-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FRbhMIxQVlnrdZJhORaI9DiO6MdNPk8cF23YW6oCFUK0gpvQJIrE10Tgc0al15rL qsO5pkIM1RtVM4dB6UjCTQ== 0000950152-05-004227.txt : 20050510 0000950152-05-004227.hdr.sgml : 20050510 20050510114353 ACCESSION NUMBER: 0000950152-05-004227 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050510 DATE AS OF CHANGE: 20050510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DCB FINANCIAL CORP CENTRAL INDEX KEY: 0001025877 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 311469837 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22387 FILM NUMBER: 05814703 BUSINESS ADDRESS: STREET 1: 110 RIVERBEND AVE. CITY: LEWIS CENTER STATE: OH ZIP: 43035 BUSINESS PHONE: 740-657-7000 MAIL ADDRESS: STREET 1: 110 RIVERBEND AVE. CITY: LEWIS CENTER STATE: OH ZIP: 43035 10-Q 1 l13790ae10vq.txt DCB FINANCIAL 10-Q Page 1 of 33 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: MARCH 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-22387 DCB Financial Corp ------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio 31-1469837 ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 110 Riverbend Avenue, Lewis Center, Ohio 43035 ---------------------------------------------- (Address of principal executive offices) (740) 657-7000 ------------------------------ (Registrant's telephone number) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12B-2 of the Exchange Act). Yes [X] No [ ] As of May 6, 2005, the latest practicable date, 3,934,760 shares of the registrant's no par value common stock were issued and outstanding. DCB FINANCIAL CORP FORM 10-Q QUARTER ENDED MARCH 31, 2005 Table of Contents PART I - FINANCIAL INFORMATION
Page ---- ITEM 1 - Financial Statements Consolidated Balance Sheets..................................................... 3 Consolidated Statements of Income .............................................. 4 Consolidated Statements of Comprehensive Income ................................ 5 Condensed Consolidated Statements of Cash Flows................................. 6 Notes to the Condensed Consolidated Financial Statements........................ 7 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 14 ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk............. 18 ITEM 4 - Controls and Procedures ............................................... 19 PART II - OTHER INFORMATION..................................................... 20 SIGNATURES ................................................................... 22
DCB FINANCIAL CORP CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Item 1. Financial Statements
March 31, December 31, 2005 2004 ----------- ------------ (unaudited) ASSETS Cash and due from financial institutions $ 12,648 $ 11,238 Securities available for sale 97,322 98,979 Loans held for sale 1,836 1,122 Loans and leases 507,436 483,305 Less allowance for loan and lease losses (5,115) (4,818) --------- --------- Net loans and leases 502,321 478,487 Premises and equipment, net 8,636 8,846 Bank owned life insurance 8,553 8,457 Accrued interest receivable and other assets 5,336 4,556 --------- --------- Total assets $ 636,652 $ 611,685 ========= ========= LIABILITIES Deposits Noninterest-bearing $ 65,302 $ 65,148 Interest-bearing 402,092 389,426 --------- --------- Total deposits 467,394 454,574 Federal funds purchased and other short-term borrowings 22,623 5,215 Federal Home Loan Bank advances 89,419 95,813 Accrued interest payable and other liabilities 2,222 1,822 --------- --------- Total liabilities 581,658 557,424 SHAREHOLDERS' EQUITY Common stock, no par value, 7,500,000 shares authorized, 4,273,200 shares issued at March 31, 2005 and December 31, 2004 3,780 3,780 Retained earnings 59,065 57,862 Treasury stock, 338,440 shares at March 31, 2005 and December 31, 2004 (7,616) (7,616) Accumulated other comprehensive income (loss) (235) 235 --------- --------- Total shareholders' equity 54,994 54,261 --------- --------- Total liabilities and shareholders' equity $ 636,652 $ 611,685 ========= =========
See notes to the consolidated financial statements. 3. DCB FINANCIAL CORP CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)
Three Months Ended March 31, ------------------ 2005 2004 ------- ------- INTEREST AND DIVIDEND INCOME Loans $ 7,218 $ 5,771 Taxable securities 760 733 Tax-exempt securities 184 186 Federal funds sold and other - 6 ------- ------- Total interest income 8,162 6,696 INTEREST EXPENSE Deposits 1,818 1,238 Borrowings 850 560 ------- ------- Total interest expense 2,668 1,798 NET INTEREST INCOME 5,494 4,898 Provision for loan and lease losses 470 378 ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 5,024 4,520 NONINTEREST INCOME Service charges on deposit accounts 571 564 Trust department income 165 197 Net loss on sales of securities - (3) Net loss on sales of assets (12) (22) Gains on sale of loans 49 30 Gain on sale of investment in unconsolidated affiliate 184 - Treasury management fees 101 123 Data processing servicing fees 73 62 Other 286 210 ------- ------- 1,417 1,161 NONINTEREST EXPENSE Salaries and other employee benefits 2,212 1,926 Occupancy and equipment 880 970 Professional services 182 64 Advertising 87 61 Postage, freight and courier 94 112 Supplies 61 32 State franchise taxes 108 127 Other 474 531 ------- ------- 4,098 3,823 ------- ------- INCOME BEFORE INCOME TAXES 2,343 1,858 Federal income tax expense 707 552 ------- ------- NET INCOME $ 1,636 $ 1,306 ======= ======= Basic and diluted earnings per common share $ 0.42 $ 0.33 ======= =======
See notes to the consolidated financial statements. 4. DCB FINANCIAL CORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands, except per share data)
Three Months Ended March 31, ------------------ 2005 2004 ------- ------- Net income $ 1,636 $ 1,306 Less reclassification for realized losses on sale of securities included in operations, net of tax effects - 2 Unrealized gains (losses) on securities available for sale, net of tax effects (470) 214 ------- ------- Comprehensive income $ 1,166 $ 1,522 ======= =======
See notes to the consolidated financial statements. 5. DCB FINANCIAL CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Three Months Ended March 31, -------------------- 2005 2004 -------- -------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 976 $ 273 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES Securities available for sale Purchases (8,033) (10,344) Maturities, principal payments and calls 4,464 3,841 Sales 5,020 17,132 Net change in loans (24,341) (10,146) Premises and equipment expenditures (77) (155) -------- -------- Net cash flows provided by (used in) investing activities (22,967) 328 CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES Net change in deposits 12,820 (7,000) Net change in federal funds purchased and other short-term borrowings 17,408 (3,864) Proceeds (repayment) of Federal Home Loan Bank advances (6,394) 4,538 Cash dividends paid (433) (392) -------- -------- Net cash provided by (used in) financing activities 23,401 (6,718) -------- -------- Net change in cash and cash equivalents 1,410 (6,117) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,238 20,349 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,648 $ 14,232 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for Interest on deposits and borrowings $ 2,292 $ 1,714 Cash dividends declared but unpaid $ 433 $ 397
