The following discussion and analysis are intended to address significant factors affecting the financial condition and results of operations of the Corporation. The discussion provides a more comprehensive review of the financial position and operating results than can be obtained from a reading of the financial statements and footnotes presented elsewhere in this report. Management's Discussion and Analysis of Financial Condition and Results of Operations 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.

Company Overview
Dearborn Bancorp, Inc. 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. On April 30, 2007, Community Bank of Dearborn was renamed Fidelity Bank. Management believes that its new name, Fidelity Bank represents a more accurate portrayal to our customers and prospects of the financial products and services offered by the Bank and the Bank's market area.
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. Subsequent to the commencement of business in Dearborn, Michigan in 1994, the Bank opened five additional offices in Wayne County, Michigan. Since 2001, the Bank opened two offices in Macomb County, Michigan and in 2003, the Bank opened an office in Oakland County, Michigan.
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. In 2007, the Corporation acquired Fidelity Financial Corporation of Michigan (Fidelity), a commercial bank with seven offices in Oakland County, Michigan. The acquisition has significantly expanded the Bank's presence in Oakland County, Michigan. Management believes that the acquisition will be beneficial to the Bank's customers and the Corporation's shareholders. Additionally, the Bank opened a full service banking office in Shelby Township, Michigan on April 30, 2007. The Bank currently operates nineteen banking offices in Wayne, Macomb, Oakland and Washtenaw Counties, Michigan.
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       Limited insurance related
                      Agency, Inc.                   activities

March 2002            Community Bank Audit           Internal auditing and
                      Services, Inc.                 compliance
                                                     services for financial
                                                     institutions

The date opened, branch location and branch type of each branch is listed on the following page:

 Date Opened                     Location                       Type of office

February 1994          22290 Michigan Avenue          Full service retail branch with ATM
                       Dearborn, Michigan 48123       Regional lending center

December 1995          24935 West Warren Avenue       Full service retail branch
                       Dearborn Heights, Michigan
                       48127

August 1997            44623 Five Mile Road           Full service retail branch with ATM
                       Plymouth, Michigan 48170

May 2001               1325 North Canton Center       Full service retail branch with ATM
                       Road
                       Canton, Michigan 48187

December 2001          45000 River Ridge Drive        Regional lending center
                       Clinton Township, Michigan
                       48038

November 2002          19100 Hall Road                Full service retail branch with ATM
                       Clinton Township, Michigan
                       48038

February 2003          12820 Fort Street              Full service retail branch with ATM
                       Southgate, Michigan 48195

May 2003               3201 University Drive,         Full service retail branch
                       Suite 180 Auburn Hills,
                       Michigan 48326

October 2004           450 East Michigan Avenue       Full service retail branch with ATM
                       Saline, MI 48176

October 2004           250 West Eisenhower Parkway    Full service retail branch with ATM
                       Ann Arbor, MI 48103            Regional lending certer

October 2004           2180 West Stadium Blvd. Ann    Full service retail branch with ATM
                       Arbor, MI 48103

December 2004          1360 Porter Street             Loan production office
                       Dearborn, MI 48123             Regional lending center

January 2007           1040 E. Maple Birmingham, MI   Full service retail branch with ATM
                       48009                          Regional lending certer

January 2007           3681 W. Maple Birmingham, MI   Full service retail branch with ATM
                       48301

January 2007           30700 Telegraph                Full service retail branch with ATM
                       Bingham Farms, MI 48025

January 2007           20000 Twelve Mile Road         Full service retail branch with ATM
                       Southfield, MI 48076

January 2007           26555 Evergreen                Full service retail branch with ATM
                       Southfield, MI 48076

January 2007           200 Galleria Officenter        Full service retail branch with ATM
                       Southfield, MI 48034

April 2007             7755 23 Mile Road              Full service retail branch with ATM
                       Shelby Township, MI 48075

The Bank has sustained substantial asset growth. The expansion of our commercial banking department has been a primary element in the Bank's asset growth. This growth has been funded primarily by deposits. The Corporation expects to continue its growth in the Metropolitan Detroit market and look for additional acquisitions as they become available.
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 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 most industries, many local industries and economies are performing well. The Bank has maintained strong underwriting guidelines and utilizes a diligent loan review process. The Corporation recorded a net loss of ($4,614,000) and ($3,938,000) during the three and six month periods ended June 30, 2008. The primary factor affecting net income during the period was the provision for loan losses which amounted to $8,746,000 and $9,432,000 for the three and six month periods ended June 30, 2008. The increase in the provision for loan loss was primarily the result of the charge-off of several loans during the period and the deterioration of the collateral values of real estate that secures many loans in the Bank's portfolio. Net charge-offs amounted to $2,857,000 and $3,611,000 during the three and six month periods ended June 30, 2008.
Another significant factor was the costs related to real estate owned, which included defaulted loan expense of $568,000 and $1,219,000, write-downs to real estate owned of $100,000 and $300,000 and losses on the sale of real estate of $469,000 and $704,000 for the three and six month periods ended June 30, 2008, respectively. Compression of net interest income during the period was also a significant factor in the decline in net income. The decrease in net interest income was the result of the increasing amount of non-performing loans and competitive pricing pressure in both loan and deposit generation.

