<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 0-22767
D & N CAPITAL CORPORATION
----------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 31-1517665
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
400 Quincy Street, Hancock, Michigan 49930
------------------------------------ ----------
(Address of Principal Executive Offices (Zip Code)
Registrant's telephone number, including area code (906) 482-2700
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
-------------------------------- ------------------------
9.00% Noncumulative Preferred Stock
Series A (Par Value --$25 Per share) NASDAQ
Securities Registered Pursuant to Section 12(g) of the Act: None
Number of Shares of Common Stock outstanding on December 31, 1997: 31,781
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
YES X . NO .
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
All shares of Common Stock were held by D&N Bank at December 31, 1997;
therefore, no Common Stock is held by non-affiliates.
Documents incorporated by reference Part of Form 10-K
in this Form 10-K which incorporated
- ----------------------------------- ------------------
None None
================================================================================
<PAGE> 2
FORM 10-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I
Item 1 Business 1
Item 2 Properties 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matters to a Vote
of Security Holders 4
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 4
Item 6 Selected Financial Data 7
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Item 8 Financial Statements and Supplementary Data 14
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 23
PART III
Item 10 Directors and Executive Officers of the Corporation 24
Item 11 Executive Compensation 26
Item 12 Security Ownership of Certain Beneficial Owners
and Management 26
Item 13 Certain Relationships and Related Transactions 27
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 27
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
D&N Capital Corporation (the "Company") is a Delaware corporation
incorporated on March 18, 1997 and created for the purpose of acquiring and
holding real estate assets. The Company is a wholly-owned subsidiary of D&N
Bank (the "Bank"), a federally chartered savings bank, which itself is wholly
owned by D&N Financial Corporation ("D&N"), a financial services holding
company organized under the laws of the state of Delaware.
The principal business of the Company is to acquire and hold residential
and commercial mortgage loans that will generate net income for distribution to
stockholders. The Company intends to acquire all its Mortgage Loans from the
Bank, consisting of whole loans secured by first mortgages or deeds of trust on
single-family residential real estate properties or on commercial real estate
properties. Residential mortgage loans consist of Adjustable Rate Mortgages
("ARMs"), and Fixed Rate Mortgages ("FRMs"). The commercial mortgage loans
consist of fixed and variable rate loans, a majority of which have balloon
payments.
On July 17, 1997, the Company offered to the public and sold 1,210,000
shares of the Company's 9.00% noncumulative preferred stock, Series A, $25 par
value per share, totaling $30,250,000 (the "Series A Preferred Shares"), and
sold to D&N Bank, 31,781 shares of the Company's common stock, $300 par value
($1,000 cost) per share, net of offering costs, totaling $30,250,000 (the
"Common Stock"). All shares of common stock are held by the Bank. The Series
A Preferred Shares are traded on the NASDAQ stock market, under the symbol as
"DNFCP".
The Company used the net proceeds raised from the initial public
offering of the Series A Preferred Shares and the sale of the Common Stock to
the Bank to purchase from the Bank the Company's initial portfolio of
$60,524,000, of residential and commercial mortgage loans ("Mortgage Loans") at
their estimated fair values. Reinvestments in mortgage loans have been and are
intended to continue to be consistent in maintaining an approximate 90% and 10%
ratio between residential and commercial mortgage loans, respectively. All
Mortgage Loans are purchased from the Bank on a fair value basis.
In order to preserve its status as a real estate investment trust
("REIT") under the Code, the Company must distribute annually at least 95% of
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its "REIT taxable income" (excluding capital gains) to stockholders and meet
certain capital ownership and administrative tests as defined by the Code. The
Company must also annually satisfy three gross income requirements. First, at
least 75% of the Company's gross income for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (as interest on obligations secured by mortgages on real
property, certain "rents from real property" or as gain on the sale or exchange
of such property and certain fees with respect to agreements to make or acquire
mortgage loans), from certain types of temporary investments or certain other
types of gross income. Second, at least 95% of the Company's gross income for
each taxable year must be derived from the above described real property
investments and from dividends, interest, and gain from the sale or other
disposition of stock or securities and certain other types of gross income (or
from any combination of the foregoing). Third, short-term gain from the sale
or other disposition of stock or securities, and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) from the date of
acquisition must represent less than 30% of the Company's gross income for each
taxable year. The Company must also satisfy three tests relating to the nature
of its assets at the close of each quarter of its taxable year. First, at
least 75% of the value of the Company's total assets must be represented by
real estate assets (including stock or debt instruments held for not more than
one year that were purchased with the proceeds of a stock offering or long-term
(at least five years) debt offering of the Company, cash, cash items, and
government securities. Second, not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class.
Third, of the investments included in the 25% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of the
Company's total assets and the Company may not own more than 10% of any one
issuer's outstanding voting securities.
The Company does not anticipate that it will engage in the business of
originating Mortgage Loans and does not expect to compete with mortgage conduit
programs, investment banking firms, savings and loan associations, banks,
thrift and loan associations, finance companies, mortgage bankers or insurance
companies in acquiring its Mortgage Loans. As noted above, the Company
anticipates that all Mortgage Loans purchased by it, in addition to those in
the initial Portfolio, and purchased to date, will be purchased from the Bank.
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<PAGE> 5
The Company has entered into an Advisory Agreement (the "Advisory
Agreement") with the Bank (the "Advisor") requiring an annual payment of
$125,000. The Bank provides advice to the Board of Directors and manages the
operations of the Company as defined in the Agreement. The Agreement has an
initial term of five years commencing on July 21, 1997 and automatically renews
for additional five year periods, unless the Company delivers a notice of
nonrenewal to the Advisor as defined in the Advisory Agreement.
