

     Allowance for Loan Losses. An allowance for loan losses is maintained at a level that we consider adequate to provide for losses in the loan portfolio. Allowances for loan losses are based upon our experience and estimates of the net realizable value of collateral in each loan portfolio. Our Board of Directors and senior management review the allowance quarterly. Our evaluation takes into consideration experience, the level of classified assets, non-performing loans, the current level of the allowance as it relates to the total loan portfolio, current economic conditions, recent regulatory examinations and other factors.

     In determining the allowance for loan losses, we consider three principal elements: (i) specific allocations based on probable losses identified during the review of the loan portfolio, (ii) allocations based principally on the likelihood that the status of performing loans will decline to non-performing status, and (iii) additional allowances based on subjective factors, including local and general economic business factors and trends and portfolio concentrations.

     The first element reflects our estimate of probable losses based upon our systematic review of specific loans. These estimates are based upon a number of objective factors, such as payment history, financial condition of the borrower, and discounted collateral exposure.

     As further discussed below, we have developed a risk rating system that is applied to our commercial loan portfolio. Loans rated 5 or 6 are deemed “Criticized”, while loans rates 7 or higher are deemed “Classified”. Classified loans with a balance of $500,000 or greater that are classified as non-accrual are considered to be impaired, as defined by ASC 310-40 (formerly known as SFAS 114). A collateral analysis is performed on these loans to determine if the collateral is sufficient to secure these loans. If there is a collateral shortfall, the loan is charged down to the level of the collateral value. If applicable, portions of our allowance are assigned to individual loans based on this analysis.

     Loans classified as Troubled Debt Restructuring (“TDR loans”) are also classified as impaired loans. A TDR loan occurs when a borrower is granted a temporary concession to enable the borrower to fulfill the debt service obligations with the Bank. Once the term of the TDR loan has concluded, the loan will return to its previous contractual terms. These loans are analyzed on a cash flow or collateral value basis to determine if an allocation in the allowance for loan losses is necessary. If necessary, portions of our allowance are assigned to individual TDR loans based on this analysis.

     Commercial loans not classified as impaired, homogeneous mortgage and consumer loans are provided for in the allowance for loan losses computation by allocations based upon loan grade and type. These allocations include consideration of a variety of objective and subjective factors including our historical loss experience, delinquent status, the purpose and size of the loan, its collateral type, the current economic environment and other business factors and trends that we believe impact the ability of our borrowers to repay their obligations.

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     Delinquent Loans, Non-performing Assets and Classified Assets. When a borrower fails to make a required payment on a loan, our Bank attempts to cause the deficiency to be cured by contacting the borrower. In many cases, deficiencies are cured as a result of these collection efforts.

     When a borrower fails to make a timely payment, the borrower will receive a delinquency notice within 5 days of the due date. When the payment reaches 15 days past due, a second notice will be sent and a phone call will be made. This process is repeated if the account remains delinquent at 25 days. In many cases, delinquencies are paid promptly. Generally, if a real estate loan becomes 90 days delinquent, the borrower and collateral will be assessed to determine whether foreclosure action is required. When deemed appropriate by management, a foreclosure action will be instituted or a deed in lieu of foreclosure, short sale or loan modification will be pursued.

     Loans that are 90 days past due and are not well secured and in the process of collection will be placed on non-accrual status. Under-collateralized loans that are 90 days past due will be fully or partially charged-off. The amount charged-off will be charged against the loan loss allowance.

     Our Bank has developed a risk-rating system to quantify loan quality. The system assigns a risk rating from 1 to 9 for each loan. Loans graded 1 to 4 are rated “Pass”, while loans graded 5 and 6 are rated “Criticized”. Classified loans are those with a risk rating of 7 or higher. Each loan rating is determined by analyzing the borrowers’ management, financial ability, sales trends, operating results, financial conditions, asset protection, contingencies, payment history, financial flexibility, credit enhancements and other relevant factors. Loans that fall into the classified categories are monitored on a regular basis and proper action is taken to minimize our Bank’s exposure. Losses or partial losses will be taken when they are recognized.

     The Bank’s risk rating system is similar to that used by regulatory agencies. Problem assets are classified as “substandard” (risk rating 7), “doubtful” (risk rating 8) or “loss” (risk rating 9). “Substandard” assets have one or more defined weaknesses and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. “Doubtful” assets have the same weaknesses as “substandard” assets, with the additional characteristics that (i) the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable and (ii) there is a high possibility of loss. An asset classified “loss” is considered uncollectible and of such little value that its continuance as an asset of the institution is not warranted. The regulations also contain “special mention” (risk rating 6) and “watch credit” (risk rating 5) categories, consisting of assets which do not currently expose an institution to a sufficient degree of risk to warrant classification but which possess credit deficiencies or potential weaknesses deserving management’s close attention.

     Generally, our Bank classifies as “substandard” all loans that are delinquent more than 90 days and non-accruing, unless management believes the delinquency status is short-term due to unusual circumstances. Loans delinquent fewer than 90 days may also be classified if the loans have the characteristics described above rendering classification appropriate.

     The aggregate amounts of our Bank’s criticized and classified assets at December 31, 2010, and December 31, 2009 were as follows (dollars in thousands):

				December 31,		December 31,
	Rating		2010		2009
Watch Credit		5	$	77,119	$	74,560
Special Mention		6		77,025		64,987
Substandard		7		171,378		134,839
Doubtful		8		85		6,381
Loss		9		—		—
Total classified assets			$	325,607	$	280,767

     Criticized and classified assets increased $14.6 million and $30.2 million, respectively, during the year ended December 31, 2010. The economic slowdown in our market area has resulted in an increase in the number and dollar amount of classified loans. At December 31, 2010, criticized and classified assets had a specific allocation of the allowance to loan losses of $10.8 million.

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     The following table reflects the amount of loans in delinquent status as of December 31, 2010 and 2009 (dollars in thousands):

	December 31,			December 31,
	2010			2009
Loans delinquent
30 — 89 days		18,302			9,713
90 or more days and still accruing		—			—
Non-accruing		66,563			49,341
Total delinquent loans		84,865			59,054
Ratio of total delinquent loans to total loans		11.53	%		7.09	%

The increase in non-accruing loans during the year ended December 31, 2010 is primarily due to downgrading 110 loans with a balance of $48,140,000 to non-accrual status. The primary cause of the increase in non-accruing loans is primarily related to the Bank’s commercial and commercial real estate loans as well as loans financing the development and construction of residential property. The downturn in economic activity experienced during 2008 — 2010 continues to impact the residential real estate market during 2011 as well as to significantly impact the Bank’s commercial and commercial real estate mortgage portfolios. This downturn has also led to a significant decline in collateral values of all types of real property. However, the local economy has begun to shows signs of improvement during 2010. We have seen modest improvements in the quality of our loan portfolio as the level of delinquencies and non-performing loans have stabilized during the last half of 2010. These positive trends have not yet materialized into an improvement in the level of valuations of real estate in the Bank’s market area.

The distribution of loans downgraded to non-accrual status during 2010 (dollars, in thousands) is as follows:

	Number of
	Loans		Balance
Consumer loans		15	$	1,497
Commercial, financial, & other		30		8,912
Commercial real estate construction — residential property		10		9,613
Commercial real estate construction — non residential property		—		—
Land development loans — residential property		4		5,391
Land development loans — non residential property		1		317
Commercial real estate mortgages		41		21,721
Residential real estate mortgages		9		689
Total loans downgraded to non-accrual status		110	$	48,140

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Deposits and Other Services

     Deposits. We offer a broad range of deposit services, including checking, savings, and money market accounts, certificates of deposit and direct deposit services. Transaction accounts and certificates of deposit are tailored to our primary market area at rates competitive with those offered in our area. All deposit accounts are insured by the FDIC up to the maximum amount permitted by law. We acquire deposit accounts from individuals, businesses, associations, financial institutions and government entities.

     Other Services. We offer a courier service for the deposit convenience of our business customers. We also offer online banking and a voice response, automated telephone banking service, available 24 hours a day and check imaging options including statements on CD ROM.

Investments

     Our principal investments are our investment in the common stock of our Bank and the common securities of the trust. Our funds may be invested from time to time in various debt instruments, including obligations of or guaranteed by the United States, general obligations of a state or political subdivision or an agency of a state or political subdivision, banker’s acceptances or certificates of deposit of United States commercial banks, or commercial paper of United States issuers rated in the highest category by a nationally-recognized investment rating service. We are permitted to make unlimited portfolio investments in equity securities and to make equity investments in subsidiary corporations engaged in certain non-banking activities, including real estate-related activities such as mortgage banking, community development, real estate appraisals, arranging equity financing for commercial real estate, and owning and operating real estate used substantially by our Bank or acquired for its future use. However, we have no present plans to make any of these equity investments.

     Our Bank may invest its funds in a wide variety of debt instruments and may participate in the federal funds market with other depository institutions. Subject to certain exceptions, our Bank is prohibited from investing in equity securities. Under one exception, in certain circumstances and with the prior approval of the FDIC, our Bank could invest up to 10% of its total assets in the equity securities of a subsidiary corporation engaged in the acquisition and development of real property for sale, or the improvement of real property by construction or rehabilitation of residential or commercial units for sale or lease. Our Bank has no present plans to make such an investment. Real estate acquired by our Bank in satisfaction of or foreclosure upon loans may be held by our Bank. Our Bank is also permitted to invest in such real estate as is necessary for the convenient transaction of its business. Our Bank’s Board of Directors may alter the investment policy without stockholder approval at any time.

Employees

     As of December 31, 2010, the Bank had 191 employees, including 71 officers and 120 customer service, operations and other support persons. Management believes that the Bank’s relations with its employees are excellent.

Competition

     The Bank faces strong competition for deposits, loans and other financial services from numerous banks, savings banks, thrifts, credit unions and other financial institutions as well as other entities which provide financial services, including consumer finance companies, securities brokerage firms, mortgage brokers, insurance companies, mutual funds, and other lending sources and investment alternatives. Some of the financial institutions and financial services organizations with which the Bank competes are not subject to the same degree of regulation as the Bank. Many of the financial institutions and financial services organizations aggressively compete for business in the Bank’s market area. Most of these competitors have been in business for many years, have established customer bases, are larger, have substantially higher lending limits than the Bank, and are able to offer certain services that the Bank does not currently provide, including more extensive branch networks, trust services, and international banking services. In addition, most of these entities have greater capital resources than the Bank, which, among other things, may allow them to price their services at levels more favorable to the customer and to provide larger credit facilities than could the Bank. Additionally, legislation regarding interstate branching and banking may increase competition in the future from out-of-state banks.

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Supervision and Regulation

     The Corporation is a registered bank holding company and subject to the supervision of the Federal Reserve System (“Federal Reserve”). The Corporation is required to file with the Federal Reserve annual reports and such other information as the Federal Reserve may require under the Bank Holding Company Act of 1956, as amended (the “Act”). The Corporation and the Bank are each subject to examination by the Federal Reserve.

     The Act requires every bank holding company to obtain prior approval of the Federal Reserve before it may merge with or consolidate into another bank holding company, acquire substantially all assets of any bank, or acquire ownership or control of any voting shares of any bank, if after such acquisition, it would own or control, directly or indirectly, more than 5% of the voting shares of such bank holding company or bank. The Federal Reserve may in its discretion approve the acquisition by the Corporation of the voting shares or substantially all assets of a bank located in Michigan and, subject to certain restrictions, located in any other state.

     The Act also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank, and from engaging in any business other than that of banking, managing and controlling banks and their subsidiaries. Holding companies may engage in, and may own shares of companies engaged in, certain businesses found by the Federal Reserve to be closely related to banking or the management or control of banks. Under current regulations of the Federal Reserve, a holding company and its non-bank subsidiaries are permitted to engage in investment management, sales and consumer finance, equipment leasing, data processing, discount securities brokerage, mortgage banking and brokerage, and other activities. These activities are subject to certain limitation imposed by the regulations.

     Transactions between the Corporation and the Bank are subject to various restrictions imposed by state and federal law. Such transactions include loans and other extensions of credit, purchases of securities, any payments of fees and other distributions. Federal law places restrictions on the amount and nature of loans to executive officers, directors and controlling persons of banks insured by the Federal Deposit Insurance Corporation and holding companies controlling such banks.

     The Bank is a state chartered bank and subject to regulation and examination by the Michigan Office of Financial and Insurance Services. The Bank also is subject to certain provisions of the Federal Deposit Insurance Act and regulations issued under that act. The regulations affect many activities of the Bank, including the permissible types and amounts of loans, investments, capital adequacy, branching, interest rates payable on deposits, required reserves, and the safety and soundness of the Bank’s practices. The Bank is not a member bank of the Federal Reserve System and is regulated and examined by the Federal Deposit Insurance Corporation.

     A summary of consolidated net interest income, consolidated net interest income volume / rate analysis, rate sensitivity analysis / gap analysis and capital ratios is set forth under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2010 Annual Report to Stockholders and is incorporated herein by reference.

Consent Order

     Due to our financial condition, the Federal Deposit Insurance Corporation (“FDIC”) and the Office of Financial and Insurance Regulation for the State of Michigan (“OFIR”) required that our board of directors sign a formal enforcement action (“Consent Order”) with the FDIC and OFIR which conveys specific actions needed to address certain findings from their examination and to address our current financial condition. While management disagreed with a number of conclusions of the exam and was disappointed with the management of the exam, the Bank’s Management Team and Board of Directors agreed to the stipulations of the Consent Order. On February 12, 2010, the Bank received this an executed copy of this Consent Order, which became effective February 22, 2010. The stipulations of this Consent Order include the following:

• Completion of a senior management study by an independent consultant

• Plans for the reduction of delinquencies and classified assets

• Plans for lending and collection policies

• Plans for the reduction of loan concentrations

• The revision and implementation of a comprehensive strategic plan

• The revision of its Liquidity Plan and the submission of weekly liquidity reports to the FDIC and OFIR

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     The Consent Order also includes a capital directive, which requires us to achieve and maintain tier 1 capital as a percentage of total assets of 9% or higher and total capital as a percentage of risk-weighted assets of 12% or higher within 120 days from the effective date of the order. These ratios are in excess of the statutory minimums to be well-capitalized. The Bank submitted a Capital Restoration Plan (“CRP”) to the FDIC and OFIR on December 15, 2009, due to our undercapitalized status based on our September 30, 2009 regulatory report of condition and income. The CRP addresses, among other things, the steps management will take to cause our capital levels to return to the minimum level to be adequately capitalized.

     This CRP was rejected because capital has not been successfully raised within the 120 days of the issuance of the consent order. An amended CRP was submitted on May 24, 2010. This CRP was also rejected because capital has not been successfully raised.

Our bank is currently undercapitalized. Failure to meet the minimum ratios set forth in the Consent Order could result in regulators taking additional enforcement action against us. With the exception of raising additional capital, management believes that it has met all of the provisions of the consent order.

Executive Officers of the Corporation and Bank

Set forth below are the names and ages of the executive officers of the Corporation and the Bank, positions held and the years from which held. There are no family relationships among such persons.

John E. Demmer, 87

Chairman of the Board, Dearborn Bancorp, Inc. and Fidelity Bank

Chairman of the Board and Director of the Corporation since 1992. Chairman of the Board and Director of the Bank since 1993. Chairman of the Board and Chief Executive Officer of Jack Demmer Ford, Inc. since 1994. Chairman of the Board and Chief Executive Officer of Jack Demmer Lincoln Mercury, Inc since 1999.

Michael J. Ross, 60

President and Chief Executive Officer, Dearborn Bancorp, Inc.

President and Chief Executive Officer, Fidelity Bank

President and Chief Executive Officer of the Corporation since 2003. President and Director of the Corporation since 1998. Vice President and Director of the Corporation from 1993 to 1997. President, Chief Executive Officer, and Director of the Bank since 1993.

Jeffrey L. Karafa, 46

Vice President, Treasurer and Secretary, Dearborn Bancorp, Inc.

Senior Vice President, CFO and Secretary, Fidelity Bank

Vice President and Treasurer of the Corporation since 1998. Secretary of the Corporation since 1999. Senior Vice President and CFO of the Bank since 2000. Secretary of the Bank since 1999. Vice President of the Bank from 1996 to 1999. Assistant Vice President of the Bank from 1994 to 1996.

Warren R. Musson, 53

Senior Vice President, Head of Lending, Fidelity Bank

Senior Vice President of the Bank since 2000. Vice President of the Bank during 1999. Senior Vice President and Senior Loan Officer of Peoples State Bank from 1993 to 1999.

Jeffrey J. Wolber, 54

Senior Vice President, Branch Operations, Fidelity Bank

Senior Vice President of the Bank since 2000. Vice President of the Bank from 1994 to 1999.

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Item 1A. Risk Factors

     The following risk factors could affect our business, financial conditions or results of operations. These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report because they could cause the actual results and conditions to differ materially from those projected in forward-looking statements. The risks that are highlighted are not the only ones we face. If the adverse matters referred to in any of the risks actually occur, our business, financial condition or operations could be adversely affected.

The Corporation may not be able to meet federal regulatory requirements regarding the restoration of capital of the Bank.

     As of December 31, 2010, the Bank is “undercapitalized” by regulatory capital standards. As a result, the Bank has submitted a detailed, written Capital Restoration Plan, specifying the steps the Bank and the Corporation will take to bring the Bank’s capital ratios back into compliance with minimum applicable capital ratios. The plan must also include a statutorily-required guarantee of the Bank’s performance of the plan by its sole shareholder, the Corporation, which guarantee may require assurances, such as a pledge of the Corporation’s assets. The Capital Restoration Plan (“CRP”) has been be submitted to the Bank’s federal bank regulator, the FDIC, for approval. This CRP was rejected because capital has not been successfully raised within the 120 days of the issuance of the consent order. An amended CRP was submitted on May 24, 2010. This CRP was also rejected because capital has not been successfully raised.

     The Bank’s ability to comply with the requirements of the Capital Restoration Plan that was submitted, are uncertain. Although the Corporation is actively considering alternatives for raising capital, no adequate and satisfactory source of additional capital has been found. The Corporation’s ability to raise additional capital is significantly restricted by several factors, and there is a meaningful possibility the Corporation will not be successful in raising additional capital and meeting the regulatory requirements.

     We are currently under a Consent Order which includes a capital directive that requires the Bank to have and maintain its level of tier 1 capital as a percentage of total assets (capital ratio) at a minimum of 9% and its level of qualifying total capital as a percentage of risk-weighted assets (total risk-based capital ratio) at a minimum of 12%. These ratios are in excess of the statutory minimums to be well-capitalized. At December 31, 2010, the Bank’s capital ratio was 3.95% and the Bank’s total risk-based capital ratio was 6.17%. Additionally, the Bank is prohibited from declaring or paying any cash dividends without prior consent of the FDIC.

The Bank’s capital may not be sufficient to support the risk inherent in its loan portfolio.

     The Bank maintains capital as a means of absorbing losses resulting from the Bank’s operations. The recent losses incurred by the Bank have significantly depleted the Bank’s capital, resulting in the Bank being considered “undercapitalized” pursuant to regulatory capital standards. Among other things, a continuing decline in the collectability of the Bank’s loans, a continuing decline in the value of the collateral supporting those loans, or both, would require the Bank to increase its allowance for loan and lease losses, which would further deplete existing capital. Because of the difficult economic conditions in the areas where the Bank operates, it is reasonable to assume the Bank will continue to incur operating losses. The Bank’s current capital may be insufficient to absorb future operating losses and, unless the Bank is successful in raising additional capital or taking other steps meaningfully to reduce the risk in its loan portfolio, this lack of capital is likely to have a material adverse effect on the Corporation’s business, results of operations, and financial condition and, in extreme circumstances, could result in the closure or liquidation of the Bank.

Further deterioration of the real estate market and the economy would further materially adversely affect the Corporation’s business, liquidity and financial results.

     The Bank’s loan portfolio is concentrated in loans secured by commercial real estate. As a result, the significant downturn in the real estate market has had a substantial negative effect on the Bank’s business and has contributed to increased levels of delinquent and non-accruing assets, charge-offs and loss reserves. These events, if they continue or worsen, will have a further material adverse effect on the business, financial condition and results of operation of the Bank and the Corporation.

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The Bank will be subject to higher deposit insurance premiums as a result of its capital position.

     As a member of the FDIC, the Bank pays assessments to the FDIC quarterly for insurance of the deposits of its customers to the extent and in the manner set forth in the Federal Deposit Insurance Act, as amended, and regulations of the FDIC. The amount of the deposit insurance assessment is determined by multiplying an assessment rate, established for each institution by the FDIC on a risk-adjusted basis, times the institution’s assessment base, as determined from its quarterly report of condition. The risk-adjustment to the assessment rate involves the assignment by the FDIC of each insured institution to one of four risk categories, which reflect the institution’s capital position and supervisory evaluations. An initial assessment rate is determined on the basis of the assigned risk category, and then adjusted further (either up or down) for other characteristics of the institution, including outstanding unsecured and secured debt, and for some institutions, reliance on brokered deposits. The resulting total assessment rates currently may range from 7-24 basis points for well-capitalized banks having the best supervisory evaluations, to 40-77.5 basis points for banks presenting the greatest risk to the Deposit Insurance Fund (“DIF”) of the FDIC. The assessment rate range possible for an undercapitalized institution such as the Bank currently is 40-77.5 basis points.

A segment of the Bank’s loans are construction loans which involve the additional risk that a project may not be completed, increasing the risk of loss.

     Approximately 7.5% of our real estate loan portfolio as of December 31, 2010 was comprised of construction and land development loans. Repayment of such loans is dependent upon the successful completion of the construction project, on time and within budget, and the successful sale of the completed project. If a borrower is unable to complete a construction project or if the marketability of the completed development is impaired, proceeds from the sale of the subject property may be insufficient to repay the loan. Further deterioration in any of the real estate markets the Bank serves is likely to further damage the marketability of these projects; as a result, the Bank may incur further loan losses which will adversely affect its results of operations.

The Bank may not pay any capital distribution or management fees to the Corporation.

     Without the prior approval of the FDIC, the Bank is prohibited from paying any dividend, or making any other capital distribution to, the Corporation. The Bank is also forbidden to pay any management fee to the Corporation. These restrictions may materially adversely affect the cash flow of the Corporation.

Because the Bank is less than well-capitalized, its ability to accept certain types of deposits is limited, which may adversely affect its business, liquidity and financial results.

     The Bank is prohibited from accepting funds obtained, directly or indirectly, by or through any deposit broker. The Bank currently has substantial amounts of such deposits. There can be no assurance that the Bank will be able to replace such brokered deposits from other sources. Further, the Bank may not accept employee benefit plan deposits. These restrictions may adversely affect the Bank’s ability to continue to fund its assets at current levels.

The Bank’s ability to grow, to offer new products, or to engage in new lines of business, is subject to regulatory restrictions.

     Unless consistent with an approved capital restoration plan and accompanied by a proportionate improvement in its capital ratios, the Bank may not permit any increase, from quarter to quarter, in its average total assets. Further, unless the FDIC finds the proposed action is consistent with the capital restoration plan, the Bank may not, directly or indirectly, acquire any company, depository institution or additional branch office, or engage in any new line of business.

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Adverse economic conditions in the automobile manufacturing and related service industries may impact our banking business.

     The automobile manufacturing industry has experienced significant economic difficulties over the past several years, which, in turn, has adversely impacted a number of related industries that serve the automobile manufacturing industry, including automobile parts suppliers. The conditions have improved during the past year and conditions in this industry are expected to continue to improve. However, we cannot assure you that the economic conditions in the automobile manufacturing and related service industries will continue to improve at any time or when this improvement in the economic conditions in these industries will impact our Bank.

Adverse changes in economic conditions or interest rates may negatively affect our earnings, capital and liquidity.

     The results of operations for financial institutions, including our bank, may be materially and adversely affected by changes in prevailing local and national economic conditions, including declines in real estate market values and the related declines in value of our real estate collateral, rapid increases or decreases in interest rates and changes in the monetary and fiscal policies of the federal government. Our profitability is heavily influenced by the spread between the interest rates we earn on investments and loans and the interest rates we pay on deposits and other interest-bearing liabilities. Substantially all our loans are to businesses and individuals in southeastern Michigan, and any decline in the economy of this area could adversely affect our customers’ ability to repay such loans and our ability to make new loans to credit worthy borrowers. Like most banking institutions, our net interest spread and margin will be affected by general economic conditions and other factors that influence market interest rates and our ability to respond to changes in these rates. At any given time, our assets and liabilities will be such that they will be affected differently by a given change in interest rates.

Difficult market conditions will continue to adversely affect the financial services industry.

     Dramatic declines in the housing market during 2008 and 2009, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of real estate related loans and resulted in significant write-downs of asset values by financial institutions. While market conditions have improved in 2010, the real estate market values have not yet recovered. The write-downs, initially of asset-backed securities but spreading to other securities and loans, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, declines in asset values, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely affected our business, financial condition and results of operations. Market developments may affect levels of consumer confidence and may cause changes in payment patterns, causing increases in delinquencies and default rates, which may impact out charge-offs and provision for loan loss. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions for us and others in the financial institutions industry.

Our credit losses could increase and our allowance for loan losses may not be adequate to cover actual loan losses resulting in a decrease in our net income and earnings per share and a possible decline in our stock price.

     The risk of non-payment of loans is inherent in all lending activities, and non-payment, if it occurs, may have a materially adverse effect on our earnings and overall financial condition as well as the value of our common stock. Our focus on commercial lending may result in an increased concentration of loans to small businesses. As a result, we may assume greater lending risks than other banks. We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for losses based on several factors. If our assumptions are wrong, our allowance for loan losses may not be sufficient to cover our losses, which would have an adverse effect on our operating results. Due to the significant increase in loans originated since we began operations we cannot assure you that we will not experience an increase in delinquencies and losses as these loans continue to mature. The actual amount of future provisions for loan losses cannot be determined at this time and may exceed the amount of past provisions. Additions to our allowance for loan losses decrease our net income and earnings per share and may have an adverse effect on our stock price.

