<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
10549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) February 28, 1996
D&N Financial Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware O-17137 38-2790646
- --------------------------------------------------------------------------------
(State or Other Juris- (Commission (I.R.S.
diction of Incorporation) File Number) Identification)
400 Quincy Street, Hancock, Michigan 49930
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code (906) 482-2700
---------------------
<PAGE> 2
ITEM 5. Other Events
As previously announced, D&N Financial Corporation (the "Registrant"),
D&N Bank and Macomb Federal Savings Bank ("Macomb") entered into an Agreement
and Plan of Reorganization dated as of November 8, 1995.
Filed herewith as an exhibit is Macomb's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1995 filed by Macomb with the Office of
Thrift Supervision pursuant to the Securities Exchange Act of 1934.
ITEM 7. Financial Statements and Exhibits
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits
(99) Additional exhibits.
a. A copy of Macomb's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995 is filed herewith as an
Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
D&N Financial Corporation has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
D&N FINANCIAL CORPORATION
Date: February 28, 1996 /s/ George J. Butvilas
-----------------------------
George J. Butvilas
President and
Chief Executive Officer
<PAGE> 3
D&N FINANCIAL CORPORATION
FORM 8-K
-------------------
INDEX OF EXHIBITS
Exhibit Page
Number Number
- ------ ------
(99) Additional exhibits
a. A copy of Macomb's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995 is filed herewith as an
Exhibit.
<PAGE> 1
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
OTS Docket Number 6092
MACOMB FEDERAL SAVINGS BANK
---------------------------
(Exact name of registrant as specified in its charter)
United States 38-1524859
------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
23505 Greater Mack, St. Clair Shores, Michigan 48080
---------------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (810) 771-2500
N/A
---------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check 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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, par value $1.00 per share 186,604
- --------------------------------------- -------
Class Outstanding at 02/7/96
<PAGE> 2
MACOMB FEDERAL SAVINGS BANK
INDEX
<TABLE>
Page
PART I FINANCIAL INFORMATION ----
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition - June 30,
1995 and December 31, 1995 (unaudited) 1-2
Statements of Operations - Three and six month periods ended December 31, 1994
and December 31, 1995 (unaudited) 3-4
Statements of Cash Flows - Six month periods ended
December 31, 1994 and December 31, 1995 (unaudited) 5-6
Statement of Changes in Stockholders' Equity - Six months ended
December 31, 1995 (unaudited) 7
Notes to Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and reports on Form 8-K 15
Signatures 16
Exhibit II 17
</TABLE>
<PAGE> 3
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
As of June 30, 1995 and December 31, 1995
A S S E T S
<TABLE>
<CAPTION>
June 30, December 31,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Cash and equivalents $ 2,490,204 $ 5,940,661
Certificates of deposit 2,550,000 1,084,000
Loans receivable, net 21,270,129 21,062,573
U.S. Treasury Bills, $ held-to-maturity
(estimated market value of $8,852,109
on June 30, 1995 and $7,942,307 on
December 31, 1995) 8,832,902 7,948,945
Mortgage-backed securities, held-to-
maturity (estimated market value of
$4,413,680 on June 30, 1995 and
$4,182,208 on December 31, 1995) 4,480,111 4,216,440
Accrued interest receivable, net 137,432 141,291
Stock in Federal Home Loan Bank, at cost 207,800 207,800
Stock in Federal Home Loan Mortgage
Corporation, available-for-sale, at
fair value 243,243 297,594
Property and equipment, net 81,828 79,789
Deferred federal income taxes 149,480 149,601
Policy cash value - Officers' and
directors' benefit plan 1,300,800 1,325,983
Other assets 132,141 130,329
------------ ------------
TOTAL ASSETS $ 41,876,070 $ 42,585,006
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 1
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1995 1995
----------- ------------
(Unaudited)
<S> <C> <C>
CURRENT-LIABILITIES
Deposits $ 34,256,150 $ 35,063,737
Advances from borrowers for taxes
and insurance 528,766 233,101
E.S.O.P. loan payable - Comerica Bank -
Current portion 36,000 36,000
Employees' and directors' pension
fund payable 854,934 908,251
Other liabilities 65,020 49,324
------------ ------------
Total Current Liabilities $ 35,740,870 $ 36,290,413
------------ ------------
LONG-TERM LIABILITIES
E.S.O.P. loan payable - Comerica Bank 45,000 27,000
------------ ------------
TOTAL LIABILITIES $ 35,785,870 $ 36,317,413
------------ ------------
STOCKHOLDERS' EQUITY
Capital Stock
Authorized 3,000,000 shares common,
issued and outstanding 186,604 shares
at $1 par value $ 186,604 $ 186,604
Additional Paid-in Capital 1,429,939 1,429,939
Retained Earnings (Substantially
restricted) 4,403,330 4,526,851
Not unrealized appreciation on
available-for sale securities, net of
tax of $77,957 as of June 30, 1995
and $96,436 as of December 31, 1995 151,327 187,199
------------ ------------
Totals $ 6,171,200 $ 6,330,593
Less: Unearned E.S.O.P. shares 81,000 63,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 6,090,200 $ 6,267,593
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 41,876,070 $ 42,585,006
============ ============
</TABLE>
See accompanying notes to financial statements.
