<PAGE> 1
Page 1 of 19
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, 1997
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)
41 North Sandusky Street, Delaware, Ohio 43015
----------------------------------------------
(Address of principal executive offices)
(614) 363-1133
------------------------------
(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.
X Yes No
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common stock, no par value Outstanding at May 5, 1997:
4,273,200 common shares
<PAGE> 2
DCB FINANCIAL CORP.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
Table of Contents
Part I - Financial Information
ITEM 1 - FINANCIAL STATEMENTS Page
----
Consolidated Balance Sheets............................................. 3
Consolidated Statements of Income....................................... 4
Condensed Consolidated Statements of Changes in
Shareholders' Equity............................................... 5
Condensed Consolidated Statements of Cash Flows......................... 6
Notes to the Consolidated Financial Statements.......................... 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 13
Part II - Other Information
Other Information....................................................... 17
Signatures ........................................................... 18
<PAGE> 3
DCB FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and noninterest-bearing deposits with banks $ 15,024 $ 14,109
Federal funds sold 8,550 18,250
--------- --------
Total cash and cash equivalents 23,574 32,359
Securities available for sale, at fair value (Note 2) 50,307 47,174
Securities held to maturity (Estimated fair values of $33,260 in
1997 and $32,171 in 1996) (Note 2) 33,212 31,871
Bankers acceptances 4,956
Total loans (Note 3) 212,244 203,592
Allowance for loan losses (Note 4) 1,921 1,923
--------- --------
Net loans 210,323 201,669
Premises and equipment, net 2,779 2,704
Accrued interest receivable and other assets 3,546 3,340
--------- --------
Total assets $ 328,697 $319,117
========= ========
LIABILITIES
Deposits
Noninterest-bearing $ 46,984 $ 43,789
Interest-bearing 239,854 235,302
--------- --------
Total deposits 286,838 279,091
Short-term borrowings 7,115 6,546
Accrued interest payable and other liabilities 1,620 901
--------- --------
Total liabilities 295,573 286,538
SHAREHOLDERS' EQUITY
Common stock 3,779 1,424
Additional paid-in capital 2,355
Retained earnings 29,377 28,682
Unrealized gain (loss) on securities available for sale (32) 118
--------- --------
Total shareholders' equity 33,124 32,579
--------- --------
Total liabilities and shareholders' equity $ 328,697 $319,117
========= ========
</TABLE>
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
3.
<PAGE> 4
DCB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
(Dollars in thousands, except per share data) 1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 4,725 $ 4,356
Securities
Taxable 1,316 849
Nontaxable 83 86
Other 167 323
---------- -----------
Total interest income 6,291 5,614
---------- -----------
INTEREST EXPENSE
Deposits 2,800 2,334
Other 87 20
---------- -----------
Total interest expense 2,887 2,354
---------- -----------
NET INTEREST INCOME 3,404 3,260
Provision for loan losses 96 16
---------- -----------
NET INTEREST INCOME AFTER PROVISION 3,308 3,244
OTHER INCOME
Service charges on deposit accounts 279 275
Data service fees 77 62
Other operating income 366 325
Gain (loss) on sale of securities 8 (1)
Loan sale gains 47 32
---------- -----------
Total other income 777 693
OTHER EXPENSE
Salaries and employee benefits 1,211 1,132
Occupancy expense 197 152
Equipment expense 182 148
Loan, lease and credit card expense 110 121
Stationary and supplies expense 89 71
Ohio franchise tax expense 123 106
Other operating expenses 395 382
---------- -----------
Total other expenses 2,307 2,112
---------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 1,778 1,825
Provision for income taxes 584 586
---------- -----------
NET INCOME $ 1,194 $ 1,239
========== ===========
EARNINGS PER COMMON SHARE (NOTE 1) $ 0.28 $ 0.29
========== ===========
Weighted average shares outstanding (Note 1) 4,273,200 4,273,200
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
4.
<PAGE> 5
DCB FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
(Dollars in thousands, except per share data) 1997 1996
-------- --------
<S> <C> <C>
Balance at beginning of period $32,579 $28,694
Net income 1,194 1,239
Dividends declared ($.1167 per share in 1997 and
$.1067 per share in 1996) (499) (456)
Change in unrealized gain/loss on
securities available for sale, net of tax (150) (122)
-------- --------
Balance at end of period $33,124 $29,355
======== ========
</TABLE>
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
5.