The Company also entered into two servicing agreements with the Bank for
the servicing of the commercial and residential mortgage loans. (The Bank in
its role as servicer under the terms of the servicing agreements is herein
referred to as the "Servicer"). Pursuant to each servicing agreement, the Bank
performs the servicing of the Mortgage Loans held by the Company, in accordance
with normal industry practice. The Servicing Agreements can be terminated
without cause upon a thirty day advance notice given to the Servicer. The
servicing fee is 0.375% of the outstanding principal balance for the
residential mortgage loans and commercial mortgage loans.
The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company may, under
certain circumstances, purchase the Series A Preferred Shares and other shares
of its capital stock in the open market or otherwise, provided, however, that
the Company will not redeem or repurchase any shares of its Common Stock for so
long as any Series A Preferred Shares are outstanding without the approval of a
majority of the Independent Directors (as defined in the Certificate of
Designation relating to the Series A Preferred Shares). The Company has no
present intention of repurchasing any shares of its capital stock, and any such
action would be taken only in conformity with applicable federal and state laws
and the regulations and the requirements for qualifying as a REIT.
The Company has no foreign operations.
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<PAGE> 6
ITEM 2: PROPERTIES
The principal executive offices of the Company are located at 400 Quincy
Street, Hancock, Michigan 49930, telephone number (906) 482- 2700.
ITEM 3: LEGAL PROCEEDINGS
The Company is not the subject of any material litigation. Neither the
Company, the Bank, or any of its affiliates is currently involved in nor, to
the Company's knowledge, currently threatened with any material litigation with
respect to the Mortgage Loans included in the portfolio, which litigation would
have a material adverse effect on the business or operations of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company is authorized to issue up to 250,000 shares of Common Stock
and 2,500,000 shares of Preferred Stock, $25 par value per share ("Preferred
Stock"), of which 1,210,000 shares have been issued as the Series A Preferred
Shares. The Bank owns 100% of the Company's 31,781 shares of Common Stock
outstanding at December 31, 1997 and, accordingly, there is no trading market
for the Company's Common Stock. In addition, the Bank intends that, as long as
any Series A Preferred Shares are outstanding, it will maintain ownership of
the outstanding Common Stock of the Company. Subject to the rights, if any, of
the holders of Series A Preferred Stock, all voting rights are vested in the
Common Stock. The holders of Common Stock are entitled to one vote per share.
Holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors of the Company out of funds legally
available therefor, provided that, so long as any shares of Preferred Stock
(including the Series A Preferred Shares) are outstanding, no dividends or
other distributions (including redemptions and purchases) may be made with
respect
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<PAGE> 7
to the Common Stock unless full dividends on the shares of the Preferred Stock
have been paid. The Company must distribute annually at least 95% of its
annual "REIT taxable income" (not including capital gains) to stockholders.
In the event of the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, after there have been paid or set
aside for the holders of all series of Preferred Stock the full preferential
amounts to which such holders are entitled, the holders of Common Stock will be
entitled to share equally and ratably in any assets remaining after the payment
of all debts and liabilities.
RESTRICTIONS ON OWNERSHIP AND TRANSFER:
The Company's Certificate of Incorporation contains certain restrictions
on the number of shares of Common Stock and Preferred Stock that individual
stockholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in number or value of its outstanding shares of capital stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year (the "Five or Fewer Test"). The capital stock of the Company must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year (the "One Hundred
Person Test"). The ownership by the Bank of 100% of the shares of Common Stock
of the REIT will not adversely affect the Company's REIT qualification because
each stockholder of D&N Financial Corporation (the sole stockholder of the
Bank) counts as a separate beneficial owner for purposes of the Five or Fewer
Test and the capital stock of D&N Financial Corporation is widely held.
Further, the Certificate of Incorporation of the Company contains restrictions
on the acquisition of Preferred Stock intended to ensure compliance with the
One Hundred Persons Test. Such provisions include a restriction that if any
transfer of shares of capital stock of the Company would cause the Company to
be beneficially owned by fewer than 100 persons, such transfer shall be null
and void and the intended transferee will acquire no rights to the stock.
COMMON STOCK
There is no established public trading market in the Company's Common
Stock. As of March 26, 1998, there were 31,781 issued and outstanding shares
of Common Stock held by one stockholder, the Bank. The following table
reflects the distributions paid by the Company on the Common Stock since the
Company's initial capitalization on April 4, 1997.
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<PAGE> 8
<TABLE>
<CAPTION>
1997 Distribution
---------- ----------------
<S> <C>
April 4 to December 31 $600,000 / (1) /
</TABLE>
(1) On December 11, 1997, the Company declared a cash dividend in the
aggregate of $600,000 payable on December 31, 1997 to D&N Bank as the
holder of all the outstanding common stock of record on December 17,
1997. All of this amount was paid out of retained earnings of the
Company.
PREFERRED STOCK
The Series A Preferred Shares are listed on the Nasdaq Stock Market,
under the trading symbol "DNFCP". As of February 27, 1998, there were
1,210,000 issued and outstanding Series A Preferred Shares held by
approximately 2,300 shareholders. The following table reflects the respective
high and low sales prices for the Series A Preferred Shares for the period from
July 21, 1997, the date upon which trading of such shares commenced, through
December 31, 1997. The table also indicates the distributions paid by the
Company during this period.
<TABLE>
<CAPTION>
Price
--------------------------------------------
1997 High Low Distributions
--------------------- --------------------------------------------
<S> <C> <C> <C>
July 21 to December 31 $26.25 $25.00 $1,217,563/(1)
</TABLE>
(1) On September 9, 1997 the Company declared a cash dividend of $0.44375
per Series A Preferred Share to stockholders of record on September 17,
1997. This dividend was paid on September 30, 1997. On December 11,
1997 the Company again declared a cash dividend of $0.5625 per Series A
Preferred Share to stockholders of record on December 17, 1997. This
dividend was paid on December 31, 1997.
