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 seventeen 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

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 Dearborn, Michigan 48123 with ATM 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 Plymouth, Michigan 48170 with ATM

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

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

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

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

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 Saline, MI 48176 with ATM

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

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

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

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

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

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

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

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

The Corporation has realized substantial asset growth since the formation of the Corporation through December 31, 2008, depending on the economic and competitive environment. Historically, the Bank's growth has been realized through the growth of the loan portfolio. More specifically, the expansion of our commercial banking department has been a primary element in the Bank's asset growth through December 31, 2007. During 2008 and continuing into 2009, the Corporation's funds have been deployed into short-term investments. The Corporation's 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 $6,249,000 for the three months ended March 31, 2009. The primary factor affecting net income was the recording of $10,727,000 to the provision for loan loss. The provision for loan loss was due to net charge-offs of $6,547,000 and the continued deterioration in the underlying collateral of the Bank's non-performing assets. Another significant factor was the cost related to real estate owned, which included defaulted loan expense of $761,000 and write-downs to real estate owned of $354,000 during the three months ended March 31, 2009. These factors are discussed further in "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Results of Operations
The Corporation reported net loss of ($6,249,000) for the three month period ended March 31, 2009, compared to net income of $676,000 for the three month period ended March 31, 2008, a decrease of $6,925,000. The decrease in net income was primarily due to the increase in the provision for loan loss, the decline in net interest income due to the elevated levels of non-performing loans and the increased costs related to real estate owned. Net Interest Income
2009 Compared to 2008. As noted on the two charts on the following pages, net interest income for the three month period ended March 31, 2009 was $7,517,000, compared to $8,053,000 for the same period ended March 31, 2008, a decrease of $536,000 or 7%. This decrease was caused primarily by the decreasing spread between interest earning assets and interest bearing liabilities. The Corporation's interest rate spread was 2.58% for the period ended March 31, 2009, compared to 2.79% for the same period in 2008. The Corporation's net interest margin was 2.93% for the three month period ended March 31, 2009, compared to 3.40% for the same period in 2008.
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 March 31, 2009                         Three months ended March 31, 2008
                                   Average                               Average             Average                               Average
(In thousands)                     Balance             Interest           Rate               Balance             Interest           Rate

Assets
Interest bearing deposits
with banks                     $        45,249         $      94             0.84 %      $           180         $       1             2.25 %
Federal funds sold                       6,643                 6             0.37 %                2,051                16             3.16 %
Securities, available for
sale                                    67,465               256             1.54 %               11,946               108             3.67 %
Loans                                  920,254            13,810             6.09 %              947,407            16,174             6.92 %

Sub-total earning assets             1,039,611            14,166             5.53 %              961,584            16,299             6.87 %
Other assets                            59,947                                                    82,455


Total assets                   $     1,099,558                                           $     1,044,039


Liabilities and
stockholders' equity
Interest bearing deposits      $       842,023         $   5,998             2.89 %      $       706,231         $   7,028             4.04 %
Other borrowings                        73,326               651             3.60 %              112,593             1,218             4.39 %

Sub-total interest
bearing liabilities                    915,349             6,649             2.95 %              818,824             8,246             4.08 %
Non-interest bearing
deposits                                78,090                                                    82,856
Other liabilities                        1,821                                                     4,283
Stockholders' equity                   104,298                                                   138,076


Total liabilities and
stockholders' equity           $     1,099,558                                           $     1,044,039


Net interest income                                    $   7,517                                                 $   8,053


Net interest rate spread                                                     2.58 %                                                    2.79 %


Net interest margin on
earning assets                                                               2.93 %                                                    3.40 %

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 March 31, 2009/2008
                                                         Average              Average                Net
(In thousands)                                           Balance                Rate               Change
Assets
Interest bearing deposits with banks                    $       94                    ($1 )       $      93
Federal funds sold                                               4                    (14 )             (10 )
Investment securities, available for sale                      211                    (63 )             148
Loans                                                         (391 )               (1,973 )          (2,364 )

Total earning assets                                          ($83 )              ($2,050 )         ($2,133 )


Liabilities
Interest bearing deposits                               $      984                ($2,014 )         ($1,030 )
Other borrowings                                              (347 )                 (220 )            (567 )

Total interest bearing liabilities                      $      637                ($2,234 )         ($1,597 )


Net interest income                                                                                   ($536 )


Net interest rate spread                                                                              (0.21 %)


Net interest margin on earning assets                                                                 (0.46 %)

