<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, 1998
-----------------------
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 9,141,774
----------------------------- -------------------------
(Class) (Shares Outstanding as of
April 30, 1998)
================================================================================
<PAGE> 2
D&N FINANCIAL CORPORATION
INDEX
Page No.
PART I Consolidated statements of condition -
March 31, 1998 and December 31, 1997 3
Consolidated statements of income -
three months ended March 31, 1998 and 1997 4
Consolidated statements of cash flows -
three months ended March 31, 1998 and 1997 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
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<PAGE> 3
D&N FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
---------------------------
(In thousands)
---------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 1,436 $ 16,239
Federal funds sold 300 300
Interest-bearing deposits in other banks 9,678 3,958
--------------------------
Total cash and cash equivalents 11,414 20,497
Investment securities
(market value of $49,021,000 in 1998 and $56,594,000 in 1997) 48,976 56,524
Investment securities available for sale (at market value) 40,903 46,112
Mortgage-backed securities
(market value $181,661,000 in 1998 and $199,525,000 in 1997) 179,969 198,050
Mortgage-backed securities available for sale (at market value) 170,199 160,246
Loans receivable (including loans held for sale
of $9,889,000 in 1998 and $5,275,000 in 1997) 1,392,265 1,311,508
Allowance for loan losses (10,679) (10,549
-------------------------
Net loans receivable 1,381,586 1,300,959
Other real estate owned, net 1,291 1,474
Federal income taxes 1,138 1,129
Office properties and equipment, net 17,068 16,621
Other assets 14,995 13,703
--------------------------
Total assets $ 1,867,539 $ 1,815,315
==========================
LIABILITIES
Checking and NOW accounts $ 123,745 $ 119,412
Money market accounts 94,482 92,314
Savings deposits 174,575 163,119
Time deposits 644,436 667,204
Accrued interest 1,125 1,118
--------------------------
Total deposits 1,038,363 1,043,167
Securities sold under agreements to repurchase 148,455 149,092
FHLB advances and other borrowed money 518,976 470,431
Advance payments by borrowers and investors held in escrow 19,898 17,585
Other liabilities 11,474 8,239
--------------------------
Total liabilities 1,737,166 1,688,514
PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY 28,719 28,719
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value per share (1,000,000 shares
authorized; none issued) -- --
Common stock, $.01 par value per share (shares authorized - 25,000,000;
shares outstanding - 9,197,224 in 1998 and 1997) 92 92
Additional paid-in capital 76,218 77,025
--------------------------
Total paid-in capital 76,310 77,117
Retained earnings - substantially restricted 25,060 21,042
Less: Cost of treasury stock (62,469 shares in 1998 and 98,129 in 1997) (1,061) (1,581)
Accumulated other comprehensive income - unrealized holding gains on debt
securities available for sale, net of tax 1,345 1,504
--------------------------
Total stockholders' equity 101,654 98,082
--------------------------
$ 1,867,539 $ 1,815,315
==========================
</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,
1998 1997
-------------------------------
(In thousands, except per share)
--------------------------------
INTEREST INCOME
<S> <C> <C>
Loans $ 26,829 $ 21,937
Mortgage-backed securities 6,145 4,436
Investments and deposits 1,573 1,962
--------------------------
TOTAL INTEREST INCOME 34,547 28,335
INTEREST EXPENSE
Deposits 11,985 11,288
Securities sold under agreements to repurchase 1,991 759
FHLB advances and other borrowed money 7,366 4,953
--------------------------
TOTAL INTEREST EXPENSE 21,342 17,000
--------------------------
NET INTEREST INCOME 13,205 11,335
Provision for loan losses 525 300
--------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 12,680 11,035
NONINTEREST INCOME
Loan administrative fees 535 521
Deposit related fees 1,045 921
Gain on sale of loans held for sale 885 31
