-----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, KGmnENN0ovE6VZ6DStWpHAV2DBtfZGgjk90xsgefg8do4NrmyP7rNQzIOR9XDAnV dDQkUkjh2jPm69xl15gbRQ== 0000950124-97-005874.txt : 19971114 0000950124-97-005874.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950124-97-005874 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-17137 FILM NUMBER: 97714839 BUSINESS ADDRESS: STREET 1: 400 QUINCY ST CITY: HANCOCK STATE: MI ZIP: 49930 BUSINESS PHONE: 2024146100 10-Q 1 10-Q 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 September 30, 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 8,248,325 ----------------------------- ------------------------- (Class) (Shares Outstanding as of October 31, 1997) ================================================================================ 2 D&N FINANCIAL CORPORATION INDEX Page No. -------- PART I Consolidated statements of condition - September 30, 1997 and December 31, 1996 3 Consolidated statements of income - three months ended September 30, 1997 and 1996 nine months ended September 30, 1997 and 1996 4 Consolidated statements of cash flows - nine months ended September 30, 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 17
- 2 - 3 D&N FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited) September 30 December 31 1997 1996 ------------------------------------ (In thousands) ------------------------------------ ASSETS Cash and due from banks $ 7,050 $ 2,847 Federal funds sold -- 8,600 Interest-bearing deposits in other banks 40 1,342 ------------------------------------- Total cash and cash equivalents 7,090 12,789 Investment securities (market value of $89,409,000 in 1997 and $60,783,000 in 1996) 89,288 60,739 Investment securities available for sale (at market value) 46,023 59,038 Mortgage-backed securities (market value $215,247,000 in 1997 and $213,304,000 in 1996) 214,136 214,690 Mortgage-backed securities available for sale (at market value) 61,483 36,566 Loans receivable (including loans held for sale of $8,754,000 in 1997 and $5,218,000 in 1996) 1,314,797 1,066,918 Allowance for loan losses (10,850) (11,042) ------------------------------------ Net loans receivable 1,303,947 1,055,876 Other real estate owned, net 1,713 1,470 Federal income taxes 1,580 6,002 Office properties and equipment, net 16,465 15,764 Other assets 12,344 10,120 ------------------------------------ $ 1,754,069 $ 1,473,054 ==================================== LIABILITIES Checking and Now accounts $ 110,740 $ 107,550 Money market accounts 90,299 89,321 Savings deposits 156,726 149,226 Time deposits 674,056 617,102 Accrued interest 1,020 934 ------------------------------------ Total deposits 1,032,841 964,133 Securities sold under agreements to repurchase 156,276 58,040 FHLB advances and other borrowed money 421,573 345,997 Advance payments by borrowers and investors held in escrow 12,638 11,808 Other liabilities 8,347 6,955 ------------------------------------ Total liabilities 1,631,675 1,386,933 PREFERRED STOCK OF CONSOLIDATED SUBSIDIARY 28,719 -- 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 54,876 55,452 ------------------------------------ Total paid-in capital 54,960 55,536 Retained earnings - substantially restricted 39,752 29,568 Less: Cost of treasury stock (126,231 shares in 1997 and 22,339 in 1996) (2,076) (226) Unrealized holding gains on debt securities available for sale, net of tax 1,039 1,243 ------------------------------------ Total stockholders' equity 93,675 86,121 ------------------------------------ $ 1,754,069 $ 1,473,054 ====================================
See Notes to Consolidated Financial Statements. - 3 - 4 D&N FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 --------------------------------------------------- (In thousands, except per share) --------------------------------------------------- INTEREST INCOME Loans $ 25,453 $ 22,466 $ 70,988 $ 63,881 Mortgage-backed securities 4,631 2,646 13,692 7,399 Investments and deposits 2,058 1,993 6,090 5,251 --------------------------------------------------- TOTAL INTEREST INCOME 32,142 27,105 90,770 76,531 INTEREST EXPENSE Deposits 12,279 10,917 35,554 32,823 Securities sold under agreements to repurchase 1,296 704 3,202 1,396 FHLB advances and other borrowed money 6,051 4,242 16,354 10,848 --------------------------------------------------- TOTAL INTEREST EXPENSE 19,626 15,863 55,110 45,067 --------------------------------------------------- NET INTEREST INCOME 12,516 11,242 35,660 31,464 Provision for loan losses 300 300 900 900 --------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,216 10,942 34,760 30,564 NONINTEREST INCOME Loan administrative fees 460 398 1,497 1,424 Deposit related fees 1,102 996 2,941 2,695 Gain on sale of loans held for sale 642 204 862 842 