UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ________________________
COMMISSION FILE NUMBER 0-22387
DCB FINANCIAL CORP
------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1469837
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
110 Riverbend Ave., Lewis Center, Ohio 43035
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (740) 657-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Shares,
No par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
At June 28, 2002, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, based on a share price of $19.75 per share
(such price being the average of the bid and asked prices on such date) was
$76,769,336.
At February 28, 2003, the registrant had 4,168,234 common shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of Form 10-K - Portions of the Annual Report to Shareholders for
the year ended December 31, 2002.
Part III of Form 10-K - Portions of the definitive Proxy Statement for the 2003
Annual Meeting of Shareholders of DCB Financial Corp.
PART I
ITEM 1 DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
DCB Financial Corp (the "Corporation") is a financial holding company
headquartered in Lewis Center, Ohio. The Corporation has one
wholly-owned subsidiary bank, the Delaware County Bank and Trust
Company (the "Bank"). The Bank also has two wholly-owned subsidiaries,
D.C.B. Corporation and 362 Corp.
The Corporation was incorporated under the laws of the State of Ohio in
1997, at the direction of management of the Bank for the purpose of
becoming a bank holding company by acquiring all outstanding shares of
the Bank. The Corporation acquired all such shares of the Bank after an
interim bank merger, which transaction was consummated on March 14,
1997. The Bank is a commercial bank, chartered under the laws of the
State of Ohio, and was organized in 1950.
(b) NARRATIVE DESCRIPTION OF BUSINESS
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, installment loans, night depository facilities
and trust services. The Bank also provides cash management, bond
registrar and paying services. Through its own computer department, the
Bank provides data processing services to other financial institutions;
however, such services are not a significant part of operations or
revenue.
The Corporation, through the Bank, grants residential real estate,
commercial real estate, consumer and commercial loans to customers
located primarily in Delaware, Franklin, Licking, Morrow, Marion and
Union Counties, Ohio.
The Bank is not significantly affected by seasonal activity or large
deposits of any individual depositor. At year-end 2002, deposits of
public funds (funds of governmental agencies and municipalities) were
9% of total deposits. This amount can fluctuate, but generally not by a
material amount. No material industry or group concentrations exist in
the loan portfolio.
Certain risks are involved in granting loans, primarily related to the
borrowers' ability and willingness to repay the debt. Before the Bank
extends a new loan to a customer, these risks are assessed through a
review of the borrower's past and current credit history, the
collateral being used to secure the transaction in case the customer
does not repay the debt, the borrower's character and other factors.
Once the decision has been made to extend credit, the Bank's
independent loan review function and responsible credit officer
monitors these factors throughout the life of the loan. All credit
relationships of $575,000 or more are reviewed annually, as are 30% of
credit relationships from $250,000 to $575,000, 20% of credit
relationships from $100,000 to $250,000 (excluding residential
mortgages), and 10% of residential mortgages from $100,000 to $250,000.
In addition, any loan identified as a problem credit by management or
during the loan review is assigned to the Bank's "watch loan list," and
is subject to ongoing monitoring by the loan review function to ensure
appropriate action is taken when deterioration has occurred.
Commercial, industrial and agricultural loans are primarily variable
rate and include operating lines of credit and term loans made to small
businesses primarily based on their ability to repay the loan from the
business's cash flow. Such loans are typically secured by business
assets such as equipment and inventory and, occasionally, by the
business owner's principal residence.
2.
When the borrower is not an individual, the Bank generally obtains the
personal guarantee of the business owner. As compared to consumer
lending, which includes single-family residence, personal installment
loans and automobile loans, commercial lending entails significant
additional risks. These loans typically involve larger loan balances
and are generally dependent on the business's cash flow and, thus, may
be subject to adverse conditions in the general economy or in a
specific industry. Management reviews the borrower's cash flows when
deciding whether to grant the credit to evaluate whether estimated
future cash flows will be adequate to service principal and interest of
the new obligation in addition to existing obligations.
Commercial real estate and farmland loans are primarily secured by
borrower-occupied business real estate and are dependent on the ability
of the related business to generate adequate cash flow to service the
debt. Such loans primarily carry adjustable interest rates. Commercial
real estate loans are generally originated with a loan-to-value ratio
of 80% or less. Management performs much the same analysis when
deciding whether to grant a commercial real estate loan as a commercial
loan.
Residential real estate loans and home equity lines of credit carry
primarily adjustable rates, although fixed-rate loans are originated
and are secured by the borrower's residence. Such loans are made based
on the borrower's ability to repay the debt from employment and other
income. Management assesses the borrower's ability to repay the debt
through a review of credit history and ratings, verification of
employment and other income, review of debt-to-income ratios and other
measures of repayment ability. The Bank generally makes these loans in
amounts of 80% or less of the value of collateral. An appraisal is
obtained from a qualified real estate appraiser for substantially all
loans secured by real estate.
