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

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.

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.

     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

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

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

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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:

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	)

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

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

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