Other income 145 82 463 314 --------------------------------------------------- TOTAL OPERATING NONINTEREST INCOME 2,349 1,680 5,763 5,275 Gain on investment securities -- -- -- 188 Gain on loans and mortgage-backed securities -- -- 539 -- --------------------------------------------------- TOTAL NONINTEREST INCOME 2,349 1,680 6,302 5,463 NONINTEREST EXPENSE Compensation and benefits 4,550 4,232 12,918 13,216 Occupancy 781 706 2,306 2,103 Other expense 2,768 2,669 8,468 8,808 --------------------------------------------------- GENERAL AND ADMINISTRATIVE EXPENSE 8,099 7,607 23,692 24,127 Other real estate owned, net 44 6 33 68 FDIC insurance 160 6,136 495 7,446 --------------------------------------------------- TOTAL NONINTEREST EXPENSE 8,303 13,749 24,220 31,641 --------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAX EXPENSE 6,262 (1,127) 16,842 4,386 Federal income tax expense (credit) 2,003 (42) 5,710 (1,378) --------------------------------------------------- INCOME (LOSS) BEFORE PREFERRED STOCK DIVIDENDS 4,259 (1,085) 11,132 5,764 Preferred stock dividend of subsidiary 537 -- 537 -- --------------------------------------------------- NET INCOME $ 3,722 $ (1,085) $ 10,595 $ 5,764 =================================================== Earnings per common and common equivalent share: PRIMARY $ 0.44 $ (0.13) $ 1.24 $ 0.72 =================================================== FULLY DILUTED $ 0.43 $ (0.13) $ 1.23 $ 0.71 ===================================================
See Notes to Consolidated Financial Statements. - 4 - 5 D&N FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, 1997 1996 ------------------------- (In thousands) ------------------------- OPERATING ACTIVITIES Net income $ 10,595 $ 5,764 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 900 900 Depreciation and amortization of office properties and equipment 1,470 1,462 Amortization of net discounts on purchased loans and securities (496) (203) Originations and purchases of loans held for sale (32,238) (12,755) Proceeds from sales of loans held for sale 45,381 58,156 Realized and unrealized investment security (gains) losses -- (188) Realized and unrealized (gain) loss on loans, mortgage-backed certificates and mortgage derivative products (539) -- Amortization and writedowns of loan servicing rights 290 191 Other 2,476 1,627 -------------------------- Net cash provided by operating activities 27,839 54,954 INVESTING ACTIVITIES Proceeds from sales of investment securities 20 298 Proceeds from maturities and payments of investment securities 137,166 83,991 Purchases of investment securities (152,501) (91,674) Proceeds from sales of mortgage-backed securities 24,094 -- Principal collected on mortgage-backed securities 44,352 38,417 Purchases of mortgage-backed securities (92,935) (34,634) Loan purchases (159,797) (130,790) Net change in loans receivable (100,571) (98,533) (Increase) decrease in other real estate owned (243) 51 Purchases of office properties and equipment (2,155) (2,221) -------------------------- Net cash used by investing activities (302,570) (235,095) FINANCING ACTIVITIES Net change in time deposits 56,954 4,848 Net change in other deposits 11,668 17,387 Proceeds from notes payable, securities sold under agreements to repurchase and other borrowed money 441,036 266,690 Payments on maturity of notes payable, securities sold under agreements to repurchase and other borrowed money (267,338) (120,910) Net activity in advance payments by borrowers and investors held in escrow 830 (945) Common stock cash dividend (411) -- Proceeds from issuance of stock 569 838 Purchase/sales of treasury stock/warrants (2,995) -- Proceeds from issuance of subsidiary preferred stock 28,719 -- Reduction of leverage ESOP stock -- 63 -------------------------- Net cash provided by financing activities 269,032 167,971 -------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,699) (12,170) Cash and cash equivalents at beginning of period 12,789 22,440 -------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,090 $ 10,270 ==========================
See notes to consolidated financial statements - 5 - 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 interim periods ended September 30, 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 8,494,992 and 8,119,258 for the three months ended September 30, 1997 and September 30, 1996, respectively, and 8,532,580 and 8,058,047 for the nine months ended September 30, 1997 and September 30, 1996, respectively. The weighted average number of common and common equivalent shares used in computing fully diluted earnings per share was 8,574,896 and 8,202,564 for the three months ended September 30, 1997 and September 30, 1996, respectively, and 8,632,081 and 8,167,211 for the nine months ended September 30, 1997 and September 30, 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 - 7 Changes in the allowance for loan losses are summarized as follows:
