<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)
     [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
          THE SECURITIES EXCHANGE ACT OF 1934

          For the quarterly period ended               September 30, 1998
                                            ------------------------------------

                                       OR
    [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR
          15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from                  to 
                                   ----------------    ----------------

    Commission file number                      0-17137
                                    --------------------------------------------
                                             

                            D&N Financial Corporation
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         Delaware                                         38-2790646
------------------------------               -----------------------------------
 (State or jurisdiction of                  (I.R.S. Employer Identification No.)
incorporation or organization)

                   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 changes since last report)

          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 reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.


  Common Stock, $0.01 par value                        9,165,011 
  -----------------------------         ----------------------------------------
            (Class)                     (Shares Outstanding of October 31, 1998)

================================================================================
<PAGE>   2
                            D&N FINANCIAL CORPORATION


                                      INDEX

<TABLE>
<CAPTION>

                                                                                       Page No.
                                                                                      ---------

          <S>             <C>                                                        <C>
           PART I          Consolidated statements of condition -
                                  September 30, 1998 and December 31, 1997                3


                           Consolidated statements of income -
                                 three months ended September 30, 1998 and 1997
                                 nine months ended September 30, 1998 and 1997            4

                           Consolidated statements of cash flows
                                 nine months ended September 30, 1998 and 1997            5

                           Notes to consolidated financial statements                     6

                           Management's Discussion and Analysis of
                                 Financial Condition and Results of Operations            9


           PART II         Other Information                                             18
</TABLE>

                                        
                                     - 2 -
<PAGE>   3
                           D&N FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CONDITION

<TABLE>
<CAPTION>

                                                                               September 30           December 31 
                                                                                   1998                   1997    
                                                                                -----------------------------------
                                                                                            (In thousands)
                                                                                -----------------------------------
                                                                                 (Unaudited)
ASSETS
<S>                                                                            <C>                   <C>
   Cash and due from banks                                                      $      18,991         $      16,239
   Federal funds sold                                                                   5,900                   300
   Interest-bearing deposits in other banks                                            40,854                 3,958
                                                                                -----------------------------------
        Total cash and cash equivalents                                                65,745                20,497

   Investment securities
        (market value of $68,725,000 in 1998 and $56,594,000 in 1997)                  68,703                56,524
   Investment securities available for sale (at market value)                          29,847                46,112
   Mortgage-backed securities
        (market value $54,827,000 in 1998 and $199,525,000 in 1997)                    54,084               198,050
   Mortgage-backed securities available for sale (at market value)                    434,284               160,246
   Loans receivable (including loans held for sale of $9,279,000 in 1998
        and $5,275,000 in 1997)                                                     1,310,492             1,311,508
        Allowance for loan losses                                                     (10,890)              (10,549)
                                                                                ------------------------------------

       Net loans receivable                                                         1,299,602             1,300,959
    Other real estate owned, net                                                          777                 1,474
    Federal income taxes                                                                  723                 1,129
    Office properties and equipment, net                                               18,986                16,621
    Other assets                                                                       25,548                13,703
                                                                                -----------------------------------
                                    Total Assets                                $   1,998,299          $  1,815,315
                                                                                ===================================
LIABILITIES
   Checking and NOW accounts                                                          147,332           $   119,412
   Money market accounts                                                              102,128                92,314 
   Savings deposits                                                                   225,287               163,119
   Time deposits                                                                      746,568               667,204
   Accrued interest                                                                     1,541                 1,118
                                                                                -----------------------------------
             Total deposits                                                         1,222,856             1,043,167

    Securities sold under agreements to repurchase                                     18,275               149,092
    FHLB advances and other borrowed money                                            578,018               470,431
    Advance payments by borrowers and investors held in escrow                         20,492                17,585
    Other liabilities                                                                  17,964                 8,239
                                                                                ------------------------------------
                                    Total liabilities                               1,857,605             1,688,514

PREFERRED STOCK OF SUBSIDIARY                                                          28,719                28,719

STOCKHOLDERS' EQUITY
    Preferred stock, $.01 par value per share (1,000,000 shares authorized;
         none issued)                                                                   --                   --
    Common stock, $.01 par value per share (shares authorized - 25,000,000;
         shares outstanding - 9,197,224 in 1998 and 1997)                                  92                    92
    Additional paid-in  capital                                                        75,906                77,025
                                                                                -----------------------------------
                                    Total paid-in capital                              75,998                77,117

    Retained earnings - substantially restricted                                       32,317                21,042
    Less:  Cost of treasury stock (33,078 shares in 1998 and 98,129 in 1997)             (423)               (1,581)
    Unrealized holding gains on debt securities available for sale,  
         net of tax                                                                     4,083                 1,504
                                                                                -----------------------------------
                                    Total stockholders' equity                        111,975                98,082
                                                                                -----------------------------------
                                    Total  Liabilities and Stockholders' Equity $   1,998,299           $ 1,815,315
                                                                                ===================================
</TABLE>


See Notes to Consolidated Financial Statements.
                                     
