<PAGE> 1
Page 1 of 22
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, 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 July 31, 1997:
4,273,200 common shares
<PAGE> 2
DCB FINANCIAL CORP.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
Table of Contents
PART I - FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Item 1 - Financial Statements Page
----
<S> <C>
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
Item 3 - Quantitative and Qualitative Disclosure About Market Risk.......................................... 16
PART II - OTHER INFORMATION................................................................................. 17
SIGNATURES.................................................................................................. 19
</TABLE>
<PAGE> 3
DCB FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
Item 1. Financial Statements
--------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and noninterest-bearing deposits with banks $ 17,135 $ 14,109
Federal funds sold 5,150 18,250
------------ ------------
Total cash and cash equivalents 22,285 32,359
Securities available for sale, at fair value 52,448 47,174
Securities held to maturity (Estimated fair values of $31,752 in
1997 and $32,171 in 1996) 31,483 31,871
Bankers acceptances 1,982
Commercial paper 11,868
Total loans 215,215 203,592
Allowance for loan losses 1,962 1,923
------------ ------------
Net loans 213,253 201,669
Premises and equipment, net 3,389 2,704
Accrued interest receivable and other assets 3,639 3,340
------------ ------------
Total assets $ 340,347 $ 319,117
============ ============
LIABILITIES
Deposits
Noninterest-bearing $ 48,999 $ 43,789
Interest-bearing 249,065 235,302
------------ ------------
Total deposits 298,064 279,091
Short-term borrowings 7,000 6,546
Accrued interest payable and other liabilities 1,078 901
------------ ------------
Total liabilities 306,142 286,538
SHAREHOLDERS' EQUITY
Common stock, no par value, 7,500,000 shares authorized,
4,273,200 shares issued 3,779 1,424
Additional paid-in capital 2,355
Retained earnings 30,343 28,682
Unrealized gain on securities available for sale 83 118
------------ ------------
Total shareholders' equity 34,205 32,579
------------ ------------
Total liabilities and shareholders' equity $ 340,347 $ 319,117
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
3
<PAGE> 4
DCB FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 4,872 $ 4,358 $ 9,597 $ 8,714
Securities
Taxable 1,267 1,086 2,583 1,935
Nontaxable 88 93 171 179
Commercial paper 81 81
Other 99 165 266 488
-------- -------- -------- --------
Total interest income 6,407 5,702 12,698 11,316
INTEREST EXPENSE
Deposits 2,868 2,365 5,668 4,699
Other 88 18 175 38
-------- -------- -------- --------
Total interest expense 2,956 2,383 5,843 4,737
-------- -------- -------- --------
NET INTEREST INCOME 3,451 3,319 6,855 6,579
Provision for loan losses 96 180 192 196
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION 3,355 3,139 6,663 6,383
OTHER INCOME
Service charges on deposit accounts 279 302 558 577
Data service fees 65 48 142 110
Other operating income 390 313 756 638
Gain (loss) on sale of securities 1 (1) 9 (2)
Gain on sale of loans 45 36 92 68
-------- -------- -------- --------
Total other income 780 698 1,557 1,391
OTHER EXPENSE
Salaries and employee benefits 1,236 1,078 2,447 2,210
Occupancy expense 185 163 382 315
Equipment expense 201 147 383 295
Loan, lease and credit card expense 61 38 171 159
Stationary and supplies expense 80 60 169 131
Ohio franchise tax expense 134 105 257 211
Other operating expenses 507 509 902 891
-------- -------- -------- --------
Total other expenses 2,404 2,100 4,711 4,212
-------- -------- -------- --------
INCOME BEFORE FEDERAL INCOME TAXES 1,731 1,737 3,509 3,562
Provision for income taxes 552 554 1,136 1,140
-------- -------- -------- --------
NET INCOME $ 1,179 $ 1,183 $ 2,373 $ 2,422
======== ======== ======== ========
EARNINGS PER COMMON SHARE $ 0.28 $ 0.28 $ 0.56 $ 0.57
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
4.