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 --------------------- ------------------------ (In thousands) Balance at beginning of period $ 10,978 $ 10,150 $ 11,042 $ 10,081 Charge-offs: Single family 135 40 200 129 Income producing property 37 -- 37 -- Commercial -- -- -- -- Installment 351 289 1,117 878 --------------------- ------------------------ Total 523 329 1,354 1,007 Recoveries: Single family -- -- -- 3 Income producing property -- 193 -- 193 Commercial -- -- -- -- Installment 95 76 262 220 --------------------- ------------------------ Total 95 269 262 416 --------------------- ------------------------ Net charge-offs 428 60 1,092 591 Provision charged to operations 300 300 900 900 --------------------- ------------------------ Balance at end of period $ 10,850 $ 10,390 $ 10,850 $ 10,390 ===================== ========================
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. - 7 - 8 A reconciliation of consolidated net interest income, net income and earnings per share, previously reported and restated amounts, follows:
Three Months Ended March 31, 1996 -------------- (In thousands, except per share) 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
NOTE 6: CAPITAL On July 17, 1997 D&N Capital Corporation, ("D&N Capital") a new real estate investment trust subsidiary of the Bank, sold 1.21 million shares of its 9.0% noncumulative preferred stock, Series A with a liquidation preference of $25.00 per share (totaling $30,250,000). As part of this transaction, D&N Capital received $28,719,000 in net proceeds, after offering costs of $1,531,000. As a result of this transaction, the Bank's capital ratios have been increased, since the preferred stock issued qualifies for regulatory capital purposes. NOTE 7: RECLASSIFICATIONS Certain amounts in the 1996 consolidated financial statements have been reclassified to conform with the current period presentation. - 8 - 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 and nine-month periods ended September 30, 1997 and 1996. Ratios for the three-month periods are stated on an annualized basis. Results of operations for the three month and nine month periods ended September 30, 1997 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 September 30, 1997 of $3.7 million, compared to a net loss of $1.1 million in the third quarter of 1996. Return on assets and return on equity were 0.90% and 16.29%, respectively, during the quarter ended September 30, 1997, compared to (0.31%) and (5.44%), respectively, during the quarter ended September 30, 1996. The increase in net income was primarily due to increases in net interest income of $1.3 million, and a significant reduction in FDIC insurance, with the SAIF ("SAVINGS ASSOCIATION INSURANCE FUND") assessment of $5.47 million being paid in the third quarter of 1996. These increases in income were partially offset by an increase in tax expense of $2.0 million from a tax credit of $42,000 used in the 1996 quarter, versus a tax expense of $2.0 million in the 1997 quarter. For the nine months ended September 30, 1997, the Company recorded net income of $10.6 million, compared to net income of $5.8 million for the nine months ended September 30, 1996. Return on assets and return on equity were 0.90% and 15.82%, respectively, during the nine months ended September 30, 1997, compared to 0.58% and 10.02%, respectively, during the nine months ended September 30, 1996. The increase in net income was primarily due to increases in net interest income of $4.2 million, increased gains on sales of assets of $351,000 and a significant reduction in FDIC insurance, with the SAIF assessment of $5.47 million being paid in the third quarter of 1996. These increases in income were largely offset by an increase in tax expense of $7.1 million, resulting from a tax credit of $1.4 million used in the first nine months of 1996, versus a tax expense of $5.7 million in the first nine months of 1997. - 9 - 10 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. Net interest income increased $1.3 million to $12.5 million for the quarter ended September 30, 1997 compared to $11.2 million for the quarter ended September 30, 1996. The increase was due to increased volume and improved yields on D&N's loan portfolio and increased volumes in both the mortgage backed securities and investments portfolios. These improvements were partially offset by increases in interest paid on deposits and borrowings due to higher volumes and general increases in market interest rates. Similarly, net interest income increased $4.2 million to $35.7 million for the nine months ended September 30, 1997 from $31.5 million for the nine months ended September 30, 1996. The same factors that explained the third quarter comparison were present during the year-to-date comparative periods. 