Other income 736 135
--------------------------
TOTAL OPERATING NONINTEREST INCOME 3,201 1,608
NONINTEREST EXPENSE
Compensation and benefits 4,822 4,067
Occupancy 816 780
Other expense 3,196 2,567
--------------------------
GENERAL AND ADMINISTRATIVE EXPENSE 8,834 7,414
Other real estate owned, net 18 (22)
Federal deposit insurance premiums 243 176
--------------------------
TOTAL NONINTEREST EXPENSE 9,095 7,568
--------------------------
INCOME BEFORE INCOME TAX EXPENSE 6,786 5,075
Federal income tax expense 2,208 1,781
--------------------------
INCOME BEFORE PREFERRED STOCK DIVIDENDS 4,578 3,294
Preferred stock dividends of subsidiary 681 --
--------------------------
NET INCOME $ 3,897 $ 3,294
==========================
Earnings per share:
BASIC $ 0.43 $ 0.36
==========================
DILUTED $ 0.41 $ 0.35
==========================
</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,
1998 1997
-------------------------
(In thousands)
-------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 3,897 $ 3,294
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 525 300
Depreciation and amortization of office
properties and equipment 541 501
Amortization of net premium (discounts)
on purchased loans and securities (675) 108
Originations and purchases of loans held for sale (37,607) (5,297)
Proceeds from sales of loans held for sale 52,097 11,408
Gain on sale of loan servicing rights (193) --
Amortization and writedowns of loan servicing rights 187 73
Other 708 1,859
------------------------
Net cash provided by operating activities 19,480 12,246
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 14,986 22,988
Purchase of investment securities to be held to maturity (2,450) (42,713)
Principal collected on mortgage-backed securities 32,530 14,213
Purchases of mortgage-backed securities (24,894) (36,584)
Loans purchased (69,219) (27,215)
Net change in loans receivable (24,123) (5,196)
Decrease in other real estate owned 183 244
Sales of loan servicing rights 193 --
Purchases of office properties and equipment (978) (733)
------------------------
Net cash used by investing activities (73,772) (74,996)
FINANCING ACTIVITIES
Net change in time deposits (22,767) 44,333
Net change in other deposits 17,956 (1,022)
Proceeds from notes payable, securities sold under
agreements to repurchase and other borrowed money 115,000 120,846
Payments on maturity of notes payable, securities sold under
agreements to repurchase and other borrowed money (67,127) (107,440)
Net change in advance payments by borrowers and investors
held in escrow 2,313 (2,281)
Common stock cash dividend (457) --
Proceeds from issuance of stock 408 52
Purchases of Treasury stock/warrants (364) (680)
Tax benefit on Exercise of Stock options (FAS 109) 247 --
------------------------
Net cash provided by financing activities 45,209 53,808
------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (9,083) (8,942)
Cash and cash equivalents at beginning of period 20,497 12,789
------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,414 $ 3,847
========================
Noncash Transactions:
Issuance of Treasury Stock and exercise of Stock Options $ 884 $ 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, 1998 are not necessarily indicative of the results that may be
expected for the full year.
NOTE 2: EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings per Share", for the year ended December 31, 1997. The earnings per
share for the three months ended March 31, 1997 have been restated to comply
with this standard.
Basic earnings per share is calculated by dividing net income by the average
number of shares outstanding during the applicable period.
The company had stock options which are considered to be potentially dilutive to
common stock. Diluted earnings per share is calculated by dividing net income by
the average number of shares outstanding during the applicable period adjusted
for these potentially dilutive options.
The following table sets forth the computation of per share earnings as provided
in SFAS 128, and illustrates the dilutive effect of options outstanding.