Page 2
<PAGE> 5
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF OPERATIONS
Three and Six Month Periods Ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1994 1995 1994 1995
----------------------------- -------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 414,783 $ 433,083 $ 825,772 $ 870,689
Interest on investments 4,316 4,179 8,027 10,519
Interest on mortgage-backed
securities 67,466 71,011 137,170 134,755
Other 176,753 216,142 322,498 427,123
--------- --------- ---------- ----------
TOTAL INTEREST INCOME $ 663,318 $ 724,415 $1,293,467 $1,443,086
--------- --------- ---------- ----------
INTEREST EXPENSES
Interest on deposits $ 366,106 $ 453,117 $ 703,790 $ 894,157
Interest on borrowings 1,784 1,583 3,908 2,953
--------- --------- ---------- ----------
TOTAL INTEREST EXPENSE $ 367,890 $ 454,700 $ 707,698 $ 897,110
--------- --------- ---------- ----------
NET INTEREST INCOME $ 295,428 $ 269,715 $ 585,769 $ 545,976
PROVISION FOR LOSSES ON LOANS -- -- -- --
--------- --------- ---------- ----------
NET INTEREST INCOME
AFTER PROVISION FOR
LOSSES ON LOANS $ 295,428 $ 269,715 $ 585,769 $ 545,976
--------- --------- ---------- ----------
OTHER INCOME
Charges and other fees $ 5,888 $ 6,386 $ 11,559 $ 11,569
Net gain on sale of real
estate owned -- -- 428 1,295
Other -- -- 2 --
--------- --------- ---------- ----------
TOTAL OTHER INCOME $ 5,888 $ 6,386 $ 11,989 $ 12,864
--------- --------- ---------- ----------
OTHER EXPENSES
Salaries and benefits $ 162,358 $ 153,226 $ 290,740 $ 272,605
Occupancy 4,455 4,544 10,802 10,885
Insurance 13,281 23,536 26,647 46,741
Legal, audit and
examination fees 13,112 3,773 37,132 27,421
Office supplies and postage 3,893 2,310 6,809 5,525
State intangibles and single
business tax (882) 533 758 13,267
Dues and assessments 6,701 5,858 12,333 9,496
Other 1,794 4,267 5,367 7,243
--------- --------- ---------- ----------
TOTAL OTHER EXPENSES $ 204,712 $ 198,047 $ 390,588 $ 393,183
--------- --------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE> 6
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF OPERATIONS (CONTINUED)
Three and Six Month Periods Ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1994 1995 1994 1995
---------------------------- -----------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET INCOME BEFORE INCOME TAXES $ 96,604 $ 78,054 $ 207,170 $ 165,657
-------- -------- --------- ---------
FEDERAL INCOME TAX
Current $ 19,307 $ 6,275 $ 52,003 $ 60,736
Deferred 4,240 10,664 6,501 (18,600)
-------- -------- --------- ---------
TOTAL FEDERAL INCOME TAX $ 23,547 $ 16,939 $ 58,504 $ 42,136
-------- -------- --------- ---------
NET INCOME $ 73,057 $ 61,115 $ 148,666 $ 123,521
======== ======== ========= =========
AVERAGE SHARES OUTSTANDING 176,404 180,004 175,954 179,554
======== ======== ========= =========
EARNINGS PER SHARE $ .41 $ .34 $ .84 $ .69
======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE> 7
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
Six Month Periods Ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Period Ended Period Ended
December 31, 1994 December 31, 1995
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,666 $ 123,521
----------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $ 1,839 $ 3,130
Interest on mortgage-backed securities (3,077) (3,075)
Interest on U.S. Treasury bills -- (264,730)
E.S.O.P. compensation expense 18,000 l8,000
Provision for deferred income taxes 6,501 (18,600)
Interest paid in advance (1,043) 895
(Increase) Decrease in:
Accrued interest receivable (114,952) (3,859)
Prepaid expenses 30,642 1,292
Accounts receivable 517 520
Increase (Decrease) in:
Accrued interest on deposits 9,771 --
Pension fund payable 78,429 53,317
Old outstanding checks and money orders (1,020) --
Accrued expenses and accounts payable (14,997) (28,187)
Federal income tax payable -- 11,596
----------- ----------
Total Adjustments $ 10,610 $ (229,701)
----------- ----------
Net Cash Provided (Used) by
Operating Activities $ 159,276 $ (106,180)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in certificates of deposit $ (888,000) $ 1,466,000
Purchased loans (1,483,000) (1,445,140)
Originated loans -- (19,500)
Principal collections on loans 1,566,102 1,672,196
Purchase of U.S. Treasury bills (5,772,383) (9,851,313)
Proceeds from repayment on
mortgage-backed securities 295,612 266,746
Proceeds from repayment on U.S.
