<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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 March 31, 1997
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission file number 0-17137
----------
D & N Financial Corporation
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-2790646
------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Quincy Street, Hancock, Michigan 49930
------------------------------------------------------------
(Address of principal executive offices)
(906) 482-2700
------------------------------------------------------------
(Registrant's telephone number, including area code)
------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $0.01 par value 8,251,989
----------------------------- -------------------------------
(Class) (Shares Outstanding as of April
30, 1997)
================================================================================
<PAGE> 2
D&N FINANCIAL CORPORATION
INDEX
Page No.
--------
PART I Consolidated statements of condition -
March 31, 1997 and December 31, 1996 3
Consolidated statements of income -
three months ended March 31, 1997 and 1996 4
Consolidated statements of cash flows -
three months ended March 31, 1997 and 1996 5
Notes to consolidated financial statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II Other Information 16
- 2 -
<PAGE> 3
D&N FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
----------------------------
(In thousands)
----------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,800 $ 2,847
Federal funds sold 1,300 8,600
Interest-bearing deposits in other banks 747 1,342
Total cash and cash equivalents ---------------------------
3,847 12,789
Investment securities
(market value of $98,517,000 in 1997 and $60,783,000 in 1996) 98,639 60,739
Investment securities available for sale (at market value) 40,868 59,038
Mortgage-backed securities
(Market value $235,830,000 in 1997 and $213,304,000 in 1996) 240,264 214,690
Mortgage-backed securities available for sale (at market value) 33,196 36,566
Loans receivable (including loans held for sale
of $219,000 in 1997 and $5,218,000 in 1996) 1,092,824 1,066,918
Allowance for loan losses (10,987) (11,042)
Net loans receivable ---------------------------
1,081,837 1,055,876
Other real estate owned, net 1,226 1,470
Federal income taxes 3,025 6,002
Office properties and equipment, net 16,006 15,764
Other assets 9,560 10,120
----------------------------
$ 1,528,468 $ 1,473,054
============================
LIABILITIES
Checking and Now accounts $ 103,248 $ 107,550
Money market accounts 90,154 89,321
Savings deposits 151,673 149,226
Time deposits 661,435 617,102
Accrued interest 998 934
----------------------------
Total deposits 1,007,508 964,133
Securities sold under agreements to repurchase 71,886 58,040
FHLB advances and other borrowed money 345,599 345,997
Advance payments by borrowers and investors held in escrow 9,527 11,808
Other liabilities 5,176 6,955
----------------------------
Total liabilities 1,439,696 1,386,933
STOCKHOLDERS' EQUITY
Preferred stock (1,000,000 shares authorized; none issued)
Common stock, $.01 par value per share (shares authorized - 25,000,000;
shares outstanding - 8,370,494 in 1997 and 1996) 84 84
Additional paid-in capital 55,413 55,452
----------------------------
Total paid-in capital 55,497 55,536
Retained earnings - substantially restricted 32,862 29,568
Less: Cost of treasury stock (54,673 shares in 1997and 22,339 in 1996) (815) (226)
Unrealized holding gains on debt securities
available for sale, net of tax 1,228 1,243
----------------------------
Total stockholders' equity 88,772 86,121
----------------------------
$ 1,528,468 $ 1,473,054
============================
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 4
D&N FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
--------------------------------
(In thousands, except per share)
--------------------------------
<S> <C> <C>
INTEREST INCOME
Loans $ 21,937 $ 19,980
Mortgage-backed securities 4,436 2,276
Investments and deposits 1,962 1,744
------------------------------
TOTAL INTEREST INCOME 28,335 24,000
INTEREST EXPENSE
Deposits 11,288 11,050
Securities sold under agreements to repurchase 759 95
FHLB advances and other borrowed money 4,953 3,173
------------------------------
TOTAL INTEREST EXPENSE 17,000 14,318
NET INTEREST INCOME ------------------------------
11,335 9,682
Provision for loan losses 300 300
------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 11,035 9,382
NONINTEREST INCOME
Loan administrative fees 521 323
Deposit related fees 921 820
Gain on sale of loans held for sale 31 492
Other 135 96
------------------------------
TOTAL NONINTEREST INCOME 1,608 1,731
NONINTEREST EXPENSE
Compensation and benefits 4,067 4,081
