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| DEAR > SEC Filings for DEAR > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
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 Agency, Inc. Limited insurance related
activities
March 2002 Community Bank Audit Services, Inc. Internal auditing and compliance
services for financial
institutions
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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 Road Full service retail branch with ATM
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, Suite 180 Full service retail branch
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. Full service retail branch with ATM
Ann Arbor, MI 48103
December 2004 1360 Porter Street Loan production office
Dearborn, MI 48123 Regional lending center
January 2007 1040 E. Maple Full service retail branch with ATM
Birmingham, MI 48009 Regional lending certer
January 2007 3681 W. Maple Full service retail branch with ATM
Birmingham, MI 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
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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 net income of $1,420,000 for the three months ended
September 30, 2008 and a net loss of $2,518,000 during the nine month periods
ended September 30, 2008. The primary factor affecting net income during the
three month period was the increased level of non-performing assets during the
period. Another significant factor was the costs related to real estate owned,
which included defaulted loan expense of $483,000 and write-downs to real estate
owned of $209,000 during the three months ended September 30, 2008.
The primary factor affecting net income during the nine months ended
September 30, 2008 was the provision for loan losses which amounted to
$9,722,000 for the nine month period. 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
$3,910,000 during the nine month period ended September 30, 2008.
Another significant factor for the nine months ending September 30, 2008 was the
cost related to real estate owned, which included defaulted loan expense of
$1,429,000, write-downs to real estate owned of $509,000 and losses on the sale
of real estate of $720,000 for the nine months ended September 30, 2008.
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.
Results of Operations
The Corporation reported net income of $1,420,000 and a net loss of $2,518,000
for the three and nine month periods ended September 30, 2008, compared to a net
loss of $855,0000 and net income of $2,768,000 for the three and nine month
periods ended September 30, 2007, an increase of $2,275,000 for the three month
period and a decrease of $5,286,000 for the nine month period.
The increase for the three month period was primarily due to provision for loan
losses and loss on sale of real estate that were recorded during the third
quarter of 2007 and partially offset by increases in defaulted loan expense
during the third quarter of 2008. The decrease for the nine month period is
primarily due to the provision for loan losses during 2008. Other significant
factors in the decrease during the nine month period were the write-down of real
estate and loss on the sale of real estate, the increase in defaulted loan
expense and the decrease in net interest income during 2008.
The increase in provision for loan loss is the result of $3,910,000 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 nine month periods ended September 30, 2008
was $8,250,000 and $24,587,000, compared to $8,501,000 and $25,745,000 for the
same periods in 2007, a decrease of $251,000 or 3% for the three month period
and $1,158,000 or 4% for the nine 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 2.89%
for the three and nine month periods September 30, 2008, compared to 2.72% and
2.80 for the same periods in 2007. The Corporation's net interest margin was
3.41% and 3.40% for the three and nine month periods ended September 30, 2008,
compared to 3.48% and 3.56 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 September 30, Three months ended September 30,
2008 2007
Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate
Assets
Interest-bearing deposits with banks $ 1,227 $ 2 0.65 % $ 3,553 $ 42 4.69 %
Federal funds sold 4,482 22 1.95 % 6,983 84 4.77 %
Securities, available for sale 11,389 97 3.39 % 12,672 160 5.01 %
Loans 944,262 14,742 6.21 % 946,732 17,565 7.36 %
Sub-total earning assets 961,360 14,863 6.15 % 969,940 17,851 7.30 %
Other assets 80,792 82,245
Total assets $ 1,042,152 $ 1,052,185
Liabilities and stockholders' equity
Interest bearing deposits $ 738,640 $ 5,764 3.10 % $ 759,712 $ 8,663 4.52 %
Other borrowings 82,894 849 4.07 % 50,028 687 5.45 %
Sub-total interest bearing liabilities 821,534 6,613 3.20 % 809,740 9,350 4.58 %
Non-interest bearing deposits 83,784 95,247
Other liabilities 2,885 4,094
Stockholders' equity 133,949 143,104
Total liabilities and stockholders' equity $ 1,042,152 $ 1,052,185
Net interest income $ 8,250 $ 8,501
Net interest rate spread 2.95 % 2.72 %
Net interest margin on earning assets 3.41 % 3.48 %
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Nine months ended September 30, Nine months ended September 30,
2008 2007
Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate
Assets
Interest-bearing deposits with banks $ 540 $ 3 0.74 % $ 2,479 $ 84 4.53 %
Federal funds sold 3,722 59 2.11 % 8,546 361 5.65 %
Securities, available for sale 12,055 315 3.48 % 13,327 501 5.03 %
Loans 946,278 45,910 6.46 % 942,000 51,949 7.37 %
Sub-total earning assets 962,595 46,287 6.41 % 966,352 52,895 7.32 %
Other assets 81,778 81,286
Total assets $ 1,044,373 $ 1,047,638
Liabilities and stockholders' equity
Interest bearing deposits $ 722,926 $ 18,666 3.44 % $ 744,886 $ 24,687 4.43 %
Other borrowings 98,424 3,034 4.11 % 57,543 2,463 5.71 %
Sub-total interest bearing liabilities 821,350 21,700 3.52 % 802,429 27,150 4.52 %
Non-interest bearing deposits 83,418 95,799
Other liabilities 2,938 4,990
Stockholders' equity 136,667 144,420
Total liabilities and stockholders' equity $ 1,044,373 $ 1,047,638
Net interest income $ 24,587 $ 25,745
Net interest rate spread 2.89 % 2.80 %
Net interest margin on earning assets 3.40 % 3.56 %
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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.
