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FORM 8-B
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION OF SECURITIES OF CERTAIN SUCCESSOR ISSUES
FILED PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
DCB Financial Corp.
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(Exact name of registrant as specified in its charter)
Ohio 31-1469837
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 N. Sandusky Street, Delaware, Ohio 43015
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(Address of principal executive officers) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- ------------------- ------------------------------
Not Applicable
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of class)
<PAGE> 2
ITEM 1: GENERAL INFORMATION
(a) Registrant was organized on June 13, 1996, as a corporation,
incorporated in the State of Ohio.
(b) Registrant's fiscal year ends December 31.
ITEM 2: TRANSACTION OF SUCCESSION
(a) The Delaware County Bank & Trust Company, Delaware, Ohio (the "Bank")was
the predecessor to Registrant. The Bank filed periodic reports under the
Securities Exchange Act of 1934 with the Federal Deposit Insurance
Corporation.
(b) The Registrant is, as of March 14, 1997, the sole shareholder of The
Delaware County Bank & Trust Company. This was accomplished through an
interim bank merger/holding company formation whereby shareholders
of the Bank exchanged their Bank shares for shares in the Registrant
at the ratio of three (3) shares of the Registrant's common stock for
each share of Bank stock.
ITEM 3: SECURITIES TO BE REGISTERED
Registrant currently has 7,500,000 shares authorized and 4,273,200 issued and
outstanding.
ITEM 4: DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Registrant incorporates by reference, the Description of Securities set forth
in the Form S-4 Registration Statement, File No. 333-15579, effective January
10, 1997, as amended. (See "DESCRIPTION OF COMMON STOCK--COMPARATIVE RIGHTS,
General, Voting Rights, Antitakeover Measures, Right of Redemption, Liquidation
Rights, Preemptive Rights, Dissenters' Rights, Cumulative Voting,
Indemnification, Dividend Rights, Transfer and Accessibility, "REPORTS" and
"ADDITIONAL INFORMATION.")
ITEM 5: FINANCIAL STATEMENTS AND EXHIBITS
(a) The capital structure and balance sheet of the registrant immediately
after the succession are substantially the same as those of the Bank as
predecessor and, therefore, no financial statements are required.
However, audited Financial Statements of The Delaware County Bank &
Trust Company, the predecessor in interest to Registrant, for the year
ended December 31, 1996, are included as an attachment to the Annual
Report of the Bank, included as Exhibit 99.A.
(b) Exhibits:
1. The Merger Agreement dated as of December 31, 1996, between The Delaware
County Bank & Trust Company and Delaware Interim Bank and joined in by
registrant as a third party thereto is attached as Appendix I to the
Proxy Statement/Prospectus of The Delaware
<PAGE> 3
County Bank & Trust Company included as an exhibit to the S-4
Registration Statement of registrant, File No. 333-15579 effective
January 10, 1997, incorporated herein.
2. Prospectus of The Delaware County Bank & Trust Company dated February
26, 1997- included as a part of the Registrant's Form S-4, File No.
333-15579, and incorporated herein.
3. 3(a). Registrant's Articles of Incorporation (Exhibit 3).*
3(b). Registrant's Code of Regulations (Exhibit 3).*
*Incorporated by reference from Registrant's Form S-4, File No.
333-15579 effective January 10, 1997.
4. Additional Exhibits:
10. Material Contracts. Employment Agreements between The
Delaware County Bank & Trust Company and Larry D. Coburn, President and
Chief Executive Officer (dated August 14, 1995) and Larry E. Westbrook,
Senior Vice President and Cashier (dated April 12, 1990).
21. Subsidiaries of the Registrant. The only subsidiary of the
Registrant is The Delaware County Bank & Trust Company.
27. Financial Data Schedule.
99.A. Annual Report to Shareholders of The Delaware County Bank &
Trust Company, including audited financial statements of The Delaware
County Bank & Trust Company for the year ended December 31, 1996.
99.B. Form F-2 Annual Report of The Delaware County Bank & Trust
Company as filed with the Federal Deposit Insurance Corporation.
99.C. Proxy Statement and Proxy of Registrant delivered to
Shareholders in connection with Annual Meeting to be held May 21, 1997.
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SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
DCB Financial Corp.
---------------------------
(Registrant)
Date: April 15, 1997 /s/ LARRY D. COBURN
---------------------------
By: Larry D. Coburn
Its: President
<PAGE> 1
EXHIBIT 10
MATERIAL CONTRACTS
<PAGE> 2
Exhibit 10.1
AGREEMENT
This AGREEMENT is made and entered into this 12th day of April, 1990,
by and between The Delaware County Bank (the "Bank"), an Ohio-chartered,
FDIC-insured nonmember bank with its main office at 41 North Sandusky Street,
Delaware, Ohio, and Larry E. Westbrook (the "Executive"). Any reference to
"FDIC" herein shall mean the Federal Deposit Insurance Corporation. Any
reference to "Superintendent" herein shall mean the Ohio Superintendent
of Banks.
WHEREAS, the Executive has heretofore served in the position of Vice
President of Operations Division of the Bank;
NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be for a period of one (1) year
commencing January 1, 1990 (hereafter referred to as the "Anniversary Date").
Commencing on the first Anniversary Date of this Agreement, and continuing at
each Anniversary Date thereafter, the Agreement shall automatically renew for
one (1) year unless written notice is provided to the Executive, at least ten
(10) days and not more than twenty (20) days prior to such Anniversary Date of
the Bank's election not to permit the automatic extension. Reference herein to
the term of this
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Agreement shall refer both to such initial term and such extended terms. Unless
sooner terminated as set forth herein, this contract shall terminate when the
Executive reaches age sixty-five (65).
2. TERMINATION FOR CAUSE.
(a) The Employee shall have no right to receive severance or
other benefits under this Agreement for any period after the date of termination
for Cause. For purposes of this Agreement, termination for "Cause" shall mean
only the following events:
(i) personal dishonesty;
(ii) incompetence;
(iii) material breach of any provision of
this Agreement;
(iv) breach of a fiduciary duty involving
personal gain of profit;
(v) intentional failure to perform stated
duties;
(vi) a material breach of the reasonable
policies and procedures for the
operation of the Bank provided to the
Executive by formal action of the
Bank's Board of Directors;
(vii) willful violation of any law, rule, regulation
(other than a law, rule or regulation relating
to a traffic violation or similar offense)
or final cease-and-desist order; or
(viii) willful misconduct.
(b) (i) For purposes of Paragraph 2(a)(ii), "incompetence"
shall mean the Executive's inability to perform his duties hereunder due to
insufficient knowledge or skills.
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When determining incompetence, the Board of Directors shall, among other things,
consider the Bank's CAMEL rating relative to the Ohio banking industry and
measure the Executive's acts and omissions against standards then prevailing in
the Ohio banking industry.
(ii) For purposes of Paragraph 2(a)(vii) and 2(a)(viii), no act,
or failure to act, on the Executive's part shall be considered "willful" unless
he has acted, or failed to act, with an absence of good faith and without a
reasonable belief that his action or failure to act was in the best interest of
the Bank.
(iii) For purposes of Paragraph 2(a)(vii), a cease-and-desist
order shall not become final until exhaustion or lapse of all (administrative
and judicial) appeal rights in relation thereto.
3. VOLUNTARY TERMINATION OF AGREEMENT.
This Agreement may be terminated by the Executive at any time
upon ninety (90) days' written notice to the Bank or upon such shorter period as
may be agreed upon between the Executive and the Board of Directors of the Bank.
4. GOVERNMENTAL TERMINATION OF AGREEMENT.
(a) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8(e) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e), or Section 1127.06 of the Ohio Revised Code, 11 O.R.C. Section
1127.06, all obligations of the Bank under this Agreement shall terminate, as
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of the effective date of the order.
(b) If the Bank is declared insolvent by the Superintendent (defined
with reference to Section 1103.04 of the Ohio Revised Code, 11 O.R.C.
Section 1103.04), all obligations under this Agreement shall terminate, but
this provision shall not affect any vested rights of the parties.
(c) All obligations under this Agreement may be terminated by the FDIC
at the time the FDIC enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1823(c). Any rights of the parties that
have already vested, however, shall not be affected by such action.
5. CHANGE OF CONTROL
(a) If, during the term of this Agreement, there is a Change in
Control of the Bank, the Executive shall be entitled to termination or severance
payment in the event the Executive's employment is involuntarily terminated, in
connection with or within one (1) year after the Change in Control, other than
for Cause or pursuant to Paragraphs 3 or 4. This payment shall also be made in
the case of the Executive's voluntary termination of employment for Good Reason
(as defined in Paragraph 6) in connection with, or within one (1) year after, a
Change in Control of the Bank. Such voluntary termination of employment for Good
Reason in connection with, or within one (1) year after, a Change in Control of
the Bank shall not constitute a termination for Cause. The amount of this
severance payment
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shall be the benefits specified in Paragraph 7 of this Agreement.
(b) For purposes of this Agreement, a "Change in Control of the
Bank" shall mean:
(i) the acquisition by a person or persons acting in
concert of the power to vote ten percent (10%) or
more of a class of the Bank's voting securities or
the acquisition by a person of the power to direct
the Bank's management or policies if the Board of
Directors of the Bank or the FDIC has made a
determination that such acquisition constitutes or
will constitute an acquisition of control of the
Bank (with control defined by reference to the
FDIC's Change in Control Regulation, 12 C.F.R.S
Section 303.4); provided, however, that an
acquisition of all of the Bank's voting
securities incident to a reorganization involving
a bank holding company formation initiated and
approved by the Bank's Board of Directors will
not be considered a "Change in Control of the
Bank;" or
(ii) during any period of two (2) consecutive years
during the term of this Agreement, individuals who
at the beginning of such period constitute the
Board of Directors of the Bank cease for any
reason to constitute at least a majority thereof,
unless the election of each director who was not a
director at the beginning of such period has been
approved in advance by directors representing at
least two-thirds of the directors then in office
who were directors in office at the beginning of
the period.
The term "person" refers to an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or other entity.
(c) Upon the Executive's termination of employment arising under this
Paragraph 5 within one (1) year
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after the occurrence of a Change in Control of the Bank, the Bank will cause to
be continued life, health and disability insurance coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
severance. Such coverage shall cease upon the earlier of Executive's employment
by another employer or twelve (12) months from such termination.
6. GOOD REASON.
For purposes of this Agreement, "Good Reason" shall mean the occurrence
after a Change in Control of any of the events or conditions described in
subparagraphs (a) through (e) hereof without the Executive's express written
consent; provided the Executive's right to terminate his employment pursuant to
this Paragraph 6 shall not be affected by his incapacity due to physical or
mental illness:
(a) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgement, does not represent a promotion from his
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgement, are inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint him to any of such positions, except in connection
with the termination of his employment for (i) disability, (ii) Cause, (iii)
pursuant to Paragraphs 3 or 4, (iv) as a result of his death or (v) by the
Executive other than for Good Reason;
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(b) A reduction by the Bank in the Executive's Base Salary as in
effect on the date of a Change in Control of the Bank or as the same may be
increased from time to time;
(c) The relocation of the Bank's principal executive offices to a
location outside a 30-mile radius of Delaware, Ohio, except for reasonably
required travel on the Bank's business which is not materially greater than such
travel requirements prior to the Change in Control;
(d) The adverse and substantial alteration in the nature and
quality of the office space within which the Executive performs his duties,
including the size and location thereof, as well as the secretarial and
administrative support provided to the Executive;
(e) The failure by the Bank to continue to provide the Executive
with benefits substantially similar to those provided to him under any of the
employee benefit plans in which the Executive becomes a participant, or the
taking of any action by the Bank which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by him at the time of the Change in Control.
7. TERMINATION BENEFITS.
Upon the occurrence of a Change in Control, followed by the voluntary
or involuntary termination of Executive's employment with the Bank other than
for Cause or pursuant to Paragraph 3 or 4, the Bank shall pay Executive, or in
the event of his subsequent death, his beneficiary or beneficiaries,
<PAGE> 9
or his estate, as the case may be, as severance pay or liquidated damages, or
both, a sum equal to one (1) time the average annual salary paid to Executive by
the Bank during the five (5) previous years immediately preceding Executive's
termination. The term salary shall refer to cash compensation for all services
rendered to the Bank or any subsidiary in any fiscal year, as is or would be
required to be reported pursuant to Section 402(a) of Regulation S-K, 17 C.F.R.
Section 229.402(a).
8. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by the Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank, if the Executive is successful or as may be
determined to be appropriate by any arbitrator's award based on the relative
merits of the two parties.
9. NO ASSIGNMENTS.
This Agreement is personal to each of the parties hereto and neither
party may assign or delegate any of its rights or obligations hereunder without
first obtaining the written consent of the other party.
10. NOTICES
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, to the following addresses or to such other address as either
party may designate by like notice.
<PAGE> 10
A. If to the Bank, to:
The Delaware County Bank
41 North Sandusky Street
Delaware, OH 43015
Attention: President
B. If to the Executive, to:
Larry E. Westbrook
350 North Sandusky Street
Delaware, Ohio 43015
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
11. AMENDMENTS.
No amendments or additions to this Agreement shall be binding unless
in writing and signed by both parties, except as herein otherwise provided.
12. PARAGRAPH HEADINGS.
The paragraph headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
13. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity
or enforceability of the other provisions hereof.
14. GOVERNING LAW.
This Agreement shall, except to the extent that federal law (including
any law, rule, or regulation of the FDIC) shall be deemed to apply, be
governed by and construed and enforced in accordance with the laws of Ohio.
<PAGE> 11
15. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgement may be
entered on the arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year hereinabove written.
THE DELAWARE COUNTY BANK
By: /s/ John S. Kreighbaum
----------------------------------
John S. Kreighbaum
And: /s/ Larry E. Westbrook
---------------------------------
Larry E. Westbrook
/s/ Larry E. Westbrook
---------------------------------
(the "Executive")
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made and entered into this 10th day of October,
1995, by and between The Delaware County Bank and Trust Company (hereinafter the
"Bank"), an Ohio-chartered FDIC-insured nonmember bank with its main office at
41 North Sandusky Street, Delaware, Ohio, and Larry D. Coburn (hereinafter the
"Employee"), an individual residing at 95 Elizabeth St., Apt. 114, Delaware,
Ohio 43015. Any reference to "Superintendent" herein shall mean the Ohio
Superintendent of Banks.
RECITALS
--------
A. The Employee is being hired as President and Chief Executive
Officer of the Bank.
B. The Board of Directors of the Bank wants to assure the Bank
of the services of the Employee by executing a written employment agreement.
C. The parties agree that this Employment Agreement shall
supersede all prior understandings between the parties, whether oral or written.
D. In consideration of the mutual promises of the Bank and the
Employee contained in this Employment Agreement, the Bank and the Employee enter
into this Employment Agreement with the terms and conditions set forth herein.
AGREEMENT
---------
1. Employment
----------
a. The Bank agrees to employ the Employee and the Employee
agrees to serve as the President and Chief Executive Officer of the
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Bank. The Bank agrees that during the term of the Employee's employment as
President and Chief Executive Officer, the Board of Directors will nominate the
Employee to stand for election as director of the Bank, and the Employee shall
serve as a Director of the Bank subject to his election by the shareholders.
However, upon termination of employment of the Employee for any reason, the
Employee shall immediately resign as a Director of the Bank and shall sign all
documents necessary to accomplish such resignation as a Director. In the event
Employer refuses to sign documents necessary to accomplish his resignation then
this document shall act as the resignation pursuant to this paragraph. The
Employee shall receive the same fees and other remuneration as other directors
for his service as the Director of the Bank. As President and Chief Executive
Officer, the Employee shall render administrative and management services to the
Bank such as are customarily performed by persons situated in similar executive
positions. The Employee shall perform such other appropriate duties as the full
Board of Directors of the Bank may from time to time reasonably direct.
b. The Employee shall be furnished with a private office, stenographic
and other necessary secretarial assistance, and with such other facilities,
amenities, and services as are appropriate for the Employee's position as
President and Chief Executive Officer of the Bank and adequate for the
performance of his duties thereunder. For the performance of his duties
thereunder, as determined by the Board of Directors from time to time.
2. Term of Employment
------------------
The Employee is hereby employed as the President and Chief
2
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Executive Officer of the Bank for an initial term commencing on August 14, 1995,
and ending on the 31st day of December, 1995. At the end of this initial term,
this Agreement may be extended for successive one-year periods upon the written
consent of the Employee and the Bank as set forth herein. Annually, in November
of each year, the Board of Directors of the Bank will conduct a performance
evaluation of the Employee for the purpose of determining whether to extend the
term of this agreement. The results of such review by the Board shall be noted
in the minutes of the Board meeting. The Bank shall provide the Employee with a
written notice of its decision whether to extend this Agreement for a successive
one-year term or not, said written notice to be delivered to the Employee at
least thirty (30) days prior to the end of the initial term or any renewal term
(one-year extension).
3. Standards of Performance
------------------------
Excluding periods of vacation and sick leave to which the Employee is
entitled, the Employee agrees to devote his best efforts and full time to the
business and affairs of the Bank and to discharge the duties appropriately
assigned to the Employee as President and Chief Executive Officer by the Board
of Directors.