<TABLE>
<CAPTION>
Three months ended
March 31, 1998 March 31, 1997
------------------------- --------------------
Earnings Earnings
Shares per share Shares per Share
------ --------- ------ ---------
(In thousands, except per share earnings)
<S> <C> <C> <C> <C>
Basic EPS 9,115 $ 0.43 9,173 $ 0.36
Net dilutive effect of stock
options outstanding 380 (0.02) 264 (0.01)
----- -------- ----- --------
Diluted EPS 9,495 $ 0.41 9,437 $ 0.35
===== ======== ===== ========
</TABLE>
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<PAGE> 7
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.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---------------------------
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 10,549 $ 11,042
Charge-offs:
Single family 10 53
Installment 458 381
----------------------------
Total 468 434
Recoveries:
Installment 73 79
----------------------------
Net charge-offs 395 355
Provision charged to operations 525 300
----------------------------
Balance at end of period $ 10,679 $ 10,987
============================
</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.
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<PAGE> 8
NOTE 5: COMPREHENSIVE INCOME
The Bank adopted Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", as of January 1, 1998. SFAS No. 130
established standards for reporting and display of comprehensive income and its
components. Total Comprehensive Income for the three months ended March 31, 1998
and 1997 was as follows:
<TABLE>
<CAPTION>
Three Months ended
March 31,
1998 1997
------------------
(In thousands)
<S> <C> <C>
Net Income $ 3,897 $ 3,294
Accumulated other comprehensive income
Unrealized holding gains and losses
on debt securities available for sale,
net of tax (159) (15)
------- -------
Total accumulated other comprehensive income (159) (15)
------- -------
Total Comprehensive Income $ 3,738 $ 3,279
======= =======
</TABLE>
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<PAGE> 9
D&N FINANCIAL CORPORATION
ITEM 2. 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, 1998 and 1997. Ratios
for the three-month periods are stated on an annualized basis. Results of
operations for 1998 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 quarter ended March 31, 1998 of
$3.9 million, compared to a net income of $3.3 million in the first quarter of
1997. Return on assets and return on equity were 0.85% and 15.55%, respectively,
during the quarter ended March 31, 1998, compared to 0.89% and 15.07%,
respectively, during the quarter ended March 31, 1997. The increase in net
income was due to increased net interest income of $1.9 million, increased gain
on sale of loans for sale of $854,000 and an increase in other income of
$601,000. These increases were partially offset by an increase in general and
administrative expenses of $1.4 million, payment of preferred stock dividends of
subsidiary of $681,000 and an increase in federal income tax expense of
$427,000.
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 Company'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 $1.9 million to $13.2 million for the
quarter ended March 31, 1998 compared to $11.3 million for the quarter ended
March 31, 1997. The increase in net interest income was due to 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 earnings and to realize
increased net yields. The result of these factors is that net interest income
has steadily improved.
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 amounts sufficient 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 $525,000 provision for loan losses during
the quarter ended March 31, 1998 and a $300,000 provision during the
quarter ended March 31, 1997.
NONINTEREST INCOME
Total noninterest income increased to $3.2 million during the quarter
ended March 31, 1998, from $1.6 million recorded during the quarter ended March
31, 1997. The majority of this increase was due to a $854,000 increase in gain
on sale of loans available for sale. Deposit related fees were approximately
$124,000 in the current year quarter primarily due to an increase in NSF fee
income. Other income increased by approximately $601,000 due to a sale of
purchased mortgage servicing rights, and a recovery on a previously written-off
investment.
NONINTEREST EXPENSE
Total noninterest expense increased $1.5 million to $9.1 million during
the quarter ended March 31, 1998, from $7.6 million recorded in the first
quarter of 1997. The major expense increases were $755,000 in compensation and
benefits, reflecting staffing levels to handle increased loan volumes and
incentives paid on
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<PAGE> 11
those increased volumes, and $629,000 increase in other expense. The areas
of greatest increase in other expense were office, data processing and
marketing .
FINANCIAL CONDITION
Total assets at March 31, 1998 were $1.87 billion, an increase of $52.2
million from December 31, 1997. Earning assets represented approximately 98% of
total assets as of March 31, 1998, substantially the same as at year-end 1997.
