Maybe some turnarounds just can’t turn around.  Or maybe they just can’t ‘stay turned around.’  Dearborn Bancorp, Inc. (NASDAQ: DEAR) was an unlikely bank success a quarter ago and the fortunes of a day did not translate to the fortunes of all-time.  Last night, the parent of Fidelity Bank in Michigan reported a net loss of $13.629 million.  Its loss per share was -$1.78 EPS.  That compares to a net income of $1,128,000 or $0.15 EPS reported just one quarter ago and is worse than a loss of $9.075 million or -$1.19 EPS reported a year ago.

Dearborn listed its June 30 quarter-end shareholder equity at $29.96 million, or $3.90 per share.  While this compares to a $1.87 share price on June 30, the bank also noted that regulatory capital guidelines show that it remains undercapitalized at the same time.  That also compares to shareholders’ equity of $43.18 million at March 31, which came to a book value of $5.62 per share at the time.  Total assets as of June 30 were down 5.7% from a year ago at $933.113 million versus $970.669 million just a quarter ago, while total deposits were up 1.78% to $827.664 million and its total loans were down 11.28% at $783 million.

The bank noted that “a strong emphasis is being placed on collection and maintenance of the existing loan portfolio and new lending has been curtailed to conserve capital.”  Unfortunately, this still sounds like one of the many declining bank stories in troubled geographic locations.  If any state in the U.S. is troubled, it is Michigan.

Charge-offs were $10.5 million and were all related to the reappraisal or reevaluation of collateral on already identified substandard classified loans, and the loan loss provision was $11.8 million for the quarter.  That puts the total allowance for loan losses at $31.6 million. or 4.03% of total loans.

Loans restructured under “troubled debt guidelines” rose $6.8 million and non-accruing loans fell by $7.2 million.  Other real estate owned declined by $491,000 for a decline in the bank’s total non-performing assets of $842,000.  Real estate owned was written down in carry-value by $3.7 million and the defaulted loan expense was $1.1 million.

The bank said that the core operations continue to produce income, but that was noted as offsetting the high cost of FDIC insurance and the holding costs of other real estate owned.  As we heard before from management in a near-carbon-copy statement, “The level of future unknown charge-offs remains the determining factor as to whether the Company can be profitable in future quarters… our primary concerns for 2010 are the Michigan economy, credit quality, and the stability or improvement of the underlying collateral values in our loan portfolio.”

The 52-week trading range is now $0.35 to $5.47 and the high before the April move up was only $3.00.  Trusting a Michigan turnaround bank has brought real pain to some newer shareholders.  The April earnings report was strong enough that shares had effectively doubled to $2.80 at the time.

The shares are down 28% at $1.72 today and we have already seen 1 million shares trade hands.  Double ouch!  The new average daily volume is listed as almost 900,000 shares, but that was only about 500,000 shares on an average day just one quarter ago.  For much of 2004 to 2007, Dearborn was a $20.00+ stock.

In April the numbers almost seemed too good to be true.  It seems as though all the good news that could be found was crammed and jammed into a single quarter.  This is in Michigan after all, and the last time anything good happened there for the state as a whole was before many readers were even born.

JON C. OGG

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