See notes to the consolidated financial statements. 6. DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These interim financial statements are prepared without audit and reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of DCB Financial Corp (the "Corporation") at March 31, 2005, and its results of operations and cash flows for the three month periods ended March 31, 2005 and 2004. All such adjustments are normal and recurring in nature. The accompanying consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not purport to contain all necessary financial disclosures required by accounting principles generally accepted in the United States of America that might otherwise be necessary in the circumstances, and should be read in conjunction with the consolidated financial statements, and notes thereto, included in its 2004 Annual Report. Refer to the accounting policies of the Corporation described in the Notes to Consolidated Financial Statements contained in the Corporation's 2004 Annual Report. The Corporation has consistently followed these policies in preparing this Form 10-Q. The accompanying consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, The Delaware County Bank and Trust Company (the "Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation. Management considers the Corporation to operate within one business segment, banking. To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect amounts reported in the financial statements and disclosures provided, and future results could differ. The allowance for loan and lease losses, fair values of financial instruments and status of contingencies are particularly subject to change. Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Earnings per common share is net income divided by the weighted average number of shares of common stock outstanding during the period. The basic weighted average number of common shares outstanding was 3,934,760 and 3,934,760 for the three months ended March 31, 2005 and 2004. Diluted earnings per common share is computed including the dilutive effect of additional potential common shares under stock options. The diluted weighted average number of common shares outstanding was 3,935,922 and 3,934,760 for the three months ended March 31, 2005 and 2004. The Company's shareholders approved an employee share option plan in May 2004. This plan grants certain employees the right to purchase shares at a pre-determined price. The plan is limited to 300,000 shares. The shares granted to employees vest 20% per year over a five year period. The options expire after ten years. During 2004, 15,105 shares were issued to employees under the plan, at a price of $23.40. Additionally, during the three month period ended March 31, 2005, 3,091 shares were issued under the plan at a price of $27.50. Approximately 3,000 share options will become exercisable during 2005. The Corporation accounts for its stock option plan in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," which contains a fair-value based method for valuing stock-based compensation that entities may use, which measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, SFAS No. 123 permits entities to continue to account for stock options and similar equity instruments under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities that continue to account for stock options using APB Opinion No. 25 are required to make pro forma disclosures of net earnings per share, as if the fair-value based method of accounting defined is SFAS No. 123 had been applied. 7. DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) The Corporation utilizes APB Opinion No. 25 and related Interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized for the plan. Had compensation cost for the Corporation's stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the accounting method utilized in SFAS No. 123, the Corporation's net earnings and earnings per share would have been reported as the pro forma amounts indicated below: Stock Option Plan (continued)
Three Months Ended March 31, 2005 (In thousands, except per share data) NET EARNINGS As reported $ 1,636 Stock-based compensation, net of tax (2) ------- Pro-forma $ 1,634 ======= EARNINGS PER SHARE BASIC As reported $ 0.42 Stock-based compensation, net of tax - ------- Pro-forma $ 0.42 ======= DILUTED As reported $ 0.42 Stock-based compensation, net of tax - ------- Pro-forma $ 0.42 =======
A summary of the status of the Corporation's stock option plan as of March 31, 2005 and December 31, 2004 and changes during the periods then ended are presented below:
Three Months Ended March 31, 2005 WEIGHTED AVERAGE EXERCISE SHARES PRICE Outstanding at beginning of year 15,105 $ 23.40 Granted 3,091 27.50 Exercised - - Forfeited (154) 23.40 ------ ------- Outstanding at end of period 18,042 $ 24.10 ====== ======= Options exercisable at period end 639 23.40 Weighted-average fair value of options $ 3.44 ======= granted during the period
8. DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) Stock Option Plan (continued)
Year Ended December 31, 2004 WEIGHTED AVERAGE EXERCISE SHARES PRICE Outstanding at beginning of year - - Granted 15,105 $23.40 Exercised - - Forfeited - - ------ ------ Outstanding at end of year 15,105 $23.40 ====== ====== Options exercisable at year-end - - Weighted-average fair value of options $ 3.44 ====== granted during the year
The following information applies to options outstanding at March 31, 2005:
NUMBER OUTSTANDING RANGE OF EXERCISE PRICES 18,042 $23.40 - $27.50
Newly issued Accounting Standards: In December 2004, the Financial Accounting Standards Board (the "FASB") issued a revision to Statement of Financial Accounting Standards ("SFAS") No. 123 which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily on accounting for transactions in which an entity obtains employee services in share-based transactions. This Statement, SFAS No. 123 (R), requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award - the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met. 9. DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) Initially, the cost of employee services received in exchange for an award of equity instruments will be measured based on current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. Excess tax benefits, as defined by SFAS No. 123(R) will be recognized as an addition to additional paid in capital. Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in additional paid in capital to which it can be offset. Compensation cost is required to be recognized in the beginning of the first annual period that begins after June 15, 2005, or January 1, 2006 as to the Corporation. Management believes the effect on operations will approximate the economic effects set forth in the pro-forma stock option disclosure set forth above. APPLICATION OF CRITICAL ACCOUNTING POLICIES DCB's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America 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 Notes to Consolidated Financial Statements contained in the Corporation's 2004 Annual Report. 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. 10. DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) NOTE 2 - SECURITIES The amortized cost and estimated fair values of securities available for sale were as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- -----------------March 31, 2005---------------- U.S. government agencies $ 25,825 $ 27 $ (333) $ 25,519 States and political subdivisions 21,288 269 (157) 21,400 Corporate bonds 8,140 1 (77) 8,064 Mortgage-backed securities 39,490 250 (360) 39,380 -------- -------- -------- -------- Total debt securities 94,743 547 (927) 94,363 Other securities 2,934 25 - 2,959 -------- -------- -------- -------- Total $ 97,677 $ 572 $ (927) $ 97,322 ======== ======== ======== ========
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 31, 2005:
(Less than 12 months) (12 months or longer) Total Description of Number of Fair Unrealized Number of Fair Unrealized Number of Fair Unrealized Securities investments value losses investments value losses investments value losses - -------------- ----------- ------- ---------- ----------- ------- ---------- ----------- ------- ---------- (Dollars in thousands) U.S. Government and agency obligations 23 $20,891 $ (238) 6 $ 3,685 $ (95) 29 $24,576 $ (333) State and municipal obligations 13 6,371 (89) 8 3,353 (68) 21 9,724 (157) Corporate bonds - - - 2 7,933 (77) 2 7,933 (77) Mortgage-backed securities 57 18,613 (174) 18 7,859 (186) 75 26,472 (360) -- ------- ------- ------- ------- ------- ------- ------- ------- Total temporarily impaired securities 93 $45,875 $ (501) 34 $22,830 $ (426) 127 $68,705 $ (927) == ======= ======= ======= ======= ======= ======= ======= =======
Management has the intent and ability to hold these securities for the foreseeable future and the decline in the fair value is primarily due to an increase in market interest rates. The fair values are expected to recover as the securities approach maturity dates. 11. DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) Substantially all mortgage-backed securities are backed by pools of mortgages that are insured or guaranteed by the Federal National Mortgage Association ("FNMA"), the Government National Mortgage Association ("GNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). At March 31, 2005, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders' equity. The amortized cost and estimated fair value of debt securities at March 31, 2005, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown separately since they are not due at a single maturity date.