Due to the high level of growth in the Corporation's market area,
construction lending has become a significant part of the Corporation's
overall lending strategy. Construction loans are secured by residential
and business real estate, generally occupied by the borrower on
completion. The Bank's construction lending program is established in a
manner to minimize risk of this type of lending by not making a
significant amount of loans on speculative projects. While not
contractually required to do so, the Bank usually makes the permanent
loan at the end of the construction phase. Construction loans also are
generally made in amounts of 80% or less of the value of collateral.
Consumer installment loans to individuals include loans secured by
automobiles and other consumer assets, including second mortgages on
personal residences. Consumer loans for the purchase of new automobiles
generally do not exceed 85% of the purchase price of the car. Loans for
used cars generally do not exceed average wholesale or trade-in value
as stipulated in a recent auto industry used car price guide. Credit
card and overdraft protection loans are unsecured personal lines of
credit to individuals of demonstrated good credit character with
reasonably assured sources of income and satisfactory credit histories.
Consumer loans generally involve more risk than residential mortgage
loans because of the type and nature of collateral and, in certain
types of consumer loans, the absence of collateral. Since these loans
are generally repaid from ordinary income of an individual or family
unit, repayment may be adversely affected by job loss, divorce, ill
health or by general decline in economic conditions. The Bank assesses
the borrower's ability to make repayment through a review of credit
history, credit ratings, debt-to-income ratios and other measures of
repayment ability.
3.
(b) NARRATIVE DESCRIPTION OF BUSINESS (CONTINUED)
Another way the Bank meets the needs of its customers is through its
lease-financing program. The Bank's leasing program involves leasing
vehicles to individuals and businesses. The vehicle lease program
includes new and late model automobiles and light trucks with terms
from 12 to 60 months. The Bank also provides lease financing to
businesses for commercial equipment, though this line of business
represents a very small portion of the overall leasing program. The
Bank's comprehensive program includes leasing new and used equipment
with flexible terms, though generally the term of a given lease is
limited to some extent by the type of equipment and its useful life.
Average lease terms for commercial equipment leases generally range
from 3 to 8 years.
EMPLOYEES
At December 31, 2002, the Bank employed 204 employees, 193 of whom were
full-time. The Bank provides a number of benefits such as health,
dental and life insurance for all, as well as education assistance for
qualified employees. A 401(k) retirement plan is in place for eligible
employees. No employee is represented by a union or collective
bargaining group. Management considers its employee relations to be
good. The Corporation has no employees not also employed by the Bank.
COMPETITION
The Bank operates in a highly competitive industry due to statewide and
interstate branching by banks, savings and loan associations and credit
unions. In its primary market area of Delaware County, Ohio and
surrounding counties, the Bank competes for new deposit dollars and
loans with several other commercial banks, both large regional banks
and smaller community banks, as well as savings and loan associations,
credit unions, finance companies, insurance companies, brokerage firms
and investment companies. According to the most recent market data,
there are approximately nine other deposit taking/lending institutions
competing in the Bank's market. In addition, according to the market
data, the Bank currently ranks first in market share with approximately
43.3% of the market. The ability to generate earnings is impacted in
part by competitive pricing on loans and deposits, and by changes in
the rates on various U.S. Treasury, U. S. Government Agency and State
and political subdivision issues which comprise a significant portion
of the Bank's investment portfolio, and which rates are used as indices
on various loan products. The Bank is competitive with interest rates
and loan fees that it charges, in pricing and variety of accounts it
offers to the depositor. The dominant pricing mechanism on loans is the
Prime interest rate as published in the Wall Street Journal. The
interest spread more than Prime depends on the overall account
relationship and the creditworthiness of the borrower. Deposit rates
are set monthly by the Asset/Liability Committee. The Bank's primary
objective in setting deposit rates is to remain competitive in the
market area while maintaining an adequate interest spread to meet
overhead costs.
SUPERVISION AND REGULATION
The business in which The Bank and its subsidiaries are engaged is
subject to extensive supervision, regulation and examination by various
bank regulatory authorities and other governmental agencies in the
state and country where the Corporation and its subsidiaries operate.
The Bank is subject to supervision, regulation and periodic examination
by the State of Ohio Superintendent of Financial Institutions and the
Federal Deposit Insurance Corporation ("FDIC"). The supervision,
regulation and examination to which The Bank and its subsidiaries are
subject are intended primarily for the protection of depositors and the
deposit insurance funds that insure the deposits of banks, rather than
for the protection of security holders.