4. Base Salary
-----------
a. The Bank agrees to pay the Employee (exclusive of any fees and
other remuneration paid to the Employee as Director of the Bank) for the term of
this Agreement a salary of One Hundred Fifteen and 00/100 Dollars ($115,000.00)
per annum (hereinafter referred to as the "Base Salary"). The Base Salary
provided for herein shall be payable no less frequently than monthly and not
later than the 10th day following the expiration of the month in
3
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question.
b. Commencing with the calendar year during which the Agreement is
executed, the Board of Directors shall evaluate the Bank's progress and past,
present, and future attainments accomplished under the direction of the
Employee. At the end of each calendar year, the Board of Directors through its
Salary and Benefits Committee shall consider adjusting the Base Salary to be
paid to the Employee for the next ensuing year. With respect to those years in
which the Employee receives an increase in Base Salary by virtue of action by
the Board of Directors under this Paragraph 4(b), such adjustment in Base Salary
shall be incorporated and considered part of the Employee's Base Salary for all
purposes of this Agreement.
5. Incentive Bonus to the Employee
-------------------------------
The Salary and Benefits committee will evaluate performance with the
Employee and discuss a bonus. The bonus shall be awarded solely at the
discretion of the board of directors upon the recommendation of the salary and
benefits committee.
6. Participation in Retirement and Employee Benefit Plans and
----------------------------------------------------------
Additional Benefits
-------------------
a. The Employee shall be entitled to participate in any plan of the
Bank relating to pension, thrift, deferred compensation, profit-sharing, group
life insurance, medical insurance, education reimbursement, or other retirement
or employee benefits that the Bank may then have in force for the benefit of its
executive employees.
b. In addition to the compensation provided to the Employee pursuant
to Paragraphs 4 and 5 hereof, the Bank agrees to reimburse
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<PAGE> 5
the Employee for reasonable entertainment, travel, lodging and other
miscellaneous expenses, whether local or out-of-city, incurred on its behalf and
directly related to the performance of his duties as President and Chief
Executive Officer of the Bank. The Bank further agrees to furnish the Employee
with a corporate credit card for business use in connection with entertainment,
travel, lodging and other miscellaneous expenses. The reimbursement shall
include the payment of reasonable expenses for attending meetings of trade
associations. The Employee shall periodically submit an itemized statement and
satisfactory documentation of the expenses incurred. The Bank further agrees to
furnish the Employee a new automobile during the term of this Agreement to be
used for both business and personal use, as long as the Employee is actually
working for the Bank. A new automobile shall be purchased at least every two
years or sooner if it is determined by the Bank and the Employee that the
present automobile furnished to the Employee has significant mileage so as to
require the purchase of a new automobile. The Bank shall be responsible for all
expenses of this automobile including adequate insurance, repairs and
maintenance thereof; provided, however, that the Employee shall be responsible
to reimburse the Bank for personal automobile travel at a rate consistent with
the Internal Revenue Service allowance. The Bank shall also include the
Employee, the Employee's spouse, and any other authorized persons as an insured
under its liability insurance policies with coverage at least equal to the
coverage under its current liability insurance policies. The employee shall
return the automobile to the Bank immediately when the Employee is no longer
employed by the Bank. The Bank
5
<PAGE> 6
further agrees to reimburse the Employee for the monthly dues and fees for a
family membership at a country club in the Central Ohio area. However, prior to
joining such club, the Employee shall obtain the approval of the compensation
committee of the Board of Directors. The Board of Directors shall have the
further right to require the employee to change memberships to another club if
the Board of Directors feels that it is in the best interest of the Bank. These
expenses shall be detailed and provided to the Bank in connection with the
Employee's periodic submission of reasonable entertainment expenses.
7. Vacations
---------
The Employee shall be entitled, without loss of pay, to the number of
vacation days in each calendar year determined by the Board of Directors from
time to time provided that:
a. The Employee shall be entitled to an annual vacation of not less
than four (4) weeks per year.
b. The timing of vacations shall be scheduled in a reasonable manner
by the Employee. The Employee shall not be entitled to receive any additional
compensation from the Bank for his unearned vacation time consistent with bank
policy. The Employee shall be entitled to accumulate two (2) weeks unused
vacation time from one calendar year for use in the next calendar year.
c. In addition to the aforesaid paid vacation, the Employee shall be
entitled, without loss of pay, to be absent voluntarily from the performance of
his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors, in its discretion, and
in
6
<PAGE> 7
compliance with applicable law, may determine. Further, the Board of Directors
shall be entitled to grant to the Employee a personal leave or leaves of absence
with or without pay at such time or times and upon such terms and conditions as
the Board of Directors, in its sole discretion, and in compliance with
applicable law, may determine.
8. Disability
----------
If the Employee's employment terminates by reason of the Employee's
disability, the Employee shall be paid in accordance with the standard
disability policy of the Bank in existence for the Employee at that time and the
Employee shall not be entitled to any additional salary benefits from the Bank
and, specifically, shall not be entitled to any additional compensation under
Paragraphs 4 and 5 of this Agreement.
9. Termination of Employment
-------------------------
In addition to the Bank's right to terminate the Employee at the end
of the initial term, or any one-year extension, the Bank may terminate the
employment of the Employee at any other time during the employment term.
("Employment Term" is defined as the initial term or any additional one-year
extension.)
a. In the event the Bank or its successor terminates the employment of
the Employee during the Employment Term because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure or refusal to perform the duties and
responsibilities assigned in this Agreement, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, conviction of a
7
<PAGE> 8
felony or for fraud or embezzlement, or material breach of any provision of this
Agreement (hereinafter collectively referred to termination for "Just Cause"),
the Employee shall have no right to receive any compensation or other benefits
for any period after such termination.
b. In the event that the Bank or its successor terminates the
employment of the Employee during the Employment Term for any reason other than
(i) for Just Cause, (ii) the Employee's retirement at or after the normal
retirement age under a qualified pension plan maintained by the Bank
(hereinafter referred to as "Retirement"), or (iii) the Bank decides not to
extend the employment Agreement pursuant to Sections 1 and 2 of this Agreement
at the end of the initial one-year term or any one-year extension thereafter;
then the Employee shall be entitled to receive severance pay as follows:
Bank shall pay the Employee the base monthly salary for each month the
Employee is unemployed for a maximum of twelve (12) months. In the event the
Employee obtains employment within the twelve-month period, then the Employee's
monthly benefit shall cease. It is the intent of this Agreement that the
severance pay set forth herein is to defray the Employee's costs while searching
for other employment and that said payment shall be in lieu of any unemployment
benefits to which the Employee would be entitled.
If, during the term of this Agreement, the Bank merges or consolidates
with another entity (other than a holding company formed by the Bank) and the
successor, without the Employee's written consent during a period of one year
following the merger or consolidation does any of the following: i) reduces the
Employee's
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<PAGE> 9
base salary which was in effect on the date of the merger or consolidation; ii)
substantially reduces benefits to be provided to the Employee under this
Agreement; or iii) requires the Employee to relocate his office to a location in
excess of a thirty (30) mile radius of Delaware, Ohio, then the Employee shall
have the right to voluntarily terminate his employment as a result of any of
these events. In the event the Employee voluntarily terminates his employment as
a result of the above events, then the Employee shall be entitled to receive
severance pay in an amount equal to the average annual salary paid to the
Employee by the Bank during the five (5) previous years immediately preceding
the Employee's voluntary termination of employment for the above reasons.
c. Death of Employee. The employment term automatically
terminates upon the death of the employee. In the event of such
death, the Employee's estate shall be entitled to receive the
compensation due the Employee through the last day of the calendar
month in which the Employee's death occurred.
d. Special Regulatory Events. Notwithstanding Section 9(a)
of this Agreement, the obligation of the Bank and of the Employee shall be as
follows in the event of any of the following circumstances:
i. If the Employee is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8 of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818, the Bank's obligations under this agreement shall be suspended as of the
date of service of such notice, unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may, in its sole discretion,
9
<PAGE> 10
pay the Employee all or part of the compensation withheld while the obligations
of this Agreement were suspended and reinstate in whole or in part any of the
obligations which were suspended.
ii. If the Employee is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's affairs by an order
issued under Section 8 of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(e) or Section 1127.06 of the Ohio Revised Code, 11 O.R.C. Section 1127.06,
all obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
iii. If the Bank is in default, as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act 12 U.S.C., Section 1813(x)(l), or declared
insolvent by the Superintendent of Banks (Section 1103.04 of the Ohio Revised
Code) all obligations under this Agreement shall terminate as of the date of
default or insolvency, but this provision shall not affect any vested rights of
the parties.
iv. All obligations under this Agreement may be terminated by the FDIC
at the time the FDIC enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(C) of the Federal
Deposit Insurance Act, 12 U.S.C. Section 1823(C). Any rights of the parties that
have already vested, however, shall not be affected by such action.
10. Confidential Information
------------------------
It is understood between the parties hereto that during the term of
this employment agreement Employee will be dealing with
10
<PAGE> 11
confidential information regarding loans, litigation, depositor lists,
information provided to the Employer by prospective loan customers, and
information relating to the Employer's future plans for development. Employee
will have access to and be dealing with such confidential matters in connection
with his employment and agrees that he will not disclose to anyone, either
directly or indirectly (except those persons involved in such matters, or the
Board of Directors, or other entities already having knowledge of such
information), any of such confidential matters or use this information other
than in the course of his employment with the Bank. All documents that the
Employee prepares or confidential inforation that has been given to the Employee
in the course of his employment are the exclusive property of the Bank and shall
remain in the Bank's possession on the termination of Employee's employment.
Under no such circumstance shall any information of this nature be removed from
the Bank upon the termination of employment. Furthermore, neither during the
course of employment nor after termination of his employment shall the Employee
disclose any knowledge of the Bank's past, present, or planned business
activities to any third person, firms, or entities for a period of two (2) years
following the termination of his employment. In the event of a breach or a
threatened breach by the employee of this covenant, the Bank shall be entitled
to proceed with an immediate injunction restraining the Employee from disclosing
said information in whole or in part. Nothing herein shall be construed to
prohibit the Bank from pursuing any other remedies available to the Bank for the
breach of such covenant. For the purposes of this paragraph, files generated by
the Employee as a result of his
11
<PAGE> 12
employment by the Bank shall be considered the property of the Bank and not the
property of the Employee. Litigation files, customer files, customer lists,
information relating to regulators, correspondence with regulators, and all
other working files produced by the Employee shall be the sole property of the
Bank.
11. Successors and Assigns
----------------------
This Agreement shall be binding upon the Bank, its successors and
assigns. This Agreement is personal as to the Employee and may not be assigned
by the Employee except that the personal representative of the Employee, his
heirs, or guardian, as the case may be, shall have the right to enforce the
provisions of this Agreement relating to any compensation due to the Employee.
12. Notices
-------
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
and or mailed, certified or registered mail, return receipt requested, with
postage prepaid, to the following addresses or to such other address as either
party may designate by like notice.
A. If to the Bank, to:
The Delaware County Bank and Trust Company
41 North Sandusky Street
Delaware, OH 43015
Attention: Secretary, Board of Directors
B. If to the Employee, to:
Larry D. Coburn
95 Elizabeth St. APT 114
Delaware, Ohio 43015
and to such other additional person or persons as either party shall have
designated to the other party in writing by like notices .
13. Other Contracts
---------------
12
<PAGE> 13
Consistent with Paragraph 3 herein, the Employee shall not, during the
term of this Agreement, have any other employment as an employee, independent
contractor, consultant, or otherwise, except for services on corporate, civic or
charitable boards or committees. All services performed by the Employee on
corporate, civic, or charitable boards shall first be approved by the Board of
Directors.
14. Amendments
----------
No amendments or additions to this Agreement shall be binding unless
in writing and signed by both parties, except as herein otherwise provided .
15. Paragraph Headings
------------------
The paragraph headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
16. Severability
------------
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
17. Governing Law
-------------
This Agreement shall, except to the extent that Federal law
(including any law, rule, or regulation of the FDIC) shall be deemed to apply,
be governed by and construed and enforced in accordance with the law of Ohio.
18. Arbitration
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in
13
<PAGE> 14
accordance with the rules of the American Arbitration Association then in effect
provided that the party which does not prevail in its claim pays for the entire
cost of the arbitration and that any and all claims existing under federal or
state law can be presented in the arbitration. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
IN WITNESS WHEREOF, the parties have entered this Agreement on the day
and year first hereinabove written.
THE DELAWARE COUNTY BANK
AND TRUST COMPANY
By:/s/ Thomas T. Porter
-------------------------------
Its: /s/ Chmn. Salary Benefits Comm.
------------------------------
And: /s/ Terry M. Kramer
------------------------------
Its: Director & Mbr, Salary &
Benefit Comm.
-----------------------------
/s/ Larry D. Coburn
------------------------------
Larry D. Coburn (the "Employee"
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JAN-01-1997
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<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> 217,200
<ALLOWANCE> 1,921
<TOTAL-ASSETS> 328,274
<DEPOSITS> 286,878
<SHORT-TERM> 7,000
<LIABILITIES-OTHER> 1,035
<LONG-TERM> 0
<COMMON> 1,424
0
0
<OTHER-SE> 31,702
<TOTAL-LIABILITIES-AND-EQUITY> 328,274
<INTEREST-LOAN> 4,725
<INTEREST-INVEST> 1,399
<INTEREST-OTHER> 167
<INTEREST-TOTAL> 6,291
<INTEREST-DEPOSIT> 2,800
<INTEREST-EXPENSE> 2,885
<INTEREST-INCOME-NET> 3,406
<LOAN-LOSSES> 96
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 2,469
<INCOME-PRETAX> 1,780
<INCOME-PRE-EXTRAORDINARY> 1,780
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,195
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<YIELD-ACTUAL> 4.437
<LOANS-NON> 535
<LOANS-PAST> 43
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,923
<ALLOWANCE-OPEN> 1,923
<CHARGE-OFFS> 132
<RECOVERIES> 34
<ALLOWANCE-CLOSE> 1,921
<ALLOWANCE-DOMESTIC> 1,921
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 350
</TABLE>
<PAGE> 1
EXHIBIT 99.A.
ANNUAL REPORT TO SHAREHOLDERS OF
THE DELAWARE COUNTY BANK & TRUST COMPANY
<PAGE> 2
MESSAGE TO SHAREHOLDERS
Dear Shareholders,
It is a very special pleasure to present this, our annual report for
1996.
Someone once said, "Happiness lies in the joy of achievement and the
thrill of creative effort." This best describes our feelings about the many
things that have occurred during 1996.
First, we'll look at our phenomenal growth. At year-end 1996, total
assets were slightly over $319 million. This represents an increase of
approximately 16.4% over year-end 1995. Our total deposits were $279 million or
14.4% over the corresponding period. We were particularly successful in gaining
market share in southern Delaware County. These percentages far surpass any
previous growth rates in a given year. In lending, we also experienced a very
healthy growth. At slightly over $203 million, we increased loans by
approximately 17.3% over year-end 1995. Although this growth was fairly evenly
divided in the various categories, we take pride in being the leader in lending
to the business and industrial community.
We are very pleased to report our earnings performance for 1996. As you
may recall, earnings for 1995 set new records for The Bank. We surpassed those
numbers in 1996 with net after tax income of $4,880,000 or an increase of
approximately 36% over 1995. This, once again, places us in the top of our peer
group in earnings performance.
In our letter to shareholders last year, we stated a desire to bring
consistency in performance and increased value to our investors. Our earnings
performance in 1996 equals a return on equity of 15.99% compared to 13.17% in
1995 and 9.73% in 1994. We also increased earnings per share outstanding from
$2.52 to $3.43 or an increase of approximately 36%. In addition, we paid out,
in the form of dividends, 67 cents per share. This is an increase of 31% over
1995. In December 1995, the pre-dominant trading price of our stock was
approximately $26 per share. In December 1996, the predominant trading price
was $44 per share or an increase of 69%. As of this writing, prices were in the
range of $47 to $50 per share. The point of this information is that we have
achieved our goal of bringing added value to our investors.
Our market area has experienced a wide range of emotions economically
this past year. We have witnessed the loss of jobs due to plant closings and
downsizing. We have also witnessed the emergence of new businesses and expansion
in others. Our unemployment rate remains among the lowest in the state and we
feel very positive about employment opportunities in the area. The City of
Delaware and the county are in the process of planning for the anticipated
growth we will see in the coming years. This includes downtown renovations and
improvements to the infrastructure.
We are very pleased with our progress in Union County. As in any
project, it takes time to realize the potential of a new market. This past year,
we began to see solid growth in both deposits and loans in our Marysville
locations.
During the early months of 1996, we began a strategic planning program
which is still in process. The resulting plan, much of which has been put into
action, will ensure that we remain a vibrant and successful independent
community bank.
As we look to the future, we anticipate 1997 will be as exciting for us
as was 1996. Our new branch facilities in Westerville and on the new Sawmill
Parkway will be completed by midyear. We are very excited about the prospects
for growth in these areas.