Occupancy 780 712
Other expense 2,567 2,955
GENERAL AND ADMINISTRATIVE EXPENSE ------------------------------
7,414 7,748
Other real estate owned, net (22) 40
FDIC insurance 176 636
------------------------------
TOTAL NONINTEREST EXPENSE 7,568 8,424
INCOME BEFORE INCOME TAX EXPENSE ------------------------------
5,075 2,689
Federal income tax expense (credit) 1,781 (799)
------------------------------
NET INCOME $ 3,294 $ 3,488
==============================
Earnings per common and common equivalent share:
PRIMARY $ 0.38 $ 0.43
==============================
FULLY DILUTED $ 0.38 $ 0.43
==============================
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 5
D&N FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------------------------
(In thousands)
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,294 $ 3,497
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 300 300
Depreciation and amortization of
office properties and equipment 501 522
Amortization of net premium (discounts) on
purchased loans and securities 108 (685)
Originations and purchases of loans held for sale (5,297) (12,121)
Proceeds from sales of loans held for sale 11,377 26,930
Amortization and writedowns of loan servicing rights 73 201
Other 1,859 (1,255)
----------------------------
Net cash provided by operating activities 12,215 17,389
INVESTING ACTIVITIES
Proceeds from maturities and payments of
investment securities 22,988 33,000
Purchases of investment securities (42,713) (8,848)
Principal collected on mortgage-backed securities 14,213 10,103
Purchases of mortgage-backed securities (36,584) --
Loan purchases (27,215) (72,483)
Net change in loans receivable (5,165) (15,172)
Decrease in other real estate owned 244 246
Purchases of office properties and equipment (733) (827)
----------------------------
Net cash provided by investing activities (74,965) (53,981)
FINANCING ACTIVITIES
Net change in time deposits 44,333 2,665
Net change in other deposits (1,022) 10,749
Proceeds from notes payable, securities sold under
agreements to repurchase and other borrowed money 120,846 58,600
Payments on maturity of notes payable, securities sold under
agreements to repurchase and other borrowed money (107,440) (28,680)
Net activity in advance payments by borrowers
and investors held in escrow (2,281) (1,384)
Proceeds from issuance of stock 52 413
Purchase of Treasury stock/warrants (680) --
----------------------------
Net cash used by financing activities 53,808 42,363
----------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,942) 5,771
Cash and cash equivalents at beginning of period 12,789 22,440
-----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,847 $ 28,211
============================
Noncash Transactions:
Issuance of Treasury Stock on exercises of Stock Options $ 91 $ --
============================
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
D&N FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the full year.
NOTE 2: EARNINGS PER SHARE
Per share data is based on the weighted average number of shares outstanding
for the periods presented. The weighted average number of common and common
equivalent shares used in computing primary earnings per share was 8,622,184
and 8,019,707 for the three months ended March 31, 1997 and March 31, 1996,
respectively. The weighted average number of common and common equivalent
shares used in computing fully diluted earnings per share was 8,657,958 and
8,031,108 for the three months ended March 31, 1997 and March 31, 1996,
respectively.
NOTE 3: 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. The allowance is increased by a
provision for losses charged against income.
- 6 -
<PAGE> 7
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
--------------------------------
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 11,042 $ 9,931
Charge-offs:
Single family 53 49
Income producing property -- --
Commercial -- --
Installment 381 257
------------------------------
Total 434 306
Recoveries:
Single family -- --
Income producing property -- --
Commercial -- --
Installment 79 66
------------------------------
Total 79 66
------------------------------
Net charge-offs 355 240
Provision charged to operations 300 300
------------------------------
Balance at end of period $ 10,987 $ 9,991
==============================
</TABLE>
NOTE 4: FEDERAL INCOME TAXES
The liability method is used in accounting for federal income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
A federal income tax credit was recorded in the 1996 reporting period as the
Company offset taxes ordinarily payable by a realization, through a reduction
in the valuation allowance previously provided, of prior years' net operating
loss carryforwards.
