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D&N TAKES FIRST-QUARTER CHARGE IN MARK-TO-MARKET TRANSACTION, REDUCES COMPANY'S RISK PROFILE

 HANCOCK, Mich., April 27 /PRNewswire/ -- D&N Financial Corp. (NASDAQ-NMS: DNFC) today announced a net loss for the 1993 first quarter of $13.4 million, or $3.60 per share, compared to net income of $869,000, or $0.23 per share, for the first quarter of 1992.
 According to George J. Butvilas, president and chief executive officer, the loss is primarily attributable to the writedown of the company's portfolio of interest-only mortgage derivative securities (IOs) prompted by the negative effects of the low interest rate environment on those investments. "The low levels of mortgage interest rates have resulted in accelerated mortgage loan prepayments," said Butvilas. "These prepayment levels have continued to erode the value of our IO investments and reduce their overall hedge effectiveness. As a result, we have analyzed the mortgage derivative portfolio, and those investments which no longer meet our criteria as hedge instruments were marked to market and placed in a held-for-sale category. Twelve of the 15 IOs in this portfolio were placed in a held-for-sale status. Although difficult in the near term, this action reduces the threat to future profitability posed by these volatile securities." Mark-to- market and valuation adjustments resulted in pre-tax charges to earnings of $15.0 million in the first quarter of 1993.
 The company also announced a reduction in the carrying value of the company's portfolio of purchased mortgage servicing rights through a pre-tax charge to earnings of $2.9 million to specific packages of servicing rights and the establishment of a $3.0 million general valuation allowance. The charge results from reductions in the value of that portfolio caused by accelerated mortgage prepayments in the first quarter. The allowance was established to buffer the portfolio against possible further accelerations in prepayment rates. Further erosion in the value of purchased mortgage servicing rights could result from continued accelerated prepayments. "Again, consumers have refinanced their mortgages because of the attractiveness of the present low interest rates," Butvilas noted, "resulting in a dissipation of D&N's expected income from the purchased servicing of those mortgages."
 Net interest income for the quarter was $4.8 million, compared to $6.1 million for the first quarter of 1992. The depressed net interest income is primarily the result of the sale of certain principal-only mortgage derivative securities, which had high yields during 1992 and were subsequently sold in the third and fourth quarters of the year.
 Interest income also continues to be depressed because of the high cost of the company's long-term interest rate swap agreements. During the first quarter, $36 million notional amount of those instruments expired, reducing the total portfolio to $204 million. This decline resulted in a $447,000 reduction in the expense associated with those instruments to $4.2 million in the first quarter from $4.7 million in the fourth quarter of 1992. If interest rates remain at current levels for the remainder of 1993, D&N's interest rate instrument expense is expected to be $14.8 million for 1993, compared with $16.9 million in 1992. An additional $30 million notional amount of these instruments is scheduled to expire in June 1993, and the remaining instruments will run off in 1994 and 1995.
 Nonperforming assets declined during the quarter to $52.8 million, compared to $75.4 million at March 31, 1992, and $55.9 million at Dec. 31, 1992. Other real estate owned, a component of nonperforming assets, was $31.1 million, compared to $40.4 million at the end of the first quarter of 1992 and $29.7 million at year-end 1992. At March 31, 1993, the bank's total reserves for loan and real estate losses were $15.5 million, which represents 29.3 percent of nonperforming assets, and loan loss reserves were 69.9 percent of nonperforming loans at March 31, 1993.
 In other transactions during the quarter, D&N realized gains of $2.3 million on the sale of certain fixed-rate mortgage assets held for sale. These assets were sold in anticipation of continued accelerated prepayments and the resultant opportunity loss those potential prepayments represent to the company. The company also recognized a one-time gain of $1.1 million representing the cumulative effect of FASB 109 on income taxes as well as an extraordinary charge of $41,000 for the prepayment of $25.0 million in FHLB advances.
 The capital ratios of D&N Bank at March 31, 1993, were tangible capital, 3.28 percent; core capital, 4.03 percent; and risk-based capital, 9.65 percent. Current federal minimum regulatory capital ratios are 1.5 percent, 4.0 percent and 8.0 percent, respectively.