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<PAGE> 9
ITEM 6: SELECTED FINANCIAL DATA
FINANCIAL DATA
As of December 31, 1997 and for the Period from Inception (March 18, 1997)
through December 31, 1997
(In thousands, except per share and yield data)
<TABLE>
<S> <C>
INCOME STATEMENT:
Interest income $ 1,952
Net income 1,852
Net income applicable to common shares 634
Income per common share 19.94
BALANCE SHEET:
Mortgage loans 60,385
Total assets 60,745
Total stockholder's equity 60,534
OTHER DATA:
Dividends paid on preferred shares 1,218
Number of preferred shares outstanding 1,210
Number of common shares outstanding 32
Average yield on mortgage loans 7.57%
</TABLE>
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<PAGE> 10
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On July 17, 1997, the Company offered to the public and sold 1,210,000
shares of the Company's 9.00% Series A Preferred Shares, and sold to D&N Bank
31,781 shares of the Company's Common Stock. All shares of Common Stock are
held by the Bank.
RESULTS OF OPERATIONS
The Company reported net interest income of approximately $1,952,000.
Interest income from residential and commercial mortgage loans was $1,644,000
and $293,000 respectively, representing a total average yield of 7.57%. After
deduction of approximately $100,000 in advisory fees and other expenses, the
Company reported net income of approximately $1,852,000.
The Company paid $1,217,563 in Preferred Stock dividends and reported
net income per common share of $19.94 for the period from inception (March 18,
1997) through December 31, 1997.
MORTGAGE LOANS
As of December 31, 1997, the Company had $60,385,000 invested in
Mortgage Loans. This amount represents (I) the principal amount of mortgage
loans purchased with the initial portfolio, on July 21, 1997; (ii) the
principal amount of mortgage loans purchased in the interim period from July
21, 1997 to December 31, 1997, to replace runoff of the initial portfolio,
less (iii) collections of the principal amount of loans in the portfolio. All
Mortgage Loans were purchased from the Bank.
The following table reflects the composition of interest-earning assets
as a percentage of total interest-earning assets as of December 31, 1997:
<TABLE>
<CAPTION>
Amount Percent
------ -------
(In thousands)
<S> <C> <C>
Interest-Earning Asset Mix
Residential mortgage loans $52,784 87.4%
Commercial mortgage loans 7,601 12.6%
------- -------
Total interest-earning assets $60,385 100.0%
======= =======
</TABLE>
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<PAGE> 11
At December 31, 1997, there were two delinquent residential loans,
totaling $191,383, or .32% of the portfolio. The larger of these loans, a
fixed-rate loan totaling $116,117, paid-off on January 23, 1998.
As of December 31, 1997 there were no delinquent commercial mortgage
loans, and no residential or commercial mortgage loans in nonaccrual status.
INTEREST RATE RISK
The Company's income consists primarily of interest payments on Mortgage
Loans. Currently, the Company does not use any derivative products to manage
interest rate risk. If there is a decline in interest rates (as measured by
the indices upon which the interest rates of the Adjustable Rate Mortgage Loans
are based), then the Company will experience a decrease in income available to
be distributed to its shareholders. There can be no assurance that an interest
rate environment in which there is a significant decline in interest rates,
over an extended period of time, would not adversely affect the Company's
ability to pay dividends on the Series A Preferred Shares.
SIGNIFICANT CONCENTRATION OF CREDIT RISK
Concentration of credit risk arises when a number of customers engage in
similar business activities, or activities in the same geographical region, or
have similar economic features that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic
conditions. Concentration of credit risk indicates the relative sensitivity of
the Company's performance to both positive and negative developments affecting
a particular industry.
The Company's balance sheet exposure to geographic concentrations
directly affects the credit risk of the Mortgage Loans within the portfolio.
The
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<PAGE> 12
following table shows the Mortgage Loan portfolio by geographic area as of
December 31, 1997:
<TABLE>
<CAPTION>
Loans Amount Percent
- ----- ------ -------
(Dollars in thousands)
<S> <C> <C>
Residential Mortgage Loans:
Michigan $ 47,956 79.42%
Ohio 2,054 3.40%
Wisconsin 1,062 1.76%
Indiana 868 1.43%
Other (no state has more than 1%) 844 1.40%
-------- --------
Total Residential Mortgage Loans 52,784 87.41%
Commercial Mortgage Loans:
Michigan (all Commercial Mortgage Loans) 7,601 12.59%
-------- --------
Total Mortgage Loan Portfolio $ 60,385 100.00%
======== ========
</TABLE>
Approximately 79.4% of the Company's total Mortgage Loan portfolio are
loans secured by residential real estate properties located in Michigan.
Consequently, these residential mortgage loans may be subject to a greater risk
of default than other comparable residential mortgage loans in the event of
adverse economic, political or business developments and natural hazards in
Michigan that may affect the ability of residential property owners in Michigan
to make payments of principal and interest on the underlying mortgages.
In addition, all of the commercial mortgage properties underlying the
Company's commercial mortgage loans are located in Michigan. Consequently,
these commercial mortgage loans may be subject to greater risk of default than
other comparable commercial mortgage loans in the event of adverse economic,
political or business developments in Michigan that may affect the ability of
businesses in the area to make payments of principal and interest on the
underlying mortgages.
LIQUIDITY RISK MANAGEMENT
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments. In
managing liquidity, the Company takes into account various legal limitations
placed on a REIT as discussed below in REIT Qualification.