Treasury Bills 1,000,000 11,000,000
Capital expenditures (4,629) (1,091)
Net increase in policy cash value -
Officers' and directors' benefit plan (19,425) (25,183)
----------- -----------
Net Cash Provided (Used) by
Investing Activities $(5,305,723) $ 3,062,715
----------- -----------
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE> 8
MACOMB FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS (CONTINUED)
Six Month Periods Ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Period Ended Period Ended
December 31, 1994 December 31, 1995
----------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances by borrowers $ (253,815) $ (295,665)
Payments to E.S.O.P. (18,000) (18,000)
Net increase (decrease) in customer savings 1,150,895 807,587
------------ -----------
Net Cash Provided by
Financing Activities $ 879,080 $ 493,922
------------ -----------
NET INCREASE (DECREASE)
IN CASH AND EQUIVALENTS $ (4,267,367) $ 3,450,457
CASH AND EQUIVALENTS, BEGINNING OF
PERIODS 8,703,457 2,490,204
------------ -----------
CASH AND EQUIVALENTS, END OF PERIODS $ 4,436,090 $ 5,940,661
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Income taxes $ 21,090 $ 3,188
Interest 698,151 911,052
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE> 9
MACOMB FEDERAL SAVINGS BANK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended December 31, 1995
<TABLE>
<CAPTION>
Retained Net Unrealized
Additional Earnings, Appreciation on Unearned
Common Paid-in Substantially Available-For-Sale ESOP
Stock Capital Restricted Stock in FHLMC Total Shares Total
--------- ----------- ------------- ------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JULY 1, 1995 $186,604 $ 1,429,939 $ 4,403,330 $ 151,327 $6,171,200 $(81,000) $6,090,200
Net income for -- -- 123,521 -- 123,521 -- 123,521
the period
Net change in
unrealized appreciation
on available-for
-sale stock, net -- -- -- 35,872 35,872 -- 35,872
of $18,479 tax
Value of E.S.O.P. -- -- -- -- -- 18,000 18,000
shares released -------- ----------- ----------- --------- ----------- ---------- ---------
BALANCE, December $186,604 $ 1,429,939 $ 4,526,851 $ 187,199 $ 6,330,593 $ (63,000) $6,267,593
31, 1995 ======== =========== =========== ========= =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 7
<PAGE> 10
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Basis of Presentation:
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation. The results of operations for the six months ended
December 31, 1995, are not necessarily indicative of the results that may be
expected for the entire year. The interim financial information should be read
in conjunction with the financial statements and notes in the 1995 annual
report of Macomb Federal Savings Bank (The "Bank").
Earnings per Share:
Earnings per share are calculated based on adjusting the weighted average
number of shares outstanding during the period to reflect the unreleased shares
held by the E.S.O.P. As principal payments are made, compensation expense is
recorded and shares become outstanding for earnings per share (EPS)
computations. The weighted average shares outstanding during the three month
period ended December 31, 1994 was 176,404, for the six month period ended
December 31, 1994 was 175,954, for the three month period ended December 31,
1995 was 180,004, and for the six month period ended December 31, 1995 was
179,554.
Provision for Probable Losses:
A provision for probable losses on loans and real estate is charged to
operations based upon management's evaluation of the potential losses in its
loan and real estate portfolios. The major factors considered in evaluating
potential losses are recent loss experience, current economic conditions, and
the overall balance and composition of the loan and real estate portfolios.