                                     - 3 -
<PAGE>   4


                           D&N FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>


                                                                             Three Months Ended           Nine Months Ended
                                                                                 September 30                September 30
                                                                              1998          1997           1998       1997  
                                                                        -----------------------------------------------------
                                                                                     (In thousands, except per share)
                                                                        -----------------------------------------------------

<S>                                                                       <C>            <C>           <C>           <C> 
      INTEREST INCOME:
        Loans                                                             $  26,375      $  25,453     $  80,035     $ 70,988
        Mortgage-backed securities                                            7,763          4,631        19,955       13,692
        Investments and deposits                                              1,450          2,058         4,513        6,090
                                                                        --------------------------     ----------------------
             TOTAL INTEREST INCOME                                           35,588         32,142       104,503       90,770

      INTEREST EXPENSE:
        Deposits                                                             13,126         12,279        37,108       35,554
        Securities sold under agreements to repurchase                        1,162          1,296         4,469        3,202
        FHLB advances and other borrowed money                                8,128          6,051        23,230       16,354
                                                                        --------------------------     ----------------------
             TOTAL INTEREST EXPENSE                                          22,416         19,626        64,807       55,110
                                                                        --------------------------     ----------------------
             NET INTEREST INCOME                                             13,172         12,516        39,696       35,660

        Provision for loan losses                                               650            300         1,725          900
                                                                        --------------------------     ----------------------
             NET INTEREST INCOME AFTER
             PROVISION FOR LOAN LOSSES                                       12,522         12,216        37,971       34,760

      NONINTEREST INCOME:
        Loan administrative fees                                                388            460         1,356        1,497
        Deposit related fees                                                  1,163          1,102         3,291        2,941
        Gain on sale of loans available for sale                                854            642         2,885          862
        Gain on sale of mortgage-backed securities available for sale         1,360           --           1,360          539
        Other income                                                            153            145         1,096          463
                                                                        --------------------------     -----------------------
             TOTAL NONINTEREST INCOME                                         3,918          2,349         9,988        6,302

      NONINTEREST EXPENSE:
        Compensation and benefits                                             4,882          4,550        14,709       12,918
        Occupancy                                                               886            781         2,528        2,306
        Other expense                                                         3,516          2,768         9,969        8,468
                                                                        --------------------------     ----------------------
             GENERAL AND ADMINISTRATIVE EXPENSE                               9,284          8,099        27,206       23,692

        Other real estate owned, net                                            102             44           101           33
        Federal deposit insurance premiums                                      165            160           652          495
                                                                        --------------------------     ----------------------
             TOTAL NONINTEREST EXPENSE                                        9,551          8,303        27,959       24,220
                                                                        --------------------------     ----------------------
             INCOME BEFORE INCOME TAX EXPENSE                                 6,889          6,262        20,000       16,842

        Federal income tax expense                                            2,160          2,003         6,031        5,710
                                                                        --------------------------     ----------------------
             INCOME BEFORE PREFERRED STOCK DIVIDENDS                          4,729          4,259        13,969       11,132

        Preferred stock dividends of subsidiary                                 681            537         2,042          537
                                                                        --------------------------     ----------------------
                          NET INCOME                                    $     4,048      $   3,722     $  11,927     $ 10,595
                                                                        ==========================     ======================
        Earnings per share:

                          BASIC                                         $      0.44     $     0.41     $    1.30     $   1.17
                                                                        ==========================     ======================
                          DILUTED                                       $      0.43     $     0.40     $    1.26    $    1.13
                                                                        ==========================     ======================
</TABLE>

See Notes to Consolidated Financial Statements.

                                     - 4 -
<PAGE>   5

                           D&N FINANCIAL CORPORATION
               CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                Nine Months Ended
                                                                                                    September 30
                                                                                              1998                 1997
                                                                                      ----------------------------------
                                                                                                     (IN THOUSANDS)
<S>                                                                                  <C>                    <C>
    OPERATING ACTIVITIES
        Net Income                                                                    $     11,927           $    10,595
        Adjustments to reconcile net income to net cash
        provided by operating activities:
          Provision for loan losses                                                          1,725                   900
          Depreciation and amortization of office properties and equipment                   1,708                 1,470
          Amortization of net premiums (discounts) on purchased
             loans and securities                                                            5,109                  (496)
          Originations and purchases of loans held for sale                                (86,295)              (32,238)
          Proceeds from sales of loans held for sale                                       198,846                45,381
          Gain on loans and mortgage-backed securities available for sale                   (1,360)                 (539)
          Gain on sale of loan servicing rights                                               (193)                --
          Amortization and writedowns of mortgage servicing rights                           1,049                   290
          Other                                                                             (4,508)                2,476
                                                                                      -------------           ----------
                       Net cash provided by operating activities                           128,008                27,839