Available for sale ----------------------- Amortized Fair Cost Value ---------- ---------- Due in one year or less $ 4,282 $ 4,260 Due from one to five years 14,548 14,385 Due from five to ten years 12,741 12,664 Due after ten years 23,682 23,674 Mortgage-backed and related securities 39,490 39,380 ---------- ---------- Total debt securities 94,743 94,363 Other securities 2,934 2,959 ---------- ---------- Total $ 97,677 $ 97,322 ========== ==========
NOTE 3 - LOANS AND LEASES Loans and leases were as follows:
March 31, 2005 ---------- Commercial and industrial $ 50,521 Commercial real estate 183,579 Residential real estate and home equity 176,602 Real estate construction and land development 38,926 Consumer and credit card 55,674 Lease financing, net 1,205 ---------- 506,507 Add (deduct): Net deferred loan origination costs 1,000 Unearned income on leases (71) ---------- Total loans receivable $ 507,436 ==========
12. DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) NOTE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES Activity in the allowance for loan and lease losses was as follows:
Three months ended March 31, -------------------- 2005 2004 -------- -------- Balance at beginning of period $ 4,818 $ 4,331 Provision for loan losses 470 378 Loans charged off (194) (356) Recoveries 21 58 -------- -------- Balance at end of period $ 5,115 $ 4,411 ======== ========
Nonperforming loans were as follows:
March 31, December 31, 2005 2004 --------- ------------ Loans past due 90 days or more and still accruing $ 1,112 $ 1,544 Nonaccrual loans 1,939 1,879 -------- -------- Total $ 3,051 $ 3,423 ======== ======== Impaired loans (most of which are included in nonperforming loans above) were as follows: Period-end loans with no allocated allowance for loan losses $ - $ - Period-end loans with allocated allowance for loan losses 1,655 601 -------- -------- Total $ 1,655 $ 601 ======== ======== Amount of the allowance for loan losses allocated $ 759 $ 360 ======== ======== Average of impaired loans during the period $ 1,116 $ 709 ======== ========
13. DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations INTRODUCTION In the following pages, management presents an analysis of the consolidated financial condition of DCB Financial Corp (the "Corporation") at March 31, 2005, compared to December 31, 2004, and the consolidated results of operations for the three months ended March 31, 2005, compared to the same period in 2004. This discussion is designed to provide shareholders with a more comprehensive review of the operating results and financial position than could be obtained from reading the consolidated financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report. 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, related 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. ANALYSIS OF FINANCIAL CONDITION The Corporation's assets totaled $636,652 at March 31, 2005, compared to $611,685 at December 31, 2004, an increase of $24,967, or 4.08%. The increase in assets was mainly attributed to the loan growth the Corporation experienced within its markets, particularly in commercial and residential real estate. Cash and cash equivalents increased $1,410 from December 31, 2004 to March 31, 2005. Total securities decreased $1,657, or 1.67%, from $98,979 at December 31, 2004 to $97,322 at March 31, 2005. The decrease was the result of the proceeds from sales, maturities, calls and principal repayments not being reinvested in order to fund loan growth and to repay borrowings primarily, in the form of Federal Home Loan Bank advances. The Corporation invests primarily in U.S. Treasury notes, U.S. government agencies, municipal bonds, corporate obligations and mortgage-backed securities. 14. DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Mortgage-backed securities include Federal Home Loan Mortgage Corporation ("FHLMC"), Government National Mortgage Association ("GNMA") and Federal National Mortgage Association ("FNMA") participation certificates. Securities and investment securities classified as available for sale at March 31, 2005 totaled $97,322, or 100% of the total securities portfolio. Management classifies securities as available for sale to provide the Corporation with the flexibility to move funds into loans as demand warrants. The mortgage-backed securities portfolio, totaling $39,380 at March 31, 2005, provides the Corporation with a constant cash flow stream from principal repayments and interest payments. The Corporation held no structured notes during any period presented. Total loans and leases increased $24,131, or 4.99%, from $483,305 at December 31, 2004 to $507,436 at March 31, 2005. The increase is attributed mainly to the continued growth of residential real estate and home equity, real estate construction and land development, and commercial real estate loans. Other loan categories in which the Corporation participates, commercial, industrial, and consumer financing, remained relatively stable or experienced small increases in loans outstanding. The Bank's local market continues to experience increases in the amount of commercial real estate development activity. The Bank has no significant loan concentration in any one industry. Total deposits increased $12,820, or 2.82%, from $454,574 at December 31, 2004 to $467,394 at March 31, 2005. This growth is mainly attributed to the increase in public fund interest bearing deposit account balances which management initiated during the quarter ending September 30, 2004. Noninterest-bearing deposits increased $154, or 0.24%, while interest-bearing deposits increased $12,666, or 3.25%. The Corporation continues to use borrowings to fund a majority of its loan growth. Total borrowings increased to $112,042 from $101,028 in order to fund the loan growth during the three months ended March 31, 2005. Typically, the Company utilizes a matched funding methodology for its borrowing. This was done by matching the rates, terms and expected cash flows of its loans to the various products. This matching principle is used to not only provide funding, but also as a means of mitigating interest rate risk associated with originating longer-term fixed rate loans. Continued reliance on borrowings outside of normal deposit growth could increase the Corporation's overall cost of funds. COMPARISON OF RESULTS OF OPERATIONS NET INCOME. Net income for the three months ended March 31, 2005 totaled $1,636, compared to net income of $1,306 for the same period in 2004. Earnings per share was $.42 for the three months ended March 31, 2005 compared to $.33 for the three months ended March 31, 2004. The increase in earnings is mainly attributed to the increase in net interest income due to the growth in earning assets. NET INTEREST INCOME. Net interest income represents the amount by which interest income on interest-earning assets exceeds interest paid or accrued on interest-bearing liabilities. Net interest income is the largest component of the Corporation's income, and is affected by the interest rate environment, the volume, and the composition of interest-earning assets and interest-bearing liabilities. Net interest income was $5,494 for the three months ended March 31, 2005, compared to $4,898 for the same period in 2004. The $596 increase in the first quarter 2004 compared to 2003 was mainly attributed to an increase in earning assets coupled with the rising rate of environment during the first quarter, which allowed interest earning assets to reprice higher than interest bearing liabilities. The Asset/Liability Management Committee, which is responsible for determining deposit rates, continues to closely monitor the Bank's cost of funds to take advantage of pricing and cash flow opportunities. Additionally, because of the increased competition in the Bank's primary marketplace, management has continued to recognize the importance of offering special rates on certain deposit products. These special deposit rates tend to negatively affect the Corporation's net interest margin. It is likely that these offerings will continue to be offered to secure liquidity while maintaining market share. 15. DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES. The provision for loan and lease losses represents the charge to income necessary to adjust the allowance for loan and lease losses to an amount that represents management's assessment of the losses known and inherent in the Bank's loan portfolio. All lending activity contains associated risks of loan losses and the Bank recognizes these credit risks as a necessary element of its business activity. The provision for loan and lease losses totaled $470 for the three months ended March 31, 2005, compared to $378 for the same period in 2004. The growth in the provision is reflective of the overall growth in the Corporation's loan portfolio, and to a lesser extent, the increase in non-accrual loans between the two periods. Non-accrual loans for the three months ended March 31, 2005 were $1,939 compared to non-accrual loans of $1,487 for the same period in 2004. Net charge-offs for the three months ended March 31, 2005 improved to $173, as compared to $298 for the three months ended March 31, 2004. Annualized net charge-offs for the three months ended March 31, 2005 were 0.14% compared to 0.29% at March 31, 2004. Delinquent loans over thirty days also improved from period to period, decreasing to 1.53% at March 31, 2005 from 1.92% at March 31, 2004. Management will continue to monitor the credit quality of the lending portfolio and will recognize additional provisions in the future to maintain the allowance for loan and lease losses at an appropriate level. The allowance for loan and lease losses increased to $5,115, or 1.01% of total loans and leases at March 31, 2005, compared to $4,818, or 1.00% of total loans and leases at December 31, 2004. NONINTEREST INCOME AND NONINTEREST EXPENSE. Total noninterest income increased $256, or 22.05%, for the three months ended March 31, 2005, compared to the same period in 2004. The change in non-interest revenues from period to period is mainly attributed to an increase in NSF and overdraft charges, increases in gains on loans originated for sale in the secondary market, and to a gain recognized on the sale of an investment in an unconsolidated affiliate. In 2004, the Company sold its investment in ProCentury Corporation and in return received cash and shares of ProAlliance Corp., a specialty lines insurance company as part of the proceeds. During the first quarter 2005, the Corporation received a final accounting for the consideration received in the transaction and recorded a $184 gain as a result thereof. Total noninterest expense increased $275, or 7.19%, for the three months ended March 31, 2005, compared to the same period in 2004. The increase was primarily the result of increases in salaries and employee benefits attributable to an increase in incentive compensation. Additionally, there was a substantial increase in professional services due to expenses incurred related to Section 404 of the Sarbanes-Oxley Act of 2002 and related consulting. These increases in operating expense were offset by a decrease in managed occupancy, postage, freight and courier related, and state franchise tax expenses. INCOME TAXES. The change of income tax expense is primarily attributable to the increase in tax exempt earnings primarily offset by municipal securities and increase in bank owned life insurance in income before income taxes. The provision for income taxes totaled $707, for an effective tax rate of 30.18%, for the three months ended March 31, 2005 and $552, for an effective tax rate of 29.71%, for the three months ended March 31, 2004. LIQUIDITY Liquidity is the ability of the Corporation to fund customers' needs for borrowing and deposit withdrawals. The purpose of liquidity management is to assure sufficient cash flow to meet all of the financial commitments and to capitalize on opportunities for business expansion. This ability depends on the financial strength, asset quality and types of deposit and investment instruments offered by the Corporation to its customers. The Corporation's principal sources of funds are deposits, loan and security repayments, maturities of securities, sales of securities available for sale and other funds provided by operations. The Bank also has the ability to borrow from the FHLB. While scheduled loan repayments and 16. DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) maturing investments are relatively predictable, deposit flows and early loan and mortgage-backed security prepayments are more influenced by interest rates, general economic conditions, and competition. The Corporation maintains investments in liquid assets based upon management's assessment of (1) need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets and (4) objectives of the asset/liability management program. Cash and cash equivalents increased $1,410, or 12.55%, to $12,648 at March 31, 2005 compared to $11,238 at December 31, 2004. Cash and equivalents represented 1.99% of total assets at March 31, 2005 and 1.84% of total assets at December 31, 2004. The Corporation has the ability to borrow funds from the Federal Home Loan Bank and has various correspondent banking partners to purchase overnight federal funds should the Corporation need to supplement its future liquidity needs. Management believes the Corporation's liquidity position is adequate based on its current level of cash, cash equivalents, core deposits, the stability of its other funding sources, and the support provided by its capital base. CAPITAL RESOURCES Total shareholders' equity increased $733 between December 31, 2004 and March 31, 2005. The increase was primarily due to period earnings of $1,636, partially offset by the declaration of $433 in dividends and loss on securities designated as available for sale totaling $470, net of tax. Tier 1 capital is shareholders' equity excluding the unrealized gain or loss on securities classified as available for sale and intangible assets. Total capital includes Tier 1 capital plus the allowance for loan losses, not to exceed 1.25% of risk weighted assets. Risk weighted assets are the Corporation's total assets after such assets are assessed for risk and assigned a weighting factor defined by regulation based on their inherent risk. The Corporation and its subsidiaries meet all regulatory capital requirements. The ratio of total capital to risk-weighted assets was 11.33% at March 31, 2005, while the Tier 1 risk-based capital ratio was 10.37%. Regulatory minimums call for a total risk-based capital ratio of 8.0%, at least half of which must be Tier 1 capital. The Corporation's leverage ratio, defined as Tier 1 capital divided by average assets, was 8.74% at March 31, 2005. The following table sets forth the Corporation's obligations and commitments to make future payments under contract as of March 31, 2005.