<PAGE> 5
DCB FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 33,124 $ 29,355 $ 32,579 $ 28,694
Net income 1,179 1,183 2,373 2,422
Dividends declared ($.05 and $.1667 per
share in 1997 and $.1067 per share in 1996) (214) (712) (456)
Change in unrealized gain/loss on
securities available for sale, net of tax 116 (191) (35) (313)
-------- -------- -------- --------
Balance at end of period $ 34,205 $ 30,347 $ 34,205 $ 30,347
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
5.
<PAGE> 6
DCB FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1997 1996
---- ----
<S> <C> <C>
NET CASH FROM OPERATING ACTIVITIES $ 2,586 $ 3,000
INVESTING ACTIVITIES
Securities available for sale
Purchases (16,776) (17,565)
Maturities and repayments 5,671 6,122
Proceeds from sales 5,666 2,509
Securities held to maturity
Purchases (16,073) (36,889)
Maturities and repayments 16,422 31,454
Net change in bankers' acceptances (1,982) (8,944)
Net change in commercial paper (11,868)
Net change in loans (11,705) (15,007)
Premises and equipment expenditures (931) (189)
Proceeds from sale of other real estate 201
-------- --------
Net cash from investing activities (31,375) (38,509)
-------- --------
FINANCING ACTIVITIES
Net change in deposits 18,973 22,165
Net change in short-term borrowings 454 1,492
Repayment of long-term debt (11)
Cash dividends paid (712) (456)
-------- --------
Net cash from financing activities 18,715 23,190
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (10,074) (12,319)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,359 36,179
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,285 $ 23,860
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for income taxes $ 1,165 $ 1,110
Cash paid for interest 5,653 4,739
</TABLE>
- --------------------------------------------------------------------------------
See notes to the consolidated financial statements.
6.
<PAGE> 7
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
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 June
30, 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 or subsequent periods.
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 prior 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)
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair values
of the securities presented in the consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
June 30, 1997
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Debt securities
U.S. Treasury securities $ 5,544 $ 9 $ (1) $ 5,552
Obligations of U.S. government
corporations and agencies 31,824 78 (36) 31,866
Obligations of states and
political subdivisions 203 (6) 197
Mortgage-backed securities 12,969 106 (13) 13,062
----------- ---------- --------- -----------
Total debt securities 50,540 193 (56) 50,677
Equity securities 1,783 9 (21) 1,771
----------- ---------- --------- -----------
Total securities available
for sale $ 52,323 $ 202 $ (77) $ 52,448
=========== ========== ========= ===========
HELD TO MATURITY
Obligations of states and
political subdivisions $ 6,360 $ 191 $ (25) $ 6,526
Corporate obligations 1,870 11 (4) 1,877
Mortgage-backed securities 23,253 132 (36) 23,349
----------- ---------- --------- -----------
Total debt securities
held to maturity $ 31,483 $ 334 $ (65) $ 31,752
=========== ========== ========= ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
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 half of 1997 were $5,666. Gross
realized gains totaled $13 and gross realized losses totaled $3. Losses on
called securities totaled $1.
Gross sales of securities during the first half of 1996 were $2,509. Gross
realized gains totaled $1 and gross realized losses totaled $1. Losses on called
securities totaled $3.
- --------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 10
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
The amortized cost and estimated fair values of investments in debt securities
at June 30, 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
Cost Value
---- -----
<S> <C> <C>
AVAILABLE FOR SALE
Debt securities
Due in one year or less $ 2,233 $ 2,241
Due in one to five years 16,713 16,732
Due in five to ten years 17,595 17,628
Due after ten years 1,030 1,014
Mortgage-backed securities 12,969 13,062
---------- -----------
Total debt securities available for sale $ 50,540 $ 50,677
========== ===========
HELD TO MATURITY
Due in one year or less $ 1,748 $ 1,755
Due in one to five years 3,977 3,998
Due in five to ten years 1,980 2,090
Due after ten years 525 560
Mortgage-backed securities 23,253 23,349
---------- -----------
Total debt securities held to maturity $ 31,483 $ 31,752
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
10.
