EX-99 2 c03691exv99.htm EXHIBIT 99 Exhibit 99
Exhibit 99
DCB FINANCIAL CORP ANNOUNCES
SECOND QUARTER 2010 OPERATING RESULTS
LEWIS CENTER, Ohio, July 22 — DCB Financial Corp, (OTC Bulletin Board DCBF) announced a net loss of $2.03 million, or $0.54 per basic and diluted share for the three months ended June 30, 2010, compared to a net loss of $721 thousand, or $0.19 per basic and diluted share for the same period in 2009. The increase in the net loss primarily reflects an increase in the provision for loan losses, offset by a reduction in impairment losses on securities and reduced operating expenses.
Interim President and Chief Executive Officer David Folkwein commented, “Our focus at the Bank has been on managing credit, reducing risk within our loan portfolio and enhancing liquidity and capital in a deteriorating economic environment. We continue to make steady progress on resolving problem credits but still face meaningful challenges. In addition to addressing the Bank’s credit issues we are also focused on strengthening our capital and liquidity positions and reducing the Bank’s overall balance sheet size. Because the economic recovery remains challenging for the community we serve, there is more work to do, but we are getting closer to putting these issues behind us.”
Net Interest Income
Net interest income decreased slightly to $5.4 million for the three months ended June 30, 2010 from $5.6 million for the same period in 2009 due to reduced levels of earning assets. However, the net interest margin remained stable at 3.57% and 3.60%, respectively, for the three and six months ended June 30, 2010, up from 3.55% and 3.45%, for the same periods in 2009. Management has effectively increased margins by using a disciplined approach to setting deposit rates, managing cash balances and aggressive pricing on its loan originations and renewals. Loan originations remained sluggish during the second quarter and the Bank continued to experience run off in the indirect auto, residential mortgage and investment property portfolios. In addition, the Bank experienced some run off on its higher cost deposits while increasing low or no cost balances. The Bank continues to re-price deposits on a year to year comparison, which helped reduce overall funding costs.
Noninterest Income
Total noninterest income increased $688 thousand, or 62.3%, for the three months ended June 30, 2010, compared to the same period in 2009. The increase is primarily attributable to the effect of other-than-temporary impairment losses recorded in the 2009 quarter. The Bank has also been able to increase revenues on its core lines of business including retail fees and trust activities and reduce losses on sales of foreclosed assets, which were partially offset by a reduction in gains on sales of securities and loans during the current quarter.
Noninterest Expense
Total noninterest expense decreased $537 thousand, or 8.6%, for the three months ended June 30, 2010, compared to the same period in 2009. The decrease was the result of various declines in operating expenses including federal deposit insurance premiums, occupancy, franchise taxes, salary and employee benefits and other expenses, offset by increases in professional services. Professional services increased primarily due to external consulting services associated with the Corporation’s regulatory obligations and loan workout activities.

 

 

 

