-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CylaV3cBiC6oHOT5w/VxPG3HW2atEBaqnpfg1SxMcRT3oUB+pmKX02K9g0jGf/qI NZvI/nsP5BDwBPDasKwIZQ== /in/edgar/work/20000814/0001067312-00-000336/0001067312-00-000336.txt : 20000921 0001067312-00-000336.hdr.sgml : 20000921 ACCESSION NUMBER: 0001067312-00-000336 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: D&N CAPITAL CORP CENTRAL INDEX KEY: 0001036263 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22767 FILM NUMBER: 696455 BUSINESS ADDRESS: STREET 1: 400 QUINCY STREET CITY: HANCOCK STATE: MI ZIP: 49930 BUSINESS PHONE: 9064822700 MAIL ADDRESS: STREET 1: 400 QUINCY STREET CITY: HANCOCK STATE: MI ZIP: 49930 10-Q 1 0001.txt D&N QUARTERLY REPORT DATED JUNE 30, 2000 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000 COMMISSION FILE NUMBER 0-22767 D&N CAPITAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 31-1517665 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 400 QUINCY STREET, HANCOCK, MICHIGAN 49930 (Address of principal executive offices) (906) 482-2700 (Registrant's telephone number) Indicate by check 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 [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK OUTSTANDING AS OF JULY 31, 2000: Common Stock, $300 par value...... 31,781 shares D&N CAPITAL CORPORATION INDEX Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Statements of Condition as of June 30, 2000 and December 31, 1999 2 Statements of Income for the three and six months ended June 30, 2000 and 1999 3 Statements of Cash Flows for the six months ended June 30, 2000 and 1999 4 Notes to Financial Statements 5 - 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 10 PART II OTHER INFORMATION 10 SIGNATURES 11 EXHIBITS 12 - 15 - 1 - D&N CAPITAL CORPORATION STATEMENTS OF CONDITION (In thousands, except share data) June 30, December 31, 2000 1999 ---------- ---------- (Unaudited) ASSETS: Loans receivable: Residential mortgage loans $54,060 $52,133 Commercial mortgage loans 5,982 8,062 ------- ------- Net loans receivable 60,042 60,195 Cash 10 12 Due from Parent 801 150 Other assets 17 5 Accrued interest receivable 360 354 ------- ------- TOTAL ASSETS $61,230 $60,716 ======= ======= LIABILITIES: Other liabilities $ 38 $ 70 ------- ------- TOTAL LIABILITIES 38 70 STOCKHOLDERS' EQUITY: Preferred stock, $25 par value; 2,500,000 shares authorized, 1,210,000 shares issued and outstanding 30,250 30,250 Common stock, $300 par value; 250,000 shares authorized, 31,781 shares issued and outstanding 9,534 9,534 Additional paid-in capital 20,716 20,716 Retained earnings 692 146 ------- ------- TOTAL STOCKHOLDERS' EQUITY 61,192 60,646 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $61,230 $60,716 ======= ======= See Notes to Financial Statements. - 2 - D&N CAPITAL CORPORATION STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------------------- ------------------ INTEREST INCOME: Loans: Residential mortgage loans $ 890 $ 828 $ 1,761 $ 1,64 Commercial mortgage loans 112 142 249 282 ------- ------- ------- ------- Total loan interest income 1,002 970 2,010 1,931 Intercompany interest 17 20 28 27 ------- ------- ------- ------- TOTAL INTEREST INCOME 1,019 990 2,038 1,958 NONINTEREST EXPENSE: Advisory fees 32 32 63 63 Other expenses 28 26 68 59 ------- ------- ------- ------- TOTAL NONINTEREST EXPENSE 60 58 131 122 NET INCOME 959 932 1,907 1,836 PREFERRED STOCK DIVIDEND REQUIREMENTS 680 681 1,361 1,362 ------- ------- ------- ------- NET INCOME APPLICABLE TO COMMON SHARES $ 279 $ 251 $ 546 $ 474 ======= ======= ======= ======= NET INCOME PER COMMON SHARE $ 8.78 $ 7.90 $ 17.18 $ 14.91 ======= ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 31,781 31,781 31,781 31,781 ======= ======= ======= =======
See Notes to Financial Statements. - 3 - D&N CAPITAL CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Six Months Ended June 30, 2000 1999 ------------------- OPERATING ACTIVITIES Net Income $ 1,907 $ 1,836 Adjustments to reconcile net income to net cash provided by operating activities: Net change in: Accrued interest receivable (6) 2 Amortization of premiums 133 221 Due from Parent (651) (1,760) Other assets (12) (10) Accounts payable (32) (46) -------- -------- Net cash provided by operating activities 1,339 243 -------- -------- INVESTING ACTIVITIES: Purchase of loans (6,579) (12,164) Principal payments received 6,599 13,283 -------- -------- Net cash used by investing activities 20 1,119 -------- -------- FINANCING ACTIVITIES: Preferred stock dividends paid (1,361) (1,362) Common stock dividends paid -- -- -------- -------- Net cash used by financing