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8-K - FORM 8-K - DCB FINANCIAL CORPd473869d8k.htm

Exhibit 99



LEWIS CENTER, Ohio, January 25, 2013 — DCB Financial Corp, (OTC Bulletin Board DCBF), parent holding company of The Delaware County Bank & Trust Company, Lewis Center, Ohio (the “Bank”) reported net income of $602,000 for 2012, compared to a net loss of $2.7 million for 2011. The improved performance in 2012 was driven by reduced operating expenses resulting from the 2011 restructuring that included branch closures and reduced staffing coupled with decreases in provision for loan loss due to improved credit quality. DCBF also announced a net fourth quarter loss of $146,000 versus a loss of $987,000 for the same period in 2011. The decreased loss compared to the fourth quarter of 2011 is mainly attributed to the reduced provision expense due to improved credit quality which was more than offset by $350,000 in additional expenses and losses related to the disposal of bank-owned property.

“2012 has been a very exciting year for DCB,” noted CEO Ron Seiffert. “I was very pleased that we were able to achieve our goal of having a profitable year while, at the same time, making significant strides in dramatically reducing our portfolio of adversely criticized assets including bank-owned properties. Most importantly, we were able to complete our $13.2 million capital raise during the fourth quarter which significantly improved our capital ratios to the levels required by our agreements with the regulators.”

Non Performing Assets

During the fourth quarter, the company was able to address its portfolio of other bank-owned properties and make significant strides in arranging the sale of some of the larger properties. In December 2012, the Bank entered into a contract to sell a hotel which represented the largest bank-owned property. This property was subsequently sold in early January 2013. In the fourth quarter the property was written down to its sale value, and additional expenses were recognized related to shutting the property down prior to its transfer. Additionally, a warehouse facility that was also owned by the Bank was finally sold and expenses associated with its disposal were also recognized in the fourth quarter. Overall, the company recognized approximately $350,000 in write-down and other expenses related to the disposal of these properties.

In addition to reducing bank-owned properties to $3.7 million at year-end, total adversely criticized assets decreased from $64 million at December 31, 2011 to $40 million at December 31, 2012. Other credit metrics also improved during the year. Loan delinquencies at year-end 2012 were 1.30% compared to 2.24% at year-end 2011 and non-accruals and loans greater than 90 days past due declined 50.0% from $10.6 million at year-end 2011 to $5.3 million at the year-end 2012.

Net Interest Income for the year ended December 31, 2012

Net interest income of $15.6 million for the year ended December 31, 2012 decreased from the $17.6 million reported for the year-ended December 31, 2011. 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 decreased from $562.9 million in 2011 to $510.1 million. Management has focused on deleveraging the balance sheet, specifically by reducing problem credits, reducing FHLB borrowings, and reducing the dependency in CDARS deposit balances. This initiative is designed to reduce the overall size of the balance sheet and improve capital ratios.

Net interest margin was 3.34% for 2012, compared to 3.41% for 2011. The change in margin is attributed to a lower level of loans to deposits compared to the prior year.

Non-interest bearing balances increased to $96.4 million from $82.4 million at December 31, 2011. The Bank continues to focus on core deposit generation as part of its strategy to increase exposure to consumer markets while reducing its reliance on public funds. The Company has been able to reduce its overall long-term borrowings from the FHLB as loan demand has remained low.

Noninterest Income for the year ended December 31, 2012

Total noninterest income for the year was $5.0 million, which represents a 21.0% decrease from $6.4 million in 2011. This decrease is due to decreases in data processing fees, net gains on sales of assets, and trust department revenue. The decrease in data processing fees is attributable to the closure of the Company’s Datatasx subsidiary in 2011. The decrease in net gains on sales of assets is attributable to the previously mentioned losses on sales of bank-owned property, primarily in the fourth quarter. The decrease in trust department revenue is attributable to the previously mentioned loss of two larger clients during the year that have not been replaced.