4.
Earnings of the Bank are affected by state and federal laws and
regulations, and by policies of various regulatory authorities. These
policies include, for example, statutory maximum lending rates,
requirements on maintenance of reserves against deposits, domestic
monetary policies of the Board of Governors of the Federal Reserve
System, United States fiscal policy, international currency regulations
and monetary policies, certain restrictions on banks' relationships
with many phases of the securities business and capital adequacy and
liquidity restraints. As a financial holding company, the Corporation
is subject to supervision, regulation and periodic examination by the
Federal Reserve Board.
LIABILITY FOR BANKING SUBSIDIARIES
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial and managerial strength for each of its
subsidiary banks and to commit resources to their support. This support
may be required at times when the bank holding company may not have the
resources to provide it. Similarly, under the cross-guarantee
provisions of the Federal Deposit Insurance Act, the FDIC can hold any
FDIC-insured depository institution liable for any loss suffered or
anticipated by the FDIC in connection with (1) the "default" of a
commonly controlled FDIC-insured depository institution; or (2) any
assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution "in danger of default."
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA), and the regulations promulgated under FDICIA, among other
things, established five capital categories for insured depository
institutions-well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized-and requires federal bank regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements based on
these categories. Unless a bank is well capitalized, it is subject to
restrictions on its ability to offer brokered deposits and on certain
other aspects of its operations. As of December 31, 2002 the
Corporation and the Bank were both considered well capitalized based on
the guidelines implemented by the Federal Reserve and FDIC.
FINANCIAL MODERNIZATION
The Gramm-Leach-Bliley Act was signed into law on November 12, 1999 and
became effective March 11, 2000. It permits bank holding companies to
become financial holding companies and thereby affiliate with
securities firms and insurance companies and engage in other activities
that are financial in nature. A bank holding company may become a
financial holding company if each of its subsidiary banks is well
capitalized under regulatory prompt corrective action provisions, is
well managed, and has at least a satisfactory rating under the
Community Reinvestment Act (CRA) by filing a declaration that the bank
holding company wishes to become a financial holding company. No
regulatory approval will be required for a financial holding company to
acquire a company, other than a bank or savings association, engaged in
activities that are financial in nature or incidental to activities
that are financial in nature, as determined by the Federal Reserve
Board.
The Gramm-Leach-Bliley Act defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual
funds and investment companies; insurance underwriting and agency;
merchant banking activities; and activities that the Board has
determined to be closely related to banking. Subsidiary banks of a
financial holding company must continue to be well capitalized and well
managed in order to continue to engage in activities that are financial
in nature without regulatory actions or restrictions, which could
include
5.
divestiture of the financial in nature subsidiary or subsidiaries. In
addition, a financial holding company or a bank may not acquire a
company that is engaged in activities that are financial in nature
unless each of the subsidiary banks of the financial holding company or
the bank has CRA rating of satisfactory or better.
(c) AVAILABLE INFORMATION
The Company maintains an Internet web-site at the following internet
address: http://www.dcbfinancialcorp.com. The Company makes available,
free of charge through its internet address, copies of its annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to these reports as soon as reasonably
practicable after such materials have been filed with or furnished to
the SEC. Copies of these documents may also be obtained, either in
electronic or paper form, by contacting Donald R. Blackburn at
740-657-7000.
I DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
The information required by this item can be found on Pages 10-12 of
the Company's Annual Report to Shareholders. Such information is
incorporated herein by reference.
6.
II INVESTMENT PORTFOLIO
The following table sets forth the carrying amount of securities at
December 31, 2002, 2001 and 2000.
(In thousands) 2002 2001 2000
---- ---- ----
AVAILABLE FOR SALE
U.S. Treasury $ -- $ -- $ 1,016
U.S. government agencies 29,995 43,756 60,683
States and political subdivisions 14,425 7,276 6,071
Corporate bonds 247 208 --
Mortgage-backed 49,448 30,587 32,141
---------- --------- ----------
Total debt securities 94,115 81,827 99,911
Other securities 2,362 2,194 2,044
---------- --------- ----------
$ 96,477 $ 84,021 $ 101,955
========== ========= ==========
HELD TO MATURITY
States and political subdivisions $ -- $ 6,004 $ 5,727
Corporate bonds -- 130 --
Mortgage-backed -- 28,584 24,116
---------- --------- ----------
$ -- $ 34,718 $ 29,843
========== ========= ==========
The following table sets forth information regarding scheduled
maturities, fair value and weighted average yields of the Corporation's
debt securities at December 31, 2002. The weighted average yield has
been computed using the historical amortized cost for securities
available for sale. The weighted average yield on tax-exempt
obligations is computed on a taxable equivalent basis based on the
Corporation's marginal federal income tax rate of 34%.