    INVESTING ACTIVITIES
         Proceeds from sales of investment securities                                       --                        20
         Proceeds from maturities of investment securities                                  68,958               137,166
         Purchases of investment securities to be held to maturity                         (65,338)             (152,501)
         Proceeds from sales of mortgage-backed securities                                  60,758                24,094
         Principal collected  on mortgage-backed securities                                119,935                44,352
         Purchases of mortgage-backed securities                                          (222,942)              (92,935)
         Loans purchased                                                                  (152,424)             (159,797)
         Net change in loans receivable                                                    (46,766)             (100,571)
         (Increase) decrease in other real estate owned                                        697                  (243)
         Sales of loan servicing rights                                                        193              --
         Purchases of office properties and equipment                                       (4,057)               (2,155)
                                                                                      -------------           -----------
                      Net cash used by investing activities                               (240,986)             (302,570)

FINANCING ACTIVITIES
         Net change in time deposits                                                        79,364                56,954
         Net change in other deposits                                                       99,902                11,668
         Proceeds from notes payable, securities sold under agreements
             to repurchase and other borrowed money                                        315,000               441,036
         Payments on maturity of notes payable, securities sold under
             agreements to repurchase and other borrowed money                            (338,334)             (267,338)
         Net change in advance payments by borrowers and investors
             held in escrow                                                                  2,907                   830
         Common stock cash dividend                                                         (1,374)                 (411)
         Proceeds from issuance of stock                                                       735                   569
         Purchases of treasury stock/warrants                                                 (365)               (2,995)
         Proceeds from issuance of subsidiary preferred stock                               --                    28,719
         Tax benefits on exercise of stock options (FAS 109)                                   391               --    
                                                                                      ------------          ------------
Net cash provided by financing activities                                                  158,226               269,032
                                                                                      ------------          ------------

    INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS                                         45,248                (5,699)
    CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                        20,497                12,789
                                                                                      ------------          ------------
    CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $     65,745          $      7,090
                                                                                      ============          ============

    Noncash transactions:
    Issuance of treasury stock on exercise of stock options                           $      1,523          $      1,145
                                                                                      ============          ============
</TABLE>

See Notes to Consolidated Financial Statements.

                                      - 5 -
<PAGE>   6

                            D&N FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         NOTE 1:  BASIS OF PRESENTATION

         The accompanying unaudited interim consolidated financial statements
         have been prepared in accordance with generally accepted accounting
         principles for interim financial information and with the instructions
         to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
         include all of the information and footnotes required by generally
         accepted accounting principles for complete financial statements. In
         the opinion of management, all adjustments (consisting solely of normal
         recurring accruals) considered necessary for a fair presentation have
         been included. Operating results for interim periods are not
         necessarily indicative of the results that may be expected for the full
         year.

         NOTE 2:  EARNINGS PER SHARE

         The Company adopted Statement of Financial Accounting Standards
         ("SFAS") 128, "Earnings per Share", for the year ended December 31,
         1997. The earnings per share for three month and nine month periods
         ended September 30, 1997, have been restated to comply with this
         standard.

         Basic earnings per share is calculated by dividing net income by the
         average number of shares outstanding during the applicable period.

         The company had stock options which are considered to be potentially
         dilutive to common stock. Diluted earnings per share is calculated by
         dividing net income by the average number of shares outstanding during
         the applicable period adjusted for these potentially dilutive options.

         The following table sets forth the computation of per share earnings as
         provided in SFAS 128, and illustrates the dilutive effect of options
         outstanding.

<TABLE>
<CAPTION>

                                                                                Nine months ended
                                                              September 30, 1998                   September 30, 1997
                                                         ----------------------------         ---------------------------
                                                                          Earnings                             Earnings
                                                         Shares           per share           Shares            per share
                                                         ------           ---------           ------            ---------
                                                                   (In thousands, except per share earnings)

<S>                                                     <C>               <C>                  <C>             <C>     
         Basic EPS                                          9,163           $    0.44            9,032           $   0.41
         Net dilutive effect of stock
             options outstanding                              319               (0.01)             272              (0.01)
                                                         --------           ---------         --------           --------
          Diluted EPS                                       9,482           $    0.43            9,304           $   0.40
                                                         ========           =========         ========           ========
</TABLE>



                                     - 6 -
<PAGE>   7
<TABLE>
<CAPTION>


                                                                            Nine months ended
                                                             September 30, 1998                    September 30, 1997 
                                                         -------------------------            --------------------------
                                                                        Earnings                             Earnings
                                                         Shares         per share             Shares         per share
                                                         -------------------------            --------------------------
                                                                ( In thousands, except per share earnings)

<S>                                                        <C>           <C>                  <C>             <C>     
         Basic EPS                                          9,141         $   1.30             9,095           $    1.17
         Net dilutive effect of stock
             options outstanding                              349            (0.04)              326               (0.04)
                                                         --------         --------            ------           ---------
         Diluted EPS                                        9,490         $   1.26             9,421           $    1.13
                                                         ========         ========            ======           =========
</TABLE>

         NOTE 3: ALLOWANCE FOR LOAN LOSSES

         The allowance for possible losses on loans is maintained at a level
         believed adequate by management to absorb potential losses from
         impaired loans as well as losses from the remainder of the portfolio.
         Management's determination of the level of the allowance is based upon
         evaluation of the portfolio, past experience, current economic
         conditions, size and composition of the portfolio, collateral location
         and values, cash flow positions, industry concentrations,
         delinquencies, and other relevant factors. The allowance is increased
         by a provision for losses charged against income.

