DCB Financial Corp Announces Pre-Tax Income of $400,000 for Third Quarter 2015

LEWIS CENTER, Ohio, Nov. 2, 2015 /PRNewswire/ -- DCB Financial Corp (the "Company"), (OTCPink: DCBF), parent holding company of The Delaware County Bank & Trust Company, Lewis Center, Ohio (the "Bank") announced net income of $11.1 million or $1.52 per diluted share for the three months ended September 30, 2015, compared to net income of $50,000 or $0.01 per diluted share for the same period in 2014. The Company reversed a valuation allowance that had previously been recorded against its net deferred tax assets, resulting in a one-time tax benefit in the third quarter of 2015 of $10.7 million or $1.46 per diluted share. Pre-tax income was $400,000 for the third quarter of 2015, compared with $50,000 in the year-ago quarter.       

Net income was $11.5 million or $1.58 per diluted share for the nine months ended September 30, 2015, compared to net income of $206,000 or $0.03 per diluted share for the same period in 2014. Pre-tax income was $783,000 or $0.11 per diluted share for the nine months ended September 30, 2015, compared with $206,000 or $0.03 per diluted share in the year-ago period.       

On a quarterly basis, the Company determines whether a valuation allowance is necessary on its net deferred tax assets. In doing so, the Company considers all evidence available, both positive and negative, in determining whether it is more likely than not that the net deferred tax assets will be realized. After weighing all available evidence at September 30, 2015, the Company concluded that it is more likely than not that its net deferred tax assets will be realized. As a result, the company reversed the valuation allowance against its net deferred tax assets, resulting in the recognition of a $10.7 million federal income tax benefit in the Company's net income in the third quarter of 2015.

Ronald J. Seiffert, President and CEO for the Company said, "The reversal of the valuation allowance on our net deferred tax assets reflects the positive trends in the Company's core earnings and asset quality over the past seven quarters, along with our confidence in the Company's ability to generate taxable income in future years sufficient to utilize the net deferred tax assets."

Seiffert continued, "We are continuing to develop a number of strategic initiatives that are designed to further enhance the Company's profitability in coming quarters, including a planned expansion of our residential mortgage and small-business lending capabilities going into 2016."

Balance Sheet Highlights
Total assets were $541.7 million at September 30, 2015, compared with $541.6 million at June 30, 2015 and $515.4 million at December 31, 2014. Cash and cash equivalents increased $13.8 million since the end of 2014 due primarily to deposit growth during the period, and net deferred tax assets increased $10.4 million as the result of the reversal of the valuation allowance in the third quarter of 2015.   

Total loans were $380.3 million at September 30, 2015, compared with $382.2 million at June 30, 2015 and $385.4 million at December 31, 2014. The Company has experienced significant prepayments in its commercial portfolio in 2015, including 5 relationships aggregating $5.7 million that paid off during the first quarter and 6 relationships aggregating $7.1 million that paid off in the third quarter. Non-performing troubled-debt restructured loans comprised approximately one-third of these large payoffs during 2015.  

The Company has classified the $4.8 million carrying amount of its headquarters building as held-for-sale as of September 30, 2015, reflecting the Company's plan to sell and simultaneously lease back the property.

Deposits totaled $474.9 million at September 30, 2015, compared with $470.5 million at June 30, 2015 and $453.2 million at December 31, 2014. Much of the growth in deposits during 2015 has been the result of higher balances maintained by existing municipal and business customers.

Shareholders' equity increased $11.5 million in the nine months of 2015 to $58.7 million at September 30, 2015 due to net income for the period, which was comprised of pre-tax income of $783,000 and the income tax benefit of $10.7 million that resulted from the reversal of the valuation allowance against the Company's net deferred tax assets. The Company's tangible common equity to tangible assets ratio was 10.8% at September 30, 2015.

The Bank's Tier 1 leverage ratio was 9.18% and its total risk-based capital ratio was 14.23% at September 30, 2015, both of which were well above the regulatory thresholds required to be classified as a "well-capitalized" institution, which are 5.0% and 10.0%, respectively. The effect of the income tax benefit recorded in the third quarter added approximately 50 basis points to the Bank's regulatory capital ratios.  