<PAGE> 11
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
Total loans as presented on the balance sheet are comprised of the following
classifications:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Loans secured by real estate:
Real estate construction $ 27,205 $ 23,489
Residential 47,599 47,006
Commercial and farmland 50,831 45,487
Commercial and industrial 36,252 36,836
Consumer and credit card 39,382 38,269
Lease financing, net 7,708 6,759
Home equity lines of credit 6,238 5,746
------------ ------------
Total loans $ 215,215 $ 203,592
============ ============
</TABLE>
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
A summary of activity in the allowance for loan losses for the six months ended
June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance - January 1 $ 1,923 $ 1,940
Loans charged off (238) (197)
Recoveries 85 64
Provision for loan losses 192 196
---------- ----------
Balance - June 30 $ 1,962 $ 2,003
========== ==========
</TABLE>
Information regarding impaired loans at June 30, 1997 and December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Balance of impaired loans $ 220 $ 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 $ 220 $ 41
========== ===========
Portion of allowance for loan losses allocated
to the impaired loan balance $ 205 $ 14
========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 12
DCB FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)
Information regarding impaired loans is as follows for the six months ended June
30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Average investment in impaired loans $ 145 $ 323
Interest income recognized on impaired loans
including interest income recognized on cash
basis 0 45
Interest income recognized on impaired loans on
cash basis 0 45
</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 June 30, 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 $52,814 and $47,067, respectively. Of
these commitments, fixed rate commitments totaled $3,000 and $3,163 at June 30,
1997 and December 31, 1996, 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. The Bank
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)
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
INTRODUCTION
The following discussion focuses on the consolidated financial condition of the
Company at June 30, 1997, compared to December 31, 1996, and the consolidated
results of operations for the three- and six-month periods ended June 30, 1997
compared to the same periods 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 trend, events or uncertainties that will have
or are reasonably likely to have a material affect on the liquidity, capital
resources or operations except as discussed herein. Also, the registrant is not
aware of any current recommendations by regulatory authorities which would have
such affect 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 $340,347 at June 30, 1997 compared to $319,117 at
December 31, 1996, an increase of 6.7%. The growth is the result of strong
market demand in both loans and deposits.
Cash and cash equivalents decreased $10,074 from $32,359 to $22,285 during the
first six months of 1997. Cash was invested in income-earning loans and
securities. Cash and equivalents at June 30, 1997 represented 6.5% 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 the Company
need to supplement its liquidity needs due to loan demand or investment
opportunities.
Total securities increased $4,886 from $79,045 to $83,931. Proceeds from
maturities, sales and repayments were used to purchase new securities. Three
securities were called by the issuer with minimal loss. The Company purchased
primarily U.S. Treasury Notes, U.S. Agency bonds, municipal bonds and
mortgage-backed securities.
- --------------------------------------------------------------------------------
(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)
- --------------------------------------------------------------------------------
The Company purchased bankers' acceptances and commercial paper during the first
two quarters of 1997 to match fund large public deposits of like amount and
term.
Loan growth continued to be strong as total loans increased 5.7%, or $11,623,
from $203,592 to $215,215. Growth was seen in nearly all categories; however,
the largest increases were seen in real estate related loans. Construction
loans, both residential and commercial, increased $3,716, or 15.8%, from
December 31, 1996 to June 30, 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 $5,344 from $45,487
to $50,831, or 11.7%. Again, the Company has been able to take advantage of a
strong local economy and the large number of businesses moving into the market.
The Company has no concentration of lending to any one industry.
The gross loan to deposit ratio remained stable at 72.2% at June 30, 1997
compared to 72.9% at December 31, 1996.
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 $1,180, or .55%, at June 30, 1997. These
nonperforming loans have been considered in management's analysis of the
allowance for loan losses. The allowance was 166% of nonperforming loans at June
30, 1997 compared to 184% at December 31, 1996. Almost the entire increase in
nonperforming loans is secured by real estate.