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 in 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 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 $300,000 provision for loan losses during the quarters ended September 30, 1997 and September 30, 1996. For each of the first nine months in both 1997 and 1996, the Company's provision for loan losses was $900,000. - 10 - 11 NONINTEREST INCOME Total noninterest income increased to $2.3 million during the third quarter of 1997, from $1.7 million during the third quarter of 1996. The majority of this increase was due to an increase in gain on sale of loans held for sale of $438,000 and increases in deposit related fees and loan fees. For the nine months ended September 30, 1997, total noninterest income increased to $6.3 million from $5.5 million recorded during the nine months ended September 30, 1996. Increases of $746,000 were in the areas of (i) deposit related fees, (ii) insurance products, (iii) annuity contracts, and (iv) gain on sale of assets during the period. NONINTEREST EXPENSE Total noninterest expense decreased $5.4 million to $8.3 million during the quarter ended September 30, 1997, from $13.7 million during the prior year quarter. Federal deposit insurance premiums paid decreased $6.0 million reflecting the reduction due to a replenished SAIF and an upgrade in D&N's risk classification versus the prior year. The decrease in noninterest expense was partially offset by an increase of $318,000 in compensation and benefits. For the nine months ended September 30, 1997, total noninterest expense decreased $7.4 million to $24.2 million, compared to $31.6 million recorded during the nine months ended September 30, 1996. The decrease was primarily attributable to a $7.0 million decrease in FDIC insurance, due to a replenished SAIF and an upgrade in D&N's risk classification. FEDERAL INCOME TAXES The third quarter and first nine months of 1997 reflect customary provisions for income taxes versus federal income tax credits of $42,000 and $1.4 million being recorded during the three months and nine months ended September 30, 1996, respectively. PREFERRED STOCK DIVIDEND Unique to this reporting period is a $537,000 deductible stock dividend attributable to D&N's newly formed real estate investment trust subsidiary, D&N Capital Corporation. - 11 - 12 FINANCIAL CONDITION Total assets at September 30, 1997 were $1.75 billion, an increase of $281.0 million from December 31, 1996. Earning assets represented approximately 98% of total assets as of September 30, 1997, substantially the same as at year-end 1996. CASH, DEPOSITS AND INVESTMENT SECURITIES Cash, deposits and investment securities were $142.4 million at September 30, 1997, up $9.8 million from December 31, 1996. The majority of this increase was the result of additions to D&N's liquidity portfolio of approximately $20.0 million in commercial paper, offset by net maturities of U.S. treasury securities of $5.4 million, and a decrease in cash and cash equivalents of approximately $5.7 million. MORTGAGE-BACKED SECURITIES Mortgage-backed securities increased $24.4 million to $275.6 million at September 30, 1997 compared to December 31, 1996. During the period, the Company purchased $93.0 million of government agency collateralized mortgage obligations, with a weighted average yield of 7.03% and a weighted average life of 3.6 years. The Company also sold $23.7 million of government agency mortgage-backed securities with a weighted average yield of 6.99%, realizing a gain on sale of approximately $539,000. The entire mortgage-backed securities portfolio experienced repayments and amortization during the period of $44.3 million, less a net increase of $30,000 in market value recognized through stockholders' equity on mortgage-backed securities available for sale. NET LOANS RECEIVABLE Net loans receivable increased $248.1 million during the period to $1.30 billion at September 30, 1997, reflecting the Company's increased emphasis on building its consumer loan portfolio. Loan originations of $435.6 million and purchases of $159.8 million exceeded repayments of $302.1 million and sales of $45.4 million. Loan originations and purchases during the nine months ended September 30, 1997 were $237.4 million for consumer loans, while residential mortgage loans and commercial loans were $296.2 million and $61.4 million, respectively. - 12 - 13 NONPERFORMING ASSETS AND RISK ELEMENTS The following table sets forth the amounts and categories of risk elements in the Bank's loan portfolio.