<PAGE> 6
DCB FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
---------
(Dollars in thousands) 1997 1996
---- ----
NET CASH FROM OPERATING ACTIVITIES $ 1,518 $ 1,107
INVESTING ACTIVITIES
Securities available for sale
Purchases (10,618) (7,438)
Maturities and repayments 3,630 1,621
Proceeds from sales 3,557
Securities held to maturity
Purchases (14,920) (23,465)
Maturities and repayments 13,595 13,816
Net change in bankers' acceptances (4,956) (2,468)
Net change in loans (8,417) (4,415)
Premises and equipment expenditures (192) (59)
Proceeds from sale of other real estate 201
-------- --------
Net cash from investing activities (18,120) (22,408)
-------- --------
FINANCING ACTIVITIES
Net change in deposits 7,747 14,788
Net change in short-term borrowings 569 1,395
Repayment of long-term debt (5)
Cash dividends paid (499) (456)
-------- --------
Net cash from financing activities 7,817 15,722
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (8,785) (5,579)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,359 36,179
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,574 $ 30,600
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for income taxes $ 0 $ 0
Cash paid for interest 2,792 2,307
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
6.
<PAGE> 7
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of DCB
Financial Corp. ("the Company or DCB") and its wholly owned subsidiary, The
Delaware County Bank and Trust Company (the "Bank"), and the Bank's wholly-owned
subsidiaries, DCB Corporation and 362 Corp. All material intercompany accounts
and transactions have been eliminated in consolidation.
On February 26, 1997, shareholders of the Bank approved the formation of a
holding company, DCB. The formation of DCB took place on March 14, 1997 through
an exchange of three DCB common shares (no par value) for each share of the
Bank. This internal reorganization was accounted for similar to a pooling of
interests, whereby the historical carrying values of the Bank's assets and
liabilities were carried forward to the consolidated financial statements.
These interim financial statements are prepared without audit and reflect all
adjustments of a normal recurring nature that, in the opinion of management, are
necessary to present fairly the consolidated financial position of DCB at March
31, 1997, and its results of operations and cash flows for the periods
presented. The accompanying consolidated financial statements do not purport to
contain all the necessary financial disclosures required by generally accepted
accounting principles that might otherwise be necessary in the circumstances.
The Annual Report for DCB for the year ended December 31, 1996 contains
consolidated financial statements and related notes that should be read in
conjunction with the accompanying consolidated financial statements. The results
of operations for the interim periods reported herein are not necessarily
indicative of operations to be expected for the entire year.
ACCOUNTING PRONOUNCEMENTS: Effective January 1, 1997, Statement of Financial
Accounting Standards (SFAS) No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, provides guidance as to the
accounting and financial reporting for transfers and servicing of financial
assets and extinguishments of liabilities. SFAS No. 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. While SFAS No. 125 supersedes SFAS No. 122, Accounting
for Mortgage Servicing Rights, it only marginally modifies the accounting and
disclosure requirements of SFAS No. 122, which was adopted in 1996. The adoption
of SFAS No. 125 did not have a material impact on DCB's financial statements on
January 1, 1997.
INCOME TAXES: The provision for income taxes is based upon the effective income
tax rate expected to be applicable for the entire year.
EARNINGS AND DIVIDENDS PER SHARE: Earnings per common share is based on the
weighted average number of common shares outstanding during the periods
presented. All per share data has been restated to reflect the shares issued in
the internal reorganization discussed above. The weighted average number of
shares outstanding was 4,273,200 for all periods presented.
- --------------------------------------------------------------------------------
(Continued)
7.