The following table sets forth certain information concerning the Bank's
non-performing assets:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1995
-------- -----------
<S> <C> <C>
Accruing loans past due more than
90 days $ 0 $ 24,082
Nonaccrual loans 0 52,484
Real estate held for redemption 0 0
----- --------
Total non-performing assets $ 0 $ 76,566
===== ========
</TABLE>
Income Taxes:
The Bank's provision for federal income taxes, for all the periods presented,
varies from the statutory rates due principally from the recognition of income
and expenses on the cash basis of accounting for income tax purposes.
Page 8
<PAGE> 11
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MORTGAGE-BACKED SECURITIES AND U.S. TREASURY BILLS:
The carrying value and estimated market value of mortgage-backed securities
and U.S. Treasury Bills are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1995
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Held-to-Maturity
Federal Home Loan
Corporation $1,649,891 $ -- $ 26,010 $1,623,881
GNMA Certificates 856,953 -- 30,654 826,299
FNMA Certificates 1,973,267 -- 9,767 1,963,500
----------- ----------- ---------- ----------
Totals $4,480,111 $ -- $ 66,431 $4,413,680
=========== =========== ========== ==========
Held-to-Maturity
U.S. Treasury Bills $8,832,902 $ 19,207 $ -- $8,852,109
=========== =========== ========== ==========
</TABLE>
All maturities are within twelve months.
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Held-to-Maturity
Federal Home Loan
Corporation $1,518,474 $ -- $ 18,131 $1,500,343
GNMA certificates 722,323 -- 22,333 699,990
FNMA certificates 1,975,643 6,232 -- 1,981,875
----------- ----------- ---------- ----------
Totals $4,216,440 $ 6,232 $ 40,464 $4,182,208
=========== =========== ========== ==========
Held-to-Maturity
U.S. Treasury Bills $7,948,945 $ -- $ 6,638 $7,942,307
=========== =========== ========== ==========
</TABLE>
All maturities are within twelve months.
* * * * *
Page 9
<PAGE> 12
MACOMB FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PART I. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest earned on its loan and
investment portfolios and its cost of funds, consisting of the interest paid on
its deposits. Operating results are also affected to a lesser extent by the
type of lending, fixed rate versus adjustable or short-term, each of which has
a different rate and fee structure. The Bank's operating expenses principally
consist of employee compensation, occupancy expenses, federal insurance
premiums and other general and administrative expenses. The Bank's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and actions of regulatory authorities.
Management Strategy
The Bank has historically focused its lending activities on traditional
single family residential loans. Because of this focus, and as a result of its
relatively conservative underwriting standards, the Bank experienced minimal
losses on its loans. This lack of diversification in its asset structure does,
however, increase the Bank's portfolio concentration risk by making the value
of the portfolio more susceptible when declines in real estate values occur in
its market area.
Management's strategy has been to maintain profitability and a strong capital
position by growing at a rate that does not exceed its ability to generate
earnings. Although capital does not eliminate the exposure of the Bank's net
interest income to fluctuation in interest rates, it does allow the Bank
greater protection and flexibility when net interest income decreases as a
result of increases in the cost of funds. This strategy has been accomplished
by (i) maintaining a high asset quality, (ii) maintaining a higher level of
interest-earning assets than interest-bearing liabilities, (iii) purchasing
single family residential mortgage loans at competitive rates, either fixed or
adjustable in order to maintain controlled growth, (iv) managing deposit rates
and maintaining a strong deposit base by providing convenient and quality
service, and (v) controlling operating expenses. Since 1984, the Bank has also
sought to reduce its vulnerability to interest rate risk by purchasing ARM
loans and maintaining investments with maturities generally less than five
years. Management intends to continue its conservative lending policies while
strengthening the Bank's position within its community.
Page 10
<PAGE> 13
Consistent with management's strategy discussed above, the Bank concentrates
its lending activities on purchasing, rather than originating mortgage loans.
The size of the Bank, the small number of employees (five full-time and two
part-time employees) and the cost of establishing an origination department
have created a situation in which the purchase of mortgage loans is more
economically advantageous to the Bank than the origination of such loans.
Because of the lower cost to the Bank of purchasing rather than originating
loans, the Bank is better able to generate earnings from its lending
activities.
In recent years, the Bank did not have sufficient high quality mortgage loans
available for purchase to justify extensive investment in the mortgage market.