By the time you receive this report, the formation of our holding
company will be finalized and you will be shareholders in DCB Financial Corp. We
believe this restructuring will have long term positive implications on your
investment. Although we do not have a particular project to announce as this
time, we are looking at various opportunities for the company. We believe that
in order for us to be viable as a financial organization, change must occur.
While we will never lose sight of our community bank heritage, other forms of
financial services and technology enhancements must de developed to meet
customer demand.
We will continue to explore opportunities for expansion into new
markets. This will most likely be in the form of acquisitions of full service
banking operations or branches of other organizations.
On behalf of your board of directors, officers and employees, I would
like to thank you for your support and confidence in us this past year. We look
forward to reporting a successful 1997.
As always, we welcome your questions and comments.
Sincerely,
/s/ LARRY D. COBURN
Larry D. Coburn
President & Chief Executive Officer
<PAGE> 3
THE DELAWARE COUNTY BANK AND TRUST COMPANY
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(dollars in thousands, except per share amount)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net increase income $13,265 $11,862 $10,106 $10,009 $9,114
Provision for loan losses 366 362 145 155 72
Net income (4) 4,880 3,583 2,399 2,398 2,189
Net income (5) 4,880 3,583 2,399 2,958 2,189
Cash dividends declared 995 731 703 637 579
PER SHARE DATA: (1)
Net income (4) $3.43 $2.52 $1.68 $1.68 $1.54
Net income (5) 3.43 2.52 1.68 2.07 1.54
Cash dividends .67 .51 .49 .45 .41
Book value at period end 22.87 20.14 18.02 16.82 15.17
Shares outstanding
at year end (2) 1,424,400 1,424,400 1,424,400 1,424,400 1,424,400
AVERAGE BALANCES:
Total assets $298,651 $254,177 $250,535 $240,396 $227,446
Total earning assets 281,851 240,545 237,023 227,429 217,009
Total deposits 265,057 225,139 224,455 215,769 201,101
Net loans (3) 186,755 170,797 143,352 126,734 119,524
Shareholders' equity 30,514 27,213 24,657 22,957 20,774
RATIOS:
Return on average assets (4) 1.63% 1.41% .96% 1.00% .96%
Return on average assets (5) 1.63 1.41 .96 1.23 .96
Average shareholders'
equity to average assets 10.22 10.71 9.84 9.55 9.13
Return on average
shareholders' equity (4) 15.99 13.17 9.73 10.45 10.54
Return on average
shareholders' equity (5) 15.99 13.17 9.73 12.88 10.54
Dividend payout ratio (4) 19.57 20.40 29.30 26.56 26.45
BALANCE SHEET DATA:
Total assets $319,117 $274,078 $257,693 $244,349 $232,277
Total shareholders' equity 32,579 28,694 25,674 23,962 21,602
Long-term debt 25 46 65 83
</TABLE>
(1) Per share data has been restated to reflect the three for one stock split
on June 14, 1995.
(2) Used in computing book value per share.
(3) Net of unearned interest and allowance for loan loss.
(4) Net income before cumulative effect of change in accounting.
(5) Net income after cumulative effect of change in accounting.
<PAGE> 4
THE DELAWARE COUNTY BANK AND TRUST COMPANY
INTEREST RATE SENSITIVITY SCHEDULE
(dollars in thousands)
MATURING OR NEXT RATE ADJUSTMENT DATE
<TABLE>
<CAPTION>
ONE ONE OVER
YEAR THROUGH FIVE
OR LESS FIVE YEARS YEARS TOTAL
<S> <C> <C> <C> <C>
ASSETS
Loans $143,861 $54,496 $5,235 $203,592
Securities 28,602 38,221 10,739 77,562
Federal funds sold 18,250 -- -- 18,250
-------- ------- ------- --------
Rate sensitive assets (RSA) 190,713 92,717 15,974 299,404
LIABILITIES
Interest-bearing demand and
money market deposits 118,150 -- -- 118,150
Savings 38,389 -- -- 38,389
Interest-bearing time 51,370 27,393 -- 78,763
Notes payable 6,544 -- -- 6,544
Long-term debt 2 -- -- 2
-------- ------- ------- --------
Rate sensitive liabilities (RSL) 214,455 27,393 -- 241,848
-------- ------- ------- --------
Gap (1) $(23,742) $65,324 $15,974 $57,556
======== ======= ======= ========
Cumulative Gap $(23,742) $41,582 $57,556 $57,556
======== ======= ======= ========
Cumulative Gap to RSA (7.9)% 13.9% 19.2% 19.2%
RSA/RSL 88.9% 338.5% -- 123.8%
</TABLE>
(1) "Gap" is defined as rate sensitive assets less rate sensitive liabilities
and may be expressed in dollars or as a percentage.
THE DELAWARE COUNTY BANK AND TRUST COMPANY
CAPITAL RESOURCES AND COMMON STOCK
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
CAPITAL RESOURCES
Shareholders' equity $32,579
Book value per share 22.87
Regulatory capital
Tier 1 capital 32,427
Tier 1 and Tier 2 capital 34,350
Risk adjusted assets 218,553
Tier 1 capital ratio 14.84%
Tier 1 and Tier 2 capital ratio 15.72%
Leverage rate 10.20%
</TABLE>
COMMON STOCK
The Bank's common stock is not traded on any securities exchange or in the
over-the-counter market. However, a brokerage firm, Swency Cartwright, currently
serves as market maker and maintains daily bid and ask prices for The Bank's
common stock. The information provided in the chart below is based on
information received from these market markers. The chart also specifies the
cash dividends paid by The Bank to its shareholders during 1996 and 1995. While
management expects to maintain its policy of paying regular cash dividends in
the future, no assurances can be given that any dividends will be declared or,
if declared, what the amount of any such dividends will be. All figures have
been restated to reflect the 3 for 1 stock split on June 14, 1995.
<TABLE>
<CAPTION>
QUARTER ENDED 1995
Mar. 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
(Dollars per share)
Range of average known price:
High $22 $23 $25 $26
Low 20 21 22 23
Dividends .25 None .26 None
Number of shareholders at year-end 1,188
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED 1996
Mar. 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
(Dollars per share)
Range of average known price:
High $29 $36.5 $38 $47
Low 24.5 28 34 36.5
Dividends .32 None .35 None
Number of shareholders at year-end 1,226
</TABLE>
<PAGE> 5
THE DELAWARE COUNTY BANK AND TRUST COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion is intended to focus on and amplify certain financial
information regarding The Bank. It should be read in conjunction with the
consolidated financial statements and related notes included elsewhere herein
and the consolidated five-year summary of selected historical financial data on
page 1. Management is not aware of any market or institutional trends, events
or uncertainties that will have or are reasonably likely to have a material
effect on liquidity, capital resources or operations except as discussed
herein. Also, management is not aware of current regulatory requirements which
would have such effect if implemented.
Results of Operations: Net income for 1996 was $4,880,000 or $3.43 per share
compared to $3,583,000 or $2.52 per share for 1995 and $2,399,000 or $1.68 per
share for 1994. Return on average assets was 1.63%, 1.41% and 0.96% for 1996,
1995 and 1994, respectively. Return on average shareholders' equity 15,99%,
13.17% and 9.73% for the same three year period.
Net interest income is the largest component of the consolidated statement of
income and primarily consists of the difference between interest generated on
earning assets and interest expense incurred on interest-bearing liabilities.
Interest income increased 17.5% from 1995 to 1996, and net interest income
increased 11.8% for the same period. Net interest income as a percentage of
total interest income was 56.5%, 59.4%, and 62.1% for 1996, 1995 and 1994,
respectively. This reduction is in keeping with The Bank's decision to provide
an attractive interest rate for its community bank customers to retain deposits
and attract new ones. Total interest-bearing deposits increased 18.5%, with
increases in both interest-bearing demand deposits and in longer term
certificates of deposits.
As interest rates on earning assets remained relatively flat due to competition
and the steady economy, The Bank was able to significantly increase noninterest
income and reduce noninterest expense. Noninterest income increased by 19.9%
from 1995 to 1996, compared to a 3.0% increase from 1994 to 1995, due to
decreased FDIC insurance costs, litigation expenses and marketing costs.
Income taxes as a percentage of income before taxes increased from 30.4% in
1995 to 32.0% in 1996 due to reduction in tax-exempt income.
Financial Condition: The Bank achieved total asset growth of 16.4% from 1995 to
1996. Total deposits increased 14.4% due to growth in interest-bearing deposits
of 18.5%. Increases were in both interest bearing demand deposits and
longer-term certificates of deposit. The deposit growth was invested in both
loans, which increased just over $30,000,000 in 1996, or 17.3%, and securities
which increased just over $18,000,000 or 29.7%. Attention to credit quality
during this growth period has resulted in very good asset quality. The
provision for loan losses was $366,000 in 1996 compared to $362,000 in 1995.
Nonperforming loans totaled only $501,000 in 1996 compared to $2,000,000 in
1995 and $1,600,000 in 1994.
Effects of New Accounting Pronouncements As discussed in Note 1 to the
financial statements, management adopted the provisions of Statement of
Financial Accounting Standard (SFAS) Nos. 114 and 118, which modified the
accounting for impaired loans. The standard was adopted in 1995, and the effect
of this accounting change was not material in 1995 or 1996.
The Financial Accounting Standard Board issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights" which was subsequently amended by SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets of Extinguishments
of Liabilities," SFAS No. 122 requires recognition, as separate assets, rights
to service mortgage loans for others. The Bank adopted SFAS No. 122 effective
January 1, 1996, which resulted in total mortgage servicing rights asset of
$107,000 as year end 1996. SFAS No. 125 extends the recognition of servicing
rights for all loans serviced for other and is effective on January 1, 1997. See
Note 1 to the financial statement for further discussion.
Capital Resources: Shareholders' equity totaled $32,579,000 and $28,694,000 at
December 31, 1996 and 1995, respectively. The ratio of average shareholders'
equity to average assets was 10.22% and 10.71% for 1996 and 1995. As of
December 31, 1996, The Bank met all of the regulatory risk-based capital
requirements and is considered a well capitalized bank. See Capital Resources
on Page 1.
Cash dividends paid during the year ended December 31, 1996 totaled $955,000 or
$.67 per share compared to $731,000 or $0.51 per share in 1995. The dividend
payout ratios, or the percentage of earnings paid in dividends, were 19.57% and
in 1996 and 20.40% in 1995.
Liquidity Management: The following summarized The Bank's net change in cash
and cash equivalents
<TABLE>
<CAPTION>
(in $000's) 1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Net income $4,880 $3,583 $2,399
Adjustments to reconcile net income
to net cash from operations 95 (125) 807
--------------------------------------------
Net cash from operations 4,975 3,458 3,206
Net cash from investing activities (48,844) 2,401 (10,325)
Net cash from financing activities 40,049 12,546 10,698
--------------------------------------------
Net change in cash and cash equivalents (3,820) 18,405 3,519
Beginning cash and cash equivalents 36,179 17,774 14,255
--------------------------------------------
Cash and cash equivalents at year end $32,359 $36,179 $17,774
============================================
</TABLE>
Interest Rate Sensitivity: The variance between rate sensitive assets and rate
sensitive liabilities during a specific time frame is generally referred to as
the gap. A high ratio of rate sensitive liabilities, generally referred to as a
negative gap, tends to benefit net interest income during falling interest
rates, while the opposite holds true during rising interest rate periods. The
Bank's management attempts to minimize interest rate risk through management of
the gap in order to achieve maximum shareholder return. The table on page 6
demonstrates The Bank's rate sensitivity. All assets and liabilities included in
this report are listed at their contractual repayment terms except
mortgage-backed securities, which also show anticipated prepayments. Currently,
The Bank has a negative gap position, which is beneficial in a falling rate
environment.
Effects of Inflation: Substantially all of The Bank's assets and liabilities
are monetary in nature. While stated in fixed terms without regard to price
level changes, a bank's net assets will experience a purchasing power loss in
periods of inflation. It should be noted, however, that interest rates and the
inflation rate do not always move in a direct correlation.
THE DELAWARE COUNTY BANK & TRUST COMPANY
----------------------------------------
<PAGE> 6
THE DELAWARE COUNTY BANK AND TRUST COMPANY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks (Note 13) $14,109 $13,879
Federal funds sold 18,250 22,300
--------- ---------
Total cash and cash equivalents 32,359 36,179
Securities available for sale (Note 2) 47,174 31,478
Securities held to maturity (Estimated fair value of $32,171 in 1996
and $29,591 in 1995) (Note 2) 31,871 29,477
Loans and leases (Note 3) 203,592 173,539
Less allowance for loan losses (Note 5) (1,923) (1,940)
--------- ---------
Net loans and leases 201,669 171,599
Premises and equipment, net (Note 6) 2,704 2,589
Other real estate owned 236 266
Accrued interest receivable and other assets 3,104 2,490
--------- ---------
Total assets $319,117 $274,078
========= =========
LIABILITIES
Deposits
Noninterest-bearing deposits $43,789 $45,255
Interest-bearing deposits (Note 8) 235,302 198,601
--------- ---------
Total deposits 279,091 243,856
Borrowed funds (Note 9) 6,546 777
Accrued interest payable and other liabilities 901 751
--------- ---------
Total liabilities 286,538 245,384
Commitments and contingencies (Note 13)
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
2.
<PAGE> 7
THE DELAWARE COUNTY BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
SHAREHOLDERS' EQUITY (NOTE 14)
Common stock: $1.00 par value, 1,424,400 shares authorized, issued
and outstanding 1,424 1,424
Additional paid-in capital 2,355 2,355
Retained earnings 28,682 24,757
Unrealized gain on securities available for sale 118 158
-------- --------
Total shareholders' equity 32,579 28,694
-------- --------
Total liabilities and shareholders' equity $319,117 $274,078
======== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3.
<PAGE> 8
THE DELAWARE COUNTY BANK AND TRUST COMPANY
CONSOLIDATED STATEMENTS OF INCOME For
the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
INTEREST INCOME
<S> <C> <C> <C>
Loans, including fees $17,756 $15,994 $12,106
Securities
Taxable 4,374 2,411 2,179
Tax-exempt 360 510 604
Federal funds sold 774 870 459
Bankers' acceptances 203 187 926
-------- ------- -------
Total interest income 23,467 19,972 16,274
INTEREST EXPENSE
Deposits 10,048 8,026 6,110
Short-term borrowings 154 81 53
Long-term debt -- 3 5
-------- ------- -------
Total interest expense 10,202 8,110 6,168
-------- ------- -------
NET INTEREST INCOME 13,265 11,862 10,106
Provision for loan losses (Note 5) 366 362 145
-------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,899 11,500 9,961
NONINTEREST INCOME
Service charges on deposit accounts 1,235 1,134 1,136
Loan servicing fees 134 140 139
Trust department income 123 107 83
Net realized gains (losses) on sales of available for sale
securities (Note 2) (6) 17 --
Net gains from sales of loans 181 59 93
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4.
<PAGE> 9
THE DELAWARE COUNTY BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C> <C>
Other income 1,223 953 888
-------- ------- -------
Total noninterest income 2,890 2,410 2,339
NONINTEREST EXPENSE
Salaries and other employee benefits (Note 10) 4,602 4,499 3,913
Equipment expense 635 622 644
Occupancy expense of premises, net 654 590 596
FDIC insurance premiums 2 258 493
Other expense (Note 11) 2,723 2,796 3,334
-------- ------- -------
Total noninterest expense 8,616 8,765 8,980
-------- ------- -------
INCOME BEFORE INCOME TAXES 7,173 5,145 3,320
Provision for income taxes (Note 12) 2,293 1,562 921
-------- ------- -------
NET INCOME $4,880 $3,583 $2,399
======== ======= =======
EARNINGS PER COMMON SHARE $3.43 $2.52 $1.68
======== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5.
<PAGE> 10
THE DELAWARE COUNTY BANK AND TRUST COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized Gain
(Loss) on
Additional Securities Total
Common Paid-in Retained Available Shareholders'
Stock Capital Earnings For Sale Equity
----- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 1,187 $ 2,592 $ 20,209 $ (26) $ 23,962
Net income 2,399 2,399
Cash dividends
($.49 per share) (703) (703)
Change in unrealized gain
(loss) on securities
available for sale 16 16
------- ------- -------- -------- --------
BALANCE, DECEMBER 31,
1994 1,187 2,592 21,905 (10) 25,674
Net income 3,583 3,583
Cash dividends
($.51 per share) (731) (731)
Stock split and change in par
value of common stock 237 (237)
Change in unrealized gain
(loss) on securities
available for sale 168 168
------- ------- -------- -------- --------
BALANCE, DECEMBER 31,
1995 1,424 2,355 24,757 158 28,694
Net income 4,880 4,880
Cash dividends
($.67 per share) (955) (955)
Change in unrealized gain
(loss) on securities
available for sale (40) (40)
------- ------- -------- -------- --------
Balance, December 31,
1996 $ 1,424 $ 2,355 $ 28,682 $ 118 $ 32,579
======= ======= ======== ======== =========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6.