 In other news, D&N announced that it has received preliminary approval from the Office of Thrift Supervision and the state of Wisconsin to open an office in Marinette, Wis. According to Butvilas, the new location is scheduled for opening in June 1993. "We are excited with our expansion into this new market and by the opportunities available with our initial steps into interstate banking," said Butvilas.
 At the company's annual meeting of stockholders, held April 27, 1993, Butvilas and Thomas J. St. Dennis were re-elected to the board of directors and the accounting firm of Ernst & Young was approved as independent auditors for the company for the year ending Dec. 31, 1993.
 D&N Financial Corp., through its subsidiary, D&N Bank, fsb, has 36 financial services offices throughout Michigan's Upper Peninsula and mid-Michigan. D&N is the third-largest savings bank in Michigan based on asset size and the largest financial institution headquartered in the Upper Peninsula. D&N Financial Corp. common stock is traded on the NASDAQ Stock Market under the symbol DNFC.
 D&N FINANCIAL CORPORATION
 FINANCIAL HIGHLIGHTS
 (Dollars in thousands, except per-share data)
 For the quarter ended: 3/31/93 12/31/92 3/31/92(2)
 Net interest income $4,755 $5,121 $6,103
 Net noninterest expense 23,366 2,833 4,457
 Net income (loss) (13,431) 1,221 869
 Net income (loss) per share (3.60) 0.33 0.23
 Operations:
 New loans originated 36,413 58,119 39,258
 Increase (decrease) in deposits (23,326) (14,817) (20,188)
 Increase (decrease) in
 borrowings 42,001 (110,985) (51,086)
 Earning assets yield (pct) 7.60 8.07 8.96
 Cost of funds (pct) 6.04 6.63 7.38
 Net interest margin(1) (pct) 1.69 1.72 1.77
 At quarter end:
 Total assets 1,230,201 1,212,196 1,455,288
 Cash, interest-bearing
 deposits and investment
 securities 161,865 154,292 228,910
 Net loans receivable 647,195 687,758 761,686
 Mortgage-backed securities 255,077 208,062 273,043
 Mortgage derivative products 10,702 27,075 64,050
 Deposits 858,098 881,424 959,395
 Borrowings 216,062 174,061 322,765
 Stockholders' equity(3) 83,343 96,770 93,866
 Stockholders' equity as a
 percent of total assets (pct) 6.78 7.98 6.45
 Per-share data:
 Closing price 10 3/4 8 1/4 6 3/4
 Price range 7 3/4-12 1/4 6-8 1/2 4 3/4-7 3/4
 Stockholders' equity - GAAP 22.47 26.10 25.31
 Stockholders' equity - tangible 13.27 16.80 16.03
 Loans serviced for others 1,723,226 1,747,935 874,104
 Nonperforming assets 52,840 55,890 75,370
 Loan loss reserves:
 Amount 14,440 15,461 18,110
 As a percent of nonperforming
 loans (pct) 69.88 62.11 54.65
 As a percent of total loans (pct) 2.18 2.20 2.32
 Regulatory capital ratios:
 Tangible capital (pct) 3.28 4.04 3.60
 Core capital (pct) 4.03 5.04 4.60
 Risk-based capital (pct) 9.65 9.93 9.27
 (1) Net interest income divided by average earning assets.
 (2) Certain amounts have been reclassified to conform with the current period presentation.