activities (1,361) (1,362) -------- -------- NET DECREASE IN CASH (2) -- CASH AT BEGINNING OF PERIOD 12 2 -------- -------- CASH AT END OF PERIOD $ 10 $ 2 ======== ======== See Notes to Financial Statements. - 4 - D&N CAPITAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION D&N Capital Corporation (the "Company"), is a Delaware corporation incorporated on March 18, 1997 and was created for the purpose of acquiring and holding real estate assets. The Company is a wholly-owned subsidiary of D&N Bank ("D&N"), a state chartered savings bank, which itself became a wholly-owned subsidiary of Republic Bancorp Inc., a Michigan bank holding company, on May 17, 1999. All shares of common stock are held by D&N Bank. The Series A Preferred Shares are traded on The Nasdaq Stock Market under the symbol "DNFCP". The accompanying unaudited interim 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 necessary for a comprehensive presentation of financial position, results of operations and cash flow activity required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of results have been included. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report of Form 10-K for the year ended December 31, 1999. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES MORTGAGE LOANS: Mortgage loans consist of residential and commercial mortgage loans and are carried at the principal amount outstanding, plus premium or discount, upon purchase from D&N Bank. Interest income is recognized using the interest method, which approximates a level rate of return over the term of the loan. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a level believed adequate by management to absorb potential losses from impaired loans as well as from the remainder of the portfolio. Management's determination of the level of the allowance is based upon an evaluation of the portfolio, past experience, current economic conditions, size and composition of the portfolio, collateral location and values, cash flow positions, industry concentrations, delinquencies and other relevant factors. At June 30, 2000 and December 31, 1999, there were no allowances for loan losses. - 5 - DIVIDENDS: Preferred Stock. Dividends on the Series A Preferred Shares are noncumulative from issuance (July 17, 1997) and are payable quarterly on the last day of March, June, September and December at a rate of 9.00% per annum of the liquidation preference ($25.00 per share). Common Stock. D&N Bank, as sole common shareholder, is entitled to receive dividends when and if declared by the Board of Directors from funds legally available after all preferred dividends have been paid. NET INCOME PER COMMON SHARE: Net income per common share is computed by dividing net income after preferred dividends by the weighted average number of common shares outstanding. There are no outstanding dilutive securities. The Company has elected to be treated as a Real Estate Investment Trust ("REIT"), pursuant to provisions of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, the Company will not be subject to federal income tax on its taxable income to the extent it distributes at least 95% of its taxable income to its shareholders and it meets certain other requirements as defined in the Code. The Company intends to maintain its qualification as a REIT for federal income tax purposes. The Company intends to make qualifying dividends (for federal income tax purposes) of all of its taxable income to its Common and Preferred Stock shareholders, a portion of which may be in the form of "consent" dividends, as defined under the Code. As a result, the Company has made no provision for income taxes in the accompanying financial statements. NOTE 3: DIVIDENDS For each of the three and six month periods ended June 30, 2000 and 1999, the Company paid dividends on Series A Preferred Shares in the amount of $680,625 and $1,361,250, respectively. - 6 - D&N CAPITAL CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The principal business of the Company is to acquire and hold residential and commercial mortgage loans ("mortgage loans") that will generate net income for distribution to stockholders. The Company currently intends to continue to acquire all its mortgage loans from D&N Bank, consisting of whole loans secured by first mortgages or deeds of trust on single-family residential real estate properties or on commercial real estate properties. D&N Bank administers the day-to-day activities of the Company in its role as Advisor under the Advisory Agreement. D&N Bank also services the Company's mortgage loans under each of the Servicing