ONE FIVE
ONE THROUGH THROUGH AFTER
YEAR FIVE TEN TEN
(In thousands) OR LESS YEARS YEARS YEARS TOTAL
------- ------- ------- ----- -----
AVAILABLE FOR SALE
U.S. government agencies $ 1,015 $ 4,876 $ 18,271 $ 5,833 $ 29,995
States and political
subdivisions 995 2,978 2,489 7,963 14,425
Corporate bonds -- 140 -- 107 247
Mortgage-backed 137 2,621 8,065 38,625 49,448
---------- ---------- ---------- --------- ----------
$ 2,147 $ 10,615 $ 28,825 $ 52,528 $ 94,115
========== ========== ========== ========= ==========
Weighted average yield 4.63% 5.13% 5.13% 6.88% 4.86%
========== ========== ========== ========= ==========
7.
II INVESTMENT PORTFOLIO (CONTINUED)
Excluding holdings of U.S. Treasury securities and other agencies of
the U.S. Government, there were no investments in securities of any one
issuer exceeding 10% of the Corporation's consolidated shareholders'
equity at year-end 2002.
III LOAN PORTFOLIO
TYPES OF LOANS
The amounts of gross loans outstanding at December 31, 2002, 2001,
2000, 1999, and 1998 are shown in the following table.
(In thousands) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Commercial and industrial $ 45,543 $ 52,534 $ 48,262 $ 39,017 $ 39,810
Commercial real estate 144,646 124,537 101,891 82,954 66,501
Residential real estate and
home equity 87,548 88,797 86,091 69,847 63,376
Real estate construction 37,603 34,212 32,493 29,723 32,382
Consumer and credit card 48,409 52,993 51,107 45,059 43,153
Lease financing 6,412 9,520 12,278 11,669 10,759
---------- ---------- ---------- --------- ----------
$ 370,161 $ 362,593 $ 331,018 $ 278,269 $ 256,011
========== ========== ========== ========= ==========
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following is a schedule of commercial, commercial real estate and
construction loans at December 31, 2002 maturing with the various time
frames indicated.
ONE
ONE THROUGH AFTER
YEAR FIVE FIVE
(In thousands) OF LESS YEARS YEARS TOTAL
------- ----- ----- -----
FIXED RATE
Commercial and industrial $ 1,256 $ 6,775 $ 267 $ 8,298
Commercial real estate 653 2,964 11,469 15,086
Real estate construction 747 172 389 1,308
---------- ---------- --------- ----------
$ 2,656 $ 9,911 $ 12,125 $ 24,692
========== ========== ========= ==========
VARIABLE RATE
Commercial and industrial $ 19,273 $ 7,644 $ 10,328 $ 37,245
Commercial real estate 8,157 9,322 112,081 129,560
Real estate construction 9,232 12,985 14,078 36,295
---------- ---------- --------- ----------
$ 36,662 $ 29,951 $ 136,487 $ 203,100
========== ========== ========= ==========
8.
III LOAN PORTFOLIO
RISK ELEMENTS
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes nonaccrual loans, accruing loans
past due greater than 90 days of more and restructured loans at
December 31, 2002, 2001, 2000, 1999, and 1998.
(In thousands) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Nonaccrual loans $ 3,387 $ 3,390 $ 1,278 $ 472 $ 753
Accruing loans past due
90 days or more 187 200 205 156 325
Troubled debt restructurings -- -- -- -- --
The policy for placing loans on nonaccrual status is to cease
accruing interest on loans when management believes that
collection of interest is doubtful, when loans are past due as to
principal and interest 90 days or more, except that in certain
circumstances interest accruals are continued on loans deemed by
management to be fully collectible. In such cases, loans are
individually evaluated in order to determine whether to continue
income recognition after 90 days beyond the due dates. When loans
are placed on nonaccrual, any accrued interest is charged against
interest income.
The additional amount of interest income that would have been
recorded on nonaccrual loans, had they been current, totaled
$259,000 for the year ended December 31, 2002.
POTENTIAL PROBLEM LOANS
In addition to the loans noted above, management performs a
quarterly analysis of impaired loans. A loan is classified as
impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller balance loans or
loans of a similar nature such as residential mortgage, consumer
and credit card loans, and on an individual basis for other
loans. The total value of impaired loans not included in
nonaccrual, past due or restructured loans at December 31, 2002
was $1,525,000.
LOAN CONCENTRATIONS
At year-end 2002, there were no concentrations of loans greater
than 10% of total loans that are not otherwise disclosed as a
category of loans in Item III.A. above.