18

Our commercial real estate loans involve higher principal amounts than other loans, and repayment of these loans may be dependent on factors outside our control or the control of our borrowers.

     Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Because payments on loans secured by commercial real estate often depend upon the successful operating and management of the properties, repayment of these loans may be affected by factors outside the borrower’s control, including adverse conditions in the real estate market or the economy. If the cash flow from the property is reduced, the borrower’s ability to repay the loan and the value of the security for the loan may be impaired. At December 31, 2010, commercial real estate loans totaled $551 million, or 75% of our total loan portfolio. Because our loan portfolio contains a number of commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in our percentage of non-performing loans. An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on our financial condition and results of operations.

We rely heavily on our management and other key personnel, and the loss of any of them may adversely affect our operations.

     We are and will continue to be dependent upon the services of our management team, including our President and Chief Executive Officer and our other senior managers. Losing one or more key members of the management team could adversely affect our operations.

     In addition, we will continue to depend on our key commercial loan officers. We have several commercial loan officers who are responsible, or share responsibility, for generating and managing a significant portion of our commercial loan portfolio. Our success can be attributed in large part to the relationships these officers as well as members of our management team have developed and are able to maintain with our customers as we continue to implement our community banking philosophy. The loss of any of these commercial loan officers could adversely affect our loan portfolio and performance, and our ability to generate new loans.

     Some of the other financial institutions in our market require their key employees to sign agreements that preclude or limit their ability to leave their employment and compete with them or solicit their customers. These agreements make it more difficult for us to hire loan officers with experience in our market who can immediately solicit their former or new customers on our behalf.

Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.

     We face substantial competition in all phases of our operations from a variety of different competitors. Our future growth and success will depend on our ability to compete effectively in this highly competitive environment. We compete for deposits, loans and other financial services with numerous Michigan-based and out-of-state banks, thrifts, credit unions and other financial institutions as well as other entities that provide financial services. Some of the financial institutions and financial service organizations with which we compete are not subject to the same degree of regulation as we are. Most of our competitors have been in business for many years, have established customer bases, are larger, have substantially higher lending limits than we do and offer other services which we do not, including trust services, brokerage, mutual funds and international banking services. The primary competitors in our market area are JPMorganChase, Charter One Bank, N.A., Comerica Incorporated, Fifth Third Bancorp, National City Corporation and Bank of America. Under the Gramm-Leach-Bliley Act of 1999, effective March 11, 2000, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

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Growth and stockholder returns may be adversely affected if sources of capital are not available to help us meet them.

     Since inception, we have sought to maximize stockholder returns by leveraging our capital. While we believe that earnings from our operations will enable us to continue to grow, if earnings do not meet our current estimates, if we incur unanticipated losses or expenses, or if we grow faster than expected, we may need to obtain additional capital through borrowing, additional issuances of debt or equity securities, or otherwise. If we do not have continued access to sufficient capital, we may be required to reduce our level of assets or reduce our rate of growth in order to maintain regulatory compliance. Under those circumstances our net income and the rate of growth of our net income may be adversely affected.

We are subject to significant government regulation, and any regulatory changes may adversely affect us.

     The banking industry is heavily regulated under both federal and state law. These regulations are primarily intended to protect customers, not our creditors or stockholders. As a bank holding company, we are also subject to extensive regulation by the Federal Reserve Board, in addition to other regulatory and self- regulatory organizations. Our ability to establish new facilities or make acquisitions is conditioned upon the receipt of the required regulatory approvals from these organizations. Regulations affecting banks and financial services companies undergo continuous change, and we cannot predict the ultimate effect of these changes, which could have a material adverse effect on our profitability or financial condition.

We continually encounter technological change, and we may have fewer resources than our competitors to continue to invest in technological improvements.

     The banking industry is undergoing technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as creating additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. There can be no assurance that we will be able to effectively acquire and implement new technology-driven products and services or be successful in marketing these products and services to our customers.

Our Articles of Incorporation and Bylaws and the laws of Michigan contain provisions that may discourage or prevent a takeover of the Corporation and reduce any takeover premium.

     Our Articles of Incorporation and Bylaws, and the corporate laws of the State of Michigan, include provisions which are designed to provide our board of directors with time to consider whether a hostile takeover offer is in our and our stockholders’ best interest. These provisions, however, could discourage potential acquisition proposals and could delay or prevent a change in control. The provisions also could diminish the opportunities for a holder of our common stock to participate in tender offers, including tender offers at a price above the then-current market price for our common stock. These provisions could also prevent transactions in which our stockholders might otherwise receive a premium for their shares over then-current market prices, and may limit the ability of our stockholders to approve transactions that they may deem to be in their best interests.

     The Michigan Business Corporation Act contains provisions intended to protect stockholders and prohibit or discourage various types of hostile takeover activities. In addition to these provisions and the provisions of our Articles of Incorporation and Bylaws, federal law requires the Federal Reserve Board’s approval prior to acquiring “control” of a bank holding company. All of these provisions may delay or prevent a change in control without action by our stockholders, and could adversely affect the price of our common stock.

There is a limited trading market for our common stock.

     The price of our common stock has been, and will continue to be, subject to fluctuations based on, among other things, economic and market conditions for bank holding companies and the stock market in general, as well as changes in investor perceptions of the Corporation. This issuance of new shares of our common stock also may adversely affect the market for our common stock.

     Our common stock is traded on the Nasdaq Global Market under the symbol “DEAR”. The development and maintenance of an active public trading market depends upon the existence of willing buyers and sellers, the presence of which is beyond our control. While we are a publicly-traded company, the volume of trading activity in our stock is still relatively limited.

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Item 1B. Unresolved Staff Comments

We have received no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more before the end of our 2010 fiscal year and that remain unresolved.

Item 2. Properties

     The Bank’s main office is located in a single story building containing 11,400 square feet at 22290 Michigan Avenue, Dearborn, Michigan, which is owned by the Corporation and leased to the Bank.

     The Bank’s Dearborn Heights, Michigan branch office is located in a 3,240 square foot, single story commercial/retail office building at 24935 W. Warren Avenue at the corner of Silvery Lane, which is also owned by the Corporation. On March 15, 2005, the Bank acquired adjacent property at 24901 W. Warren Avenue in order to expand parking.

     The Bank’s Plymouth Township, Michigan branch office is located at 44623 Five Mile at the corner of Sheldon Road and contains 1,595 square feet of leased space in a retail shopping center anchored by a regional grocery store.

     The Bank’s Canton Township, Michigan branch office is located in a 6,056 square foot single story commercial/retail office building at 1325 N. Canton Center near the corner of Saltz Road and is owned by the Bank.

     The Bank’s Clinton Township, Michigan regional lending center is located at 45000 River Ridge Drive, Suite 110, along Hall Road (M-59) near the corner of Romeo Plank Road. The Bank leases 7,426 of space in the River Ridge Corporate Office Center Building. This lease expires in 2011 and will not be renewed.

     The Bank’s Clinton Township, Michigan branch office is located at 19100 Hall Road near Romeo Plank Road. The Bank leases a 3,750 square foot single story commercial/retail office building.

     The Bank’s Southgate, Michigan branch office is located in a 2,035 square foot single story building, which is located at 12820 Fort Street and is owned by the Bank.

     The Bank’s Auburn Hills, Michigan branch office is located at 3201 University Drive, Suite 180. The Bank currently leases 2,037 square feet of this commercial office building.

     The Bank’s Saline, Michigan branch office is located at 450 East Michigan Avenue. The Bank currently leases 2,575 square feet of this single story office building.

     The Bank’s Ann Arbor, Michigan regional lending center and branch office is located at 250 West Eisenhower. The Bank currently leases 4,523 square feet of this commercial office building.

     The Bank’s Administrative and Wayne Regional Lending Center is located at 1360 Porter Street in Dearborn, Michigan and is owned by the Bank. This office is the executive headquarters of the Corporation. The Bank’s administrative, human resources and commercial lending departments currently occupy this 10,000 square foot, two story building.

     The Bank’s Operations Center is located in a 56,820 square foot three story building, which is located at 4000 Allen Road in Allen Park, Michigan and is owned by the Bank.

     The Bank’s Birmingham, Michigan branch office and regional lending center is located in a 12,616 square foot two story building at 1040 E. Maple and is owned by the Bank.

     The Bank’s Bloomfield Township, Michigan branch office is located at 3681 W. Maple. The Bank leases this 4,320 square foot single story office building.

     The Bank’s Bingham Farms, Michigan branch office is located at 30700 Telegraph Road. The Bank leases 1,106 square feet in the Bingham Office Center Complex.

     The Bank’s Southfield/Twelve Mile branch office is located at 20000 Twelve Mile Road in Southfield, Michigan and is owned by the Bank.

21

     The Bank’s Galleria branch office is located at 200 Galleria in Southfield, Michigan. The Bank currently leases 1,120 square feet in the Galleria Officenter.

     The Bank’s Shelby Township, Michigan branch office is located in a 3,108 square foot single story building, which is located at 7755 23 Mile Road and is owned by the Bank.

     The Bank’s Troy Operations center is located in 9,900 square foot office building at 2681 Industrial Row in Troy, Michigan and is owned by the Bank. This office building is no longer being utilized and is 100% leased to a non-affiliated third party tenant.

Item 3. Legal Proceedings

     From time to time, the Corporation and its subsidiaries are parties to legal proceedings incidental to their business. At December 31, 2010, there were no legal proceedings which management anticipates would have a material adverse effect on the results of operations or financial position of the Corporation.

Item 4. Reserved

     No matters were submitted to a vote of security holders during the fourth quarter of 2010.

PART II

Item 5. Market for Registrant’s Common Equity, and Related Stockholder Matters

     The information required by this item appears in the Corporation’s 2010 Annual Report to Stockholders under the caption “Quarterly Common Stock Price Information” and is incorporated by reference herein.

     At March 1, 2011, there were 336 record holders of the common stock. In addition, it is estimated that there were approximately 3,500 beneficial owners of common stock who own their shares through brokers or banks.

Item 6. Selected Financial Data

     The information required by this item appears in the Corporation’s 2010 Annual Report to Stockholders under the caption “Summary of Selected Financial Data” and is incorporated by reference herein.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The information required by this item appears in the Corporation’s 2010 Annual Report to Stockholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated by reference herein.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

     The information required by this item appears in the Corporation’s 2010 Annual Report to Stockholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated by reference herein.

Item 8. Financial Statements and Supplementary Data

     The financial statements included in the Corporation’s 2010 Annual Report to Stockholders are incorporated by reference herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     The information set forth under the caption, “Independent Public Accountants”, in the definitive Proxy Statement of the Corporation dated April 15, 2011 is incorporated by reference herein.

22

Item 9A. Controls and Procedures

     The Report by Dearborn Bancorp, Inc. and Subsidiary on Internal Controls over Financial Reporting in the Corporation’s 2010 Annual Report to Stockholders is incorporated by reference herein.

Item 9B. Other Information

     There was no other information to disclose.

PART III

Item 10. Directors and Executive Officers of the Registrant

     The information set forth under the caption “Information about Directors and Nominees for Directors” in the definitive Proxy Statement of the Corporation dated April 15, 2011 is incorporated by reference herein.

     Reference is made to Part I of this report for information as to executive officers of the Corporation and Bank.

     The Corporation has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee consist of Margaret I. Campbell, William J. Demmer, Michael J. Dorian, Jr., Donald G. Karcher and Bradley F. Keller.

     The Board of Directors has determined that Bradley F. Keller and Donald G. Karcher, members of the Audit Committee, are qualified as audit committee financial experts, as that term is defined in the rules of the Securities and Exchange Commission. Bradley F. Keller and Donald G. Karcher are independent, as independence for audit committee members is defined in the listing standards of the Nasdaq Stock Market and the rules of the Securities and Exchange Commission.

     We have adopted a Code of Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code of Ethics and any amendments to or waivers from the Code of Ethics, to the extent applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions, are available upon request at no charge. Such requests should be made by writing or calling: Carolyn Wilkins, Corporate Services Officer, 4000 Allen Road, Allen Park, Michigan 48101; (313) 381-3200 or by E-mail at Carolyn.Wilkins @fidbank.com.

Item 11. Executive Compensation

     The information set forth under the caption “Executive Compensation” and “Officer Agreements” in the definitive Proxy Statement of the Corporation dated April 15, 2011 is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The information set forth under the captions “Security Ownership” in the definitive Proxy Statement of the Corporation dated April 15, 2011 is incorporated by reference herein.

     The following table summarizes information, as of December 31, 2010, relating to the Corporation’s compensation plans under which its equity securities are authorized for issuance.

23

	Number of Securities to		Weighted average		Number of securities
	be issued upon exercise		exercise price of		remaining available for
	of outstanding options,		outstanding options,		future issuance under
	warrants and rights		warrants and rights		equity compensation plans
Plan Category	( a )		( b )		( c )
Equity Compensation Plans approved by security holders ( 1 )		541,621	$	6.59		89,570
Equity Compensation Plans not approved by security holders		—		—		—
Total		541,621	$	6.59		89,570

(1) Column ( a ) includes 242,991 shares from the 1994 Stock Option Plan and 298,630 shares from the 2005 Long-Term Incentive Plan. Shares in column ( c ) represent the shares that are available for grant under the 2005 Long-Term Incentive Plan.

Item 13. Certain Relationships and Related Transactions

     The information set forth under the caption “Related Transactions” in the definitive Proxy Statement of the Corporation dated April 15, 2011 is incorporated by reference herein.

Item 14. Principal Accountant Fees and Services

     The information presented under the caption “Fees Paid to Independent Public Accountants” in the definitive Proxy Statement of the Corporation dated April 15, 2011 is incorporated by reference herein.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a)(1) Financial Statements

The following financial statements of the Corporation appear in the Corporation’s 2008 Annual Report to Stockholders and are incorporated by reference in item 8.

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2010 and 2009

Consolidated Statements of Income for the years ended December 31, 2010 and 2009

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2010 and 2009

Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009

Notes to Consolidated Financial Statements

     (2) Financial Statement Schedules

No schedules are required under this item.

24

     (3) Exhibits

The Exhibit numbers in brackets being those in such Registration Statements, Form 10-K, Form 10-Q or Form 8-K Reports.

(3)(a)	Articles of Incorporation of Registrant, As Amended. [3(a)] was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended December 9, 2008 and is incorporated herein by reference.
(3)(b)	By-Laws of the Registrant, As Amended. [3(b)] was filed as an Exhibit to the Form 10-K Report of the Registrant for the fiscal year ended December 31, 1995 and is incorporated herein by reference.
(3)(d)	Amendment to the Bylaws of the Registrant was filed as an exhibit to report on Form 8-K filed on December 18, 2007 and is incorporated herein by reference.
(10)(a)	1994 Stock Option Plan, As Amended. [10(a)] was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended June 30, 1997 and is incorporated herein by reference. (X)
(10)(a)	2005 Long-Term Incentive Plan [10(a)] was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended June 30, 2005 and is hereby incorporated by reference. (X)
(10)(b)	Employment Agreement between the Registrant and Michael J. Ross. [10(b)] was filed as an Exhibit to Form 10-Q of the Registrant for the quarter ended June 30, 2003 and is incorporated herein by reference.
(10)(c)	Change in Control Agreement between the Registrant and five officers. [10(c)] was filed as an Exhibit to Form 10-Q of the Registrant for the quarter ended June 30, 2003 and is incorporated herein by reference.
(10.1)	Form of Stock Option Agreement granted to various executive officers. (10.1) was filed as an exhibit to Form 8-K of the Registrant, dated December 6, 2005 and is incorporated herein by reference.
(10.2)	Form of Restricted Stock Agreement granted to various officers. (10.2) was filed as an exhibit to Form 8-K of the Registrant, dated December 6, 2005 and is incorporated herein by reference.
(14)	Code of Ethics of the Registrant (14) was filed as an Exhibit to Form 10-K of the Registrant for the year ended December 31, 2003 and is incorporated herein by reference.
(21)	Subsidiaries of the Registrant (21) was filed as an Exhibit to Form 10-K of the Registrant for the year ended December 31, 2003 and is incorporated herein by reference.
Exhibit (13)	2010 Annual Report to Stockholders.
Exhibit (21)	Subsidiaries of the Registrant
Exhibit (23)	Consent of Independent Registered Public Accounting Firm
Exhibit (31.1)	Rule 13a-14(a) CEO Certification.
Exhibit (31.2)	Rule 13a-14(a) CFO Certification.
Exhibit (32.1)	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit (32.2)	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

25

Exhibit (99) Consent Order with Federal Deposit Insurance Corporation and Office of Financial and Insurance Regulation with the State of Michigan dated February 12, 2010 was filed as an exhibit to Form 10-K of the Registrant for the year ended December 31, 2009 and is incorporated herein by reference.

(X)   A compensatory plan required to be filed as an exhibit.

(b)   Reports on Form 8-K

        The Corporation filed one report on Form 8-K during the quarter ended December 31, 2010.

Form 8-K dated October 19, 2010, filing a press release announcing Dearborn Bancorp Inc.’s 2010 third quarter earnings.

26

Form 10-K Signatures

Pursuant to the requirements of Section 13 or 15(d) 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, on March 21, 2011.

Dearborn Bancorp, Inc.
By	/s / John E. Demmer
	(John E. Demmer, Chairman of the Board and Director)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 21, 2011.

/s/ Michael J. Ross (Michael J. Ross)	President, Chief Executive Officer and Director  (Principal Executive Officer)
/s/ Jeffrey L. Karafa (Jeffrey L. Karafa)	Vice President, Treasurer and Secretary  (Principal Financial and Accounting Officer)
/s/ Margaret I. Campbell (Margaret I. Campbell)	Director	/s/ William J. Demmer (William J. Demmer)	Director
/s/ Michael V. Dorian, Jr. (Michael V. Dorian, Jr.)	Director	/s/ Bradley F. Keller (Bradley F. Keller)	Director
/s/ David Himick (David Himick)	Director	/s/ Jeffrey G. Longstreth (Jeffrey G. Longstreth)	Director
/s/ Donald G. Karcher (Donald G. Karcher)	Director	/s/ Dr. Robert C. Schwyn (Dr. Robert C. Schwyn)	Director

27

Exhibit Index

Exhibit No.	Description
(3)(a)	Articles of Incorporation of Registrant, As Amended. [3(a)] was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended December 31, 2008 and is incorporated herein by reference.
(3)(b)	By-Laws of the Registrant, As Amended. [3(b)] was filed as an Exhibit to the Form 10-K Report of the Registrant for the fiscal year ended December 31, 1995 and is incorporated herein by reference.
(3)(d)	Amendment to the Bylaws of the Registrant was filed as an exhibit to report on Form 8-K filed on December 18, 2007 and is incorporated herein by reference.
(10)(a)	1994 Stock Option Plan, As Amended. [10(a)] was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended June 30, 1997 and is incorporated herein by reference. (X)
(10)(a)	2005 Long-Term Incentive Plan [10(a)] was filed as an Exhibit to the Form 10-Q Report of the Registrant for the quarter ended June 30, 2005 and is hereby incorporated by reference. (X)
(10)(b)	Employment Agreement between the Registrant and Michael J. Ross. [10(b)] was filed as an Exhibit to Form 10-Q of the Registrant for the quarter ended June 30, 2003 and is incorporated herein by reference.
(10)(c)	Change in Control Agreement between the Registrant and five officers. [10(c)] was filed as an Exhibit to Form 10-Q of the Registrant for the quarter ended June 30, 2003 and is incorporated herein by reference.
(10.1)	Form of Stock Option Agreement granted to various executive officers. (10.1) was filed as an exhibit to Form 8-K of the Registrant, dated December 6, 2005 and is incorporated herein by reference.
(10.2)	Form of Restricted Stock Agreement granted to various officers. (10.2) was filed as an exhibit to Form 8-K of the Registrant, dated December 6, 2005 and is incorporated herein by reference.
(14)	Code of Ethics of the Registrant (14) was filed as an Exhibit to Form 10-K of the Registrant for the year ended December 31, 2003 and is incorporated herein by reference.
Exhibit (13)	2010 Annual Report to Stockholders.
Exhibit (21)	Subsidiaries of the Registrant
Exhibit (23)	Consent of Independent Registered Public Accounting Firm
Exhibit (31.1)	Rule 13a-14(a) CEO Certification.
Exhibit (31.2)	Rule 13a-14(a) CFO Certification.
Exhibit (32.1)	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit (32.2)	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(X)   A compensatory plan required to be filed as an exhibit.

28

EX-13

DEARBORN BANCORP, INC.
FORM 10-K (continued)

Exhibit 13

and its subsidiary

2010
ANNUAL REPORT

Dearborn Bancorp, Inc.

and its subsidiary

Fidelity Bank

CONTENTS
Corporate Information	2
Chairman’s and President’s Letter to Stockholders	3
Summary of Selected Financial Data	5
Report of Independent Registered Public Accounting Firm	7
Management’s Report on Internal Control Over Financial Reporting	8
Consolidated Balance Sheets	9
Consolidated Statements of Operations	10
Consolidated Statements of Changes in Stockholders’ Equity	11
Consolidated Statements of Cash Flows	13
Notes to Consolidated Financial Statements	15
Management’s Discussion and Analysis	56
Dearborn Bancorp, Inc. Directors and Officers	84
Fidelity Bank Directors and Executive Officers	85
Fidelity Bank Officers	86
Fidelity Bank Subsidiaries	87
Investor Information	89

1

DESCRIPTION OF BUSINESS

Dearborn Bancorp, Inc.

Dearborn Bancorp, Inc. (the “Parent Company” and, together with its subsidiary, the “Corporation”) is a registered bank holding company which was incorporated on September 30, 1992. The primary purpose of the holding company is to own and operate the subsidiary bank, Fidelity Bank (the “Bank”). Dearborn Bancorp, Inc. trades on the Nasdaq Global Market under the symbol “DEAR”.

Fidelity Bank

The Bank was incorporated as Community Bank of Dearborn on June 28, 1993 and began operations as a state chartered commercial bank on February 28, 1994 from its main office located on Michigan Avenue in Dearborn. The Corporation acquired the Bank of Washtenaw on October 29, 2004. On January 4, 2007, the Corporation acquired Fidelity Financial Corporation of Michigan and its subsidiary, Fidelity Bank. On April 30, 2007, Community Bank of Dearborn was renamed Fidelity Bank.

The Bank offers a wide range of financial products and services. These include checking accounts, savings accounts, money market accounts, certificates of deposit, business checking, direct deposit, ATM services, telephone banking services, loan services (commercial, consumer, real estate mortgages), travelers’ checks, cashiers’ checks, wire transfers, safe deposit boxes, collection services, night depository service and internet banking services. The Bank does not have a trust department.

Internet banking can be accessed through the Bank’s website, www.fidbank.com. The Bank’s customers are able to execute transfers to their accounts and view their account information and transactions. Commercial customers have the option of utilizing the cash management module. This feature enables commercial customers to designate multiple users, initiate wire transfers, process ACH transactions, perform stop payments, and process federal tax payments. Over 3,800 users have signed up for online banking. The website also contains product information regarding the Bank’s loan and deposit products and the Corporation’s most recent financial information.

Community Bank Insurance Agency, Inc.

On August 19, 1997, the Bank formed Community Bank Insurance Agency, Inc. This company conducts limited insurance-related activities and holds a minority interest in MBT Title Services, LLC, a title insurance company.

Community Bank Audit Services, Inc.

On March 13, 2002, the Bank formed Community Bank Audit Services, Inc., a company that offers internal auditing and compliance services to financial institutions.

2

To Our Stockholders,

     The problems we encountered in recent years because of Michigan’s one-state depression and the collapse of the local real estate market were not as severe in 2010 as they had been, but they remained with us all the same. Our net loss for the twelve months ended December 31, 2010, was $14,249,000 or ($1.86) per fully diluted common share. The net loss for all of 2009 was $61,175,000 or ($8.00) per diluted share. However, results for the two years are not directly comparable for several reasons. First, we removed a $25,851,000 deferred tax asset from our balance sheet in 2009 and charged the adjustment to that year’s earnings. Second, we recognized a $5,451,000 tax refund in 2009 because a new law allowed us to carry back net operating losses for five years instead of just two and then recover previously paid income taxes. Third, we wrote off $3,997,000 in intangible assets related to 2004 and 2007 acquisitions and charged this write-off to 2009 earnings. Regardless of the adjustments, our 2010 results were substantially improved over 2009 in terms of net loss and net interest margin.

     At December 31, 2010, total assets were $915,684,000. This was a decline of 7.2 percent from the asset total of $986,486,000 one year earlier. Total deposits at year-end of $812,101,000 were down 6.4 percent from $867,955,000 12 months previously. Over the course of the year, total loans were reduced by 11.6 percent to $735,851,000 while they had been $833,136,000 at the beginning of the year. On the other hand, cash and cash equivalents went up 21.0 percent during the year to $93,775,000 from $77,497,000 and securities available for sale increased 18.7 percent, going to $54,561,000 from $45,964,000. All of these portfolio changes were the intended result of strategies designed to strengthen our capital position, improve liquidity, and produce a better net interest margin. Shareholders’ equity was $26,959,000 at year-end, which was a tangible book value of $3.51 per share and the market closing price was $1.65 on December 31, 2010. According to regulatory capital guidelines, Fidelity Bank remains “undercapitalized.”