<PAGE> 8
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of the securities, as presented in the consolidated balance sheet are as
follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Debt securities
U.S. Treasury securities $ 5,544 $ 10 $ (11) $ 5,543
Obligations of U.S. government
corporations and agencies 30,575 36 (99) 30,512
Obligations of states and
political subdivisions 203 (12) 191
Mortgage-backed securities 12,383 73 (24) 12,432
------- ----- ----- -------
Total debt securities 48,705 119 (146) 48,678
Equity securities 1,652 9 (32) 1,629
------- ----- ----- -------
Total securities available
for sale $50,357 $ 128 $(178) $50,307
======= ===== ===== =======
HELD TO MATURITY
Obligations of states and
political subdivisions $ 6,274 $ 165 $ (41) $ 6,398
Corporate obligations 2,225 11 (6) 2,230
Mortgage-backed securities 24,713 59 (140) 24,632
------- ----- ----- -------
Total debt securities
held to maturity $33,212 $ 235 $(187) $33,260
======= ===== ===== =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Debt securities
U.S. Treasury securities $ 5,483 $ 35 $ $ 5,518
Obligations of U.S. government
corporations and agencies 28,238 139 (11) 28,366
Obligations of states and
political subdivisions 203 (10) 193
Mortgage-backed securities 11,421 69 (10) 11,480
------- ----- ----- -------
Total debt securities 45,345 243 (31) 45,557
Equity securities 1,652 9 (44) 1,617
------- ----- ----- -------
Total securities available
for sale $46,997 $ 252 $ (75) $47,174
======= ===== ===== =======
HELD TO MATURITY
Obligations of states and
political subdivisions $ 5,946 $ 191 $ (30) $ 6,107
Corporate obligations 2,230 20 (5) 2,245
Mortgage-backed securities 23,695 172 (48) 23,819
------- ----- ----- -------
Total debt securities
held to maturity $31,871 $ 383 $ (83) $32,171
======= ===== ===== =======
</TABLE>
Gross sales of securities during the first quarter 1997 were $3,557,000. Gross
realized gains totaled $9,000 and gross realized losses totaled $1,000. No
securities were sold during the first quarter in 1996. Losses on calls during
the first quarter 1996 totaled $1,000.
- --------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 10
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair values of investments in debt securities
at March 31, 1997, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because certain borrowers may have the
right to call or prepay the debt obligations prior to their contractual
maturities.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
(Dollars in thousands) Cost Value
---- -----
<S> <C> <C>
AVAILABLE FOR SALE
Debt securities
Due in one year or less $ 1,600 $ 1,606
Due in one to five years 16,282 16,256
Due in five to ten years 17,406 17,380
Due after ten years 1,034 1,004
Mortgage-backed securities 12,383 12,432
------- -------
Total debt securities available for sale $48,705 $48,678
======= =======
HELD TO MATURITY
Due in one year or less $ 1,591 $ 1,596
Due in one to five years 4,256 4,267
Due in five to ten years 2,127 2,215
Due after ten years 525 550
Mortgage-backed securities 24,713 24,632
------- -------
Total debt securities held to maturity $33,212 $33,260
======= =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
10.
<PAGE> 11
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
(Dollars in thousands)
Loans secured by real estate:
Real estate construction $ 26,211 $ 23,489
Residential 46,779 47,006
Commercial and farmland 51,002 45,487
Commercial and industrial 36,774 36,836
Consumer and credit card 38,429 38,269
Lease financing, net 6,885 6,759
Home equity lines of credit 6,164 5,746
-------- --------
Total loans $212,244 $203,592
======== ========
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the three months
ended March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(Dollars in thousands)
Balance - January 1 $ 1,923 $ 1,940
Loans charged off (127) (100)
Recoveries 29 22
Provision for loan losses 96 16
------- -------
Balance - March 31 $ 1,921 $ 1,878
======= =======
</TABLE>
Information regarding impaired loans at March 31, 1997 and December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Balance of impaired loans $140 $ 41
Less portion for which no allowance for loan
losses is allocated 0 0
---- ---
Portion of impaired loan balance for which
an allowance for credit losses is allocated $140 $41
==== ===
Portion of allowance for loan losses allocated
to the impaired loan balance $127 $14
==== ===
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 12
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Information regarding impaired loans is as follows for the quarter ended March
31, 1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Average investment in impaired loans $73 $475
Interest income recognized on impaired loans
including interest income recognized on cash
basis 9 None
Interest income recognized on impaired loans on
cash basis None None
</TABLE>
NOTE 5 - CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
The Bank grants residential, consumer, and commercial loans to customers located
primarily in Delaware, Union and surrounding counties in Ohio. Most loans are
secured by specific items of collateral including business assets, consumer
assets and residences.