PAYMENT DUE BY YEAR LESS THAN 1 MORE THAN 5 CONCTRACTUAL OBLIGATIONS TOTAL YEAR 1-3 YEARS 3-5 YEARS YEARS FHLB advances $ 89,419 $ 14,985 $ 9,490 $ 1,099 $ 63,845 Federal funds purchased and other short-term borrowings 22,623 22,623 Operating Lease Obligations 5,563 530 1,216 692 3,125 Loan and Line of Credit Commitments 122,824 122,824 - - - Other Long-Term Liabilities Reflected on the Corporation's Balance Sheet under GAAP - - - - - -------- -------- -------- -------- -------- Total Contractual Obligations $240,429 $160,962 $ 10,706 $ 1,791 $ 66,970 ======== ======== ======== ======== ========
In the opinion of management, all loan commitments equal or exceed market rates of interest. 17. DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Item 3. Quantitative and Qualitative Disclosure About Market Risk ASSET AND LIABILITY MANAGEMENT AND MARKET RISK The Corporation's primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. Interest rate risk is the possibility that the Corporation's financial condition will be adversely affected due to movements in interest rates. The income of financial institutions is primarily derived from the excess of interest earned on interest-earning assets over the interest paid on interest-bearing liabilities. Accordingly, the Corporation places great importance on monitoring and controlling interest rate risk. The measurement and analysis of the exposure of the Corporation's primary operating subsidiary, The Delaware County Bank and Trust Company, to changes in the interest rate environment are referred to as asset/liability management. One method used to analyze the Corporation's sensitivity to changes in interest rates is the "net portfolio value" ("NPV") methodology. NPV is generally considered to be the present value of the difference between expected incoming cash flows on interest-earning and other assets and expected outgoing cash flows on interest-bearing and other liabilities. For example, the asset/liability model that the Corporation currently employs attempts to measure the change in NPV for a variety of interest rate scenarios, typically for parallel shifts of 100 to 300 basis points in market rates. The Corporation's 2004 Annual Report includes a table depicting the changes in the Corporation's interest rate risk as of December 31, 2004, as measured by changes in NPV for instantaneous and sustained parallel shifts of -100 to +300 basis points in market interest rates. Management believes that no events have occurred since December 31, 2004 that would significantly change their ratio of rate sensitive assets to rate sensitive liabilities. The Corporation's NPV is more sensitive to rising rates than declining rates. From an overall perspective, such difference in sensitivity occurs principally because, as rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when interest rates are declining. Thus, in a rising interest rate environment, because the Corporation has fixed-rate loans in its loan portfolio, the amount of interest the Corporation would receive on its loans would increase relatively slowly as loans are slowly prepaid and new loans at higher rates are made. Moreover, the interest the Corporation would pay on its deposits would increase rapidly because the Corporation's deposits generally have shorter periods for repricing. The Corporation can utilize various tools to reduce exposure to changes in interest rates including offering floating versus fixed rate products, or utilizing interest rate swaps. Additional consideration should also be given to today's current interest rate levels. Several deposit products are within 200 basis points of zero percent and other products within 300 basis points. Should rates continue to decline, fewer liabilities could be repriced down to offset potentially lower yields on loans. Thus decreases could also impact future earnings and the Corporation's NPV. As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities and early withdrawal levels from certificates of deposit would likely deviate significantly from those assumed in making risk calculations. 18. DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Item 4. Controls and Procedures The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2005, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2005, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. There was no change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended March 31, 2005, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 19. DCB FINANCIAL CORP FORM 10-Q Quarter ended March 31, 2005 PART II - OTHER INFORMATION Item 1 - Legal Proceedings: There are no matters required to be reported under this item. Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds: There are no matters required to be reported under this item. Item 3 - Defaults Upon Senior Securities: There are no matters required to be reported under this item. Item 4 - Submission of Matters to a Vote of Security Holders: There are no matters required to be reported under this item. 20. DCB FINANCIAL CORP FORM 10-Q Quarter ended March 31, 2005 PART II - OTHER INFORMATION Item 5 - Other Information: There are no matters required to be reported under this item. Item 6 - Exhibits. Exhibits - The following exhibits are filed as a part of this report:
Exhibit No. Exhibit - ----------- ------- 3.1 Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference to the Company's Report on Form 10-Q filed with the Commission on November 14, 2003. 3.2 Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference to the Company's Report on Form 10-Q filed with the Commission on November 14, 2003. 4. Instruments Defining the Rights of Security Holders. (See Exhibits 3.1 and 3.2.) 10 Employment agreement by and between DCB Financial Corp, its wholly-owned subsidiary The Delaware County Bank and Trust Company, and Jeffrey Benton 31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C. 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to 18 U.S.C. 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
21 DCB FINANCIAL CORP 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. DCB FINANCIAL CORP ------------------- (Registrant) Date: May 6, 2005 /s/ Jeffrey Benton ------------------- (Signature) Jeffrey Benton President and Chief Executive Officer Date: May 6, 2005 /s/ John A. Ustaszewski ----------------------- (Signature) John A. Ustaszewski Vice President and Chief Financial Officer 22 DCB FINANCIAL CORP INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference to the Company's Report on Form 10-Q filed with the Commission on November 14, 2003. 3.2 Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference to the Company's Report on Form 10-Q filed with the Commission on November 14, 2003. 4 Instruments Defining the Rights of Security Holders. (See Exhibits 3.1 and 3.2.) 10 Employment agreement by and between DCB Financial Corp, its wholly-owned subsidiary The Delaware County Bank and Trust Company, and Jeffrey Benton. 31.1 Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification pursuant to 18 U.S.C. 1350, as enacted Pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to 18 U.S.C. 1350, as enacted Pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
