DCB Financial Corp Announces Fourth Quarter and Full Year 2014 Results

LEWIS CENTER, Ohio, Jan. 29, 2015 /PRNewswire/ -- DCB Financial Corp (the "Company"), (OTC Bulletin Board DCBF), parent holding company of The Delaware County Bank & Trust Company, Lewis Center, Ohio (the "Bank") announced net income of $164,000 or $0.02 per diluted share for the three months ended December 31, 2014, compared to a net loss of $3.1 million or $0.43 per diluted share for the fourth quarter of 2013.

The loss recorded in the fourth quarter of 2013 was due primarily to a provision for loan losses of $3.3 million in that quarter as a result of specific strategies developed at the end of 2013, including collateral liquidations and loan sales, to accelerate the disposition of certain classified and nonperforming commercial loans at the end of 2013.

Net income was $372,000 or $0.05 per diluted share for the year ended December 31, 2014, compared to a net loss of $2.9 million or $0.41 per diluted share in 2013.

Ronald J. Seiffert, President and CEO for the Company said, "We made important, strategic decisions relative to asset quality in the fourth quarter of 2013 that paved the way for the sharp reduction in problem assets that we achieved in 2014.  The successful implementation of these strategies, along with favorable economic conditions, were key factors in the substantial improvement in our asset quality metrics in 2014.  The amount of loans on nonaccrual status at the end of 2014 was down $5.5 million or 80% from the end of 2013, and total nonperforming assets were reduced by $10.3 million or 46% in 2014, including a $2.5 million decrease in the fourth quarter."

Seiffert continued, "From a business development standpoint, the fourth quarter was our best quarter in 2014, with total loans up $15.8 million, for an annualized growth rate of 17%.  Nearly two-thirds of the growth was in our commercial loan portfolios, which were up $9.8 million, as we built a robust pipeline of commercial prospects over the second half of 2014."

Balance Sheet Highlights
Total assets were $515.3 million at December 31, 2014, compared with $500.3 million at September 30, 2014 and $502.4 million at December 31, 2013.   

Total loans, including loans held for sale, increased $15.8 million in the fourth quarter of 2014, and were $385.4 million at December 31, 2014, compared with $369.6 million at September 30, 2014 and $363.9 million at December 31, 2013.  Commercial loan demand was strong in the fourth quarter of 2014, with growth in the Company's commercial loan portfolios totaling $9.8 million, while residential mortgages increased at a relatively seasonal pace of $4.2 million during the fourth quarter of 2014. 

Deposits totaled $453.2 million at December 31, 2014, compared with $445.5 million at September 30, 2014 and $449.4 million at December 31, 2013. Demand accounts increased $10.9 million in the fourth quarter of 2014, which was partially offset by a decrease in time accounts of $2.5 million. Consistent with the financial sector generally, the very low interest rate environment continues to influence the Company's deposit composition, as customer preference for non-maturity accounts outweighs that of time accounts.    

Stockholders' equity was $47.2 million at December 31, 2014, compared with $46.7 million at September 30, 2014, and $45.3 million at December 31, 2013. The increase since the end of 2013 was primarily the result of the difference between the unrealized loss of $940,000 on one collateralized debt obligation ("CDO") at December 31, 2013, and the actual loss recognized upon the sale of that security in the first quarter of $140,000. Sharply higher demand for these types of securities in the first quarter of 2014 contributed to the increase in the value of the CDO during that quarter.  The remaining increase in stockholders' equity in 2014 was due primarily to an increase in unrealized gains on securities available-for-sale and net income for the year.

The Bank's Tier 1 leverage ratio was 9.00% and its total risk-based capital ratio was 13.56% at December 31, 2014, 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) totaled $2.2 million or 0.58% of total loans at December 31, 2014, compared to $3.6 million or 0.98% of total loans at September 30, 2014 and $8.7 million or 2.39% at the end of 2013.  Nonaccrual loans totaled $1.4 million or 0.36% of total loans at December 31, 2014, compared to $3.0 million or 0.81% of total loans at September 30, 2014 and $6.9 million or 1.90% of total loans at December 31, 2013.

Non-performing assets were $12.1 million or 2.35% of total assets at December 31, 2014, compared with $14.6 million or 2.92% of total assets at September 30, 2014 and $22.4 million or 4.47% of total assets at December 31, 2013.  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 December 31, 2014, compared to $9.8 million at September 30, 2014 and $12.8 million at December 31, 2013.