         Changes in the allowance for loan losses are summarized as follows:

<TABLE>
<CAPTION>


                                                                        Three Months Ended               Nine Months Ended
                                                                            September 30,                  September 30,
                                                                        1998            1997            1998            1997  
                                                                   --------------------------       -------------------------
                                                                                          (In thousands)

<S>                                                                <C>            <C>                  <C>            <C>     
     Balance at beginning of period                                $    10,733    $    10,978          $ 10,549       $ 11,042
     Charge-offs:
          Mortgage loans                                                    92            172               192            237
          Consumer loans                                                   498            351             1,474          1,117
                                                                   -----------------------------------------------------------
            Total                                                          590            523             1,666          1,354
     Recoveries:
          Consumer loans                                                    97             95               282            262
                                                                   -----------------------------------------------------------
            Total                                                           97             95               282            262
                                                                   -----------------------------------------------------------
     Net charge-offs                                                       493            428             1,384          1,092
     Provision charged to operations                                       650            300             1,725            900
                                                                   -----------------------------------------------------------
              Balance at end of period                             $    10,890    $    10,850          $ 10,890       $ 10,850
                                                                   ===========================================================
</TABLE>


                                      - 7 -
<PAGE>   8

         NOTE 4:  COMPREHENSIVE INCOME

         The Bank adopted Statement of Financial Accounting Standards ("SFAS")
         No. 130, "Reporting Comprehensive Income", as of January 1, 1998. SFAS
         No. 130 established standards for reporting and display of
         comprehensive income and its components. Total Comprehensive Income for
         the three month and nine month periods ended September 30, 1998 and
         1997 was as follows:

<TABLE>
<CAPTION>

                                                                       Three Months Ended            Nine Months Ended
                                                                           September 30,               September 30,
                                                                         1998          1997          1998        1997
                                                                     ------------------------     ------------------------
                                                                          (In thousands)                (In thousands)

<S>                                                                  <C>          <C>             <C>           <C>     
         Net income                                                  $   4,048   $  3,722         $  11,927     $ 10,595

         Other comprehensive income:

            Cumulative effect, transition adjustment for
                 the adoption of FAS 133, net of tax                     2,432        --              2,432        --

            Unrealized  holding gains and losses
              on debt securities available for sale,
              net of tax                                                   180        157               147         (204)
                                                                     ---------    -------         ---------     -------- 

         Total accumulated other comprehensive
              income                                                     2,612        157             2,579         (204)
                                                                     ---------    -------         ---------     --------  
         Total Comprehensive Income                                  $   6,660    $ 3,879         $  14,506     $ 10,391    
                                                                     =========    =======         =========     ========  
</TABLE>


NOTE 6:  ADOPTION OF FAS 133

The Company has elected to adopt Financial Accounting Standards No. 133 ("FAS
133"), Accounting for Derivative Instruments and Hedging Activities, on July 1,
1998, which constitutes early adoption. In accordance with the transition
provision of FAS 133, the Company reclassified $163.4 million of
held-to-maturity securities as "available-for-sale", so that those securities
would be eligible as hedged items in potential future fair-value and cash-flow
hedge transactions. This reclassification resulted in a net-of-tax
cumulative-effect-type adjustment of approximately $2.4 million in other
comprehensive income. Under the provision of FAS 133, such reclassification does
not call into question the Company's intent to hold current or future debt
securities to their maturity.

                                      -8-
<PAGE>   9
                           D&N FINANCIAL CORPORATION

          ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                   FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion and analysis provides information regarding
          D&N Financial Corporation's ("D&N or the Company") financial condition
          and results of operations for the three month and nine month periods
          ended September 30, 1998 and 1997. Ratios for the periods are stated
          on an annualized basis. Results of operations for three month and nine
          month periods ended September 30, 1998 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.



          FORWARD LOOKING STATEMENTS

          When used in this Form 10-K or future filings by the Company with the
          Securities and Exchange Commission, in the Company's press releases or
          other public or shareholder communications, or in oral statements made
          with the approval of an authorized executive officer, the words or
          phrases "would be", "will allow", "intends to", "will likely result",
          "are expected to", "will continue", "is anticipated", "estimate",
          "project", or similar expressions are intended to identity
          "forward-looking statements" within the meaning of the Private
          Securities Litigation Reform Act of 1995.