Noninterest expense for the year ended December 31, 2012

The total noninterest expense of $19.6 million represented a decline of $1.7 million, or 7.7%, from the year ended December 31, 2011. The decrease in operating expense is attributable to decreases in occupancy and equipment expenses, a decrease in FDIC premiums, and a decrease in professional services. The decrease in occupancy and equipment expenses is attributable to the previously mentioned branch closures in 2011. The decrease in FDIC premiums is due to the decreasing asset size throughout the year, since premiums are calculated based upon total assets. The decrease in professional services is attributable to the reduction in problem credits in the loan portfolio. Since there have been fewer troubled loans to work out in the current year, legal fees related to these workouts have decreased accordingly.

Net Interest Income for the three months ended December 31, 2012

Net interest income of $3.9 million represents a decrease from the $4.2 million reported for the three months ended December 31, 2011. This decrease is mainly due to the year-over-year reduction in earning assets, including the reduction in loans from $350.1 million to $310.6 million. The Company’s smaller loan portfolio is the result of the significant reduction of problem credits during 2012. Additionally, Management focused on deleveraging the balance sheet by reducing FHLB borrowings and reducing the dependency on wholesale deposit balances. FHLB borrowings decreased from $40.0 million at December 31, 2011 to $7.5 million at December 31, 2012.

Net interest margin was 3.40% for the fourth quarter 2012, compared to 3.35% for the fourth quarter 2011. Improvement in margin is attributable to the payoff of higher-costing FHLB advances, which decreased 81.3% year over year, and the migration from interest-bearing deposits to noninterest-bearing deposits. The ratio of interest-bearing deposits to total deposits has decreased from 84.4% to 78.6% year over year.

Noninterest Income for the three months ended December 31, 2012

Total noninterest income for the fourth quarter was $944,000, a decrease from $1.8 million in the fourth quarter 2011. This decline is attributed to an increase in losses recognized on the sale of bank-owned properties and a decrease in trust department revenue. The decrease in trust department revenue is due to the loss of two significant clients during the year.

Noninterest Expense for the three months ended December 31, 2012

The total noninterest expense of $5.2 million for the fourth quarter represented an increase of $215,000, or 4.3%, from the three months ended December 31, 2011. The increase is driven by changes to salaries and benefits expense, other noninterest expense and professional services, partially offset by a decrease in occupancy and equipment expense. The increase in salaries and benefits between these periods is driven by the hiring of several new employees throughout 2012, including several new corporate lenders and the development of a private banking group. These additions support the Bank’s loan portfolio growth strategies. The increase in noninterest expense and professional services is driven by costs related to the previously mentioned disposal of other bank-owned properties. The decrease in occupancy and equipment expense is a result of the previously mentioned branch closures from 2011.

Analysis of Selected Financial Condition

The Corporation’s assets totaled $506.5 million at December 31, 2012, compared to $522.9 million at December 31, 2011, a decrease of $16.4 million, or 3.1%. The decrease is attributable to a $39.6 million decrease in loans and a $3.6 million decrease in other assets, offset by a $24.0 million increase in cash and a $3.0 increase in investment securities. The decrease in loans is due to the previously mentioned continued work outs of problem credits and continued low demand in the market. The decrease in other assets is primarily attributable to a decrease in the FDIC prepaid insurance premium. The increase in cash and securities was funded by the payoffs of loans.

Total liabilities decreased from $488.2 million to $458.1 million in 2012. The decrease is attributable to a $33.1 million decrease in the FHLB advances, partially offset by a $2.9 million increase in deposits. Total FHLB advances decreased $32.5 million, resulting in a balance of $7.5 million at December 31, 2012. Total non-interest bearing deposits were $95.8 million which is an increase of $26.1 million from year-end 2011. Additionally, time deposits were reduced by $33.5 million or 22.1% from year-end 2011 as the Company has focused on building non-interest bearing deposits and low cost transactional account balances.