     Our financial condition is certainly not what we want it to be but we did see some signs of improvement during 2010. Non-performing assets peaked during the First Quarter of 2010, at $138,494,000 and have slowly declined during each subsequent quarter so that, at year-end, they were $136,592,000. The December 31, 2010, figure included $48,527,000 in troubled debt restructured loans that were all current in accordance with their restructured terms. Net charge-offs were $23,132,000 in 2010 while they had been $30,190,000 in 2009, a 24 percent improvement. The provision for loan losses charged to income was $15,978,000 in 2010, down from $50,863,000 in 2009.

     Other real estate owned declined 8 percent from $23,435,000 at the beginning of the year to $21,502,000 at year-end. It should be noted that our Special Assets team sold more than $8 million in real estate owned during the Fourth Quarter of the year. We are also beginning to receive multiple bids on bank owned properties offered for sale while we rarely received more than nominal bids one year ago. It would be premature to report noteworthy recovery in the Southeast Michigan real estate market; however, we are experiencing some improvement in sales of other real estate owned while, at the same time, we are finding it necessary to classify fewer new properties as non-performing assets.

     During 2010, defaulted loan expenses, primarily taxes, insurance and maintenance related to other real estate owned, were $4,372,000 while they had been $4,624,000 in 2009. FDIC Assessments in 2010 amounted to $4,125,000 or almost one half of one percent of average deposits. This was a 45.0 percent increase over the assessments of $2,843,000 one year earlier. The substantial income produced by our core banking operations before dealing with the losses on problem loans has been very important in covering these extraordinary expenses.

     During the Fourth Quarter of 2010, our net interest margin was 3.93%. In the last quarter of 2009, the margin had been 3.14%. Much of this improvement was the result of paying lower rates on deposits during the year. Improving the margin has been among our top priorities. Finally, non-interest expenses in 2010 were improved from the previous year, notwithstanding the $1,282,000 increase in FDIC Assessments. This performance was attributable to the diligent efforts of every officer and employee to keep discretionary expenses in check, another of our most important priorities.

3

     Going forward, we are encouraged by the modest improvements we have seen in our operation during the latter part of 2010. However, our ability to become solidly profitable again is largely dependent upon the condition of our loan portfolio and that, in turn, is largely dependent upon the recovery of the real estate market in Southeastern Michigan. Realistically, we have a long road back to consistent prosperity ahead of us and we are doing our utmost to reach that goal.

     The Annual Meeting of Stockholders will be held on May 17, 2011, at the Park Place, 23400 Park Avenue, Dearborn, Michigan, at 3:00 p.m. We hope that you will attend.

Sincerely,

John E. Demmer
Chairman of the Board

Michael J. Ross
President and
Chief Executive Officer

4

SUMMARY OF SELECTED FINANCIAL DATA

The following selected consolidated financial and other data as of and for each of the five years in the period ended December 31, 2010 should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Consolidated Balance Sheets as of December 31, 2010 and 2009, and the Consolidated Statements of Income for the years ended December 31, 2010 and 2009 are included elsewhere in this Annual Report.

(In thousands, except share and per share data)	2010			2009			2008			2007			2006
OPERATIONS
Interest income	$	46,973		$	54,253		$	61,126		$	70,110		$	53,886
Interest expense		12,894			23,367			28,995			36,491			25,884
Net interest income		34,079			30,886			32,131			33,619			28,002
Provision for loan losses		15,978			50,863			14,606			5,821			943
Net interest income after provision for loan losses		18,101			(19,977	)		17,525			27,798			27,059
Total non-interest income		(4,006	)		(469	)		(930	)		1,020			925
Total non-interest expense		28,532			32,720			65,007			23,796			16,225
Net income before federal income tax expense		(14,437	)		(53,166	)		(48,412	)		5,022			11,759
Income tax expense (benefit)		(188	)		8,009			(16,487	)		1,856			3,940
Net income (loss)		($14,249	)		($61,175	)		($31,925	)	$	3,166		$	7,819
FINANCIAL CONDITION
Total assets	$	915,684		$	986,486		$	1,121,918		$	1,046,981		$	855,931
Mortgage loans held for sale		353			1,129			1,834			1,316			1,823
Securities, available for sale		54,811			46,300			84,148			8,902			5,878
Federal Home Loan Bank stock		3,605			3,698			3,614			2,072			1,288
Loans		735,851			833,136			933,269			952,084			756,420
Allowance for loan losses		(27,971	)		(35,125	)		(14,452	)		(10,617	)		(7,775	)
Other assets		149,035			137,348			113,505			93,224			98,297
Deposits		812,101			867,955			938,395			822,627			633,216
Federal Home Loan Bank advances		63,716			63,855			65,019			41,370			25,561
Subordinated debentures		10,000			10,000			10,000			10,000			10,000
Other borrowings		—			—			2,461			30,580			37,919
Other liabilities		2,908			2,731			2,732			4,856			4,250
Stockholders’ equity		26,959			41,945			103,311			137,548			144,985
PER SHARE INFORMATION (1)
Net income (loss) per common share — basic		($1.86	)		($8.00	)		($3.99	)	$	0.37		$	1.23
Net income (loss) per common share — diluted		($1.86	)		($8.00	)		($3.99	)	$	0.36		$	1.17
Book value per common share	$	3.51		$	5.46		$	13.42		$	16.70		$	16.15
Average shares outstanding — basic		7,645,940			7,645,076			8,007,345			8,602,704			6,372,471
Average shares outstanding — diluted		7,645,940			7,645,076			8,007,345			8,827,531			6,672,319
Shares outstanding at end of period		7,685,705			7,687,470			7,696,204			8,237,413			8,975,085
OTHER DATA
Return on average assets		-1.50	%		-5.79	%		-3.02	%		0.30	%		1.02	%
Return on average equity		-37.82	%		-71.83	%		-23.51	%		2.21	%		8.20	%
Net interest margin		3.75	%		3.07	%		3.29	%		3.48	%		3.80	%
Net interest spread		3.60	%		2.77	%		2.79	%		2.74	%		3.06	%
Allowance for loan losses to total loans		3.80	%		4.22	%		1.55	%		1.12	%		1.03	%
Nonperforming assets to total assets		14.92	%		13.40	%		5.51	%		2.42	%		0.90	%
Stockholders’ equity to total assets		2.94	%		4.25	%		9.21	%		13.14	%		16.94	%
Total interest expense to gross interest income		27.45	%		43.07	%		47.43	%		52.05	%		48.03	%
Number of Offices		17			17			18			19			12

(1) All share and per share amounts have been adjusted to reflect the issuance of stock dividends.

5

COMMITMENT TO COMMUNITY

     Commitment to community is one of the primary principles upon which Dearborn Bancorp, Inc. and its primary subsidiary, Fidelity Bank were founded. Since Fidelity Bank opened for business in 1994, management has emphasized the importance of community involvement and community development as part of the Bank’s mission. In fact, the majority of the Bank’s directors, officers and employees live in the communities that are serviced by the Bank. During 2010, the Bank provided the following local organizations with financial support or personal involvement:

American Arab Chamber of Commerce

Ann Arbor/Ypsilanti Regional Chamber of Commerce

Auburn Hills Chamber of Commerce

Birmingham Area Seniors (BASCC)

Birmingham Bloomfield Chamber of Commerce

Birmingham Optimist Club

Boy Scouts of America

Canton Chamber of Commerce

Canton Community Foundation

Canton Senior Center

Central Macomb Chamber of Commerce

Clinton Township Community Blood Drive

Clinton Township Senior Expo

Dearborn Baseball

Dearborn Board of Realtors

Dearborn Chamber of Commerce

Dearborn Exchange Club

Dearborn Goodfellows

Dearborn Heights Chamber of Commerce

Dearborn Heights Parks and Recreation

Dearborn Heights Spirit Festival

Dearborn Kiwanis

Dearborn Police Officers Charity

Dearborn Public Library

Dearborn Rotary Club

Dearborn Senior Center

Dearborn Symphony Orchestra

Divine Child School

Downriver Family YMCA

Easter Seals of Michigan

Garden Club of Dearborn

Goodwill Industries of Greater Detroit

Habitat for Humanity

Henry Ford Community College Foundation

Kiwanis Club of Dearborn

Mike Adray Memorial Foundation

NAACP (Detroit Branch)

Oakwood Health Care Foundation

Perry Nursing School

Plymouth Chamber of Commerce

Rochester Regional Chamber of Commerce

Saline 4-H Farmers

Saline Area Chamber of Commerce

Showcase Plymouth

Southern Wayne County Chamber of Commerce

Southgate Senior Center

Washtenaw County 4-H Fair

Wayne County Treasurers Association

West Washtenaw Business Association

YWCA of Western Wayne County

6

Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders
Dearborn Bancorp, Inc.
Dearborn, Michigan

We have audited the accompanying consolidated balance sheets of Dearborn Bancorp, Inc. as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2010. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dearborn Bancorp, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Corporation will continue as a going concern. As further discussed in Note B, the Corporation has suffered recurring losses resulting from the effects of the economic downturn in their operating region causing its subsidiary bank to be undercapitalized and resulting in a consent order to be issued by its primary regulator. These facts raise substantial doubt about the Corporation’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note B. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BKD, LLP

Indianapolis, Indiana
March 21, 2011

7

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an effective system of internal control over financial reporting presented in conformity with generally accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control. Accordingly, even an effective system of internal control can provide only reasonable assurance with respect to financial statement preparation.

Management assessed the Corporation’s systems of internal control over financial reporting presented in conformity with generally accepted accounting principles as of December 31, 2010. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2010, Dearborn Bancorp, Inc. maintained effective control over financial reporting presented in conformity with generally accepted accounting principles based on those criteria.

Dearborn Bancorp, Inc. and Subsidiary

/s/ Michael J. Ross  

Michael J. Ross 

President and Chief Executive Officer 

/s/ Jeffrey L. Karafa  

Jeffery L. Karafa 

Vice President, Treasurer and Secretary 

8

DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

	December 31,
(Dollars, in thousands)	2010			2009
ASSETS
Cash and cash equivalents
Cash and due from banks	$	6,645		$	7,803
Federal funds sold		55			156
Interest bearing deposits with banks		87,075			69,538
Total cash and cash equivalents		93,775			77,497
Mortgage loans held for sale		353			1,129
Securities available for sale		54,811			46,300
Federal Home Loan Bank stock		3,605			3,698
Loans
Loans		735,851			833,136
Allowance for loan losses		(27,971	)		(35,125	)
Net loans		707,880			798,011
Premises and equipment, net		19,195			20,194
Real estate owned		21,502			23,435
Accrued interest receivable		3,286			3,562
Other assets		11,277			12,660
Total assets	$	915,684		$	986,486
LIABILITIES
Deposits
Non-interest bearing deposits	$	88,266		$	83,873
Interest bearing deposits		723,835			784,082
Total deposits		812,101			867,955
Other liabilities
Federal Home Loan Bank advances		63,716			63,855
Accrued interest payable		1,056			1,046
Other liabilities		1,852			1,685
Subordinated debentures		10,000			10,000
Total liabilities		888,725			944,541
STOCKHOLDERS’ EQUITY
Common stock — no par value 100,000,000 shares authorized, 7,685,706 and 7,687,470 shares outstanding in 2010 and 2009, respectively		132,083			131,929
Accumulated deficit		(104,099	)		(89,850	)
Accumulated other comprehensive income (loss)		(1,025	)		(134	)
Total stockholders’ equity		26,959			41,945
Total liabilities and stockholders’ equity	$	915,684		$	986,486

The accompanying notes are an integral part of these consolidated statements.

9

DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
(In thousands, except share data)	2010			2009
Interest income
Interest on loans	$	45,668		$	53,273
Interest on securities, available for sale		967			589
Interest on deposits with banks		337			374
Interest on federal funds		1			17
Total interest income		46,973			54,253
Interest expense
Interest on deposits		11,427			20,993
Interest on other liabilities		1,467			2,374
Total interest expense		12,894			23,367
Net interest income		34,079			30,886
Provision for loan losses		15,978			50,863
Net interest income (loss) after provision for loan losses		18,101			(19,977	)
Non-interest income (loss)
Service charges on deposit accounts		1,448			1,499
Fees for other services to customers		89			126
Gain on the sale of loans		279			352
Gain (loss) on the sale of securities		539			490
Other than temporary impairment on securities, held to maturity Portion of loss recognized in other comprehensive income before taxes
Net impairment losses recognized in earnings		—			(414	)
Loss on the sale of real estate owned		(476	)		(139	)
Loss on the write-down of real estate owned		(6,338	)		(2,766	)
Other income		453			383
Total non-interest loss		(4,006	)		(469	)
Non-interest expense
Salaries and employee benefits		12,436			12,974
Occupancy and equipment expense		3,255			3,623
Amortization of intangible expense		—			595
Impairment of other intangible assets		—			3,997
FDIC assessment		4,125			2,843
Advertising and marketing		146			237
Stationery and supplies		292			429
Professional services		1,172			807
Data processing		722			905
Defaulted loan expense		4,372			4,624
Other operating expenses		2,012			1,686
Total non-interest expense		28,532			32,720
Income before federal income tax expense		(14,437	)		(53,166	)
Income tax expense (benefit)		(188	)		8,009
Net loss		($14,249	)		($61,175	)
Per share data:
Net loss — basic		($1.86	)		($8.00	)
Net loss — diluted		($1.86	)		($8.00	)
Weighted average number of shares outstanding — basic		7,645,940			7,645,076
Weighted average number of shares outstanding — diluted		7,645,940			7,645,076

The accompanying notes are an integral part of these consolidated statements.

10

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Years Ended December 31, 2010 and 2009

						Accumulated
						Other			Total
	Common		Retained			Comprehensive			Stockholders’
	Stock		Earnings			Income			Equity
Balance, January 1, 2009	$	131,784	$	(28,675	)	$	202		$	103,311
Stock awards earned		76		—			—			76
Stock option expense		69		—			—			69
Net loss		—		(61,175	)		—			(61,175	)
Other comprehensive income
Changes in net unrealized gain on securities available for sale							(21	)		(21	)
Reclassification adjustment for gain included in net income		—		—			(490	)		(490	)
Net change in net unrealized gain on securities available for sale		—		—			(511	)		(511	)
Deferred tax effects							175			175
Other comprehensive income		—		—			(336	)		(336	)
Total comprehensive income										(61,511	)
Balance, December 31, 2009	$	131,929	$	(89,850	)	$	(134	)	$	41,945

The accompanying notes are an integral part of these consolidated statements.

11

DEARBORN BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)

Years Ended December 31, 2010 and 2009

						Accumulated
						Other			Total
	Common		Retained			Comprehensive			Stockholders’
	Stock		Earnings			Income			Equity
Balance, December 31, 2009	$	131,929	$	(89,850	)	$	(134	)	$	41,945
Stock awards earned		85		—			—			85
Stock option expense		69		—			—			69
Net loss		—		(14,249	)		—			(14,249	)
Other comprehensive income
Changes in net unrealized loss on securities available for sale							(282	)		(282	)
Reclassification adjustment for gain included in net income		—		—			(539	)		(539	)
Net change in net unrealized loss on securities available for sale		—		—			(821	)		(821	)
Deferred tax effects							(70	)		(70	)
Other comprehensive loss		—		—			(891	)		(891	)
Total comprehensive income										(15,140	)
Balance, December 31, 2010	$	132,083	$	(104,099	)	$	(1,025	)	$	26,959

The accompanying notes are an integral part of these consolidated statements.

12

DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
(In thousands)	2010			2009
Cash flows from operating activities
Interest and fees received	$	47,249		$	54,190
Interest paid		(12,724	)		(24,016	)
Proceeds from sale of mortgages held for sale		25,217			34,291
Origination of mortgages held for sale		(24,162	)		(33,234	)
Taxes refunded		4,074			700
Loss on sale of real estate owned		(476	)		(139	)
Gain on sale of securities		539			490
Cash paid to suppliers and employees		(27,574	)		(23,286	)
Net cash provided by operating activities		12,143			8,996
Cash flows from investing activities
Sale of securities available for sale		52,116			54,208
Proceeds from calls, maturities and repayments of securities available for sale		5,996			53,078
Purchases of securities available for sale		(67,502	)		(70,641	)
Redemption (purchase) of Federal Home Loan Bank stock		93			(84	)
Decrease in loans, net of payments received		57,922			48,381
Proceeds from the sale of real estate owned		11,615			4,879
Purchases of property and equipment		(112	)		(257	)
Net cash used in investing activities		60,128			89,564
Cash flows from financing activities
Net increase in non-interest bearing deposits		4,393			2,556
Net decrease in interest bearing deposits		(60,247	)		(72,996	)
Decrease in repurchase agreements		—			(2,461	)
Proceeds from Federal Home Loan Bank advances		—			29,000
Repayments on Federal Home Loan Bank advances		(139	)		(30,164	)
Net cash used in financing activities		(55,993	)		(74,065	)
Increase in cash and cash equivalents		16,278			24,495
Cash and cash equivalents at the beginning of year		77,497			53,002
Cash and cash equivalents at the end of year	$	93,775		$	77,497

The accompanying notes are an integral part of these consolidated statements.

13

DEARBORN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	Years Ended December 31,
(In thousands)	2010			2009
Reconciliation of net loss to net cash provided by operating activities Net loss	$	(14,249	)	$	(61,175	)
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses		15,978			50,863
Depreciation expense		1,111			1,335
Decrease in deferred tax asset		—			16,794
Restricted stock award expense		85			69
Stock option expense		68			76
Accretion of discount on investment securities		(243	)		(52	)
Amortization of premium on investment securities		301			331
Write-down of real estate owned		6,338			2,766
Amortization of intangible assets		—			595
Impairment of other intangible assets		—			3,997
Impairment of securities, held to maturity		—			414
Decrease in mortgages held for sale		776			705
(Increase) decrease in interest receivable		276			(63	)
Increase (decrease) in interest payable		10			(649	)
(Increase) decrease in other assets		1,525			(7,658	)
Increase in other liabilities		167			648
Net cash provided by operating activities	$	12,143		$	8,996
Supplemental noncash disclosures:
Transfers from loans to real estate owned	$	16,231		$	21,547

The accompanying notes are an integral part of these consolidated statements.

14

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.

Nature of Operations and Principals of Consolidation

Dearborn Bancorp, Inc. (the “Corporation”) was incorporated in Michigan on September 30, 1992. The Corporation’s primary subsidiary, Community Bank of Dearborn (the “Bank”), began operations on February 28, 1994. As discussed in Note B, the Corporation acquired Fidelity Financial Corporation of Michigan on January 4, 2007 and merged its operations into the Bank. On April 30, 2007, the Community Bank of Dearborn was renamed Fidelity Bank. The Bank operates seventeen banking offices in Dearborn (2), Dearborn Heights, Plymouth Township, Canton Township, Clinton Township (2), Southgate, Auburn Hills, Saline, Ann Arbor, Birmingham, Bloomfield Township, Bingham Farms, Southfield (2) and Shelby Township in Michigan, offering a full range of banking services to individuals and businesses. The Bank also operates Community Bank Insurance Agency, Inc., an insurance agency with limited activities and Community Bank Audit Services, Inc., a company that offers internal auditing services to financial institutions.

The Bank’s primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial, residential mortgage, and consumer loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions.

While the Corporation’s management monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis. Accordingly, all of the Corporation’s banking operations are considered by management to be aggregated in one reportable operating segment.

The consolidated financial statements include the accounts of Dearborn Bancorp, Inc. and its wholly-owned subsidiary, Fidelity Bank and its wholly-owned subsidiaries, Community Bank Insurance Agency, Inc. and Community Bank Audit Services, Inc. All significant intercompany transactions are eliminated in consolidation.

Use of Estimates

In the preparation of financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are more susceptible to change in the near term include the allowance for loan losses, fair value of real estate owned, fair value of certain financial instruments, and the carrying value of intangible assets.

15

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and Cash Equivalents

The Corporation considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2010 and 2009, cash equivalents consisted primarily of interest-bearing deposits with banks and federal funds sold.

One or more of the financial institutions holding the Corporation’s cash accounts are participating in the FDIC’s Transaction Account Guarantee Program. Under the program, through December 31, 2010, all noninterest-bearing transaction accounts at these institutions are fully guaranteed by the FDIC for the entire amount in the account. Pursuant to legislation enacted in 2010, the FDIC will fully insure all noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012, at all FDIC-insured institutions.

For financial institutions opting out of the FDIC’s Transaction Account Guarantee Program or interest-bearing cash accounts, the FDIC’s insurance limits were permanently increased to $250,000, effective July 21, 2010. At December 31, 2010, the Corporation’s cash accounts exceeded federally insured limits by approximately $46,417,000 of which approximately $45,871,000 was held with the Federal Reserve Bank of Chicago and the Federal Home Loan Bank of Indianapolis.

Restrictions on Cash

The Corporation was required to have $282,000 and $91,000 of cash on hand or on deposit with the Federal Reserve Bank to meet regulatory reserve and clearing requirements at year end 2010 and 2009, respectively. These balances do not earn interest. Additionally, the Corporation pledged securities with a collateral value of $35,045,000 to the Federal Reserve Bank.

Securities

Effective April 1, 2009, the Corporation adopted new accounting guidance related to recognition and presentation of other-than-temporary impairment (ASC 320-10). When the Corporation does not intend to sell a debt security, and it is more likely than not, the Corporation will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

As a result of this guidance, the Corporation’s consolidated statement of operations as of December 31, 2010, reflects the full impairment (that is, the difference between the security’s amortized cost basis and fair value) on debt securities that the Corporation intends to sell or would more likely than not be required to sell before the expected recovery of the amortized cost basis. For available-for-sale debt securities that management has no intent to sell and believes that it more likely than not will not be required to sell prior to recovery, only the credit loss component of the impairment is recognized in earnings, while the noncredit loss is recognized in accumulated other comprehensive income (loss). The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.

16

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Prior to the adoption of the recent accounting guidance on April 1, 2009, management considered, in determining whether other-than-temporary impairment exists, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses.

Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income on mortgage and commercial loans is generally discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and in process of collection. Consumer loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income upon sale of the loan.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

17

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Corporation’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loan relationships that are rated substandard and are on non-accrual status are considered to be impaired. All impaired loans over $500,000 are individually evaluated. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

Foreclosed Assets Held for Sale

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

     Buildings and improvements — 10 to 39 years

     Furniture and equipment — 3 to 10 years

Federal Home Loan Bank (FHLB) Stock

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The Corporation reviewed the FHLB Stock and based on the current performance of the Federal Home Loan Bank of Indianapolis, the Corporation determined there was no impairment of this stock at December 31, 2010.

18

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Long-Term Assets

Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Stock Compensation

At December 31, 2010 and 2009, the Corporation has a share-based compensation plan, which is more fully described in Note N.

Loan Commitments and Related Financial Instruments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Stock Dividends

The fair value of shares issued in stock dividends is transferred from retained earnings to common stock. All share and per share amounts are retroactively adjusted for stock dividends.

Income Taxes

The Corporation files a consolidated federal income tax return. Income tax expense is the total of federal income tax due or refundable and the change in deferred tax assets and liabilities. The Corporation uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. A valuation allowance, if needed, reduces deferred tax amounts to the amount expected to be realized.

Uncertain tax positions are recognized if its more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Corporation recognizes interest and/or penalties related to income tax matters in income tax expense.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. These reclassifications had no impact on net income.

19

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Earnings (Loss) Per Share

Basic earnings (loss) per share is net income (loss) divided by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share includes the dilutive effect of additional potential common shares issuable under stock options. Earnings (loss) per share is restated for all stock splits and dividends through the date of issue of the financial statements.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income includes unrealized gains and losses on securities available for sale, net of deferred income tax, which are also recognized as separate components of equity.

Dividend Restrictions

Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Corporation or by the Corporation to stockholders.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Valuation Measurements

Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities and residential mortgage loans held for sale are carried at fair value, as defined in ASC 820, “Fair Value Measurements and Disclosures”, which requires key judgments affecting how fair value for such assets and liabilities is determined. To determine the values of these assets and liabilities, as well as the extent to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment rates and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect the Corporation’s results of operations.

20

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Adoption of New Accounting Standards

FASB ASU 2009-16, Transfers and Servicing (Topic 860); Accounting for Transfers of Financial Assets — ASU 2009-16 requires more information about transfers of financial assets, including securitization transactions, and where entities have continued exposure to the risks related to transferred assets. The Corporation adopted ASU 2009-16 effective January 1, 2010 and adoption did not have a material effect on its financial position or results of operations.

ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances, and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. The Company’s disclosures about fair value measurements are presented in Note E — Disclosures About Fair Value of Assets and Liabilities. These new disclosure requirements were effective for the period ended March 31, 2010, except for the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010. There was no significant effect to the Corporation’s financial statement disclosure upon adoption of this ASU.

ASU No. 2010-09, Subsequent Events (Topic 855) — Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 amends the subsequent events disclosure guidance. The amendments include a definition of an SEC filer, requires an SEC filer or conduit bond obligor to evaluate subsequent events through the date the financial statements are issued, and removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. ASU 2010-09 was effective upon issuance for us. The impact of ASU 2010-09 on our disclosures is reflected in Subsequent Events footnote.

FASB ASU 2010-18 — Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset. This Update clarifies that modifications of loans that are accounted for within a pool under Subtopic 310-30, which provides guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition, do not result in the removal of those loans from the pool even if the modification would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments do not affect the accounting for loans under the scope of Subtopic 310-30 that are not accounted for within pools. Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40. The Corporation has adopted ASU 2010-18, but does not anticipate that its adoption will have an impact on its financial statements.