NOTE 5: ACQUISITION
On April 10, 1996, Macomb Federal Savings Bank ("Macomb"), a $43 million asset
savings bank, was merged into the Company. The Company issued 716,497 shares
of common stock and cash in lieu of fractional shares for all of the
outstanding shares of Macomb. The merger was accounted for as a
pooling-of-interests. No changes in accounting methods resulted from the
business combination.
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<PAGE> 8
A reconciliation of consolidated net interest income, net income and earnings
per share, previously reported and restated amounts, follow:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1996
--------------------------------
(In thousands, except per share)
<S> <C>
Net interest income
Previously reported $ 9,465
As restated $ 9,682
Net income
Previously reported $ 3,497
As restated $ 3,488
Primary earnings per share
Previously reported $ 0.48
As restated $ 0.43
Fully diluted earnings per share
Previously reported $ 0.48
As restated $ 0.43
</TABLE>
NOTE 6: RECLASSIFICATIONS
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform with the current period presentation.
- 8 -
<PAGE> 9
D&N FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information regarding
D&N Financial Corporation's ("D&N or the Company") financial condition and
results of operations for the three-month periods ended March 31, 1997 and
1996. Ratios for the three-month periods are stated on an annualized basis.
Results of operations for the 1997 period are not necessarily indicative of
results which may be expected for the entire year. This discussion and
analysis should be read in conjunction with the consolidated financial
statements and the notes thereto appearing elsewhere in this Form 10-Q.
RESULTS OF OPERATIONS
NET INCOME
The Company recorded net income for the first quarter ended March 31,
1997 of $3.3 million, compared to net income of $3.5 million in the first
quarter of 1996. Return on assets and return on equity were 0.89% and 15.07%,
respectively, during the quarter ended March 31, 1997, compared to 1.12% and
18.98%, respectively, during the quarter ended March 31, 1996. The decrease in
net income was due primarily to a tax credit of $799,000 in 1996, versus a tax
expense of $1,781,000 in the current quarter. This shift of $2.6 million in
taxes, was partially offset by an increase of $1.6 million in net interest
income, and a decrease of approximately $800,000 in noninterest expense.
NET INTEREST INCOME
Net interest income, or the difference between interest earned on
interest earning assets such as loans and investment securities and interest
paid on sources of funds such as deposits and borrowings, is a significant
component of the Bank's earnings. Net interest income is affected by changes
in both the balance of and the rates on interest earning assets and interest
bearing liabilities and the amount of interest earning assets funded with
non-interest or low-interest bearing funds.
- 9 -
<PAGE> 10
Net interest income increased $1.6 million to $11.3 million for the
quarter ended March 31, 1997 compared to $9.7 million for the quarter ended
March 31, 1996. The increase in net interest income was due to an increased
loan and mortgage-backed security portfolio, partially offset by increased
borrowing volume.
By increasing its consumer and commercial lending activities, the
Company has been able to increase its net interest earning assets and to
realize increased net yields. The result of these factors is that net interest
income has steadily improved during recent quarters.
PROVISION FOR LOAN LOSSES
A provision for loan losses is charged to income based on the size and
quality of the loan portfolio measured against prevailing economic conditions.
This process is accomplished through a formal review analysis. The provision
is recorded in sufficient amounts to maintain the allowance for possible loan
losses at a level in excess of that expected by management to be required to
cover specific exposures in the portfolio.
The Company recorded a $300,000 provision for loan losses during the
quarter ended March 31, 1997 and during the quarter ended March 31, 1996. The
allowance for loan losses has been maintained at approximately 1.00% of gross
loans even as the loan portfolio has experienced significant growth over the
past several fiscal quarters.
NONINTEREST INCOME
Total noninterest income decreased to $1.6 million during the quarter
ended March 31, 1997, from $1.7 million recorded during the quarter ended March
31, 1996. The majority of this decrease was due to a $461,000 reduction in
gain on sale of loans available for sale. Net loan servicing and
administrative fees increased $198,000 as the Company recorded recoveries on
its portfolio of mortgage servicing rights due to increased market values
caused primarily by lower loan prepayment experience. Deposit related fees
were up approximately $101,000 in the current year quarter primarily due to an
increase in NSF fee income.