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet financing needs of its customers. The contract
amount of these instruments are not included in the consolidated financial
statements. At March 31, 1997 and December 31, 1996, the contract amount of
these instruments, which primarily include commitments to extend credit and
standby letters of credit, totaled approximately $49,896,000 and $47,067,000,
respectively. Of these commitments, fixed rate commitments totaled $2,183,000
and $3,163,000 at March 31, 1997 and December 31, 1997, respectively. Since many
commitments to make loans expire without being used, the amount does not
represent future cash commitments.
The exposure to credit loss in the event of nonperformance by the other party to
the financial instrument for commitments to make loans and lines and letters of
credit is represented by the contractual amount of those instruments. DCB
follows the same credit policy to make such commitments as is followed for those
loans recorded in the financial statements. In management's opinion, these
commitments represent normal banking transactions and no material losses are
expected to result therefrom. Collateral obtained upon exercise of the
commitments is determined using management's credit evaluations of the borrower
and may include real estate and/or business or consumer assets.
- --------------------------------------------------------------------------------
12.
<PAGE> 13
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
INTRODUCTION
The following discussion focuses on the consolidated financial condition of DCB
Financial Corp. (the Company) at March 31, 1997, compared to December 31, 1996,
and the consolidated results of operations for the quarterly period ending March
31, 1997 compared to the same period in 1996. The purpose of this discussion is
to provide the reader with a more thorough understanding of the consolidated
financial statements. This discussion should be read in conjunction with the
interim consolidated financial statements and related footnotes.
The registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities that would
have such effect if implemented. The Company cautions that any forward looking
statements contained in this report, in a report incorporated by reference to
this report or made by management of the Company involves risks and
uncertainties and are subject to change based on various important factors.
Actual results could differ materially from those expressed or implied.
Additionally, the Company claims no notification responsibilities should their
opinions change from those expressed herein.
FINANCIAL CONDITION
Total assets increased to $328,697 at March 31, 1997 compared to $319,117 at
December 31, 1996, an increase of 3%. The growth is the result of strong market
demand in both loans and deposits.
Cash and cash equivalents decreased $8,785, from $32,359 to $23,574 during the
first quarter 1997. Cash was invested into higher earning loans and securities.
Cash and equivalents at March 31, 1997 represented 7% of total assets. The
Company has the ability to borrow up to approximately $21,000 from the Federal
Home Loan Bank and has various fed fund lines, should it need to supplement its
liquidity needs due to loan demand or investment opportunities.
Total investment securities increased $4,474 from $79,045 to $83,519. Proceeds
from maturities, sales and repayments were used to purchase new securities. Two
securities were called by issuer with minimal loss. The Company purchases
primarily U.S. Treasury Notes, U.S. Agency bonds, municipal bonds and
mortgage-backed securities.
The Company purchased a bankers' acceptance during the first quarter of 1997 to
match a large public deposit of like amount and term.
- --------------------------------------------------------------------------------
(Continued)
13.
<PAGE> 14
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Loan growth continued to be strong as total loans increased 4.2%, or $8,652 from
$203,592 to $212,244. Growth was seen in nearly all categories; however, the
largest increases were seen in real estate loans. Construction loans, both
residential and commercial, increased $2,722 or 11.6%, from December 31, 1996 to
March 31, 1997. Strong population growth in the Company's market along with good
weather conditions contributed to the increase.
The commercial and agricultural real estate portfolio grew $5,515 from $45,487
to $51,002, or 12.1%. Again, the Company has been able to take advantage of a
strong local economy and the large number of businesses moving into the market.
Lending is not concentrated into any one industry.
The gross loan to deposit ratio increased from 73% at December 31, 1996 to 74%
at March 31, 1997 as loans grew at a slightly higher rate than deposits.