21

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Adoption of New Accounting Standards

ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 requires that more information be disclosed about the credit quality of a company’s loans and the allowance for loan losses held against those loans. A company will need to disaggregate new and existing disclosure based on how it develops its allowance for loan losses and how it manages credit exposures. Existing disclosures to be presented on a disaggregated basis include a roll-forward of the allowance for loan losses, the related recorded investment in such loans, the nonaccrual status of loans, and impaired loans. Additional disclosure is also required about the credit quality indicators of loans by class at the end of the reporting period, the aging of past due loans, information about troubled debt restructurings, and significant purchases and sales of loans during the reporting period by class.

For public companies, ASU 2010-20 requires certain disclosures as of the end of a reporting period effective for periods ending on or after December 15, 2010. Other required disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The Corporation’s adoption of these additional disclosures did not have a material effect on its financial position or results of operations.

FASB Accounting Standards Update 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this Update temporarily delay the effective date of the disclosures about troubled debt restructurings in Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated.

The FASB believes this guidance will be effective for interim and annual periods after June 15, 2011.

22

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE B — CONSENT ORDER, WRITTEN ORDER AND GOING CONCERN CONSIDERATIONS

Consent Order

Due to our financial condition, the Federal Deposit Insurance Corporation (“FDIC”) and the Office of Financial and Insurance Regulation for the State of Michigan (“OFIR”) required that our Board of Directors sign a formal enforcement action (“Consent Order”) with the FDIC and OFIR which conveys specific actions needed to address certain findings from their examination and to address our current financial condition. We entered into the Consent Order on February 12, 2010, which contains a list of requirements that are to be met by specific dates. Certain requirements are listed below:

• Completion of a senior management study by an independent consultant

• Plans for the reduction of delinquencies and classified assets

• Plans for lending and collection policies

• Plans for the reduction of loan concentrations

• The revision and implementation of a comprehensive strategic plan

• The revision of its Liquidity Plan and the submission of weekly liquidity reports to the FDIC and OFIR

The Consent Order also includes a capital directive, which requires the Bank to have and maintain its level of tier 1 capital as a percentage of total assets (capital ratio) at a minimum of 9% and its level of qualifying total capital as a percentage of risk-weighted assets (total risk-based capital ratio) at a minimum of 12%. These ratios are in excess of the statutory minimums to be well-capitalized. At December 31, 2010, the Bank’s total risk-based capital ratio was 6.17%. Additionally, the Bank is prohibited from declaring or paying any cash dividends without prior written consent of the FDIC.

The Bank submitted a Capital Restoration Plan (“CRP”) to the FDIC and OFIR on December 15, 2009, due to our undercapitalized status based on our September 30, 2009 regulatory report of condition and income. This CRP was rejected because capital has not been successfully raised within the 120 days of the issuance of the consent order. An amended CRP was submitted on May 24, 2010. This CRP was also rejected because capital has not been successfully raised. The CRP addresses, among other things, the steps management will take to cause our capital levels to return to the minimum level to be adequately capitalized.

The Bank is currently undercapitalized. Failure to meet the minimum ratios set forth in the Consent Order could result in regulators taking additional enforcement action against us. With the exception of raising additional capital, the Bank has met all of the provisions of the consent order.

Written Order

Due to our financial condition, the Federal Reserve Bank of Chicago (“FRB”) required that our Board of Directors sign a formal enforcement action (“Consent Order”) with the FRB which conveys specific actions needed to address certain findings from their examination and to address our current financial condition. We entered into the Written Order on June 15, 2010, which contains certain requirements that are to be met by specific dates, including the submission of a capital plan, the submission of annual cash flow projections and the submission of quarterly update reports.

With the exception of raising additional capital, management believes that it has met all of the provisions of the written order.

23

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE B — CONSENT ORDER, WRITTEN ORDER AND GOING CONCERN CONSIDERATIONS Con’t)

Going Concern

As a result of the effects of the economic downturn and the bankruptcy and downsizing of two major automotive manufacturers headquartered in our region, the capital of the Corporation and the Bank has been significantly depleted. Management is currently attempting to raise additional capital that will return the Bank to compliance with regulatory capital requirements of the Consent Order. Our ability to raise capital is contingent on the current capital markets and our financial performance. Available capital markets are not currently favorable and we cannot be certain of our ability to raise capital on any terms.

The losses reported by the Corporation during 2008 and 2009 were primarily due to large provisions for loan losses, the impairment of goodwill and other intangible assets and the establishment of a valuation allowance against the Corporation’s deferred tax asset. The loss reported during 2010 was primarily due to costs related to non-performing loans, primarily the provision for loan losses, losses on the writedown and sale of real estate owned and defaulted loan expense. The losses on the writedown of real estate owned was primarily due to the decline in the appraised values on these properties. Prior to sustaining these losses in 2008, 2009 and 2010, the Corporation had a history of profitable operations. Our return to profitable operations is contingent on the economic recovery in our region and the stability of collateral values of the real estate that secures many of our loans. It is difficult to predict when the economy will begin to recover and the impact of that recovery on our operations. Therefore, we cannot predict the timing of our return to profitable operations.

While the Corporation believes that it may be able to raise sufficient capital to meet its capital requirements and manage loan losses in the near term until such time that the local economy improves without having to liquidate assets, the realization of assets in other than the normal course of business in order to provide liquidity could result in losses not reflected in these financial statements.

24

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE C — SECURITIES

The amortized cost and fair value for securities available for sale and the unrealized gains and losses recognized as accumulated other comprehensive income were as follows (in thousands):

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Government sponsored enterprises (GSE) — mortgage backed securities	$	55,586	$	1		($1,026	)	$	54,561
Other securities		250		—		—			250
Totals	$	55,836	$	1		($1,026	)	$	54,811

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
US Government sponsored agency securities	$	12,759	$	20		($30	)	$	12,749
Corporate bonds		33,308		—		(197	)		33,111
Government sponsored enterprises (GSE) — mortgage backed securities		101		3		—			104
Other securities		336		—		—			336
Totals	$	46,504	$	23		($227	)	$	46,300

The amortized cost and fair value of securities available for sale at December 31, 2010 by contractual maturity are shown below (in thousands). Securities not due at a single maturity date , such as mortgage backed securities are shown separately:

25

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE C — SECURITIES (Continued)

	Amortized		Fair
	Cost		Value
Due in over ten years	$	250	$	250
GSE — mortgage backed securities		55,586		54,561
Totals	$	55,836	$	54,811

Sales of available for sale securities for the years ended December 31, are as follows (in thousands):

	2010		2009
Proceeds	$	52,116	$	54,208
Gross gains		539		492
Gross losses		—		2

Securities having a carrying value of $44,620,000 and $15,441,000 at December 31, 2010 and 2009, respectively, were pledged to secure Federal Home Loan Bank of Indianapolis advances, time deposits and clearing activity with the Federal Reserve Bank.

Securities with unrealized losses at year-end 2010 and 2009, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

						December 31, 2010
	Less than one year					One year or more				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
Investment category	Value		Loss			Value		Loss		Value		Loss
GSE — mortgage backed securities	$	54,526	$	(1,026	)	$	—	$	—	$	54,526	$	(1,026	)
Total temporarily impaired	$	54,526	$	(1,026	)	$	—	$	—	$	54,526	$	(1,026	)

						December 31, 2009
	Less than one year					One year or more				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
Investment category	Value		Loss			Value		Loss		Value		Loss
US Government sponsored entity securities	$	6,657	$	(30	)	$	—	$	—	$	6,657	$	(30	)
Corporate bonds		33,111		(197	)		—		—		33,111		(197	)
Total temporarily impaired	$	39,768	$	(227	)	$	—	$	—	$	39,768	$	(227	)

26

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE C — SECURITIES (Continued)

The unrealized losses on the Corporation’s investments at December 31, 2010 were caused by interest rate increases. Additionally, these securities are issued by an agency of the United States of America and are backed fully by the United States Government. Because the Corporation does not intend to sell the investments and it is not more likely than not the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired at December 31, 2010.

NOTE D — LOANS

Major categories of loans included in the portfolio at December 31 are as follows (in thousands):

							Percent
	2010			2009			Incr(decr)
Consumer loans	$	25,871		$	29,386			(11.96	%)
Commercial, financial, & other		121,015			144,630			(16.33	%)
Construction and land development loans		55,126			83,464			(33.95	%)
Commercial real estate mortgages		495,501			531,156			(6.71	%)
Residential real estate mortgages		38,338			44,500			(13.85	%)
Total loans		735,851			833,136			(11.68	%)
Allowance for loan losses		(27,971	)		(35,125	)
Loans, net	$	707,880		$	798,011

Certain directors and executive officers of the Corporation, including their related interests, were loan customers of the Bank during 2010 and 2009. These loan transactions for the years ended December 31, are as follows (in thousands):

	2010			2009
Balance, beginning of year	$	1,096		$	2,042
New loans during period		—			—
Repayments made during period		(480	)		(946	)
Balance, end of period	$	616		$	1,096

27

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

Impaired loans and non-performing loans are defined differently. Impaired loans are loans for which the collection of principal and interest according to the contractual terms of the agreement is not probable. Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

An analysis of impaired loans by loans type at December 31, 2010 and 2009 (in thousands) is listed below:

							Average
	Unpaid						Investment		Interest
	Principal		Recorded		Specific		In Impaired		Income
Loans at December 31, 2010	Balance		Investment		Allowance		Loans		Recognized
Without a specific valuation allowance
Consumer loans	$	1,886	$	1,533	$	—	$	1,102	$	—
Commercial, financial and other		22,412		16,472		—		17,827		125
Construction and land development		31,156		17,709		—		22,530		96
Commercial real estate mortgages		41,773		36,818		—		38,794		927
Residential real estate mortgages		1,323		1,166		—		2,181		—
Total	$	98,550	$	73,698	$	—	$	82,434	$	1,148
With a specific valuation allowance
Consumer loans	$	—	$	—	$	—	$	—	$	—
Commercial, financial and other		3,910		3,910		1,135		3,933		90
Construction and land development		18,364		18,296		5,280		10,976		240
Commercial real estate mortgages		22,174		20,628		4,310		17,545		497
Residential real estate mortgages		—		—		—		—		—
Total	$	44,448	$	42,834	$	10,725	$	32,454	$	827
Total
Consumer loans	$	1,886	$	1,533	$	—	$	1,102	$	—
Commercial, financial and other		26,322		20,382		1,135		21,760		215
Construction and land development		49,520		36,005		5,280		33,506		336
Commercial real estate mortgages		63,947		57,446		4,310		56,339		1,424
Residential real estate mortgages		1,323		1,166		—		2,181		—
Total Impaired Loans	$	142,998	$	116,532	$	10,725	$	114,888	$	1,975

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DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

							Average
	Unpaid						Investment		Interest
	Principal		Recorded		Specific		In Impaired		Income
Loans at December 31, 2009	Balance		Investment		Allowance		Loans		Recognized
Loans without a specific valuation allowance
Consumer loans	$	881	$	881	$	—	$	981	$	—
Commercial, financial and other		14,478		13,143		—		10,737		239
Construction and land development		32,996		22,286		—		22,002		47
Commercial real estate mortgages		52,670		45,418		—		41,355		1,336
Residential real estate mortgages		1,547		1,498		—		1,366		—
Total	$	102,572	$	83,226	$	—	$	76,441	$	1,622
Loans with a specific valuation allowance
Consumer loans	$	358	$	358	$	282	$	179	$	—
Commercial, financial and other		15,548		15,548		4,495		7,893		252
Construction and land development		10,048		8,007		2,384		7,274		—
Commercial real estate mortgages		16,150		18,834		3,449		10,334		475
Residential real estate mortgages		855		806		105		429		—
Total	$	42,959	$	43,553	$	10,715	$	26,109	$	727
Total
Consumer loans	$	1,239	$	1,239	$	282	$	1,160	$	—
Commercial, financial and other		30,026		28,691		4,495		18,630		491
Construction and land development		43,044		30,293		2,384		29,276		47
Commercial real estate mortgages		68,820		64,252		3,449		51,689		1,811
Residential real estate mortgages		2,402		2,304		105		1,795		—
Total Impaired Loans	$	145,531	$	126,779	$	10,715	$	102,550	$	2,349

	2010		2009		2008
Troubled debt restructuring and still accruing	$	48,527	$	59,420	$	17,765
Over 90 days past due and still accruing		—		—		450
Non-accrual loans		66,563		49,341		51,708
Total non-performing loans		115,090		108,761		69,923
Real estate owned		21,502		23,435		9,657
Other non-performing assets		21,502		23,435		9,657
Total non-performing assets	$	136,592	$	132,196	$	79,580

29

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

Non-performing loans included troubled debt restructuring of $48,527,000 at December 31, 2010. These loans were qualified as troubled debt restructuring due to changes from principal and interest payments to interest only payments, reduction of interest rates, or the lengthening of the amortization. Valuation allowances in the amount of $6,310,000 were recorded against the loans. At December 31, 2010, all loans classified as troubled debt restructuring were current according to their restructured terms.

An aging analysis of loans at December 31, 2010 and 2009 is listed below (in thousands):

					90 Days
	30 - 59		60 - 89		or More
	Days		Days		Past Due or				Total
At December 31, 2010	Past Due		Past Due		Non-Accrual		Current		Loans
Consumer loans	$	47	$	168	$	1,533	$	24,123	$	25,871
Commercial, financial and other		951		524		15,729		103,811		121,015
Construction and land development		4,000		—		18,925		31,449		55,126
Commercial real estate mortgages		4,478		8,134		29,210		454,431		495,501
Residential real estate mortgages		—		—		1,166		37,172		38,338
Total Loans	$	9,476	$	8,826	$	66,563	$	650,986	$	735,851

					90 Days
	30 - 59		60 - 89		or More
	Days		Days		Past Due or				Total
At December 31, 2009	Past Due		Past Due		Non-Accrual		Current		Loans
Consumer loans	$	230	$	40	$	1,239	$	27,877	$	29,386
Commercial, financial and other		739		1,279		9,125		133,487		144,630
Construction and land development		—		596		22,372		60,496		83,464
Commercial real estate mortgages		2,643		3,807		14,582		510,124		531,156
Residential real estate mortgages		369		10		2,023		42,098		44,500
Total Loans	$	3,981	$	5,732	$	49,341	$	774,082	$	833,136

All loans that were 90 days or more past due at December 31, 2010 and 2009 were on non-accrual status.

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DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

     Loans on non-accrual status at December 31, 2010 and 2009 are listed below (in thousands):

	2010		2009
Consumer loans	$	1,533	$	1,239
Commercial, financial and other		15,729		9,125
Construction and land development		19,677		22,372
Commercial real estate mortgages		28,458		14,582
Residential real estate mortgages		1,166		2,023
Total Loans	$	66,563	$	49,341

Loans segregated by risk category based on performance status at December 31, 2010 and 2009 are listed below (in thousands):

At December 31, 2010	Performing		Non-performing		Total Loans
Consumer loans	$	24,338	$	1,533	$	25,871
Commercial, financial and other		100,679		20,336		121,015
Construction and land development		19,366		35,760		55,126
Commercial real estate mortgages		439,206		56,295		495,501
Residential real estate mortgages		37,172		1,166		38,338
Total Loans	$	620,761	$	115,090	$	735,851

At December 31, 2009	Performing		Non-performing		Total Loans
Consumer loans	$	28,147	$	1,239	$	29,386
Commercial, financial and other		119,908		24,722		144,630
Construction and land development		57,020		26,444		83,464
Commercial real estate mortgages		476,822		54,334		531,156
Residential real estate mortgages		42,477		2,023		44,500
Total Loans	$	724,374	$	108,762	$	833,136

31

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

The corporation utilizes a rating system to assign a risk rating to all loans in the loan portfolio. The rating system used consists of classification grading from one through nine which identifies the inherent risk associated with a loan. A description of the risk grades is listed below:

Excellent Quality (Pass)

Borrower may be a privately held company with a strong balance sheet, consistent earnings, and worthy of unsecured credit. Leverage and liquidity are average to slightly better than average within industry. History of profitable operations, but conditions exist that would suggest borrower’s earnings could temporarily decline due to market or economic conditions. Cash flow is adequate and profit margins are slightly above average within the industry.

Good Quality (Pass)

Subject to normal degree of risk. Cash flow adequate to service debt, but is susceptible to some deterioration due to seasonal or economic fluctuations. Balance sheet contains some leverage, and liquidity could be temporarily tight. There could be some asset concentration.

Satisfactory Quality (Pass)

Reasonable risk. Some unfavorable characteristics would be reliance on single product or major customer concentration, volatility of earnings or increasing leverage which is still within normal industry parameters.

Acceptable Risk (Pass)

More unpredictability in earnings and cash flow. Borrower may have experienced modest and presumably temporary losses (less than 10% of capital), however cash flow is still sufficient to meet debt service. Leverage and liquidity are below normal industry standards. Secondary source of repayment may be limited.

Watch

A Watch asset is not considered “rated” or “classified” for regulatory purpose, but is considered a criticized asset, which bears watching due to some modest deterioration in financial performance or external threats, such as lawsuit, environmental issue, or potential loss of a significant customer. The following points are characteristics which a Monitor asset may exhibit: financial condition has taken a negative turn and may be temporarily strained; borrower may have experienced recent losses from operations up to 20% of net worth, cash flow may be insufficient to service debt in the most recent six month period. This rating also applies to all other real estate loans performing at a level slightly under the parameters as originally underwritten.

Special Mention

A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan, or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The following are some of the attributes of a Special Mention credit: loans are currently protected, but are potentially weak due to negative trends in the balance sheet or income statement; there is a lack of effective control over the collateral or documentation deficiencies exists; there is a potential risk of payment default; management’s ability to cope with the current financial condition is questioned; collateral coverage is becoming strained but is still acceptable; operating losses may exceed 20% of capital. This rating applies to all other real estate loans performing at a level significantly under the level as originally underwritten.

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DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

Substandard

This grade includes “Substandard” loans in accordance with regulatory guidelines. Loans categorized in this grade possess a well defined credit weakness and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal. All non-accrual loans will be rated “7” or higher.

Doubtful

This grade includes “Doubtful” loans in accordance with regulatory guidelines. Such loans have been placed on non-accrual status and may be heavily dependent upon collateral possessing a value that is difficult to determine or based upon some near-term event which lacks clear certainty. These loans have all of the weaknesses of those classified as Substandard however, based on existing conditions, these weaknesses make full collection of the principal balance highly improbable.

Loss

Assets classified as Loss are determined to be uncollectible based on current facts. Accordingly, they should be classified as “Loss” and promptly charged off.

Loans segregated by risk category based on internally assigned risk ratings at December 31, 2010 and 2009 are listed below (in thousands):

			Special						Total
At December 31, 2010	Pass		Mention		Substandard		Doubtful		Loans
Consumer loans	$	22,988	$	—	$	2,798	$	85	$	25,871
Commercial, financial and other		77,076		14,298		29,641		—		121,015
Construction and land development		13,355		5,546		36,225		—		55,126
Commercial real estate mortgages		338,194		56,410		100,897		—		495,501
Residential real estate mortgages		35,750		771		1,817		—		38,338
Total Loans	$	487,363	$	77,025	$	171,378	$	85	$	735,851

			Special						Total
At December 31, 2009	Pass		Mention		Substandard		Doubtful		Loans
Consumer loans	$	27,277	$	152	$	1,476	$	481	$	29,386
Commercial, financial and other		106,789		7,620		28,702		1,519		144,630
Construction and land development		28,364		13,906		37,870		3,324		83,464
Commercial real estate mortgages		424,256		42,421		64,106		373		531,156
Residential real estate mortgages		40,243		888		2,685		684		44,500
Total Loans	$	626,929	$	64,987	$	134,839	$	6,381	$	833,136

33

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

Activity in the allowance for loan losses during 2010 by loan type is further described below (in thousands):

			Commercial ,		Construction		Commercial		Residential
			Financial		and Land		Real Estate		Real Estate
	Consumer		& Other		Development		Mortgages		Mortgages		Total
Balance at January 1, 2010	$	819	$	6,498	$	12,169	$	15,286	$	353	$	35,125
Provision for loan losses		1,112		6,128		7,926		649		163		15,978
Charge-offs		1,019		6,385		12,269		4,455		276		24,404
Recoveries		203		330		44		622		73		1,272
Net Charge-offs		816		6,055		12,225		3,833		203		23,132
Balance at December 31, 2010	$	1,115	$	6,571	$	7,870	$	12,102	$	313	$	27,971

	Allowance For Loan Losses Evaluated at December 31, 2010
			Commercial ,		Construction		Commercial		Residential
			Financial		and Land		Real Estate		Real Estate
	Consumer		& Other		Development		Mortgages		Mortgages		Total
Individually Evaluated For Impairment	$	—	$	373	$	5,280	$	5,072	$	—	$	10,725
Collectively Evaluated For Impairment		1,136		6,292		2,036		7,438		344		17,246
Allowance for
loan losses	$	1,136	$	6,665	$	7,316	$	12,510	$	344	$	27,971

	Loans Evaluated at December 31, 2010
			Commercial ,		Construction		Commercial		Residential
			Financial		and Land		Real Estate		Real Estate
	Consumer		& Other		Development		Mortgages		Mortgages		Total
Individually Evaluated For Impairment	$	1,533	$	20,382	$	36,005	$	57,446	$	1,166	$	116,532
Collectively Evaluated For Impairment		24,338		100,633		19,121		438,055		37,172		619,319
Total loans	$	25,871	$	121,015	$	55,126	$	495,501	$	38,338	$	735,851

34

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE D — LOANS (Continued)

			Commercial ,		Construction		Commercial		Residential
			Financial		and Land		Real Estate		Real Estate
	Consumer		& Other		Development		Mortgages		Mortgages		Total
Balance at January 1, 2009	$	163	$	1,532	$	8,050	$	4,509	$	198	$	14,452
Provision for loan losses		1,634		9,505		21,269		17,635		820		50,863
Charge-offs		1,154		4,878		17,257		6,919		701		30,909
Recoveries		176		339		107		61		36		719
Net Charge-offs		978		4,539		17,150		6,858		665		30,190
Balance at December 31, 2009	$	819	$	6,498	$	12,169	$	15,286	$	353	$	35,125

	Allowance For Loan Losses Evaluated at December 31, 2009
			Commercial ,		Construction		Commercial		Residential
			Financial		and Land		Real Estate		Real Estate
	Consumer		& Other		Development		Mortgages		Mortgages		Total
Individually Evaluated For Impairment	$	282	$	4,495	$	2,384	$	3,420	$	20	$	10,601
Collectively Evaluated For Impairment		537		2,003		9,785		11,866		333		24,524
Allowance for loan losses	$	819	$	6,498	$	12,169	$	15,286	$	353	$	35,125

	Loans Evaluated at December 31, 2009
			Commercial ,		Construction		Commercial		Residential
			Financial		and Land		Real Estate		Real Estate
	Consumer		& Other		Development		Mortgages		Mortgages		Total
Individually Evaluated For Impairment	$	1,239	$	28,691	$	30,293	$	64,252	$	2,304	$	126,779
Collectively Evaluated For Impairment		28,147		115,939		53,171		466,904		42,196		706,357
Total loans	$	29,386	$	144,630	$	83,464	$	531,156	$	44,500	$	833,136

35

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE E — PREMISES AND EQUIPMENT

Premises and equipment are comprised of the following at December 31 (in thousands):

	2010		2009
Land and improvements	$	7,561	$	7,728
Building and improvements		14,536		14,553
Furniture and equipment		7,122		6,988
		29,219		29,269
Less accumulated depreciation		10,024		9,075
	$	19,195	$	20,194

Depreciation expense for 2010 and 2009 amounted to $1,111,000 and $1,335,000, respectively. Capital expenditures were primarily due to various improvements in technology.

Rent expense for facilities of $983,000 and $1,009,000 was incurred during 2010 and 2009, respectively. Rental commitments under noncancellable operating leases are as follows, before considering renewal options that generally are present (in thousands):

2011	$	625
2012		236
2013		203
2014		161
Thereafter		40
Total	$	1,265

NOTE F — DEPOSITS

Time deposits of $100,000 or more were $291,478,000 and $303,411,000 at December 31, 2010 and 2009, respectively. Time deposits of $100,000 or more from governmental units, which are included in total time deposits of $100,000 or more were $3,546,000 and $4,366,000 at December 31, 2010 and 2009, respectively.

36

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE F — DEPOSITS (Continued)

Scheduled maturities of time deposits at December 31, 2010 are listed in the following table (in thousands):

	$100,000 and		Less than
	over		$100,000		Total
2011	$	198,481	$	219,980	$	418,461
2012		59,846		62,360		122,206
2013		4,751		5,901		10,652
2014		454		826		1,280
2015 and thereafter		1,004		2,411		3,415
Totals	$	264,536	$	291,478	$	556,014

Related party deposits from directors and executive officers of the Corporation were approximately $3,331,000 and $4,233,000 at December 31, 2010 and 2009, respectively.

NOTE G — FEDERAL HOME LOAN BANK ADVANCES

The Bank has entered into an Advances, Pledge and Security Agreement with the Federal Home Loan Bank of Indianapolis (FHLB). Advances were $63,716,000 and $63,855,000 at December 31, 2010 and 2009, respectively. These advances can carry a fixed or floating rate of interest and are secured by a physical collateral agreement with the Federal Home Loan Bank of Indianapolis covering eligible mortgage loans in the amount of $27,510,000, commercial real estate loans in the amount of $95,252,000 and securities available for sale in the amount of $9,757,000. Federal Home Loan Bank advances are comprised of the following at December 31, 2010 and 2009 (in thousands):

37

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE G — FHLB ADVANCES (Continued)

At December 31, 2010
Maturing in:	Amount		Rate
2011	$	53,500		0.77	%
2012		216		5.27	%
2013		10,000		2.58	%
Total	$	63,716		1.07	%

At December 31, 2009
Maturing in:	Amount		Rate
2010	$	49,084		2.19	%
2011		4,500		3.20	%
2012		271		5.27	%
2013		10,000		2.58	%
Total	$	63,855		2.33	%

The Bank makes monthly interest payments with principal generally due at maturity. Prepayment penalties apply if advances are repaid prior to maturity. The Bank’s capacity to borrow from the Federal Home Loan Bank is capped at $100 million by a resolution of the Board of Directors of the Bank. The Bank had the ability to borrow up to $66.4 million based on collateral pledged by the Bank at December 31, 2010.

