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8-K - FORM 8-K - DCB FINANCIAL CORP | c23866e8vk.htm |
Exhibit 99
DCB FINANCIAL CORP ANNOUNCES
THIRD QUARTER NET INCOME RESULTS
THIRD QUARTER NET INCOME RESULTS
LEWIS CENTER, Ohio, October 28, 2011 DCB Financial Corp, (OTC Bulletin Board DCBF), parent
holding company of The Delaware County Bank & Trust Company, Lewis Center, Ohio (the Bank)
announced net income of $276 thousand versus a loss of $9.06 million for the same period in 2010.
The increase in net income compared to the third quarter 2010 is mainly attributed to reduced loan
provision expense coupled with reduced operating expense, offset by a decline in net interest
income.
During the third quarter, Management began implementing a restructuring plan, previously approved
by the Board of Directors, consisting of branch closures, a reduction in force and a realignment of
branch personnel. These changes were expected to provide cost savings to improve the Banks
efficiency ratio, while aligning the Company resources to more effectively carry out its strategic
plans.
Ronald J. Seiffert, hired in September 2011 as President and CEO noted, Though Ive only been on
board a short period of time, its obvious that Management has put a tremendous amount of effort
into laying the groundwork for the future success of the Bank. Theyve been able to reduce
operating expenses, reduce risk in the loan portfolio and reorganize staffing, all while making
significant progress in addressing our regulatory issues.
Mr. Seiffert added, Much of the heavy lifting has been completed, as reflected in some of our
credit metrics at the end of the third quarter. Problem loans declined by $30 million since the
end of 2010, non-accruals are down and delinquencies were 2.79% at quarter end, the lowest theyve
been in almost two years. Now we can implement plans which will allow us to focus on sustained
profitability.
Net Interest Income
Net interest income of $4.3 million decreased from the $5.2 million reported for the three months
ended September 30, 2010. This change is mainly due to the year-over-year reduction in earning
assets on the balance sheet. Average year-to-date assets at the Bank through September decreased
from $653.9 million in 2010 to $571.5 million in September 2011, a reduction of $82.4 million or
12.5%. The Companys smaller balance sheet is attributed to a lack of quality loan opportunities,
but is also attributed to Managements initiatives designed to reduce the overall size of the
balance sheet in order to improve capital ratios. Management has also focused on deleveraging the
balance sheet, specifically by reducing FHLB borrowings, while reducing the dependency in CDARS
deposit balances.
Net interest margin was 3.36% for the third quarter 2011, compared to 3.59% for the third quarter
2010. The change in margin is attributed to the decreased levels of short-term cash balances
compared to the prior year, offset by declining yields on interest earning assets.
Continued lower loan origination volume and the reduced balance sheet funding requirements have
allowed management to focus on tactically addressing the structure of deposits. Non-interest
bearing balances increased to $69.5 million from $63.7 million at December 31, 2010. The Bank
continues to focus on core deposit generation as part of its focus to increase exposure to consumer
markets while reducing its reliance on public funds. Though funding costs remain low, it is likely
that some retail deposit costs will increase as various deposit specials are offered to consumers
in order to grow those accounts. However, the Corporation has been able to reduce its overall
long-term borrowings through the FHLB by replacing those advances with customer deposits.
Tactically, the Corporation is de-leveraging the balance sheet through reductions in large time
deposits and FHLB advances.
Noninterest Income
Total noninterest income for the quarter was $1.3 million, down from $1.7 million in the third
quarter 2010. This decline is mainly attributed to the reduction four major categories: a reduction
in gains recognized on security sales; a reduction in gain on loan sales; an increase in losses on
the disposition of assets; and a reduction in data processing service fees. During the third
quarter no security sales took place, but management may elect to re-balance its investment
portfolios in future periods. Loans sales were down compared to the prior year as the economic
climate has reduced opportunities in the residential real estate market. Increased losses on mainly
OREO properties were due to the increased amount of transactions as the workout process on various
credits are completed. Finally, the Corporation exited the data processing business during the
third quarter which accounts for the decrease in data processing revenue. However, these declines
were offset by the reduced operating costs that supported that business line.
Noninterest Expense
The total noninterest expense of $5.0 million for the third quarter represented a decline of $1.2
million, or 20.0%, from the three months ended September 30, 2010. The decrease in operating
expense is attributed to a reduction in salary and benefits expense, a decline in occupancy and
equipment costs, a reduction in FDIC deposit insurance premiums, and a decline in loan and
collection expenses.
The decline in salary and benefits expense is attributed to the reduction in force Management
conducted early in the third quarter. Additional salary and benefit cost reductions are expected
going forward as the second phase of the corporate restructure and branch closures are expected to
be completed by month-end October 2011. Occupancy and equipment cost are also down, due to
reductions in depreciation expense and lower maintenance costs of computer and other equipment.