Total stockholders’ equity increased from $34.7 million at December 31, 2011 to $48.4 million in December 31, 2012. The increase is attributable to the previously mentioned $13.2 million capital raise and $602,000 of net income for the year ended December 31, 2012. This increase in capital will allow for the Bank to meet the increased capital ratios required by its regulators and provide capital to fuel future growth.

Provision and Allowance for Loan Losses

The provision for loan losses totaled $495,000 for the year ended December 31, 2012, compared to $5.4 million for 2011. This decline from the previous year is attributable to the reduced requirement for additional reserves based on the Bank’s reserve methodology. Throughout 2012, 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 the positive results from workout activities, charge-offs of bad loans and increased collection efforts. 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 $6.9 million, or 2.17% of total loans at December 31, 2012, compared to $9.6 million, or 2.66% of total loans at December 31, 2011. Net charge-offs for the year have also decreased significantly and were $3.2 million in 2012, compared to $8.1 million for 2011.

Non-accrual loans at year-end 2012 were $5.3 million, a decrease of $4.3 million from a balance of $9.6 million at December 31, 2011. 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 other substandard loans. Delinquent loans over thirty days decreased to 1.30% of total loans at year-end 2012 compared to 2.24% at year-end 2011. The improving delinquency trends are due to improved collection results and, as noted above, the improvement in non-accrual loans. Delinquent loans, similar to non-accrual loans, continue to be mainly attributed to the real estate investment and commercial portfolios.



(Dollars in thousands, except per share data)


     December 31,
    December 31,



Cash and due from financial institutions

   $ 9,663      $ 11,067   

Interest-bearing deposits

     53,644        28,247   







Total cash and cash equivalents

     63,307        39,314   

Securities available-for-sale

     90,996        88,113   

Securities held-to-maturity

     1,149        1,010   







Total securities

     92,145        89,123   


     317,504        359,767   

Less allowance for loan losses

     (6,881     (9,584







Net Loans

     310,623        350,183   

Real estate owned

     3,671        4,605   

Investment in FHLB Stock

     3,799        3,799   

Premises and equipment, net

     12,036        12,107   

Bank owned life insurance

     18,564        17,822   

Accrued interest receivable and other assets

     2,347        5,928   







Total assets

   $ 506,492      $ 522,881   









Noninterest bearing deposits

   $ 95,847      $ 69,674   

Interest bearing deposits

     352,443        375,754   







Total deposits

     448,290        445,428   

Federal Home Loan Bank advances

     7,498        40,036   

Accrued interest payable and other liabilities

     2,315        2,718   







Total liabilities

     458,103        488,182   



Common stock, no par value, 7,500,000 shares authorized at December 31, 2012 and 2011; 7,500,000 and 4,274,908 shares issued at December 31, 2012 and 2011, respectively

     15,771        3,785   

Retained earnings

     40,614        45,145   

Treasury stock, at cost, 307,651 and 556,523 shares at December 31, 2012 and 2011, respectively

     (7,416     (13,494

Accumulated other comprehensive loss

     (580     (737







Total stockholders’ equity

     48,389        34,699   







Total liabilities and stockholders’ equity

   $ 506,492      $ 522,881   











(Dollars in thousands, except per share data)