- 10 -
<PAGE> 11
NONINTEREST EXPENSE
Total noninterest expense decreased $800,000 to $7.6 million during the
quarter ended March 31, 1997, from $8.4 million recorded in the first quarter of
1996. The major expense decrease was $460,000 in FDIC premium paid, reflecting
the reduction due to a replenished SAIF and an upgrade in D&N's risk
classification. Decreases in other expense represents D&N's continuing
commitment to cost control. The primary areas of decrease were office,
furniture and equipment, marketing and legal expenses.
FEDERAL INCOME TAXES
The first quarter of 1997 is presented on a fully-taxed basis versus a
federal income tax credit of $799,000 being recorded in the first quarter of
1996, resulting from a reduction of the valuation allowance provided, for prior
years' net operating loss carryforwards.
FINANCIAL CONDITION
Total assets at March 31, 1997 were $1.53 billion, an increase of $55.4
million from December 31, 1996. Earning assets represented approximately 98% of
total assets as of March 31, 1997, substantially the same as at year-end 1996.
CASH, DEPOSITS AND INVESTMENT SECURITIES
Cash, deposits and investment securities were $143.3 million at March 31,
1997, up $10.7 million from December 31, 1996. This increase was the result of
addition to D&N's liquidity portfolio of approximately $20.0 million in
commercial paper, offset by a reduction in cash and cash equivalents
of $9.0 million.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities increased $22.2 million to $273.5 million at
March 31, 1997. During the period, the Company purchased $36.4 million of
government agency collateralized mortgage obligations with a weighted average
yield of 7.08% and a weighted average life of 3.5 years. The entire
mortgage-backed securities portfolio experienced repayments and amortization
during the period of $14.2 million plus a decrease of $22,000 in market value
recognized through stockholders' equity on mortgage-backed securities available
for sale.
- 11 -
<PAGE> 12
NET LOANS RECEIVABLE
Net loans receivable increased $26.0 million during the period to $1.09
billion at March 31, 1997. Loan originations of $100.6 million and purchases of
$27.1 million exceeded repayments of $90.2 million and sales of $11.4 million.
Loan originations and purchases during the three months ended March 31, 1997
were $58.5 million for consumer loans, while residential mortgage loans and
commercial loans were $56.1 million and $13.1 million, respectively.
NONPERFORMING ASSETS AND RISK ELEMENTS
The following table sets forth the amounts and categories of risk elements
in the Bank's loan portfolio.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------------------------
(Dollars in thousands)
<S> <C> <C>
Nonaccruing loans $ 4,488 $ 6,621
Accruing loans delinquent more
than 90 days -- --
Restructured loans --
-------------------------
Total nonperforming loans 4,488 6,621
Other real estate owned (OREO) 1,226 1,470
-------------------------
Total nonperforming assets $ 5,714 $ 8,091
=========================
Nonperforming loans as a
percentage of total loans 0.41% 0.62%
=========================
Nonperforming assets as a
percentage of total assets 0.37% 0.55%
=========================
Allowance for loan losses as a
percentage of nonperforming loans 244.81% 166.77%
=========================
Allowances for loan and OREO
losses as a percentage of
nonperforming assets 192.28% 136.47%
=========================
</TABLE>
Nonperforming assets, before allowances for loan and OREO losses, decreased
$2.4 million during the period primarily as a large commercial real estate loan
secured by a shopping center, was restored to accrual status after sale of the
property.
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<PAGE> 13
MORTGAGE SERVICING RIGHTS (MSRS)
The Company's net investment in MSRs remained level during the period at
$1.4 million. The following table details activity in the portfolio for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Year
Ended Ended
March 31, 1997 December 31, 1996
------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $1,443 $1,113
Additions:
Capitalized servicing 34 630
Reductions:
Scheduled amortization (72) (267)
Additional amortization due
to changes in prepayment
assumptions (1) (33)
------ ------
Total (73) (300)
------ ------
Balance at end of period $1,404 $1,443
====== ======
Fair market value at end of period $1,836 $1,770
====== ======
</TABLE>
DEPOSITS
Deposits increased $43.4 million during the period to $1.01 billion at
March 31, 1997. Certificates of deposit increased $44.3 million and savings
deposits increased $2.5 million while checking accounts decreased $4.3 million
and money market accounts increased approximately $800,000. The Company's
cost of deposits increased to 4.73% at March 31, 1997, compared to 4.61% at
December 31, 1996, reflecting general increases in market rates of interest.