23 EX-10 2 l13790aexv10.txt EXHIBIT 10 DCB FINANCIAL CORP EXHIBIT 10 EMPLOYMENT AGREEMENT This Agreement is made and entered into this 1st day of January, 2005, (the "Agreement Date") by and between DCB Financial Corp. and its wholly-owned subsidiary The Delaware County Bank and Trust Company (collectively, the "Bank"), an Ohio-chartered FDIC-insured nonmember bank, and Jeffrey Benton ("Executive"), an individual. (The Bank and Executive will be referred to collectively herein as the "Parties.") In consideration of the mutual promises contained herein, the sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. EMPLOYMENT a. The Bank agrees to continue to employ Executive and Executive agrees to continue to serve as the President and Chief Executive Officer of the Bank. As President and Chief Executive Officer, Executive will devote his full professional time to rendering administrative and management services such as are customarily performed by persons situated in similar executive positions. Executive will perform such other duties as the Board of Directors of the Bank (the "Board," which may with respect to any of its obligations hereunder designate a member or committee thereof to perform such obligation) may from time to time reasonably direct. b. Executive agrees to serve as a Director of the Bank if elected by the shareholders, but agrees that he shall have no vote regarding matters pertaining to his employment as President and Chief Executive Officer, including but not limited to his duties, responsibilities, goals, job performance, and compensation, and further agrees that he may from time to time be excused by the Board from discussions regarding such matters and that the Board may in its sole discretion meet with other senior Bank managers out of Executive's presence. However, upon termination for any reason of Executive's employment hereunder, Executive will immediately resign as a Director of the Bank and will sign all documents necessary to accomplish such resignation. In the event Executive refuses to sign documents necessary to so resign then this document will act as the resignation pursuant to this paragraph. c. Executive will be furnished with a private office, necessary secretarial assistance, and with such other facilities, amenities, and services as are appropriate for Executive's position and adequate for the performance of the duties hereunder. d. Executive represents and warrants that Executive is not a party to any contract or agreement, written or unwritten, that would restrict Executive's ability to be employed by the Bank in the manner specified herein. Executive also agrees not to disclose to the Bank any information Executive is contractually or otherwise legally bound to keep confidential. 24 DCB FINANCIAL CORP 2. TERM OF EMPLOYMENT Executive is hereby employed for a term commencing on the Agreement Date and ending December 31, 2007. At the end of any calendar year thereafter in which Executive is continuously employed hereunder, this Agreement will be extended for an additional one-year term and Executive for each such one-year extension will for all purposes continue to be considered as employed under this Agreement unless either Party notifies the other in writing no later than December 1 of that calendar year of his or its intent to terminate, for any reason or no reason at all, Executive's employment hereunder. 3. STANDARDS AND EVALUATION OF PERFORMANCE a. Executive agrees to devote Executive's best efforts and full time to the business and affairs of the Bank and to discharge the duties assigned by the Board. Executive will not during Executive's employment hereunder render any services as an employee, independent contractor, consultant, or otherwise, other than to the Bank, except for service on such corporate, civic, or charitable boards or committees as are approved by the Board. b. The Board will each contract year provide Executive with performance goals (the "Goals"), Executive's best efforts towards the attainment of which will constitute part of Executive's duties. Executive will provide the Board with no less than quarterly reports on the status of attaining each of the Goals. The Board may in its discretion reasonably adjust the Goals from time to time in response to business conditions. c. The Board will conduct an annual performance evaluation of Executive, which process Executive will initiate no later than January 15 of each year. 4. COMPENSATION AND BENEFITS a. Base Salary. The Bank agrees to pay Executive (in addition to any payments under paragraph 1(b) of this Agreement) an initial annual salary of One Hundred Seventy Thousand Dollars ($170,000) (the "Base Salary"), payable on the Bank's regular payroll schedule for other executive employees. b. Eligibility for Performance-Based Bonus. The Goals will include standards by which Executive may achieve a performance-based bonus of up to Three Hundred Thirty Seven Thousand Five Hundred Dollars ($337,500) (the "Potential Bonus") as described below. The Board will consider upward adjustment of the Potential Bonus each year at the time that it sets the Goals. No later than the date 30 days after the completion of audited financial statements for the preceding year (the "Bonus Date"), the Board will in its sole discretion determine the total performance-based bonus for that year (the "Bonus Amount"). It is the Parties' mutual expectation and desire that Executive's performance will result in the Bonus Amount for each year being at least 65% of the Potential Bonus. One-half of the Bonus Amount will be paid as a lump sum cash payment (subject to applicable withholding and payroll taxes) to Executive within 30 days of the Bonus Date. With respect to the other one-half of the Bonus Amount, Executive will be granted the option to purchase common shares of the capital stock of the Bank (the "Performance Bonus Stock Options") at the opening public trading price on the Bonus Date (the "Performance Bonus Exercise Price") in an amount of shares determined by dividing one-half of the Bonus Amount as the numerator by the Performance Bonus Exercise Price as the denominator and rounding down to the largest whole number of shares. The Performance Bonus Stock options will vest as follows:
Fraction of Shares Vesting Date - ----------- --------------------------- 1/3 3 years from the Bonus Date 1/3 4 years from the Bonus Date 1/3 5 years from the Bonus Date
25 DCB FINANCIAL CORP Vested Performance Bonus Stock Options will be exercisable for up to 10 years following the Bonus Date unless Executive's employment hereunder is terminated under paragraph 5(a) below, in which case all Performance Bonus Stock Options not yet vested on the date of termination will be forfeited. All Performance Bonus Stock Options will be provided through a Non-Statutory Stock Option Agreement to be developed by the Bank and approved by the Board. It is the Parties' mutual expectation and desire that, in order to demonstrate and establish his commitment to the Bank's shareholders, Executive will of his own accord purchase capital stock of the Bank in addition to what he may be granted and/or purchase under this paragraph 4(b). The benefits provided for by this paragraph 4(b) are separate from and in addition to any benefits that may be provided to Executive under the Incentive Stock Option Plan for Officers and Directors of Delaware County Bank & Trust Plan. c. Executive Employee Benefits. Executive will be eligible for all of the Bank's employee benefit plans pursuant to the terms of those plans, as they may be amended from time to time in the Bank's sole discretion. d. Reimbursement for Business Expenses. The Bank will reimburse Executive for reasonable entertainment, travel, lodging and other miscellaneous expenses, whether local or out-of-city, incurred on its behalf and directly related to the performance of Executive's duties hereunder. The Bank further agrees to furnish Executive with a corporate credit card for business use in connection with entertainment, travel, lodging and other miscellaneous expenses. The reimbursement will include the payment of reasonable expenses for attending meetings of trade associations. Executive will submit documentation of the expenses incurred in a form that is satisfactory to the Bank. The Bank may from time to time at its sole discretion conduct a review of Executive's expenses through the Compensation Committee of the Board or an auditor appointed thereby. e. Country Club Membership and Expenses. The Bank agrees to purchase a corporate membership at Dornoch Golf Club in Delaware, Ohio, for use by Executive and other senior managers of the Bank at Executive's directions and to reimburse Executive for any reasonable business-related costs associated therewith. These expenses will be detailed and provided to the Bank in connection with Executive's periodic submission of reasonable entertainment expenses. f. Vacation and Leaves. Executive will be entitled, without loss of pay, to an annual vacation of not less than 4 weeks per year, to be scheduled in a reasonable manner by Executive. Vacation time not used within the calendar year will be forfeited. Executive will not be entitled to receive any additional compensation from the Bank for unused vacation time, including upon the termination for any reason of Executive's employment hereunder. Executive will be entitled to such other leaves as are provided for executive employees under Bank policies. 