OTHER INTEREST-BEARING ASSETS
At year-end 2002, there were no other interest-bearing assets
required to be disclosed under Item III.C.1. or 2. if such assets
were loans.
9.
IV SUMMARY OF LOAN LOSS EXPERIENCE
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table sets forth the activity in the Corporation's
allowance for loan losses for the years ended December 31, 2002,
2001, 2000, 1999, and 1998.
(In thousands) 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Balance at beginning of year $ 3,596 $ 3,334 $ 2,793 $ 1,948 $ 1,842
Loans charged off:
Commercial (1,989) (278) (115) (358) (112)
Commercial real estate (73) -- -- -- --
Residential real estate
and home equity (1) -- -- (27) --
Real estate construction -- -- -- -- --
Consumer and credit card (513) (487) (391) (441) (443)
Lease financing (74) -- -- -- (13)
---------- --------- --------- -------- ---------
Total loans charged off (2,650) (765) (506) (826) (568)
---------- --------- --------- -------- ---------
Loan recoveries:
Commercial 91 28 18 43 40
Commercial real estate -- -- -- -- --
Residential real estate
and home equity -- -- -- 1 --
Consumer and credit card 102 126 118 124 141
Lease financing 5 1 3 8 24
---------- --------- --------- -------- ---------
Total loan recoveries 198 155 139 176 205
---------- --------- --------- -------- ---------
Net loans charged off (2,452) (610) (367) (650) (363)
Provision for loan losses 2,950 872 908 1,495 469
---------- --------- --------- -------- ---------
Balance at end of year $ 4,094 $ 3,596 $ 3,334 $ 2,793 $ 1,948
========== ========= ========= ======== =========
Ratio of net charge-offs to average
average loans outstanding 0.66% 0.18% 0.12% 0.25% 0.15%
=========== ========= ========= ======== =========
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following schedule is a breakdown of the allowance for loan
losses allocated by type of loan and related ratios. While
management's periodic analysis of the adequacy of allowance for
loan losses may allocate portions of the allowance for specific
problem-loan situations, the entire allowance is available for any
loan charge-offs that occur.
10.
Percentage of Percentage of Percentage of
Loans in Each Loans in Each Loans in Each
Allowance Category to Allowance Category to Allowance Category to
(In thousands) Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ------------- ------ -------------
December 31, 2002 December 31, 2001 December 31, 2000
----------------- ----------------- ------------------
Commercial and industrial $ 2,120 12.30% $ 1,765 14.49% $ 1,247 14.61%
Commercial real estate 891 39.08 94 34.35 174 30.73
Residential real estate
and home equity 66 23.65 116 24.49 73 25.89
Real estate construction 20 10.16 57 9.44 24 9.80
Consumer and credit card 706 13.08 799 14.62 691 15.73
Lease financing 55 1.73 68 2.63 76 3.23
Unallocated 236 -- 697 -- 1,049 --
----------- ----- --------- ------ ----------- ------
Total $ 4,094 100.00% $ 3,596 100.00% $ 3,334 100.00%
=========== ====== ========= ====== =========== ======
December 31, 1999 December 31, 1998
----------------- -----------------
Commercial and industrial $ 652 14.08% $ 618 15.62%
Commercial real estate 332 29.90 160 26.05
Residential real estate and
home equity 111 25.09 93 24.73
Real estate construction 45 10.71 49 12.68
Installment and credit card 575 16.57 494 17.26
Lease financing 57 3.65 74 3.66
Unallocated 1,021 -- 460 --
----------- ------ ----------- ------
Total $ 2,793 100.00% $ 1,948 100.00%
=========== ====== =========== ======
11.
V DEPOSITS
SCHEDULE OF AVERAGE DEPOSIT AMOUNTS AND RATES
Average balance of noninterest-bearing demand deposits totaled
$73,213,000, $61,973,000 and $62,355,000 for the years ended
December 31, 2002, 2001 and 2000. Please also refer to Page 10
of the Annual Report to Shareholders.
MATURITY ANALYSIS OF TIME DEPOSITS GREATER THAN $100,000
The following is a schedule of maturities of time certificates
of deposit in amounts of $100,000 or more as of December 31,
2002.
(In thousands)
Three months or less $ 13,306
Over three through six months 10,308
Over six through twelve months 18,642
Over twelve months 15,764
------------
Total $ 58,020
============
VI RETURN ON EQUITY AND ASSETS
Refer to Page 3 of the Annual Report to Shareholders.
VII SHORT-TERM BORROWINGS
Average outstanding balances of short-term borrowings for the years
ending December 31, 2002, 2001 and 2000 were less than 30% of
shareholders' equity at such dates.
12.