BORROWINGS
Total borrowings increased $13.4 million during the period to $417.5
million at March 31, 1997 in order to fund loan demand. The Company's cost of
borrowings was 5.79% at March 31, 1997, compared to 5.73% at December 31, 1996.
- 13 -
<PAGE> 14
CAPITAL
According to federal regulations, the Bank must meet certain minimum
capital ratios. As the following table indicates, the Bank's capital ratios at
March 31, 1997 exceeded these requirements.
<TABLE>
<CAPTION>
Tier 1
Tangible Core Risk-Based Risk-based
Capital Capital Capital Capital
--------- --------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Actual capital $ 79,332 $ 79,332 $ 89,897 $ 79,332
Required capital 23,114 46,228 72,655 36,328
--------- --------- -------- ---------
Excess capital $ 56,218 $ 33,104 $ 17,242 $ 43,004
========= ========= ======== ========
Actual ratio 5.15% 5.15% 9.90% 8.74%
========= ========= ======== ========
Required ratio 1.50% 3.00% 8.00% 4.00%
========= ========= ======== ========
</TABLE>
Consolidated stockholders' equity was $88.8 million at March 31, 1997 and
represents 5.81% of consolidated assets.
LIQUIDITY
Liquidity is the ability to meet financial obligations when due. Regulatory
authorities require that thrift institutions maintain liquidity consisting of
cash, short-term U. S. Government Securities and other specified assets, equal
to at least 5% of net withdrawable accounts and borrowings payable in one year
or less. For March, 1997, the Bank's average liquidity ratio was 6.54%. At
March 31, 1997, unused borrowing capacity as measured by the Bank's inventory of
readily available but unpledged collateral was approximately $172 million. The
Company considers its current liquidity and other funding sources sufficient to
fund its outstanding loan commitments and scheduled liability maturities.
- 14 -
<PAGE> 15
REGULATORY DEVELOPMENTS
The deposits of savings associations, such as D&N Bank, are presently
insured by the SAIF, which together with the BIF (Bank Insurance Fund), are the
two insurance funds administered by the FDIC. Financial institutions which are
member of the BIF are experiencing substantially lower deposit insurance
premiums because the BIF has achieved its required level of reserves while the
SAIF has not yet achieved its required reserves. In order to help eliminate
this disparity and any competitive disadvantage due to disparate deposit
insurance premium schedules, legislation to recapitalize the SAIF was enacted on
September 30, 1996.
The legislation required a special one-time assessment of approximately
65.7 cents per $100 of SAIF deposits held by the Bank at March 31, 1995.
Management recognized the one-time special assessment in a tax affected charge
to earnings of approximately $3.6 million during the quarter ended September 30,
1996. The legislation is intended to fully recapitalize the SAIF fund so that
commercial bank and thrift deposits will be charged FDIC premiums at the same
rate beginning October 1, 1996.
D&N Bank , however, will continue to be subject to an assessment to fund
repayment of the Financing Corporation (FICO) bond obligation. The FICO
assessment for SAIF insured institutions will be 6.5 cents per $100 of deposits
while BIF insured institutions will pay 1.3 cents per $100 of deposits until the
year 2000 when the assessment will be imposed at the same rate on all FDIC
insured institutions. Accordingly, as a result of the reduction of the SAIF
assessment and the resulting FICO assessment, the annual before tax decrease in
assessment costs will be approximately $1.9 million, based upon a September 30,
1996 assessment base.
FILINGS OF STATEMENTS WITH THE SECURITIES AND EXCHANGE COMMISSION
On April 29, 1997, a newly formed subsidiary of D&N Bank, the Company's
wholly owned subsidiary, filed a registration statement (S-11) with the
Securities and Exchange Commission for a proposed public offering of $27.5
million of noncumulative, preferred stock. A total of up to 1.2 million shares
would be offered by D&N Capital Corporation, the Bank's newly formed subsidiary.