FDIC insurance has declined compared to prior periods due to the overall reduced size of the
balance sheet. The Corporation has also experienced a decline in loan and collection expenses as
the overall size of the problem loan portfolio has been reduced.
Analysis of Selected Financial Condition
The Corporations assets totaled $543.7 million at September 30, 2011, compared to $565.1 million
at December 31, 2010, a decrease of $21.4 million. Cash and cash equivalents were $42.3 million at
the end of the third quarter, an increase of $8.8 million from December 31, 2010. The increase is
mainly attributed to the reductions in the loan portfolio, offset by increases in total
investments. Management has focused on re-directing this excess cash into investment securities and
reducing FHLB advances in order to restructure balance sheet funding. The reduction of CDARS
balances and FHLB advances will likely continue through the remainder of the year.
Total securities increased from $70.9 million at December 31, 2010 to $85.9 million at September
30, 2011. Management is targeting certain levels of limited excess cash in order to increase yields
by investing in securities instead of holding lower earning cash balances. The increase in
securities also provides collateral for various borrowing opportunities with the Federal Reserve,
FHLB and various correspondent banks.
Total loans, excluding loans held for sale, decreased $44.3 million from $424.9 million at December
31, 2010 to $380.6 million at September 30, 2011. The decline in outstanding loan balances is
mainly due to the lower volume of new originations due to the current economy, normal loan pay
downs, and the charge-off of non-performing loans. Additionally, the Company has been successful in
moving non-performing loans off the balance sheet via note sales. The Corporations loan
originations are expected to remain subdued through year-end as lending staff continues to focus
internally on current problem credits.
Total deposits decreased $13.1 million from $465.1 million at December 31, 2010 to $452.0 million
at September 30, 2011. This decrease is mainly due to an increase in non-interest bearing deposits,
offset by a
decline in CDARs balances. This has occurred, as previously mentioned, because of Managements
initiatives to reduce the Companys overall reliance on wholesale funding.
On an as-needed basis, the Corporation has the ability to utilize a variety of alternative funding
sources in order to reduce funding costs or create improved funding structures. However, with its
stable deposit base and adequate cash balances, there has been less emphasis on the utilization of
borrowed funds. Total FHLB advances decreased $7.7 million, resulting in a balance of $50.8 million
at September 30, 2011. Additional reliance on borrowings outside of normal deposit growth may
increase the Corporations overall cost of funds; however, Management intends to continue to reduce
its exposure to high cost FHLB advances.
Provision and Allowance for Loan Losses
The provision for loan losses totaled $625 thousand for the three months ended September 30, 2011,
compared to $4.5 million for the same period in 2010. This decline from the previous years quarter
is mainly attributed to the reduced requirement for additional reserves based on the Banks reserve
methodology. In the third quarter of 2010, Management provided substantial additional loan loss
reserves in order to address valuations in its commercial real estate portfolio due to declining
economic conditions. During the current quarter, analysis has indicated an improvement in credit
risk due to reduced problem loans, reduced nonaccrual loans, and reduced delinquency rates. The
main reason for the improvement in credit quality is due to positive results from workout
activities, charge-offs of bad loans and increased collection efforts. Additionally, some
improvement in the Banks market area in the real estate sector has allowed for quicker sale of
notes and OREO at reasonable pricing. On a quarterly basis, Management completes a rigorous loan
quality review on its problem credits to determine if additional reserves are needed for expected
future credit losses. The allowance for loan losses was $10.2 million, or 2.68% of total loans at
September 30, 2011, compared to $12.2 million, or 2.84% of
total loans at September 30, 2010. Net
charge-offs for the third quarter were $1.8 million and totaled $5.9 million year-to-date in 2011.
Non-accrual loans at September 30, 2011 were $12.5 million, a decrease of $1.3 million from
September 30, 2010 and a decline of $4.1 million from December 31, 2010. The majority of
non-accrual balances are attributed to loans in the investment real estate sector that were not
generating sufficient cash flow to service the debt. Management continues to focus on workout
related activity to reduce non-accrual and substandard but performing loans. Delinquent loans over
thirty days decreased to 2.79% of total loans at September 30, 2011 from 4.01% at December 31,
2010, and down from the 3.64% reported at June 30, 2011. The improving delinquency trends are due
to improved collection results and, as noted above, due to the improvement in non-accrual loans.
Delinquent loans continue to be mainly attributed to the real estate investment and commercial
portfolios.