Total deposits increased 6.8% or $18,973 from $279,091 at December 31, 1996 to
$298,064 at June 30, 1997. This increase was made up of an increase of $5,210,
or 11.9%, in noninterest-bearing deposits, and an increase of $13,763, or 5.8%,
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 short-term 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 loans and management elected to
renew the borrowing. Repayment or renewal terms will be evaluated at next
maturity.
Total shareholders' equity increased $1,626 primarily due to earnings retained.
The increase is net of dividends paid during the first six months of $712 and a
market value decrease in the available-for-sale securities portfolio of $35. The
dividends consist of payments made in January and May 1997. Beginning with the
May 1997 dividend, the Company's intends to make quarterly dividend payments.
- --------------------------------------------------------------------------------
(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)
- --------------------------------------------------------------------------------
The components of shareholders' equity changed during the first quarter of 1997
with the formation of the holding company. Shareholders of 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
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 requirements. Its ratio of
total capital to risk-weighted assets was 15.0% at June 30, 1997, while its Tier
1 risk-based capital ratio was 14.2%. 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 10.4% at June 30, 1997 exceeded the regulatory
minimum of 3% to 5%.
RESULTS OF OPERATIONS
Net income for the six months ended June 30, 1997 was $2,373, a $49 decrease
from the same period in 1996. Earnings per share, adjusted to reflect the
three-for-one stock exchange related to the holding company formation, was $0.56
per share for the period ending June 30, 1997 compared to $0.57 per share for
the six months ending June 30, 1996. Net income for the quarter ended June 30,
1997 was $1,179, or $0.28 per share, compared to $1,183, also $0.28 per share,
for the same quarter in 1996.
Total interest income increased $1,382 to $12,698 for the first six months of
1997 compared to $11,316 for the first six months of 1996, a 12.2% increase. For
the quarter ended June 30, 1997, the increase over the same quarter in 1996 was
similar, 12.4%, increasing from $5,702 to $6,407. 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. Also,
during the first six months of 1996, the Company recovered approximately $400 in
interest on nonaccrual loans, most of which represented income from years
previous to 1996. The increase in investment portfolio income is due to both
rate and volume increases.
Net interest income increased to $6,855 through June 30, 1997 compared to $6,579
through June 30, 1996, an increase of $276, or 4.2%. For the quarter ended June
30, 1997, net interest income increased 4.0% over the same quarter in 1996, or
$132. Through June 30, 1997, interest expense on deposits increased $969, or
20.6%, 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 $38 to $175, due to increased short-term borrowings. For
the quarter ended June 30, 1997, total interest expense increased $573, or 24.0%
over the same quarter in 1996.
- --------------------------------------------------------------------------------
(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)
- --------------------------------------------------------------------------------
The provision for loan losses remained stable through the first six months of
1997, at $192 compared to $196 for the first six months of 1996. When comparing
the quarter ended June 30, 1997 to June 30, 1996, the provision was $84 less in
1997 due to indicators of loan portfolio quality remaining relatively stable.
Total other income increased $166, or 11.9%, year-to-date June 30, 1997 over
year-to-date June 30, 1996. For the quarter, other income increased $82 over the
same period in 1996, or 11.7%. The increase is due to increased fee income from
the Company's data service center, increased gains on loan sales (both
servicing-released and servicing-retained) and increased cash management fee
income.
Other expenses increased $499, or 11.8%, through June 30, 1997 compared to June
30, 1996, going from $4,212 to $4,711. The majority of the increase took place
in the quarter ended June 30, 1997, which increased $304, or 14.5%, over the
same period in 1996. Increases were primarily experienced in human resource
expenses, occupancy expense and equipment expense, where combined increases
totaled $392 for the first six months. 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 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. During the second quarter of 1997, the Company
opened a new branch, which is a leased facility. Annual lease expense for that
leased facility is $72. A second new branch is planned for the last quarter of
1997, which will also be a leased facility with a similar lease expense. Both
are 20 year fixed rate leases. The two new branches are strategically located in
areas of Delaware County which are experiencing strong population growth rates.