- 15 -
<PAGE> 16
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board ('FASB") issued SFAS
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS 125 provides accounting and reporting
standards for the subject matter based on consistent application of a financial
component's approach that focuses on control. The standard was adopted
effective January 1, 1997 and did not have any material effect on the financial
statements.
In March 1997, the FASB issued SFAS 128, "Earnings Per Share". SFAS 128
supersedes APB 15, "Earnings Per Share", and simplifies the computation of
earnings per share ("EPS") by replacing the "primary" EPS requirements of APB 15
with a "basic" EPS computation based upon weighted shares outstanding. The new
standard requires a dual presentation of basic and diluted EPS. Diluted EPS is
similar to "fully diluted" EPS required under APB 15. The Company will adopted
the provisions of this statement, as required in 1997. The adoption is not
expected to have a material impact on earnings per share.
- 16 -
<PAGE> 17
D&N FINANCIAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held on April 30,
1997.
(b) The matters approved by stockholders at the annual meeting and the
number of votes cast for, against and withheld (as well as the
number of abstentions and broker non-votes) as to each matter are
set forth below:
Elections of the following Directors
for a three-year term:
<TABLE>
<CAPTION>
Broker
For Withheld Non-Votes
------------- -------- ---------
<S> <C> <C> <C>
Joseph C. Bromley 7,138,030 380,092 --
Sharon A. Reese-Dalenberg 7,140,748 377,374 --
Peter Van Pelt 7,138,460 379,662 --
</TABLE>
Ratification of Coopers and Lybrand L.L.P. as auditors for the
Fiscal year ended December 31, 1997:
For 7,397,518
Against 21,421
Abstain 99,183
Broker Non-Votes --
- 17 -
<PAGE> 18
D&N FINANCIAL CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
Approving and adopting an amendment to the amended and restated
1994 Management Stock Incentive Plan, that includes increasing
the number of shares reserved for issuance thereunder by 400,000,
were as follows:
For 6,796,365
Against 506,059
Abstain 133,066
Broker Non-Votes 82,632
ITEM 5: OTHER INFORMATION
FILINGS OF STATEMENTS WITH THE SECURITIES AND EXCHANGE COMMISSION
On April 29, 1997, a newly formed subsidiary of D&N Bank, the Company's
wholly owned subsidiary, filed a registration statement (S-11) with the
Securities and Exchange Commission for a proposed public offering of $27.5
million of noncumulative, preferred stock. A total of up to 1.2 million shares
would be offered by D&N Capital Corporation, the Bank's newly formed subsidiary.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(11) Statement re: computation of per share earnings
(27) Financial Data Schedule
(99) Additional exhibits
I. Interest rate/volume analysis:
quarter ended 3/31/97 vs.
quarter ended 3/31/96
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the
quarter Ended March 31, 1997.
- 18 -
<PAGE> 19
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.