DCB FINANCIAL CORP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Cash and due from financial institutions |
$ | 11,996 | $ | 10,024 | ||||
Interest-bearing deposits |
30,294 | 23,497 | ||||||
Total cash and cash equivalents |
42,290 | 33,521 | ||||||
Securities available-for-sale |
84,701 | 69,597 | ||||||
Securities held-to-maturity |
1,267 | 1,313 | ||||||
Total securities |
85,968 | 70,910 | ||||||
Loans held-for-sale, at lower of cost or fair value |
63 | 753 | ||||||
Loans |
380,638 | 424,864 | ||||||
Less allowance for loan losses |
(10,195 | ) | (12,247 | ) | ||||
Net loans |
370,443 | 412,617 | ||||||
Real estate owned |
4,871 | 5,284 | ||||||
Investment in FHLB stock |
3,799 | 3,799 | ||||||
Premises and equipment, net |
12,317 | 13,175 | ||||||
Bank-owned life insurance |
17,658 | 17,073 | ||||||
Accrued interest receivable and other assets |
6,253 | 7,973 | ||||||
Total assets |
$ | 543,662 | $ | 565,105 | ||||
LIABILITIES |
||||||||
Deposits |
||||||||
Noninterest-bearing |
$ | 69,535 | $ | 63,695 | ||||
Interest-bearing |
382,450 | 401,381 | ||||||
Total deposits |
451,985 | 465,076 | ||||||
Federal funds purchased and other short-term borrowings |
1,296 | 1,265 | ||||||
Federal Home Loan Bank advances |
50,816 | 58,502 | ||||||
Accrued interest payable and other liabilities |
2,665 | 2,848 | ||||||
Total liabilities |
506,762 | 527,691 | ||||||
SHAREHOLDERS EQUITY |
||||||||
Common stock, no par value, 7,500,000 shares authorized,
4,273,908 issued |
3,785 | 3,785 | ||||||
Retained earnings |
46,339 | 47,883 | ||||||
Treasury stock, at cost, 556,523 shares |
(13,494 | ) | (13,494 | ) | ||||
Accumulated other comprehensive loss |
270 | (760 | ) | |||||
Total shareholders equity |
36,900 | 37,414 | ||||||
Total liabilities and shareholders equity |
$ | 543,662 | $ | 565,105 | ||||
DCB FINANCIAL CORP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Interest and dividend income |
||||||||
Loans |
$ | 4,948 | $ | 6,097 | ||||
Taxable securities |
550 | 621 | ||||||
Tax-exempt securities |
72 | 145 | ||||||
Federal funds sold and other |
27 | 33 | ||||||
Total interest income |
5,597 | 6,896 | ||||||
Interest expense |
||||||||
Deposits |
713 | 1,056 | ||||||
Borrowings |
556 | 686 | ||||||
Total interest expense |
1,269 | 1,742 | ||||||
Net interest income |
4,328 | 5,154 | ||||||
Provision for loan losses |
625 | 4,531 | ||||||
Net interest income after provision for loan losses |
3,703 | 623 | ||||||
Noninterest income |
||||||||
Service charges on deposit accounts |
697 | 652 | ||||||
Trust department income |
223 | 225 | ||||||
Net gain (loss) on sale of securities |
| 63 | ||||||
Net gain (loss) on sales of assets |
(98 | ) | 28 | |||||
Gains on sale of loans |
23 | 144 | ||||||
Treasury management fees |
69 | 117 | ||||||
Data processing servicing fees |
79 | 163 | ||||||
Earnings on bank owned life insurance |
169 | 167 | ||||||
Other |
167 | 152 | ||||||
Total noninterest income |
1,329 | 1,711 | ||||||
Noninterest expense |
||||||||
Salaries and other employee benefits |
2,255 | 2,611 | ||||||
Occupancy and equipment |
960 | 1,104 | ||||||
Professional services |
371 | 475 | ||||||
Advertising |
89 | 121 | ||||||
Postage, freight and courier |
61 | 77 | ||||||
Supplies |
43 | 43 | ||||||
State franchise taxes |
98 | 152 | ||||||
Federal deposit insurance premiums |
319 | 375 | ||||||
Other |
799 | 1,284 | ||||||
Total noninterest expense |
4,995 | 6,242 | ||||||
Gain (loss) before income tax credits |
37 | (3,908 | ) | |||||
Income tax credits |
(239 | ) | 5,151 | |||||
Net income (loss) |
$ | 276 | $ | (9,059 | ) | |||
Basic and diluted income (loss) per common share |
$ | 0.07 | $ | (2.44 | ) | |||
Dividends per share |
$ | | $ | | ||||
DCB FINANCIAL CORP
Selected Key Ratios and Other Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Selected Key Ratios and Other Financial Data
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Key Financial Information |
||||||||
Net interest income |
$ | 4,328 | $ | 5,154 | ||||
Provision for loan losses |
$ | 625 | $ | 4,531 | ||||
Noninterest income |
$ | 1,329 | $ | 1,711 | ||||
Noninterest expense |
$ | 4,995 | $ | 6,242 | ||||
Net income (loss) |
$ | 276 | $ | (9,059 | ) | |||
Loan balances (average) |
$ | 387,707 | $ | 460,753 | ||||
Deposit balances (average) |
$ | 463,391 | $ | 516,949 | ||||
Non-accrual loans |
$ | 12,506 | $ | 13,807 | ||||
Loans 90 days past due and accruing |
$ | 1,156 | $ | 3,582 | ||||
Basic income (loss) per common share |
$ | 0.07 | $ | (2.44 | ) | |||
Diluted income (loss) per common share |
$ | 0.07 | $ | (2.44 | ) | |||
Weighted Average Shares Outstanding: |
||||||||
Basic |
3,717,385 | 3,717,385 | ||||||
Diluted |
3,717,385 | 3,717,385 |
DCB FINANCIAL CORP
Selected Key Ratios and Other Financial Data
(Unaudited)
Selected Key Ratios and Other Financial Data
(Unaudited)
Three Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Key ratios |
||||||||
Return on average assets |
0.05 | % | (1.44 | )% | ||||