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<PAGE> 13
The Company's principal liquidity needs are to maintain the current
portfolio size through the acquisition of additional Mortgage Loans as Mortgage
Loans currently in the portfolio mature or prepay, and to pay dividends on the
Series A Preferred Shares and Common Shares held. The acquisition of
additional Mortgage Loans is intended to be funded with the proceeds obtained
from repayment of principal balances by the individual mortgagees. The Company
does not have and does not anticipate having any material capital expenditures.
To the extent that the Board of Directors determines that additional
funding is required, the Company may raise such funds through additional equity
offerings, debt financing or retention of cash flow (after consideration of
provisions of the Code requiring the distribution by a REIT of at least 95% of
its "REIT taxable income" and taking into account taxes that would be imposed
on undistributed income), or a combination of these methods. The
organizational documents of the Company do not contain any limitation on the
amount or percentage of debt, funded or otherwise, the Company might incur.
Notwithstanding the foregoing, the Company may not, without the approval of a
majority of the Independent Directors, incur debt for borrowed money other than
debt not in excess of 20% of the aggregate amount of net proceeds received from
the sale of the Series A Preferred Shares and Common Stock of the Company. Any
such debt incurred may include intercompany advances made by the Bank to the
Company.
The Company may also issue additional series of Preferred Stock.
However, the Company may not issue additional shares of Preferred Stock senior
to the Series A Preferred Shares without the consent of holders of at least
66 2/3% of the shares of Preferred Stock outstanding at that time, including the
Series A Preferred Shares, and the Company may not issue additional shares of
Preferred Stock on a parity with the Series A Preferred Shares without the
approval of a majority of the Company's Independent Directors.
REIT QUALIFICATION
As of December 31, 1997, the Company believed that it was in full
compliance with the REIT tax rules and that it will continue to qualify as a
REIT under the provisions of the Code. The Company calculates:
* its Qualified REIT Assets, as defined in the Code, to be 100% of
its total assets, as compared to the federal tax requirements that
at least 75% of its total assets must be Qualified REIT assets.
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<PAGE> 14
* that 99% of its revenues qualify for the 75% source of income
test and 100% of its revenues qualify for the 95% source of income
test under the REIT rules.
* none of the revenues were subject to the 30% income limitation
under the REIT rules.
The Company also met all REIT requirements regarding the ownership of
its common and preferred stocks and the 1997 annual distribution and
administrative requirements.
YEAR 2000 COMPLIANCE
D&N utilizes various electronic computer systems for the delivery of its
financial services products, for the maintenance of its financial and other
business records, and for general management purposes. Some of these systems
include legacy procedures that may have been designed and historic data that
may have been stored in such a manner that inconsistencies or failures might
occur when dates from the new millennium are considered. Commonly known as the
Year 2000 problem, a myriad of related potential computing difficulties face
entities that rely extensively upon computer systems. D&N's major computer
systems include financial control applications provided by M&I Data Services,
Inc.; mortgage lending applications provided by ALLTEL Information Services,
Inc. and FiTech, Inc.; and internally maintained micro-computer and network
systems which support management functions and communications. D&N is working
closely with its data services vendors to ascertain that their applications,
upon which the Bank relies, will be certifiable as compliant by the end of
1998.
D&N has determined that its internally maintained systems, consisting
primarily of a Lotus Notes server array and various workstation-based business
suite software, are Year 2000 complaint as currently installed.
D&N's duty is to monitor the progress of its vendors toward the
attainment of compliance and to test for compliance. At this time, D&N deems
the progress attained by each of its service bureau vendors to achieve Year
2000 compliance in a timely fashion to be acceptable.
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<PAGE> 15
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 130, "Reporting Comprehensive Income" and SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements. It also requires companies to report selected
information about operating segments in interim financial reports issued to
shareholders. These standards will be adopted effective January 1, 1998 and
are not expected to have any material effect on the Company's financial
statements.
OTHER MATTERS
Except for the historical information contained in this report,
certain statements made herein are forward-looking statements that involve
risks and uncertainties and are subject to various factors that could cause
actual results to differ materially from these statements. Factors that might
cause such a difference include, but are not limited to: regional and national
economic conditions, substantial changes in levels of market interest rates,
credit and other risks of lending and investment activities and competitive and
regulatory factors.
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<PAGE> 16
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of D&N Capital Corporation
We have audited the accompanying balance sheet of D&N Capital
Corporation as of December 31, 1997, and the related statements of income,
stockholders' equity and cash flows for the period from inception (March 18,
1997) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion of these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of D&N Capital
Corporation at December 31, 1997, and the results of its operations and its
cash flows for the period from inception (March 18, 1997) through December 31,
1997, in conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Detroit, Michigan
January 22, 1998
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<PAGE> 17
D&N CAPITAL CORPORATION
BALANCE SHEET
AT DECEMBER 31, 1997
(Dollars in thousands, except share data)
<TABLE>
<S> <C>
ASSETS:
Loans receivable:
Residential mortgage loans $ 52,784
Commercial mortgage loans 7,601
--------
Net loans receivable 60,385
Cash 2
Accrued interest receivable 358
--------
TOTAL ASSETS $ 60,745
========
LIABILITIES:
Due to Parent $ 202
Other liabilities 9
--------
TOTAL LIABILITIES 211
STOCKHOLDERS' EQUITY:
Preferred stock, par value $25.00;
2,500,000 authorized, 1,210,000
issued and outstanding 30,250
Common stock, par value $300.00
per share; 250,000 shares authorized,
31,781 shares issued and outstanding 9,534
Additional paid-in capital 20,716
--------
Total paid-in capital 60,500
Retained earnings 34
--------
TOTAL STOCKHOLDERS' EQUITY $ 60,534
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 60,745
========
</TABLE>
See Notes to Financial Statements.