Asset Quality and the Provision for Loan Losses
Delinquent loans (including non-accrual loans) totaled $1.5 million or 0.40% of total loans at September 30, 2015, compared to $2.4 million or 0.63% of total loans at June 30, 2015 and $2.2 million or 0.58% of total loans at December 31, 2014.  Non-accrual loans totaled $1.3 million or 0.35% of total loans at September 30, 2015, compared to $1.5 million or 0.38% of total loans at June 30, 2015 and $1.4 million or 0.36% of total loans at December 31, 2014.

Non-performing assets dropped $3.6 million or 30.4% in the third quarter, and were $8.2 million or 1.52% of total assets at September 30, 2015, compared with $11.8 million or 2.18% of total assets at June 30, 2015 and $12.6 million or 2.45% of total assets at December 31, 2014.  Troubled debt restructurings ("TDR's"), which are performing in accordance with the restructured terms and accruing interest, but are included in non-performing assets, were $6.1 million at September 30, 2015, compared to $9.1 million at June 30, 2015, and $9.6 million at December 31, 2014. During the third quarter the Company sold two commercial mortgage loans that had been classified as impaired TDR's, at the aggregate outstanding amount of the loans of $3.2 million.

Net recoveries of previously charged-off loans totaling $192,000 were recorded in the third quarter of 2015, compared to net charge-offs of $392,000 or 0.43% (annualized) of average loans in the year-ago quarter, and net recoveries of $75,000 in the second quarter of 2015.

Net charge-offs were $30,000 or 0.02% (annualized) of average loans in the first nine months of 2015, compared to net charge-offs of $2.5 million or 0.91% (annualized) of average loans in the first nine months of 2014. Three relationships comprised approximately 71% of the gross charge-offs in the first nine months of 2014, which were charged against specific allowance allocations established in the fourth quarter of 2013.

The Company recorded a negative provision for loan losses of $150,000 in the third quarter of 2015, due primarily to the net recoveries recorded in the quarter and to the favorable impact on the allowance for loan losses of the reduction in non-performing loans during the quarter. The negative provision for loan losses recorded in the third quarter had the effect of offsetting the provision for loan losses of $150,000 that was recorded in the first quarter of 2015, resulting in no provision for loan losses for the nine months ended September 30, 2015. There was no provision for loan losses recorded in the three months and nine months ended September 30, 2014.

The allowance for loan losses was $4.2 million at September 30, 2015 and at June 30, 2015 and December 31, 2014.  The ratio of the allowance for loan losses to total loans was 1.12% at September 30, 2015, compared to 1.09% at June 30, 2015, and 1.10% at December 31, 2014.  The ratio of the allowance for loan losses to non-performing loans (including TDR's) was 56.6% at September 30, 2015, compared to 37.8% at June 30, 2015, and 36.8% at December 31, 2014. The ratio of the allowance for loan losses to non-accrual loans was 314% at September 30, 2015, compared to 286% at June 30, 2015, and 306% at December 31, 2014.

Net Interest Income
Net interest income totaled $4.2 million in the quarter ended September 30, 2015, compared with $4.0 million in the year-ago quarter and $4.2 million in the second quarter of 2015. The net interest margin was 3.35% in the third quarter of 2015, compared to 3.40% in the year-ago quarter and 3.40% in the second quarter of 2015. The decline in the net interest margin was due primarily to the reinvestment of loan amortization and payoffs into loans with lower current yields, as well as from the effect of higher interest-bearing cash balances, with yields averaging 0.25%.

Total average interest-earning assets were $496.5 million in the third quarter of 2015, which was an increase of $33.0 million or 7.1% from the year-ago quarter and was an increase of $5.5 million compared with the second quarter of 2015. Average loans outstanding in the third quarter were $21.0 million higher than the year-ago quarter, and were up $5.3 million compared with the second quarter of 2015.  The increase in the third quarter's average loan balances have occurred despite the decline in actual period end loans outstanding at September 30, 2015 as the result of the timing of the large commercial loan payoffs that occurred in the third quarter of 2015, along with the effect on average balances throughout 2015 of the $16.2 million of growth in the portfolio that occurred in the fourth quarter of 2014. Total average loans were 77.2% of total average interest-earning assets in the third quarter of 2015, compared with 78.2% in the year-ago quarter and 77.0% in the second quarter of 2015. 