Return on average shareholders equity |
0.76 | % | (23.3 | )% | ||||
Annualized noninterest expense to average assets |
3.53 | % | 3.96 | % | ||||
Efficiency ratio |
87.40 | % | 91.00 | % | ||||
Net interest margin |
3.36 | % | 3.59 | % | ||||
Allowance for loan losses as a percentage of period end loans |
2.68 | % | 2.84 | % | ||||
Total allowance for losses on loans to non-accrual loans |
81.52 | % | 92.18 | % | ||||
Net charge-offs (annualized) as a percent of average loans |
1.84 | % | 4.26 | % | ||||
Non-accrual loans to total loans (net) |
3.29 | % | 3.08 | % | ||||
Delinquent loans (30+ days) |
2.79 | % | 4.14 | % |
Business of DCB Financial Corp
DCB Financial Corp (the Corporation) is a financial holding company formed under the laws of the
State of Ohio. The Corporation is the parent of The Delaware County Bank & Trust Company, (the
Bank) a state-chartered commercial bank. The Bank conducts business from its main offices at 110
Riverbend Avenue in Lewis Center, Ohio, and through its 19 branch offices located in Delaware
County, Ohio and surrounding communities. The Bank provides customary retail and commercial banking
services to its customers, including checking and savings accounts, time deposits, IRAs, safe
deposit facilities, personal loans, commercial loans, real estate mortgage loans, night depository
facilities and trust and personalized wealth management services. The Bank also provides cash
management, bond registrar and payment services. The Bank offers data processing services to other
financial institutions; however such services are not a significant part of its current operations
or revenues.
Application of Critical Accounting Policies
DCBs consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States and follow general practices within the financial services
industry. The application of these principles requires management to make estimates, assumptions,
and judgments that affect the amounts reported in the financial statements and accompanying notes.
These estimates, assumptions, and judgments are based on information available as of the date of
the financial statements; as this information changes, the financial statements could reflect
different estimates, assumptions, and judgments.
The most significant accounting policies followed by the Corporation are presented in Note 1 of the
audited consolidated financial statements contained in the Corporations 2010 Annual Report to
Shareholders. These policies, along with the disclosures presented in the other financial
statement notes and in this financial review, provide information on how significant assets and
liabilities are valued in the financial statements and how those values are determined.
Forward-Looking Statements
Certain statements in this report constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, such as statements relating to the financial
condition and prospects, lending risks, plans for future business development and marketing
activities, capital spending and financing sources, capital structure, the effects of regulation
and competition, and the prospective business of both the Corporation and its wholly-owned
subsidiary The Delaware County Bank & Trust Company. Where used in this report, the word
anticipate, believe, estimate, expect, intend, and similar words and expressions, as they
relate to the Corporation or the Bank or their respective management, identify forward-looking
statements. Such forward-looking statements reflect the current views of the Corporation and are
based on information currently available to the management of the Corporation and the Bank and upon
current expectations, estimates, and projections about the Corporation and its industry,
managements belief with respect thereto, and certain assumptions made by management. These
forward-looking statements are not guarantees of future performance and are subject to risks,
uncertainties, and other factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to: (i) significant increases in competitive pressure in the banking
and financial services industries; (ii) changes in the interest rate environment which could reduce
anticipated or actual margins; (iii) changes in political conditions or the legislative or
regulatory environment; (iv) general economic conditions, either nationally or regionally
(especially in central Ohio), becoming less favorable than expected resulting in, among other
things, a deterioration in credit quality of assets; (v) changes occurring in business conditions
and inflation; (vi) changes in technology; (vii) changes in monetary and tax policies; (viii)
changes in the securities markets; and (ix) other risks and uncertainties detailed from time to
time in the filings of the Corporation with the Securities and Exchange Commission.
The Corporation does not undertake, and specifically disclaims any obligation, to publicly revise
any forward-looking statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.