The $2.4 million decrease in non-performing assets in the fourth quarter of 2014 was attributable primarily to the successful workout of two non-accrual commercial real estate loans totaling $961,000, and to cash paydowns of $585,000 on a third non-accrual commercial mortgage. The Company made significant progress in reducing its non-performing assets in 2014, which were down $10.3 million or 46.0% during the year largely as the result of the execution of previously disclosed strategies developed in the fourth quarter of 2013 to accelerate the disposition of certain troubled assets. The Company's exposure to its three highest risk troubled commercial relationships with aggregate balances at the end of 2013 of $7.0 million was reduced by $6.8 million in 2014 through a combination of collection actions, negotiated settlements, and asset sales, which resulted in charge-offs of $1.9 million and cash collections of $4.7 million.      

Net charge-offs were $90,000 or 0.10% (annualized) of average loans in the fourth quarter of 2014, compared to net charge-offs of $1.1 million or 1.21% in the year-ago quarter. Net charge-offs were $2.5 million or 0.70% of average loans in 2014, compared to $609,000 or 0.18% in 2013. The three commercial relationships discussed above comprised approximately 67.1% of the gross charge-offs in 2014, which were charged against specific allowance allocations established in the fourth quarter of 2013 in connection with the non-performing asset reduction strategy developed in last year's fourth quarter.

The provision for loan losses was $150,000 for the quarter and year ended December 31, 2014, compared to $3.3 million and $2.4 million, respectively, for the quarter and year ended December 31, 2013. The provision expense in the fourth quarter of 2013 was attributable to the strategies the Company developed at that time to accelerate the reduction of the Company's exposure to three commercial relationships, as discussed above, and a group of homogenous single-family residential investment properties. Taken together, loan loss provisions allocated to these four exposures totaled $3.3 million or 100% of the provision expense for the fourth quarter of 2013.  The provision for loan losses as a percentage of net charge-offs was 166.7% and 5.9%, respectively, in the quarter and year ended December 31, 2014, compared to 303.7% and 396.9%, respectively, in the year ago periods. The provision for loan losses as a percentage of net charge-offs was 95.2% for the five quarters ending December 31, 2014.    

The allowance for loan losses was $4.2 million at December 31, 2014 and at September 30, 2014 compared with $6.7 million at December 31, 2013.  The decrease in the allowance for loan losses in 2014 is a direct result of writedowns taken on loans in 2014 against the loan loss allowances established for these loans at or prior to the end of 2013. The ratio of the allowance for loan losses to total loans was 1.10% at December 31, 2014, compared with 1.13% at September 30, 2014 and 1.85% at December 31, 2013.  The ratio of the allowance for loan losses to non-performing loans (including TDR's) was 38.5% at December 31, 2014, compared with 31.3% at September 30, 2014 and 33.2% at December 31, 2013. The ratio of the allowance for loan losses to non-accrual loans was 306.1% at December 31, 2014, compared with 138.9% at September 30, 2014 and 97.4% at December 31, 2013.

Net Interest Income
Net interest income totaled $4.2 million in the three months ended December 31, 2014, compared with $4.0 million in both the year-ago quarter and the third quarter of 2014.  The Company recognized $171,000 of interest income in the fourth quarter of 2014 upon the refinance of a non-accrual commercial mortgage which, upon the refinance, was returned to accrual status. 

The net interest margin was 3.62% in the fourth quarter of 2014, compared with 3.37% in the year-ago quarter and 3.40% in the third quarter of 2014.  The net interest margin was 3.48% in the fourth quarter of 2014 without the $171,000 interest recovery.

The earning assets yield increased 18 basis points and 20 basis points in the fourth quarter of 2014 compared with the year-ago quarter and third quarter of 2014, respectively, due primarily to the $171,000 interest recovery, and to the effect of purchase premiums written off in the third quarter of 2014 on the prepayment of certain investment securities and purchased mortgages.  The cost of interest-bearing liabilities decreased 9 basis points and 2 basis points in the fourth quarter of 2014 compared to the year-ago quarter and third quarter of 2014, respectively, as a result of maturing time accounts which either were renewed at lower rates or were transferred into our interest-bearing demand and money market accounts, which earn interest at lower rates than time accounts.  Also, the Company restructured advances from the Federal Home Loan Bank in November 2013 which contributed to a 153 basis point decrease in the cost of borrowings in the third quarter compared to the year-ago quarter.  

