-----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, WnMz+grAbRz4yxDz6E9Cb4ZYF0pn3dlzkKaGGWwRS+8wQnozvpNEFOZ8G5GJY25q 7F+tKpSd86uD5uqIxBmkGA== 0000950152-05-006732.txt : 20050809 0000950152-05-006732.hdr.sgml : 20050809 20050809094156 ACCESSION NUMBER: 0000950152-05-006732 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050809 DATE AS OF CHANGE: 20050809 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: 051007783 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 l15411ae10vq.txt DCB FINANCIAL CORP. 10-Q/QUARTER 6-30-05 Page 1 of 29 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: JUNE 30, 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 August 5, 2005, the latest practicable date, 3,873,196 shares of the registrant's no par value common stock were issued and outstanding. DCB FINANCIAL CORP FORM 10-Q QUARTER ENDED JUNE 30, 2005 Table of Contents
Page ---- PART I - FINANCIAL INFORMATION 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...... 19 ITEM 4 - Controls and Procedures ........................................ 20 PART II - OTHER INFORMATION.............................................. 21 SIGNATURES............................................................... 24
DCB FINANCIAL CORP CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) Item 1. Financial Statements
June 30, December 31, 2005 2004 ----------- ------------ (unaudited) ASSETS Cash and due from financial institutions $ 24,294 $ 11,238 Securities available for sale 99,334 98,979 Loans held for sale 2,976 1,122 Loans and leases 524,855 483,305 Less allowance for loan and lease losses (5,370) (4,818) -------- -------- Net loans and leases 519,485 478,487 Premises and equipment, net 8,562 8,846 Bank owned life insurance 8,701 8,457 Accrued interest receivable and other assets 856 4,556 -------- -------- Total assets $664,208 $611,685 ======== ======== LIABILITIES Deposits Noninterest-bearing $ 65,134 $ 65,148 Interest-bearing 443,328 389,426 -------- -------- Total deposits 508,462 454,574 Federal funds purchased and other short-term borrowings 5,087 5,215 Federal Home Loan Bank advances 92,425 95,813 Accrued interest payable and other liabilities 3,307 1,822 -------- -------- Total liabilities 609,281 557,424 SHAREHOLDERS' EQUITY Common stock, no par value, 7,500,000 shares authorized, 4,273,200 shares issued 3,780 3,780 Retained earnings 60,476 57,862 Treasury stock at cost, 400,004 shares at June 30, 2005 and 338,440 at December 31, 2004 (9,232) (7,616) Accumulated other comprehensive income (loss) (97) 235 -------- -------- Total shareholders' equity 54,927 54,261 -------- -------- Total liabilities and shareholders' equity $664,208 $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 Six Months Ended June 30, June 30, ------------------ ----------------- 2005 2004 2005 2004 ------ ------ ------- ------- INTEREST AND DIVIDEND INCOME Loans $7,836 $5,540 $15,053 $11,311 Taxable securities 820 668 1,528 1,401 Tax-exempt securities 188 176 372 363 Federal funds sold and other 2 1 3 7 ------ ------ ------- ------- Total interest income 8,846 6,385 16,956 13,082 INTEREST EXPENSE Deposits 2,178 1,150 3,997 2,389 Borrowings 974 649 1,822 1,209 ------ ------ ------- ------- Total interest expense 3,152 1,799 5,819 3,598 NET INTEREST INCOME 5,694 4,586 11,137 9,484 Provision for loan and lease losses 520 443 990 821 ------ ------ ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 5,174 4,143 10,147 8,663 NONINTEREST INCOME Service charges on deposit accounts 634 654 1,205 1,219 Trust department income 187 140 352 337 Net loss on sale of securities -- -- -- (3) Net loss on sale of assets (20) (40) (32) (63) Gains on sale of loans 122 39 171 68 Gain on sale of unconsolidated affiliate -- 2,638 -- 2,638 Treasury management fees 113 131 215 255 Data processing servicing