Agreements. It is the intention of the Company and D&N Bank that any agreements and transactions between the Company and D&N Bank are consistent with market terms, including the price paid and received for mortgage loans, upon their acquisition or disposition by the Company, or in connection with the servicing of such mortgage loans. RESULTS OF OPERATIONS The Company reported total interest income for the quarter ended June 30, 2000 of $1,002,000, compared to $970,000 for the second quarter of 1999. Interest income from residential and commercial mortgage loans was $890,000 and $112,000, respectively, for the second quarter of 2000, compared to $828,000 and $142,000, respectively for the second quarter of 1999. After a deduction of $32,000 in advisory fees and $28,000 in other administrative expenses, the Company reported net income of $279,000 for the quarter ended June 30, 2000, compared to $251,000 for the quarter ended June 30, 1999. The Company reported total interest income for the six months ended June 30, 2000 of $2,010,000, compared to $1,931,000 for the same period of 1999. Interest income from residential and commercial mortgage loans was $1,761,000 and $249,000, respectively, for the six months ended June 30, 2000, compared to $1,649,000 and $282,000, respectively for the six months ended June 30, 1999. After a deduction of $63,000 in advisory fees and $68,000 in other administrative expenses, the Company reported net income of $546,000 for the first half of 2000, compared to $474,000 for 1999. - 7 - For the three month periods ended June 30, 2000 and June 30, 1999, the Company reported net income per common share of $8.78 and $7.90, respectively. For the six month periods ended June 30, 2000 and June 30, 1999, the Company reported net income per common share of $17.18 and $14.91, respectively. For the three and six month periods ended June 30, the Company paid $680,625 and $1,361,250, respectively, for both 2000 and 1999. Dividends on the common stock are paid to D&N Bank when and if declared by the Board of Directors of the Company out of funds available. The Company expects to pay common stock dividends at least annually in amounts necessary to continue to preserve its status as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). MORTGAGE LOANS Residential mortgage loans consist of Adjustable Rate Mortgages ("ARMs") and Fixed Rate Mortgages ("FRM's"). The commercial mortgage loans consist of fixed and variable rate loans, a majority of which have balloon payments. Reinvestments in mortgage loans have been and will continue to be consistent in maintaining an approximate 90% and 10% ratio between residential and commercial mortgage loans, respectively. All loans are purchased from D&N Bank. For the six month periods ended June 30, 2000 and June 30, 1999, the Company purchased replacement mortgage loans from D&N Bank of $6,579,000 and $12,164,000. In addition, the Company received $6,599,000 and $13,283,000, respectively, of principal payments on its portfolio for the six month periods ended June 30, 2000 and June 30, 1999. INTEREST RATE RISK The Company's income consists primarily of interest payments on mortgage loans. Currently, the Company does not use any derivative products to manage interest rate risk. If there is a decline in interest rates (as measured by the indices upon which the interest rates of adjustable rate mortgages are based), then the Company will experience a decrease in income available to be distributed to its shareholders. There can be no assurance that an interest rate environment in which there is a significant decline in interest rates over an extended period of time would not adversely affect the Company's ability to pay dividends on the Series A Preferred Shares. - 8 - SIGNIFICANT CONCENTRATION OF CREDIT RISK Concentration of credit risk arises when a number of customers engage in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Concentration of credit risk indicates the relative sensitivity of the Company's performance to both positive and negative developments affecting a particular industry. Approximately 80% of the Company's total mortgage loan portfolio are loans secured by residential real estate properties located in Michigan. Consequently, these residential mortgage loans may be subject to a greater risk of default than other comparable residential mortgage loans in the event of adverse economic, political or business developments and natural hazards in Michigan that may affect the ability of residential property owners in Michigan to make payments of principal and interest on the underlying