Provision for Loan Losses
2009 Compared to 2008. The provision for loan losses was $10,727,000 for the three month period ended March 31, 2009, compared to $886,000 for the same period in 2008, an increase of $9,841,000. The increase is primarily due to net charge-offs of $6,547,000 during the period and the continued deterioration of the underlying collateral of the Bank's non-performing loans. A primary factor in the continued decline in the underlying value of our collateral and the decision to recognize these charge-offs during the first quarter of 2009 was the accelerating decline in the economic environment in Southeastern Michigan which is heavily impacted by conditions and events that have recently impacted the automotive industry that occurred during the first quarter of 2009 and its impact on the residential real estate market in the Bank's market area. These conditions have led to an increase in the Bank's classified assets during the first quarter of 2009. Management has recognized this trend in our analysis of the allowance for loan losses at March 31, 2009.
The provision for loan losses for the three month period ended March 31, 2009 is based on the internal analysis of the adequacy of the allowance for loan losses. 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
2009 Compared to 2008. Non-interest income was $328,000 for the three month period ended March 31, 2009, compared to $111,000 for the same period in 2008, an increase of $217,000 or 195% for the period. The increase was primarily due to the sale of two securities for a gain of $195,000. Non interest income for the three months ended March 31, 2009 included $425,000 from the write-down of real estate owned and other assets and loss on the sale of real estate compared to $435,000 during the same period in 2008.
When these transactions related to real estate owned, other assets and securities are excluded, non-interest income for the three months ended March 31, 2009 amounts to $558,000, compared to $546,000 during the same period in 2008, an increase of $12,000 or 2%. This increase is primarily caused by the increase in service charges on deposit accounts. Non-interest Expense
2009 Compared to 2008. Non-interest expense was $6,511,000 for the three month period ended March 31, 2009, compared to $6,238,000 for the same period in 2008, an increase of $273,000 or 4% for the period. The increase was primarily due to defaulted loan expense which amounted to $761,000 during the three months ended March 31, 2009 compared to $435,000 during the same period in 2008, an increase of $326,000 and the FDIC assessment, which amounted to $348,000 during the three months ended March 31, 2009 compared to $174,000 during the same period in 2008, an increase of $174,000. This increase in defaulted loans expense was primarily due to the payment of property taxes, insurance, legal expenses and maintenance in 2009 for real estate owned.
The largest component of non-interest expense was salaries and employee benefits which amounted to $3,290,000 for the three month period ended March 31, 2009, compared to $3,209,000 for the same period in 2008. As of March 31, 2009, the number of full time equivalent employees was 208 compared to 210 as of March 31, 2008. Salaries and employee benefits are expected to increase marginally as a result of general staff increases.
Income Tax Provision
2009 Compared to 2008. The income tax benefit was ($3,144,000) for the three month period ended March 31, 2009, compared to income tax expense of $364,000 for the same period in 2008, a decrease of $3,508,000 or 964% for the period. The decrease was primarily a result of the decrease in pre-tax income.

Comparison of Financial Condition at March 31, 2009 and December 31, 2008 Assets. Total assets at March 31, 2009 were $1,073,744,000 compared to $1,121,918,000 at December 31, 2008, a decrease of $48,174,000 or 4%. The decrease was primarily due to decreases in securities, available for sale and loans and partially offset by the increases in cash and cash equivalents and real estate owned.
Federal Funds Sold. Total federal funds sold at March 31, 2009 were $6,841,000 compared to $4,455,000 at December 31, 2008, an increase of $2,386,000 or 45%. The increase in federal funds is the result of normal fluctuations in overnight operating balances that are carried at various correspondent banks.
Interest bearing deposits with banks. Total interest bearing deposits with banks at March 31, 2009 were $53,262,000 compared to $36,876,000 at December 31, 2008, an increase of $16,386,000 or 44%. The increase is primarily due to the Bank's purchase of $30,000,000 of time deposits from other banks. These time deposits are fully insured and mature in less than eighteen months. Interest bearing deposits with banks also include $23,262,000 of overnight funds that provide the Corporation with an alternate short term investment option. This short term investment is a variable-rate certificate of deposit with the Federal Home Loan Bank of Indianapolis that carries a similar rate of return to federal funds sold.
Mortgage Loans Held for Sale. Total mortgage loans held for sale at March 31, 2009 were $3,009,000 compared to $1,834,000 at December 31, 2008, an increase of $1,175,000 or 64%. This increase was a result of the increase in the level of residential real estate mortgage loans waiting to be purchased by mortgage correspondents.
Securities - Available for Sale. Total securities, available for sale, at March 31, 2009 were $45,368,000 compared to $84,148,000 at December 31, 2008, a decrease of $38,780,000 or 46%. The decrease is the result of the re-deployment of $30,000,000 from securities, available for sale to interest bearing deposits with banks and the sale of two investment securities.
Please refer to Note B of the Notes to Consolidated Financial Statements for the amortized cost and estimated market value of securities, available for sale. The entire portfolio has a net unrealized gain of $94,000 at March 31, 2009. The unrealized gain, net of tax is reflected by an adjustment to stockholders' equity.
Federal Home Loan Bank Stock. Federal Home Loan Bank stock was valued at $3,614,000 at March 31, 2009 and 2008.

Loans. Total loans at March 31, 2009 were $900,055,000 compared to $933,269,000 at December 31, 2008, a decrease of $33,214,000 or 4%. The decrease was primarily due to net charge-offs of $6,547,000, the transfer of loans in the amount of $6,456,000 to other real estate and loans paid off during the period. Major categories of loans included in the loan portfolio are as follows (in thousands):

                                                        03/31/09         12/31/08         03/31/08

Consumer loans                                          $  31,000        $  31,864        $  34,494
Commercial, financial, & other                            161,138          164,740          169,659
Land development loans - residential property              50,028           54,323           61,638
Land development loans - non residential property          15,914           16,094           16,372
Commercial real estate construction - residential
property                                                   15,687           17,296           26,004
Commercial real estate construction - non
residential property                                       25,716           25,322           38,885
Commercial real estate mortgages                          548,692          571,204          543,778
Residential real estate mortgages                          51,880           52,426           57,097


                                                          900,055          933,269          947,927
Allowance for loan losses                                 (18,632 )        (14,452 )        (10,749 )


                                                        $ 881,423        $ 918,817        $ 937,178

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

                                                03/31/09      12/31/08      03/31/08

     Troubled debt restructuring                   19,506        17,765         8,710
     Over 90 days past due and still accruing           -           450         9,257
     Non-accrual loans                             55,148        51,708        17,406

     Total non-performing loans                    74,654        69,923        35,373

     Real estate owned                             11,737         9,657         6,183
     Real estate in redemption                      2,887             -             -
     Other repossessed assets                           -             -             -

     Other non-performing assets                   14,624         9,657         6,183


     Total non-performing assets                $  89,278     $  79,580     $  41,556

. . .