fees 76 68 148 131 Other 285 244 806 453 ------ ------ ------- ------- 1,397 3,874 2,865 5,035 NONINTEREST EXPENSE Salaries and other employee benefits 2,071 2,078 4,283 4,004 Occupancy and equipment 842 1,018 1,722 1,988 Professional services 88 74 270 139 Advertising 121 100 207 164 Postage, freight and courier 91 91 185 203 Supplies 60 88 125 123 State franchise taxes 107 137 215 264 Other 521 742 992 1,266 ------ ------ ------- ------- 3,901 4,328 7,999 8,151 ------ ------ ------- ------- INCOME BEFORE INCOME TAXES 2,670 3,689 5,013 5,547 Federal income tax expense 786 1,131 1,494 1,683 ------ ------ ------- ------- NET INCOME $1,884 $2,558 $ 3,519 $ 3,864 ====== ====== ======= ======= Basic and diluted earnings per common share $ 0.48 $ 0.65 $ 0.89 $ 0.98 ====== ====== ======= =======
See notes to the consolidated financial statements. DCB FINANCIAL CORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2005 2004 2005 2004 ------ ------- ------ ------ Net income $1,884 $ 2,558 $3,519 $3,864 Less reclassification for realized losses on sale of securities included in operations, net of tax benefit -- -- -- 2 Unrealized losses on securities available for sale, net of tax (332) (1,169) (847) (955) ------ ------- ------ ------ Comprehensive income $1,552 $ 1,389 $2,672 $2,911 ====== ======= ====== ====== Accumulated other comprehensive loss $ (97) $ (203) $ (97) $ (203) ====== ======= ====== ======
See notes to the consolidated financial statements. DCB FINANCIAL CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
Six Months Ended June 30, ------------------- 2005 2004 -------- -------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES Net income for the period $ 3,519 $ 3,864 Gain on sale of unconsolidated affiliate -- (2,638) Increase (decrease) in accrued interest payable and other liabilities 1,485 (4,484) Other operating activities 3,190 1,012 -------- -------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES 8,194 (2,246) CASH FLOWS USED IN INVESTING ACTIVITIES Securities available for sale Purchases (15,353) (23,437) Maturities, principal payments and calls 8,286 10,378 Sales 6,528 21,091 Net change in loans (42,159) (34,020) Proceeds from sale of unconsolidated affiliate -- 4,394 Premises and equipment expenditures (291) (255) -------- -------- Net cash flows used in investing activities (42,989) (21,849) CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Net change in deposits 53,888 (4,774) Net change in federal funds and other short-term borrowings (128) 6,229 Proceeds (repayment) of Federal Home Loan Bank advances (3,388) 23,153 Purchases of treasury stock (1,616) -- Cash dividends paid (905) (1,023) -------- -------- Net cash provided by financing activities 47,851 23,585 -------- -------- Net change in cash and cash equivalents 13,056 (510) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,238 20,349 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,294 $ 19,839 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for Interest on deposits and borrowings $ 5,563 $ 3,610 Cash dividends declared but unpaid $ 472 $ 626
See notes to the consolidated financial statements. 6 DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except per share data) 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 June 30, 2005, and its results of operations and cash flows for the three and six month periods ended June 30, 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 of 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 of the Corporation for the year ended December 31, 2004, 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 share Earnings per common share is net income divided by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed including the dilutive effect of additional potential common shares under stock options.