Analysis of Selected Financial Condition (Dollars in thousands)
The Corporation’s assets totaled $644,281 at June 30, 2010, compared to $675,022 at December 31, 2009, a decrease of $30,741, or 4.6%. Cash and cash equivalents increased from $41,453 at December 31, 2009 to $47,496 at June 30, 2010. Total securities decreased from $95,852 at December 31, 2009 to $88,596 at June 30, 2010. The Bank utilizes its investment portfolio to collateralize its liquidity sources, in order to remain a prime borrowing partner.
Total loans, including loans held for sale, decreased $26,225, or 5.3%, from $491,924 at December 31, 2009 to $465,699 at June 30, 2010. The Company continues to experience a decline in loan balances due to reduced activity in our primary markets, tightened underwriting and planned portfolio runoff. Retail loan balances including credit card and home equity loans experienced slight growth. Management has continued its planned reduction of the Bank’s indirect and investment property portfolios. Management also continued to focus on loan diversification and has initiated plans to increase commercial and industrial, and small business lending in lieu of commercial real estate loans. The decrease in loan balances reflects the utilization of proceeds from loan payoffs to fund deposit withdrawals and to repay borrowings which has reduced the Bank’s balance sheet and improved capital ratios.
Total deposits decreased $24,940, or 4.5%, from $557,455 at December 31, 2009 to $532,515 at June 30, 2010. The Bank had approximately $134,000 in CDARS deposits outstanding at June 30, 2010 compared to $145,000 at year-end 2009. Noninterest-bearing deposits increased $1,047, or 1.7%, and interest bearing deposits decreased $25,987, or 5.2% during the six month period ended June 30, 2010. The Corporation utilizes a variety of alternative funding sources due to competitive challenges within its primary market. Total borrowings decreased $4,484 during the six months ended June 30, 2010, from $66,159 at December 31, 2009. Management has focused on reducing deposits from non-core customers in order to manage the cost levels of its deposit portfolio.
Credit Quality Review
Non-accrual loans at June 30, 2010 increased to $15,140 from $11,275 at December 31, 2009. The majority of non-accrual balances are attributed to loans in the investment real estate sector that were not generating sufficient cash flow to service the debt. Loans delinquent ninety days and accruing interest increased to $927 at June 30, 2010 from $886 at December 31, 2009. Delinquent loans over thirty days increased to 6.05% of total loans at June 30, 2010 from 1.15% at June 30, 2009. The increase in delinquencies is attributed to two large commercial real estate loans that moved into a delinquent status at quarter end. Since that time one of the two relationships is again current. Both of these relationships are being closely monitored by the workout committee and appropriate actions are being taken. Management will continue to focus on activities related to monitoring, collection, and workout of delinquent loans. Management also continues to monitor exposure to industry segments, and believes that the loan portfolio remains adequately diversified. A variety of consultants with expertise in loan reviews and loan workouts have been engaged to assist with the loan workout function of the Bank.
Provision and Allowance for Loan Losses
The provision for loan losses totaled $3,386 for the three months ended June 30, 2010, compared to $1,707 for the same period in 2009, an increase of $1,679. Due to deteriorating economic conditions additional reserves were added for commercial real estate loans that have higher risk profiles. The allowance for loan losses was $13,114, or 2.83% of total loans at June 30, 2010, compared to $10,479, or 2.14% of total loans at December 31, 2009. Management will continue to monitor the credit quality of the loan portfolio and may recognize additional provisions in the future if needed to maintain the allowance for loan losses at an appropriate level.
Charge-offs
Net charge-offs for the three months ended June 30, 2010 increased to $1,587, compared to $733 for the three months ended June 30, 2009. Annualized net charge-offs for the three months ended June 30, 2010 were 1.34% compared to 0.58% for the quarter ending June 30, 2009. The largest percentage of charge-offs during the current quarter was attributed to the continued economic conditions that affected commercial real estate loan portfolios.

 

 

 

SELECTED CONSOLIDATED FINANCIAL INFORMATION (unaudited)
July 22, 2010 Press Release
DCB FINANCIAL CORP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
                 
    June 30,     December 31,  
    2010     2009  
    (unaudited)          
ASSETS
                
Cash and due from financial institutions
   $ 11,295     $ 10,082  
Interest bearing deposits
     36,201       26,371  
Federal funds sold and overnight investments
     —       5,000  
 
            
Total cash and cash equivalents
     47,496       41,453  
Securities available for sale
     86,892       94,100  
Securities held to maturity
     1,704       1,752  
 
            
Total securities
     88,596       95,852  
Loans held for sale, at lower of cost or fair value
     1,782       2,442  
Loans
     463,917       489,482  
Less allowance for loan losses
     (13,114 )     (10,479 )
 
            
Net loans
     450,803       479,003  
Real estate owned
     5,161       4,912  
Investment in FHLB stock
     3,735       3,773  
Premises and equipment, net
     13,771       14,435  
Investment in unconsolidated affiliates
     1,474       1,439  
Bank-owned life insurance
     16,736       16,326  
Deferred federal income taxes
     5,840       5,239  
Accrued interest receivable and other assets
     8,887       10,148  
 
            
Total assets
   $ 644,281     $ 675,022  
 
            
 
                
LIABILITIES
                
Deposits
                
Noninterest-bearing
   $ 61,549     $ 60,502  
Interest-bearing
     470,966       496,953  
 
            
Total deposits
     532,515       557,455  
Federal funds purchased and other short-term borrowings
     1,083       3,011  
Federal Home Loan Bank advances
     60,592       63,148  
Accrued interest payable and other liabilities
     2,487       2,065  
 
            
Total liabilities
     596,677       625,679  
 
                
SHAREHOLDERS’ EQUITY
                
Common stock, no par value, 7,500,000 shares authorized, 4,273,908 issued
     3,785       3,785  
Retained earnings
     57,297       60,213  
Treasury stock, at cost, 556,523 shares
     (13,494 )     (13,494 )
Accumulated other comprehensive income (loss)
     16       (1,161 )
 
            
Total shareholders’ equity
     47,604       49,343  
 
            
Total liabilities and shareholders’ equity
   $ 644,281     $ 675,022  
 
            

 

 

 

DCB FINANCIAL CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Interest and dividend income
                                