September 30, December 31, 1997 1996 ------------------------------ (Dollars in thousands) Nonaccruing loans $ 4,097 $ 6,621 Accruing loans delinquent more than 90 days 280 -- Restructured loans -- -- -------------------------- Total nonperforming loans 4,377 6,621 Other real estate owned (OREO) 1,713 1,470 -------------------------- Total nonperforming assets $ 6,090 $ 8,091 ========================== Nonperforming loans as a percentage of total loans 0.33% 0.62% ========================== Nonperforming assets as a percentage of total assets 0.35% 0.55% ========================== Allowance for loan losses as a percentage of nonperforming loans 247.89% 166.77% ========================== Allowances for loan and OREO losses as a percentage of nonperforming assets 178.16% 136.47% ==========================
Nonperforming assets, before allowances for loan and OREO losses, decreased $2.0 million during the period, primarily because a large commercial real estate loan secured by a shopping center was restored to accrual status after sale of the property. - 13 - 14 MORTGAGE SERVICING RIGHTS (MSRS) The Company's net investment in MSRs increased during the period to $1.8 million at September 30, 1997. The following table details activity in the portfolio for the periods indicated.
Nine Months Year Ended Ended September 30, 1997 December 31, 1996 ------------------------------------------ (Dollars in thousands) Balance at beginning of period $ 1,443 $ 1,113 Additions: Capitalized servicing 655 630 Reductions: Scheduled amortization (220) (267) Additional amortization due to changes in prepayment assumptions (69) (33) ------------ ------------ Total (289) (300) ------------ ------------ Balance at end of period $ 1,809 $ 1,443 ============ ============ Fair market value at end of period $ 2,147 $ 1,770 ============ ============
DEPOSITS Deposits increased $68.7 million during the period to $1.03 billion at September 30, 1997. Certificates of deposit increased $57.0 million and savings deposits increased $7.1 million, while checking accounts increased $3.2 million and money market accounts increased approximately $1.0 million. The Company's cost of deposits increased to 4.78% at September 30, 1997, compared to 4.61% at December 31, 1996, reflecting general increases in market rates of interest. BORROWINGS Total borrowings increased $173.8 million during the period to $577.8 million at September 30, 1997 in order to fund loan demand. The Company's cost of borrowings was 5.87% at September 30, 1997, compared to 5.73% at December 31, 1996. CAPITAL According to federal regulations, the Bank must meet certain minimum capital ratios. As the following table indicates, the Bank's capital ratios at September 30, 1997 exceeded these requirements. - 14 - 15
Tier 1 Tangible Core Risk-Based Risk-based Capital Capital Capital Capital --------- --------- ---------- ------------ (Dollars in thousands) Actual capital $113,484 $113,484 $123,951 $113,484 Required capital 26,508 53,016 85,243 42,622 -------- -------- -------- -------- Excess capital $ 86,976 $ 60,468 $ 38,708 $ 70,862 ======== ======== ======== ======== Actual ratio 6.42% 6.42% 11.63% 10.65% ======== ======== ======== ======== Required ratio 1.50% 3.00% 8.00% 4.00% ======== ======== ======== ========
Consolidated stockholders' equity was $93.7 million at September 30, 1997 and represents 5.34% of consolidated assets. On July 17, 1997 D&N Capital Corporation, ("D&N Capital") a new real estate investment trust subsidiary of the Bank, sold 1.21 million shares of its 9.0% noncumulative preferred stock, Series A with a liquidation preference of $25.00 per share (totaling $30,250,000). As part of this transaction, D&N Capital received $28,719,000 in net proceeds, after offering costs of $1,531,000. As a result of this transaction, the Bank's capital ratios have been increased, since the preferred stock issued qualifies for regulatory capital purposes. 