ITEM 2 PROPERTIES
The Bank owns and operates its main office at 110 Riverbend Avenue, Lewis
Center, Ohio 43035. The Bank also operates 16 branches and 4 other properties
that are owned or leased as noted below:
1. Downtown Delaware Branch Office, 41 N. Sandusky St., Delaware, Ohio 43015
(owned)
2. William Street Drive-Thru Office, 33 W. William St., Delaware, Ohio 43015
(owned)
3. Delaware Center Branch Office, 199 S. Sandusky Street, Delaware, Ohio 43015
(owned)
4. Galena Branch Office, 10 Park Street, Galena, Ohio 43021 (owned)
5. Ostrander Branch Office, 10 West North Street, Ostrander, Ohio 43061
(owned)
6. Green Meadows Branch Office, 9201 Columbus Pike, Lewis Center, Ohio 43035
(own bldg., lease land)
7. Ashley Branch Office, 2 West High Street, Ashley, Ohio 43003 (owned)
8. Buehler's Central Office, 800 West Central Avenue, Delaware, Ohio 43015
(leased)
9. Marysville Downtown Office, 108 South Main Street, Marysville, Ohio 43040
(owned)
10. Marysville Plaza Office, 1169 West Fifth Street, Marysville, Ohio 43040
(leased)
11. Powell Office, 22 South Liberty Street, Powell, Ohio 43065 (owned)
12. Sunbury Office, 75 S. Miller Dr., Sunbury, Ohio 43074 (owned)
13. Highland Lakes Office, 6156 Highland Lakes Avenue, Westerville, Ohio 43085
(leased)
14. Sawmill Parkway Office, 10149 Brewster Lane, Powell, Ohio 43065 (leased)
15. Avery Road Office, 6820 Perimeter Loop Road, Dublin, Ohio 43017 (leased)
16. Willowbrook Branch Office, 100 Willowbrook Way South, Delaware, Ohio 43015
(leased)
17. ATM Express Bank, 554 W. Central Ave., Delaware, Ohio 43015 (leased)
18. ATM Express Bank, Ohio Wesleyan University, Delaware, Ohio 43015 (leased)
19. ATM Express Bank, 8208 Marysville Road West, Ostrander, Ohio 43061 (leased)
20. ATM Express Bank, 1123 Columbus Pike, Delaware, Ohio 43015 (leased)
21. ATM Express Bank, Sunbury IGA, 490 W. Cherry Street, Sunbury, Ohio 43074
(leased)
22. ATM Cash Dispenser, Blackhawk Golf Course, 8830 Dustin Road, Galena, Ohio
43021 (leased)
Management considers its physical properties to be in good operating condition
and suitable for the purposes for which they are being used. All the properties
owned by the Bank are unencumbered by any mortgage or security interest and are,
in management's opinion, adequately insured. A portion of the building that
currently houses the main office is leased to two tenants.
ITEM 3 LEGAL PROCEEDINGS
A shareholder, S. Robert Davis ("Plaintiff"), brought an action (the "Suit") as
a shareholder derivative action in United States District Court for the Southern
District of Ohio, naming the Company, its Board of Directors, the members of the
Board of Directors, and the Company's former Chief Executive Officer as
defendants. He alleges to have sent correspondence constituting a demand under
Ohio law for inspection of the books and records of account of the Company and
its subsidiary, The Delaware County Bank and Trust Company, and that defendants
did not respond to this correspondence prior to the deadline set forth therein.
He alleges that his correspondence is due to inconsistencies in the explanation
of what comprises a certain reduction in earnings announced by the Company in a
press release issued December 12, 2001. Plaintiff claims material
misrepresentation, breach by the Company's directors of fiduciary duty, and
failure to follow proper accounting procedures. Plaintiff seeks among other
remedies an accounting and inspection of books and records of account. Plaintiff
further filed a motion for preliminary injunction on July 2, 2002, to which
defendants filed a response and a motion to dismiss the Suit. If defendants'
motion to dismiss is denied, defendants intend to vigorously oppose the Suit
denying liability.
13.
In the opinion of management, based upon consultation with legal counsel,
although legal proceedings cannot be predicted with certainty, the ultimate
outcome of this Suit is not expected to have a material impact on the Company's
financial position or results of operation.
There is no other pending litigation, other than routine litigation incidental
to the business of the Corporation and Bank, or of a material nature involving
or naming the Corporation or Bank as a defendant. Further, there are no material
legal proceedings in which any director, executive officer, principal
shareholder or affiliate of the Corporation is a party or has a material
interest, which is adverse to the Corporation or Bank. No routine litigation in
which the Corporation or Bank is involved is expected to have a material adverse
impact on the financial position or results of operations of the Corporation or
Bank.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders in the fourth
quarter of 2002.