Results of Operations
The Corporation reported a net loss of ($4,614,000) and ($3,938,000) for the three month and six month periods ended June 30, 2008, compared to net income of $2,005,000 and $3,623,000 for the three and six month periods ended June 30, 2007, a decrease of $6,619,000 or 330% for the three month period and $7,561,000 or 209% for the six month period. The decrease in net income was primarily due to the increase in provision for loan loss. Other factors were the increased costs related to real estate owned and the decline in net interest income. The increase in provision for loan loss is the result of $3,611,000 in net charge-offs during the year and increased risk in the loan portfolio, primarily due to the impact of poor economic conditions. The increased costs related to real estate owned were comprised of write-downs to the values of specific properties, losses recognized upon the sale of specific properties and increased holding costs of real estate owned, which were comprised primarily of the payment of property taxes and insurance and increased maintenance costs. The decrease in net interest income is primarily due to the transfer of performing loans to non-accrual status.
Net Interest Income
2008 Compared to 2007. As noted on the two charts on the following pages, net interest income for the three and six month periods ended June 30, 2008 was $8,284,000 and $16,337,000, compared to $8,595,000 and $17,244,000 for the same periods in 2007, a decrease of $311,000 or 4% for the three month period and $907,000 or 5% for the six month period. This decrease was caused primarily by the decreasing yield on loans caused by the increase in non-performing loans. The Corporation's interest rate spread was 2.95% and 2.85% for the three and six month periods June 30, 2008, compared to 2.81% and 2.82 for the same periods in 2007. The Corporation's net interest margin was 3.45% and 3.40% for the three and six month periods ended June 30, 2008, compared to 3.58% and 3.59 for the same periods in 2007.
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.

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 loan category.

                                     Three months ended June 30,                           Three months ended June 30,
                                                 2008                                                  2007
                              Average                             Average           Average                             Average
(In thousands)                Balance           Interest           Rate             Balance           Interest           Rate
Assets
Interest-bearing
deposits with banks         $        206        $       1             1.95 %      $      3,570        $      42             4.73 %
Federal funds sold                 4,802               21             1.76 %             8,344              109             5.25 %
Investment securities,
available for sale                12,838              109             3.41 %            12,883              163             5.09 %
Loans                            948,591           14,994             6.36 %           941,259           17,259             7.37 %

Sub-total earning
assets                           966,437           15,125             6.29 %           966,056           17,573             7.32 %
Other assets                      81,986                                                83,599


Total assets                $  1,048,423                                          $  1,049,655


Liabilities and
stockholders' equity
Interest bearing
deposits                    $    723,733        $   5,874             3.26 %      $    749,303        $   8,246             4.43 %
Other borrowings                  99,957              967             3.89 %            51,699              732             5.69 %

Sub-total interest
bearing liabilities              823,690            6,841             3.34 %           801,002            8,978             4.51 %
Non-interest bearing
deposits                          83,614                                                99,918
Other liabilities                  3,117                                                 4,910
Stockholders' equity             138,002                                               143,825


Total liabilities and
stockholders' equity        $  1,048,423                                          $  1,049,655


Net interest income                             $   8,284                                             $   8,595


Net interest rate
spread                                                                2.95 %                                                2.81 %


Net interest margin on
earning assets                                                        3.45 %                                                3.58 %

                                     Six months ended June 30,                            Six months ended June 30,
                                               2008                                                 2007
                             Average                            Average           Average                            Average
(In thousands)               Balance          Interest           Rate             Balance          Interest           Rate
Assets
Interest-bearing
deposits with banks        $       193        $       2             2.08 %      $     1,934        $      42             4.36 %
Federal funds sold               3,427               36             2.11 %            9,321              277             5.96 %
Investment
securities, available
for sale                        12,393              218             3.53 %           13,657              341             5.01 %
Loans                          948,000           31,168             6.59 %          938,786           34,384             7.35 %

Sub-total earning
assets                         964,013           31,424             6.54 %          963,698           35,044             7.29 %
Other assets                    82,192                                               80,859


Total assets               $ 1,046,205                                          $ 1,044,557


Liabilities and
stockholders' equity
Interest bearing
deposits                   $   714,982        $  12,902             3.62 %      $   737,350        $  16,024             4.36 %
Other borrowings               106,275            2,185             4.12 %           61,353            1,776             5.81 %

Sub-total interest
bearing liabilities            821,257           15,087             3.68 %          798,703           17,800             4.47 %
Non-interest bearing
deposits                        83,233                                               96,093
Other liabilities                3,674                                                4,693
Stockholders' equity           138,041                                              145,068


Total liabilities and
stockholders' equity       $ 1,046,205                                          $ 1,044,557


Net interest income                           $  16,337                                            $  17,244


Net interest rate
spread                                                              2.85 %                                               2.82 %


Net interest margin
on earning assets                                                   3.40 %                                               3.59 %

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.