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<PAGE> 18
D&N CAPITAL CORPORATION
STATEMENT OF INCOME
For period from inception (March 18, 1997) through December 31, 1997
(Dollars in thousands, except share data)
<TABLE>
<S> <C>
INTEREST INCOME:
Loans:
Residential mortgage loans $ 1,644
Commercial mortgage loans 293
-------
Total loan interest income 1,937
Intercompany interest 15
-------
TOTAL INTEREST INCOME 1,952
NONINTEREST EXPENSE
Advisory fees 57
Other expenses 43
-------
TOTAL NONINTEREST EXPENSE 100
NET INCOME $ 1,852
PREFERRED STOCK DIVIDENDS PAID 1,218
-------
NET INCOME APPLICABLE TO COMMON SHARES 634
COMMON STOCK DIVIDENDS PAID 600
-------
RETAINED EARNINGS INCREASE $ 34
=======
NET INCOME PER COMMON SHARE $ 19.94
=======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 31,781
=======
</TABLE>
See Notes to Financial Statements
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<PAGE> 19
D&N CAPITAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the period from inception (March 18, 1997) through December 31, 1997
(In thousands)
<TABLE>
<S> <C>
PREFERRED STOCK:
Balance at beginning of period $ --
Issuance of preferred stock 30,250
--------
Balance at end of period 30,250
--------
COMMON STOCK:
Balance at beginning of period --
Issuance of common stock 9,534
--------
Balance at end of period 9,534
--------
ADDITIONAL PAID IN CAPITAL:
Balance at beginning of period --
Issuance of common stock 22,247
Less: Preferred Stock offering costs (1,531)
--------
Balance at end of period 20,716
--------
RETAINED EARNINGS:
Balance of beginning of period --
Net income 1,852
Preferred dividends (1,218)
Common dividends (600)
--------
Balance at end of period 34
--------
TOTAL STOCKHOLDERS' EQUITY $ 60,534
========
</TABLE>
See Notes to Financial Statements
- 17 -
<PAGE> 20
D&N CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
For the period from inception (March 18, 1997) through December 31, 1997
(Dollars in thousands)
OPERATING ACTIVITIES:
<TABLE>
<S> <C>
Net income $ 1,852
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in:
Accrued interest receivable (358)
Due to Parent 202
Accounts payable 9
----------
Net cash provided by operating activities 1,705
----------
INVESTING ACTIVITIES:
Purchase of mortgage loans at inception (60,524)
Purchase of mortgage loans after inception (6,694)
Principal payments received 6,833
----------
Net cash (used) by investing activities (60,385)
----------
FINANCING ACTIVITIES:
Proceeds from common stock issued 31,781
Proceeds from preferred stock issued 30,250
Origination and underwriting costs (1,531)
Preferred stock dividends paid (1,218)
Common stock dividends paid (600)
----------
Net cash provided by financing activities 58,682
----------
NET INCREASE IN CASH 2
CASH AT BEGINNING OF PERIOD --
----------
CASH AT DECEMBER 31, 1997 $ 2
----------
</TABLE>
See Notes to Financial Statements.
- 18 -
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
D&N Capital Corporation (the "Company"), is a Delaware corporation
incorporated on March 18, 1997 and created for the purpose of acquiring and
holding real estate assets. The Company is a wholly-owned subsidiary of D&N
Bank (the "Bank"), a federally chartered savings bank, which itself is wholly
owned by D&N Financial Corporation ("D&N"), a financial services holding
company organized under the laws of the state of Delaware.
On July 17, 1997, the Company offered to the public and sold 1,210,000
shares of the Company's 9.00% noncumulative preferred stock, Series A, $25 par
value per share, totaling $30,250,000 (the "Series A Preferred Shares"), and
sold to D&N Bank, 31,781 shares of the Company's common stock, $300 par value
($1,000 cost) per share, net of offering costs, totaling $30,250,000 (the
"Common Stock"). All shares of common stock are held by the Bank. The Series
A Preferred Shares are traded on the NASDAQ stock market, under the symbol as
"DNFCP".
The Company used the net proceeds raised from the initial public
offering of the Series A Preferred Shares and the sale of the Common Stock to
the Bank to purchase from the Bank the Company's initial portfolio of
$60,524,000 of residential and commercial mortgage loans ("Mortgage Loans") at
their estimated fair values.
The accounting and financial reporting policies of the Company conform
to generally accepted accounting principles and prevailing industry practices.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mortgage Loans:
Mortgage loans are carried at the principal amount outstanding, plus
premium or discount, upon purchase from the Bank. Interest income is
- 19 -
<PAGE> 22
recognized using the interest method, which approximates a level rate of return
over the term of the loan.
Allowance for Loan Losses:
The allowance for possible losses on loans is maintained at a level
believed adequate by management to absorb potential losses from impaired loans
as well as losses from the remainder of the portfolio. Management's
determination of the level of the allowance is based upon evaluation of the
portfolio, past experience, current economic conditions, size and composition
of the portfolio, collateral location and values, cash flow positions, industry
concentrations, delinquencies and other relevant factors. At December 31,
1997, there was no allowance for losses on loans.
Accounts Payable to Parent:
Accounts payable to parent represents the Common Stock Dividend due
the Bank, plus advisory fees and other expenses paid by the Bank for the
Company, offset partially, by principal and interest payments due, which the
Bank owes to the Company.
Offering Costs:
Costs incurred in connection with the raising of capital through the
sale of preferred stock were charged against stockholders' equity upon the
issuance of Common Shares to the Bank.