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Weighted-average common shares outstanding (basic) 3,930,024 3,934,760 3,932,379 3,934,760 Dilutive effect of assumed exercise of stock options 1,950 -- 2,490 -- --------- --------- --------- --------- Weighted-average common shares outstanding (diluted) 3,931,974 3,934,760 3,934,869 3,934,760 ========= ========= ========= =========
For the three and six months ended June 30, 2005, 3,091 options with a weighted average exercise price of $27.50 were excluded from the diluted weighted average common share calculations as the exercise price was greater than the average market price. 7 DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) Stock option plan 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 predetermined 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 granted to employees under the plan, at a price of $23.40. Additionally, during the six month periods ended June 30, 2005, 25,397 shares were granted under the plan at a price ranging from $25.40 to $27.50. Approximately 4,000 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. 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:
Three Months Six Months Ended Ended June 30, June 30, 2005 2005 ------------ ---------- (In thousands, except per share data) NET EARNINGS As reported $1,884 $3,519 Stock-based compensation, net of tax (3) (7) ------ ------ Pro-forma $1,881 $3,512 ====== ====== EARNINGS PER SHARE BASIC As reported $ 0.48 $ 0.89 Stock-based compensation, net of tax -- -- ------ ------ Pro-forma $ 0.48 $ 0.89 ====== ====== DILUTED As reported $ 0.48 $ 0.89 Stock-based compensation, net of tax -- -- ------ ------ Pro-forma $ 0.48 $ 0.89 ====== ======
8 DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) Stock Option Plan (continued) A summary of the status of the Corporation's stock option plan as of June 30, 2005 and December 31, 2004 and changes during the periods then ended are presented below:
Six Months Ended June 30, 2005 ----------------- WEIGHTED AVERAGE EXERCISE SHARES PRICE ------ -------- Outstanding at beginning of year 15,105 $23.40 Granted 25,397 $26.45 Exercised -- -- Forfeited (154) $23.40 ------ ------ Outstanding at end of period 40,348 $24.81 ====== ====== Options exercisable at period end 3,944 $23.40 ====== ====== Weighted-average fair value of options granted during the period $ 3.60 ======
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 granted during the year $ 3.44 ======
The following information applies to options outstanding at June 30, 2005:
NUMBER OUTSTANDING RANGE OF EXERCISE PRICES - ------------------ ------------------------ 40,348 $23.40 - $27.50
9 DCB FINANCIAL CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands) 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. 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 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:
June 30, 2005 ----------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. government and agency obligations $25,759 $ 27 $(215) $25,571 States and municipal obligations 22,475 255 (109) 22,621 Corporate bonds 8,140 6 (40) 8,106 Mortgage-backed securities 39,906 199 (299) 39,806 ------- ---- ----- ------- Total debt securities 96,280 487 (663) 96,104 Other securities 3,201 33 (4) 3,230 ------- ---- ----- ------- Total $99,481 $520 $(667) $99,334 ======= ==== ===== =======
The table below indicates the length of time individual securities have been in a continuous unrealized loss position at June 30, 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 18 $15,949 $(116) 8 $ 6,182 $ (99) 26 $22,131 $(215) State and municipal obligations 12 5,928 (52) 8 3,350 (57) 20 9,278 (109) Corporate bonds -- -- -- 1 2,970 (40) 1 2,970 (40) Mortgage-backed securities and other 50 21,148 (147) 23 7,212 (156) 73 28,360 (303) --- ------- ----- --- ------- ----- --- ------- ----- Total temporarily impaired securities 80 $43,025 $(315) 40 $19,714 $(352) 120 $62,739 $(667) === ======= ===== === ======= ===== === ======= =====
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 recent increases in market interest rates. The fair values are expected to recover as 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 June 30, 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 June 30, 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 $ 4,193 $ 4,175 Due from one to five years 14,512 14,397 Due from five to ten years 13,813 13,809 Due after ten years 23,856 23,917 Mortgage-backed and related securities 39,906 39,806 ------- ------- Total debt securities 96,280 96,104 Other securities 3,201 3,230 ------- ------- Total $99,481 $99,334 ======= =======
NOTE 3 - LOANS AND LEASES Loans and leases were as follows:
June 30, 2005 -------- Commercial and industrial $ 51,084 Commercial real estate 184,821 Residential real estate and home equity 183,799 Real estate construction and land development 43,841 Consumer and credit card 59,305 Lease financing, net 1,003 -------- 523,853 Add (deduct): Net deferred loan origination costs 1,059 Unearned income on leases (57) -------- Total loans receivable $524,855 ========