          The Company wishes to caution readers not to place undue reliance on
          any such forward-looking statements, which speak only as of the date
          made, and to advise readers that various factors, including regional
          and national economic conditions, substantial changes in levels of
          market interest rates, credit and other risks of lending and
          investment activities and competitive and regulatory factors, could
          affect the Company's financial performance and could cause the
          Company's actual results for future periods to differ materially from
          those anticipated or projected.

          The Company does not undertake, and specifically disclaim any
          obligation, to update any forward-looking statements to reflect
          occurrences or unanticipated events or circumstances after the date of
          such statements.



                                      - 9 -
<PAGE>   10

          RESULTS OF OPERATIONS

            NET INCOME

          The Company recorded net income for the quarter ended September 30,
          1998 of $4.0 million, compared to net income of $3.7 million in the
          third quarter of 1997. Return on assets and return on equity were
          0.84% and 14.99%, respectively, during the quarter ended September 30,
          1998, compared to 0.90% and 16.29%, respectively, during the quarter
          ended September 30, 1997. The increase in net income was primarily due
          to increases in net interest income of $656,000, increased gain on
          sale of mortgage-backed securities available for sale of $1.4 million
          and increased income on sale of loans available for sale of $212,000.
          These increases in income were partially offset by an increase in the
          provision for loans losses of $350,000 and increased operating
          expenses of $1.2 million.

          For the nine months ended September 30, 1998, the Company recorded net
          income of $11.9 million, compared to net income of $10.6 million for
          the nine months ended September 30, 1997. Return on assets and return
          on equity were 0.85% and 15.28%, respectively, during the nine months
          ended September 30, 1998, compared to 0.95% and 16.62%, respectively,
          during the nine months ended September 30, 1997. The increase in net
          income was primarily due to increases in net interest income of $4.0
          million, increased gain on sale of loans available for sale of $2.0
          million, increased gain on sale of mortgage-backed securities 
          available for sale of $821,000 and increased other income of $633,000.
          These increases in income were partially offset by an increase in the
          provision for loan losses of $825,000 and increased operating expenses
          of $3.5 million.


             NET INTEREST INCOME

          Net interest income, or the difference between interest earned on
          interest earning assets such as loans and investment securities and
          interest paid on sources of funds such as deposits and borrowings, is
          a significant component of the Company's earnings. Net interest income
          is affected by changes in both the balance of and the rates on
          interest earning assets and interest bearing liabilities and the
          amount of interest earning assets funded with non-interest or
          low-interest bearing funds.

          Net interest income increased $656,000 to $13.2 million for the
          quarter ended September 30, 1998 compared to $12.5 million for the
          quarter ended September 30, 1997. The increase was due to increased
          volume in D&N's loan portfolio and increased volume in the mortgage
          backed securities portfolio. These improvements were partially offset
          by increases in interest paid on deposits, FHLB advances and other
          borrowings, as the Company utilized the increased deposits and
          borrowings to fund loan demand.

          Similarly, net interest income increased $4.0 million to $39.7 million
          for the nine months ended September 30, 1998 from $35.7 million for 
          the nine months ended September 30, 1997. The same factors that 
          explained the third quarter comparison were present during the 
          year-to-date comparative periods.

                                     - 10 -
<PAGE>   11

             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 exposure in
          the portfolio.

          The Company recorded a $650,000 provision for loan losses during the
          quarter ended September 30, 1998 and $300,000 during the quarter ended
          September 30, 1997. For each of the first nine month periods in 1998
          and 1997, the Company's provision for loan losses was approximately
          $1.7 million, and $900,000, respectively.


            NONINTEREST INCOME

         Total noninterest income increased to $3.9 million during the third
         quarter of 1998, from $2.3 million recorded during the third quarter of
         1997. The majority of this increase was due to an increase in gain on
         sale of mortgage-backed securities available for sale of $1.4 million
         and increased gain on sale of loans of $212,000, along with increases
         in deposit related fees and increased revenue from the sale of
         insurance products and annuity contracts through the Bank's subsidiary,
         Quincy Insurance Agency, Incorporated.

         For the nine months ended September 30, 1998, total noninterest income
         increased to $10.0 million from $6.3 million recorded during the nine
         months ended September 30, 1997. The majority of this increase was due
         to a $2.0 million increase in gain on sale of loans available for sale.
         Gain on sale of mortgage-backed securities available for sale also
         increased $821,000 for the period. Other increases were in deposit
         related fees of $350,000 and increased other income of $633,000,
         reflecting a sale of mortgage servicing rights and a recovery on a
         previously written-off investment.

            NONINTEREST EXPENSE

         Total noninterest expense increased $1.3 million to $9.6 million during
         the quarter ended September 30, 1998, from $8.3 million during the
         prior year quarter. Compensation and benefits increased $332,000
         reflecting staffing levels to handle increased loan volumes and
         incentives paid on those increased volumes. Other expense increased
         $748,000 with the greatest increases being marketing, office
         administration, data processing and ATM expenses.

         For the nine months ended September 30, 1998, total noninterest expense
         increased $3.8 million to $28.0 million, compared to $24.2 million
         recorded during the nine months ended September 30, 1997. The factors
         contributing to the year-to-date period were essentially the same as
         those for the quarterly period.