Average interest-earning assets were $465.7 million in the fourth quarter of 2014, compared with $470.7 million in the year-ago quarter and $463.5 million in the third quarter of 2014.  In the fourth quarter of 2014 the average balance of loans increased by $13.0 million, while the average balance of interest earning cash and cash equivalents decreased $10.6 million and average investments decreased $6.3 million when compared with the year-ago quarter, as the Company used its excess liquidity position to fund organic loan growth. Total average loans were 80.3% of total average interest-earning assets in the fourth quarter of 2014, compared with 76.7% in the year-ago quarter and 78.2% in the third quarter of 2014.  The average balance of time deposits declined $21.9 million in the fourth quarter of 2014 compared with the year-ago quarter, while average balances in lower-costing interest-bearing demand, savings and money market accounts increased $22.8 million, and the average balance of non-interest-bearing demand accounts decreased $3.8 million over that same period.

Net interest income totaled $16.2 million in 2014, which was an increase of $907,000 or 5.9% compared with $15.3 million in 2013.  The net interest margin was 3.49% in 2014, compared with 3.17% in 2013.  The earning asset yield increased 32 basis point in 2014 compared with 2013, due largely to loan growth, and the cost of interest-bearing liabilities decreased 16 basis points over the same period.

Average interest-earning assets were $462.9 million in 2014, which was a decrease of $1.8 million from 2013. Total average loans were 78.5% of total interest-earning assets in 2014, compared with 73.6% in 2013. The average balance in time deposits decreased $36.0 million in 2014 compared with 2013, while the average balances in lower-costing interest-bearing demand, savings and money market accounts increased $25.0 million, and the average balance of non-interest-bearing demand accounts increased $10.1 million.

Non-Interest Income and Non-Interest Expenses
Non-interest income was $1.1 million in the fourth quarter of 2014, which was virtually unchanged from the year-ago quarter and from the third quarter of 2014.

Non-interest income was $4.5 million in 2014, compared to $5.0 million in 2013.  Non-recurring writedowns and losses, net were $56,000 in 2014, compared to net non-recurring gains of $166,000 in 2013. In addition, service charges decreased $232,000 in 2014 compared to 2013 due primarily to lower volumes of customer overdraft and debit card transactions.

Non-interest income (net of nonrecurring income, gains and losses and gains/losses on the sales of securities) accounted for 20.6% of total revenue in the fourth quarter of 2014, compared with 21.9% in the year-ago quarter and 22.6% in the third quarter of 2014.  Non-interest income accounted for 21.8% of total revenue in 2014, compared with 23.9% in 2013.

Non-interest expenses were $5.1 million for the fourth quarter of 2014, compared with $4.9 million in the year-ago quarter and $5.1 million for the third quarter of 2014.  Salaries and benefits increased $302,000 in the fourth quarter of 2014 compared to the year-ago quarter due primarily to a reversal of incentive compensation accruals in the fourth quarter of 2013 which had been accrued over the first three quarters of 2013.  FDIC insurance expense decreased $58,000 in the fourth quarter compared to the year-ago quarter due to the improvement in the Bank's regulatory risk rating, which was effective in the fourth quarter of 2014, and which resulted largely from the substantial improvement in the Bank's asset quality in 2014. Non-interest expenses for the fourth quarter of 2014 included approximately $107,000 of non-routine expenses, consisting primarily of legal expenses covering matters of corporate governance, capital management, corporate equity plans and the special meeting of shareholders held in October, among other things.

The Company's efficiency ratio was 94.6% in the fourth quarter of 2014, compared with 95.8% in the year-ago quarter, and 98.7% in the third quarter of 2014. 

Non-interest expenses were $20.1 million in 2014, which was a decrease of $934,000 or 4.4% compared to 2013. Professional services decreased $412,000 due to the substantial reduction in non-performing assets in 2014 which has resulted in a reduced need for outside professional services related to the workout of such assets. Office supplies, postage and courier expenses declined $153,000 in 2014 due primarily to expense reduction initiatives. State franchise taxes decreased $212,000 in 2014 due to a change in the tax law which changed how the tax was calculated in 2014.  Non-interest expenses in 2014 included approximately $314,000 of non-routine expenses, consisting primarily of legal expenses covering matters of corporate governance, capital management, corporate equity plans and the special meeting of shareholders held in October, among other things.

The Company's efficiency ratio was 97.2% in 2014, compared to 104.7% in 2013.

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 Delaware County, Ohio and surrounding communities. 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, 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, 2013, 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