Dividends:
Preferred Stock. Dividends on the Series A Preferred Shares are
noncumulative from issuance (July 17, 1997) and are payable quarterly on the
last day of March, June, September and December at a rate of 9.00% per annum of
the liquidation preference ($25.00 per share).
Common Stock. The Bank, as shareholder, is entitled to receive
dividends when, as and if declared by the Board of Directors from funds legally
available after all preferred dividends have been paid.
Net Income Per Common Share:
Net income per share is computed by dividing net income after
preferred dividends by the weighted average number of common shares
outstanding. Diluted earnings per share is not presented, as there are no
outstanding dilutive securities.
The Company has elected to be treated as a Real Estate Investment
Trust ("REIT") pursuant to provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). As a result, the Company will not be subject to federal
income tax on its taxable income to the extent it distributes at least 95% of
its
- 20 -
<PAGE> 23
taxable income to its shareholders and it meets certain other requirements as
defined in the Code. The Company intends to maintain its qualification as a
REIT for federal income tax purposes. The Company intends to make qualifying
dividends (for federal income tax purposes) of all of its taxable income to its
Common and Preferred Stock shareholders, a portion of which may be in the form
of "consent" dividends, as defined under the Code. As a result, the Company
has made no provision for income taxes in the accompanying financial
statements.
NOTE 3 - MORTGAGE LOANS
Mortgage loans consist of both residential and commercial mortgage
loans. Residential mortgage loans consist of Adjustable Rate Mortgages
("ARMs") and Fixed Rate Mortgages ("FRMs"). The commercial mortgage loans
consist of Fixed and Variable Rate loans, a majority of which have balloon
payments.
The following represents the Mortgage Loan portfolio as of December
31, 1997 (in thousands):
<TABLE>
<S> <C>
Residential mortgage loans $ 52,784
Commercial mortgage loans 7,601
--------
Total $ 60,385
========
</TABLE>
Each of the Mortgage Loans are secured by a mortgage, deed of trust or
other security instrument which created a first lien on the residential
dwellings and/or commercial property.
NOTE 4 - DIVIDENDS
For the period from inception (March 18, 1997) through December 31,
1997, the Company paid dividends on the Series A Preferred Shares in the amount
of $1,217,563, and dividends on the Common Shares of $600,000.
NOTE 5 - RELATED PARTY TRANSACTION
The Company has entered into an Advisory Agreement (the "Advisory
Agreement") with the Bank (the "Advisor") requiring an annual payment of
- 21 -
<PAGE> 24
$125,000. The Advisor provides advice to the Board of Directors and manages
the operations of the Company as defined in the Agreement. The Agreement has
an initial term of five years commencing on September 9, 1997 and automatically
renews for additional five year periods, unless the Company delivers a notice
of nonrenewal to the Advisor as defined in the Advisory Agreement. Advisory
fees incurred for the period from inception (March 18, 1997) through December
31, 1997 totaled approximately $57,000.
The Company also entered into two servicing agreements with the Bank
for the servicing of the commercial and residential mortgage loans. Pursuant
to each servicing agreement, the Bank performs the servicing of the Mortgage
Loans owned by the Company, in accordance with normal industry practice. The
Servicing Agreements can be terminated without cause upon a thirty day advance
notice given to the Servicer. The servicing fee is 0.375% of the outstanding
principal balance for the residential mortgage loans and commercial mortgage
loans. The servicing fees are netted out of interest, prior to remittance by
the Bank to the Company.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, entitled
"Disclosures About Fair Value of Financial Instruments" ("SFAS 107"), requires
Companies to disclose fair value information about financial instruments for
which it is practicable to estimate values, whether or not such financial
instruments are recognized on the balance sheet. Fair value is defined as the
amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation, and is best evidenced by a quoted market price, if one exists.
The calculation of estimated fair value is based on market conditions at a
specific point in time and may not be reflective of future fair values.
Certain financial instruments and all nonfinancial instruments are
excluded from the scope of SFAS 107. Accordingly, the fair value disclosures
required by SFAS 107 may provide only a partial estimate of the fair value of
the Company. Fair values among REITs are not comparable due to the wide-range
of limited valuation techniques and numerous estimates which must be made. This
lack of an objective valuation standard, introduces a great degree of
subjectivity to these derived or estimated fair values. Therefore, readers are
cautioned against using this information for purposes of evaluating the
financial condition of the Company compared with other REITs.
- 22 -
<PAGE> 25
Loans:
Loans were valued using methodologies suitable for each loan type.
These methodologies and the key assumptions made are discussed below.
The fair value of the Company's commercial loans was estimated by
assessing the two main risk components: credit risk and interest rate risk.
The estimated cash flows were discounted, using rates appropriate for each
maturity that incorporates the effects of interest rate changes.
For residential mortgage loans for which market rates for comparable
loans are readily available, the fair value was estimated by discounting
expected cash flows, adjusted for prepayments. The discount rates used for
residential mortgages were secondary market yields for comparable
mortgage-backed securities, adjusted for risk. These discount rates
incorporated the effects of interest rate changes only, since the estimated
cash flows were previously adjusted for credit risk.