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 Six months ended June 30, June 30, ------------------ ---------------- 2005 2004 2005 2004 ------ ------ ------ ------ Balance at beginning of period $5,115 $4,411 $4,818 $4,331 Provision for loan losses 520 443 990 821 Loans charged off (321) (332) (515) (688) Recoveries 56 53 77 111 ------ ------ ------ ------ Balance at end of period $5,370 $4,575 $5,370 $4,575 ====== ====== ====== ======
Nonperforming loans were as follows:
June 30, December 31, 2004 2004 -------- ------------ Loans past due 90 days or more and still accruing $1,808 $1,544 Nonaccrual loans 1,962 1,879 ------ ------ Total $3,770 $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 1,721 601 ------ ----- Total $1,721 $ 601 ====== ===== Amount of the allowance for loan losses allocated $ 781 $ 360 ====== ===== Average of impaired loans during the period $1,624 $ 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 June 30, 2005, compared to December 31, 2004, and the consolidated results of operations for the three and six months ended June 30, 2005, compared to the same periods 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. 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. Pursuant to SEC guidance, management of public companies are encouraged to evaluate and disclose those accounting policies that are judged to be critical policies. Critical accounting policies are those which are most critical to the accurate portrayal of the Company's financial condition and results of operations, and that require management's most difficult, subjective or complex judgments. Management of the Company considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy. 14 DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) The procedures for assessing the adequacy of the allowance for loan losses reflect our evaluation of credit risk after careful consideration of all information available to us. In developing this assessment, we must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown such as economic factors, developments affecting companies in specific industries and issues with respect to single borrowers. Depending on changes in circumstances, future assessments of credit risk may yield materially different results, which may require an increase or a decrease in the allowance for loan losses. The allowance is regularly reviewed by management to determine whether the amount is considered adequate to absorb probable losses. This evaluation includes specific loss estimates on certain individually reviewed loans, statistical loss estimates for loan pools that are based on historical loss experience, and general loss estimates that are based upon the size, quality, and concentration characteristics of the various loan portfolios, adverse situations that may affect a borrower's ability to repay, and current economic and industry conditions. Also considered as part of that judgment is a review of the Bank's trends in delinquencies and loan losses, as well as trends in delinquencies and losses for the region and nationally, and economic factors. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses inherent in the loan portfolio. Management's evaluation of the adequacy of the allowance is an estimate based on management's current judgment about the credit quality of the loan portfolio. While the Corporation strives to reflect all known risk factors in its evaluations, judgment errors may occur. ANALYSIS OF FINANCIAL CONDITION The Corporation's assets totaled $664,208 at June 30, 2005, compared to $611,685 at December 31, 2004, an increase of $52,523, or 8.59%. This increase is attributed to the Corporation's ability to continue to capture a growing share of the economic development activity with its geographic region. This is particularly evident within the commercial and residential real estate portfolios. Cash and cash equivalents increased $13,056 from December 31, 2004 to June 30, 2005. The increase in cash and cash equivalents is mainly due to transactional timing issues related to a few large depositors, as management generally attempts to reduce cash equivalents in lieu of higher earning assets. Total securities increased $355, or .36%, from $98,979 at December 31, 2004 to $99,334 at June 30, 2005. The Corporation invests primarily in U.S. Treasury notes, U.S. government agencies, municipal bonds, corporate obligations and mortgage-backed securities. Mortgage-backed securities include Federal Home Loan Mortgage Corporation ("FHLMC"), Government National Mortgage Association ("GNMA") and Federal National Mortgage Association ("FNMA") participation certificates. At June 30, 2005, all securities were designated as available for sale. Management classifies securities as available for sale to provide the Corporation with the flexibility to create funding for the balance sheet as demand warrants. The mortgage-backed securities portfolio, totaling $39,806 at June 30, 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 $41,550, or 8.60%, to $524,855 at June 30, 2005 from $483,305 at December 31, 2004. The increase is attributed mainly to the continued advantageous market and economic growth of commercial and residential real estate, land development and consumer lending categories. Other loan categories in which the Corporation participates 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 $53,888, or 11.85%, to $508,462 at June 30, 2005 from $454,574 at December 31, 2004. Noninterest-bearing deposits decreased $14, or ..02%, while interest-bearing deposits increased $53,902, or 13.84%. This change is mainly attributed to increased deposit activity from the Bank's larger public fund customers. The Bank utilizes a variety of alternative funding sources to compensate for the challenging deposit growth experienced within its markets. 