CASH, DEPOSITS AND INVESTMENT SECURITIES
Cash, deposits and investment securities were $101.3 million at March
31, 1998, down $21.8 million from December 31, 1997. This decrease was the
result of runoff in D&N's non-mortgage liquidity portfolio of approximately
$15.2 million in U.S. Treasury Securities, and reductions in cash and cash
equivalents of $9.1 million, partially offset by a $2.5 million increase in FHLB
stock.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities decreased $8.1 million to $350.2 million at
March 31, 1998. During the period, the Company purchased $24.9 million of
government agency collateralized mortgage obligations, with a weighted average
yield of 6.40% and a weighted average life of 3.9 years. The entire
mortgage-backed securities portfolio experienced repayments and amortization
during the period of $32.8 million plus a decrease of $227,000 in market value
recognized through stockholders' equity on mortgage-backed securities available
for sale.
NET LOANS RECEIVABLE
Net loans receivable increased $80.6 million during the period to $1.38
billion at March 31, 1998. Loan originations of $218.2 million and purchases of
$68.3 million exceeded repayments of $154.7 million and sales of $51.2 million.
Loan originations and purchases during the three months ended March 31, 1998
were $84.3 million for consumer loans, while residential mortgage loans and
commercial loans were $169.9 million and $32.3 million, respectively.
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<PAGE> 12
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,
1998 1997
--------------------------------
(Dollars in thousands)
<S> <C> <C>
Nonaccruing loans $ 9,053 $ 3,552
Accruing loans delinquent more
than 90 days 150 274
------------------------------
Total nonperforming loans 9,203 3,826
Other real estate owned (OREO) 1,291 1,474
------------------------------
Total nonperforming assets $ 10,494 $ 5,300
==============================
Nonperforming loans as a
percentage of total loans 0.66% 0.29%
===============================
Nonperforming assets as a
percentage of total assets 0.56% 0.29%
===============================
Allowance for loan losses as a
percentage of nonperforming loans 116.04% 275.72%
===============================
Allowances for loan and OREO
losses as a percentage of
nonperforming assets 101.76% 199.04%
===============================
</TABLE>
Nonperforming assets, before allowances for loans and OREO losses,
increased $5.2 million during the period, primarily as three commercial real
estate loans were downgraded.
MORTGAGE SERVICING RIGHTS (MSRS)
The Company's net investment in MSRs increased slightly during the
period, to $2.4 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, 1997
----------------------------------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 2,136 $ 1,443
Additions:
Capitalized servicing 595 1,236
-------- --------
Total 595 1,236
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C> <C>
Reductions:
Scheduled amortization 112 321
Additional amortization due
to changes in prepayment
assumptions (13) 222
Sale of Servicing 243 --
------------ --------
Total 342 543
------------ --------
Balance at end of period $ 2,389 $ 2,136
============ ========
Fair market value at end of period $ 2,498 $ 2,389
============ ========
</TABLE>
DEPOSITS
Deposits decreased $4.8 million during the period to $1.04 billion at
March 31, 1998. Certificates of deposit decreased $22.8 million and savings
deposits increased $11.5 million, while checking accounts increased $4.3 million
and money market accounts increased $2.2 million. The Company's cost of deposits
decreased to 4.62% at March 31, 1998, compared to 4.74% at December 31, 1997,
reflecting general decreases in market rates of interest.
BORROWINGS
Total borrowings increased $47.9 million during the period to $667.4
million at March 31, 1998 in order to fund loan demand. The Company's cost of
borrowings was 5.82% at March 31, 1998, compared to 5.94% at December 31, 1997.
