DCB Financial Corp Announces Second Quarter 2015 Results

LEWIS CENTER, Ohio, July 30, 2015 /PRNewswire/ -- DCB Financial Corp (the "Company"), (OTCQB: DCBF), parent holding company of The Delaware County Bank & Trust Company, Lewis Center, Ohio (the "Bank") announced net income of $144,000 or $0.02 per diluted share for the three months ended June 30, 2015, compared to net income of $37,000 or $0.01 per diluted share for the same period in 2014. The increase in net income resulted from a $196,000 increase in net interest income and an increase of $184,000 in non-interest income, which offset a $273,000 increase in non-interest expenses. During the second quarter of 2015, the Company recorded a $175,000 one-time expense accrual for refunds of certain fees charged to a small segment of deposit customers between 2011 and 2015.      

Net income was $383,000 or $0.05 per diluted share for the six months ended June 30, 2015, compared to net income of $156,000 or $0.02 per diluted share for the same period in 2014. Increases of $389,000 in net interest income and $151,000 in non-interest income during the first six months of 2015 offset a $150,000 increase in the provision for loan losses and a $163,000 increase in non-interest expenses.

Ronald J. Seiffert, President and CEO for the Company said, "Net income for the first half of 2015 increased 146% over the year-ago period, and was slightly higher than our net income for all of 2014, as strong growth in net interest income and higher wealth management fees drove a $540,000 increase in net revenue in the first half of 2015 compared to the first half of last year."

Seiffert continued, "Our business development initiatives have borne strong results over the past year, with average loan balances up over $20 million in both the three months and six months ended June 30, 2015 compared to the year-ago periods. We have a number of strategic initiatives under way designed to further increase our lending capacity in coming quarters, including the hiring of a seasoned mortgage banking professional to lead the development and expansion of our mortgage banking business, which we announced last week."

Balance Sheet Highlights
Total assets were $541.6 million at June 30, 2015, compared with $520.7 million at March 31, 2015 and $515.4 million at December 31, 2014. Cash and cash equivalents increased $26.1 million since the end of 2014 due in large part to seasonal inflows of funds into the Company's municipal accounts during the second quarter.   

Total loans were $382.2 million at June 30, 2015, compared with $377.2 million at March 31, 2015 and $385.4 million at December 31, 2014. The Company entered 2015 with a relatively light loan pipeline due primarily to seasonal factors and a large number of commercial loan closings in the fourth quarter of 2014. Growth in the Company's commercial loan portfolios in the fourth quarter of 2014 totaled $9.8 million. In addition, prepayments and payoffs in the Company's commercial loan portfolios were unusually high during the first quarter of 2015, including 5 relationships aggregating $5.7 million that paid off during the quarter. Loan growth rebounded in the second quarter, with commercial and industrial loans and residential loans increasing $2.9 million and $2.4 million, respectively.

Deposits totaled $470.5 million at June 30, 2015, compared with $464.8 million at March 31, 2015 and $453.2 million at December 31, 2014. Money market accounts increased $9.1 million in the first quarter of 2015 due primarily to seasonal inflows of municipal deposits.

Shareholders' equity increased $255,000 in the first half of 2015 to $47.5 million at June 30, 2015. Net income for the first half of 2015 of $383,000 was partially offset by a decrease in accumulated other comprehensive income due to a decrease in unrealized gains on securities available-for-sale.

The Bank's Tier 1 leverage ratio was 8.63% and its total risk-based capital ratio was 13.83% at June 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.

Asset Quality and the Provision for Loan Losses
Delinquent loans (including non-accrual loans) totaled $2.4 million or 0.63% of total loans at June 30, 2015, compared to $2.0 million or 0.53% of total loans at March 31, 2015 and $2.2 million or 0.58% of total loans at December 31, 2014.  Non-accrual loans totaled $1.5 million or 0.38% of total loans at June 30, 2015, compared to $1.1 million or 0.30% of total loans at March 31, 2015 and $1.4 million or 0.36% of total loans at December 31, 2014.

Non-performing assets were $11.8 million or 2.18% of total assets at June 30, 2015, compared with $11.8 million or 2.26% of total assets at March 31, 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 $9.1 million at June 30, 2015, and $9.6 million at March 31, 2015 and at December 31, 2014.      

Net recoveries of previously charged-off loans totaling $75,000 were recorded in the second quarter of 2015, compared to net charge-offs of $777,000 or 0.87% (annualized) of average loans in the year-ago quarter, and net charge-offs of $297,000 or 0.31% (annualized) of average loans in the first quarter of 2015.

Net charge-offs were $222,000 or 0.12% (annualized) of average loans in the first half of 2015, compared to net charge-offs of $2.1 million or 1.15% (annualized) of average loans in the first half of 2014. Three relationships comprised nearly all of the charge-offs in the first half of 2014, which were charged against specific allowance allocations established in the fourth quarter of 2013.

There was no provision for loan losses recorded in the second quarter of 2015, compared with a provision for loan losses of $150,000 in the first quarter of 2015.  There was no provision for loan losses recorded in the three months and six months ended June 30, 2014.