Loans
   $ 6,303     $ 7,230     $ 12,759     $ 14,334  
Taxable securities
     683       820       1,405       1,847  
Tax-exempt securities
     182       252       381       526  
Federal funds sold and other
     28       32       46       109  
 
                        
Total interest income
     7,196       8,334       14,591       16,816  
 
                                
Interest expense
                                
Deposits
     1,142       1,919       2,352       4,214  
Borrowings
     692       836       1,383       1,746  
 
                        
Total interest expense
     1,834       2,755       3,735       5,960  
 
                        
 
                                
Net interest income
     5,362       5,579       10,856       10,856  
 
                                
Provision for loan losses
     3,386       1,707       5,347       5,142  
 
                        
 
                                
Net interest income after provision for loan losses
     1,976       3,872       5,509       5,714  
 
                                
Noninterest income
                                
Service charges on deposit accounts
     658       650       1,263       1,248  
Trust department income
     268       234       493       470  
Net gains on sale of securities
     80       462       80       462  
Net losses on sale of assets
     (12 )     (135 )     86       (160 )
Gains on sale of loans
     78       139       107       190  
Treasury management fees
     114       136       244       271  
Data processing servicing fees
     168       138       300       273  
Earnings on bank owned life insurance
     243       167       410       334  
Total other-than-temporary impairment losses
     —       (5,190 )     (80 )     (5,190 )
Portion of loss recognized in other comprehensive income (before taxes)
     —       4,410       (950 )     4,410  
 
                        
Net impairment losses recognized in income
     —       (780 )     (1,030 )     (780 )
Other
     196       94       276       195  
 
                        
Total noninterest income
     1,793       1,105       2,229       2,503  
 
                                
Noninterest expense
                                
Salaries and employee benefits
     2,599       2,603       5,223       5,127  
Occupancy and equipment
     1,015       1,087       2,045       2,154  
Professional services
     396       360       703       523  
Advertising
     99       94       173       185  
Postage, freight and courier
     122       68       209       153  
Supplies
     29       77       59       154  
State franchise taxes
     152       169       304       338  
Federal deposit insurance premiums
     396       494       792       654  
Other
     929       1,322       1,717       2,061  
 
                        
Total noninterest expense
     5,737       6,274       11,225       11,349  
 
                        
 
                                
Loss before income credits
     (1,968 )     (1,297 )     (3,487 )     (3,132 )
 
                                
Income tax expense (credits)
     60       (576 )     (571 )     (1,339 )
 
                        
 
                                
Net loss
   $ (2,028 )   $ (721 )   $ (2,916 )   $ (1,793 )
 
                        
 
                                
Basic and diluted loss per common share
   $ (0.54 )   $ (0.19 )   $ (0.78 )   $ (0.48 )
 
                        
 
                                
Dividends per share
   $ 0.00     $ 0.02     $ 0.00     $ 0.04  
 
                        

 

 

 

DCB FINANCIAL CORP
Selected Key Ratios and Other Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
                                 
    At or for the     At or for the  
    Three Months Ended     Six Months Ended  
    6/30/10     6/30/09     6/30/10     6/30/09  
 
                                
Key Earnings Information
                                
 
                                
Net interest income
   $ 5,362     $ 5,579     $ 10,856     $ 10,856  
 
                                
Non-interest income
   $ 1,793     $ 1,105     $ 2,229     $ 2,503  
 
                                
Non-interest expense
   $ 5,737     $ 6,274     $ 11,225     $ 11,349  
 
                                
Net loss
   $ (2,028 )   $ (721 )   $ (2,916 )   $ (1,793 )
 
                                
Pre-tax pre-provision core operating earnings
   $ 1,338     $ 1,396     $ 2,712     $ 3,021  
 
                                
Basic loss per common share
   $ (0.54 )   $ (0.19 )   $ (0.78 )   $ (0.48 )
 
                                
Diluted loss per common share
   $ (0.54 )   $ (0.19 )   $ (0.78 )   $ (0.48 )
 
                                
Key Balance Sheet Averages
                                
 
                                
Total assets (average)
   $ 663,080     $ 706,790     $ 669,168     $ 714,667  
 
                                
Loan balances (average)
   $ 476,363     $ 510,551     $ 481,729     $ 514,215  
 
                                
Deposit balances (average)
   $ 552,339     $ 577,932     $ 557,299     $ 578,243  
 
                                
Weighted Average Shares Outstanding (000):
                                
Basic
     3,717       3,717       3,717       3,717  
 
                                
Diluted
     3,717       3,717       3,717       3,717  
 
                                
Key Credit Data
                                
 
                                