<PAGE> 11
THE DELAWARE COUNTY BANK AND TRUST COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $4,880 $3,583 $2,399
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 428 413 424
Provision for loan losses 366 362 145
Deferred tax expense 277 87 150
Securities losses (gains) 6 (17) --
Net securities amortization (accretion) 275 (517) (251)
Federal Home Loan Bank stock dividends (41) -- --
Change in loans held for sale (496) (262) 122
Changes in other assets and other liabilities, net (720) (191) 217
-------- --------- --------
Net cash from operating activities 4,975 3,458 3,206
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in bankers' acceptances -- 12,763 17,922
Securities available for sale
Purchases (31,595) (18,696) --
Maturities and repayments 9,894 321 --
Proceeds from sales 5,740 1,067 --
Securities held to maturity
Purchases (84,208) (106,104) (97,332)
Maturities and repayments 81,778 123,503 97,649
Net change in loans (29,940) (10,090) (28,431)
Premises and equipment expenditures (599) (322) (315)
Proceeds from sale of premises and equipment 56 183 --
Purchases of other real estate -- (244) --
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
7.
<PAGE> 12
THE DELAWARE COUNTY BANK AND TRUST COMPANY
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Proceeds from sale of other real estate 30 20 182
-------- --------- --------
Net cash from investing activities (48,844) 2,401 (10,325)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 35,235 14,104 12,112
Net change in short-term borrowings 5,792 (806) (752)
Repayment of long-term debt (23) (21) (19)
Cash dividends paid (955) (731) (703)
-------- --------- --------
Net cash from financing activities 40,049 12,546 10,638
-------- --------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,820) 18,405 3,519
Cash and cash equivalents at beginning of year 36,179 17,774 14,255
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $32,359 $36,179 $17,774
======== ========= ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
8.
<PAGE> 13
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of The Delaware County Bank and Trust Company (The Bank)
and its wholly-owned subsidiaries, D.C.B. Corporation and 362 Corp. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The Bank is in the process of forming a holding company, D.C.B. Financial
Corporation, which will issue common stock to current shareholders in exchange
for shares of The Bank's common stock. The formation of the holding company and
the merger with The Bank is subject to shareholder approval from a vote to take
place on February 26, 1997. This internal reorganization will be accounted for
similar to a pooling-of-interests, where the historical carrying values of the
Bank's assets and liabilities will be carried forward to the consolidated
financial statements.
NATURE OF OPERATIONS: The Bank's revenues, operating income, and assets are
primarily from the banking industry. The Bank operates 13 offices in Delaware
and Union Counties. Loan customers include a wide range of individuals,
businesses, and other organizations. A major portion of loans are secured by
various forms of collateral including real estate, business assets, consumer
property, and other items. The Bank's primary funding source is deposits from
customers in its market area. The Bank also purchases investments, operates a
trust department and engages in mortgage banking operations.
USE OF ESTIMATES: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The collectibility of loans, fair values of financial
instruments, and status of contingencies are particularly subject to change.
CASH FLOW REPORTING: For the purpose of reporting cash flows, cash and cash
equivalents include those amounts included in the balance sheet captions, "Cash
and due from banks" and "Federal funds sold." The Bank reports net cash flows
for customer loan and deposit transactions and short-term borrowings.
The Bank paid interest of $10,077, $7,860, and $6,086 for 1996, 1995 and 1994.
Cash paid for income taxes was $2,200, $1,567, and $702 for 1996, 1995 and 1994.
BANKERS' ACCEPTANCES: Bankers' acceptances represent short term drafts that the
issuing bank has agreed to pay at maturity. Interest income on these instruments
is accrued over the contract period.
- --------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 14
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Securities are classified as trading when held for short
term periods in anticipation of market gains, and are carried at fair value.
Securities are written down to fair value when a decline in fair value is not
temporary. The Bank held no trading securities during any period presented and
has no intent to purchase securities for trading.
Realized gains and losses on sales are determined using the amortized cost of
the specific security sold. Interest income includes amortization of purchase
premiums and discounts.
LOANS HELD FOR SALE: Certain residential mortgage loans are originated for sale
in the secondary mortgage loan market. These loans are included in the real
estate mortgage loans and are carried at the lower of cost or estimated fair
value in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income. To mitigate the interest rate risk, fixed
commitments may be obtained at the time loans are originated or identified for
sale. Loans originated and held for sale totaled $758 and $262 at year-end 1996
and 1995.
LOANS RECEIVABLE: Loans are reported at the principal balance outstanding, net
of deferred loan fees and costs. Interest income is reported on the interest
method and includes amortization of net deferred loan fees and costs over the
loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days. Payments received on such loans are
reported as principal reductions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
- --------------------------------------------------------------------------------
(Continued)
10.
<PAGE> 15
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Effective January 1, 1995, The Bank adopted the provisions of Statement of
Financial Accounting Standard (SFAS) Nos. 114 and 118, which modify the
accounting for impaired loans. A loan is considered impaired when management
believes that full collection of principal and interest is not probable. The
Bank reduces the carrying value of impaired loans to the present value of
expected future cash flows, or to the fair value of collateral if the loan is
collateral dependent, by allocating a portion of the allowance for loan losses
to such loans. If these allocations cause the allowance for loan losses to
require an increase, such increase is reported as bad debt expense. The effect
of adopting and applying these standards in 1996 and 1995 was not material.
Loan impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. In addition, loans held for sale and
leases are excluded from consideration of impairment. Loans are evaluated for
impairment when payments are delayed, typically 90 days or more, or when the
internal grading system indicates a doubtful classification. The carrying values
of impaired loans are periodically adjusted to reflect cash payments, revised
estimates of future cash flows and increases in the present value of expected
cash flows due to the passage of time. Cash payments representing interest
income are reported as such. Other cash payments are reported as reductions in
carrying value, while increases or decreases due to changes in future payments
and due to the passage of time are reported as part of the provision for loan
losses.
CONCENTRATIONS OF CREDIT RISK: The Bank grants commercial, real estate and
consumer loans primarily in Delaware County, Ohio and the surrounding areas.
Loans for commercial real estate, farmland, construction and land development
purposes comprise 34% of loans. Loans for commercial purposes comprise 17% of
loans and includes loans secured by business assets and agricultural loans.
Loans for residential real estate purposes aggregate 23% of loans. Loans and
leases for consumer purposes, including home equity loans, are primarily secured
by consumer assets and represent 25% of total loans. The borrowers' ability to
honor their contracts is not dependent upon the economic status of any single
industry.
PREMISES AND EQUIPMENT: Asset cost is reported net of accumulated depreciation.
Depreciation expense is calculated using the straight-line method based on the
estimated useful lives of the assets. These assets are reviewed for impairment
when events indicate the carrying amount may not be recoverable.
- --------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 16
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
OTHER REAL ESTATE OWNED: Real estate acquired in settlement of loans is
initially reported at estimated fair value at acquisition. After acquisition, a
valuation allowance reduces the reported amount to the lower of the initial
amount or fair value less costs to sell. Expenses incurred are charged to
operations as incurred. Gains and losses on disposition, and changes in the
valuation allowance are reported in other expense.
LOAN SERVICING: The Bank has sold various loans to the Federal Home Loan
Mortgage Corporation (FHLMC) while retaining the servicing rights. Gains and
losses on loan sales are recorded at the time of the cash sale.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," was adopted on January
1, 1996. It requires entities to recognize, as separate assets, rights to
service mortgage loans for others, regardless of how these rights are acquired.
Mortgage servicing rights acquired through either the purchase or the
origination of mortgage loans which are subsequently sold with servicing rights
retained should be determined by allocating the total cost of the mortgage loans
to mortgage servicing rights and to loans (without the mortgage servicing
rights) based on their relative fair values. Mortgage servicing rights recorded
as a separate asset are amortized in proportion to, and over the period of,
estimated net servicing income. This pronouncement was superseded by SFAS No.
125 (see Note 16). Mortgage servicing rights totaled $107 at year-end 1996, and
are included in "Accrued interest receivable and other assets," on the
accompanying balance sheet.
INCOME TAXES: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the 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.
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates. The fair value estimates of existing on- and off-balance sheet
financial instruments does not include the value of anticipated future business
or the values of assets and liabilities not considered financial instruments.
- --------------------------------------------------------------------------------
(Continued)
12.
<PAGE> 17
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
EARNINGS PER COMMON SHARE AND DIVIDENDS DECLARED PER COMMON SHARE: Earnings and
dividends per share computations are based on the weighted average number of
shares of common stock outstanding during the year. In January 1995, the Board
of Directors voted to split the stock on a 3 for 1 basis and changed the par
value of each share from $2.50 to $1.00. The split was effective and payable on
June 14, 1995. All per share data has been retroactively adjusted for the stock
split. The bank transferred $237 from paid-in capital to common stock due to the
reduction in par value.
The weighted average number of shares outstanding was 1,424,400 for all periods
presented.
FINANCIAL STATEMENT PRESENTATION: Some items in prior financial statements have
been reclassified to conform with the current presentation.
NOTE 2 - SECURITIES
Year-end securities were as follows:
<TABLE>
<CAPTION>
.....................1996...................
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
SECURITIES AVAILABLE FOR SALE
<S> <C> <C> <C> <C>
U.S. Treasury securities $5,483 $35 $ -- $5,518
Obligations of U.S. government
agencies and corporations 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
======= ==== ==== =======
SECURITIES 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 securities held to maturity $31,871 $383 $(83) $32,171
======= ==== ==== =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
13.
<PAGE> 18
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
....................1995.................
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
SECURITIES AVAILABLE FOR SALE
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,492 $ 51 $ -- $ 6,543
Obligations of U.S. government
agencies and corporations 18,272 167 (7) 18,432
Mortgage-backed securities 5,868 88 (14) 5,942
------- ----- ----- -------
Total debt securities 30,632 306 (21) 30,917
Equity securities 607 (46) 561
------- ----- ----- -------
Total securities available for sale $31,239 $ 306 $ (67) $31,478
======= ===== ===== =======
SECURITIES HELD TO MATURITY
Obligations of U.S. government
agencies and corporations $ 8,892 $ 2 $ (1) $ 8,893
Obligations of states and
political subdivisions 6,489 197 (22) 6,664
Corporate obligations 3,936 41 (6) 3,971
Mortgage-backed securities 10,160 25 (122) 10,063
------- ----- ----- -------
Total securities held to maturity $29,477 $ 265 $(151) $29,591
======= ===== ===== =======
</TABLE>
The amortized cost and approximate fair value of debt securities at year-end
1996, by contractual maturity, are shown below. Expected maturities will 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.
<TABLE>
<CAPTION>
Available For Sale Held To Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 4,852 $ 4,872 $ 1,821 $ 1,829
Due from one to five years 11,487 11,556 4,069 4,103
Due from five to ten years 16,547 16,627 1,761 1,865
Due after ten years 1,038 1,022 525 555
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
14.
<PAGE> 19
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Mortgage-backed securities 11,421 11,480 23,695 23,819
------- ------- ------- -------
$45,345 $45,557 $31,871 $32,171
======= ======= ======= =======
</TABLE>
NOTE 2 - SECURITIES (Continued)
Proceeds from sales of securities available for sale totaled $5,740 for 1996 and
$1,067 for 1995. Gross gains of $4 and $26 and gross losses of $10 and $9 were
realized on those sales. No securities were sold in 1994.
At year-end 1996, 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.
During 1995, securities with an amortized cost of $13,600 were reclassified from
held to maturity to available for sale, based on new interpretations issued for
SFAS No. 115. At the time of the reclassification, the related unrealized gain
of $90 was recorded as an increase in shareholders' equity, net of tax.
Investments with a carrying value of approximately $29,376 and $28,400 as of
year-end 1996 and 1995, were pledged to secure public funds or other
obligations.
NOTE 3 - LOANS AND LEASES
Year-end loans and leases were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Loans secured by real estate
Real estate construction $ 23,489 $ 10,235
Residential 47,006 36,564
Commercial and farmland 45,487 40,328
Commercial and industrial 29,935 33,854
Agricultural 5,098 4,683
State and political subdivisions 1,803 2,094
Consumer and credit card 38,269 35,493
Lease financing, net 6,759 4,988
Home equity lines of credit 5,746 5,300
------------ ------------
$ 203,592 $ 173,539
============ ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
15.
<PAGE> 20
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 3 - LOANS AND LEASES (Continued)
The following is a summary of the components of The Bank's net investment in
direct financing equipment and vehicle leases at year-end:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Minimum lease payments receivable $3,587 $3,182
Lease residuals (unguaranteed) 4,215 2,573
------ ------
7,802 5,755
Unearned income 1,043 767
------ ------
$6,759 $4,988
====== ======
</TABLE>
Mortgage loans serviced for others totaled $61,930 and $56,324 at year-end 1996
and 1995.
NOTE 4 - RELATED PARTY LOANS
Certain directors, executive officers and principal shareholders of The Bank,
including their immediate families and companies in which they are principal
owners, were loan customers during 1996 and 1995.
A summary of activity on these borrower relationships with aggregate debt
greater than $60,000 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Beginning balance $ 3,432 $ 3,313
New loans and advances 4,084 930
Payments (4,782) (811)
------- -------
Ending balance $ 2,734 $ 3,432
======= =======
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
16.
<PAGE> 21
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,940 $ 1,865 $ 2,455
Provision for loan losses 366 362 145
Loans charged off (528) (424) (983)
Recoveries 145 137 248
------- ------- -------
Balance at end of year $ 1,923 $ 1,940 $ 1,865
======= ======= =======
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Year-end loans with no allowance for loan
losses allocated $ -- $1,430
Year-end loans with allowance for loan
losses allocated 41 83
Amount of the allowance allocated 14 50
Average of impaired loans during the year 249 1,647
Interest income recognized during the year 295 85
Cash-basis interest income recognized 289 79
</TABLE>
A large impaired loan was paid off in January, 1996.
NOTE 6 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
1996 1995
Land $ 286 $ 336
Buildings 1,761 1,685
Furniture and equipment 3,162 2,648
Leasehold improvements 1,070 1,070
------ ------
6,279 5,739
Accumulated depreciation and amortization 3,575 3,150
------ ------
$2,704 $2,589
====== ======
- --------------------------------------------------------------------------------
(Continued)
17.
<PAGE> 22
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 7 - LEASE COMMITMENTS
The Bank has long-term operating leases for branch offices and equipment which
expire at various dates through 2017. Rental expense on lease commitments for
1996, 1995 and 1994 amounted to $210, $248 and $261. In 1996, The Bank entered
into an agreement to lease a branch facility from a partnership in which a
director of The Bank holds an interest. The lease is expected to commence on
April 1, 1997 for a term of twenty years with annual rental payments expected to
be $84. The following is a summary of the future minimum lease payments on these
obligations:
<TABLE>
<S> <C>
1997 $ 331
1998 352
1999 246
2000 200
2001 166
Thereafter 1,518
-----------
$ 2,813
===========
</TABLE>
NOTE 8 - INTEREST-BEARING DEPOSITS
Year-end interest-bearing deposits were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest-bearing demand and money
market deposits $118,150 $ 99,795
Savings deposits 38,389 38,692
Certificates of deposit
In denominations under $100,000 56,655 43,041
In denominations of $100,000 or more 22,108 17,073
-------- --------
$235,302 $198,601
======== ========
</TABLE>
At year-end 1996, the scheduled maturities of certificates of deposit were as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 51,370
1998 14,721
1999 12,672
--------
$ 78,763
========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
18.
<PAGE> 23
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 9 - BORROWED FUNDS
The following table is a summary of year-end borrowings:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
120 day Federal Home Loan Bank advance due
January 1997 - 5.75% $5,000 $ --
Demand note issued to the U.S. Treasury 1,323 508
6 month promissory note due May 1997 and May
1996 - prime rate 221 244
Mortgage note - monthly principal and
interest payments through 1997, collateralized
by first mortgages - 9% 2 25
------ ----
$6,546 $777
====== ====
</TABLE>
During 1996, the Bank joined the Federal Home Loan Bank ("FHLB") of Cincinnati.
As a member, the Bank has the ability to obtain up to approximately $21,210 in
advances from the FHLB. The advances are collateralized by a blanket pledge of
the Bank's residential mortgage loan portfolio and FHLB stock.
NOTE 10 - RETIREMENT PLANS
EMPLOYEE 401(k) PLAN: The Bank provides a 401(k) savings plan for all eligible
employees. To be eligible, an individual must have at least one thousand hours
of service during a twelve consecutive month period and must be 20 or more years
old. Participants are permitted to make voluntary contributions to the Plan of
up to 10% of individual compensation. The Bank matches those contributions based
on the participant's Salary Savings Agreement and a discretionary percentage.
Employee voluntary contributions are vested at all times and Bank contributions
are fully vested after three years. The 1996, 1995 and 1994 expense related to
this plan was $168, $153 and $132, respectively.
- --------------------------------------------------------------------------------
(Continued)
19.