15 DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Utilizing brokered certificates of deposits and money market sweeps, the Bank is able to provide additional funding for the Company's loan portfolios. The somewhat slow growth of core deposits is attributed to the competition in the Bank's geographic area, where the growth of competitors' branch locations had made it increasingly challenging to obtain deposits. Management intends to continue to develop new products, and to monitor the rate structure of its deposit products to encourage the growth within its deposit liabilities. In addition, the Corporation has used other borrowings, generally FHLB borrowings, to fund much of its loan growth. Continued reliance on outside funding rather than deposits could increase the Corporation's overall cost of funds. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004 NET INCOME. Net income for the three months ended June 30, 2005 totaled $1,884, compared to net income of $2,558 for the same period in 2004. Earnings per share was $.48 for the three months ended June 30, 2005 compared to $.65 for the three months ended June 30, 2004. The decrease in earnings is mainly attributed to the sale of the Corporation's investment in ProCentury during the three months ended June 30, 2004, which resulted in a pre-tax gain of $2.6 million. 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 $5,694 for the three months ended June 30, 2005, compared to $4,586 for the same period in 2004. The $1,108 increase in the second quarter 2005 compared to 2004 was mainly attributed to the continued increase in earning assets coupled with the rising interest rate environment over the past year. 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. PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES. The provision for loan and lease losses totaled $520 for the three months ended June 30, 2005, compared to $443 for the same period in 2004. The growth in the provision is reflective of the overall growth in the Corporation's loan portfolio. Non-accrual loans increased to $1.96 million at June 30, 2005 from $1.86 million at the end of the second quarter 2004, though such non-accrual loans decreased as a percentage of outstanding loans from .39% in 2004 to .37% in 2005. Net charge-offs declined to $265 for the three months ended June 30, 2005 from $279 for the same period in 2004. Annualized net charge-offs for the three months ended June 30, 2005 were 21 basis points compared to 26 basis points for the same period in 2004. In addition, delinquent loans over thirty days declined from period to period, measuring 1.37% at June 30, 2005 versus 2.00% at June 30, 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 totaled $5,370, or 1.02% of total loans and leases at June 30, 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 decreased $2,477, or 63.94%, for the three months ended June 30, 2005, compared to the same period in 2004. The decrease was mainly a result of the sale of the Corporation's entire investment in ProCentury Corporation, a specialty property and casualty insurance holding company in April 20, 2004. The gain recognized on the sale of ProCentury investment during the second quarter in 2004 was partially offset by an increase in the volume of loans sold in the secondary market, which is mainly attributed to an advantageous market, coupled with the strong economic growth in Delaware County. In addition, data processing services and transactional volume from the Bank's retail products remained at or slightly higher than the previous year's levels. 16 DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) Total noninterest expense decreased $427, or 9.87%, for the three months ended June 30, 2005, compared to the same period in 2004. The decrease was primarily the result of decreases in occupancy and equipment, supplies, state franchise taxes, and other operating expenses, offset with an increase in advertising mainly related to the Corporation's most recent promotions and professional and consulting services due to expenses incurred related to Section 404 of the Sarbanes-Oxley Act of 2002. INCOME TAXES. The change in income tax expense is primarily attributable to the decrease in net income, coupled with an increase in tax exempt earnings from both municipal securities and bank owned life insurance during the three months ended June 30, 2005 as compared to the same period in 2004. The provision for income taxes totaled $786, for an effective tax rate of 29.44%, for the three months ended June 30, 2005 and $1,131, for an effective tax rate of 30.66%, for the three months ended June 30, 2004. COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004 NET INCOME. Net income for the six months ended June 30, 2005 totaled $3,519, compared to net income of $3,864 for the same period in 2004. Earnings per share was $.89 for the six months ended June 30, 2005 compared to $.98 for the six months ended June 30, 2004. The decrease in earnings is mainly