Provision for loan losses
   $ 3,386     $ 1,707     $ 5,347     $ 5,142  
 
                                
Total allowance for loan losses
   $ 13,114     $ 7,995     $ 13,114     $ 7,995  
 
                                
Non-accrual loans
   $ 15,140     $ 5,242     $ 15,140     $ 5,242  
 
                                
Delinquent loans > 30 days
   $ 28,067     $ 5,759     $ 28,067     $ 5,759  
 
                                
Loans 90 days past due and accruing
   $ 927     $ 691     $ 927     $ 691  

 

 

 

DCB FINANCIAL CORP
Selected Consolidated Financial Information
(Unaudited)
                                 
    At or for the     At or for the  
    Three Months Ended     Six Months Ended  
    6/30/10     6/30/09     6/30/10     6/30/09  
 
                                
Key Earnings Ratios
                                
 
                                
Return on average assets
     (1.23 )%     (0.41 )%     (0.88 )%     (0.51 )%
 
                                
Return on average shareholders’ equity
     (16.78 )%     (5.34 )%     (11.99 )%     (6.55 )%
 
                                
Annualized non-interest expense to average assets
     3.51 %     3.56 %     3.38 %     3.20 %
 
                                
Efficiency ratio
     80.2 %     100.8 %     85.8 %     88.0 %
 
                                
Net interest margin (fully taxable equivalent)
     3.57 %     3.55 %     3.60 %     3.45 %
 
                                
Equity to assets at period end
     7.37 %     7.38 %     7.37 %     7.38 %
 
                                
Key Credit Ratios
                                
 
                                
Allowance for loan losses as a percentage of period-end loans
     2.83 %     1.60 %     2.83 %     1.60 %
 
                                
Total allowance for loan losses to non-accrual loans
     87 %     153 %     87 %     153 %
 
                                
Net charge-offs (annualized) as a percent of average loans
     1.34 %     0.58 %     1.14 %     1.29 %
 
                                
Non-accrual loans to total loans (net)
     3.36 %     1.06 %     3.36 %     1.06 %
 
                                
Delinquent loans (30+ days)
     6.05 %     1.15 %     6.05 %     1.15 %

 

 

 

Business of DCB Financial Corp
DCB Financial Corp (the “Corporation”) is a financial holding company formed under the laws of the State of Ohio. The Corporation is the parent of The Delaware County Bank & Trust Company, (the “Bank”) a state-chartered commercial bank. The Bank conducts business from its main offices at 110 Riverbend Avenue in Lewis Center, Ohio, and through its 18 full-service branch offices located in Delaware County, Ohio and surrounding communities. The Bank provides customary retail and commercial banking services to its customers, including checking and savings accounts, time deposits, IRAs, safe deposit facilities, personal loans, commercial loans, real estate mortgage loans, night depository facilities and trust and personalized wealth management services. The Bank also provides cash management, bond registrar and payment services. The Bank offers data processing services to other financial institutions; however such services are not a significant part of its current operations or revenues.
Application of Critical Accounting Policies
DCB’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the financial services industry. The application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.
The most significant accounting policies followed by the Corporation are presented in Note 1 of the audited consolidated financial statements contained in the Corporation’s 2009 Annual Report to Shareholders. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Forward-Looking Statements
Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to the financial condition and prospects, lending risks, plans for future business development and marketing activities, capital spending and financing sources, capital structure, the effects of regulation and competition, and the prospective business of both the Corporation and its wholly-owned subsidiary The Delaware County Bank & Trust Company (the “Bank”). Where used in this report, the word “anticipate,” “believe,” “estimate,” “expect,” “intend,” and similar words and expressions, as they relate to the Corporation or the Bank or their respective management, identify forward-looking statements. Such forward-looking statements reflect the current views of the Corporation and are based on information currently available to the management of the Corporation and the Bank and upon current expectations, estimates, and projections about the Corporation and its industry, management’s belief with respect thereto, and certain assumptions made by management. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to: (i) significant increases in competitive pressure in the banking and financial services industries; (ii) changes in the interest rate environment which could reduce anticipated or actual margins; (iii) changes in political conditions or the legislative or regulatory environment; (iv) general economic conditions, either nationally or regionally (especially in central Ohio), becoming less favorable than expected resulting in, among other things, a deterioration in credit quality of assets; (v) changes occurring in business conditions and inflation; (vi) changes in technology; (vii) changes in monetary and tax policies; (viii) changes in the securities markets; and (ix) other risks and uncertainties detailed from time to time in the filings of the Corporation with the Commission.
The Corporation does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.