D&N FINANCIAL CORPORATION
/s/ George J. Butvilas
----------------------------------
George J. Butvilas, President and
Chief Executive Officer
/s/ Kenneth R. Janson,
----------------------------------
Executive Vice President/Chief
Financial Officer and Treasurer
Date: 5-13-97
-----------------
<PAGE> 20
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
11 Computation of Per Share Earnings
27 Financial Data Schedule
99 Interest Rate/Volume Analysis
<PAGE> 1
EXHIBIT (11)
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended March 31,
1997 1996
Primary Diluted Primary Diluted
------- ------- ------- -------
Net Income 3,294 3,294 3,488 3,488
===== ===== ===== =====
Average Shares:
Common 8,339 8,339 7,499 7,499
Common equivalents 283 319 521 532
----- ----- ----- -----
Total 8,622 8,658 8,020 8,031
===== ===== ===== =====
Earnings per common share 0.38 0.38 0.43 0.43
===== ===== ===== =====
Common share equivalents assume exercise of stock options and warrants, if
dilutive.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,800
<INT-BEARING-DEPOSITS> 747
<FED-FUNDS-SOLD> 1,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,064
<INVESTMENTS-CARRYING> 338,903
<INVESTMENTS-MARKET> 334,347
<LOANS> 1,092,824
<ALLOWANCE> 10,987
<TOTAL-ASSETS> 1,528,468
<DEPOSITS> 1,007,508
<SHORT-TERM> 71,886
<LIABILITIES-OTHER> 14,703
<LONG-TERM> 345,599
0
0
<COMMON> 55,497
<OTHER-SE> 33,275
<TOTAL-LIABILITIES-AND-EQUITY> 1,528,468
<INTEREST-LOAN> 21,937
<INTEREST-INVEST> 6,398
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 28,335
<INTEREST-DEPOSIT> 11,288
<INTEREST-EXPENSE> 17,000
<INTEREST-INCOME-NET> 11,335
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,568
<INCOME-PRETAX> 5,075
<INCOME-PRE-EXTRAORDINARY> 5,075
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,075
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 3.13
<LOANS-NON> 4,292
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,168
<ALLOWANCE-OPEN> 11,042
<CHARGE-OFFS> 434
<RECOVERIES> 79
<ALLOWANCE-CLOSE> 10,987
<ALLOWANCE-DOMESTIC> 10,987
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT (99)
OPERATING MARGIN AND RATE VOLUME ANALYSIS
D&N FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Average balance Average rate Interest
-----------------------------------------------------------------------------------------
Operating Margin for Increase
Quarter ended 03/31/97 03/31/96 03/31/97 03/31/96 03/31/97 03/31/96 (Decrease)
- ------------------------------------- ------------------------ -------- -------- -------------------- ----------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
- ------------------------
Loans receivable $1,065,927 $ 989,414 8.26% 8.08% $21,937 $19,980 $1,957
Mortgage-backed securities 247,032 120,382 7.18% 7.56% 4,436 2,276 2,160
Investments 129,600 102,338 6.14% 6.85% 1,962 1,744 218
---------- ---------- ---- ---- ------- ------- ------
1,442,559 1,212,134 7.88% 7.92% 28,335 24,000 4,335
---------- ---------- ---- ---- ------- ------- ------
Interest-bearing liabilities:
- ----------------------------
Deposits 974,127 928,052 4.70% 4.79% 11,288 11,050 238
Borrowings
Securities sold w/repo 56,369 6,920 5.39% 5.43% 759 95 664
Notes payable 338,003 206,003 5.63% 5.61% 4,757 2,919 1,838
Other borrowed money 8,188 10,336 9.58% 9.83% 196 254 (58)
---------- ---------- ---- ---- ------- ------- ------
SUBTOTAL - BORROWINGS 402,560 223,259 5.68% 5.80% 5,712 3,268 2,444
Interest rate instruments n/a n/a -- -- -- -- --
---------- ---------- ---- ---- ------- ------- ------
1,376,687 1,151,311 4.98% 4.98% 17,000 14,318 2,682
---------- ---------- ---- ---- ------- ------- ------
INTEREST RATE SPREAD 2.90% 2.94%
==== ====
EXCESS AVERAGE EARNING ASSETS $ 65,872 $ 60,823
========== ==========
NET INTEREST MARGIN 3.13% 3.19% $11,335 $ 9,682 $1,653
==== ==== ======= ======= ======
<CAPTION>
Variance due to:
Operating Margin for ---------------------
Quarter ended Volume Rate
- ------------------------------------- ------- -------
<S> <C> <C>
Interest-earning assets:
- ------------------------
Loans receivable $ 1,522 $ 435
Mortgage-backed securities 2,280 (120)
Investments 413 (195)
------- -------
4,214 121
------- -------
Interest-bearing liabilities:
- ----------------------------
Deposits 439 (201)
Borrowings
Securities sold w/repo 665 (1)
Notes payable 1,826 12
Other borrowed money (52) (6)
------- -------
SUBTOTAL - BORROWINGS 2,439 5
Interest rate instruments - -
------- -------
2,877 (195)
------- -------
INTEREST RATE SPREAD
EXCESS AVERAGE EARNING ASSETS
NET INTEREST MARGIN $1,337 $ 316
====== =======
</TABLE>