attributed to the sale of the Corporation's investment in ProCentury during the six month period ended June 30, 2004. NET INTEREST INCOME. Net interest income was $11,137 for the six months ended June 30, 2005, compared to $9,484 for the same period in 2004. The $1,653 increase was mainly attributed to the continued increase in earning assets coupled with the rising rate environment during the six month period ended June 30, 2005. However, the Company's net interest margin continues experiencing some pressure as much of the continued loan growth has been funded with borrowings and higher cost deposits. To attract the additional deposits needed to fund loan growth, the Company has utilized products such as time deposits and money market accounts, which generally carry higher costs compared to checking and savings products. These higher cost deposit products and other borrowings may continue to be utilized by Management, which may further negatively impact the net interest margin in future periods. PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES. The provision for loan and lease losses totaled $990 for the six months ended June 30, 2005, compared to $821 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 to $1.96 million at June 30, 2005 from $1.86 million at the end of the second quarter 2004. Net charge-offs improved to $438 for the six months ended June 30, 2005 from $577 for the same period in 2004. Management will continue to monitor the credit quality of the lending portfolio and will continue additional provisioning in the future to maintain the allowance for loan and lease losses at an appropriate level. NONINTEREST INCOME AND NONINTEREST EXPENSE. Total noninterest income decreased $2,170, or 43.10%, for the six months ended June 30, 2005, compared to the same period in 2004. The decrease was mainly a result of the sale of the Corporation's entire investment in ProCentury Corporation, a specialty property and casualty insurance holding company on April 20, 2004. The gain recognized on the sale of ProCentury investment during the second quarter in 2004 was partially offset by an increase in the volume of loans sold in the secondary market in 2005. In addition, data processing services and transactional volume from the Bank's retail products remained at or slightly higher than the previous year's levels. Total noninterest expense decreased $152, or 1.86%, for the six months ended June 30, 2005, compared to the same period in 2004. The decrease was primarily the result of a decline in state franchise taxes, occupancy and equipment expenses due to certain capitalized assets becoming fully depreciated and a decrease in other operating expenses for the six 17 DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) month period ended June 30, 2005. The Corporation's efficiency ratio improved to 57.13% for the six month period ended June 30, 2005 from 59.50% or the same period in 2004. INCOME TAXES. The provision for income taxes totaled $1,494 reflecting an effective tax rate of 29.80% for the six months ended June 30, 2005 and $1,683, or an effective tax rate of 30.34% for the six months ended June 30, 2004. The decline in the effective tax rate period over period is attributed to an increase in tax-exempt revenue derived from tax exempt securities and the earnings on bank-owned life insurance. 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 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 $13,056, or 116.18%, to $24,294 at June 30, 2005 compared to $11,238 at December 31, 2004. Cash and equivalents represented 3.66% of total assets at June 30, 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 relationships to purchase overnight federal funds should the Corporation need to supplement its liquidity needs. The Corporation also has the ability to issue brokered time deposits to supplement deposits raised from its customer base. 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 $666 between December 31, 2004 and June 30, 2005. The increase was primarily due to period earnings of $3,519, offset by the declaration of $942 in dividends and the repurchase of 61,564 shares at $26.25 per share for a total of $1.62 million. On June 17, 2005, DCB Financial Corp announced its Board of Directors has authorized the repurchase of up to 200,000 of its outstanding shares of common stock over a two year period commencing June 16, 2005. The stock repurchase plan authorizes the Company to make repurchases from time to time in the open market or in privately negotiated transactions. On June 16, 2005, prior to this announcement, the Company had 3,934,760 shares of common stock outstanding. On June 30, 2005, 138,436 shares remained available for repurchase under the Corporation's stock repurchase program. 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. 18 DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) The Corporation and its subsidiaries meet all regulatory capital requirements. The ratio of total capital to risk-weighted assets was 11.04% at June 30, 2005, while the Tier 1 risk-based capital ratio was 10.05%. 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 8.13% at June 30, 2005. The following table sets forth the Corporation's obligations and commitments to make future payments under contract as of June 30, 2005.