Amounts advanced by the FHLB totaling $10,000,000 are subject to an option for the FHLB to convert the entire advance to a periodic adjustable rate one year after the date of the advance. If the FHLB exercises its option to convert the advance to an adjustable rate, the advance will be pre-payable at the Corporation’s option, at par without a penalty.

NOTE H — SUBORDINATED DEBENTURES

In 2002, Dearborn Bancorp Trust I, a special purpose entity formed by the Corporation, issued $10,000,000 of floating rate mandatory redeemable securities as part of a pooled offering. The Corporation issued $10,000,000 of subordinated debentures to the trust in exchange for the proceeds of the offering. The interest rate on the debentures is the three month LIBOR plus 3.35% and was 3.65% at December 31, 2010. The securities have a term of thirty years with interest payments due on a quarterly basis. The Corporation may redeem the debentures, with regulatory approval, at face value.

On August 28, 2009, the Corporation elected to defer regularly scheduled quarterly interest payments on Dearborn’s junior subordinated debentures (“Debentures”). While the Corporation defers the payment of interest, it will continue to accrue the interest expense owed at the applicable interest rate. At the expiration of the deferral period, all accrued and unpaid interest is due and payable.

38

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE H — SUBORDINATED DEBENTURES (Continued)

Pursuant to the Written Order discussed in Note B, the Corporation may not make any distributions of principal or interest on the subordinated debentures without the prior written approval of the Federal Reserve Bank.

NOTE I — INCOME TAXES

The federal tax provision consists of the following (in thousands):

	2010			2009
Current		($188	)		($8,785	)
Deferred		—			16,794
		($188	)	$	8,009

Activity in the Corporation’s valuation allowance for the deferred tax asset for the years ended December 31, 2010 and 2009 is as follows (in thousands):

	2010			2009
Beginning balance		($25,851	)		($251	)
(Increase) decrease during period		(3,922	)		($25,600	)
Ending balance		($29,773	)		($25,851	)

39

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE I — INCOME TAXES (Continued)

Deferred tax assets and liabilities are due to the following at December 31, (in thousands):

	2010			2009
Deferred tax assets
Allowance for loan losses	$	9,510		$	11,943
Net operating loss carryforward		6,202			734
Goodwill and other intangibles		11,455			12,505
Capital loss carryforward		—			251
Non-accrual interest income		343			—
Writedowns on other real estate owned		3,539			1,070
Amortization of deferred issue costs		75			263
Other		100			25
Total deferred tax assets		31,224			26,791
Deferred tax liabilities
Premises and equipment		(368	)		(423	)
Prepaid expenses		(455	)		(283	)
Deferred loan fees and costs		(64	)		(130	)
Other		(37	)		(104	)
Total deferred tax liabilities		(924	)		(940	)
Less: valuation allowance		(30,300	)		(25,851	)
Net deferred tax asset	$	—		$	—

40

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE I — INCOME TAXES (Continued)

There were no unrecognized tax benefits at December 31, 2010, and the Corporation does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months.

The Corporation is no longer subject to examination by the Internal Revenue Service for years before 2007.

Effective tax rates differ from the federal statutory rate of 34% applied to income before income taxes due to the following:

	2010			2009
Federal income tax rate		34	%		34	%
Effect of capital loss carryforward valuation allowance		-31	%		-52	%
Other, net		-2	%		-1	%
Effective tax rate		1	%		-19	%

NOTE J — DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value of Financial Instruments

The following methods and assumptions were used by the Corporation in estimating its fair value disclosure for financial instruments:

Cash and Cash Equivalents and Federal Home Loan Bank Stock

The carrying amount approximates fair value.

Mortgage Loans Held for Sale

Fair value is based upon the quoted price for the sale of those loans.

Loans

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations. The carrying amount of accrued interest approximates its fair value.

41

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE J — DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Interest Receivable and Interest Payable

The carrying amount approximates fair value.

Federal Home Loan Bank Advances

Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Fair value of long-term debt is based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to estimate fair value.

Subordinated Debentures

Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit and Lines of Credit

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The fair value of such arrangements are not considered material to this presentation.

42

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE J — DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

The estimated fair value of the Corporation’s financial instruments at December 31 are as follows (in thousands):

	At December 31, 2010				At December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets:
Cash and cash equivalents	$	93,775	$	93,775	$	77,497	$	77,497
Mortgage loans held for sale		353		356		1,129		1,146
Securities available for sale		54,811		54,811		46,300		46,300
Federal Home Loan Bank Stock		3,605		3,605		3,698		3,698
Loans		735,851		734,106		833,136		829,122
Accrued interest receivable		3,286		3,286		3,562		3,562
Liabilities:
Deposits		812,101		815,582		867,955		871,177
Federal Home Loan Bank advances		63,716		64,060		63,855		64,275
Subordinated debentures		10,000		4,718		10,000		4,081
Accrued interest payable		1,056		1,056		1,046		1,046

ASC 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 2 securities are valued by a third party pricing service commonly used in the banking industry, utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury curve, trade execution data, market consensus prepayment spreads and available credit information. The pricing provided utilizes evaluated pricing models that are based on asset class. These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed income securities do not trade on a daily basis, apply available information through processes such as benchmark curves and matrix pricing.

43

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE J — DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to our valuation hierarchy.

Securities available for sale

One component of the Corporation’s securities, available for sale are money market funds that are based on quoted prices in active markets and are classified within Level 1 of the valuation hierarchy. The values of all other securities, available for sale are estimated by a third party using inputs that are observable or that can be corroborated by observable market data and, therefore, are classified within Level 2 of the valuation hierarchy.

Level 2 securities are valued by a third party pricing service commonly used in the banking industry, utilizing observable inputs. Observable inputs include dealer quotes, market spreads, cash flow analysis, the U.S. Treasury curve, trade execution data, market consensus prepayment spreads and available credit information. The pricing provided utilizes evaluated pricing models that are based on asset class. These models incorporate available market information including quoted prices of securities with similar characteristics and, because many fixed income securities do not trade on a daily basis, apply available information through processes such as benchmark curves and matrix pricing. Level 2 securities include US Government sponsored mortgage-backed securities and other securities.

The following table presents the fair value measurements of the Corporation’s assets and liabilities recognized in the accompanying balance sheet measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2010 and 2009 (in thousands):

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
At 12/31/2010	Value		(Level 1)		(Level 2)		(Level 3)
GSE — mortgage backed securities	$	54,561	$	—	$	54,561	$	—
Other securities		250		—		250		—
Total securities, available for sale	$	54,811	$	—	$	54,811	$	—

44

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE J — DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
At 12/31/2009	Value		(Level 1)		(Level 2)		(Level 3)
US Government sponsored agency securities	$	12,749	$	—	$	12,749	$	—
Corporate bonds		33,111		—		33,111		—
Mortgage backed securities		104		—		104		—
Other securities		336		—		336		—
Total securities, available for sale	$	46,300	$	—	$	46,300	$	—

Following is a description of the valuation methodology for assets and liabilities measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet.

Impaired Loans (Collateral Dependent)

Loans for which it is probable that the Corporation will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans.

If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.

Real Estate Owned

The fair value of other real estate owned is measured based on the value of the collateral securing those loans/real estate and is determined using several methods. The fair value of real estate is generally determined based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on the collateral such as business assets is typically calculated by using financial information such as financial statements and aging reports provided by the borrower and is discounted as considered appropriate.

45

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE J — DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES (Continued)

The following table presents the fair value measurements of the Corporation’s assets and liabilities recognized in the accompanying balance sheet measured at fair value on a non-recurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall at December 31, 2010 (in thousands):

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
At 12/31/2010	Fair Value		(Level 1)		(Level 2)		(Level 3)
Impaired loans (collateral dependent)	$	66,977	$	—	$	—	$	66,977
Other real estate		10,003		—		—		10,003

			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
At 12/31/2009	Fair Value		(Level 1)		(Level 2)		(Level 3)
Impaired loans (collateral dependent)	$	60,905	$	—	$	—	$	60,905
Other real estate		7,601		—		—		7,601

NOTE K — COMMITMENTS AND CREDIT RISK

Loan Commitments

Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

46

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE K — COMMITMENTS AND CREDIT RISK (Con’t)

The Corporation had outstanding loan commitments aggregating $50,694,000 and $77,919,000 at December 31, 2010 and 2009, respectively. Loan commitments for variable rate loans were $36,845,000 and $61,420,000 at December 31, 2010 and 2009, respectively. Loan commitments for fixed rate loans were $13,849,000 and $16,499,000 at December 31, 2010 and 2009, respectively. The fixed rate loan commitments at December 31, 2010 have interest rates ranging from 1.00% to 10.00% and maturities ranging from one year to five years. A distribution of outstanding loan commitments by contractual maturity is shown below (in thousands):

	Commitment Period
	Less
	than 1		1 - 3		3 - 5		Over 5
At December 31, 2010	year		years		years		years		Totals
Home equity lines of credit	$	637	$	4,538	$	2,724	$	7,397	$	15,296
Residential loan commitments		375		—		—		—		375
Standby letters of credit		548		—		—		—		548
Lines of credit — commercial		19,534		1,479		—		37		21,050
Commercial construction - residential land development and construction		1,438		1,065		319		—		2,822
Other commercial commitments		8,439		1,003		1,161		—		10,603
Totals	$	30,971	$	8,085	$	4,204	$	7,434	$	50,694

	Commitment Period
	Less
	than 1		1 - 3		3 - 5		Over 5
At December 31, 2009	year		years		years		years		Totals
Home equity lines of credit	$	355	$	3,073	$	4,208	$	8,695	$	16,331
Residential loan commitments		132		—		—		—		132
Standby letters of credit		770		1,932		—		—		2,702
Lines of credit — commercial		29,527		2,709		731		27		32,994
Commercial construction - residential land development and construction		5,134		286		735		—		6,155
Other commercial commitments		16,668		1,693		1,244		—		19,605
Totals	$	52,586	$	9,693	$	6,918	$	8,722	$	77,919

Commitments to extend credit are agreements to lend to a customer as long as there are no violations of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. Since portions of the commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Corporation evaluates each customer’s credit worthiness on a case by case basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer.

47

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE L — EMPLOYEE BENEFIT PLANS

The Bank maintains a 401(k) plan for its employees. All employees are eligible to participate in the 401(k) plan after completion of age and service requirements. An employee can be enrolled as a participant on the first “Enrollment Date” after reaching age 18 and completing six months of service.

Contributions to the plan by the Bank are discretionary and are expensed as made. Historically, the Bank had matched 50% of the first 6% of employee contributions to the plan. Employer contributions vest 20% per year for five years. As of October 1, 2009, the Bank discontinued the practice of matching employee contributions to the plan due to the declining performance of the Bank during the recent economic downturn.

During 2010 and 2009, employer contributions were $0 and $203,000, respectively.

NOTE M — REGULATORY CAPITAL REQUIREMENTS

The Corporation and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and, additionally for the Bank, the regulatory framework for prompt corrective action, the Corporation and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Under the Consent Order dated February 12, 2010, the Bank is required to achieve and maintain tier 1 capital as a percentage of total assets of 9% or higher and total capital as a percentage of risk-weighted assets of 12% or higher within 120 days from the effective date of the order. Failure to meet the minimum ratios set forth in the Consent Order could result in regulators taking additional enforcement action against us.

Quantitative measures established by regulation require the Corporation and Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). The following is a presentation of the Corporation’s and Bank’s regulatory capital ratios and amounts (in thousands):

48

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE M — REGULATORY CAPITAL REQUIREMENTS (Continued)

											Minimum
						Minimum					To Be Well Capitalized
						for Capital					Under Prompt Corrective
	Actual					Adequacy Purposes					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2010
Total capital (to risk weighted assets)
Consolidated	$	47,591		6.34	%	$	60,012		8.00	%		N/A		N/A
Bank		46,169		6.17	%		59,902		8.00	%		74,877		10.00	%
Tier 1 capital (to risk weighted assets)
Consolidated		37,984		5.06	%		30,006		4.00	%		N/A		N/A
Bank		36,580		4.89	%		29,951		4.00	%		44,926		6.00	%
Tier 1 capital (to average assets)
Consolidated		37,984		4.09	%		37,135		4.00	%		N/A		N/A
Bank		36,580		3.95	%		37,077		4.00	%		46,346		5.00	%
As of December 31, 2009
Total capital (to risk weighted assets)
Consolidated	$	63,043		7.39	%	$	68,264		8.00	%		N/A		N/A
Bank		61,169		7.19	%		68,105		8.00	%		85,132		10.00	%
Tier 1 capital (to risk weighted assets)
Consolidated		52,080		6.10	%		34,132		4.00	%		N/A		N/A
Bank		50,225		5.90	%		34,053		4.00	%		51,079		6.00	%
Tier 1 capital (to average assets)
Consolidated		52,080		4.98	%		41,838		4.00	%		N/A		N/A
Bank		50,225		4.81	%		41,776		4.00	%		52,220		5.00	%

At December 31, 2010 and 2009, the Bank was undercapitalized. There are no conditions or events since that notification that management believes have changed the institution’s category. Federal and state banking laws and regulations place certain restrictions on the amount of dividends and loans a bank can pay to its parent company. No cash dividends have been paid by the Corporation.

49

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE N — INCENTIVE STOCK PLANS

Incentive stock awards have been granted to officers and employees under two Incentive Stock Plans. The first plan is the 1994 Stock Option Plan. Options to buy common stock have been granted to officers and employees under the 1994 Stock Option Plan, which provides for issue of up to 814,449 shares. Exercise price is the market price at date of grant. The maximum option term is ten years, and options vest fully after six months from the date of grant. No options are available for grant under this plan.

A summary of the option activity in the 1994 Plan follows:

			Weighted
			Average
	Options		Exercise
	Outstanding		Price
Outstanding at January 1, 2010		360,398	$	8.65
Forfeited		117,407	$	5.34
Outstanding at December 31, 2010		242,991	$	10.25

There were no options exercised during 2010 or 2009. The options outstanding at December 31, 2010 or 2009 had no intrinsic value.

During 2005, the Corporation initiated the 2005 Long-Term Incentive Plan. Under this plan, up to 347,248 shares may be granted to officers and employees of the Bank. This plan provides that stock awards may take the form of any combination of options, shares, share units or performance awards.

The administration of the plan, including the granting of awards and the nature of those awards, is determined by the Corporation’s Compensation Committee. The Corporation’s Board of Directors approved grants of performance-based stock options and restricted stock in 2005 and 2006. The Corporation’s Board of Directors approved grants of stock options and restricted stock without performance criteria in 2008. The awards have a term of ten years and typically vest fully three years from the grant date.

Stock Options Granted — The incentive stock options were granted with the exercise price equal to market price on the day of grant. The weighted average fair value of the options granted at grant date was $1.23. The following assumptions were used to determine the fair value of the options granted in 2010:

	2010
Risk-free interest rate		1.04	%
Expected option life	4.0 years
Dividend yield		0.00	%
Expected volatility of stock price		113.02	%

50

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE N — INCENTIVE STOCK PLANS (Continued)

A summary of the 2005 Plan’s option activity is as follows:

				Weighted
	Number			Exercise
	of Shares			Price
Outstanding at January 1, 2010		190,846		$	5.33
Shares Granted — Stock Options		88,019		$	1.66
Shares Forfeited — Stock Options		(20,000	)	$	4.25
Outstanding at December 31, 2010		258,865		$	4.17
Options exercisable at December 31, 2010		158,865		$	5.69

During the year ended December 31, 2010, the Corporation recognized compensation expense of $68,000 related to stock options. Compensation cost of $72,000 and $30,000 is expected to be recognized during 2011 and 2012, respectively.

Stock Grants — Stock awards are granted to officers. A summary of the plan’s stock award activity is as follows:

	Number
	of Shares
Outstanding at December 31, 2009		41,530
Restricted Shares Forfeited		(1,765	)
Outstanding at December 31, 2010		39,765

During the year ended December 31, 2010, the Corporation recognized compensation expense of $85,000 related to restricted stock. Compensation cost of $176,000 is expected to be recognized during 2011.

51

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE O — EARNINGS PER SHARE

Factors used in the basic and diluted earnings per share calculation follow (in thousands, except share and per share data):

	2010			2009
Basic
Net loss		($14,249	)		($61,175	)
Weighted average common shares		7,645,940			7,645,076
Basic earnings per common share		($1.86	)		($8.00	)
Diluted
Net loss		($14,249	)		($61,175	)
Weighted average common shares outstanding for basic earnings per common share		7,645,940			7,645,076
Average shares and dilutive potential common shares		7,645,940			7,645,076
Dilutive earnings per common share		($1.86	)		($8.00	)

All stock options and unvested shares were excluded from the computation of diluted earnings per share for 2010 and 2009 because they were antidilutive. All share and per share amounts have been adjusted for stock dividends.

52

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE P — PARENT ONLY CONDENSED FINANCIAL INFORMATION

The condensed financial information that follows presents the financial condition of the parent company, Dearborn Bancorp, Inc., along with the results of its operations and its cash flows.

CONDENSED BALANCE SHEETS

	December 31,
(In thousands)	2010		2009
ASSETS
Cash and cash equivalents	$	292	$	116
Investment in subsidiary		35,555		50,090
Other assets		1,863		1,994
Total assets	$	37,710	$	52,200
LIABILITIES AND STOCKHOLDERS’ EQUITY
Other liabilities	$	751	$	255
Subordinated debentures		10,000		10,000
Total liabilities		10,751		10,255
Stockholders’ equity		26,959		41,945
Total liabilities and stockholder’s equity	$	37,710	$	52,200

CONDENSED STATEMENTS OF OPERATIONS

	Years Ended December 31,
(In thousands)	2010			2009
Interest expense	$	399		$	411
Other operating expenses		225			291
Net loss before income tax and equity in undistributed income of subsidiary		(624	)		(702	)
Income tax benefit		20			43
Net loss before equity in undistributed income of subsidiary		(604	)		(659	)
Equity in undistributed loss of subsidiary		(13,645	)		(60,516	)
Net loss		($14,249	)		($61,175	)

53

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE P — PARENT ONLY CONDENSED FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
(In thousands)	2010			2009
Cash flows from operating activities
Net loss		($14,249	)		($61,175	)
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed loss of Subsidiary		13,645			60,516
Other, net		780			140
Net cash flows provided by operating activities		176			(519	)
Increase (decrease) in cash and cash equivalents		176			(519	)
Cash and cash equivalents at the beginning of year		116			635
Cash and cash equivalents at end of year	$	292		$	116

NOTE Q — SIGNIFICANT ESTIMATES AND CONCENTRATIONS

Current Economic Conditions

The current protracted economic decline presents financial institutions with unprecedented circumstances and challenges which in some cases have resulted in large declines in the fair values of investments and other assets, constraints on liquidity and significant credit quality problems, including severe volatility in the valuation of real estate and other collateral supporting loans. The financial statements have been prepared using values and information currently available to the Corporation.

The Corporation is further affected by the economic conditions specific to Southeastern Michigan due in large part to the importance of the automobile industry to the local economy. While the Corporation does not have significant exposure to automobile manufacturers and suppliers, the downturn in the automotive industry has had an adverse effect on many of the Corporation’s borrowers and the Corporation’s allowance for loan losses.

The Corporation’s allowance for loan losses contains certain assumptions on the value of collateral dependent loans as well as certain economic and industry conditions which may be subject to change within the next year. These changes could have an adverse impact on the allowance for loan losses in the near term.

Given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in asset values, the allowance for loan losses and capital which could negatively impact the Corporation’s ability to meet regulatory capital requirements and maintain sufficient liquidity.

54

DEARBORN BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

December 31, 2010 and 2009

NOTE Q — SIGNIFICANT ESTIMATES AND CONCENTRATIONS (Continued)

Loan Concentrations

Our lending operations may be subject to enhanced scrutiny by banking regulators based on our concentration of commercial real estate loans (“CRE”). CRE loans generally include land development, construction loans and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property.

As of December 31, 2010, our concentration of construction, land development and other land loans totaled 150.7% of Tier 1 capital and our CRE concentration, net of owner-occupied loans, as a percentage of Tier 1 capital totaled 978.2%.

NOTE R — GENERAL LITIGATION

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

55

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS

Company Overview and Executive Summary

Dearborn Bancorp, Inc. (the “Corporation”) was incorporated as a Michigan business corporation on September 30, 1992. The Corporation was formed to acquire all of the Bank’s issued and outstanding stock and to engage in the business of a bank holding corporation under the Bank Holding Company Act of 1956, as amended (the “Act”).

Community Bank of Dearborn (the “Bank”), a Michigan banking corporation, commenced business on February 28, 1994 in Dearborn, Michigan. The Bank was renamed Fidelity Bank on April 30, 2007. The Bank is the only commercial bank headquartered in Dearborn, Michigan and offers a full line of loan and deposit products and services. The Bank offers excellent customer service to its loan and deposit customers and maintains strong relationships with the communities served by the Bank. The Bank emphasizes strong loan quality, excellent customer service and efficient operations in order to maximize profitability and shareholder value.

In 2004, the Corporation acquired the Bank of Washtenaw from Pavillion Bancorp. The Bank of Washtenaw’s three banking offices, all of which are located in Washtenaw County, Michigan were successfully consolidated into the Bank.

The Corporation completed the acquisition of Fidelity Financial Corporation of Michigan (Fidelity), a commercial bank with seven offices in Oakland County, Michigan on January 4, 2007. The acquisition significantly expanded the Bank’s presence in Oakland County, Michigan. Management believes that the acquisition has been beneficial to the Bank’s customers and the Corporation’s shareholders.

The Bank currently operates seventeen banking offices in Wayne, Macomb, Oakland and Washtenaw Counties, Michigan. A list of banking offices is shown on page 60.

The Corporation’s earnings depend primarily on net interest income. Management strives to maximize net interest income through monitoring the economic and competitive environment and making appropriate adjustments in the characteristics and pricing of our products and services.

Other factors that contribute significantly to our earnings are the maintenance of asset quality and efficient operations. Management continually monitors the quality of the loan portfolio and the impact of the economic and competitive environment and takes appropriate measures to maintain high asset quality.

The Bank’s market area consists primarily of the Metropolitan Detroit area. This is a large real estate market and the Bank’s loan portfolio accounts for less than one percent of this market. The Detroit real estate market has been negatively impacted by the unfavorable economic conditions in the State of Michigan. Despite the local economy and its impact on certain industries, many local industries and economies are performing well. The Bank has attempted to maintain asset quality in this environment by enforcing strong underwriting guidelines and utilizing a diligent loan review process. During 2010, management has continued to supplement its Special Assets Department, which is responsible for the management of most non-performing loans and the liquidation of real estate owned. During 2010, the Bank continued to provide additional resources to this department by adding an additional loan officer in this department. This department consists of a department manager and six experienced loan officers. The reduction of non-performing assets is a primary objective of management and is critical to the future success of the Corporation. Despite these measures, the Bank has recorded charge-offs of certain loans, as the value of the underlying collateral of certain non-performing loans has continued to decline. Additionally, the carrying values of real estate owned properties have been adjusted appropriately, as the market value of the real estate has declined.

56

The Corporation recorded a net loss of ($14,249,000) during 2010, compared to a net loss of ($61,175,000) during 2009. The factors that contributed primarily to the decrease in the loss during 2010 were the decline in the Corporation’s provision for loan losses and the improvement in net interest income, which were partially offset by the increase in the write-down and sale of real estate owned during 2010. Additionally, the Corporation recorded non-cash expenses during 2009 for the impairment of intangible assets in the amount of $3,997,000 and for the establishment of a valuation allowance on the Corporation’s deferred tax asset in the amount of $25,851.000. The Corporation also recorded a federal income tax benefit of $5,400,000 due to federal Income tax carrybacks that became available due to the passage of the Worker, Home Ownership and Business Assistance Act of 2009. The aggregate impact of these non-cash transactions decreased net income during 2009 in the amount of $24,448,000.

The most significant factor in the improvement in the loss during 2010, compared to 2009 was the decrease in the provision for loan losses. The Corporation recorded provision for loan loss of $15,978,000 during 2010 compared to $50,863,000 during 2009. The provision for loan losses is determined by the internal analysis of the allowance for loan losses and the decrease during 2010 was the result of the lower level of net charge-offs during 2010. Net charge-offs amounted to $23,132,000 during 2010 compared to $30,190,000 during 2009. Charge-offs of $4,058,000 were recorded during 2010 on loans with specific allocations assigned at December 31, 2009 because these charge-offs were based on information that was received in 2010 but where deterioration of the credit related to events that occurred in 2009. The provision for these charge-offs was recorded during the fourth quarter of 2009 because the deterioration of these credits occurred during 2009. Additionally, charge-offs of $3,667,000 were due to a change in the methodology relating to the valuation of residential building lots. This change was related to the evaluation of appraisals of this type of collateral, where the appraised value of developed residential building lots was required to be discounted based on the absorption factor associated with the collateral. The fact that these charge-offs, which amount to $7,725,000 during 2010 were not the result of deterioration of these credits during 2010 was considered in management’s analysis of the allowance for loan losses at December 31, 2010.