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, 1998 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 $123,515 $123,515 $134,049 $123,515
Required capital 28,370 56,740 91,803 45,902
-------- -------- -------- --------
Excess capital $ 95,145 $ 66,775 $ 42,246 $ 77,613
======== ======== ======== ========
Actual ratio 6.53% 6.53% 11.68% 10.76%
======== ======== ======== ========
Required ratio 1.50% 3.00% 8.00% 4.00%
======== ======== ======== ========
</TABLE>
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<PAGE> 14
Consolidated stockholders' equity was $101.7 million at March 31, 1998
and represents 5.44% 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, U. S. Government Securities and other specified assets,
equal to at least 4% of net withdrawable accounts and borrowings payable in one
year or less. For March 1998, the Bank's average liquidity ratio was 15.4%. At
March 31, 1998, unused borrowing capacity as measured by the Bank's inventory of
readily available but unpledged collateral was approximately $147 million. The
Company considers its current liquidity and other funding sources sufficient to
fund its outstanding loan commitments and scheduled liability maturities.
REGULATORY INSURANCE
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. The assessment for SAIF insured
institutions is 6.5 cents per $100 of deposits while BIF insured institutions
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.
NEW ACCOUNTING STANDARD
In February, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers'
Disclosure about Pensions and Other Postretirement Benefits". SFAS revises
employers disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The Statement
standardizes the disclosure requirement for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets, and eliminates
certain disclosures. Restatement of disclosures for earlier periods is required.
The Statement is effective for the Bank's financial statements for the year
ended December 31, 1998.
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
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<PAGE> 15
records, and for general management purposes. Some if these systems include
legacy procedures that may have been designed and historic data that may have
been stored in such a manner that inconsistences 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 application provided by ALLTEL Information Services, Inc. And FiTech,
Inc.; and internally maintained micro-computer and network systems which
support management functions and communication. 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 compliant 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> 16
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,
1998.
(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:
Election of the following Director for a three-year term:
<TABLE>
<CAPTION>
Broker
For Withheld Non-Votes
--------- --------- ---------
<S> <C> <C> <C>
Stanley A. Jacobson 7,959,596 30,749 --
Randolph P. Piper 7,958,620 31,725 --
Kenneth D. Seaton 7,923,963 66,382 --
Ratification of Coopers and Lybrand L.L.P. as auditors for
the Fiscal year ended December 31, 1998.
For 7,955,900
Against 19,138
Abstain 15,307
Broker Non-Votes - 0 -
</TABLE>
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<PAGE> 17
D&N FINANCIAL CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
ITEM 5: OTHER INFORMATION
On April 16, 1998, D&N Capital Corporation (a subsidiary of D&N Bank),
and the Company, filed a registration statement (Form S-8) with the Securities
and Exchange Commission relating to 160,000 shares of the Company's Common
Stock, par value $.01 per share and 20,000 shares of D&N Capital Corporation's
Preferred Stock, par value $25 per share, to be offered pursuant to the D&N
Bank 401(k) Plan and Trust.
On April 30, 1998, the Company announced that a definitive agreement had
been signed with First of America Bank NA of Kalamazoo, Michigan, for the
acquisition by the Company of approximately $71 million in deposits and the
fixed assets of seven bank offices. Three of the offices, located in
Manchester, Maybee and Temperance, are in southeast Michigan. The others, in
Munising, Gwinn, Stambaugh and Caspian, are located in the Upper Peninsula of
Michigan. The purchase is subject to regulatory approval.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(27) Financial Data Schedule
(99) Additional exhibits
I. Interest rate/volume analysis:
quarter ended 3/31/98 vs.
quarter ended 3/31/97 and
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the
quarter ended March 31, 1998.
- 17 -
<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.