                                      Three Months Ended                                 Six Months Ended
                                           2008/2007                                         2008/2007
                                  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        $    (16 )       $    (25 )      $    (41 )       $    (18 )       $    (22 )      $    (40 )
Federal funds sold              (15 )            (73 )           (88 )            (61 )           (180 )          (241 )
Investment
securities, available
for sale                          -              (54 )           (54 )            (25 )            (98 )          (123 )
Loans                           129           (2,394 )        (2,265 )            312           (3,528 )        (3,216 )

Total earning assets       $     98         $ (2,546 )      $ (2,448 )       $    208         $ (3,828 )      $ (3,620 )


Liabilities
Interest bearing
deposits                   $   (196 )       $ (2,176 )      $ (2,372 )       $   (396 )       $ (2,726 )      $ (3,122 )
Other borrowings                468             (233 )           235              925             (516 )           409

Total interest
bearing liabilities        $    272         $ (2,409 )      $ (2,137 )       $    529         $ (3,242 )      $ (2,713 )


Net interest income                                         $   (311 )                                        $   (907 )


Net interest rate
spread                                                          0.15 %                                            0.03 %


Net interest margin
on earning assets                                              (0.13 %)                                          (0.19 %)

Provision for Loan Losses
2008 Compared to 2007. The provision for loan losses was $8,746,000 and $9,632,000 for the three and six month periods ended June 30, 2008, compared to $289,000 and $906,000 for the same periods in 2007, an increase of $8,457,000 or 2926% for the three month period and $8,726,000 or 963% for the six month period. The provision for loan losses for the three and six month periods ended June 30, 2008 is based on the internal analysis of the adequacy of the allowance for loan losses. The increase in the provision for loan loss was primarily the result of the charge-off of several loans during the period and the deterioration of the collateral values of real estate that secures many loans in the Bank's portfolio. Net charge-offs amounted to $2,857,000 and $3,611,000 during the three and six month periods ended June 30, 2008. The provision for loan losses was based upon management's assessment of relevant factors, including types and amounts of non-performing loans, historical loss experience on such types of loans, and current economic conditions.

Non-interest Income
2008 Compared to 2007. Non-interest income was ($55,000) and $56,000 for the three and six month periods ended June 30, 2008, compared to $357,000 and $802,000 for the same periods in 2007, a decrease of $412,000 or 115% for the three month period and $746,000 or 93% for the six month period. The decrease was entirely due to the write-down of real estate owned and the loss on the sale of real estate owned. The loss on the sale of real estate owned was the result of the sale of eleven bank-owned properties.
When these transactions related to real estate owned are excluded, non-interest income for the three and six months ended June 30, 2008 amounts to $514,000 and $1,060,000 compared to $457,000 and $902,000 during the same period in 2007, an increase of $57,000 or 12% for the three month period and $158,000 or 18% for the six month period. This increase is primarily caused by the increase in service charges on deposit accounts.
Non-interest Expense
2008 Compared to 2007. Non-interest expense was $6,428,000 and $12,666,000 for the three and six month periods ended June 30, 2008, compared to $5,579,000 and $11,566,000 for the same periods in 2007, an increase of $849,000 or 15% for the three month period and $1,100,000 or 10% for the six month period. The increase was primarily due to defaulted loan expense which amounted to $511,000 and $946,000 during the three and six month periods ended June 30, 2008 compared to $29,000 and $159,000 during the same periods in 2007, an increase of $482,000 or 1662% for the three month period and $787,000 or 495% for the six month period. This increase was primarily due to the payment of property taxes and insurance in 2008 for real estate owned.
The largest component of non-interest expense was salaries and employee benefits which amounted to $3,284,000 and $6,493,000 for the three and six month periods ended June 30, 2008, compared to $3,102,000 and $6,654,000 for the same periods in 2007, an increase of $182,000 or 6% for the three month period and a decrease of $161,000 or 2% for the six month period. The primary factor for the decrease in salaries and benefits expense during the six month period was the cost of severance payments made to former employees of Fidelity during the three months ended March 31, 2007. As of June 30, 2008, the number of full time equivalent employees was 218 compared to 214 as of June 30, 2007. Salaries and employee benefits are expected to increase as a result of general staff increases. Income Tax Provision
2008 Compared to 2007. The income tax benefit was $2,331,000 and $1,967,000 for the three and six month periods ended June 30, 2008, compared to income tax expense of $1,079,000 and $1,951,000 for the same period in 2007. The decrease was primarily a result of the pre-tax loss during the three and six month periods ended June 30, 2008.

Comparison of Financial Condition at June 30, 2008 and December 31, 2007 Assets. Total assets at June 30, 2008 were $1,038,538,000 compared to $1,046,981,000 at December 31, 2007, a decrease of $8,443,000 or 1%. The decrease was primarily due to the decrease in loans.
Federal Funds Sold. Total federal funds sold at June 30, 2008 were $1,301,000 compared to $1,495,000 at December 31, 2007, a decrease of $194,000 or 12%. The decrease in federal funds sold is the result of normal fluctuations in overnight operating balances that are carried at various correspondent banks. . . .