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 September 1997, the Bank's average liquidity ratio was 6.83%. At September 30, 1997, unused borrowing capacity as measured by the Bank's inventory of readily available but unpledged collateral was approximately $78 million. The Company considers its current liquidity and other funding sources sufficient to fund its outstanding loan commitments and scheduled liability maturities. 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. On September 30, 1996, federal legislation was enacted that required the SAIF to be recapitalized with a one-time assessment on virtually all SAIF-insured institutions. - 15 - 16 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. As a result of the SAIF recapitalization, the FDIC has amended its regulation concerning the insurance premiums payable by SAIF-insured institutions. For the period October 1, 1996 through December 31, 1996, the SAIF insurance premium for all SAIF-insured institutions that are required to pay the Financing Corporation ("FICO") obligation, such as the Bank, was reduced to a range of 18 to 27 basis points from 23 to 31 basis points per $100 of domestic deposits. The FDIC further reduced the SAIF insurance premium to a range of 0 to 27 basis points per $100 of domestic deposits, effective January 1, 1997. The Bank qualifies for the minimum SAIF assessment. Additionally, the FDIC has imposed a FICO assessment on SAIF-assessable deposits for the first semi-annual period of 1997 equal to 6.48 basis points per $100 of domestic deposits, as compared to a FICO assessment on BIF-assessable deposits for that same period equal to 1.30 basis points per $100 of domestic deposits. 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 adopt the provisions of this statement, as required in 1997. The adoption is not expected to have a material impact on earnings per share. - 16 - 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 None ITEM 5: OTHER INFORMATION None 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 9/30/97 vs. quarter ended 9/30/96 and nine months ended 9/30/97 vs. nine months ended 9/30/96 (b) Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter ended September 30, 1997. - 17 - 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: November 12, 1997 ------------------------- 19 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- EX-11 STATEMENT RE: COMPUTATION OF PER SHARE EARNING EX-27 FINANCIAL DATA SCHEDULE EX-99 ADDITIONAL EXHIBITS
EX-11 2 EX-11 1 EXHIBIT (11) STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended September 30, -------------------------------- (In thousands, except per share) 1997 1996 ---- ---- Primary Diluted Primary Diluted ------- ------- ------- ------- Net Income $ 3,722 $ 3,722 $ (1,085) $ (1,085) ======== ======== ========= ======== Average Shares: Common 8,211 8,211 7,576 7,576 Common equivalents 284 364 543 627 -------- -------- --------- -------- Total $ 8,495 $ 8,575 $ 8,119 $ 8,203 ======== ======== ========= ======== Earnings per common share $ 0.44 $ 0.43 $ (0.13) $ (0.13) ======== ======== ========= =========
Nine Months Ended September 30, ------------------------------- (In thousands except per share) 1997 1996 ---- ---- Primary Diluted Primary Diluted ------- ------- ------- ------- Net Income $ 10,595 $10,595 $ 5,764 $ 5,764 ======== ======= ========= ======= Average Shares: Common 8,268 8,268 7,540 7,540 Common equivalents 265 364 518 627 -------- ------- --------- ------- Total $ 8,533 $ 8,632 $ 8,058 $ 8,167 ======== ======= ========= ======= Earnings per common share $ 1.24 $ 1.23 $ 0.72 $ 0.71 ======== ======= ========= =======
Common share equivalents assume exercise of stock options and warrants, if dilutive. EX-27 3 EX-27
9 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 7,050 40 0 0 107,506 303,424 304,656 1,314,797 10,850 1,754,069 1,032,841 156,276 20,985 421,573 0 28,719 54,960 38,715 1,754,069 25,453 6,689 0 32,142 12,279 19,626 12,516 300 0 8,303 6,262 3,722 0 0 3,722 0.44 0.43 3.13 3,872 280 0 11,691 10,978 524 96 10,850 10,850 0 0