5. TERMINATION OF EMPLOYMENT AND SEVERANCE PAYMENT In addition to either Party's right to terminate Executive's employment hereunder pursuant to paragraph 2 of this Agreement, the Bank may terminate the employment of Executive at any other time, with or without cause, and with or without notice. a. If the Bank terminates Executive's employment hereunder because of Executive's dishonesty, incompetence, misconduct, breach of fiduciary duty, failure or refusal to perform the duties and responsibilities assigned under this Agreement (including but not limited to failure to meet the annual budget approved by the Board), willful violation of any law, rule or regulation (other than misdemeanor traffic violations or similar offenses), conviction of a felony or for fraud or embezzlement, or material breach of any provision of this Agreement (hereinafter collectively referred to termination for "Just Cause"), or if Executive resigns or retires for any reason other that provided in paragraph 5(c) below, Executive will have no right to receive any compensation for any period after such termination and any Performance Bonus Stock Options provided for in paragraph 4(c) and not yet vested will be forfeited. b. If the Bank terminates Executive's employment hereunder for any reason other than Just Cause then Executive will be entitled to continuation of the Base Salary for a period of 12 months, provided, however, that (i) each monthly payment will be reduced by the amount of wages or other compensation for services rendered earned by 26 DCB FINANCIAL CORP Executive during the preceding month from sources other than the Bank and (ii) Executive must use reasonable efforts to obtain such employment or other work and, upon the Bank's request, provide documentation of such efforts to the Bank's satisfaction. c. If the Bank while Executive is employed hereunder merges with, is acquired by, or sells substantially all of its assets to an entity not affiliated with the Bank or an entity created for the express purpose of facilitating such a transaction, Executive will receive the severance payments provided for in and subject to the terms of paragraph 5(b) of this Agreement if Executive resigns employment within one year of the closing date of such merger, acquisition, or sale. d. Executive's employment hereunder automatically terminates upon the death of Executive. In the event of such death, Executive's estate will be entitled to receive the compensation due Executive through the last day of the calendar month in which Executive's death occurred. e. Special Regulatory Events. Notwithstanding any other provision of this Agreement, the obligations of the Parties will be as follows in the event of any of the following circumstances: i. If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8 of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818, the Bank's obligations under this Agreement will be suspended as of the date of service of such notice unless otherwise ordered by a tribunal of competent jurisdiction. If the charges in the notice are dismissed, the Bank may, in its sole discretion, pay Executive all or part of the compensation withheld while the obligations of this Agreement were suspended and reinstate in whole or in part any of the obligations which were suspended. ii. If Executive is removed from office and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8 of the Federal Deposit Insurance Act, 12 U.S.C. Section 1818(e) or Ohio Revised Code Sections 1121.33 and 1121.34, all obligations of the Bank under this Agreement will terminate as of the effective date of the order. iii.If the Bank is in default, as defined in Section 3(x)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1813(x)(1), or declared insolvent by the Ohio Superintendent of Banks pursuant to Ohio Revised Code Section 1125.09, all obligations under this Agreement will terminate as of the date of default or insolvency, but this provision will not affect any vested rights of the Parties. iv. All obligations under this Agreement may be terminated by the FDIC at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1823(c). 6. EXECUTIVE'S COVENANTS PROTECTING THE BANK'S BUSINESS RESOURCES a. Non-Disclosure of Trade Secrets and Other Confidential Information. Executive acknowledges that Executive has received, and the Bank agrees to continue to provide to Executive on an ongoing basis, certain of the Bank's confidential business information. Executive will not divulge, disclose, reveal, or communicate to any business entity or other person such information or any trade secrets or other information that Executive may have obtained during the term of employment with the Bank concerning any matters affecting or relating to the business of the Bank, including without limitation any of its customers or borrowers (including lists thereof), sales prices (including price lists), costs, plans, technology, processes, policies, techniques, trade practices, finances, accounting methods, methods of operations, trade secrets, or other data considered by the Bank to be confidential information, for so long as such information is not publicly available other than in whole or in part through the efforts of Executive. b. Books and Records. Executive will, upon the termination of employment hereunder, surrender and deliver to the Bank all property of the Bank, including any and all customer or price lists, manuals, blueprints, operating plans, books, records, papers and similar items (including all copies thereof in his possession) that contain information regarding the business of the Bank. 27 DCB FINANCIAL CORP c. Covenant Not to Compete. Executive will not during employment under this Agreement or for a period of 2 years after termination, regardless of the reason for termination thereof, compete with the Bank without the Bank's prior written consent. Executive will be deemed to be competing with the Bank if Executive is self-employed as, employed by, works for, becomes associated with (whether as partner, officer, director, 10% shareholder, consultant, Executive, agent, or otherwise), furnishes information to, or communicates with any of the Bank's customers or borrowers on behalf of any business entity or other person that competes or that may reasonably be construed to compete with the Bank, including but not limited to any business entity that (i) itself or through an affiliated entity produces, markets, or sells products, renders services, or engages in business activities that are the same as, similar to, or otherwise competitive with those of, or under development or research by the Bank and (ii) produces, markets, or sells such products, renders such services, or engages in such activities in the Bank's market area at that time (as that market area may change from time to time). Executive acknowledges that Executive is qualified for other comparable employment, including for entities that do not compete with the Bank. Accordingly, Executive