The Corporation’s net interest income improved during 2010 to $34,079,000 from $30,886,000 in 2009, an increase of $3,193,000 or 10%. The increase in net interest income was primarily due to the decline in cost of interest bearing liabilities during 2010, which offset the negative impact of the decline in the volume of assets and liabilities.

The Corporation also recorded $6,814,000 for the write-down and loss on sale of other real estate in 2010 compared to $2,905,000 during 2009. The write-downs were primarily due to the deterioration of the value of these properties evidenced by declining appraisal values subsequent to the transfer of ownership to the Corporation. The Corporation sold 35 properties for $11,615,000 during 2010 compared to 22 properties for $4,879,000 during 2009.

During 2010, the local economy has begun to shows signs of improvement. We have seen asset quality stabilize during 2010. While non-performing assets increased by 66% during 2009, non-performing assets increased by 3% during 2010. Additionally, we have seen modest improvements in the quality of our loan portfolio as the level of delinquencies and non-performing loans have stabilized during the last half of 2010. However, these positive trends have not yet materialized into an improvement in valuations of real estate in the Bank’s market area.

On February 12, 2010, the Bank entered into a Consent Order that is effective February 22, 2010 with the FDIC and OFIR, its principal regulators, subsequent to a safety and soundness exam which outlined a variety of requirements to fulfill within certain timelines.

The Bank submitted a Capital Restoration Plan (“CRP”) to the FDIC and OFIR on December 15, 2009, due to our undercapitalized status based on our September 30, 2009 regulatory report of condition and income. This CRP was rejected because capital has not been successfully raised within the 120 days of the issuance of the Consent Order. An amended CRP was submitted on May 24, 2010. This CRP was also rejected because capital has not been successfully raised. The CRP addresses, among other things, the steps management will take to cause our capital levels to return to the minimum level to be adequately capitalized.

The Bank is currently undercapitalized. Failure to meet the minimum ratios set forth in the Consent Order could result in regulators taking additional enforcement action against us. With the exception of raising additional capital, management believes that it met all of the provisions of the consent order.

57

As a result of the decline in the Bank’s capitalization level, the Bank is limited in its utilization of brokered deposits and in the sources of liquidity that are available to us. Borrowings are available to us only on a collateralized basis. Additionally, there are limitations in the borrowing terms and capacity with the Federal Reserve Bank. The Bank is also restricted in the setting of deposit interest rates. As a result the Bank has chosen to maintain higher levels of liquidity, which are primarily in the form of overnight deposits with the Federal Reserve Bank.

The Bank has also formed two subsidiaries that offer additional or specialized services to the Bank’s customers. The Bank’s subsidiaries, their formation date and the type of services offered are listed below:

Date Formed	Name	Services Offered
August 1997	Community Bank Insurance Agency, Inc.	Limited insurance related activities
March 2002	Community Bank Audit Services, Inc.	Internal auditing and compliance services for financial institutions

58

The date opened, branch location and branch type of each branch is listed below:

Ann Arbor / Eisenhower Banking Center
250 West Eisenhower Parkway, Suite 100
Ann Arbor, MI 48103
Phone: (734) 302-1481

Auburn Hills Banking Center
3201 University Drive, Suite 180
Auburn Hills, MI 48326
Phone: (248) 364-9700

Bingham Farms Banking Center
30700 Telegraph
Bingham Farms, MI 48025
Phone: (248) 642-6757

Birmingham Banking Center
1040 E. Maple
Birmingham, MI 48009
Phone: (248) 642-1901

Bloomfield Township Banking Office
3681 W. Maple
Bloomfield Township, MI 48301
Phone: (248) 642-1903

Canton Township Banking Office
1325 N. Canton Center Road
Canton. MI 48187
Phone: (734) 981-0022

Clinton Township Banking Office
19100 Hall Road
Clinton Township, MI 48038
Phone: (586) 416-4400

Clinton Township Regional Lending Center
45000 River Ridge Drive, Suite 110
Clinton Township, MI 48038
Phone: (586) 416-0200

Dearborn / Main Office Banking Center
22290 Michigan Avenue
Dearborn. MI 48124
Phone: (313) 274-1000

Dearborn Heights Banking Center
24935 W. Warren Avenue
Dearborn Heights, MI 48127
Phone: (313) 724-0100

Dearborn Administrative and
Regional Lending Center
1360 Porter Street
Dearborn. MI 48124
Phone: (313) 565-5700

Galleria Banking Center
200 Galleria Office Center
Southfield, MI 48034
Phone: (248) 352-1580

Plymouth Township Banking Center
44623 Five Mile
Plymouth Township, MI 48170
Phone: (734) 454-1000

Saline Banking Center
450 E. Michigan Avenue
Saline, MI 48176
Phone: (734) 429-3828

Shelby Township Banking Center
7755 23 Mile Road
Shelby Township, MI 48316
Phone: (586) 254-8700

Southgate Banking Center
12820 Fort Street
Southgate, MI 48195
Phone: (734) 284-3300

Southfield/Twelve Mile Banking Center
20000 12 Mile Road
Southfield, MI 48034
Phone: (248) 559-5779

Bank Operations Center
4000 Allen Road
Allen Park, MI 48101
Phone: (313) 381-3200

Galleria — ATM Only
300 Galleria Office Center
Southfield, MI 48034

Henry Ford Community College — ATM Only
5101 Evergreen Road
Dearborn, MI 48124

Travelers Tower — ATM Only
26555 Evergreen
Southfield, MI 48034

59

Forward-Looking Statements

The following discussion contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and about the Corporation and Bank. Words such as “anticipates”, “believes”, “estimates”, “expects”, “forecasts”, “intends”, “is likely”, “plans”, “projects”, variations of such words and similar expressions are intended to identify such forward- looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Future Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events (whether anticipated or unanticipated), or otherwise.

Future Factors include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; and changes in the national and local economy. These are representative of the Future Factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

Critical Accounting Policies and Estimates

The “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as disclosures found elsewhere in the annual report, are based upon the consolidated financial statements of Dearborn Bancorp, Inc., which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Dearborn Bancorp, Inc. to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses. Actual results could differ from those estimates.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable incurred losses in the loan portfolio. Management’s evaluation of the adequacy of the allowance for loan losses is an estimate based primarily on reviews of individual loans, assessments of the impact of current economic conditions on the portfolio, and historical loss experience. See Note D of the Notes to Consolidated Financial Statements and the discussion of “Allowance for Loan Losses” in the Management’s Discussion and Analysis.

Management believes the accounting estimates related to the allowance for loan losses is a “critical accounting estimate” because:

1)	The estimates are highly susceptible to change from period to period and require management to make judgements concerning the quality of the loan portfolio and the impact of current economic conditions on borrowers’ ability to repay their loans.
2)	The impact of recognizing an impairment or loan loss could have a material effect on the financial statements of Dearborn Bancorp, Inc.

Management has discussed the development and selection of these critical accounting estimates with the audit committee of the board of directors and the audit committee has reviewed the Corporation’s disclosures related to them in this Management’s Discussion and Analysis.

60

Results of Operations

2010 Compared to 2009. The Corporation reported a net loss of ($14,249,000) in 2010 compared to a net loss of ($61,175,000) in 2009, a decrease in the loss of $46,926,000. The decrease in the loss during 2010 was primarily due to a decrease in the provision for loan loss of $34,885,000 and an increase in net interest income of $3,193,000, which was partially offset by higher write-downs on real estate owned during 2010 and an increase in the FDIC assessment. Additionally, the Corporation recorded non-cash charges during 2009 for the impairment of intangible assets and the establishment of a valuation allowance on the Corporation’s deferred tax asset.

The Corporation recorded provision for loan losses of $15,978,000 in 2010 compared to $50,863,000 in 2009. The provision for loan losses is determined by the internal analysis of the allowance for loan losses and the decrease during 2010 was the result of lower net charge-offs and a decline in the escalation of loans to non-performing status. Additionally, the impact of the continuing economic downturn during 2009 was escalated by the bankruptcy of two major automotive manufacturers and the related negative impact on the overall economy and collateral values resulted in increased provisions in 2009. Net charge-offs amounted to $23,131,000 for the year ended December 31, 2010 compared to $30,190,000 for the same period in 2009.

Net interest income in 2010 was $34,079,000 compared to $30,886,000 in 2009. The increase in net interest income was primarily due to the decreased cost of interest bearing liabilities.

The Corporation recorded write-downs on real estate owned in 2010 in the amount of $6,338,000 compared to $2,766,000 in 2009. The write-downs were primarily due to the deterioration of the value of these properties evidenced by declining appraisal values subsequent to the transfer of ownership to the Corporation.

The Corporation also incurred FDIC expense of $4,125,000 in 2010 compared to $2,843,000 in 2009. The increase in FDIC expense was due and the increased assessment rate based on the Bank’s risk rating which changed during the fourth quarter of 2009.

2009 Compared to 2008. The Corporation reported a net loss of ($61,175,000) in 2009 compared to a net loss of ($31,925,000) in 2008, an increase in the loss of $29,250,000. The loss in 2009 included a non-cash impairment charge for the impairment of other intangible assets in the amount of $3,997,000, a non-cash charge for the recording of a valuation allowance on the Corporation’s deferred tax asset in the amount of $25,581,000 and a non-cash benefit for the extended period of time that net operating losses could be carried back. This increase in the period that losses can be carried back, resulted in a refund of $5,452,000. When these non-cash charges and benefits are excluded from net income, the Corporation’s net loss is ($37,503,000), compared to a net loss of ($5,788,000) for 2008, an increase in the loss of $31,715,000.

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Net Interest Income

2010 Compared to 2009. Net interest income in 2010 was $34,079,000 compared to $30,886,000 in 2009, an increase of $3,193,000 or 10%. The increase in net interest income was primarily due to the decline in cost of interest bearing liabilities during 2010, which offset the negative impact of the decline in the volume of assets and liabilities. The Corporation had average interest sensitive assets of $948,021,000 and $1,005,918,000 for the years ended December 31, 2010 and 2009, respectively and average interest bearing liabilities of $818,167,000 and $887,010,000 for the years ended December 31, 2010 and 2009, respectively. The Corporation’s net interest rate spread increased to 3.60% in 2010 from 2.77% in 2009, an increase of 83 basis points. The Corporation’s net interest margin also increased to 3.75% in 2010 from 3.07% in 2009, an increase of 68 basis points. The increase in the net interest rate spread and net interest margin was primarily due to the decline in interest rates on interest bearing liabilities and the increase in the yield on securities, which offset the decrease in the yield on loans..

Average interest earning assets declined by $96.1 million between the periods while interest bearing liabilities declined by $68.8 million. Interest bearing assets and liabilities are expected to remain relatively constant during 2011. Management expects the cost of interest bearing liabilities to decline moderately during 2011.

2009 Compared to 2008. Net interest income in 2009 was $30,886,000 compared to $32,131,000 in 2008, a decrease of $1,245,000 or 4%. The decrease in net interest income was primarily due to the decline in interest rates during 2009 and the volume of assets and liabilities affected by the decline in rates. As the Corporation had interest sensitive assets of $1,005,918,000 and $975,337,000 for the years ended December 31, 2009 and 2008, respectively and interest bearing liabilities of $887,010,000 and $834,731,000 for the years ended December 31, 2009 and 2008, respectively, the decline in interest rates causes a decrease in net interest income. The Corporation’s net interest rate spread decreased to 2.77% in 2009 from 2.80% in 2008, a decrease of 3 basis points. The Corporation’s net interest margin also decreased to 3.07% in 2009 from 3.29% in 2008, a decrease of 22 basis points. The decrease in the net interest rate spread was due to the decline in interest rates on the Corporation’s interest-bearing assets and interest-bearing liabilities and the increase in non-performing assets.

Average Balances, Interest Rates and Yields. Net interest income is affected by the difference (“interest rate spread”) between rates of interest earned on interest earning assets and rates of interest paid on interest bearing liabilities and the relative amounts of interest bearing liabilities and interest earning assets. When the total of interest earning assets approximates or exceeds the total of interest bearing liabilities, any positive interest rate spread will generate net interest income. Financial institutions have traditionally used interest rate spreads as a measure of net interest income. Another indication of an institution’s net interest income is its “net yield on interest earning assets” or “net interest margin,” which is net interest income divided by average interest earning assets.

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The following table sets forth certain information relating to the Corporation’s consolidated average interest earning assets and interest bearing liabilities and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented. During the periods indicated, non-accruing loans, if any, are included in the net loan category.

	Year Ended December 31, 2010							Year Ended December 31, 2009
	Average				Average			Average				Average
(In thousands)	Balance		Interest		Rate			Balance		Interest		Rate
Assets
Interest-bearing deposits with banks	$	75,577	$	337		0.45	%	$	73,057	$	374		0.51	%
Federal funds sold		72		1		1.39	%		5,873		17		0.29	%
Securities, available for sale		46,064		967		2.10	%		40,245		589		1.46	%
Loans		788,020		45,668		5.80	%		886,743		53,273		6.01	%
Sub-total earning assets		909,733		46,973		5.16	%		1,005,918		54,253		5.39	%
Other assets		38,288							51,333
Total assets	$	948,021						$	1,057,251
Liabilities and stockholders’ equity
Interest bearing deposits	$	744,385	$	11,427		1.54	%	$	809,905	$	20,993		2.59	%
Other borrowings		73,782		1,467		1.99	%		77,105		2,374		3.08	%
Sub-total interest bearing liabilities		818,167		12,894		1.58	%		887,010		23,367		2.63	%
Non-interest bearing deposits		89,832							82,915
Other liabilities		2,346							2,157
Stockholders’ equity		37,676							85,169
Total liabilities and stockholders’ equity	$	948,021						$	1,057,251
Net interest income			$	34,079						$	30,886
Net interest rate spread						3.60	%						2.77	%
Net interest margin on earning assets						3.75	%						3.07	%

63

(continued)

	Year Ended December 31, 2008
	Average				Average
(In thousands)	Balance		Interest		Rate
Assets
Interest-bearing deposits with banks	$	6,591	$	43		0.65	%
Federal funds sold		8,316		86		1.04	%
Securities, available for sale		15,681		464		2.97	%
Loans		944,749		60,533		6.42	%
Sub-total earning assets		975,337		61,126		6.27	%
Other assets		81,377
Total assets	$	1,056,714
Liabilities and stockholders’ equity
Interest bearing deposits	$	740,520	$	25,106		3.40	%
Other borrowings		94,211		3,889		4.13	%
Sub-total interest bearing liabilities		834,731		28,995		3.47	%
Non-interest bearing deposits		83,065
Other liabilities		3,152
Stockholders’ equity		135,766
Total liabilities and stockholders’ equity	$	1,056,714
Net interest income			$	32,131
Net interest rate spread						2.80	%
Net interest margin on earning assets						3.29	%

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Rate/Volume Analysis. The following table analyzes net interest income in terms of changes in the volume of interest-earning assets and interest-bearing liabilities and changes in yields and rates. The table reflects the extent to which changes in the interest income and interest expense are attributable to changes in volume (changes in volume multiplied by prior year rate) and changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated proportionately to changes due to volume and changes due to rate.

	2010/2009									2009/2008
	Change in Interest Due to:									Change in Interest Due to:
	Average			Average			Net			Average			Average			Net
(In thousands)	Balance			Rate			Change			Balance			Rate			Change
Assets
Interest bearing deposits with banks	$	11			($48	)		($37	)	$	340			($9	)	$	331
Federal funds sold		(81	)		65			(16	)		(7	)		(62	)		(69	)
Securities, available for sale		122			256			378			361			(236	)		125
Loans		(5,721	)		(1,884	)		(7,605	)		(3,319	)		(3,941	)		(7,260	)
Total earning assets		($5,669	)		($1,611	)		($7,280	)		($2,625	)		($4,248	)		($6,873	)
Liabilities
Interest bearing deposits		($1,006	)		($8,560	)		($9,566	)	$	1,867			($5,980	)		($4,113	)
Other borrowings		(66	)		(841	)		(907	)		(527	)		(988	)		(1,515	)
Total interest bearing liabilities		($1,072	)		($9,401	)		($10,473	)	$	1,340			($6,968	)		($5,628	)
Net interest income							$	3,193									($1,245	)
Net interest rate spread								0.83	%								(0.03	%)
Net interest margin on earning assets								0.68	%								(0.22	%)

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Provision for Loan Losses

2010 Compared to 2009. The provision for loan losses was $15,978,000 in 2010, compared to $50,863,000 in 2009, a decrease of $34,885,000 or 69%. The decrease in provision during 2010 was due primarily to the leveling off in the rate of deterioration of non-performing loans during 2010 and the decline in net charge-offs during 2010. While the provision for loan losses during 2010 was due primarily to net charge-offs, the provision for loan losses during 2009 was due in large part to the increase in specific allowances and an increase in the allocation factors to those loans not specifically analyzed. During 2010, the Bank recorded net charge-offs of $23,132,000 compared to $30,190,000 during 2009. Charge-offs of $4,058,000 were recorded during 2010 on loans with specific allocations assigned at December 31, 2009 because these charge-offs were based on information that was received and subsequently confirmed in 2010 but where deterioration of the credit related to events that occurred in 2009. The provision for these charge-offs was recorded during the fourth quarter of 2009 because the deterioration of these credit occurred during 2009. Additionally, charge-offs of $3,667,000 were due to a change in the methodology relating to the valuation of residential building lots. This change was related to the evaluation of appraisals of this type of collateral, where the appraised value of developed residential building lots was required to be discounted based on the absorption factor associated with the collateral. Additionally, the impact of the continuing economic downturn during 2009 was escalated by the bankruptcy of two major automotive manufacturers and the related negative impact on the overall economy and collateral values resulted in increased provisions in 2009. The fact that these charge-offs, which amount to $7,725,000 during 2010 were not the result of deterioration of these credits during 2010 was considered in management’s analysis of the allowance for loan losses at December 31, 2010.

At the time of origination, these land development loans were well-collateralized loans with well-established real estate developers and home builders. However, the underlying value of our collateral related to these types of loans has declined as the demand for new residential construction in Southeastern Michigan has diminished dramatically.

During 2009, our local markets were significantly impacted by the unprecedented bankruptcy filings of two major automobile manufacturers during the second quarter of 2009. While the Corporation had no direct exposure to these entities, these bankruptcy filings, subsequent shutdown of production for several months and the resulting employee layoffs had a devastating impact on the general economic conditions in Southeastern Michigan during 2009. This downturn in economic activity continued to worsen the condition of the residential real estate market during 2009 as well as to significantly impact the Bank’s commercial and commercial real estate mortgage portfolios. This downturn also led to a significant decline in collateral values of all types of real property.

During 2010, the local economy has begun to shows signs of improvement. We have seen asset quality stabilize during 2010. While non-performing assets increased by 66% during 2009, non-performing assets increased by 3% during 2010. Additionally, we have seen modest improvements in the quality of our loan portfolio as the level of delinquencies and non-performing loans have stabilized during the last half of 2010. However, these positive trends have not yet materialized into an improvement in the level of valuations of real estate in the Bank’s market area.

During 2010, non-accrual loans increased to $66,563,000 at December 31, 2010 from $49,341,000 at December 31, 2009. Non-accrual loans at December 31, 2010 that were current according to the modified terms of their loan agreement were $16,073,000 compared to $4,536,000 at December 31, 2009. Non-accrual loans at December 31, 2010 that were not current according to the modified terms of their loan agreement were $50,490,000 compared to $44,805,000 at December 31, 2009. The Bank is required to record charge-offs on any substandard collateral dependent loan to reduce the loan balance to its fair value. Previously, the Bank would include any collateral shortfall on substandard collateral dependent loans in the allowance for loan losses.

During 2010, loans qualified as troubled debt restructuring decreased to $48,527,000 at December 31, 2010 from $59,420,000 at December 31, 2009. All loans qualified as troubled debt restructuring were current according to their modified terms while there were 3 loans for $2,705,000 that were not performing according to their modified terms at December 31, 2009.

Non-accrual loans at December 31, 2010 that were not current according to the modified terms of their loan agreement were $50,490,000 compared to $47,510,000 at December 31, 2009.

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The net realizable value of loans specifically reviewed by management and determined to be impaired increased to $94,521,000 at December 31, 2010 from $90,135,000 at December 31, 2009. The allocated allowance of loans specifically reviewed by management and determined to be impaired increased to $10,725,000 at December 31, 2010 from $8,297,000 at December 31, 2009. Decreases in the recorded balance of impaired loans are reflected in the provision for loan loss and are primarily due to declines in the value of the underlying collateral.

The provision for loan losses is based upon management’s assessment of relevant factors, including types and amounts of non-performing loans, historical loss experience on such types of loans, the relevant change in the size and mix of the loan portfolio and the impact of current economic conditions on borrowers’ ability to repay their loans.

2009 Compared to 2008. The provision for loan losses was $50,863,000 in 2009, compared to $14,606,000 in 2008, an increase of $36,257,000 or 248%. The increase in provision during 2009 was due primarily to the increase in non-accrual loans and net charge-offs during the period as a result of the downturn in economic activity that rapidly accelerated in early 2009. During 2009, our local markets were significantly impacted by the unprecedented bankruptcy filings of two major automobile manufacturers during the second quarter of 2009. While the Corporation had no direct exposure to these entities, these bankruptcy filings, subsequent shutdown of production for several months and the resulting employee layoffs has had a devastating impact on the general economic conditions in Southeastern Michigan during 2009. This downturn in economic activity has continued to worsen the condition of the residential real estate market during 2009 as well as to significantly impact the Bank’s commercial and commercial real estate mortgage portfolios. This downturn has also led to a significant decline in collateral values of all types of real property. Non-accrual loans declined to $49,341,000 at December 31, 2009 from $51,708,000 at December 31, 2008. The charge-off policy utilized by the Bank was also revised due to updated regulatory guidance. In accordance with the updated regulatory guidance, the Bank records charge-offs on any substandard collateral dependent loan to reduce the loan balance to its net realizable value as this is deemed a confirmed loss. Previously, the Bank would include any collateral shortfall on substandard collateral dependent loans in the allowance for loan losses until the loss was confirmed. During 2009, the Bank recorded net charge-offs of $30,190,000 compared to $10,771,000 during 2008. At the time of origination, these land development loans were well-collateralized loans with well-established real estate developers and home builders. However, the underlying value of our collateral related to these types of loans has declined as the demand for new residential construction in Southeastern Michigan has diminished dramatically.

The fair value of loans specifically reviewed by management and determined to be impaired increased to $90,135,000 at December 31, 2009 from $41,907,000 at December 31, 2008. The allocated allowance of loans specifically reviewed by management and determined to be impaired increased to $8,297,000 at December 31, 2009 from $5,273,000 at December 31, 2008. Decreases in the fair value of impaired loans are reflected in the provision for loan loss and are primarily due to declines in the value of the underlying collateral.

Non-Interest Loss

2010 Compared to 2009. Non-interest loss was ($4,006,000) in 2010, compared to ($469,000) in 2009, an increase in the loss of $3,537,000. The increase in the loss was primarily due to the increase in loss on the write-down of real estate owned during 2010. During 2010, the Corporation recorded write-downs on 45 properties in the amount of $6,338,000. The write-downs were primarily due to the deterioration of the value of these properties evidenced by declining appraisal values subsequent to the transfer of ownership to the Corporation. Write-downs to real estate in the amount of $1,581,000 were due to a change in the methodology utilized in the valuation of developed residential building lots. This change was related to the evaluation of appraisals of this type of collateral, where the appraised value of developed residential building lots was required to be discounted based on the absorption factor associated with the collateral. The Corporation recorded a loss of $476,000 on the sale of 37 properties during 2010.

2009 Compared to 2008. Non-interest loss was ($469,000) in 2009, compared to ($930,000) in 2008, a decrease in the loss of $461,000 or 50%. The decrease in the loss was primarily due to the increase in the gain on the sale of loans, increased rental income on other real estate and a decline in the losses recognized on the sale of other real estate write-down and loss on sale of real estate owned. During 2009, the Corporation recorded write-downs on 44 properties in the amount of $2,766,000. The Corporation recorded a net loss of $139,000 on the sale of 22 properties during 2009.

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Non-Interest Expense

2010 Compared to 2009. Non-interest expense was $28,532,000 in 2010 compared to $32,720,000 in 2009 a decrease of $4,188,000 or 13%. The decrease in non-interest expense was primarily due to the impairment of other intangible assets in 2009.

When the non-cash impairment charge is excluded from 2009, non-interest expense was $28,532,000 compared to $28,723,000 in 2009, a decrease of $191,000 or 1%. This decrease was primarily due to decreases in salaries and benefits, amortization of intangible assets, and defaulted loan expense, which were partially offset by an increase in the FDIC assessment

The largest component of the decrease in non-interest expense was salaries and employee benefits which amounted to $12,436,000 in 2010 compared to $12,974,000 in 2009, a decrease of $538,000 or 4%. The decline in salaries and employee benefits was primarily the reallocation of personnel resources. As of December 31, 2010, the number of full time equivalent employees was 193 compared to 194 as of December 31, 2009.

2009 Compared to 2008. Non-interest expense was $32,720,000 in 2009 compared to $65,007,000 in 2008 a decrease of $32,287,000 or 50%. The decrease in non-interest expense was primarily due to the impairment of goodwill and other intangible assets in 2008, partially offset by the impairment of intangible assets in 2009. This non-cash expense was due to the evaluation of the Bank’s intangible assets as of September 30, 2009. This valuation determined that the Bank’s intangible assets were entirely impaired.