<PAGE> 24
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 11 - OTHER NONINTEREST EXPENSE
Other noninterest expense consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Advertising and marketing $ 245 $ 344 $ 396
Ohio franchise tax expense 414 374 347
Postage, freight and courier 270 245 233
Office supplies 281 248 249
Check printing expense 230 213 221
Litigation expense, including
professional fees, net settlement
and insurance recovery 26 225 778
Other expenses 1,257 1,147 1,110
------ ------ ------
$2,723 $2,796 $3,334
====== ====== ======
</TABLE>
NOTE 12 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current tax expense $2,016 $1,475 $771
Deferred tax expense 277 87 150
------ ------ ----
$2,293 $1,562 $921
====== ====== ====
</TABLE>
Year-end deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
Allowance for loan losses in excess of tax reserve $408 $372
Leases 10
Deferred loan fees 74 58
Depreciation 51 62
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
20.
<PAGE> 25
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities
Unrealized gain on investment securities available
for sale (59) (81)
Investment accretion (82) (70)
Federal Home Loan Bank stock dividends (14)
Leases (253)
Mortgage servicing rights (37)
Other (4) (12)
----- -----
Net deferred tax asset $ 84 $ 339
===== =====
</TABLE>
The difference between the financial statement tax provision and amounts
computed by applying the statutory federal income tax rate of 34.0% to income
before income taxes was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes computed at the
statutory federal tax rate
on pre-tax income $ 2,439 $ 1,749 $ 1,129
Tax effect of
Tax exempt income (155) (209) (229)
Other 9 22 21
------- ------- -------
$ 2,293 $ 1,562 $ 921
======= ======= =======
Effective tax rate 32.0% 30.4% 27.7%
======= ======= =======
</TABLE>
NOTE 13 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
LITIGATION: There are various contingent liabilities that are not reflected in
the financial statements, including claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material effect on financial condition or results of operations.
RESERVE REQUIREMENTS: The Bank was required to have $3,468 and $3,700 of cash on
hand or on deposit with the Federal Reserve to meet regulatory reserve
requirements at year-end 1996 and 1995. These balances do not earn interest.
- --------------------------------------------------------------------------------
(Continued)
21.
<PAGE> 26
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 13 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK: Some financial instruments
are used in the normal course of business to meet the financing needs of
customers. These financial instruments include commitments to extend credit,
standby letters of credit and other financial guarantees. These involve, to
varying degrees, credit and interest-rate risk in excess of the amount reported
in the financial statements.
Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit, and financial guarantees written. Each customer's credit worthiness is
evaluated on a case-by-case basis. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, upon extension of credit is based on
management's credit evaluation. Collateral varies but may include accounts
receivable, inventory, property, equipment, income-producing commercial
properties, residential real estate and consumer assets.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments does not necessarily represent
future cash requirements. Standby letters of credit and financial guarantees
written are conditional commitments to guarantee a customer's performance to a
third party.
A summary of the notional or contractual amounts of financial instruments with
off-balance sheet risk at year-end follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commitments to extend credit $44,813 $39,007
Standby letters of credit 2,254 1,342
</TABLE>
At year-end 1996 and 1995, and included above, commitments to make fixed-rate
loans at current market rates totaled $3,163 and $907. Fixed-rate standby
letters of credit totaled $521 and $310 as of year-end 1996 and 1995. The
interest rates on fixed-rate commitments ranged from 6.67% to 11.00% for 1996
and from 8.75% to 10.00% for 1995.
- --------------------------------------------------------------------------------
(Continued)
22.
<PAGE> 27
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY MATTERS
The Bank is subject to regulatory capital requirements administered by federal
banking agencies. Capital adequacy guidelines and prompt corrective action
regulations involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators about components, risk weightings, and other factors, and the
regulators can lower classifications in certain cases. Failure to meet various
capital requirements can initiate regulatory action that could have a direct
material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
The minimum capital requirements are as follows:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
--------------- Tier 1 capital
Total Tier 1 to average assets
----- ------ -----------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8 4 4
Undercapitalized 6 3 3
</TABLE>
At year-end, actual capital levels and minimum required levels were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
----------- -----------------------
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
1996
Total capital (to risk weighted assets) $34,350 15.72% $17,484 8.0% $21,855 10.0%
Tier 1 capital (to risk weighted assets) 32,427 14.84 8,742 4.0 13,113 6.0
Tier 1 capital (to average assets) 32,427 10.20 12,719 4.0 15,899 5.0
</TABLE>
At year-end 1996, the Bank was categorized as well capitalized.
- --------------------------------------------------------------------------------
(Continued)
23.
<PAGE> 28
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY MATTERS (Continued)
Dividends paid by The Bank are subject to restrictions by banking regulations.
The most restrictive provision requires approval by regulatory authorities if
dividends declared in any year exceeds the year's net income, as defined, plus
the retained net profits of the two preceding years. These restrictions do not
presently limit The Bank from paying normal dividends.
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST: For these short-term
instruments, the carrying amount approximates fair value.
SECURITIES: For debt and marketable equity securities held for investment
purposes, fair values are based on quoted market prices or dealer quotes. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar instruments.
LOANS AND LEASES: The fair value of most types of loans is estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers. Leases are not considered financial instruments
under generally accepted accounting principles and are therefore not included in
the following schedule.
MORTGAGE SERVICING RIGHTS: For these instruments, the carrying value
approximates fair value.
DEPOSITS: The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated by discounting
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
SHORT-TERM BORROWINGS: For these instruments, the carrying value approximates
fair value.
LONG-TERM DEBT: The fair value of long-term debt is estimated by discounting
future cash flows using currently available rates for similar financing.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES WRITTEN: The fair values of these items are not material and are
therefore not included on the following schedule.
- --------------------------------------------------------------------------------
(Continued)
24.
<PAGE> 29
THE DELAWARE COUNTY BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
The estimated year-end fair values of financial instruments were as follows:
<TABLE>
<CAPTION>
..............1996........... ..............1995...........
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 32,359 $ 32,359 $ 36,179 $ 36,179
Securities available for sale 47,174 47,174 31,478 31,478
Securities held to maturity 31,871 32,171 29,477 29,591
Loans (excluding leases) 196,833 198,006 168,551 169,923
Mortgage servicing rights 107 107
Accrued interest receivable 2,152 2,152 1,780 1,780
Financial liabilities:
Noninterest-bearing deposits (43,789) (43,789) (45,255) (45,255)
Interest-bearing deposits (235,302) (235,894) (198,601) (199,092)
Short-term borrowings (6,544) (6,544) (752) (752)
Long-term borrowings (2) (2) (25) (25)
Accrued interest payable (773) (773) (648) (648)
</TABLE>
NOTE 16 - NEW ACCOUNTING STANDARDS
Effective on January 1, 1997, 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 such as asset
securitizations, repurchase agreements, wash sales, loan participations,
transfers of loans with recourse and servicing of loans. SFAS No. 125 provides
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The Standard also requires measuring
instruments that have a substantial prepayment risk at fair value, much like
securities classified as available for sale. 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. The adoption of SFAS
No. 125 did not have a material impact on The Bank's financial statements on
January 1, 1997.
- --------------------------------------------------------------------------------
(Continued)
25.
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
The Delaware County Bank and Trust Company
Delaware, Ohio
We have audited the accompanying consolidated balance sheets of The Delaware
County Bank and Trust Company as of December 31, 1996 and 1995 and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended December 31, 1996, 1995 and 1994. These financial
statements are the responsibility of The Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Delaware County Bank and Trust Company as of December 31, 1996 and 1995 and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, The Bank
changed its method of accounting for loan servicing and impaired loans in 1996
and 1995, respectively, to comply with new accounting guidance.
Crowe, Chizek and Company LLP
Columbus, Ohio
January 22, 1997
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.B.
FORM F-2 ANNUAL REPORT OF
THE DELAWARE COUNTY BANK & TRUST COMPANY
TO THE FEDERAL DEPOSIT INSURANCE CORPORATION
<PAGE> 2
FORM F-2
Annual Report Pursuant to Section 13
of the Securities Exchange Act of 1934
For the Calendar Year Ended FDIC Certificate
December 31, 1996 Number 16940
THE DELAWARE COUNTY BANK AND TRUST COMPANY
An Ohio Corporation IRS Employer Identification
Number 31-4376006
41 North Sandusky Street
Delaware, Ohio 43015
Telephone (614) 363-1133
Securities registered pursuant to Section 12(g) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Class on which Registered
-------------- -------------------
<S> <C>
Common Shares None
($1.00 Par Value)
</TABLE>
Indicate by check mark if disclosure of delinquent filers pursuant to item 10 is
not contained herein, and will not be contained, to the best of bank's
knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form F-2 or any amendment of this Form F-2. [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Bank was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
------- -------
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last reported sales price of such stock
on March 1, 1997 was $63,029,700.
The number of shares outstanding of the registrant's Common Stock, the
registrant's only class of outstanding capital stock, as of March 1, 1997 is
1,424,400.
1
<PAGE> 3
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1. Annual Report to Shareholders for Year Ended December 31, 1996
Incorporated in the following portion of Form F-2
Part I _ Item 1, 2, 3
Part II - Items 5, 6,
7 & 8
Part III - Item 9
Part IV - Item 11
2. Proxy Statement and Notice of Annual Meeting of Shareholders
to be held May 21, 1997
Part I - Item 4
Part III - Item 9
2
<PAGE> 4
INDEX TO 1996 ANNUAL REPORT ON FORM F-2
---------------------------------------
PART I
------
<TABLE>
<CAPTION>
ITEM
- ----
<S> <C> <C>
1 Business . . . . . . . . . Schedule Attached. . . Page 4
2 Properties . . . . . . . . Schedule Attached. . . Page 5
3 Legal Proceedings..........Schedule Attached. . . Page 7
4 Security Ownership . . . . 1997 Proxy Statement. .Page 5
PART II
-------
5 Market for Common Stock. . .1996 Annual Report . .Page 6
6 Selected Financial Data. . .1996 Annual Report . .Page 2
7 Management's Discussion. . .1996 Annual Report. . Page 7
Schedule Attached . . Page 7
8 Financial Statements & Supplementary Data
Consolidated
Balance Sheets. . . . . 1996 Annual Report. . Page 8
Consolidated Statements
of Income. . . . . . . .1996 Annual Report. .Page 8
PART III
--------
9 Directors & Executive Officers
Directors. .. . . . . . . 1997 Proxy Statement
Pages 3 and 4
Executive Officers. . . . Schedule Attached . . Page 11
10 Management Compensation.....Schedule Attached . . Page 12
PART IV
-------
11 Exhibits, Financial Statements and Schedules
Consolidated
Balance Sheets. . . . . 1996 Annual Report. . Page 8
Consolidated Statements
of Income. . . . . . . .1996 Annual Report. . Page 8
Consolidated Statements of Changes
in Shareholders' Equity.1996 Annual Report. . Page 9
Consolidated Statements
of Cash Flows. . . . . .1996 Annual Report. . Page 9
Schedule-U.S. Treasury, U.S. Government Agencies,
State & Political Subdivisions,
and Other Securities. . 1996 Annual Report. . Page 12
Schedule-Loans . . . . . . 1996 Annual Report. . Page 13
Schedule-Bank Premises
and Equipment . . . . . 1996 Annual Report. . Page 13
Schedule-Allowance for
Loan Losses. . . . . . .1996 Annual Report. . Page 13
Notes to Financial
Statements. . . . . . . . 1996 Annual Report. . Page 10
Signature Section. . . . . . . . . . . . . . . . . Page 16
Independent Auditors
Report of. . . . . . . . 1996 Annual Report. . Page 17
</TABLE>
3
<PAGE> 5
Part I
- ------
ITEM 1 - BUSINESS
- -----------------
The Delaware County Bank and Trust Company (The Bank) was chartered by the State
of Ohio in 1950 and is a member of the Federal Deposit Insurance Corporation.
The main office of The Bank is located in the City of Delaware, the county seat
of Delaware County. In addition to the main office two other full service
offices are located in Delaware as well as a drive thru bank and two drive up
Express ATM machines. A walk up ATM on the campus of Ohio Wesleyan University
was installed in 1992. There are six full service offices located in the
Villages of Galena, Ashley, Ostrander, Sunbury and Powell as well as on U.S.
Route 23 and Powell Road in Southern Delaware County. In 1989 for the first time
The Bank opened a branch outside of Delaware County in Marysville, Ohio, county
seat for Union County. In mid-year 1994 The Bank opened a second office in
Marysville. In addition to these counties, The Bank's market area for lending
and leasing also includes Franklin, Licking, Morrow and Marion counties. At
December 31, 1996, The Bank had total assets of $319.1 million, deposits of
$279.1 million and stockholders equity of $32.8 million.
The Bank is in the process of forming a holding company, DCB Financial Corp.,
which will issue common stock to current shareholders in exchange for shares of
The Bank's commons stock. The formation of the holding company and the merger
with The Bank received shareholder approval at a special meeting held February
26, 1997.
The Bank's primary business consists of attracting deposits from the general
public, both business and individual accounts. These funds are invested in
mortgage, commercial and consumer loans, leases, investment securities and
Treasury Notes and Bills. In addition, other revenue is derived from services
such as cash management, bond registrar and paying activities, as well as the
fees from servicing of accounts.
In October 1990, The Bank was granted trust powers by the Ohio Department of
Commerce Division of Banks. The Bank now offers trust and related fiduciary
services to its customers. The trust office is located in the Main office, but
services customers at all branches.
During 1990 The Bank established its own computer department within the bank.
The computer center has enabled The Bank to better service its customers in a
more efficient manner.
The Bank is not significantly affected by seasonal activity or large deposits of
any individual depositor. At year end 1996 the deposits of Public Funds were
6.3% of total deposits. This amount can fluctuate but not a material amount. No
material industry or group concentrations exist in the loan portfolio.
Competition
- -----------
Because of the location of The Bank close to a major metropolitan area
(Columbus, Ohio, the State Capitol), competition is significant from the banks
and savings and loans in the area. The Bank continues to face competition from
the money market funds and other investments through the stock and mutual funds.
The Bank is competitive with interest rates and loan fees that it charges, in
pricing and variety of accounts it offers to the depositor.
Employees
- ---------
The Bank had 172 employees at December 31, 1996 of whom 153 are full time and 19
are part time. The Bank provides a number of benefits such as health, dental and
life insurance for all, as well as education assistance for qualified employees.
4
<PAGE> 6
A 401(K) retirement plan is in place for eligible employees. None of the
employees are represented by a union or collective bargaining group.
The Bank is not engaged in any material line of business other than normal
commercial bank activities.
The Bank and its wholly-owned subsidiaries, DCB Corporation, 362 Corp and ORECO,
Inc., do not have any operations or interests in any foreign country. The only
function of DCB Corporation is to hold title to the real estate where the
business of The Bank is conducted. 362 Corp holds equity securities. ORECO, Inc.
was formed to hold other real estate, but has not been funded as of December 31,
1996.
ITEM 2 - PROPERTIES
- -------------------
Mortgage
Location Balance
- -------- -------
Main Office - 41 N. Sandusky Street $ 110,591
- ----------- Delaware, Ohio
Delaware County Bank - Mortgage
This is a four story office building occupied primarily by the Bank. There are
two offices leased to tenants. Purchased in 1958, the major portion of the
building has been remodeled to meet the needs of the Bank and the tenants. The
entire banking office has been remodeled and updated since acquisition, the most
recent being in 1989 and 1990. The first floor has a walk-up ATM accessible 24
hours a day.
Drive-In Office -33 W. William St. NONE
- --------------- Delaware, Ohio
This downtown drive-in facility was constructed and opened in 1970 to provide
drive-in facilities. It operates three drive-in units and walk-in lobby service.
Delaware Center Branch Office NONE
- -----------------------------
199 S. Sandusky Street
Delaware, Ohio
This is a full service office. The facility was occupied and opened for business
in March 1981 and provides four drive-in units and ample parking. In 1988 a
drive-up Express ATM was constructed on the site.
Galena Branch Office -Galena, Ohio NONE
- --------------------
This full service office with one drive-in unit was constructed in 1971 to
replace an older building inadequate to service their community needs. In 1992 a
drive-up Express ATM was added to the location.
Ostrander Branch Office - NONE
- -----------------------
Ostrander, Ohio
This full service office was obtained through a merger with the Ostrander
Banking Company in 1967. The offices are adequate to service their community
needs.
Green Meadows Branch Office - $ 1,978
- ---------------------------
U.S. Rt. 23 at Powell Rd.
Nations Bank - Mortgage
This office was opened for business October 3, 1977 and is located in Southern
Delaware County. Earlier in the year 1977, DCB Corporation exercised its option
to purchase the property from Nationwide Communications, Inc. Approximately
one-third of the building was remodeled into a full service banking office with
two
5
<PAGE> 7
drive-in windows and a walk-up ATM. Part of the building was leased to
Nationwide Communications, Inc., however the Radio Station vacated the property
in September, 1995. Nationwide Insurance Companies operates a large training
center adjacent to the bank's property. In 1987 another portion of the building
was remodeled for the bank's use. The Bank occupies approximately two-thirds of
the building at this time.
Ashley Branch Office - Ashley, Ohio NONE
- --------------------
This full service office was included in the purchase of The Farmers Savings
Bank Company, Ashley, on March 31, 1984. A walk up ATM was added in 1996. The
offices are adequate to serve their community needs.