The allowance for loan losses remained relatively unchanged. As a percent of
loans, the reserve decreased from .94% of gross loans to .91%. Loans past due 90
days, plus loans on nonaccrual status were $990, or .49% of gross loans at
December 31, 1996 compared to $658, or .31% at March 31, 1997. These
nonperforming loans have been considered in management's analysis of the
allowance for loan losses. The allowance was 292% of nonperforming loans at
March 31, 1997 compared to 194% at December 31, 1996.
Total deposits increased 2.8%, or $7,747 from $279,091 at December 31, 1996 to
$286,838 at March 31, 1997. This increase was made up of an increase of $3,195
(7.3%) in noninterest-bearing deposits and an increase of $4,552 (1.9%) in
interest-bearing deposits. Management believes this deposit growth is fairly
permanent as it is comprised almost equally of public and private funds.
Short-term borrowings consist primarily of a $5,000 advance from the Federal
Home Loan Bank. The Company borrowed the funds in the fall of 1996 to fund
delayed construction loan advances, due to a wet spring and summer in 1996.
Construction loan repayments were reinvested in other loans and management
elected to renew the advance. Repayment or renewal terms will be evaluated at
next maturity.
Total shareholders' equity increased $545 due primarily to earnings retained,
offset by increased dividends paid during the quarter of $499 and an after-tax
market value decrease in the available-for-sale securities portfolio of $150.
Beginning in May 1997, the Company plans to make quarterly dividend payments.
The components of shareholders' equity changed during the quarter with the
formation of the holding company. Shareholders of The Delaware County Bank &
Trust Company (the "Bank") received three shares of Company stock, no par value,
for each share of Bank stock owned, which carried a $1 par value. This exchange
resulted in the reclassification of
- --------------------------------------------------------------------------------
(Continued)
14.
<PAGE> 15
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
additional paid-in capital to common stock. The holding company was formed to
allow management to pursue other forms of financial services or acquisitions of
full service banking operations or branches of other organizations.
The Company and its subsidiary meet all regulatory capital requirements. Its
ratio of total capital to risk-weighted assets was 15.5% at March 31, 1997,
while its Tier 1 risk-based capital ratio was 14.7%. Regulatory minimums call
for a total risk-based capital ratio of 8%, at least half of which must be Tier
1 capital. The Company's leverage ratio of 10.1% at March 31, 1997 exceeded the
regulatory minimum of 3% to 5%.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997 was $1,194, a $45 decrease
from the same period in 1996. Earnings per share, adjusted to reflect the
three-for-one stock split, was $0.28 per share for the period ending March 31,
1997 compared to $0.29 per share for the three months ending March 31, 1996.
Total interest income increased $677 to $6,291 for the first quarter 1997
compared to $5,614 for the first quarter 1996, a 12.1% increase. Increases were
seen in both interest on loans and investments. The increase in loan interest
income is due to volume, as competitive pressures have kept yields from
increasing. The increase in the investment portfolio is due to both rate and
volume increases.
Net interest income increased to $3,404 through March 31, 1997 compared to
$3,260 through March 31, 1996, an increase of $144 or 4.4%. Interest expense on
deposits increased $466, or nearly 20%, over the same period in 1996. The
increased expense is due to both deposit growth and an increase in rates.
Management has elected to offer attractive, competitive rates to retain
deposits, provided the funds can be invested in income earning assets with
adequate yields. Other interest expense also increased from $20 to $87, due to
increased short-term borrowings.
The provision for loan losses increased to $96 for the first three months of
1997 from $16 for the first three months of 1996. The increased provision was
needed to maintain adequate reserves due to loan growth, as indicators of loan
portfolio quality remain relatively stable.
Total other income increased $84, or 12.1%, in the first quarter 1997 over the
first quarter 1996. The increase is due to increased fee income from the
Company's data service center, increased gains on loan sales (both
service-released and service-retained), and increased cash management fee
income.
- --------------------------------------------------------------------------------
(Continued)
15.
<PAGE> 16
DCB FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
Other expenses increased $195, or 9.2%, in the first quarter 1997 compared to
the first quarter 1996. Increases were primarily experienced in human resource
expenses, occupancy expense and equipment expense, where increases totaled $158.