The book value and fair value of Mortgage Loans at December 31, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
Book Value Fair Value
---------- ----------
<S> <C> <C>
Residential Mortgage Loans $ 52,784 $ 52,796
Commercial Mortgage Loans 7,601 7,607
-------- --------
Total Portfolio $ 60,385 $ 60,403
======== ========
</TABLE>
Assets and liabilities in which carrying value approximates fair
value:
The carrying values of certain financial assets and liabilities,
including cash, accrued interest receivable, due-to-parent and other
liabilities, are considered to approximate their respective fair value due to
their short-term nature and negligible exposure to credit losses.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 23 -
<PAGE> 26
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE
CORPORATION
The persons who are directors and executive officers of the Company
are as follows:
<TABLE>
<CAPTION>
Name Position and Office Held
- ------------------------------------ --------------------------------------------------
<S> <C>
George J. Butvilas Director and Chairman
Kenneth R. Janson Director, President and Chief Executive Officer
Richard E. West Director and Vice President
James Bogan Director
William J. McGarry Director
Gail A. Mroz Director
Daniel D. Greenlee Treasurer and Chief Financial Officer
Peter L. Lemmer Secretary
</TABLE>
The following is a summary of the experience of the executive officers
and directors of the Company:
George J. Butvilas, age 52, Director and Chairman; joined D&N Bank as
President in May 1990. He was named Chief Executive Officer of the Bank in
1991 and Chief Executive Officer of D&N in 1992. Prior to joining the Bank, he
had over 16 years experience as a commercial and community banker, most
recently as Executive Vice President and Director of Boulevard Bancorp, Inc. of
Chicago, Illinois.
Kenneth R. Janson, age 46, Director, President and Chief Executive
Officer; is also Executive Vice President/Chief Financial Officer and Treasurer
of D&N and the Bank. Prior to joining the Bank in May 1988 as Vice
President/Financial Analysis, he was affiliated with various universities, the
last six years as Associate Professor of Accounting at Michigan Technological
University. Mr. Janson is responsible for directing the accounting, investment
and investor relations functions for the Bank and D&N.
Richard E. West, age 51, Director and Vice President; is also
Executive Vice President/Wholesale Banking of the Bank. Prior to joining the
Bank in January 1990, he was Servicing Manager for 20 years with Rothschild
Financial Corporation and Valley National Bank of Arizona. Mr. West is
responsible for directing the loan servicing, residential lending, consumer
lending, bank operations and information systems functions of the Bank.
- 24 -
<PAGE> 27
James Bogan, age 46, Director; is also Chief Executive Officer of
Portage Health System, Hancock, Michigan. Prior to joining the Health System in
June 1989, he held various positions involving health care management, the last
three years as Chief Operating Officer of Trinity Medical Center, Minot, North
Dakota. Mr. Bogan is responsible for directing the affairs of Portage Health
System, which include a 44 bed acute care unit, a 30 bed nursing home unit, a
medical group including 15 physicians, a home health agency, and two retail
pharmacies.
William J. McGarry, age 54, Director; is also the Treasurer and Chief
Financial Officer of Michigan Technological University located in Houghton,
Michigan. He was named to his current position at the University in December
1992, after serving two years as a senior associate with Coopers & Lybrand in
Boston. Prior to his term with Cooper & Lybrand, Mr. McGarry served as
principal consultant with Information Associates of Rochester, New York and was
vice president in charge of the large financial services management consulting
and systems integration practice of SEI Corporation of Cambridge,
Massachusetts. He has also served as senior director of finance and
administration at Rensselaer Polytechnic Institute and as director of
administrative systems at Lehigh University.
Gail A. Mroz, age 45, Director; is also the Finance Director and
Controller of Copper Country Mental Health in Houghton, Michigan. Ms. Mroz
has held a variety of financial management positions with Copper Country Mental
Health since joining the agency in 1988. She has also been an instructor for
the School of Business and Engineering Administration at Michigan Technological
University.
Daniel D. Greenlee, age 45, Treasurer and Chief Financial Officer; is
also Senior Vice President/Controller of the Bank. He has been with the Bank
in various capacities since 1984 and is presently responsible for the
accounting, financial and regulatory reporting, financial analysis, tax and
risk management functions of the Bank.
Peter L. Lemmer, age 40, Secretary; is also Senior Vice
President/General Counsel of D&N and the Bank. Prior to joining the Bank in
October 1990, he held various positions involving legal services, the last five
years as Senior Vice President/Compliance and Vice President, Associate General
Counsel/Compliance Officer with Cal America Savings, later known as Columbus
Saving, and American Federal Bank, respectively. Mr. Lemmer is responsible for
the legal and regulatory functions of the Bank and D&N.
- 25 -
<PAGE> 28
INDEPENDENT DIRECTORS
The Company's Certificate of Designation establishing the Series A
Preferred Shares requires that, so long as any Series A Preferred Shares are
outstanding, certain actions by the Company be approved by a majority of the
Independent Directors of the Company. Messrs. Bogan, McGarry and Ms. Mroz are
the Company's Independent Directors. When there are only two Independent
Directors, any action that requires the approval of a majority of Independent
Directors must be approved by both Independent Directors.
If at any time the Company fails to declare and pay a quarterly
dividend on the Series A Preferred Shares, the number of directors
constituting the Board of Directors of the Company will be increased by two at
the Company's next annual meeting and the holders of Series A Preferred Shares,
voting together with the holders of any other outstanding series of Preferred
Stock as a single class, will be entitled to elect the two additional directors
to serve on the Company's Board of Directors. Any member of the Board of
Directors elected by holders of the Company's Preferred Stock will be deemed to
be an Independent Director for purposes of the actions requiring the approval
of a majority of the Independent Directors.
AUDIT COMMITTEE
The Company's audit committee reviews the engagement and independence
of its auditors. The audit committee also reviews the adequacy of the
Company's internal accounting controls. The audit committee is comprised of
Messrs. Bogan, McGarry and Ms. Mroz.
ITEM 11: EXECUTIVE COMPENSATION
The Company pays the Independent Directors of the Company fees for
their services as directors. The Independent Directors will receive a fee of
$250 for attendance (in person or by telephone) at each meeting of the Board of
Directors and $100 for each meeting of a Committee of the Board. However,
multiple fees shall not be paid for two or more meetings attended on the same
day. The Company will not pay any compensation to its officers or employees
of the Bank, or to directors who are not Independent Directors.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
None.