Buehlers Central Office - Delaware, Ohio LEASE
- -----------------------
This full service office was opened in April, 1987. It is located in the
northwest section of Delaware. It provides four drive-in lanes and an in-store
ATM machine. It is a leased facility with the original term being five years and
nine successive five year extensions.
Marysville Banking Center - Marysville, Ohio LEASE
- -------------------------
This full service office was opened in July, 1989. It is located in a shopping
center on the western side of Marysville. It has one drive-up lane. It is a
leased facility with the original term being five years with right to renew for
an additional five years. In December, 1995 a drive-up Express ATM was added in
the shopping center.
Marysville Banking Center II - Marysville, Ohio LEASE
- ----------------------------
This full service office was opened in 1994 and is located in downtown
Marysville. It is a leased facility with the original term being five years with
the right to an extension of five years.
Powell Office - Powell, Ohio NONE
- -------------
This property is located at the intersection of the two main streets in the
Village of Powell in Southern Delaware County. Powell is a part of a rapidly
expanding suburban residential area of metropolitan Columbus. It was purchased
in 1974 as a potential branch office site. The branch opened in the remodeled
residence in May, 1990. The facility provides a full service office with three
drive-in lanes and a walk-up ATM facility.
Sunbury Office - Sunbury, Ohio LEASE
- --------------
This full service office was opened in March, 1991. It is located in a small
shopping center on the western side of Sunbury. It has one drive-up lane and a
drive-up ATM Express Bank. It is a leased facility with the original term being
five years with right to renew for an additional five years.
Property Adjacent to Main Office - 3 W. Winter St. NONE
- --------------------------------
This building was purchased in June 1978. The Bank has remodeled the second
floor for use by the Operations division of The Bank. An enclosed, elevated
walkway connects this to the Main Office building. The first floor was remodeled
to accommodate the lending division and is accessed on the ground floor of 3 W
Winter Street.
ATM Express Bank - W. Central Ave. LEASE
- ---------------- Delaware, Ohio
This express bank is located on leased property in a parking lot on the west
side of Delaware. It is a drive-up ATM only. The lease on this property will
expire in 2000.
6
<PAGE> 8
ATM Express Bank - Ohio Wesleyan University LEASE
- ----------------
This express bank was installed for the convenience of the Ohio Wesleyan
University students and faculty in the Campus Center.
ATM Express Bank - 8208 Marysville Rd. West LEASE
- ---------------- Ostrander, Ohio
This walk-up ATM is located on leased property in a gas station/convenience
store in close proximity to the Ostrander Banking Center. The lease will expire
2001.
Operations Center - 163 North Sandusky St. LEASE
- ------------------ Delaware, Ohio
In late 1996 The Bank entered into a lease agreement for the above property. As
of December 31, 1996, The Bank was in the process of completing leasehold
improvements and no bank personnel were yet located in the facility. In 1997 the
operations departments will be relocating to this facility. The lease will
expire 2006.
------------
Total Mortgages on Properties $ 112,569
------------
The foregoing properties are owned in fee simple by the DCB Corporation, a
wholly owned subsidiary of The Bank. The DCB Corporation assumes responsibility
for taxes, insurance on all properties and maintenance of the properties with
rental units in them. Additional information on the investment in premises can
be found in footnotes 1, 6, 7 and 9 of the Annual Report for 1996 incorporated
by reference.
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
The Delaware County Bank and Trust Company (The Bank) is involved in legal
proceedings arising in the ordinary course of business. Management does not
expect the results of these actions to have a material effect on The Bank's
financial position or results of operation.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------------------------------------------------------------
MANAGEMENT
----------
Reference is made to page 5 of the Proxy Statement for the 1997 Annual Meeting
of Shareholders of The Bank for incorporation of information concerning
ownership of common stock of The Bank by certain beneficial owners and
management.
Part II
- -------
ITEM 5 - MARKET FOR BANK'S COMMON STOCK
- ---------------------------------------
Trading of The Bank's capital stock has been on an unlisted local trading basis
since its organization in 1950. The additional information regarding the
securities can be found on page 6 of the 1996 Annual Report and is incorporated
here by reference.
ITEM 6 SELECTED FINANCIAL DATA
- -------------------------------
The Five Year Summary of Selected Financial Data is included in the 1996 Annual
Report page 2 and is incorporated here by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ----------------------------------------------------------
CONDITION AND RESULTS OF OPERATION
- ----------------------------------
Management's discussion and analysis is included in the 1996 Annual Report page
7 and is incorporated here by reference.
7
<PAGE> 9
STATISTICAL INFORMATION
- -----------------------
The following information is submitted using daily averages where available.
Additional information is included in the Annual Report and is incorporated by
reference in this area.
I Distribution of Assets, Liabilities and Shareholders' Equity;
- - -------------------------------------------------------------
Interest Rates and Interest Differential
----------------------------------------
The Five Year Summary of Selected Financial Data on page 2 of the 1996 Annual
Report includes information based on daily averages for the assets, liabilities,
and equity and is incorporated by reference. Non accrual loans are included in
the loans. The additional information provided in the attachments is based on
classifying Term Federal Funds with Daily Federal Funds Sold and Bankers
Acceptances as investments rather than in the net Loans figure. See Attachments
(I) and (II), pages 13 and 14 of this report.
II INVESTMENT PORTFOLIO
- -- --------------------
Information regarding Securities can be found in the 1996 Annual Report in Note
2 page 12 and Attachment III page 15 of this report and are incorporated here by
reference. In addition the following schedule is submitted to show the total
debt securities based on maturity and repricing opportunities at year end 1996.
INVESTMENT PORTFOLIO
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAR VALUE BOOK VALUE HTM PRE-TAX BOOK
MARKET VALUE AFS YIELD
(in $000's)
<S> <C> <C> <C> <C> <C> <C>
AGENCY AFS HTM AFS HTM AFS HTM
------
UNDER 1 YR 2,600 000 2,616 000 6.81 0.00
1-5 YRS 8,320 000 8,295 000 6.31 0.00
5-10 YRS 16,270 000 16,625 000 6.37 0.00
10 + YRS 800 000 830 000 6.25 0.00
------ ------ ------ ------
TOTAL 27,990 000 28,366 000 6.39 0.00
GOV'T ISSUES AFS HTM AFS HTM AFS HTM
------------
UNDER 1 YR 2,250 000 2,257 000 5.93 0.00
1-5 YRS 3,250 000 3,261 000 6.22 0.00
------ ------ ------ ------
TOTAL 5,500 000 5,518 000 6.10 0.00
MUNICIPAL AFS HTM AFS HTM AFS HTM
---------
UNDER 1 YR 000 970 000 971 0.00 4.60
1-5 YRS 000 2,651 000 2,689 0.00 5.12
5-10 YRS 000 1,790 000 1,761 0.00 6.13
10 + YRS 200 525 193 525 4.97 6.60
------ ------ ------ ------
TOTAL 200 5,936 193 5,946 4.97 5.46
OTHER CORP AFS HTM AFS HTM AFS HTM
----------
UNDER 1 YR 000 850 000 850 0.00 6.48
1-5 YRS 000 1,350 000 1,380 0.00 6.44
------ ------ ------ ------
TOTAL 000 2,200 000 2,230 0.00 6.46
MTG BACK AFS HTM AFS HTM AFS HTM
--------
UNDER 1 YR 10,546 2,265 10,805 2,274 6.89 6.14
1-5 YRS 0 4,423 0 4,491 0.00 6.20
5-10 YRS 0 3,112 0 3,159 0.00 6.84
10 + YRS 642 13,346 675 13,771 7.19 7.12
------ ------ ------ ------
TOTAL 11,188 23,146 11,480 23,695 6.91 6.81
------ ------ ------ ------
GRAND TOTAL 44,878 31,282 45,557 31,871 6.48 6.54
------ ------ ------ ------
</TABLE>
8
<PAGE> 10
III. LOAN PORTFOLIO
A. The following schedule shows balances by type of loan for the
last five year ends.
<TABLE>
<CAPTION>
Outstanding Balance
Year ended 12-31
(in $000's) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Commercial & Industrial 36,836 40,631 39,381 29,673 34,101
Personal Loans &
Credit Cards 38,269 35,493 35,721 23,275 18,957
Real Estate & Home Equity 121,728 92,427 85,555 80,748 70,696
Lease Financing-Net 6,759 4,988 2,817 2,204 2,818
Term Fed Funds 0 0 0 0 6,000
------- ------- ------- ------- -------
203,592 173,539 163,474 135,900 132,572
------- ------- ------- ------- -------
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest
Rates. The following schedule is based on Call Report information
for the maturity and repricing of loans less non-accrual and
excluding credit cards, readicredit, and leases.
(in $000's)
<TABLE>
<CAPTION>
(1) Fixed Rate One year Over one Over Total
or less thru five five
<S> <C> <C> <C> <C>
Personal Loans 2,369 37,045 3,644 43,058
Commercial 1,576 5,728 1,946 9,250
Real Estate 5,421 1,680 8,668 15,769
------- ------ ------ -------
Total Fixed Rate 9,366 44,453 14,258 68,077
------- ------ ------ -------
(2) Floating Rate-Repricing
Personal Loans 2,491 128 0 2,619
Commercial 63,180 9,790 0 72,970
Real Estate 36,573 9,399 0 45,972
------- ------ ------ -------
Total Floating Rate 102,244 19,317 0 121,561
------- ------ ------ -------
</TABLE>
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans
(in $000's)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
(a)Nonaccrual 501 2,014 1,567 1,898 3,048
(b)Past due 90 days or
more and accruing 489 65 58 96 192
(c)Restructured 0 837 800
----- ----- ----- ----- -----
Total 1,133 2,229 1,625 2,831 4,040
----- ----- ----- ----- -----
</TABLE>
9
<PAGE> 11
IV Summary of Loan Loss Experience
- ------------------------------------
A. Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(in $000's)
<S> <C> <C> <C> <C> <C>
Balance beginning of period 1,940 1,865 2,455 2,786 3,127
Charge-offs: Commercial (66) (57) (758) (345) (90)
Real Estate 0 0 (33) (39) (325)
Personal and
Credit Cards (352) (334) (169) (204) (207)
Leases (110) (33) (23) (67) (145)
------ ------ ------ ------ ------
Total Charge-offs (528) (424) (983) (655) (767)
Recoveries: Commercial 30 16 58 19 119
Real Estate 0 4 5 8 9
Personal and
Credit Cards 114 111 144 123 151
Leases 1 6 41 19 75
------ ------ ------ ------ ------
Total Recoveries 145 137 248 169 354
------ ------ ------ ------ ------
Net Charge-offs (383) (287) (735) (486) (413)
Provision charged to expense 366 362 145 155 72
------ ------ ------ ------ ------
Balance at end of period 1,923 1,940 1,865 2,455 2,786
------ ------ ------ ------ ------
Ratio of net charge offs to
Average Loans .20% .17% .51% .38% .34%
------ ------ ------ ------ ------
</TABLE>
V Deposits
- -----------
Total interest bearing deposits are shown in Note 8, page 14 of the Annual
Report and are included here by reference.
Maturities for time deposits of $100,000 or more and open-account time
deposits of $100,000 based on Call Report:
<TABLE>
<CAPTION>
(in $000's) December 31, 1996
<S> <C>
Three months or less 9,054
Over three through twelve months 8,613
Over one year through five years 4,441
------
Total time deposits over $100,000 22,108
------
</TABLE>
The following is a schedule of average deposits and average rates for the
category and periods indicated:
<TABLE>
<CAPTION>
Average Outstanding Average Rate
Year Ended 12-31 Year Ended 12-31
1996 1995 1994 1996 1995 1994
(in $000's)
<S> <C> <C> <C> <C> <C> <C>
Non-int bearing demand 41,661 38,612 36,075 N/A N/A N/A
Interest bearing demand 29,612 29,498 33,488 2.55 3.07 2.96
Money Market Investment 85,036 56,046 40,701 5.04 5.04 3.34
Savings 38,781 41,833 48,634 3.20 3.25 2.97
Time Deposits 69,968 59,150 65,557 5.38 4.97 3.53
------- ------- ------- ---- ---- ----
Total Deposits 265,058 225,139 224,455 4.50 4.30 3.25
------- ------- ------- ---- ---- ----
</TABLE>
VI Return on Equity and Assets
- -------------------------------
Information reported in The Five Year Summary of Selected Financial Data
Schedule of the 1996 Annual Report page 2 is incorporated here by reference.
VII Short-Term Borrowing
- ------------------------
Information is not required as the average balance of short-term borrowings
outstanding during the year was less than 30% of stockholders' equity at
year-end 1996.
ITEM 8 - FINANCIAL STATEMENT AND SUPPLEMENTAL DATA
- --------------------------------------------------
The information required for Item 8 is included on pages 8 through 16 in the
Annual Report for the year ended December 31, 1996 and is incorporated here by
reference.
10
<PAGE> 12
Part III
- --------
ITEM 9 - DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK
- -----------------------------------------------------
A: Directors of the Bank.
- -------------------------
The information required for Item 9(A) is included on pages 3 and 4 of the Proxy
Statement and is incorporated here by reference.
B: Principal Officers of The Bank
- ---------------------------------
<TABLE>
<CAPTION>
Name & Position Held AGE Term of Office Experience - 5 Years
- -------------------- --- -------------- --------------------
<S> <C> <C> <C>
Larry D Coburn 49 Since August President/CEO
President & Chief 1995 community bank in
Executive Officer Northwest, Ohio past
3 years and same
position in a
community bank in
Kansas 10 years
previous
Richard L. Bump 60 Since 1986 Senior Agricultural
Senior Vice President Loan Officer and
Secretary to the Board Vice President
Larry E. Westbrook 57 Since 1986 Chief Operations
Senior Vice President Officer & Cashier
Cashier
David G. Bernon 52 Since 1991 Chief Financial
Senior Vice President Officer at SBF
Loan Div. Manager Services Inc.
Vice President of
The Delaware County
Bank & Trust Co.
Marcy Niendam 36 Since 1991 Commercial Loan Off.
Vice President Loan Review Officer
Controller Bank One
Credit Administrator
Officer DCB
Mary Ellen Basbagill 61 Since 1985 Financial Officer
Controller Retired 12/31/96
Donald Blackburn 53 Since 1993 Assistant Vice Vice
President President Main Retail
Banking - Customer Relations Office Manager Sr.
Banking Center
Officer
Thomas E. Whitney 48 Since 1996 Attorney-Private
Vice President and Practice
Sr. Trust Officer
Donna R. Warbel 32 Since 1996 Human Resources
Human Resources Director Assistant DCB
</TABLE>
All officers serve at the pleasure of the Board of Directors of The Bank. In
addition, the information at page 5 of the Proxy Statement is incorporated by
reference. There are no arrangements or understandings between The Bank and any
person pursuant to which such person was selected as an officer.
11
<PAGE> 13
ITEM 10 - MANAGEMENT COMPENSATION AND TRANSACTIONS
- --------------------------------------------------
The following table summarizes management compensation for the year 1996.
<TABLE>
<CAPTION>
All Other
Name and Principal Position Salary Bonus Compensation(1)
- --------------------------- ------ ----- ---------------
<S> <C> <C> <C>
Larry D Coburn, President & $117,034 $40,000 $7,965
CEO
All principal officers
as a group (includes $651,411
those named on page 11)
<FN>
(1) Includes compensation for attendance at Board Meetings while serving as a
Director and the Bank's contribution to the 401(K) plan.
</TABLE>
Part IV
- -------
ITEM 11 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- ----------------------------------------------------------------
FORM F-3
--------
(A) (1) The following financial statements are contained in the Bank's 1996
Annual Report to Shareholders attached hereto as Exhibit 1 and are incorporated
by reference.
Consolidated Balance Sheets as of December 31, 1995 and 1996.
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995
and 1996.
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(A) (2) There are no additional financial statements or schedules to be filed as
part of this report other than those filed in the Notes to the Annual Report to
Shareholders
(B) No reports on Form F3 were filed in the last quarter. None are required to
be filed.
(C) Exhibits:
---------
(1) Articles of incorporation and bilaws-no changes
(2) Instruments defining the rights of security holders-no changes.
(3) During 1996 The Bank has not entered into any material contracts.
(4) Computation of per share earnings is shown in the Five Year Summary of
Selected Financial Data in the 1996 Annual Report, page 2.
(5) The computation of ratios is also shown in the Five Year Summary of Selected
Financial Data in the 1996 Annual Report, page 2.
(6) 1996 Annual Report to Shareholders is attached and incorporated by reference
to this report. The Proxy Statement for Special Shareholders meeting is attached
and incorporated by reference to the report.
(7) For changes in accounting principle see Note 1 in 1996 Annual Report page
10 and the Management Discussion page 7 of 1996 Annual Report.