Three Months Ended Nine 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 $ (4 ) $ (36 ) $ (40 ) $ (34 ) $ (47 ) $ (81 )
Federal funds sold (13 ) (49 ) (62 ) (151 ) (151 ) (302 )
Securities, available
for sale (12 ) (51 ) (63 ) (86 ) (100 ) (186 )
Loans (101 ) (2,722 ) (2,823 ) (1,785 ) (4,254 ) (6,039 )
Total earning assets $ (130 ) $ (2,858 ) $ (2,988 ) $ (2,055 ) $ (4,553 ) $ (6,608 )
Liabilities
Interest bearing
deposits $ (203 ) $ (2,696 ) $ (2,899 ) $ (2,314 ) $ (3,707 ) $ (6,021 )
Other borrowings 334 (172 ) 162 1,033 (462 ) 571
Total interest
bearing liabilities $ 131 $ (2,868 ) $ (2,737 ) $ (1,281 ) $ (4,169 ) $ (5,450 )
Net interest income $ (251 ) $ (1,158 )
Net interest rate
spread 0.23 % 0.08 %
Net interest margin
on earning assets (0.06 %) (0.16 %)
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Provision for Loan Losses
2008 Compared to 2007. The provision for loan losses was $90,000 and $9,722,000
for the three and nine month periods ended September 30, 2008, compared to
$4,060,000 and $4,966,000 for the same periods in 2007, a decrease of $3,970,000
or 98% for the three month period and an increase of $4,756,000 or 96% for the
nine month period. The provision for loan losses for the three and nine month
periods ended September 30, 2008 is based on the internal analysis of the
adequacy of the allowance for loan losses. Net charge-offs amounted to $299,000
and $3,910,000 during the three and nine month periods ended September 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 $319,000 and $375,000 for the
three and nine month periods ended September 30, 2008, compared to ($104,000)
and $698,000 for the same periods in 2007, an increase of $479,000 or 460% for
the three month period and a decrease of $323,000 or 46% for the nine month
period. The increase in the three month period and decrease in the nine month
period was primarily 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 nine months ended September 30, 2008 amounts to
$544,000 and $1,604,000 compared to $392,000 and $1,294,000 during the same
period in 2007, an increase of $152,000 or 39% for the three month period and
$310,000 or 24% for the nine 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 $6,312,000 and $18,978,000 for
the three and nine month periods ended September 30, 2008, compared to
$5,491,000 and $17,057,000 for the same periods in 2007, an increase of $821,000
or 15% for the three month period and $1,921,000 or 11% for the nine month
period. The increase was primarily due to defaulted loan expense which amounted
to $483,000 and $1,429,000 during the three and nine month periods ended
September 30, 2008 compared to ($7,000) and $223,000 during the same periods in
2007, an increase of $490,000 for the three month period and $1,206,000 for the
nine 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 $3,413,000 and $9,906,000 for the three and nine month periods
ended September 30, 2008, compared to $3,137,000 and $9,791,000 for the same
periods in 2007, an increase of $276,000 or 9% for the three month period and an
increase of $115,000 or 1% for the nine month period. The primary factor for the
increase in salaries and benefits expense during the nine month period was the
development of a special assets department that deals with non-performing
. . .
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