As a result, 18.7% of the Bank's assets were invested in United States Treasury
obligations and 9.9% of the Bank's assets were invested in mortgage-backed
securities at December 31, 1995.
Interest Rate Sensitivity
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to
adversely affect net increase income while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income while a positive gap would tend to adversely affect net interest income.
The Bank has taken steps to reduce or control its gap by maintaining
investments with short terms to maturity and by emphasizing loans that mature
or reprice more rapidly while preserving higher yields, such as shorter term
mortgage loans. In addition, management of the Bank believes that, given the
high level of capital of the Bank and the excess of interest-earning assets
over interest-bearing liabilities, the increased net income resulting from a
mismatch in the maturity of its asset and liability portfolios provides
sufficient returns during periods of declining or stable interest rates to
justify the increased vulnerability to sudden and unexpected increases in
interest rates. Nonetheless, the Bank closely monitors its interest rate risk
as such risk relates to management's strategy.
Page 11
<PAGE> 14
Changes in Financial Condition Over the Six-Month Period Ended December 31,
1995
Total assets increased $.7 million or 1.7% to $42.6 million at December 31,
1995 from $41.9 million at June 30, 1995. This increase was due primarily to a
$3.5 million or 138% increase in cash and equivalents at December 31, 1995.
Total liabilities increased $.5 million or 1.5% to $36.3 million at December
31, 1995 from $35.8 million at June 30, 1995. This increase was primarily due
to a $.8 million or 3.6% increase in deposits from $34.2 million at June 30,
1995 to $35.1 million at December 31, 1995. Stockholders' equity increased $.2
million or 2.9% to $6.3 million or 14.7% of total assets at December 31, 1995.
Comparison of Operating Results for the Three-Months Ended December 31, 1995
and December 31, 1994
General.
Net income for the three-months ended December 31, 1995 was $61,119 as
compared to $73,057 for the three months ended December 31, 1994. A decrease
in net-interest income accounted for the decrease and is more fully explained
below.
Interest Income.
Interest income increased $61,101 to $724,419 for the three-months ended
December 31, 1995 from $663,318 for the three-months ended December 31, 1994.
The increase resulted primarily from the increase in net loans receivable and
from an increase in United States Treasury obligations resulting in higher
yields from the same period in 1994. Interest income from loans increased
$18,304 or 4.4% for the three-month period ended December 31, 1995 from the
same period in 1994 which was due to an increase in average loan balances.
Interest Expense.
Interest expense for the three-months ended December 31, 1995 increased
$86,810 to $454,700. This increase is primarily attributable to an increase in
the average balance of passbook and certificate accounts of $1.5 million or
4.4% to $35.1 million during the three months ended December 31, 1995 from
$33.6 million during the same period in 1994. The average cost of passbook and
certificate accounts increased to 5.39% in the three-month period ended
December 31, 1995 from 4.34% in the same period in 1994 as a result of general
market conditions.
Page 12
<PAGE> 15
Net Interest Income Before Provision for Loan Losses.
Net interest income before provision for loan losses decreased to $269,719,
for the three-months ended December 31, 1995 from $295,428 for the three-months
ended December 31, 1994. The decrease resulted primarily from an increase in
the interest on deposits during the same period in 1994.
Provision for Loan Losses.
No increase in the provision for loan losses was recorded for the three-month
period ended December 31, 1995 and December 31, 1994. Management determined
that the loss reserves were adequate as of December 31, 1995 and December 31,
1994.
Non-Interest Income.
The Bank had substantially no change in non-interest income in the
three-months ended December 31, 1995 over the same period in 1994.
Non-Interest Expense.
Non-interest expense was $198,047 in the three-months ended December 31, 1995
as compared to $204,712 for the same period in 1994. The $6,665 decrease, was
due to a decrease in salaries and benefits at December 31, 1995 as compared to
the same period in 1994.
Income Tax Expense.
Income tax expense for the three-months ended December 31, 1995 decreased by
$6,608 as a result of a decrease in net income as compared to the three-months
ended December 31, 1994.
Liquidity and Capital-Resources
The Bank's primary source of funds are deposits and investments, and proceeds
from principal and interest payments on loans. While maturities and scheduled
amortization of loans and investments are a predictable source of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and most recently, the
restructuring of the thrift industry. The primary investing activity of the
Bank is the purchase of mortgage loans. During the three-month period ended
December 31, 1995, the Bank purchased mortgage loans in the amount of $516,450.