12
<PAGE> 14
ATTACHMENT I
- ------------
RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(in thousands of dollars)
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
Interest Income or Expense Due to Change in Due to Change In
- -----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on Earning Assets:
Federal Funds Sold 774 870 459 (27) (69) (96) 187 224 411
Bankers Acceptance 203 187 926 35 (19) 16 (1,053) 314 (739)
Investments
Taxable 4,374 2,411 2,179 1,880 83 1,963 (204) 436 232
Tax-Exempt 360 510 604 (179) 29 (150) (181) 87 (94)
Loans 17,756 15,994 12,106 1,501 261 1,762 2,428 1,460 3,888
----------------------------------------------------------------------------------------
Total Interest Income $23,467 $19,972 $16,274 $ 3,210 $ 285 $ 3,495 $ 1,177 $2,521 $ 3,698
----------------------------------------------------------------------------------------
Interest on Liabilities:
Interest Bearing Deposits 5,041 3,726 2,371 1,279 36 1,315 402 953 1,355
Savings Deposits 1,241 1,359 1,443 (98) (20) (118) (213) 129 (84)
Time Deposits 3,766 2,941 2,296 568 257 825 (242) 887 645
Short-Term Debt 154 81 53 59 14 73 (1) 29 28
Long-Term Debt 0 3 5 (3) 0 (3) (2) 0 (2)
----------------------------------------------------------------------------------------
Total Interest Expense $10,202 $ 8,110 $ 6,168 $ 1,805 $ 287 $ 2,092 ($ 56) $1,998 $ 1,942
----------------------------------------------------------------------------------------
Net Interest Income $13,265 $11,862 $10,106 $ 1,405 ($ 2) $ 1,403 $ 1,233 $ 523 $ 1,756
========================================================================================
</TABLE>
13
<PAGE> 15
ATTACHMENT II
- -------------
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET AND RELATED YIELDS
(in thousands of dollars)
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold $14,429 $774 5.36% $14,901 $870 5.84% $11,090 $459 4.14%
Bankers Acceptance 3,750 203 5.41% 3,127 187 5.98% 23,147 926 4.00%
Investment Securities
Taxable 41,255 2,536 6.15% 30,121 1,989 6.60% 37,623 1,816 4.83%
Tax-Exempt 6,977 360 5.16% 10,468 510 4.87% 14,390 604 4.20%
Mortgage Backed Securities 28,686 1,838 6.41% 9,240 422 4.57% 5,340 363 6.80%
Loans (net of unearned interest) 188,679 17,756 9.41% 172,688 15,994 9.26% 145,433 12,106 8.32%
---------------------------------------------------------------------------------------
Total Interest Earning Assets 283,776 23,467 8.27% 240,545 19,972 8.30% 237,023 16,274 6.87%
Nonearning Assets:
Cash and Due from Banks 11,558 10,863 10,840
Premises and Equipment, Net 2,617 2,545 2,668
Other Nonearning Assets 2,625 2,116 2,085
Allowance for Loan Losses (1,924) (1,891) (2,081)
-------- -------- --------
Total Assets $298,652 $254,178 $250,535
======== ======== ========
Interest Bearing Liabilities:
Demand Deposits $114,648 $5,041 4.40% $85,544 $3,726 4.36% $74,189 $2,371 3.20%
Savings Deposits 38,781 1,241 3.20% 41,833 1,359 3.25% 48,634 1,443 2.97%
Time Deposits 69,968 3,767 5.38% 59,150 2,941 4.97% 65,557 2,296 3.50%
Short-Term Debt 2,372 152 6.41% 1,462 81 5.54% 1,499 53 3.54%
Long-Term Debt 12 1 8.33% 36 3 8.33% 54 5 9.26%
---------------------------------------------------------------------------------------
Total Interest Bearing Liabilities 225,781 10,202 4.52% 188,025 8,110 4.31% 189,933 6,168 3.25%
Noninterest Bearing Liabilities:
Demand Deposits 41,661 38,612 36,075
Other Liabilities 708 328 (130)
Shareholders' Equity 30,502 27,213 24,657
-------- -------- --------
Total Liabilities and Equity $298,652 $254,178 $250,535
======== ======== ========
Net Interest Income $13,265 $11,862 $10,106
======= ======= =======
Net Interest Income to Earning Assets 4.67% 4.93% 4.26%
==== ==== ====
</TABLE>
14
<PAGE> 16
ATTACHMENT III
- --------------
ITEM 7
- ------
II INVESTMENTS
- ---------------
<TABLE>
<CAPTION>
(in $000's) Gross Gross Estimated
Amortized Unrealized Unrealized Market
1994 Costs Gains Losses Value
---- ----- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury Securities $13,865 $ $(115) $13,750
Obligations of U.S. Govt.
agencies and corporations 23,763 (164) 23,599
Obligations of states and
political subdivisions 11,856 105 (125) 11,836
Corporate obligations 5,963 (196) 5,767
------- -------- ----- -------
Total debt Securities 55,447 105 (600) 54,952
Equity securities, net of
unrealized losses of $65 355 355
------- -------- ----- -------
Total investment securities 55,802 105 (600) 55,307
Mortgage-backed securities
U.S. Government Agencies 4,190 25 (31) 4,184
Other 266 1 (5) 262
------- -------- ----- -------
Total mortgage-backed
securities 4,456 26 (36) 4,446
------- -------- ----- -------
Total investment & mortgage-
back securities, net $60,258 $ 131 $(636) $59,753
------- -------- ----- -------
</TABLE>
15
<PAGE> 17
SIGNATURES
- ----------
Pursuant to the requirements of section 13 of the Securities Exchange Act of
1934, the Bank has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DATE: March 31, 1997 THE DELAWARE COUNTY BANK
---------------------- AND TRUST COMPANY
/s/ Jerome J. Harmeyer /s/ Larry D. Coburn
---------------------------- ---------------------------
Jerome J. Harmeyer, Director Larry D. Coburn, President
Chairman of the Board Chief Executive Officer
Director
/s/ Larry E. Westbrook /s/ Marcy H. Niendam
---------------------------- ---------------------------
Larry E. Westbrook Marcy H. Niendam
Senior Vice President Controller/Vice Presient
Cashier
/s/ William R. Oberfield
---------------------------- ---------------------------
Charles W. Bonner, Director William R. Oberfield,
Director
/s/ Rodney B. Hurl /s/ G. William Parker, M.D.
---------------------------- ---------------------------
Rodney B. Hurl, M.D. Director G. William Parker, M.D.
Director
/s/ Thomas T. Porter
---------------------------- ---------------------------
F. Frances Hutchinson, Director Thomas T. Porter, Director
/s/ Edward A. Powers
---------------------------- ---------------------------
Edwin Johnson, Director Edward A. Powers, Director
/s/ Merrill Kaufman /s/ Gary M. Skinner
---------------------------- --------------------------
Merrill Kaufman, Director Gary M. Skinner, Director
/s/ Terry M. Kramer
----------------------------
Terry M. Kramer, Director
16
<PAGE> 1
EXHIBIT 99.C.
PROXY STATEMENT AND PROXY OF DCB FINANCIAL CORP.
FOR ANNUAL SHAREHOLDERS' MEETING
<PAGE> 2
DCB FINANCIAL CORP.
41 N. Sandusky Street
Delaware, Ohio 43015
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
May 21, 1997
TO THE SHAREHOLDERS OF DCB FINANCIAL CORP.:
You are hereby notified that the annual meeting of the shareholders of DCB
Financial Corp. (the "Company") will be held on May 21, 1997 at 7:30 P.M.
(Dinner at 6:30 P.M.) at The Hamilton/Williams Campus Center, Ohio Wesleyan
University, Delaware, Ohio, for the purpose of considering and acting upon the
following:
1. To elect members of the Board of Directors to the Classes designated in the
attached Proxy Statement; and
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF
This is the first Annual Meeting for the Company which acquired The
Delaware County Bank & Trust Company (the "Bank") effective as of the
conclusion of business on March 14, 1997. The Board of Directors has fixed
April 1, 1997 as the record date for the determination of shareholders entitled
to notice of and to vote at the annual meeting. As of the record date there
were 4,273,200 shares of the Company's no par value common stock outstanding.
The stock transfer books of the Company will not be closed prior to the
meeting.
A copy of the Bank's Annual Report, which includes the Bank's audited
Balance Sheets as of December 31, 1996, and 1995, the related audited
Statements of Income, Statements of Changes in Shareholders' Equity, and
Statements of Cash Flows for each of the two years ended December 31, 1996, is
enclosed.
By order of the Board of Directors
Larry D. Coburn, President
April 15, 1997
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. YOU MAY REVOKE YOUR EXECUTED PROXY AT ANY TIME BEFORE IT IS EXERCISED
AT THE ANNUAL MEETING OF SHAREHOLDERS BY NOTIFYING THE CHAIRMAN OF THE MEETING
OR THE SECRETARY OF THE COMPANY AT, OR PRIOR TO THE MEETING, OF YOUR INTENTION.
IF YOUR STOCK IS HELD IN MORE THAN ONE (1) NAME, ALL PARTIES MUST SIGN THE
PROXY FORM.
<PAGE> 3
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement and the accompanying form of proxy is furnished
in connection with the solicitation, by the Board of Directors of DCB Financial
Corp., 41 N. Sandusky Street, Delaware, Ohio 43015, (614) 363-1133, of proxies
to be voted at the annual meeting of shareholders of DCB Financial Corp. to be
held on May 21, 1997, at 7:30 P.M. (Dinner at 6:30 P.M.) at The
Hamilton/Williams Campus Center, Ohio Wesleyan University, Delaware, Ohio, in
accordance with the foregoing notice.
DCB Financial Corp. is a registered bank holding company of which The
Delaware County Bank & Trust Company (the "Bank") is its only subsidiary. The
Company and the Bank are at times hereinafter collectively referred to as the
"Company." This is the first Annual Meeting for the Company which acquired the
Bank effective as of the conclusion of business on March 14, 1997.
The solicitation of proxies on the enclosed form is made on behalf of
the Board of Directors of the Company. All costs associated with the
solicitation will be borne by the Company. The Company does not intend to
solicit proxies other than by use of the mails, but certain officers and
regular employees of the Company or its subsidiaries, without additional
compensation, may use their personal efforts, by telephone or otherwise, to
obtain proxies. The proxy materials are first being mailed to shareholders on
April 15, 1997.
Any shareholder executing a proxy has the right to revoke it by the
execution of a subsequently dated proxy, by written notice delivered to the
Secretary of the Company prior to the exercise of the proxy or in person by
voting at the meeting. The shares will be voted in accordance with the
direction of the shareholder as specified on the proxy. In the absence of
instructions, the proxy will be voted "FOR" the election of the nominees listed
in this Proxy Statement.
VOTING SECURITIES
Only shareholders of record at the close of business on April 1, 1997,
will be eligible to vote at the Annual Meeting or any adjournment thereof. As
of April 1, 1997, the Company had outstanding 4,273,200 shares of no par value
common stock. Shareholders are entitled to one vote for each share of common
stock owned as of the record date, and shall have the right to cumulate votes
in the election of Directors in accordance with Ohio law. Cumulative voting
permits a shareholder to multiply the number of shares held by the number of
directors to be elected, and cast those votes for one candidate or spread those
votes among several candidates as he or she deems appropriate.
All Directors and Executive Officers of the Company as a group
(comprised of 20 individuals), beneficially held 293,736 shares of the
Company's common stock as of April 1, 1997, representing 6.87 percent of the
outstanding common stock of the Company.
2
<PAGE> 4
PROPOSAL #1 ELECTION OF DIRECTORS AND INFORMATION
WITH RESPECT TO DIRECTORS AND OFFICERS
CLASSIFICATION SYSTEM FOR THE ELECTION OF DIRECTORS
The Code of Regulations for the Company provides for a staggered
system for the election of Directors. Directors are to be divided into three
classes as nearly equal in number as possible. The Company has thirteen
Directors, and they are to be elected to serve a three-year term. The Bank also
has a staggered system for the election of Directors and the Company has
adopted the same classes as previously existed for the Bank. However, because
this is the first election of a staggered term for the Company all of the
Directors are to be divided into a class and elected for either a one, two or
three year term as specified below.
INFORMATION WITH RESPECT TO NOMINEES
The following information is provided with respect to nominees for
Director (regardless of Class). Those nominees receiving the greatest number of
votes in the respective classes will be elected as Directors.
There is no minimum number of votes required to elect a Director.
<TABLE>
<CAPTION>
PRINCIPAL
NAME AGE DIRECTOR SINCE* OCCUPATION
<S> <C> <C> <C>
CLASS I: (TERM TO EXPIRE AT ANNUAL MEETING IN 2000)
Larry D. Coburn 49 1995 President, CEO and Director of
Bank and the Company
F. Frances Hutchinson 64 1990 Owner G.F.S. Chemical
William R. Oberfield 42 1993 President, Oberfield Concrete
Products
G. William Parker 62 1976 Surgeon
Gary M. Skinner 53 1996 President, Hardscrabble Farms,
Inc.
CLASS II: (TERM TO EXPIRE AT ANNUAL MEETING IN 1998)
C. William Bonner 62 1988 Developer
Merrill L. Kaufman 62 1988 President, Peoples Store, Inc.
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL
NAME AGE DIRECTOR SINCE* OCCUPATION
<S> <C> <C> <C>
CLASS II (CONTINUED):
Terry M. Kramer 50 1992 President/Owner, Kramer
Exploration Company
Thomas T. Porter 62 1990 President, Garth's Auction,
Inc.
Edward Powers 51 1985 President, R. B. Powers Company
CLASS III: (TERM TO EXPIRE AT ANNUAL MEETING IN 1999)
Jerome J. Harmeyer 57 1988 CEO, Fisher Case Steel Products
Rodney B. Hurl 67 1990 Doctor, General Practice
G. Edwin Johnson 60 1993 President, AGRI Communications
</TABLE>
*Service includes the time served as a Director of The Delaware County Bank &
Trust Company
The business experience of each of the above-listed nominees and
Directors during the past five years was that typical to a person engaged in
the principal occupation listed. Unless otherwise indicated, each of the
nominees and Directors has had the same position or another executive position
with the same employer during the past five years.
Shareholders desiring to nominate individuals to serve as Directors
may do so by following the procedure outlined in the Company's Code of
Regulations requiring advance notice to the Company of such nomination and
certain information regarding the proposed nominee.
{REMAINDER OF PAGE INTENTIONALLY LEFT BLANK}
4
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth the number and percentage of shares of
common stock owned by the Directors and Executive Officers of the Company. As
of the date of this Proxy Statement, management is not aware of any person who
beneficially owns five percent or more of the Company's common stock.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership
Name April 1, 1997 Percentage
---- ------------- ----------
<S> <C> <C>
Larry D. Coburn(1) 8,070 0.18%
F. Frances Hutchinson 3,600 0.08%
William R. Oberfield 6,300 0.15%
G. William Parker(2) 26,277 0.61%
Gary M. Skinner(3) 8,145 0.19%
C. William Bonner(4) 3,600 0.08%
Merrill L. Kaufman(5) 17,040 0.39%
Terry M. Kramer(6) 47,190 1.10%
Thomas T. Porter(7) 28,350 0.66%
Edward Powers 20,040 0.47%
Jerome J. Harmeyer(8) 46,998 1.10%
Rodney B. Hurl 30,000 0.71%
G. Edwin Johnson 3,636 0.08%
David G. Bernon 3,300 0.07%
Donald R. Blackburn 5,097 0.11%
Richard L. Bump 7,209 0.17%
Marcy H. Niendam 1,134 0.02%
Donna R. Warbel 453 0.001%
Larry E. Westbrook 18,411 0.43%
Thomas R. Whitney 8,886 0.20%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 8,070 shares owned by CEDE & Co., Custodian.
(2) 24,843 shares owned by G. William Parker individually and 1,434 shares
owned by G. William Trust.
(3) 3,636 shares owned by Gary and Carolyn Skinner jointly, 72 shares owned by
Carolyn Skinner individually, and 4,437 shares owned by Gary Skinner IRA.
(4) 1,800 shares owned by Charles W. Bonner individually and 1,800 shares owned
by Charles or Barbara Bonner jointly.
(5) 1,800 shares owned by Merrill Kaufman individually, 8,640 shares owned by
Merrill & Charlotte Kaufman jointly, and 6,600 shares owned by CEDE & Co.,
Custodian.
(6) 25,770 shares owned by Terry Kramer Trust and 21,420 shares owned by Sandra
Kramer Trust.
(7) 1,800 shares owned by Thomas Porter individually, 450 shares owned by
Carolyn Porter individually, 25,050 shares owned by Garth's Auctions, Inc.,
600 shares owned by Thomas T. Porter 401K Plan, and 450 shares owned by
Carolyn B. Porter 401K Plan.
(8) 1,800 shares owned by Jerome Harmeyer individually, 1,944 shares owned by
Jerome or Madelyn Harmeyer jointly, and 43,254 shares owned by Madelyn
Harmeyer individually.
5
<PAGE> 7
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
The Board of Directors conducts its business through meetings of the
Board and through its committees. The Board of Directors of the Company and the
Bank has appointed and maintains an Audit Committee, Salary Committee,
Nominating Committee and Trust Committee.