These were planned increases relating to facilities and branch improvements and
additions. During the first quarter 1997, the Company moved most of its
operations to a new leased facility. Other departmental moves to the new
facility are planned as space becomes available. Once this additional space is
fully occupied by the Company, annual lease expense will be approximately $80.
Management believes the expansion of the Company's operations facilities was
necessary to support growth. The Company is also planning the opening of two new
branches, which will also be leased facilities. The first branch is scheduled to
open in June 1997 and the second is planned for the last quarter of 1997. The
two new branches are strategically located in areas of Delaware County currently
experiencing strong population growth rates. With its broad line of products and
services, the Company can meet the needs of the market, obtain the business
needed to sustain the new branches and contribute to overall profitability.
Total annual lease expense related to the new branches is anticipated to be
approximately $170.
The provision for income taxes remained stable at $584 for the three months
ended March 31, 1997, compared to $586 for the same period in 1996. Effective
tax rates were 32.8% and 32.1% for 1997 and 1996, respectively.
FUTURE ACCOUNTING CHANGES
In March 1997, the accounting requirements for calculating earnings per share
were revised. Basic earnings per share for 1997 and later will be calculated
solely on average common shares outstanding. Diluted earnings per share will
reflect potential dilution from common stock equivalents, such as stock options.
Since the Company currently has no common stock equivalents, the new calculation
method will not impact its earnings per share.
- --------------------------------------------------------------------------------
(Continued)
16.
<PAGE> 17
DCB FINANCIAL CORP.
FORM 10-Q
Quarter ended March 31, 1997
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities:
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:
A special meeting of the shareholders of The Delaware County Bank
and Trust Company (the "Bank") was held on February 26, 1997 to
vote upon the formation of a holding company, DCB Financial Corp.
(the "Company"), with shareholders of the Bank receiving three
shares of Company stock for each share of Bank stock held by
them. Votes were as follows: For - 1,160,555; Against - 9,761;
Abstentions - 644.
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibit 10, Material Contracts, is contained in Form 8-B
previously filed with the SEC on April 15, 1997.
Exhibit 11, Statement re: computation of per share
earnings. (Reference is hereby made to Consolidated
Statements of Income on page 4, hereof.)
Exhibit 27, Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
- --------------------------------------------------------------------------------
17.
<PAGE> 18
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: /s/ Larry D. Coburn
------------------------- --------------------------------
(Signature)
Larry D. Coburn
President and Chief Executive Officer
Date: /s/ Marcy H. Niendam
------------------------- --------------------------------
(Signature)
Marcy H. Niendam
V.P./Controller
- --------------------------------------------------------------------------------
18.
<PAGE> 19
DCB FINANCIAL CORPORATION
Index to Exhibits
- --------------------------------------------------------------------------------
Exhibit 11, Statement re: computation of per share earnings. (Reference is
hereby made to Consolidated Statements of Income on page 4, hereof.)
Exhibit 27, Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,024
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 50,307
<INVESTMENTS-CARRYING> 33,212
<INVESTMENTS-MARKET> 33,260
<LOANS> 212,244
<ALLOWANCE> 1,921
<TOTAL-ASSETS> 328,697
<DEPOSITS> 286,838
<SHORT-TERM> 7,115
<LIABILITIES-OTHER> 1,620
<LONG-TERM> 0
<COMMON> 3,779
0
0
<OTHER-SE> 29,345
<TOTAL-LIABILITIES-AND-EQUITY> 328,697
<INTEREST-LOAN> 4,725
<INTEREST-INVEST> 1,399
<INTEREST-OTHER> 167
<INTEREST-TOTAL> 6,291
<INTEREST-DEPOSIT> 2,800
<INTEREST-EXPENSE> 2,887
<INTEREST-INCOME-NET> 3,404
<LOAN-LOSSES> 96
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 2,307
<INCOME-PRETAX> 1,778
<INCOME-PRE-EXTRAORDINARY> 1,194
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,194
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 4.38
<LOANS-NON> 535
<LOANS-PAST> 123
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,474
<ALLOWANCE-OPEN> 1,923
<CHARGE-OFFS> 127
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 1,921
<ALLOWANCE-DOMESTIC> 1,571
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 350
</TABLE>