                                      -11-
<PAGE>   12


          FINANCIAL CONDITION

          Total assets at September 30, 1998 were $2.0 billion, an increase of
          $183.0 million from December 31, 1997. Earning assets represented
          approximately 98% of total assets as of September 30, 1998,
          substantially the same as at year-end 1997.

              CASH, DEPOSITS AND INVESTMENT SECURITIES

          Cash, deposits and investment securities were $164.3 million at
          September 30, 1998, up $41.2 million from December 31, 1997. This
          increase was due to increases in interest-bearing deposits in other
          banks of $36.9 million, federal funds sold of $5.6 million, cash and
          due from banks of $2.8 million, increased holdings of Federal Home
          Loan Bank stock of $5.4 million and quarter-end holdings of commercial
          paper of $35.0 million. These increases were partially offset by net
          decreases in U.S. Treasury and Government securities of $45.0 million.

              MORTGAGE-BACKED SECURITIES

          Mortgage-backed securities increased $130.1 million to $488.4 million
          at September 30, 1998 compared to $358.3 million at December 31, 1997.
          During the period, the Company purchased $223.8 million of government
          agency collateralized mortgage obligations, with a weighted yield of
          6.35% and a weighted average life of 4.2 years. The Company also
          securitized 15 and 30 year fixed-rate mortgage loans with FNMA, adding
          $83.8 million to D&N's mortgage-backed securities portfolio. Sales of
          mortgage-backed securities during the period totaled $60.4 million,
          realizing a gain on sale of approximately $1.4 million. The entire
          mortgage-backed securities portfolio experienced repayments and
          amortization of $121.1 million, plus a net increase of $4.0 million in
          market value recognized through stockholders' equity on
          mortgage-backed securities available for sale.

          Of the above-mentioned increase in market value, $2.4 million was a
          transition adjustment, due to early adoption of FAS 133, Accounting
          for Derivative Instruments and Hedging Activities. D&N reclassified
          $163.4 million of held-to-maturity securities as "available-for-sale",
          so that those securities would be eligible as hedged items in
          potential future fair-value and cash-flow hedge transactions. (See
          also - New Accounting Standard).

             NET LOANS RECEIVABLE

          Net loans receivable decreased $1.4 million during the period to $1.3
          billion at September 30, 1998. Loan originations of $619.0 million and
          purchases of $151.2 million were less than repayments of $492.8
          million and sales (including securitizations) of $278.8 million. Loan
          originations and purchases during the nine months ended September 30,
          1998 were $272.7 million for consumer loans, while residential
          mortgage loans and commercial loans were $395.4 million and $102.1
          million, respectively.


                                     - 12 -
<PAGE>   13

             NONPERFORMING ASSETS AND RISK ELEMENTS

                  The following table sets forth the amounts and categories of
          risk elements in the Bank's loan portfolio.

<TABLE>
<CAPTION>

                                                                            September 30,    December 31,
                                                                                1998           1997 
                                                                            ------------------------------
                                                                                  (Dollars in thousands)

<S>                                                                         <C>                   <C>     
         Nonaccruing loans                                                  $  8,673              $  3,162
         Accruing loans delinquent more than 90 days                              43                   274
                                                                            ------------------------------
              Total nonperforming loans                                        8,716                 3,436
         OREO and other repossessed assets                                     1,202                 1,864
                                                                            ------------------------------
              Total nonperforming assets                                    $  9,918               $ 5,300
                                                                            ==============================

         Nonperforming loans as a percentage of total loans                    0.67%                 0.26%
                                                                            ==============================

         Nonperforming assets as a percentage of total assets                  0.50%                 0.29%
                                                                            ==============================

         Allowance for loan losses as a
              percentage of nonperforming loans                              124.94%               307.01%
                                                                            ==============================

         Allowance for loan and OREO losses as a percentage
              of nonperforming assets                                        109.80%               199.04%
                                                                            ==============================
</TABLE>


          Nonperforming assets, before allowances for loans and OREO losses,
          increased $4.6 million during the period, primarily as three
          commercial real estate loans were downgraded.

          MORTGAGE SERVICING RIGHTS (MSRs)

                  The Company's net investment in MSRs increased during the
          period to $5.0 million at September 30, 1998. The following table
          details activity in the portfolio for the periods indicated.