EX-99 4 EX-99 1 EXHIBIT (99) OPERATING MARGIN AND RATE VOLUME ANALYSIS D&N FINANCIAL CORPORATION
AVERAGE BALANCE AVERAGE RATE INTEREST VARIANCE DUE TO: ------------------------------------------------------------------------------------------------ OPERATING MARGIN FOR SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, INCREASE QUARTER ENDED 1997 1996 1997 1996 1997 1996 (DECREASE) VOLUME RATE ------------------------------------------------------------------------------------------------ (Dollars in thousands) (Dollars in thousands) INTEREST-EARNING ASSETS: - ----------------------- Loans receivable $1,226,453 $1,102,336 8.26% 8.15% $25,453 $22,466 $2,987 $2,690 $297 Mortgage-backed securities 258,813 144,712 7.16% 7.31% 4,631 2,646 1,985 2,043 (58) Investment 130,255 105,163 6.26% 7.54% 2,058 1,993 65 433 (368) ---------- ---------- ----- ----- ------- ------- ------ ------ ----- 1,651,520 1,352,210 7.92% 8.01% 32,142 27,105 5,037 5,166 (129) ---------- ---------- ----- ----- ------- ------- ------ ------ ----- INTEREST-BEARING LIABILITIES: - ---------------------------- Deposits 1,023,886 941,757 4.76% 4.61% 12,279 10,917 1,362 999 363 Borrowings Securities sold w/repo 91,119 51,260 5.57% 5.37% 1,296 704 592 566 26 Notes payable 390,927 285,416 5.88% 5.52% 5,871 4,023 1,848 1,570 278 Other borrowed money 7,515 9,355 9.58% 9.36% 180 219 (39) (44) 5 ---------- ---------- ----- ----- ------- ------- ------ ------ ----- Subtotal - Borrowings 489,561 346,030 5.88% 5.60% 7,347 4,946 2,401 2,092 309 ---------- ---------- ----- ----- ------- ------- ------ ------ ----- 1,513,447 1,287,787 5.12% 4.88% 19,626 15,863 3,763 3,091 672 ---------- ---------- ----- ----- ------- ------- ------ ------ ----- INTEREST RATE SPREAD 2.80% 3.14% ==== ==== EXCESS AVERAGE EARNING ASSETS $ 102,073 $ 64,423 ========== ========== NET INTEREST MARGIN 3.13% 3.37% $12,516 $11,242 $1,274 $2,076 $(802) ===== ===== ======= ======= ====== ====== =====
AVERAGE BALANCE AVERAGE RATE INTEREST VARIANCE DUE TO: ------------------------------------------------------------------------------------------------ OPERATING MARGIN FOR SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, INCREASE YEAR TO DATE 1997 1996 1997 1996 1997 1996 (DECREASE) VOLUME RATE ------------------------------------------------------------------------------------------------ (Dollars in thousands) (Dollars in thousands) INTEREST-EARNING ASSETS: - ----------------------- Loans receivable $1,145,964 $1,053,720 8.25% 8.08% $70,988 $63,881 $ 7,107 $ 5,780 $1,327 Mortgage-backed securities 254,305 130,588 7.18% 7.55% 13,692 7,399 6,293 6,678 (385) Investment 130,107 99,836 6.25% 7.03% 6,090 5,251 839 1,458 (619) ---------- ---------- ----- ----- ------- ------- ------ ------ ----- 1,530,376 1,284,145 7.91% 7.95% 90,770 76,531 14,239 13,917 322 ---------- ---------- ----- ----- ------- ------- ------- ------- ------ INTEREST-BEARING LIABILITIES: - ----------------- Deposits 1,004,148 934,395 4.73% 4.69% 35,554 32,823 2,731 2,427 304 Borrowings Securities sold w/repo 76,433 34,122 5.52% 5.38% 3,202 1,396 1,806 1,766 40 Notes payable 360,820 242,175 5.77% 5.50% 15,789 10,140 5,649 5,133 516 Other borrowed money 7,971 9,836 9.45% 9.60% 565 708 (143) (132) (11) ---------- ---------- ----- ----- -------- ------- ------- ------- ------ Subtotal - Borrowings 445,224 286,132 5.79% 5.63% 19,556 12,244 7,312 6,767 545 ---------- ---------- ----- ----- -------- ------- ------- ------- ------ 1,449,373 1,220,527 5.06% 4.91% 55,110 45,067 10,043 9,194 849 ---------- ---------- ----- ----- ------- ------- ------- ------- ------ INTEREST RATE SPREAD 2.85% 3.04% ===== ===== EXCESS AVERAGE EARNING ASSETS $ 81,003 $ 63,618 ========== ========== NET INTEREST MARGIN 3.11% 3.28% $35,660 $31,464 $ 4,196 $ 4,723 $ (527) ===== ===== ======= ======= ======= ======= ======
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