14.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is set forth in the Company's Annual
Report to Shareholders under the section captioned "Common Stock and Stockholder
Matters." Such information is incorporated herein by reference.
The Bank acts as transfer agent for the Corporation's common stock.
ITEM 6 SELECTED FINANCIAL DATA
The information required by this item is set forth in the Company's Annual
Report to Shareholders under the section captioned "Selected Financial
Information and Other Data." Such information is incorporated herein by
reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is set forth in the Company's Annual
Report to Shareholders under the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Such information is
incorporated herein by reference.
ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is set forth in the Company's Annual
Report to Shareholders under the section captioned "Asset and Liability
Management and Market Risk" Such information is incorporated herein by
reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth on Pages 15-36 of the
Company's Annual Report to Shareholders. Such information is incorporated herein
by reference.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Disclosures required under this Item were previously made pursuant to a report
on Form 8-K filed with the Commission on March 20, 2003, and in an amendment to
that 8-K filed with the Commission on March 31, 2003.
15.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is set forth in the Company's Proxy
Statement to Shareholders in connection with its 2003 annual meeting, under the
sections captioned "Election of Directors and Information with Respect to
Directors and Officers," "Security Ownership of Certain Beneficial Owners and
Management" and "Compliance with Sections 16(A) of the Securities Exchange Act
of 1934." Such information is incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this item is set forth in the Company's Proxy
Statement to Shareholders in connection with its 2003 annual meeting, under the
section captioned "Executive Compensation and Other Information." Such
information is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth in the Company's Proxy Statement
to Shareholders in connection with its 2003 annual meeting, under the section
captioned "Security Ownership of Certain Beneficial Owners and Management." Such
information is incorporated herein by reference.
The Company currently has no equity compensation plans or arrangements, such as
stock option or restricted stock arrangements, pursuant to which equity
securities of the Company are authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
- -------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (a))
- -------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- -------------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLANS 0 0 0
APPROVED BY SECURITY HOLDERS
- -------------------------------------------------------------------------------------------------------------------
EQUITY COMPENSATION PLAN NOT 0 0 0
APPROVED BY SECURITY
HOLDERS
- -------------------------------------------------------------------------------------------------------------------
TOTAL 0 0 0
- -------------------------------------------------------------------------------------------------------------------
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth in the Company's Proxy Statement
to Shareholders in connection with its 2003 annual meeting, under the section
captioned "Certain Relationships and Related Transactions." Such information is
incorporated herein by reference.
ITEM 14 CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rules 13a-14(c) and
15d-14(c).
16.
Based upon that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic SEC filings.
Additionally, there were no significant changes made in the Company's internal
controls or in other factors that could significantly affect these internal
controls subsequent to the date of the evaluation performed by the Company's
Chief Executive Officer and Chief Financial Officer.
17.
PART IV
ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF FORM 10-K
1 The following consolidated financial statements appear in the
2002 Annual Report to Shareholders and are incorporated herein by
reference.
Report of Independent Auditors Page 75
Consolidated Balance Sheets Page 52
Consolidated Statements of Income Page 53
Consolidated Statements of Changes in Shareholders' Equity Page 54
Consolidated Statements of Cash Flows Page 55
Notes to Consolidated Financial Statements Pages 56
2 The summary of selected quarterly results of operations appears
on Page 37 of the Annual Report to Shareholders and is
incorporated herein by reference.
3 Exhibits
3.1 Articles of Incorporation of DCB Financial Corp
(incorporated by reference to Registrant's Form S-4,
File No. 333-15579, effective January 10, 1997)
3.2 Code of Regulations of DCB Financial Corp
(incorporated by reference to Registrant's Form S-4,
File No. 333-15579, effective January 10, 1997)
10.1 Resignation, Release, and Post-Employment Covenants
Agreement by and between DCB Financial Corp., its
wholly-owned subsidiary The Delaware County Bank and
Trust Company, and Larry D. Coburn (incorporated by
reference to Registrant's report on Form 8-K, filed
with the Commission on November 21, 2002)
10.2 Employment agreement with Mr. Whitney (incorporated
by reference to Registrant's Form 10-K, File No.
0-22387, effective March 25, 1998)
10.3 Employment agreement with Mr. Bernon (incorporated by
reference to Registrant's Form 10-K, File No.
0-22387, effective March 27, 2000)
10.4 Employment agreement by and between DCB Financial
Corp., its wholly-owned subsidiary The Delaware
County Bank and Trust Company, and Jeffrey Benton
11 Statement Regarding Computation of Per Share Earnings
13 Annual Report to Shareholders
21 Subsidiaries of DCB Financial Corp
23 Consent of Independent Auditors
99.1 Certification of the Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) REPORTS FILED ON FORM 8-K
During the fourth quarter of 2002, the Company filed, on the
dates so indicated, the following Reports on Form 8-K :
18.