- 26 -
<PAGE> 29
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below are certain transactions between the Company and its
directors and affiliates. Management believes that the transactions with
related parties described herein have been conducted on substantially the same
terms as similar transactions with unrelated parties.
The Bank administers the day-to-day operations of the Company and is
entitled to receive fees in connection with the Advisory Agreement. Advisory
fees paid to parent for the period ended December 31, 1997 totaled $57,000.
The Bank services the Residential Mortgage Loans included in the
Company's portfolio and is entitled to receive fees in connection with the
Servicing Agreement.
The Company had cash balances of approximately $1,661 as of December
31, 1997 held in a demand deposit account with the Bank.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) The following financial statements of the Company are
included in Item 8 of this report:
Report of Independent Public Accountants
Balance Sheet at December 31, 1997
Statement of Income for period from inception (March 18, 1997)
through December 31, 1997
Statement of Stockholders' Equity for the period from inception
(March 18, 1997) through December 31, 1997
Statement of Cash Flows for the period from inception
(March 18, 1997) through December 31, 1997
Notes to Financial Statements
(a)(2) All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instruction or are
inapplicable and therefore have been omitted.
- 27 -
<PAGE> 30
(a)(3) Exhibits:
*12(a) Computation of Ratio of Earnings to Fixed charges.
*12(b) Computation of Ratio of Earnings to fixed charges
and Preferred Stock dividend requirements.
*27 Financial Data Schedule
(b) No reports on Form 8-K were issued during the three
months ended December 31, 1997.
_______________
* Filed herewith.
- 28 -
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the section 13 and 15(d) of the
Securities Exchange Act of 1934, the Registrant as duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
D&N CAPITAL CORPORATION
(Registrant)
Date: March 27, 1998 By: /s/ KENNETH R. JANSON
----------------------------- -------------------------
KENNETH R. JANSON
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ GEORGE J. BUTVILAS By: /s/ KENNETH R. JANSON
------------------------------- --------------------------------
GEORGE J. BUTVILAS KENNETH R. JANSON
Director, Chairman of the Board Director and President
Date March 27, 1998 Date March 27, 1998
------------------------------- -------------------------------
By: /s/ RICHARD E. WEST By: /s/ JAMES BOGAN
------------------------------- --------------------------------
RICHARD E. WEST JAMES BOGAN
Director and Vice President Director
Date March 27, 1998 Date March 27, 1998
------------------------------- --------------------------------
By: /s/ WILLIAM J. MCGARRY By: /s/ GAIL A. MROZ
------------------------------- --------------------------------
WILLIAM J. MCGARRY GAIL A. MROZ
Director Director
Date March 27, 1998 Date March 27, 1998
------------------------------- --------------------------------
<PAGE> 32
By: /s/ DANIEL D. GREENLEE
-------------------------------
DANIEL D. GREENLEE
Treasurer and
Chief Financial Officer
Date March 27, 1998
-------------------------------
By: /s/ PETER L. LEMMER
-------------------------------
PETER L. LEMMER
Secretary
Date March 27, 1998
-------------------------------
<PAGE> 33
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*12(a) Computation of Ratio of Earnings to Fixed charges.
*12(b) Computation of Ratio of Earnings to fixed charges
and Preferred Stock dividend requirements.
*27 Financial Data Schedule
(b) No reports on Form 8-K were issued during the three
months ended December 31, 1997.
- ---------------
* Filed herewith.
- 28 -
<PAGE> 1
EXHIBIT 12(A)
D&N CAPITAL CORPORATION
Computation of ratio of earnings to fixed charges
<TABLE>
<CAPTION>
For period from
Inception (March 18, 1997)
Through December 31,1997
(In thousands, except ratio):
<S> <C>
Net income $ 1,852
Fixed charges:
Advisory fees 57
Total fixed charges 57
Earnings before fixed charges $ 1,909
Fixed charges, as above $ 57
Ratio of earnings to fixed charges 33.5
</TABLE>
<PAGE> 1
EXHIBIT 12(B)
D&N CAPITAL CORPORATION
Computation of ratio of earnings to fixed charges
and preferred stock dividend requirements
<TABLE>
<CAPTION>
For period from
Inception (March 18, 1997)
Through December 31,1997
(In thousands, except ratio):
<S> <C>
Net income $ 1,852
Fixed charges:
Advisory fees 57
Total fixed charges 57
Earnings before fixed charges 1,909
Fixed charges, as above 57
Preferred stock dividend requirements 1,218
Fixed charges including preferred
stock dividends $ 1,275
Ratio of earnings to fixed charges and
preferred stock dividend requirements 1.50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-18-1997
<PERIOD-END> DEC-31-1997
<CASH> 2
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 60,385
<ALLOWANCE> 0
<TOTAL-ASSETS> 60,745
<DEPOSITS> 0
<SHORT-TERM> 202
<LIABILITIES-OTHER> 9
<LONG-TERM> 0
0
30,250
<COMMON> 30,250
<OTHER-SE> 34
<TOTAL-LIABILITIES-AND-EQUITY> 60,534
<INTEREST-LOAN> 1,937
<INTEREST-INVEST> 0
<INTEREST-OTHER> 15
<INTEREST-TOTAL> 1,952
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,952
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 100
<INCOME-PRETAX> 1,852
<INCOME-PRE-EXTRAORDINARY> 1,852
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,852
<EPS-PRIMARY> 19.94
<EPS-DILUTED> 19.94
<YIELD-ACTUAL> 7.57
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