When the non-cash impairment charges are excluded from 2009 and 2008, non-interest expense was $28,723,000 compared to $25,406,000 in 2008, an increase of $3,317,000 or 13%. This increase during 2009 is primarily due to the increase in defaulted loan expense, which is primarily comprised of real estate taxes, legal expense, insurance expense and maintenance expense related to real estate owned and non-performing loans and the increase in the FDIC assessment. Defaulted loan expense for 2009 was $4,624,000 compared to $2,078,000 during 2008, an increase of $2,546,000 or 123%. The FDIC assessment for 2009 was $2,843,000 compared to $696,000 during 2008, an increase of $2,147,000 or 308%.

Income Tax Provision

2010 Compared to 2009. Income tax benefit was $188,000 in 2010 compared to income tax expense of $8,009,000 in 2009, a decrease in income tax expense of $8,197,000.

2009 Compared to 2008. Income tax expense (benefit) was $8,009,000 in 2009 compared to ($16,847,000) in 2008, a decrease of $24,856,000. The decrease was primarily due to the recording of a valuation allowance on the Corporation’s deferred tax asset in the amount of $25,851,000. As noted in the discussion of the provision for loan losses, two major automobile manufacturers filed for bankruptcy during 2009. The negative impact of these filings led to a significant increase in non-performing assets and subsequent losses recognized on these assets. These losses led management to evaluate the ability to utilize the deferred tax asset in a reasonable period. Management determined that utilizing the deferred tax asset was not verifiable and accordingly has fully reserved this asset. This non-cash charge eliminates the Corporation’s deferred tax asset in its entirety. Until this valuation allowance is retired, the Corporation will not record income tax expense or benefit. Refer to Note I of the Notes to Consolidated Financial Statements for additional information.

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Comparison of Financial Condition at December 31, 2010 and December 31, 2009

Assets. Total assets at December 31, 2010 were $915,684,000 compared to $986,486,000 at December 31, 2009, a decrease of $70,802,000 or 7%. The decrease was primarily due to a decrease in net loans which is partially offset by increases in interest bearing deposits with banks and securities available for sale.

Securities Available for Sale. Total securities available for sale, at December 31, 2010 were $54,811,000 compared to $46,300,000 at December 31, 2009, an increase of $8,511,000 or 18%. The increase was primarily due to the deployment of available funds into securities available for sale in order to improve the Corporation’s yield on available funds. The Bank’s portfolio of securities available for sale has an amortized cost of $55.8 million and a fair value of $54.8 million. The securities at December 31, 2010 are as follows (in thousands):

	December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Government sponsored enterprises (GSE) — mortgage backed securities	$	55,586	$	1		($1,026	)	$	54,561
Other securities		250		—		—			250
Totals	$	55,836	$	1		($1,026	)	$	54,811

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
US Government sponsored agency securities	$	12,759	$	20		($30	)	$	12,749
Corporate bonds		33,308		—		(197	)		33,111
Government sponsored enterprises (GSE) — mortgage backed securities		101		3		—			104
Other securities		336		—		—			336
Totals	$	46,504	$	3		($227	)	$	46,300

A balance and yield schedule of the securities portfolio at December 31, 2010 is listed below (in thousands):

							Weighted
			Amortized		Fair		Average
	Par Value		Cost		Value		Yield
GSE — mortgage backed securities	$	53,396	$	55,586	$	54,561		2.53	%
Other securities		250		250		250		4.50	%
Totals	$	53,646	$	55,836	$	54,811		2.54	%

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The entire available for sale portfolio matures in 1 to 5 years. The entire portfolio has a net unrealized loss of $1,025,000. The unrealized loss is reflected by an adjustment to stockholders’ equity.

Loans. Total loans at December 31, 2010 were $735,851,000 compared to $833,136,000 at December 31, 2009, a decrease of $97,285,000 or 12%. The components of the outstanding balances for the years ended December 31, are as follows (in thousands):

	2010		2009		2008		2007		2006
Consumer loans	$	25,871	$	29,386	$	31,864	$	35,833	$	32,282
Commercial, financial, & other		121,015		144,630		164,740		174,958		124,523
Land development loans — residential		21,975		38,472		54,323		63,639		65,460
Land development loans — non residential		9,970		11,644		16,094		10,156		14,633
Commercial construction loans — residential		10,613		13,287		17,296		33,768		30,988
Commercial construction loans — non residential		12,568		20,061		25,322		40,187		38,662
Commercial real estate mortgages		495,501		531,156		571,204		539,306		401,924
Residential real estate mortgages		38,338		44,500		52,426		54,237		47,948
	$	735,851	$	833,136	$	933,269	$	952,084	$	756,420

The decrease in loans during 2010 was primarily due to net charge-offs of $23,132,000, the transfer of loans to other real estate in the amount of $16,231,000 and normal loan amortization.

The Bank expects the amount of total loans to remain relatively constant during 2011. The balances in land development loans and commercial construction loans are expected to decline. The balances in residential real estate mortgages, commercial real estate mortgages and other commercial loans are expected to increase. Management has implemented a strategy to decrease its exposure to land development and commercial construction loans. The extension of credit on these types of collateral is very limited or prohibited. Management will continue to focus on management of the existing loan portfolio and decreasing the level of non-performing loans in the portfolio. The Bank’s portfolio of consumer and residential loans will remain relatively stable as the repayment streams of these types of loans will be replaced by the active origination of these types of loans.

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A maturity and repricing schedule of the loan portfolio, which distributes fixed rate loans by maturity date and adjustable rate loans by repricing date at December 31, 2010 is listed below (in thousands):

	Within		Three to		One to		After
	Three		Twelve		Five		Five
	Months		Months		Years		Years		Total
Consumer loans	$	17,336	$	2,390	$	4,590	$	21	$	24,337
Commercial, financial & other		45,783		28,014		31,802		1,728		107,327
Land development loans — residential		3,091		2,924		4,056		—		10,071
Land development loans — non-residential		625		4,932		2,680		—		8,237
Construction loans — residential		732		2,119		—		—		2,851
Construction loans — non-residential		11,544		—		707		—		12,251
Commercial real estate mortgages		62,407		87,011		297,560		20,065		467,043
Residential real estate mortgages		1,007		19,531		8,934		7,699		37,171
	$	142,525	$	146,921	$	350,329	$	29,513		669,288
Non-accrual loans										66,563
Total loans									$	735,851
Loan at fixed interest rates	$	65,330	$	125,982	$	340,731	$	28,498	$	560,541
Loan at variable interest rates		77,195		20,939		9,598		1,015		108,747
	$	142,525	$	146,921	$	350,329	$	29,513		669,288
Non-accrual loans										66,563
Total loans									$	735,851

Variable rate loans comprise 15% of the loan portfolio. The interest rates of these loans change or reprice at specific intervals according to certain market indices. The remainder of the loan portfolio has a fixed interest rate until maturity.

The Bank automatically places any loan that has been partially charged-off and most consumer loan borrowers in bankruptcy proceedings on non-accrual. The Bank on a discretionary basis places loans on non-accrual when a borrower is in bankruptcy where adequate security cannot be demonstrated and the borrower ceases paying interest. All other loans are typically placed on non-accrual after the borrower is ninety days or more past due unless collection is expected within 60 days. Refer to Note D of the Notes to the Consolidated Financial Statements for additional information.

The following is a summary of non-performing and problem loans (in thousands):

	2010		2009		2008
Troubled debt restructuring and still accruing		48,527		59,420		17,765
Over 90 days past due and still accruing		—		—		450
Non-accrual loans		66,563		49,341		51,708
Total non performing loans	$	115,090	$	108,761	$	69,923

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Non-performing loans included troubled debt restructuring of $48,527,000 at December 31, 2010. These loans were qualified as troubled debt restructuring due primarily to changes from principal and interest payments to interest only payments, restructuring of collateral, or renewals of interest reserves when current loan to value ratios were outside of our normal loan policy. Accordingly, these loans are deemed impaired upon restructuring. Any necessary valuation allowance is set aside for these loans in the allowance for loan losses. At December 31, 2010, specific allocations for loans classified as troubled debt restructuring amounted to $6,310,000. At December 31, 2010, all loans classified as troubled debt restructuring were performing according to their restructured terms. At December 31, 2009, 3 loans classified as troubled debt restructuring amounting to $2,705,000 were not performing according to their restructured terms.

During 2010, non-accrual loans increased to $66,563,000 at December 31, 2010 from $49,341,000 at December 31, 2009. Non-accrual loans at December 31, 2010 that were current according to the modified terms of their loan agreement were $16,073,000 compared to $4,536,000 at December 31, 2009. Non-accrual loans at December 31, 2010 that were not current according to the modified terms of their loan agreement were $50,490,000 compared to $44,805,000 at December 31, 2009. The Bank is required to record charge-offs on any substandard collateral dependent loan to reduce the loan balance to its fair value. Previously, the Bank would include any collateral shortfall on substandard collateral dependent loans in the allowance for loan losses.

Non-performing loans at December 31, 2010 that were not current according to the modified terms of their loan agreement were $50,490,000 compared to $47,510,000 at December 31, 2009.

The increase in non-accrual loans during the year ended December 31, 2010 is primarily due to the downgrading of 110 loans with a balance of $48,140,000 to non-accrual status. An impairment analysis was completed on these loans and any loans with a collateral shortfall were charged down to the fair value of the collateral less estimated selling costs. The impact of the the increase in the amount of non-accruals loans on the allowance for loan loss was largely offset by the decline in the allocation factors identified for these types of loans. The fair value of the collateral is determined primarily through the utilization of prior appraisals, which are discounted according to age of the appraisal and the utilization of supplemental current market information. Charge-offs in the amount of $23,132,000 were recorded on these loans by the Corporation during 2010. We continue to work to collect these loans as they are all secured by real estate which we believe will have significant value, even in liquidation. The distribution of loans downgraded to non-accrual status during 2010 (dollars, in thousands) is as follows:

	Number of
	Loans		Balance
Consumer loans		15	$	1,497
Commercial, financial, & other		30		8,912
Commercial real estate construction — residential property		10		9,613
Commercial real estate construction — non-residential property		—		—
Land development loans — residential property		4		5,391
Land development loans — non-residential property		1		317
Commercial real estate mortgages		41		21,721
Residential real estate mortgages		9		689
Total loans downgraded to non-accrual status		110	$	48,140

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The increase in non-performing loans is primarily related to the Bank’s commercial and commercial real estate loans as well as loans financing the development and construction of residential property. The decline of general economic conditions in Southeastern Michigan has negatively impacted many or the Bank’s commercial borrowers. The collapse of the value of the residential real estate market in Southeastern Michigan has negatively impacted the underlying collateral value of our portfolio of land development and construction loans. At the time of origination, these loans were well-collateralized loans with well-established real estate developers and home builders. However, the underlying value of our collateral related to these types of loans has declined as the demand for new residential construction in Southeastern Michigan has diminished dramatically and the adverse impact on our loan portfolio is expected to continue. The distribution of non-accrual loans by loan type (dollars, in thousands) is as follows at December 31, 2010:

	Number of
	Loans		Balance
Consumer loans		18	$	1,533
Commercial, financial, & other		42		13,688
Commercial real estate construction — residential property		16		11,904
Commercial real estate construction — non-residential property		2		1,734
Land development loans — residential property		8		7,763
Land development loans — non-residential property		1		317
Commercial real estate mortgages		45		28,458
Residential real estate mortgages		14		1,166
Total non-accrual loans		146	$	66,563

Allowance for Loan Losses. The allowance for loan losses at December 31, 2010 was $27,971,000 compared to $35,125,000 at December 31, 2009, a decrease of $7,154,000 or 20%. The decrease in the allowance for loan loss is primarily due to the recording of $4,058,000 in specific allowances at December 31, 2009 for charge-offs that were recorded during 2010, the decline of net charge-offs and shrinkage in the loan portfolio during 2010 and to the leveling off in the rate of deterioration of non-performing loans during 2010. While the provision for loan losses during 2010 was due primarily to net charge-offs, the provision for loan losses during 2009 was due in large part to the increase in specific allowances and an increase in the allocation factors to those loans not specifically analyzed. During 2010, the Bank recorded net charge-offs of $23,132,000 compared to $30,190,000 during 2009. Charge-offs of $4,058,000 were recorded during 2010 on loans with specific allocations assigned at December 31, 2009 because these charge-offs were based on information that was received and subsequently confirmed in 2010 but where deterioration of the credit related to events that occurred in 2009. The provision for these charge-offs was recorded during the fourth quarter of 2009 because the deterioration of these credit occurred during 2009 even though the evidence of this deterioration was not received until 2010. Additionally, charge-offs of $3,667,000 were due to a change in the methodology relating to the valuation of residential building lots. This change was related to the evaluation of appraisals of this type of collateral, where the appraised value of developed residential building lots was required to be discounted based on the absorption factor associated with the collateral. The fact that these charge-offs, which amount to $7,725,000 during 2010 were not the result of deterioration of these credits during 2010 was considered in management’s analysis of the allowance for loan losses at December 31, 2010.

These charge-offs are primarily related to the Bank’s commercial and commercial real estate loans as well as loans financing the development and construction of residential property. The decline of general economic conditions in Southeastern Michigan as previously discussed has negatively impacted many of the Bank’s commercial borrowers. The collapse of the value of the residential real estate market in Southeastern Michigan has negatively impacted the underlying collateral value of our portfolio of land development and construction loans. This downturn in the residential real estate market is expected to continue and management expects the decline in the market value of our collateral to continue. The allowance for loan losses was based upon management’s assessment of relevant factors, including specific borrower situations and estimated collateral values, loan growth, types and amounts of non-performing loans, historical and anticipated loss experience on such types of loans, and current economic conditions. Transactions in the allowance for loan losses for the years ended December 31, are as follows (in thousands):

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	2010			2009			2008			2007			2006
Balance, beginning of year	$	35,125		$	14,452		$	10,617		$	7,775		$	6,808
Allowance on loans acquired		—			—			—			1,704			—
Charge-offs:
Consumer loans		1,019			1,154			318			226			24
Commercial, financial & other		6,385			4,878			4,304			914			139
Commercial construction loans — residential		1,887			9,441			1,635			1,291			—
Commercial construction loans — non-residential		36			4,364			192			—			—
Land development loans — residential		10,046			1,471			1,777			1,665			—
Land development loans — non-residential		300			1,981			—			—			—
Commercial real estate mortgages		4,455			6,919			2,446			662			36
Residential loans		276			701			296			320			38
Recoveries:
Consumer loans		203			176			19			25			17
Commercial, financial & other		330			339			117			224			218
Commercial construction loans — residential		1			—			—			—			—
Commercial construction loans — non-residential		—			—			3			6			—
Land development loans — residential		43			107			33			—			—
Commercial real estate mortgages		622			61			21			140			26
Residential loans		73			36			4			—			—
Net charge-offs		23,132			30,190			10,771			4,683			(24	)
Additions charged to operations		15,978			50,863			14,606			5,821			943
Balance at end of period	$	27,971		$	35,125		$	14,452		$	10,617		$	7,775
Allowance to total loans		3.80	%		4.22	%		1.55	%		1.12	%		1.03	%
Net Charge-offs to average loans		2.94	%		3.41	%		1.14	%		0.50	%		0.00	%

The increase in the allowance for loan losses was based upon management’s assessment of relevant factors, including types and amounts of non-performing loans, historical loss experience for the Bank and for other banks in the peer group on such types of loans, the relevant change in the size and mix of the Bank’s loan portfolio and expected impact of current economic conditions on borrowers’ ability to repay their loans.

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The allocation of the allowance for loan losses as of December 31, 2010 is as follows (in thousands):

	Total
	2010		2009		2008		2007		2006
Consumer loans	$	1,115	$	819	$	141	$	453	$	470
Commercial, financial, & other		6,571		6,498		1,298		1,404		1,462
Land development loans — residential		1,757		5,909		4,496		2,215		1,228
Land development loans — non-residential		972		807		2,086		117		146
Commercial construction loans — residential		2,467		2,003		1,739		714		366
Commercial construction loans — non-residential		2,674		3,450		1,151		553		434
Commercial real estate mortgages		12,102		15,286		3,391		4,671		3,270
Residential real estate mortgages		313		353		150		490		398
	$	27,971	$	35,125	$	14,452	$	10,617	$	7,775

	Percent of allowance for loan losses in each category
	to total allowance for loan losses
	2010			2009			2008			2007			2006
Consumer loans		3.99	%		2.33	%		0.98	%		4.27	%		6.05	%
Commercial, financial, & other		23.49	%		18.50	%		8.98	%		13.22	%		18.80	%
Land development loans — residential		6.28	%		16.82	%		31.11	%		20.86	%		15.80	%
Land development loans — non-residential		3.48	%		2.30	%		14.43	%		1.10	%		1.88	%
Commercial construction loans — residential		8.82	%		5.70	%		12.03	%		6.73	%		4.71	%
Commercial construction loans — non-residential		9.56	%		9.82	%		7.96	%		5.21	%		5.58	%
Commercial real estate mortgages		43.27	%		43.52	%		23.46	%		44.00	%		42.06	%
Residential real estate mortgages		1.12	%		1.00	%		1.04	%		4.62	%		5.12	%
		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%

	Percent of loans in each category to total loans
	2010			2009			2008			2007			2006
Consumer loans		3.52	%		3.53	%		3.41	%		3.76	%		4.27	%
Commercial, financial, & other		16.45	%		17.36	%		17.65	%		18.38	%		16.46	%
Land development loans — residential		2.99	%		4.62	%		5.82	%		6.68	%		8.65	%
Land development loans — non-residential		1.35	%		1.40	%		1.72	%		1.07	%		1.93	%
Commercial construction loans — residential		1.44	%		1.59	%		1.85	%		3.55	%		4.10	%
Commercial construction loans — non-residential		1.71	%		2.41	%		2.71	%		4.22	%		5.11	%
Commercial real estate mortgages		67.34	%		63.75	%		61.20	%		56.64	%		53.14	%
Residential real estate mortgages		5.21	%		5.34	%		5.62	%		5.70	%		6.34	%
		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%

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Premises and Equipment. Premises and equipment at December 31, 2010 were $19,195,000 compared to $20,194,000 at December 31, 2009, a decrease of $999,000 or 5%. The decrease was primarily due to the depreciation of the Bank’s fixed assets.

Real Estate Owned. Real estate owned at December 31, 2010 was $21,502,000, compared to $23,435,000 at December 31, 2009, a decrease of $1,933,000 or 8%. Prior to being transferred to real estate owned, a valuation of the collateral is completed. Depending on the scope of the collateral, new appraisals may be performed as part of this process. If a new appraisal is not deemed to be necessary, valuations are completed internally by lending professionals based on prior appraisals and other current market information. Prior appraisals are discounted based on the age of the appraisal. All valuations are subsequently reviewed by management. The net realizable value is determined by deducting the estimated selling costs from the valuation. Any charge-offs are recorded prior to the transfer to real estate owned. The fair value of these properties is reviewed based on changing market conditions and subsequent valuations are obtained at least annually. Real estate owned at December 31, 2010 is comprised of real estate owned in the amount of $19,099,000 and real estate in redemption of $2,403,000. Real estate owned at December 31, 2010 is comprised of 68 properties with an aggregate appraised value of $24,332,000. The Bank expects real estate owned to increase during 2011 as non-performing loans are transferred to other real estate. During 2010, the Corporation recorded loss on the sale of real estate of $476,000 and write-downs in the value of real estate in the amount of $6,338,000 to address the decline in property values after the Bank took ownership of real estate. A summary by type of the real estate owned by the Bank is listed below (amounts, in thousands):

	Number of
Property Type	Properties		Amount
Single Family Homes		22	$	1,815
Condominium		2		1,297
Vacant Land		24		10,368
Commercial		12		3,761
Office/Retail		8		4,261
Total		68	$	21,502

Accrued Interest Receivable. Accrued interest receivable at December 31, 2010 was $3,286,000 compared to $3,562,000 at December 31, 2009, a decrease of $276,000 or 8%. The decrease was primarily due to the decline in loans during 2010.

Other Assets. Other assets at December 31, 2010 were $11,277,000 compared to $12,660,000 at December 31, 2009, a decrease of $1,383,000 or 11%. The decrease was largely due to the decrease in the federal income tax receivable.

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Deposits. Total deposits at December 31, 2010 were $812,101,000 compared to $867,955,000 at December 31, 2009, a decrease of $55,854,000 or 6%. The components of the outstanding balances and percentage increase in deposits from 2009 to 2010 are as follows (in thousands):

	December 31, 2010					December 31, 2009					Percent
	Balance		Percent			Balance		Percent			Increase/(Decrease)
Non-interest bearing:
Demand	$	88,267		10.87	%	$	83,873		9.66	%		5.24	%
Interest bearing:
Checking	$	73,107		9.00	%	$	83,087		9.57	%		(12.01	%)
Money market		53,499		6.59	%		52,412		6.04	%		2.07	%
Savings		41,214		5.07	%		43,343		4.99	%		(4.91	%)
Time, under $100,000		291,478		35.89	%		301,829		34.77	%		(3.43	%)
Time, $100,000 and over		264,536		32.57	%		303,411		34.96	%		(12.81	%)
		723,834		89.13	%		784,082		90.34	%		(7.68	%)
	$	812,101		100.00	%	$	867,955		100.00	%		(6.44	%)

The decrease in deposits was primarily due in the level of earnings assets during 2010. The Bank completed an annual customer appreciation promotion in April 2010 as well as two time deposit promotions during 2010. The customer appreciation promotion is offered annually to enhance the Bank’s name awareness.

The Bank’s primary source of funds are retail deposits. The Bank is currently limited in the interest rates that may be offered on deposit account. The interest rates that the Bank offers on deposit products cannot exceed the interest rate caps that are published by the FDIC on a weekly basis. Additionally, the Bank is limited in the utilization of brokered deposits.

The Bank also utilizes public funds in the form of time deposits, $100,000 and over and brokered deposits as secondary sources of funds. In order to coordinate and manage these efforts, the Bank has also designated a public funds officer. Public funds at December 31, 2010 were $6.4 million compared to $7.1 million at December 31, 2009. There were 24 and 27 entities with public funds on deposit at December 31, 2010 and 2009, respectively. The average term of time deposits invested with the Bank by public units was 345 and 240 days at December 31, 2010 and 2009, respectively. There were no brokered deposits at December 31, 2010. Brokered deposits were $17.5 million with an average rate of 1.05% at December 31, 2009.

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Final maturities of total time deposits are as follows (in thousands):

	$100,000 and over		Less than $100,000		Total
2011	$	198,481	$	219,980	$	418,461
2012		59,846		62,360		122,206
2013		4,751		5,901		10,652
2014		454		826		1,280
2015 and thereafter		1,004		2,411		3,415
Totals	$	264,536	$	291,478	$	556,014

The following is a summary of the distribution and weighted average interest rate of deposits at December 31, 2010 and 2009 (in thousands):

	2010					2009
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
Non-interest bearing:
Demand	$	88,267		—		$	83,873		—
Interest bearing:
Checking	$	73,107		0.21	%	$	83,087		0.47	%
Money market		53,499		0.23	%		52,412		0.64	%
Savings		41,214		0.21	%		43,343		0.30	%
Time, under $100,000		291,478		1.60	%		301,829		2.71	%
Time, $100,000 and over		264,536		1.58	%		303,411		2.59	%
		723,834					784,082
	$	812,101				$	867,955

The Bank continues a strategy of shifting maturing time deposits into other savings products.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances at December 31, 2010 were $63,716,000 compared to $63,855,000 at December 31, 2009, a decrease of $139,000. Management expects the amount of advances to remain relatively unchanged during 2011

In 1999, the Bank joined the Federal Home Loan Bank of Indianapolis. Membership in the Federal Home Loan Bank provides the Bank with a stable source of additional funding at a reasonable cost. Federal Home Loan Bank advances are collateralized with a blanket collateral agreement with the Federal Home Loan Bank and investment securities, available for sale. Please refer to Note G of the Notes to the Consolidated Financial Statements for additional information.

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Accrued Interest Payable. Accrued interest payable at December 31, 2010 was $1,056,000 compared to $1,046,000 at December 31, 2009, an increase of $10,000 or 1%. The increase was primarily due to deferred interest payments on subordinated debentures partially offset by the decline in interest paid on deposits.

Other Liabilities. Other liabilities were $1,852,000 at December 31, 2010 compared to $1,685,000 at December 31, 2009, an increase of $167,000 or 10%. The increase was primarily due to an increase in accrued expenses.

Subordinated Debentures. On December 19, 2002, the Corporation issued $10,000,000 of floating rate obligated mandatory redeemable securities through a special purpose entity as part of a pooled offering. The securities have a term of thirty years. The Corporation may redeem the securities after five years at face value. They are considered to be Tier 1 capital for regulatory capital purposes. Please refer to Note G of the Notes to the Consolidated Financial Statements for additional information.

Capital

Stockholders’ equity at December 31, 2010 was $26,959,000 compared to $41,945,000 as of December 31, 2009, a decrease of $14,986,000 or 36%. The decrease was primarily due to the net loss during 2010.

Applicable federal prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2010 and 2009, the Bank and Corporation were undercapitalized. Please refer to Note M of the Notes to the Consolidated Financial Statements for additional information.

Undercapitalized institutions are subject to close monitoring by their federal bank regulator, restrictions on asset growth and expansion, and other significantly greater regulatory restrictions than apply to well-capitalized or adequately capitalized institutions.

On February 12, 2010, the Bank entered into a Consent Order that is effective February 22, 2010 with the FDIC and OFIR, its principal regulators, subsequent to a safety and soundness exam which outlined a variety of requirements to fulfill within certain timelines.