Three Months Ended

December 31,


Year Ended

December 31,

     2012     2011     2012     2011  

Interest and dividend income



   $ 3,929      $ 4,714      $ 16,343      $ 20,096   

Taxable securities

     497        608        2,185        2,208   

Tax-exempt securities

     51        68        222        320   

Federal funds sold and other

     28        24        98        108   













Total interest income

     4,505        5,414        18,848        22,732   

Interest expense



     489        697        2,351        2,809   


     116        527        887        2,304   













Total interest expense

     605        1,224        3,238        5,113   













Net interest income

     3,900        4,190        15,610        17,619   

Provision for loan losses

     (300     1,600        495        5,436   













Net interest income after provision for loan losses

     4,200        2,590        15,115        12,183   

Noninterest income


Service charges on deposit accounts

     689        648        2,601        2,724   

Trust department income

     28        168        702        855   

Net gain (loss) on sales of assets

     (150     625        112        594   

Gains on sale of loans

     —          16        —          77   

Treasury management fees

     64        82        257        345   

Data processing servicing fees

     —          —          —          506   

Earnings on bank owned life insurance

     167        164        742        749   


     146        108        610        508   













Total noninterest income

     944        1,811        5,024        6,358   













Noninterest expense


Salaries and other employee benefits

     2,383        2,222        9,538        9,710   

Occupancy and equipment

     625        930        2,908        3,837   

Professional services

     441        385        1,311        1,517   


     74        82        396        348   

Postage, freight and courier

     144        63        238        282   


     49        55        173        185   

State franchise taxes

     143        116        421        463   

Federal deposit insurance premiums

     287        216        1,149        1,424   


     1,057        919        3,472        3,526   













Total noninterest expense

     5,203        4,988        19,606        21,292   













Gain (loss) before income tax expense (credits)

     (59     (587     533        (2,751

Income tax expense (credits)

     87        400        (69     (13













Net income (loss)

   $ (146   $ (987   $ 602      $ (2,738













Basic and diluted loss per common share

   $ (0.03   $ (0.27   $ 0.15      $ (0.74













Dividends per share

   $ —        $ —        $ —        $ —     














Selected Key Ratios and Other Financial Data


(Dollars in thousands, except per share data)


     At or For the Year

December 31,

Key Ratios

   2012     2011  

Return on average assets

     0.12     (0.49 )% 

Return on average shareholders’ equity

     1.73     (7.41 )% 

Noninterest expense to average asset

     3.84     3.48

Efficiency ratio

     95.02     88.80

Net interest margin

     3.34     3.39

Allowance for loan losses as a percentage of period end loans

     2.17     2.66

Total allowance for losses on loans to nonaccrual loans

     129.08     100.08

Net charge-offs to average loans

     1.25     2.05

Nonaccrual loans to net loans

     1.72     2.73

Delinquent loans (greater than 30 days past due)

     1.30     2.24


Selected Key Ratios and Other Financial Data



     At or For the Year Ended
December 31,

Key Financial Information

   2012      2011  

Net interest income

   $ 15,610       $ 17,619   

Provision for loan losses

   $ 495       $ 5,436   

Noninterest income

   $ 5,024       $ 6,358   

Noninterest expense

   $ 19,606       $ 21,292   

Net income (loss)

   $ 602       $ (2,738

Average total assets

   $ 510,133       $ 562,882   

Average loans receivable

   $ 321,200       $ 394,765   

Average deposit balances

   $ 366,043       $ 399,984   

Nonaccrual loans

   $ 5,331       $ 9,576   

Loans 90 days past due and accruing

   $ 16       $ 985   

Basic earnings (loss) per share

   $ 0.15       $ (0.74

Diluted earnings (loss) per share

   $ 0.15       $ (0.74

Weighted average shares outstanding



     3,902,196         3,717,385   


     3,919,939         3,717,385   

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 14 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 offered data processing services to other financial institutions during the first three quarters of 2011; however such services were not a significant part of its current operations or revenues.

Application of Critical Accounting Policies

DCB’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the financial services industry. The application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.

The most significant accounting policies followed by the Corporation are presented in Note 1 of the audited consolidated financial statements contained in the Corporation’s 2011 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, management’s belief with respect thereto, and certain assumptions made by management. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to: (i) significant increases in competitive pressure in the banking and financial services industries; (ii) changes in the interest rate environment which could reduce anticipated or actual margins; (iii) changes in political conditions or the legislative or regulatory environment; (iv) general economic conditions, either nationally or regionally (especially in central Ohio), becoming less favorable than expected resulting in, among other things, a deterioration in credit quality of assets; (v) changes occurring in business conditions and inflation; (vi) changes in technology; (vii) changes in monetary and tax policies; (viii) changes in the securities markets; and (ix) other risks and uncertainties detailed from time to time in the filings of the Corporation with the 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.