The Audit Committee reviews with the Company's independent auditors,
the audit plan, the scope and results of their audit engagement and the
accompanying management letter, if any; reviews the scope and results of the
Company's internal auditing procedures; consults with the independent auditors
and management with regard to the Company's accounting methods and the adequacy
of its internal accounting controls; approves professional services provided by
the independent auditors; reviews the independence of the independent auditors;
and reviews the range of the independent auditors' audit and nonaudit fees. The
Audit Committee is composed of Messrs. Kramer, Parker, Porter and Powers. The
Audit Committee met six (6) times during 1996.
The Salary Committee is responsible for administering the Company's
employee benefit plans; setting the compensation of officers; reviewing the
criteria that forms the basis for management's officer and employee
compensation recommendations and reviewing management's recommendations in this
regard. The Salary Committee is composed of Messrs. Coburn, Johnson, Kramer,
Parker and Porter. The Salary Committee met five (5) times during 1996.
The Company's Nominating Committee is responsible for making annual
nominations for Directors to fill vacancies created by expired terms of
Directors and from time to time, making appointments to fill vacancies created
prior to the expiration of a Director's term. During 1996, the Board met one
(1) time to consider and act upon the nomination of Directors. The Nominating
Committee is composed of Messrs. Bonner, Coburn, Kaufman and Porter and Ms.
Hutchinson.
The Trust Committee is a committee of the Bank and oversees all
activities of the Trust Division of the Bank to assure that all fiduciary
obligations are fulfilled ethically, professionally and prudently. Messrs.
Coburn, Harmeyer, Hurl and Oberfield and Ms. Hutchinson served on the Committee
in 1996.
The Board of Directors of the Company meets monthly for its regular
meetings and upon call for special meetings. During 1996, the Board of
Directors of the Bank met 12 times. All Directors of the Bank attended at least
75 percent of the Board and Committee Meetings that they were scheduled to
attend during 1996.
Directors are paid a monthly retainer of $125.00 for serving on the
Board, except for the Chairman of the Board who receives a retainer of $500.00
per month. In addition, the Directors receive $175.00 per board meeting
attended and $125.00 for each committee meeting attended.
6
<PAGE> 8
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and/or its subsidiaries, to or on
behalf of the Bank's Chief Executive Officer for the fiscal years ended
December 31, 1996 and 1995, and to all executive officers as a group during
1996:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
All Other
Name and Principal Position Year(1) Salary($) Bonus($) Compensation($)(2)
- --------------------------- ------- --------- -------- ------------------
<S> <C> <C> <C> <C>
Larry D. Coburn, President 1996 $117,034 $40,000 $7,965
The Delaware County Bank 1995 $43,018 $0 $2,761
& Trust Company
All Executive Officers as a
Group (Nine (9) in number) 1996 $651,411(4)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Coburn joined the Bank effective August 14, 1995.
(2) The Bank pays no "fringe benefits" for its Executive Officers except for
use of an automobile by the President, the total value of which is less than
$5,000. Includes compensation for attendance at Board meetings while serving
as a Director and the Bank's contribution to the 401(k) Plan.
(3) Includes Mr. Coburn, and Mary Ellen Basbagill, former Controller, David G.
Bernon, Senior Vice President-Loans, Donald R. Blackburn, Vice President-Retail
Banking and Customer Relations, Richard L. Bump, Senior Vice President and
Secretary to the Board, Marcy H. Niendam, Vice President-Credit Administration,
Donna Warbel, Human Resources Director, Larry E. Westbrook, Senior Vice
President and Cashier, and Thomas R. Whitney who served as Vice President and
Senior Trust Officer commencing as of August 1, 1996.
EMPLOYMENT CONTRACTS
The Bank has employment contracts currently in place with Larry D.
Coburn, President and CEO of the Company and the Bank, and Larry E. Westbrook,
Senior Vice President and Cashier of the Bank and Treasurer of the Company.
The contract with Mr. Coburn was entered for the period from August
14, 1995, the effective date of his employment with the Bank, until December
31, 1995. The contract is renewed for successive one year terms after a
performance evaluation upon the written consent of the Bank and Mr. Coburn. The
contract provides for a base salary of $115,000, subject to adjustment upward
at the discretion of the Board of Directors of the Bank. The contract also
provides for a bonus at the sole discretion of the Board of Directors. Fringe
benefits are provided that are comparable to other executive employees except
that Mr. Coburn is granted the use of an automobile unlike any other employee.
The contract also provides for a severance payment in the event that the Bank
terminates Mr. Coburn for other than: (i) "Just Cause" (as defined in the
contract); (ii) Mr. Coburn reaching retirement age; or (iii) the Bank's
decision not to renew the contract. In such a termination, the Bank is
obligated under the contract to pay to Mr. Coburn an amount equal to his
monthly salary for up to 12 months or until he accepts other employment. In
7
<PAGE> 9
the event the Bank is the subject of an acquisition to which Mr. Coburn does
not consent, and his position with the Bank is changed significantly, Mr.
Coburn may voluntarily terminate the contract and receive as severance an
amount equal to the average annual salary he has received from the Bank for the
past 5 years.
The contract for Mr. Westbrook was entered into on April 12, 1990 with
an initial term ending December 31, 1990. The contract automatically renews for
annual periods unless the Bank gives not less than 10 nor more than 20 days'
notice that the Bank chooses not to renew the contract. The contract also
provides for termination "for cause" (as defined in the contract). The contract
can be terminated by Mr. Westbrook at any time, upon 90 days' written notice.
Mr. Westbrook's contract also contains a "change of control" provision
providing for payment to the employee if, in connection with any acquisition of
the Bank or for one year thereafter, the employee is terminated or exercises
his right to terminate the agreement for "Good Reason" (as defined in the
contracts) because his position with the Bank is changed significantly. In the
event of such termination, the employee is entitled to receive as severance an
amount equal to the average annual salary he has received from the Bank for the
past 5 years. The contract for Mr. Westbrook is silent as to compensation and
such amounts are set by the Board of Directors on an annual basis.
REPORT OF THE SALARY COMMITTEE OF DCB FINANCIAL CORP. ON COMPENSATION
Under rules established by the Securities and Exchange Commission (the
"SEC"), the Company is required to provide certain data and information in
regard to the compensation and benefits provided to the Company's President and
Chief Executive Officer and, if applicable, the four other most highly
compensated Executive Officers, whose compensation exceeded $100,000 during the
Company's fiscal year. The disclosure requirements, as applied to the Company,
include only the Company's President and Chief Executive Officer, Larry D.
Coburn. The disclosure includes the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting such officers. The Company is a bank holding company and
owns a single operating subsidiary, The Delaware County Bank & Trust Company.
The Company has no direct employees. All disclosures contained in this Proxy
Statement regarding executive compensation reflect compensation paid by the
Bank. Further, because the Company only acquired the Bank as of March 14, 1997,
the information contained herein relates to information for the Bank for the
year ended December 31, 1996. The Salary Committee of the Company has the
responsibility of determining the compensation policy and practices with
respect to all Executive Officers. At the direction of the Board of Directors,
the Salary Committee has prepared the following report for inclusion in this
Proxy Statement.
Compensation Philosophy. This report reflects the Company's
compensation philosophy as endorsed by the Salary Committee. The Salary
Committee makes a recommendation regarding the level of compensation for all
Executive Officers including Mr. Coburn and Mr. Coburn has input into the
compensation levels for all Executive Officers except himself.
8
<PAGE> 10
Essentially, the executive compensation program of the Company has
been designed to:
o Support a pay-for-performance policy that awards Executive Officers
for corporate performance.
o Motivate key Executive Officers to achieve strategic business goals.
o Provide compensation opportunities which are comparable to those
offered by other peer group companies; thus allowing the Company to
compete for and retain talented executives who are critical to the
Company's long-term success.
The Salary Committee approved compensation increases for all Executive
Officers of the Company during 1996. Executive Officer salary increase
determinations are based upon an evaluation of such executives' performance
against goals set in the prior year.
The Bank maintains a cash bonus plan (the "Bonus Plan") which
allocates a portion of the Bank's pre-tax net income for the purpose of
employee cash bonuses on an annual basis. The Bonus Plan is administered by the
Salary Committee. The award of a bonus to any employee under the terms of the
Bonus Plan is discretionary and is determined by the Board of Directors upon
the recommendation of the Salary Committee.
The Salary Committee has determined that a significant portion of
executive compensation should be payable in an annual bonus which shall be
based principally upon the financial performance of the Company and that of the
individual in attaining his or her established goals. The Salary Committee
believes that it is important to reward executive management based upon the
success of the Company and the Bank.
THIS REPORT ON COMPENSATION IS SUBMITTED BY THE SALARY COMMITTEE MEMBERS:
Larry D. Coburn
G. Edwin Johnson
Terry M. Kramer
G. William Parker
Thomas T. Porter
SALARY COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Larry D. Coburn Company's President and Chief Executive Office served
on the Salary Committee of the Company, which is responsible for compensation
matters (see "Report of the Salary Committee" in this Proxy Statement).
Although Mr. Coburn served on the Salary Committee, he did not
participate in any decisions regarding his own compensation as an Executive
Officer. Each year, the Salary Committee recommends the amount of the bonus
award for Mr. Coburn (pursuant to the Cash Bonus Plan described above) and
salary for the ensuing year. Mr. Coburn did not participate in discussions nor
decision-making relative to his own compensation.
<PAGE> 11
PERFORMANCE GRAPH - FIVE-YEAR SHAREHOLDER RETURN COMPARISON
The SEC requires that the Company include in this Proxy Statement a
line-graph presentation comparing cumulative five-year shareholder returns on
an indexed basis with a broad equity market index and either a nationally
recognized industry standard or an index of peer companies selected by the
Company. The Company has selected the S&P 500 Market Index and the S&P Regional
Bank Index for purposes of this performance comparison. The chart below
compares the value of $100 invested on December 31, 1991, in the Bank's stock
S&P 500 Market Index and the S&P Regional Bank Index. The Company has used the
Bank's performance because the Company was not an operating company during this
time.
[GRAPH]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DELAWARE COUNTY B&TC $100.00 $109.95 $131.92 $144.65 $160.13 $295.36
S&P 500 INDEX $100.00 $107.62 $118.46 $120.03 $165.14 $203.05
S&P MAJOR REGIONAL BANK INDEX $100.00 $127.34 $135.01 $127.78 $201.19 $274.92
</TABLE>
ASSUMES $100 INVESTED ON JANUARY 1, 1992
IN DELAWARE COUNTY B&TC COMMON STOCK, *TOTAL RETURN ASSUMES
S&P 500 INDEX & S&P MAJOR REGIONAL BANK INDEX REINVESTMENT OF DIVIDENDS
10
<PAGE> 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no existing or proposed material transactions between the
Company and any of the Company's officers, directors, or the immediate family
or associates of any of the foregoing persons, except as indicated below. C.
William Bonner, one of the Directors of the Company and the Bank, is in the
process of purchasing land and constructing an office complex located at 3C
Highway and Highland Lake Avenue, Westerville, Ohio. The Bank intends to enter
into a lease in this office complex with an initial term of 10 years with two
renewal options at an initial rent of $85,000 per year. The Board of Directors
approved the lease transaction with Mr. Bonner abstaining from consideration of
the matter. The Board believes that the rent to be paid to Mr. Bonner and the
other terms and conditions of the lease transaction are comparable to those
which would be available from an unrelated party.
Mr. Rodney B. Hurl, a Director of the Company and Ms. Marcy H.
Niendam, an officer of the Bank, are father and daughter. This statement is
made to comply with securities disclosures and has no bearing upon the
operation of the business of the Company.
Some of the directors of the Company, as well as the companies with
which such directors are associated, are customers of, and have had banking
transactions with the Bank in the ordinary course of the Bank's business and
the Bank expects to have such ordinary banking transactions with such persons
in the future. In the opinion of management of the Company and the Bank, all
loans and commitments to lend included in such transactions were made in
compliance with applicable laws on substantially the same terms, including
interest rates and collateral, as those prevailing for comparable transactions
with other persons of similar creditworthiness and did not involve more than a
normal risk of collectability or present other unfavorable features. During
1995, none of the Bank's directors or principal officers had outstanding
indebtedness that exceeded ten percent (10%) of the Bank's equity capital
accounts.
The Bank expects to have in the future, banking transactions, in the
ordinary course of its business with directors, officers, principal
shareholders, and their associates of the Bank and the Company, on
substantially the same terms, including interest rates and collateral on loans,
as those prevailing at the same time for comparable transactions with others
and which do not involve more than the normal risk of collectability or present
other unfavorable features.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, Directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Prior to the acquisition of the Bank by the Company, such reports
were filed with the Federal Deposit Insurance Company as the Bank was a "public
bank."
11
<PAGE> 13
Based solely on review of the copies of such forms furnished to the
Company or written representations that no such forms were required, the
Company believes that during 1996 all Section 16(a) filing requirements
applicable to its officers and Directors were complied with. The Company has no
shareholders who are ten percent beneficial owners.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Board of Directors engaged the accounting firm of Crowe Chizek &
Company LLP to perform the certified audit of the Bank's books as of year-end
1996. Their certification is included in the annual Report of the Bank which
accompanies this proxy material. In addition to the audit report, the Bank
relies on Crowe Chizek & Company LLP for consultation on other accounting,
investment and tax-related matters as needed by management. The Bank's Board
has determined that the performance of non-audit services for the Bank by Crowe
Chizek & Company LLP will not have an adverse effect on the independence of
that firm with respect to its certified audit report. The independent
accountants, Crowe Chizek & Company LLP, will be in attendance at the annual
meeting. Board of Directors will determine who shall perform the 1997 annual
certified audit at a later date.
SHAREHOLDER PROPOSALS
Any proposals to be considered for inclusion in the proxy material to
be provided to shareholders of the Company for its next annual meeting, to be
held in 1998, must be made by a qualified shareholder and must be received by
the Company no later than December 12, 1997.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other
matters that may come before the meeting. However, the enclosed Proxy will
confer discretionary authority with respect to matters which are not known to
the Board of Directors at the time of printing hereof and which may properly
come before the meeting. A copy of the Bank's 1996 report filed with the
Federal Deposit Insurance Company, on Form F-2, will be available without
charge to shareholders on request. Address all requests, in writing, for this
document to Donald R. Blackburn, Vice President, The Delaware County Bank &
Trust Company, 41 N. Sandusky Street, Delaware, Ohio 43015. The Company has
filed with the SEC a report as a "successor issuer" to the Bank and will be
filing reports with the SEC in the future.
By Order of the Board of Directors of
DCB Financial Corp.
Larry D. Coburn, President
12
<PAGE> 14
PROXY FOR ANNUAL MEETING OF
DCB FINANCIAL CORP.
DELAWARE, OHIO
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned shareholder of
DCB Financial Corp., Delaware, Ohio, do hereby nominate, constitute, and
appoint F. Frances Hutchinson, Terry M. Kramer, William R. Oberfield and Thomas
T. Porter, or any of them (with full power of substitution) for me and in my
name, place and stead, to vote all the common stock of said Corporation,
standing in my name on its books on April 1, 1997, at the Annual Meeting of its
shareholders to be held at The Hamilton/Williams Campus Center, Ohio Wesleyan
University, Delaware, Ohio, on May 21, 1997 at 7:30 P.M. (local time), or any
adjournments thereof with all the powers the undersigned would possess if
personally present as follows:
1. ELECTION OF DIRECTORS:
<TABLE>
<CAPTION>
Name For the Nominee Withhold Authority for the Nominee
<S> <C> <C>
Class I:
Larry D. Coburn [ ] [ ]
F. Frances Hutchinson [ ] [ ]
William R. Oberfield [ ] [ ]
G. William Parker [ ] [ ]
Gary M. Skinner [ ] [ ]
Class II:
C. William Bonner [ ] [ ]
Merrill L. Kaufman [ ] [ ]
Terry M. Kramer [ ] [ ]
Thomas T. Porter [ ] [ ]
Edward Powers [ ] [ ]
Class III:
Jerome J. Harmeyer [ ] [ ]
Rodney B. Hurl [ ] [ ]
G. Edwin Johnson [ ] [ ]
</TABLE>
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
THIS PROXY CONFERS AUTHORITY TO VOTE "FOR" THE NOMINEES LISTED ABOVE UNLESS
"WITHHOLD AUTHORITY" IS INDICATED. IF ANY OTHER BUSINESS IS PRESENTED AT SAID
MEETING, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
MANAGEMENT. ALL SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED
AS DIRECTED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR
1
<PAGE> 15
TO ITS EXERCISE BY EITHER WRITTEN NOTICE OR PERSONALLY AT THE MEETING OR BY A
SUBSEQUENTLY DATED PROXY.
PLEASE SIGN ON REVERSE SIDE
------------------------------------------------------------
INSERT LABEL
------------------------------------------------------------
Date: __________________, 1997
__________________________________________
(STOCKHOLDER SIGNATURE)
__________________________________________
(STOCKHOLDER SIGNATURE)
Please Print Name(s) __________________________________________
Please Print Number of Shares _________________________________
(WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, PLEASE
GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. ALL JOINT OWNERS
MUST SIGN.)
PLEASE SIGN AND RETURN IMMEDIATELY
2