D&N FINANCIAL CORPORATION
/s/ George J. Butvilas
----------------------------------
George J. Butvilas, President and
Chief Executive Officer
/s/ Kenneth R. Janson
----------------------------------
Kenneth R. Janson,
Executive Vice President/Chief
Financial Officer and Treasurer
Date: May 14, 1998
<PAGE> 19
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
99.1 Operating Margin and Rate Volume Analysis
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,436
<INT-BEARING-DEPOSITS> 9,678
<FED-FUNDS-SOLD> 300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 211,102
<INVESTMENTS-CARRYING> 228,945
<INVESTMENTS-MARKET> 230,682
<LOANS> 1,392,265
<ALLOWANCE> 10,679
<TOTAL-ASSETS> 1,867,539
<DEPOSITS> 1,038,363
<SHORT-TERM> 148,455
<LIABILITIES-OTHER> 31,372
<LONG-TERM> 518,976
0
28,719
<COMMON> 76,310
<OTHER-SE> 25,344
<TOTAL-LIABILITIES-AND-EQUITY> 1,867,539
<INTEREST-LOAN> 26,829
<INTEREST-INVEST> 7,718
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 34,547
<INTEREST-DEPOSIT> 11,985
<INTEREST-EXPENSE> 21,342
<INTEREST-INCOME-NET> 13,205
<LOAN-LOSSES> 525
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,095
<INCOME-PRETAX> 6,105
<INCOME-PRE-EXTRAORDINARY> 3,897
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,897
<EPS-PRIMARY> .43
<EPS-DILUTED> .41
<YIELD-ACTUAL> 2.94
<LOANS-NON> 9,053
<LOANS-PAST> 150
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10,420
<ALLOWANCE-OPEN> 10,549
<CHARGE-OFFS> 468
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 10,679
<ALLOWANCE-DOMESTIC> 10,679
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT (99)I
OPERATING MARGIN AND RATE VOLUME ANALYSIS
D&N FINANCIAL CORPORATION
<TABLE>
<CAPTION>
AVERAGE BALANCE AVERAGE RATE INTEREST VARIANCE DUE TO:
-----------------------------------------------------------------------------------------
OPERATING MARGIN FOR MARCH 31, MARCH 31 MARCH 31 INCREASE
QUARTER ENDED 1998 1997 1998 1997 1998 1997 (DECREASE) VOLUME Rate
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable $1,334,866 $1,065,927 8.08% 8.27% $26,829 $21,937 $ 4,892 $ 5,410 ($518)
Mortgage-backed securities 358,876 247,032 6.85% 7.18% 6,145 4,436 1,709 1,924 215)
Investment 98,840 129,600 6.45% 6.13% 1,573 1,962 (487) (487) 98
---------- ---------- ---- ---- ------- ------- ------- -------- ----
1,792,582 1,442,559 7.74% 7.89% 34,547 28,335 6,212 6,846 (634)
---------- ---------- ---- ---- ------- ------- ------- -------- ----
INTEREST-BEARING LIABILITIES:
Deposits 1,036,213 974,127 4.69% 4.70% 11,985 11,288 697 718 (21)
Borrowings
Securities sold w/repo 142,787 56,369 5.58% 5.39% 1,991 759 1,232 1,204 28
Notes payable 491,781 338,003 5.85% 5.63% 7,197 4,757 2,440 2,244 196
Other borrowed money 7,640 8,188 8.85% 9.58% 169 196 (27) (13) (14)
---------- --------- ---- ---- ------- ------- ------- -------- ----
Subtotal - Borrowings 642,208 402,560 5.83% 5.68% 9,357 5,712 3,645 3,435 210
---------- --------- ---- ---- ------- ------- ------- -------- ----
1,678,421 1,376,687 5.13% 4.98% 21,342 17,000 4,342 4,153 189
---------- --------- ---- ---- ------- ------- ------- -------- ----
INTEREST RATE SPREAD 2.62% 2.91%
==== ====
EXCESS AVERAGE EARNING ASSETS $ 114,161 $ 65,872
========== ==========
NET INTEREST MARGIN 2.94% 3.13% $13,205 $ 11,335 $ 1,870 $ 2,693 $(823)
==== ==== ======= ======== ======= ======== =====
</TABLE>