The allowance for loan losses was $4.2 million at June 30, 2015, compared to $4.1 million at March 31, 2015 and $4.2 million at December 31, 2014.  The ratio of the allowance for loan losses to total loans was 1.09% at June 30, 2015, compared with 1.08% at March 31, 2015 and 1.10% at December 31, 2014.  The ratio of the allowance for loan losses to non-performing loans (including TDR's) was 38.2% at June 30, 2015, compared to 37.8% at March 31, 2015 and 38.5% at December 31, 2014. The ratio of the allowance for loan losses to non-accrual loans was 286% at June 30, 2015, compared to 362% at March 31, 2015 and 306% at December 31, 2014.

Net Interest Income
Net interest income totaled $4.2 million in the quarter ended June 30, 2015, compared with $4.0 million in the year-ago quarter and $4.2 million in the first quarter of 2015. The net interest margin was 3.40% in the second quarter of 2015, compared to 3.51% in the year-ago quarter and 3.50% in the first quarter of 2015. The decline in the net interest margin resulted primarily from the effect of higher interest-bearing cash balances, with yields averaging 0.25%.

Total average interest-earning assets were $491.1 million in the second quarter of 2015, which was an increase of $37.7 million or 8.3% from the year-ago quarter and was an increase of $6.2 million compared with the first quarter of 2015. Average loans outstanding in the second quarter were up $21.3 million compared to the year-ago quarter, but were down $3.1 million compared with the first quarter of 2015 as nearly all of the $4.9 million increase in outstanding loan balances that occurred during the second quarter occurred in the month of June. Total average loans were 77.0% of total average interest-earning assets in the second quarter of 2015, compared with 78.7% in the year-ago quarter and 78.6% in the first quarter of 2015. 

Total average interest-bearing deposit balances increased $27.1 million in the second quarter of 2015 compared to the year-ago quarter, with an increase of $33.1 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 $6.0 million. Transaction accounts comprised 78.9% of total interest-bearing deposits in the second quarter of 2015, compared to 75.4% in the year-ago quarter and 78.5% in the first quarter of 2015.

Net interest income totaled $8.3 million in the first half 2015, which was an increase of $389,000 or 4.9% compared with $8.0 million in the year-ago period.  The net interest margin was 3.45% for the six months ended June 30, 2015, compared with 3.47% in the year-ago period. 

Average interest-earning assets were $487.9 million in the first half of 2015, which was an increase of $27.5 million or 6.0% from the first half of 2014. Average loans outstanding in the first half of 2015 increased $20.1 million compared to the year-ago period, and totaled 77.8% of total interest-earning assets in the six months ended June 30, 2015, compared with 77.9% in the six months ended June 30, 2014.

The average balance in time deposits decreased $7.9 million in the first half of 2015 compared with the year-ago period, while the average balances in lower-costing interest-bearing demand, savings and money market accounts increased $28.9 million. Transaction accounts comprised 78.7% of total interest-bearing deposits in the first half of 2015, compared to 75.1% in the first half of 2014.

Non-Interest Income and Non-Interest Expenses
Non-interest income was $1.2 million in the second quarter of 2015, compared to $996,000 in the second quarter of 2014 and $1.2 million in the first quarter of 2015. Non-interest income for the second quarter of 2014 was negatively impacted by losses of $114,000 on loans held-for-sale. The rest of the increase in non-interest income in the second quarter of 2015 compared with the year-ago period resulted from increases in service charges, wealth management income and treasury management fees.   

Non-interest income was $2.3 million in the first half of 2015, compared to $2.2 million in the first half of 2014.

Non-interest income (net of non-recurring items in the year-ago quarter) accounted for 22.2% of total revenue in the second quarter of 2015, compared with 21.8% in the year-ago quarter and 21.5% in the first quarter of 2015.  Non-interest income accounted for 21.9% of total revenue in the first half of 2015, compared with 22.0% in the year-ago period.

Non-interest expenses were $5.2 million for the second quarter of 2015, compared with $4.9 million in the year-ago quarter and $5.0 million for the first quarter of 2015.  The Company's efficiency ratio was 95.0% in the second quarter of 2015, compared with 96.2% in the year-ago quarter, and 92.9% in the first quarter of 2015. 

Non-interest expenses were $10.1 million in the first half of 2015, compared to $10.0 million in the first half of 2014. The Company's efficiency ratio was 93.8% for the first half of 2015, compared to 97.4% 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 14 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.

(1)  Includes loans held for sale in 2014

(1)  As a percentage of total loans, excluding deferred costs

(1) TDR's that are in compliance with their modified terms and accruing interest. 

(1)      Net interest income divided by average earning assets
(2)      Non-interest income (excluding net realized gains and losses on securities and other non-recurring gains and losses) divided by the sum of net interest income and non-interest income (as adjusted)
(3)      Non-interest expense (less OREO expense and non-recurring expenses and losses) divided by the sum of net interest income and non-interest income (as adjusted)

(1) Non-interest income (net of realized gains and losses on securities and other non-recurring items) divided by the sum of net interest income and non-interest income (as adjusted)
(2) Non-interest expense (less OREO expense) divided by the sum of net interest income and non-interest income (as adjusted)

SOURCE DCB Financial Corp