-----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, LzH0LKu/ao92FjwkWByW/48KMCNphivMHHzHKOCppRY6wdDlQiexJssSUm7qsBns KYCwDrxrkBGAO2/Samucxw== 0000950124-96-000913.txt : 19960229 0000950124-96-000913.hdr.sgml : 19960229 ACCESSION NUMBER: 0000950124-96-000913 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960228 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960228 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: D&N FINANCIAL CORP CENTRAL INDEX KEY: 0000830143 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 342790646 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17137 FILM NUMBER: 96527692 BUSINESS ADDRESS: STREET 1: 400 QUINCY ST CITY: HANCOCK STATE: MI ZIP: 49930 BUSINESS PHONE: 2024146100 8-K 1 FORM 8-K 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 --------------------- 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 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. EX-99.(A) 2 MACOMB'S 10-Q 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 2 MACOMB FEDERAL SAVINGS BANK INDEX Page PART I FINANCIAL INFORMATION ---- 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
3 MACOMB FEDERAL SAVINGS BANK STATEMENTS OF FINANCIAL CONDITION As of June 30, 1995 and December 31, 1995 A S S E T S
June 30, December 31, 1995 1995 ----------- ----------- (Unaudited) 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 ============ ============
See accompanying notes to financial statements. Page 1 4 LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31, 1995 1995 ----------- ------------ (Unaudited) 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 ============ ============
See accompanying notes to financial statements. Page 2 5 MACOMB FEDERAL SAVINGS BANK STATEMENTS OF OPERATIONS Three and Six Month Periods Ended December 31, 1994 and 1995
Three Months Ended Six Months Ended December 31, December 31, 1994 1995 1994 1995 ----------------------------- ------------------------------- (Unaudited) (Unaudited) 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 --------- --------- ---------- ----------
See accompanying notes to financial statements. Page 3 6 MACOMB FEDERAL SAVINGS BANK STATEMENTS OF OPERATIONS (CONTINUED) Three and Six Month Periods Ended December 31, 1994 and 1995
Three Months Ended Six Months Ended December 31, December 31, 1994 1995 1994 1995 ---------------------------- ----------------------------- (Unaudited) (Unaudited) 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 ======== ======== ========= =========
See accompanying notes to financial statements. Page 4 7 MACOMB FEDERAL SAVINGS BANK STATEMENTS OF CASH FLOWS Six Month Periods Ended December 31, 1994 and 1995
Period Ended Period Ended December 31, 1994 December 31, 1995 ----------------- ----------------- (Unaudited) (Unaudited) 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 ----------- -----------
See accompanying notes to financial statements. Page 5 8 MACOMB FEDERAL SAVINGS BANK STATEMENTS OF CASH FLOWS (CONTINUED) Six Month Periods Ended December 31, 1994 and 1995
Period Ended Period Ended December 31, 1994 December 31, 1995 ----------------- ----------------- (Unaudited) (Unaudited) 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
See accompanying notes to financial statements. Page 6 9 MACOMB FEDERAL SAVINGS BANK STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Six Months Ended December 31, 1995
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 --------- ----------- ------------- ------------------ ---------- ---------- ---------- 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 ======== =========== =========== ========= =========== ========== ==========
See accompanying notes to financial statements. Page 7 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:
June 30, December 31, 1995 1995 -------- ----------- 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 ===== ========
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 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:
June 30, 1995 --------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ----------- ----------- ---------- 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 =========== =========== ========== ==========
All maturities are within twelve months.
December 31, 1995 --------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- ----------- ----------- ---------- 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 =========== =========== ========== ==========
All maturities are within twelve months. * * * * * Page 9 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 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 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 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. Page 13 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.
Regulatory Required Excess Capital Capital (Shortage) ------- ------- ---------- Amount % Amount % Amount % ------ - ------ - ------ - 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
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. Page 14 17 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. Page 15 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 Page 16 19 Exhibit II: The calculation of earnings per share for the three and six months ended December 31, 1994 and December 31, 1995 follows:
December 31, 1994: 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 ========
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 -----END PRIVACY-ENHANCED MESSAGE-----