<TABLE>
<CAPTION>

                                                                            Nine Months               Year
                                                                             Ended                   Ended
                                                                          September 30, 1997     December 31,1998  
                                                                          ---------------------------------------
                                                                                   (Dollars in thousands)
<S>                                                                         <C>                       <C>     
          Balance at beginning of period                                    $  2,136                  $  1,443
          Additions:
            Capitalized servicing                                              4,092                     1,236
                                                                            --------                  --------
          Total                                                                4,092                     1,236
          Reductions:
            Scheduled amortization                                               382                       321
            Additional amortization  due
            to changes in prepayment
            assumptions                                                          582                       222
            Sale of servicing                                                    243                       -- 
                                                                            --------                  --------
          Total                                                                1,207                       543
                                                                            --------                  --------
          Balance at end of period                                          $  5,021                  $  2,136
                                                                            ========                  ========

          Fair market value                                                 $  5,344                  $  2,389
                                                                            ========                  ========
==================================
</TABLE>

                                     - 13 -
<PAGE>   14

             DEPOSITS

          Deposits increased $179.7 million during the period to $1.2 billion at
          September 30, 1998. A significant portion of this increase was due to
          an acquisition in the third quarter of seven bank offices from First
          of America Bank NA of Kalamazoo, Michigan, with approximately $72.2
          million in deposits. Including these balances, certificates of deposit
          increased $79.4 million, savings deposits increased $62.2 million,
          checking and NOW accounts increased $27.9 million and money market
          accounts increased $9.8 million. The Company's cost of deposits
          decreased to 4.58% at September 30, 1998, compared to 4.74% at
          December 31, 1997, reflecting general decreases in market rates of
          interest.


             BORROWINGS

          Total borrowings decreased $23.2 million during the period to $596.3
          million at September 30, 1998. The Company's cost of borrowings was
          5.83% at September 30, 1998, compared to 5.94% at December 31, 1997.


             CAPITAL

          According to federal regulations, the Bank must meet certain minimum
          capital ratios. As the following table indicates, the Bank's capital
          ratios at September 30, 1998 exceeded these requirements.

<TABLE>
<CAPTION>

                                                                                                              Tier 1
                                                              Tangible           Core        Risk-based     Risk-based
                                                              Capital           Capital       Capital        Capital
                                                             ---------       ----------       ----------    ----------
                                                                               (Dollars in thousands)

<S>                                                          <C>              <C>              <C>          <C>      
          Actual capital                                     $  124,657      $  124,657       $  134,403    $  124,657
          Required capital                                       29,980          59,960           96,387        48,463
                                                             ----------      ----------       ----------    ----------
          Excess capital                                     $   94,677      $   64,697       $   38,016    $   76,463
                                                             ==========      ==========       ==========    ==========

          Actual ratio                                             6.24%           6.24%           11.16%        10.35%
                                                             ==========      ==========       ===========   ==========

          Required ratio                                           1.50%           3.00%            8.00%         4.00%     
                                                             ==========      ==========       ==========    ==========
</TABLE>


          Consolidated stockholders' equity was $112.0 million at September 30,
          1998 and represents 5.60% of consolidated assets.


            LIQUIDITY

          Liquidity is the ability to meet financial obligations when due.
          Regulatory authorities require that thrift institutions maintain
          liquidity consisting of cash, U.S. Government Securities and other
          specified assets, equal to at least 4% of net withdrawable accounts
          and to borrowings payable in one year or less. For September 1998, the
          Bank's average liquidity ratio was

                                     - 14 -
<PAGE>   15

          29.2%. At September 30, 1998, unused borrowing capacity as measured by
          the Bank's inventory of readily available but unpledged collateral was
          approximately $321 million. The Company considers its current
          liquidity and other funding sources sufficient to fund its outstanding
          loan commitments and scheduled liability maturities.

             REGULATORY INSURANCE

          The deposits of savings associations, such as D&N Bank, are presently
          insured by the SAIF ("Savings Association Insurance Fund"), which
          together with the BIF ("Bank Insurance Fund"), are the two insurance
          funds administered by the FDIC. The assessment for SAIF insured
          institutions is 6.1 cents per $100 of deposits while BIF insured
          institutions pay 1.2 cents per $100 of deposits until the year 2000,
          when the assessment is expected to be imposed at the same rate on all
          FDIC insured institutions.

             NEW ACCOUNTING STANDARD

          In June 1998, the Financial Accounting Standards Board (FASB) issued
          Statement of Financial Accounting Standards No. 133, Accounting for
          Derivative Instruments and Hedging Activities (FAS 133). FAS 133 is
          effective for all fiscal quarters of all fiscal years beginning after
          June 15, 1999; the Company has elected to adopt FAS 133 early on July
          1, 1998. FAS 133 requires that all derivative instruments be recorded
          on the balance sheet at fair value. Changes in the fair value of
          derivatives are recorded each period in current earnings or other
          comprehensive income, depending on whether a derivative is designated
          as part of a hedge transaction and, if it is, depending on the type of
          hedge transaction. For fair-value hedge transactions in which the
          Company is hedging changes in an asset's, liability's, or firm
          commitment's fair value, changes in the fair value of the derivative
          instrument will generally be offset in the income statement by changes
          in the hedging item's fair value. For cash-flow hedge transactions in
          which the Company is hedging the variability of cash flows related to
          a variable-rate asset, liability, or a forecasted transaction, changes
          in the fair value of the derivative instrument will be reported in
          other comprehensive income. The gains and losses on the derivative
          instrument that are reported in other comprehensive income will be
          reclassified as earnings in the periods in which earnings are impacted
          by the variability of the cash flows of the hedged item. The
          ineffective portion of all hedges will be recognized in current-period
          earnings.