October 3, 2002 - The Company filed, as an exhibit to the report
on Form 8-K, a press release announcing the decision of its
Board of Directors not to continue the employment of Larry D.
Coburn as President and Chief Executive Officer of the Company
and the Bank.
November 21, 2002 - The Company filed an 8-K announcing the
execution of a Resignation, Release, and Post-Employment
Covenants Agreement (the "Agreement") by and between the
Company, the Bank, and Larry D. Coburn, the former President and
Chief Executive Officer of the Company and the Bank. A copy of
the Agreement was also attached as Exhibit 10.1 to the 8-K.
December 20, 2002 - The Company filed, as an exhibit to the
report on Form 8-K, a press release announcing the appointment
of Jeffrey T. Benton as the new President and Chief Executive
Officer of the Company and the Bank.
19.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 31, 2003 DCB FINANCIAL CORP
By: /s/ JEFFREY BENTON
-----------------------------------
Jeffrey Benton, President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 31, 2003.
Signatures Title
/s/ JEFFREY BENTON President (Principal Executive Officer),
- ------------------------------ CEO and Director
Jeffrey Benton
/s/ JOHN USTASZEWSKI Vice President and Chief Financial
- ------------------------------ Officer (Principal Financial Officer
John Ustaszewski and Principal Accounting Officer)
/s/ G. WILLIAM PARKER Director, Chairman of the Board
- ------------------------------
G. William Parker
/s/ JEROME J. HARMEYER Director
- ------------------------------
Jerome J. Harmeyer
/s/ CHARLES W. BONNER Director
- ------------------------------
Charles W. Bonner
/s/ WILLIAM R. OBERFIELD Director
- ------------------------------
William R. Oberfield
/s/ EDWARD A. POWERS Director
- ------------------------------
Edward A. Powers
/s/ MERRILL KAUFMAN Director
- ------------------------------
Merrill Kaufman
/s/ GARY M. SKINNER Director
- ------------------------------
Gary M. Skinner
20.
/s/ TERRY M. KRAMER Director
- ------------------------------
Terry M. Kramer
/s/ VICKIE J. LEWIS Director
- ------------------------------
Vickie J. Lewis
/s/ ADAM STEVENSON Director
- ------------------------------
Adam Stevenson
21.
CERTIFICATIONS
I, Jeffrey Benton, President and Chief Executive Officer of DCB Financial Corp.,
certify that:
1. I have reviewed this annual report on Form 10-K of DCB Financial Corp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 31, 2003 /s/ JEFFREY BENTON
-----------------
(Signature)
Jeffrey Benton
Title: President and Chief
Executive Officer
22.
I, John A. Ustaszewski, Vice President and Chief Financial Officer of DCB
Financial Corp., certify that:
1. I have reviewed this annual report on Form 10-K of DCB Financial Corp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
d) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
e) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 31, 2003 /s/ John A. Ustaszewski
-------------------------
(Signature)
John A. Ustaszewski
Title: Vice President and Chief Financial Officer
23.
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------- ----
3.1 Amended Articles of Incorporation of DCB Financial Corp
(incorporated by reference to Registrant's Form S-4, File No.
333-15579, effective January 10, 1997) N/A
3.2 Code of Regulations of DCB Financial Corp (incorporated by
reference to Registrant's Form S-4, File No. 333-15579,
effective January 10, 1997) N/A
10.1 Resignation, Release, and Post-Employment Covenants Agreement
by and between DCB Financial Corp., its wholly-owned subsidiary
The Delaware County Bank and Trust Company, and Larry D. Coburn
(incorporated by reference to Registrant's report on Form 8-K,
filed with the Commission on November 21, 2002) N/A
10.2 Employment agreement with Mr. Whitney (incorporated by reference to
Registrant's 1997 Form 10-K, File No. 0-22387, effective March 25, 1998) N/A
10.3 Employment agreement with Mr. Bernon (incorporated by reference to
Registrant's 1997 Form 10-K, File No. 0-22387, effective March 27, 2000) N/A
10.4 Employment agreement by and between DCB Financial Corp., its
wholly-owned subsidiary The Delaware County Bank and Trust Company, and
Jeffrey Benton 25
11 Statement Regarding Computation of Per Share Earnings 35
13 Annual Report to Shareholders 37
21 Subsidiaries of DCB Financial Corp 76
23 Consent of Independent Auditors 77
99.1 Certification of the Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 78
99.2 Certification of the Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 79
24.