Other investing activities include investing in mortgage-backed securities and
United States Treasury obligations. During the three-month period ended
December 31, 1995, this activity was funded primarily by principal repayments
on loans totalling $773,000.
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<PAGE> 16
The Bank has other sources of liquidity if a need for additional funds
arises. Additional sources of funds include FHLB of Indianapolis advances
although no such advances were outstanding at December 31, 1995. Other sources
of liquidity can be found in the Bank's balance sheet, such as investments in
certificates of deposit maturing within one year.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be varied at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required minimum ratio
is currently 5.0%. The Bank's liquidity ratio was 40.70% at December 31, 1995.
The Bank's most liquid assets are cash and cash equivalents, which include
investments in highly liquid short-term investments. The level of these assets
are dependent on the Bank's operating, financing and investing activities
during any given period. At December 31, 1995, cash and cash equivalents
totalled $5,940,661.
The Bank anticipates that it will have sufficient funds available to meet its
current commitments. At December 31, 1995, the Bank had commitments to purchase
residential mortgages of $631,000. Customer deposits which are scheduled to
mature in one year or less at December 31, 1995 totalled $19.7 million.
Management believes that a significant portion of such deposits will remain
with the Bank.
The following table, which summarizes the Bank's regulatory capital
requirements versus actual capital, shows that the Bank exceeded all
requirements at December 31, 1995.
<TABLE>
<CAPTION>
Regulatory Required Excess
Capital Capital (Shortage)
------- ------- ----------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $6,268,000 14.7 $ 639,000 1.5 $5,629,000 13.2
Core Leverage Capital $6,081,000 14.3 $1,278,000 3.0 $4,803,000 11.3
Risk-Based Capital $6,231,000 42.0 $1,186,000 8.0 $5,045,000 34.0
</TABLE>
The OTS has issued a final rule adding an interest rate risk component to the
present capital rules. The rule requires the OTS to measure an institution's
interest rate risk as the percentage change in the market value of its
portfolio resulting from a hypothetical 200 basis point shift in interest
rates. The additional capital an institution would be required to maintain
would be calculated as one-half of the difference between the measured risk and
2 percent multiplied by the market value of the institution's assets.
Institutions with less than $300 million in assets and a risk-based capital
ratio in excess of 12 percent are exempt from the OTS' regulations.
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Part II Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
On November 8, 1995, the Bank announced it had entered into a
definitive agreement to be acquired by D & N Financial
Corporation, subject to shareholder and regulatory approval.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit II - Computation of per share earnings is attached
hereto.
(b) Reports of Form 8-K - No reports on Form 8-K were filed during
the three months ended December 31, 1995.
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACOMB FEDERAL SAVINGS BANK
---------------------------
Registrant
February 8, 1996 Stanley A. Jacobson
- -------------------- ---------------------------
Date Stanley A. Jacobson
President and Principal
Executive Officer
February 8, 1996 Esther Mason
- -------------------- ---------------------------
Date Esther Mason
Executive Vice President,
Principal Financial and
Accounting Officer
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<PAGE> 19
Exhibit II:
The calculation of earnings per share for the three and six months ended
December 31, 1994 and December 31, 1995 follows:
<TABLE>
<CAPTION>
December 31, 1994:
<S> <C>
Net earnings for the three month period ended
December 31, 1994 applicable to common stock $ 73,057
========
Average number of common shares outstanding 176,404
Earnings per share $ .41
========
Net earnings for the six month period ended
December 31, 1994 applicable to common stock $148,666
========
Average number of common shares outstanding 175,954
Earnings per share $.84
========
December 31, 1995:
Net earnings for the three month period ended
December 31, 1995 applicable to common stock $ 61,115
========
Average number of common shares outstanding 180,004
Earnings per share $.34
========
Net earnings for the six month period ended
December 31, 1995 applicable to common stock $123,521
========
Average number of common shares outstanding 179,554
Earnings per share $.69
========
</TABLE>
Common shares outstanding are reduced for unreleased shares held by the
Employee Stock Ownership Plan (E.S.O.P.). As principal payments are made on
the guaranteed E.S.O.P. loan, shares are released and become outstanding for
earnings per share (EPS) computations. Unreleased shares amounted to 10,800
shares at September 30, 1994, 9,900 shares at December 31, 1994, 7,200 shares
at September 30, 1995, and 6,300 shares at December 31, 1995.
Page 17