          The Company reclassified $163.4 million of held-to-maturity securities
          as "available-for-sale" so that those securities will be eligible as
          hedged items in potential future fair-value and cash-flow hedge
          transactions. The reclassification resulted in a net-of-tax
          cumulative-effect-type transition adjustment of $2.4 million recorded
          in other comprehensive income. Under the provisions of FAS 133, such
          reclassification will not call into question the Company's intent to
          hold current or future debt securities to their maturity.

                                      -15-
<PAGE>   16
             YEAR 2000 COMPLIANCE

          Overview

          D&N Bank's Year 2000 Compliance Program is progressing on schedule.
          The project is Bank inclusive addressing computer hardware, software
          procedures, vendors, large borrowers and facilities. This project
          began in October 1996 and is scheduled for completion by June 1999.

          To date all at risk computer hardware has been tested and replaced if
          not compliant. Thirty eight computer based applications were
          identified as having Year 2000 issues. Nine of those applications have
          been updated and are compliant. Three applications representing a
          large threat to business continuation (Deposit Account Processing,
          Installment Loan Account Processing and General Ledger) have been
          certified Year 2000 compliant. The last significant at risk system
          (Mortgage Loan Processing) is provided to D&N Bank by a major national
          service bureau. This system is being tested by the Mortgage Bankers
          Association to confirm compliance. This testing is expected to be
          concluded and the system compliant by the end of the first quarter of
          1999. The remaining application systems are being tested and
          contingency plans have been developed to mitigate business operational
          risk.

          Project Status

          D&N Bank began this project with an identification and assessment of
          all potential exposures to Year 2000 related problems both internal
          and external to the Bank. One major development precipitated by this
          project has been the establishment and installment of a standard suite
          of Office Automation Software products supported by a standard
          hardware platform. As a result all PC's within the Bank have been
          identified, evaluated as to use and if necessary upgraded to be
          compatible with date storage and processing beyond December 31, 1999.
          Other hardware upgrades have been and will continue to be made as
          software upgrades require larger/faster PC's to accommodate upgraded
          software.

          All newly acquired software is being tested for Year 2000 compliance
          before acceptance. Software testing has been done to verify date
          changes for 1999 to 2000, the identification of leap year where
          required along with numerous projections from 1999 to 2xxx using day,
          month and year increments.

          Manual procedures have been reviewed and scheduled for change where
          date specific actions occur along with form changes necessary to
          properly record dates in the new millennium.

          Large commercial borrowers have been reviewed for their Year 2000
          readiness and their progress is being monitored for corrective action,
          their business continuation and ability to repay their loans. New loan
          customers are also being assessed for Year 2000 risk.

          The building facilities owned and leased by the Bank have been
          reviewed for Year 2000 associated issues such as device controllers
          used for HVAC, elevators, alarms, vaults, etc.
          Where necessary corrective actions have been taken.

                                     - 16 -
<PAGE>   17

          Costs

          The Bank's total Year 2000 estimated project cost, which is based upon
          currently available information, included expenses for the review and
          testing of third parties including governmental entities. However,
          there can be no guarantee that the hardware, software and systems of
          such third parties will be without unfavorable Year 2000 issues and
          therefore not present a material adverse impact upon the Bank.

          Year 2000 compliance costs incurred during fiscal 1998 totaled
          $26,000, the majority of which related to external consulting. This
          figure does not include the implicit costs associated with the
          reallocation of internal staff hours to Year 2000 project related
          efforts. At this time, management currently estimates Year 2000
          compliance costs not to exceed $100,000. This estimate does not
          include normal ongoing costs for computer hardware, software,
          terminals and related devices that would be replaced in the next year
          even without the presence of the Year 2000 issue in conjunction with
          the Bank's ongoing programs for updating its delivery infrastructure.
          The aforementioned Year 2000 project cost estimate may change as the
          Bank progresses in its Year 2000 programs and obtains additional
          information associated with and conducts further testing concerning
          third parties. At this time no significant projects have been delayed
          as the result of the Banks Year 2000 effort.



                                     - 17 -
<PAGE>   18
                            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:

                                    (27)    Financial Data Schedule

                                    (99)    Additional exhibits

                                            I.    Interest rate/volume analysis:
                                                   quarter ended 9/30/98 vs.
                                                      quarter ended 9/30/97
                                                   nine months ended 9/30/98 vs.
                                                      nine months ended 9/30/97

                         (b)      Reports on Form 8-K:

                                            No reports on Form 8-K have been
                                            filed during the quarter ended
                                            September 30, 1998.

                                     - 18 -
<PAGE>   19
                                   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 13, 1998
              ------------------------
<PAGE>   20
                               Index to Exhibits

EX - (99)I     Operating Margin and Rate Volume Analysis
EX - 27        Financial Data Schedule