 (3) The number of common shares outstanding was 3,709,118 at March 31, 1993, and 3,708,418 at Dec. 31, 1992, and March 31, 1992.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
 March 31
 1993 1992(1)
 (In thousands, except per share)
 Interest income:
 Loans $15,342 $18,887
 Mortgage-backed securities 3,662 6,469
 Mortgage derivative products 2 2,044
 Investments and deposits 2,016 3,347
 Total interest income 21,022 30,747
 Interest expense:
 Deposits 8,728 13,030
 Securities sold under agreements
 to repurchase 1 37
 FHLB advances and other borrowed
 money 2,898 7,104
 Interest rate instruments 4,640 4,473
 Total interest expense 16,267 24,644
 Net interest income 4,755 6,103
 Provision for loan losses --- ---
 Net interest income after
 provision for loan losses 4,755 6,103
 Noninterest income:
 Loan servicing and administrative
 fees (5,633) 852
 Deposit related fees 737 799
 Gain (loss) on loans held for sale 45 (56)
 Other income 115 169
 (4,736) 1,764
 Realized and unrealized gain
 (loss) on investment securities --- ---
 Realized and unrealized gain (loss)
 on mortgage-backed securities and
 mortgage derivative products (12,798) (410)
 Gain on sale of other real estate
 owned 535 10
 Gain on sale of loan servicing
 rights 65 3,041
 Total noninterest income (loss) (16,934) 4,405
 Noninterest expense:
 Compensation and benefits 3,484 3,376
 Occupancy 520 514
 Other expense 2,575 2,686
 General and administrative expense 6,579 6,576
 Losses on other real estate owned --- 1,232
 Amortization of intangibles 486 492
 Federal deposit insurance premiums 426 562
 Total noninterest expense 7,491 8,862
 Income (loss) before income
 tax expense (credit) (19,670) 1,646
 Federal income tax expense
 (credit) (5,180) 777
 Income (loss) before extraordinary
 item and cumulative effect of
 change in accounting principle (14,490) 869
 Extraordinary item - prepayment
 penalty for early repayment of
 FHLB advances, net of tax (41) ---
 Cumulative effect of change in
 accounting for income taxes 1,100 ---
 Net income (loss) ($13,431) $869
 Per common share:
 Before extraordinary item and
 cumulative effect of change
 of accounting principle ($3.88) $0.23
 Extraordinary item (0.01) ---
 Cumulative effect of change in
 accounting principle 0.29 ---
 Net income (loss) ($3.60) $0.23
 (1) Certain amounts have been reclassified to conform with the current period presentation.
 CONSOLIDATED STATEMENTS OF CONDITION
 March 31, Dec. 31,
 1993 1992
 (In thousands)
 Assets
 Cash and due from banks $11,332 $15,777
 Interest-bearing deposits in
 other banks 3,174 15,228
 Total cash and cash equivalents 14,506 31,005
 Investment securities 116,768 82,382
 Investment securities held
 for sale 30,591 40,905
 Due from brokers for unsettled
 securities transactions 23,919 ---
 Mortgage derivative products 10,702 27,075
 Mortgage-backed securities 210,496 174,955
 Mortgage-backed securities held
 for sale 44,581 33,107
 Loans receivable (including loans
 held for sale of $18,345,000 in
 1993 and $69,333,000 in 1992) 661,635 703,219
 Allowance for loan losses (14,440) (15,461)
 Net loans receivable 647,195 687,758
 Other real estate owned, net 31,109 29,747
 Federal income taxes 17,993 9,441
 Office properties and equipment 15,605 15,685
 Excess of cost over net assets
 of association acquired 35,895 36,380
 Purchased loan servicing rights 21,813 29,198
 Other assets 9,028 14,558
 $1,230,201 $1,212,196
 Liabilities
 Checking and NOW accounts $80,669 $104,171
 Money market accounts 112,085 113,126
 Savings deposits 143,516 124,653
 Time deposits 519,781 537,297
 Accrued interest 2,047 2,177
 Total deposits 858,098 881,424
 FHLB advances and other borrowed
 money 216,062 174,061
 Advance payments by borrowers
 and investors held in escrow 54,129 45,056
 Federal income and state taxes 2,281 ---
 Other liabilities 16,288 14,885
 Total liabilities 1,146,858 1,115,426
 Stockholders' equity
 Preferred stock (1 million shares
 authorized; none issued) --- ---
 Common stock, $.01 par value per
 share (shares authorized -
 10 million; shares outstanding -
 3,730,574 in 1993 and
 3,729,874 in 1992) 37 37
 Additional paid-in capital 27,115 27,111
 Total paid-in capital 27,152 27,148
 Retained earnings - substantially
 restricted 56,404 69,835
 Less cost of treasury stock
 (21,456 shares in 1993 and 1992) (213) (213)
 Total stockholders' equity 83,343 96,770
 $1,230,201 $1,212,196
 -0- 4/27/93
 /CONTACT: Joann C. Cadwell, director of investor relations, 906-487-6225, or Kenneth R. Janson, chief financial officer, 906-487-6258, both of D&N Financial/
 (DNFC)


CO: D&N Financial Corporation ST: Michigan IN: FIN SU: ERN

SB-ML -- DE025 -- 1479 04/27/93 14:41 EDT
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