represents and warrants that Executive's experience and capabilities are such that this covenant will not prevent Executive from earning an adequate livelihood for Executive and Executive's dependents if this covenant should be specifically enforced against Executive. d. Other Bank Employees. Executive will not during employment under this Agreement or for a period of 2 years after termination (for any reason) thereof induce or solicit, or attempt to induce or solicit, any other Bank employee to leave employment with the Bank without the Bank's prior written consent. e. Remedies for Breach. Executive stipulates that the covenants contained herein are essential for the protection of the trade secrets, confidential business and technological information, customer relationships, and competitive position of the Bank; that a breach of any covenant contained herein would cause the Bank irreparable damage for which damages at law would not be an adequate remedy; and that, in addition to damages and other remedies to which the Bank would otherwise be entitled, it will be entitled to whatever injunctive relief is appropriate for any such breach. Executive also agrees that Executive will be responsible for attorney fees and other legal expenses incurred by the Bank or its successors or assigns to enforce any of the covenants in this paragraph 6 against Executive. f. Tolling Period. The term(s) of any covenant(s) in this paragraph 6 will not run during any time in that Executive is in violation of said covenant(s). g. Claims against the Bank Not a Defense. The existence of any claim(s) or cause(s) of action of Executive against the Bank will not constitute a defense to the enforcement by the Bank of any or all of the covenants contained in this paragraph 6. h. Survival of Covenants. The covenants in this paragraph 6 will survive the termination of this Agreement. 7. MISCELLANEOUS a. Successors and Assigns. This Agreement will be binding upon and inure to the benefit of (i) the Bank and its successors and assigns and (ii) Executive and Executive's heirs and personal representatives. b. Notices. All notices, requests, demands and other communications hereunder will be in writing and will be deemed to have been duly given if delivered via telecopy, overnight delivery, or prepaid certified or registered U.S. Mail, return receipt requested, to the following addresses or to such other address as either party may designate by like notice. If to the Bank, to: Dr. G. William Parker c/o DCB Financial Corp. 110 Riverbend Avenue Lewis Center, Ohio 43035 28 DCB FINANCIAL CORP If to Executive, to: Jeffrey Benton 8140 Crossgate Court North Dublin, Ohio 43017 and to such other additional person(s) or location(s) as either party will have designated to the other party in writing by like notices. c. Entire Agreement; Modification. This Agreement contains the entire agreement of the Parties about the subjects in it, and it replaces all prior contemporaneous oral or written agreements, understandings, statements, representations and promises by either party, including but not limited to the Employment Agreement entered into between them on January 1, 2002, of which the parties hereby agree this Agreement is a valid modification pursuant to paragraph 7(c) thereof. No supplement, modification, or amendment to this Agreement will be effective and binding unless the same is contained in a writing accepted and duly executed by the Parties. d. Paragraph Headings. The paragraph headings used in this Agreement are included solely for convenience and will not affect, or be used in connection with, the interpretation of this Agreement. e. Severability. The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision will not affect the validity or enforceability of the other provisions hereof. f. Governing Law. This Agreement will, except to the extent that federal law will be deemed to apply, be governed by and construed and enforced in accordance with the law of Ohio. g. Arbitration of Disputes. All disputes under this Agreement, except for claims for injunctive relief, will be settled conclusively and without right of appeal therefrom by arbitration in Delaware County, Ohio, before a single arbitrator pursuant to the Rules of Commercial Arbitration of the American Arbitration Association ("AAA"). The arbitrator will be selected by the joint agreement of the Parties, but if they do not so agree within 10 calendar days after notice from either party to the other that it is instituting arbitration, they will request from the AAA a panel of 7 arbitrators from which the Parties will alternately strike names until a single arbitrator has been selected. The initial strike will be determined by the flip of a coin. Each Party will pay its own expenses of arbitration and the expenses of the arbitrator will be equally shared provided that, if in the opinion of the arbitrator any claim, defense, or argument raised in the arbitration was unreasonable, the arbitrator may assess all or part of the expenses of the other Party (including attorney fees) and of the arbitrator as the arbitrator deems appropriate. To the extent the Parties resort to judicial action arising under this Agreement for injunctive relief, to enforce the judgment of an arbitrator, or because an arbitrator deems issues not arbitrable, the Parties hereby expressly consent to the jurisdiction of, and agree that such an action will be instituted only in, the state and federal courts sitting in or for Delaware County, Ohio, waive any objection to venue therein, and consent to service of process in any such action by certified mail. IN WITNESS WHEREOF, the Parties have entered this Agreement on the day and year first hereinabove written. FOR THE BANK: By: /s/ G. William Parker ---------------------------------------- G. William Parker Date February 25, 2005 Its: Chairman, Board of Directors ----------------- And: /s/ Vicki Lewis ---------------------------------------- Vicki Lewis Date February 25, 2005 Its: Chairman, Salary and Benefits Committee ----------------- FOR EXECUTIVE: /s/ Jeffrey Benton Date March 7, 2005 - -------------------------------------------- ------------------- (Signature) Jeffrey Benton Title: President and Chief Executive Officer 29 EX-31.1 3 l13790aexv31w1.txt EXHIBIT 31.1 DCB FINANCIAL CORP EXHIBIT 31.1 CERTIFICATIONS I, Jeffrey T. Benton, President and Chief Executive Officer of DCB Financial Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of DCB Financial Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 6, 2005 /s/ Jeffrey Benton ------------------- (Signature) Jeffrey Benton Title: President and Chief Executive Officer 30 EX-31.2 4 l13790aexv31w2.txt EXHIBIT 31.2 DCB FINANCIAL CORP EXHIBIT 31.2 CERTIFICATIONS I, John A. Ustaszewski, Chief Financial Officer of DCB Financial Corp., certify that: 1. I have reviewed this quarterly report on Form 10-Q of DCB Financial Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 6, 2005 /s/ John A. Ustaszewski ------------------------- (Signature) John A. Ustaszewski Title: Vice President and Chief Financial Officer 31 EX-32.1 5 l13790aexv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DCB Financial Corp (the "Company") on Form 10-Q for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey Benton, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jeffrey Benton Jeffrey Benton President and Chief Executive Officer May 6, 2005 32 EX-32.2 6 l13790aexv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ENACTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DCB Financial Corp (the "Company") on Form 10-Q for the period ending March 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John A. Ustaszewski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John A. Ustaszewski John A. Ustaszewski Vice-President and Chief Financial Officer May 6, 2005 33 -----END PRIVACY-ENHANCED MESSAGE-----