With its broad line of products and services, the Company can meet the needs of
the market and obtain the business needed to sustain the new branches and
contribute to overall profitability.
The provision for income taxes was $552 for the second quarter of 1997 for an
effective tax rate of 31.9%, and $1,136 through June 30, 1997 for an effective
tax rate of 32.4% These rates are approximately the same as the 31.9% and 32.0%
effective tax rates for the same periods in 1996.
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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
Not yet required.
- --------------------------------------------------------------------------------
16.
<PAGE> 17
DCB FINANCIAL CORP.
FORM 10-Q
Quarter ended June 30, 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:
An annual shareholders meeting of DCB Financial Corp was held on
May 21, 1997. The only action taken requiring shareholder vote
was the election of directors.
<TABLE>
<S> <C>
Shares voted 3,069,499
Broker non-voted 198,431
Non-voted 1,005,270
----------------
4,273,200
</TABLE>
Following is a breakdown of shares voted for each nominee:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Larry D. Coburn 3,069,499 0
F. Frances Hutchinson 3,064,909 4,590
William R. Oberfield 3,063,475 6,024
G. William Parker 3,068,977 522
Gary M. Skinner 3,052,825 16,674
C. William Bonner 3,046,837 22,662
Merrill L. Kaufman 3,042,475 27,024
Terry M. Kramer 3,058,549 10,950
Thomas T. Porter 3,063,949 5,550
Edward Powers 3,067,555 1,944
Jerome J. Harmeyer 3,069,499 0
Rodney B. Hurl 3,056,752 12,747
G. Edwin Johnson 3,056,407 13,092
</TABLE>
- --------------------------------------------------------------------------------
17.
<PAGE> 18
DCB FINANCIAL CORP.
FORM 10-Q
Quarter ended June 30, 1997
PART II - OTHER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
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.
Exhibit 11, Statement re: computation of per share earnings.
Exhibit 27, Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
- --------------------------------------------------------------------------------
18.
<PAGE> 19
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
Treasurer
- --------------------------------------------------------------------------------
19.
<PAGE> 20
DCB FINANCIAL CORP.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
<S> <C> <C>
10 Material Contracts Incorporated by reference to Form 8-B
previously filed with the SEC on April 15,
1997.
11 Statement Re: Computation of per share earnings
4
27 Financial Data Schedule 21
</TABLE>
- --------------------------------------------------------------------------------
20.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,135
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,448
<INVESTMENTS-CARRYING> 31,483
<INVESTMENTS-MARKET> 31,752
<LOANS> 215,215
<ALLOWANCE> 1,962
<TOTAL-ASSETS> 340,347
<DEPOSITS> 298,064
<SHORT-TERM> 7,000
<LIABILITIES-OTHER> 1,078
<LONG-TERM> 0
<COMMON> 3,779
0
0
<OTHER-SE> 30,426
<TOTAL-LIABILITIES-AND-EQUITY> 340,347
<INTEREST-LOAN> 9,597
<INTEREST-INVEST> 2,754
<INTEREST-OTHER> 347
<INTEREST-TOTAL> 12,698
<INTEREST-DEPOSIT> 5,668
<INTEREST-EXPENSE> 5,843
<INTEREST-INCOME-NET> 6,855
<LOAN-LOSSES> 192
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 4,711
<INCOME-PRETAX> 3,509
<INCOME-PRE-EXTRAORDINARY> 2,373
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,373
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
<YIELD-ACTUAL> 4.26
<LOANS-NON> 1,073
<LOANS-PAST> 107
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,522
<ALLOWANCE-OPEN> 1,923
<CHARGE-OFFS> 238
<RECOVERIES> 85
<ALLOWANCE-CLOSE> 1,962
<ALLOWANCE-DOMESTIC> 1,644
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 318
</TABLE>