Total average interest-bearing deposit balances increased $11.9 million in the third quarter of 2015 compared to the year-ago quarter, with an increase of $17.4 million in the average balances of lower-costing interest-bearing demand, savings and money market accounts (transaction accounts) offsetting a decrease in the average balance of time deposits of $5.5 million. Transaction accounts comprised 79.1% of total interest-bearing deposits in the third quarter of 2015, compared to 76.8% in the year-ago quarter and 78.9% in the second quarter of 2015.

Net interest income totaled $12.5 million in the nine months ended September 30, 2015, which was an increase of $594,000 or 5.0% compared with $11.9 million in the year-ago period.  The net interest margin was 3.41% for the nine months ended September 30, 2015, compared with 3.45% in the year-ago period. 

Average interest-earning assets were $491.7 million in the first nine months of 2015, which was an increase of $30.3 million or 6.6% from the first nine months of 2014. Average loans outstanding in the first nine months of 2015 increased $20.9 million compared to the year-ago period, and totaled 77.4% of total interest-earning assets in the nine months ended September 30, 2015, compared with 78.0% in the nine months ended September 30, 2014.

The average balance in time deposits decreased $7.1 million in the first nine months of 2015 compared with the year-ago period, while the average balances in lower-costing interest-bearing demand, savings and money market accounts increased $25.0 million. Transaction accounts comprised 78.8% of total interest-bearing deposits in the first nine months of 2015, compared to 75.6% in the first nine months of 2014.

Non-Interest Income and Non-Interest Expenses
Non-interest income was $1.2 million in the third quarter of 2015, compared to $1.1 million in the third quarter of 2014 and $1.2 million in the second quarter of 2015. Non-interest income was $3.6 million in the nine months September 30, 2015, compared to $3.3 million in the first nine months of 2014. Income from wealth management fees and treasury management fees increased $126,000 and $30,000, respectively in the first nine months of 2015 compared to the year-ago period largely from the impact of business development activities.

Non-interest income accounted for 22.9% of total revenue in the third quarter of 2015, compared with 22.6% in the year-ago quarter and 22.2% in the second quarter of 2015.  Non-interest income accounted for 22.2% of total revenue in both the nine months ended September 30, 2015 and in the year-ago period.

Non-interest expenses were $5.2 million for the third quarter of 2015, compared with $5.1 million in the year-ago quarter and $5.2 million for the second quarter of 2015.  The Company's efficiency ratio was 95.0% in the third quarter of 2015, compared with 98.7% in the year-ago quarter, and 95.0% in the second quarter of 2015. 

Non-interest expenses were $15.3 million in the nine months ended September 30, 2015, compared to $15.0 million in the year-ago period. The Company's efficiency ratio was 95.0% for the first nine months of 2015, compared to 98.1% in the year-ago period.

About DCB Financial Corp    
DCB Financial Corp is a financial holding company formed under the laws of the State of Ohio. The Company is the parent of The Delaware County Bank & Trust Company, a state-chartered commercial bank. The Bank conducts business from its main offices at 110 Riverbend Avenue in Lewis Center, Ohio, and through its eight full-service and six limited-service branch offices located in Central Ohio. The Bank provides customary retail and commercial banking and cash management services to its customers, including checking and savings accounts, time deposits, IRAs, safe deposit facilities, personal loans, commercial loans, commercial leases, real estate mortgage loans, night depository facilities and trust and personalized wealth management services.

Forward-Looking Statements
This press release contains certain forward-looking statements with respect to the financial condition, results of operations and business of DCB Financial Corp.  These forward-looking statements involve certain risks and uncertainties.  Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: an increase in competitive pressure in the banking industry; changes in the interest rate environment which may affect the net interest margin; changes in the regulatory environment; general economic conditions, either nationally or regionally, resulting in, among other things, in a deterioration in credit quality; changes in business conditions and inflation; changes in the securities markets; changes in technology used in the banking business; our ability to maintain and increase market share and control expenses; increases in FDIC insurance premiums may cause earnings to decrease; and other risks set forth under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and in subsequent filings with the Securities and Exchange Commission.

The Company 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.

SOURCE DCB Financial Corp