PAYMENT DUE BY YEAR -------------------------------------------------------- LESS THAN MORE THAN CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS - ----------------------------------- -------- --------- --------- --------- --------- FHLB advances $ 92,425 $ 5,000 $23,435 $5,290 $58,700 Federal funds purchased and other short-term borrowings 5,087 5,087 -- -- -- Operating lease obligations 5,387 354 1,216 692 3,125 Loan and line of credit commitments 117,810 117,810 -- -- -- Other long-term liabilities reflected on the Corporation's balance sheet under GAAP -- -- -- -- -- -------- -------- ------- ------ ------- Total contractual obligations $220,709 $128,251 $24,651 $5,982 $61,825 ======== ======== ======= ====== =======
In the opinion of management, all loan commitments equal or exceed market rates of interest at June 30, 2005. 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. 19 DCB FINANCIAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share data) 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 decline, fewer liabilities could be repriced down to offset potentially lower yields on loans. Thus interest rate 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. 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 June 30, 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 June 30, 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 June 30, 2005, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 20 DCB FINANCIAL CORP FORM 10-Q Quarter ended June 30, 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: ISSUER PURCHASES OF EQUITY SECURITIES
(C) (D) TOTAL NUMBER OF MAXIMUM NUMBER (OR SHARES (OR UNITS) APPROXIMATE DOLLAR (A) (B) PURCHASED AS PART VALUE) OF SHARES (OR TOTAL NUMBER OF AVERAGE PRICE OF PUBLICLY UNITS) THAT MAY YET SHARES (OR PAID PER SHARE ANNOUNCED PLANS OR BE PURCHASED UNDER PERIOD UNITS) PURCHASED (OR UNIT) PROGRAMS(1) THE PLANS OR PROGRAMS - ----------- ---------------- --------------- ------------------ --------------------- Month #l 4/1/2005 to 4/30/2005 -- -- -- -- Month #2 5/1/2005 to 5/31/2005 -- -- -- -- Month #3 6/1/2005 to 6/30/2005 61,564 $26.25 61,564 138,436 ------ ------ ------ ------- Total 61,564 $26.25 61,564 138,436 ====== ====== ====== =======
(1) On June 17, 2005, the Company announced a repurchase program which authorizes the repurchase of up to 200,000 of its common shares over a two year period commencing June 16, 2005. 21 DCB FINANCIAL CORP FORM 10-Q Quarter ended June 30, 2005 PART II - OTHER INFORMATION 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: At the Annual Meeting of Shareholders held on May 19, 2005, there were 2,821,490 voting shares present in person or by proxy, which represented 72% of the Corporation's outstanding shares of 3,934,760 as of the record date for the meeting. At the Annual Meeting, one proposal was submitted to the shareholders for a vote. The shareholders of the Corporation were asked to consider the Corporation's nominees for directors and to elect three (3) directors to serve for a term of three (3) years. The Corporation's nominees for director were: Jerome Harmeyer, Vicki J. Lewis, and William R. Oberfield, each of whom were elected. The results of shareholder voting are as follows on these matters: Proposal 1 - Election of Directors:
Director Votes for Votes withheld - -------------------- --------- -------------- Jerome Harmeyer 2,806,206 15,284 Vicki J. Lewis 2,798,398 23,092 William R. Oberfield 2,801,229 20,261
Directors continuing in office are: Jeffrey T. Benton, Edward Powers, Gary M. Skinner, and Adam Stevenson, and Donald J. Wolf. 22 DCB FINANCIAL CORP FORM 10-Q Quarter ended June 30, 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 Code of Regulations 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.) 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
23 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: August 5, 2005 /s/ Jeffrey Benton ------------------------------------------ (Signature) Jeffrey Benton President and Chief Executive Officer Date: August 5, 2005 /s/ John A. Ustaszewski ------------------------------------------ (Signature) John A. Ustaszewski Vice President and Chief Financial Officer 24 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 Code of Regulations 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.) 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.
25 EX-31.1 2 l15411aexv31w1.txt EX-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 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 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: August 5, 2005 /s/ Jeffrey Benton ---------------------------------------- (Signature) Jeffrey Benton Title: President and Chief Executive Officer 26 EX-31.2 3 l15411aexv31w2.txt EX-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 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 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: August 5, 2005 /s/ John A. Ustaszewski ---------------------------------------- (Signature) John A. Ustaszewski Title: Vice President and Chief Financial Officer 27. EX-32.1 4 l15411aexv32w1.txt EX-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 August 5, 2005 28 EX-32.2 5 l15411aexv32w2.txt EX-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 August 5, 2005 29 -----END PRIVACY-ENHANCED MESSAGE-----