The Bank submitted a Capital Restoration Plan (“CRP”) to the FDIC and OFIR on December 15, 2009, due to our undercapitalized status based on our September 30, 2009 regulatory report of condition and income. This CRP was rejected because capital has not been successfully raised within the 120 days of the issuance of the Consent Order. An amended CRP was submitted on May 24, 2010. This CRP was also rejected because capital has not been successfully raised. The CRP addresses, among other things, the steps management will take to cause our capital levels to return to the minimum level to be adequately capitalized.

Management is considering various sources of capital and is considering a variety of options to accomplish this requirement during 2011.

Market Risk Analysis

The Corporation’s primary market risk exposure is interest rate risk and, to a lesser degree, liquidity risk. All of our transactions are denominated in U. S. dollars with no specific foreign exchange exposure. The Corporation has no agricultural-related loan assets and therefore has no significant exposure to changes in commodity prices. Any impact that changes in foreign exchange rates or commodity prices would have on interest rates are assumed to be insignificant. Interest rate risk is the exposure of our financial condition to adverse movements in interest rates. We derive our income primarily from the excess of interest collected on our interest-earning assets over the interest paid on our interest-bearing liabilities. The rates of interest earned on the assets and owed on our liabilities of the Corporation generally are established contractually for a period of time. Since market interest rates change over time, we are exposed to lower profitability if we cannot adapt to interest rate changes. Accepting interest rate risk can be an important source of profitability and shareholder value; however, excessive levels of interest rate risk could pose a significant threat to our earnings and capital base. Accordingly, effective risk management that maintains interest rate risk at prudent levels is essential to our safety and soundness.

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Interest Rate Sensitivity Analysis. Evaluating the exposure to changes in interest rates includes assessing both the adequacy of the process used to control interest rate risk and the quantitative level of exposure. The Corporation’s interest rate risk management process seeks to ensure that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest rate risk at prudent levels with consistency and continuity. In evaluating the quantitative level of interest rate risk, we assess the existing and potential future effects of changes in interest rates on our financial position, including capital adequacy, earnings, liquidity and asset quality.

The Corporation primarily uses two interest rate risk measurement techniques. The first, which is commonly referred to as GAP analysis, measures the difference between the dollars amounts of interest-sensitive assets and liabilities that will be repriced or mature during a given time period. The Corporation has sought to manage its exposure to changes in interest rates by matching more closely the effective maturities or repricing characteristics of the Corporation’s interest earning assets and interest bearing liabilities. The matching of the assets and liabilities may be analyzed by examining the extent to which the assets and liabilities are interest rate sensitive and by monitoring the expected effects of interest rate changes on net interest income. An asset or liability is interest rate sensitive within a specific time period if it will mature or reprice within that time period. If the Corporation’s assets mature or reprice more quickly or to a greater extent than its liabilities, the Corporation’s net portfolio value and net interest income would tend to increase during periods of rising interest rates but decrease during periods of falling interest rates. If the Corporation’s assets mature or reprice more slowly or to a lesser extent than its liabilities, its net portfolio value and net interest income would tend to decrease during periods of rising interest rates but increase during periods of falling interest rates.

Different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, and thus changes in interest rates may affect net interest income positively or negatively even if an institution were perfectly matched in each maturity category. Additionally, the gap analysis does not consider the many factors as banking interest rates move. While the interest rate sensitivity gap is a useful measurement and contributes toward effective asset and liability management, it is difficult to predict the effect of changing interest rates solely on that measure, without accounting for alterations in the maturity or repricing characteristics of the balance sheet that occur during changes in market interest rates. During periods of rising interest rates, the Corporation’s assets tend to have prepayments that are slower than expected and would tend to increase the negative gap position. Conversely, during a period of falling interest rates, the Corporation’s assets would tend to prepay faster than originally expected thus decreasing the negative gap position. In addition, some of the Corporation’s assets, such as adjustable rate mortgages, have caps on the amount by which their interest rates can change in any single period, and therefore may not reprice as quickly as liabilities in the same maturity category.

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The following table sets forth the amounts of interest earning assets and interest bearing liabilities outstanding at December 31, 2010 which are expected to mature or reprice in each of the time periods shown below.

	Interest Rate Sensitivity Period
	1-90			91-365			1-5			Over
(In thousands)	Days			Days			Years			5 Years		Total
Earning assets
Federal funds sold	$	55		$	—		$	—		$	—	$	55
Interest bearing deposits with Banks		48,621			9,044			29,410			—		87,075
Mortgage loans held for sale		353			—			—			—		353
Securities available for sale		10			25			—			54,776		54,811
Federal Home Loan Bank stock		3,605			—			—			—		3,605
Total loans, net of non-accrual		144,359			145,291			350,519			29,119		669,288
Total earning assets		197,003			154,360			379,929			83,895		815,187
Interest bearing liabilities
Total interest bearing deposits		285,716			300,566			137,290			263		723,835
Federal Home Loan Bank advances		53,500			—			10,216			—		63,716
Other Borrowings		—			—			—			—		—
Subordinated debentures		10,000			—			—			—		10,000
Total interest bearing liabilities		349,216			300,566			147,506			263		797,551
Net asset (liability) funding gap		(152,213	)		(146,206	)		232,423			83,632	$	17,636
Cumulative net asset (liability) funding gap		($152,213	)		($298,419	)		($65,996	)	$	17,636

The second interest rate measurement used is commonly referred to as net income simulation analysis. We believe that this methodology provides a more accurate measurement of interest rate risk than GAP analysis. The simulation model assesses the directions and magnitude of variations in net interest income resulting from potential changes in market interest rates. This model would normally display the impact of identical movements in either direction. However, the potential downward movement in the prime interest rate is limited due to the current level of that interest rate. The maximum movement of that interest rate would be 100 basis points. Key assumptions in the model include prepayment speeds on various loan and investment assets; cash flows and maturities of interest-sensitive assets and liabilities; the variability of interest rate sensitivity of assets and liabilities; and changes in market conditions impacting loan and deposit volume and pricing. These assumption are inherently uncertain, subject to fluctuation and revision in a dynamic environment; therefore, the model cannot precisely estimate net interest income or exactly predict the impact of higher or lower interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes, changes in market conditions and our strategies, among other factors.

We conducted an interest rate simulation as of December 31, 2010, that assumed a gradual change in market rates occurred over the following twelve months. The following table reflects the suggested impact on net interest income over the next twelve months (dollars, in thousands):

	Change in Net Interest Income
Interest Rate Change	Amount		Percent
+ 500 Basis Points	$	6,228		18.66	%
+ 400 Basis Points		5,048		15.13	%
+ 300 Basis Points		3,836		11.49	%
+ 200 Basis Points		2,751		8.24	%
+ 100 Basis Points		1,476		4.42	%
- 100 Basis Points		0		0.00	%

81

Liquidity. Liquidity refers to readily available funds to meet the needs of borrowers and depositors. Levels of liquidity are closely monitored in conjunction with loan funding requirements and deposit outflows. Adequate liquidity protects institutions from raising funds under duress at excessive expense and provides a necessary cushion for occasional unpredictable aberrations in demand. While adequate liquidity is imperative, excessive liquidity in lower yielding cash investments or other easily marketable assets reduces potential interest income. Thus, an appropriate balance must be maintained to protect the institution and, at the same time, prudently maximize income opportunities. Sources of liquidity from both assets and liabilities include federal funds sold, securities available for sale, loan repayments, core deposits, Federal Home Loan Bank advances and a federal funds purchase credit facility.

The Corporation’s primary source of liquidity is its deposit base, raised through its retail branch system along with its unpledged securities, available for sale and overnight deposits with other banks. The Bank also has other wholesale sources of funds including brokered deposits, advances from the Federal Home Loan Bank of Indianapolis and borrowings from the Federal Reserve Bank.

Management evaluates the liquidity position of the Bank on a daily basis and makes appropriate decisions as to the utilizations of the Bank’s sources of funds and the deployment of excess cash. The Bank’s Deposit Pricing Committee is a sub-committee of the Bank’s Asset and Liability Committee and meets at least weekly. This Committee is comprised of the Chief Financial Officer, Controller, Head of Retail and Chief Deposit Officer. This Committee reviews the Bank’s available cash, available sources of funds, projected deposit maturity schedule and interest rates. This committee makes and enacts decisions regarding all aspects of the Bank’s deposits including the level of interest rates and was formed in order to react more quickly to the rapidly changing liquidity needs of the Bank. Regulatory interest rate restrictions are monitored weekly by the Chief Deposit Officer and any appropriate adjustments are implemented promptly.

Certain credit markets that the Corporation participated in previously and utilized as a primary source of funds became significantly disrupted and volatile during 2009 and are no longer relied upon by management. As a result, the Bank has increased its level of deposits and investment securities that can be pledged as collateral.

The following tables provide information about the Bank’s contractual obligations and commitments at December 31, 2010 (in thousands):

Contractual Obligations

	Payments Due By Period
	Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years		Total
Certificates of deposit	$	418,461	$	132,858	$	4,433	$	262	$	556,014
Long-term borrowings		53,548		10,168		—		—		63,716
Lease commitments		626		439		201		—		1,266
Subordinated debentures		—		—		—		10,000		10,000
Totals	$	472,635	$	143,465	$	4,634	$	10,262	$	630,996

Unused Loan Commitments and Letters of Credit

	Amount Of Commitment Expiration Per Period
	Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years		Total
Unused loan commitments	$	25,667	$	8,084	$	4,204	$	7,435	$	45,390
Standby letters of credit		548		—		—		—		548
Totals	$	26,215	$	8,084	$	4,204	$	7,435	$	45,938

82

Impact of Inflation and Changing Prices

The Consolidated Financial Statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of the Corporation’s operations. Unlike most industrial companies, virtually all the assets and liabilities of the Corporation are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services.

Technology

The Corporation, operating as an independent, local community bank, strives to make available to its employees and customers a high level of technology as a way to be competitive with other larger financial institutions.

The Bank has implemented the following technologies:

ATM Banking
In Touch Voice Response Telephone Banking
Netteller Internet Banking
Netteller Cash Management
Vertex Teller Automation
Teller Item Capture
Streamline Platform Automation
Netteller Bill Pay
Remote Deposit Capture
Check 21
Electronic Cash Letter Delivery
Electronic Statements Interactive
DirectLine OFX (Open Financial Exchange)
ATM/Debit Card On-Line Real Time Processing
Remote Deposit Lockbox Processing
Mutual Fund Sweeps
Netteller Positive Pay
Overdraft Protection
Yellow Hammer Fraud Protection
Re-launch Website with updated features and appearance

There are no plans to implement additional technologies in 2011.

83

DEARBORN BANCORP, INC.

DIRECTORS AND OFFICERS

DIRECTORS

MARGARET I. CAMPBELL
Retired, Manufacturing

JOHN E. DEMMER
Chairman of the Board and Chief Executive Officer
Jack Demmer Ford, Inc.;
Jack Demmer Lincoln, Inc. and
Jack Demmer Leasing

WILLIAM J. DEMMER
President
Jack Demmer Ford, Inc and
Jack Demmer Lincoln, Inc.
Jack Demmer Leasing

MICHAEL V. DORIAN, JR.
President
Mike Dorian Ford

DAVID HIMICK
Retired, Industrial Supply

DONALD G. KARCHER
Insurance Underwriter
Karcher Agency, Inc.

BRADLEY F. KELLER
Retired, Management

JEFFREY G. LONGSTRETH
Retired, Real Estate Broker/Owner
Century 21 — Curran & Christie

MICHAEL J. ROSS
President and Chief Executive Officer
Dearborn Bancorp, Inc. and Fidelity Bank

DR. ROBERT C. SCHWYN
Physician
Oaklane Medical

OFFICERS

JOHN E. DEMMER
Chairman of the Board

MICHAEL J. ROSS
President and Chief Executive Officer

JEFFREY L. KARAFA
Vice President, Treasurer and Secretary

84

FIDELITY BANK

DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS

MARGARET I. CAMPBELL
Retired, Manufacturing

JOHN E. DEMMER
Chairman of the Board
Jack Demmer Ford, Inc.;
Jack Demmer Lincoln Inc. and
Jack Demmer Leasing, Inc.

WILLIAM J. DEMMER
President
Jack Demmer Ford, Inc. and
Jack Demmer Lincoln, Inc. and
Jack Demmer Leasing, Inc.

MICHAEL V. DORIAN, JR.
President
Mike Dorian Ford

DAVID HIMICK
Retired, Industrial Supply

DONALD G. KARCHER
Insurance Underwriter
Karcher Agency, Inc.

BRADLEY F. KELLER
Retired, Management

JEFFREY G. LONGSTRETH
Retired, Real Estate Broker/Owner
Century 21 — Curran & Christie

MICHAEL J. ROSS
President and Chief Executive Officer
Fidelity Bank

DR. ROBERT C. SCHWYN
Physician
Oaklane Medical

EXECUTIVE OFFICERS

MICHAEL J. ROSS
President
Chief Executive Officer

JEFFREY L. KARAFA
Senior Vice President
CFO & Secretary

WARREN R. MUSSON
Senior Vice President
Head of Lending

JEFFREY J. WOLBER
Senior Vice President
Head of Retail

85

FIDELITY BANK
OFFICERS

FIRST VICE PRESIDENT

TERRENCE R. O’NEIL
First Vice President — Credit

VICE PRESIDENTS

GARY W. AMES JR.
Vice President & Controller

DEBBY M. ASTERIOU
Vice President — Treasury

THOMAS E. BELL
Vice President — Commercial Loans

DANIEL P. BROPHY
Vice President — Commercial Loans

KATHERINE T. BROWN
Vice President — Commercial Loans

DANIEL A. BZURA
Vice President — Branch Operations

PATRICIA CARMONA
Vice President — Accounting

RITA L. CAVATAIO
Vice President — Commercial Loans

GEORGE J. DEMOU
Vice President — Commercial Loans

FRANK J. FILECCIA
Vice President — Business Development

CYNTHIA A. FRAGA
Vice President — Commercial Loans

LEE E. FREELAND
Vice President — Sales Administration

ROBERT F. GRANT
Vice President — Commercial Loans

JIHAD A. HACHEM
Vice President — Commercial Loans

ALLEN E. HEIMER
Vice President — Commercial Loans

F. GLEN ISLAMI
Vice President — Compliance

DEBRA S. LEONARD
Vice President — Product Delivery

TERRENCE P. LEVINS
Vice President — Commercial Loans

GAYLE S. McGREGOR
Vice President — Commercial Loans

WYNN C. MILLER
Vice President — Internal Audit

REGAN J. MORIN
Vice President — Commercial Loans

DAN K. MORRIS
Vice President — Commercial Loans

MARK M. PACITTO
Vice President — Commercial Loans

STEVEN M. PELTZ
Vice President — Commercial Loans

ELIZABETH A. PIZZO
Vice President — Human Resources

JAMES T. POWERS
Vice President — Product Support

DENNIS C. ROCHELEAU
Vice President & Cashier

GARY P. RUSCH
Vice President — Commercial Loans

GREGORY M. SCHNEIDER
Vice President — Commercial Loans

STEVEN P. SLADE
Vice President — Consumer Loans

DAVID S. SOBLE
Vice President — Commercial Loans

STEPHEN C. TARCZY
Vice President — Commercial Loans

RICHARD K. VALLEE
Vice President — BSA & Security

SUSAN VETTRAINO
Vice President — Internal Controls

BRADY J. VIBERT
Vice President — Commercial Loans

CHRISTOPHER E. WESTPHAL
Vice President — Commercial Loans

PAMELA G. WILKS
Vice President — Product Support

ASSISTANT VICE PRESIDENTS

KAREN M. COVER

PATRICIA L. DANCIK

DONALD D. HARBIN

NADINE S. McMILLAN

MIHAI PARASCA

MARIAN Z. SMRCKA

FIRST LEVEL OFFICERS

STEPHENI C. AGUILA

DIANE E. AVERILL

MARK D. BOWERS

V. STACY BRANHAM

TERRENCE W. CARLSON

TIMOTHY D. COLLINS

DAVID H. DAVIES

KAREN B. DeVRIES

JENNIFER E. DOWNHAM

DANIEL C. GILBERT

DUANE J. HINKLEY

ANGELA HSU

MILY H. HUBENY

HILARY L. JOHNSON

KIM M. KELEMEN

SANDRA L. LETHBRIDGE

LISA M. LOBB

KRISTIN N. McCLARY

JAMES F. MILLER

MARK A. O’KEEFE

MICHAEL B. VASSAS

MATTHEW J. VER VAECKE

CHARLES P. WASCZENSKI

CAROLYN A. WILKINS

86

FIDELITY BANK

SUBSIDIARIES

COMMUNITY BANK INSURANCE AGENCY, INC.
Michael J. Ross, President

COMMUNITY BANK AUDIT SERVICES, INC.
Wynn C. Miller, President

87

FIDELITY BANK
LOCATIONS

Ann Arbor / Eisenhower Banking Center
250 West Eisenhower Parkway, Suite 100
Ann Arbor, MI 48103
Phone: (734) 302-1481

Auburn Hills Banking Center
3201 University Drive, Suite 180
Auburn Hills, MI 48326
Phone: (248) 364-9700

Bingham Farms Banking Center
30700 Telegraph
Bingham Farms, MI 48025
Phone: (248) 642-6757

Birmingham Banking Center
1040 E. Maple
Birmingham, MI 48009
Phone: (248) 642-1901

Bloomfield Township Banking Office
3681 W. Maple
Bloomfield Township, MI 48301
Phone: (248) 642-1903

Canton Township Banking Office
1325 N. Canton Center Road
Canton. MI 48187
Phone: (734) 981-0022

Clinton Township Banking Office
19100 Hall Road
Clinton Township, MI 48038
Phone: (586) 416-4400

Dearborn / Main Office Banking Center
22290 Michigan Avenue
Dearborn. MI 48124
Phone: (313) 274-1000

Dearborn Heights Banking Center
24935 W. Warren Avenue
Dearborn Heights, MI 48127
Phone: (313) 724-0100

Dearborn Administrative and
Regional Lending Center
1360 Porter Street
Dearborn. MI 48124
Phone: (313) 565-5700

Galleria Banking Center
200 Galleria Office Center
Southfield, MI 48034
Phone: (248) 352-1580

Plymouth Township Banking Center
44623 Five Mile
Plymouth Township, MI 48170
Phone: (734) 454-1000

Saline Banking Center
450 E. Michigan Avenue
Saline, MI 48176
Phone: (734) 429-3828

Shelby Township Banking Center
7755 23 Mile Road
Shelby Township, MI 48316
Phone: (586) 254-8700

Southgate Banking Center
12820 Fort Street
Southgate, MI 48195
Phone: (734) 284-3300

Southfield/Twelve Mile Banking Center
20000 12 Mile Road
Southfield, MI 48034
Phone: (248) 559-5779

Bank Operations Center
4000 Allen Road
Allen Park, MI 48101
Phone: (313) 381-3200

Galleria — ATM Only
300 Galleria Office Center
Southfield, MI 48034

Henry Ford Community College — ATM Only
5101 Evergreen Road
Dearborn, MI 48124

Travelers Tower — ATM Only
26555 Evergreen
Southfield, MI 48034

88

DEARBORN BANCORP, INC. COMMON STOCK

Dearborn Bancorp, Inc. common stock is listed on the Nasdaq Global Market and is traded under the symbol “DEAR”.

INVESTOR RELATIONS AND FORM 10-K AVAILABLE

Additional information about the Corporation including a free copy of the Corporation’s Form 10-K filed with the Securities and Exchange Commission may be obtained by writing or calling: Carolyn Wilkins, Corporate Services Officer, 4000
Allen Road, Allen Park, Michigan 48101;
(313) 381-3200 or by E-mail at
Carolyn.Wilkins@fidbank.com.

ANNUAL MEETING

The Annual Meeting of Stockholders will be held on Tuesday, May 17, 2011, at Park Place, 23400 Park Avenue, Dearborn, Michigan, at 3:00 p.m.

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

BKD, LLP
201 North Illinois Street, Suite 700
P. O. Box 44998
Indianapolis, IN 46244-0998
(317) 383-3665

STOCK TRANSFER AGENT AND REGISTRAR

Stockholders requiring a change of name, address or ownership of stock, as well as information about shareholder records or lost or stolen certificates, dividend checks, dividend direct deposit, and dividend reinvestment should contact:

Computershare Trust Company, N.A.
P. O. Box 43070
Providence, RI, 02940-3070
(800) 962-4284
www.computershare.com

WEBSITE INFORMATION

Online Information for the most current news releases and Dearborn Bancorp, Inc. financial reports and product information, visit our Website at www.fidbank.com

QUARTERLY COMMON STOCK PRICE INFORMATION

	High		Low		Close
2010
First quarter	$	2.48	$	0.41	$	1.11
Second quarter		5.47		1.09		1.87
Third quarter		3.16		1.23		1.79
Fourth quarter		2.40		1.50		1.65
2009
First quarter	$	2.45	$	1.33	$	1.82
Second quarter		3.22		1.75		1.80
Third quarter		2.00		0.80		1.21
Fourth quarter		1.25		0.35		0.46

All per share amounts presented have been adjusted to reflect the issuance of stock dividends.

89

PRINCIPAL NASDAQ MARKET MAKERS

Citadel Securities, LLC
131 South Dearborn Street, 32^nd Floor
Chicago, IL 60603
(312) 395-2100

Credit Suisse Securities (USA), LLC
11 Madison Ave
New York NY 10010
(212)-325-2000

Direct Edge ECN, LLC
545 Washington Boulevard
Jersey City, NJ 07310
201-942-8228

E*Trade Capital Markets, LLC
One Financial Place
440 S. Lasalle St., Suite 3030
Chicago, IL 60605
(312) 986-9986

Goldman Sachs & Co
200 West Street
New York NY 10282
(212)-902-1000

Howe Barnes Hoefer & Arnett, Inc.
222 S. Riverside Plaza, 7^th Floor
Chicago, Illinois 60606
(312) 655-3000

Knight Capital Americas, L.P.
545 Washington Boulevard
Jersey City, NJ 07310
(201) 557-6844

Merrill Lynch Pierce Fenner
One Bryant Park
New York NY 10036
(212)-449-1000

McAdams Wright Ragen Inc
925 Fourth Ave Ste 3900
Seattle WA 98104
(206)664-8850

Morgan Stanley & Company, Inc.
1585 Broadway
New York, NY 10036
(212) 761-4000

Pershing, LLC
One Pershing Plaza
Jersey City, NJ 07399
(201) 413-2000

Stifel Nicolaus & Co Inc
1 Financial Plaza
501 N Broadway
St Louis MI 63102
(314)-342-2000

UBS Securities, LLC
677 Washington Blvd., 6^th Floor
Stamford, CT 06901
(203) 719-3000

90

DEARBORN BANCORP, INC.
1360 Porter Street

Dearborn, Michigan 48124

Phone: (313) 565-5700

www.fidbank.com

EX-21

Exhibit 21

Subsidiaries of the Registrant

     The subsidiaries of the Registrant and the Registrant’s ownership percentage is listed below:

     Dearborn Bancorp, Inc. (the Registrant), Dearborn MI

owns 100% of Dearborn Bancorp Trust I, Dearborn MI
and
owns 100% of
Fidelity Bank, Dearborn MI

owns 100% of
Community Bank Audit Services, Inc., Dearborn MI
and
Community Bank Insurance Agency, Inc., Dearborn MI

owns 9.22% of
Michigan Bankers Title of East Michigan, LLC, Lansing MI

29

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Registration No. 333-129769) of our report dated March 21, 2011, on our audits of the consolidated financial statements of Dearborn Bancorp, Inc. as of December 31, 2010 and 2009, and for the years ended December 31, 2010 and 2009, which report is included in the 2010 Annual Report on Form 10-K.

/s/ BKD, llp

Indianapolis, Indiana
March 21, 2011

30

EX-31.1

DEARBORN BANCORP, INC.
FORM 10-K (continued) Exhibit 31.1

RULE 13a-14(a) CERTIFICATION

I, Michael J. Ross, President and Chief Executive Officer, of Dearborn Bancorp, Inc., certify that:

1.	I have reviewed this report on Form 10-K of Dearborn Bancorp, Inc. (the “registrant”);
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 21, 2011	/s/ Michael J. Ross
	Michael J. Ross
	President and Chief Executive Officer Dearborn Bancorp, Inc.

EX-31.2

DEARBORN BANCORP, INC.
FORM 10-K (continued) Exhibit 31.2

RULE 13a-14(a) CERTIFICATION

I, Jeffrey L. Karafa, Chief Financial Officer and Treasurer, of Dearborn Bancorp, Inc., certify that:

1.	I have reviewed this report on Form 10-K of Dearborn Bancorp, Inc. (the “registrant”);
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 21, 2011	/s/ Jeffrey L. Karafa
	Jeffrey L. Karafa
	Chief Financial Officer and Treasurer Dearborn Bancorp, Inc.

EX-32.1

DEARBORN BANCORP, INC.
FORM 10-K (continued) Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the annual report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”) of Dearborn Bancorp, Inc. (the “Issuer”).

     I, Michael J. Ross, President and Chief Executive Officer of the Issuer, certify that:

(i)	The Form 10-K fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(ii)	The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: March 21, 2011

/s/ Michael J. Ross  

Michael J. Ross 

President and Chief Executive Officer,
Dearborn Bancorp, Inc. 

EX-32.2

DEARBORN BANCORP, INC.
FORM 10-K (continued) Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the annual report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”) of Dearborn Bancorp, Inc. (the “Issuer”).

     I, Jeffrey L. Karafa, Treasurer and Chief Financial Officer of the Issuer, certify that:

(i)	The Form 10-K fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
(ii)	The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

Dated: March 21, 2011

/s/ Jeffrey L. Karafa  

Jeffrey L. Karafa 

Treasurer and Chief Financial Officer,
Dearborn Bancorp, Inc.