mortgages. In addition, the majority of the commercial mortgage properties underlying the Company's commercial mortgage loans are located in Michigan. Consequently, these commercial mortgage loans may be subject to greater risk of default than other comparable commercial mortgage loans in the event of adverse economic, political or business developments in Michigan that may affect the ability of businesses in the area to make payments of principal and interest on the underlying mortgages. LIQUIDITY RISK MANAGEMENT The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all of the Company's financial commitments and to capitalize on opportunities for the Company's business expansion. In managing liquidity, the Company takes into account various legal limitations placed on a REIT as discussed on the following page in Other Matters. The Company's principal liquidity needs are to maintain the current portfolio size through the acquisition of additional mortgage loans as mortgage loans currently in the portfolio mature, or prepay, and to pay dividends on the Series A Preferred Shares. The acquisition of additional mortgage loans is intended to be funded with the proceeds obtained from the repayment of principal balances by individual mortgagees. The Company does not have and does not anticipate having any material capital expenditures. - 9 - OTHER MATTERS As of June 30, 2000, the Company believed that it was in full compliance with the REIT tax rules and it will continue to quality as a REIT for federal income tax purposes. The Company calculated that (a) its Qualified REIT Assets to be 100% of total assets, compared to the federal tax requirements of 75%; and (b) that 99% of its revenues qualify for the 75% source of income test and 100% of its revenues qualify for the 95% source of income test under the REIT rules. The Company also met all REIT requirements regarding the ownership of its common and preferred stocks and anticipates meeting the 2000 annual distribution and administrative requirements. 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 None ITEM 5: OTHER INFORMATION None ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits is included herein: 12(a) Computation of Ratio of Earnings to Fixed Charges 12(b) Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements 27 Financial Data Schedule (b) Reports to Form 8-K: There were no reports filed on Form 8-K during the second quarter of 2000. - 10 - 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 CAPITAL CORPORATION ----------------------- (Registrant) Date: August 14, 2000 /s/ Richard E. West --------------------------------- Richard E. West, President and Chief Executive Officer /s/ Thomas F. Menacher --------------------------------- Thomas F. Menacher, Principal Accounting Officer - 11 - INDEX TO EXHIBITS Exhibit No. Exhibits ----------- -------- 12(a) Computation of ratio of earnings to fixed charges 12(b) Computation of ratio of earnings to fixed charges and preferred stock dividend requirements 27 Financial data schedule - 12 - EX-12.A 2 0002.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12(a) D&N CAPITAL CORPORATION Computation of ratio of earnings to fixed charges For the Six Months Ended June 30, 2000 (In thousands, except ratio) Net income $ 1,907 Fixed charges: Advisory fees 63 Total fixed charges 63 Earnings before fixed charges $ 1,970 Fixed charges, as above $ 63 Ratio of earnings to fixed charges 31.3 - 13 - EX-12.B 3 0003.txt RATIO EARNINGS TO FIXED CHARGES/PERFERRED STOCK EXHIBIT 12(b) D&N CAPITAL CORPORATION Computation of ratio of earnings to fixed charges and preferred stock dividend requirements For the Six Months Ended June 30, 2000 (In thousands, except ratio) Net income $ 1,907 Fixed charges: Advisory fees 63 Total fixed charges 63 Earnings before fixed charges $ 1,970 Fixed charges, as above 63 Preferred stock dividend requirement 1,361 Fixed charges including preferred stock dividends $ 1,424 Ratio of earnings to fixed charges and preferred stock dividends requirements 1.38 - 14 - EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the statement of condition sheet as of June 30, 2000, statement of income for the six months ended June 30, 2000, schedules and other required disclosures and is qualified in its entirety by reference to the Company's June 30, 2000 Form 10-Q. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 10 0 0 0 0 0 0 60,042 0 61,230 0 0 38 0 0 30,250 9,534 21,408 61,230 2,010 0 28 2,038 0 0 2,038 0 0 131 1,907 1,907 0 0 1,907 17.18 17.18 6.69 0 0 0 0 0 0 0 0 0 0 0
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