<PAGE>   1
                                                              Exhibit Index on
                                                              page 55

                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, 1999

[_]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934
         For the transition period from ................ to ....................

        Commission File No. 0-22387

                               DCB FINANCIAL CORP
                               ------------------
                       (Name of registrant in its charter)

<TABLE>
OHIO                                                           31-1469837
----                                                           ----------
<S>                                                            <C>
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>

               41 North Sandusky Street
               Delaware, Ohio                             43015
               ------------------------------------------------
               (Address of principal executive offices) (Zip code)

                                 (740) 363-1133
                                 --------------
                         (Registrant's telephone number)

Securities registered under Section 12(b) of the Exchange Act:

Title of each class                    Name of each exchange on which registered

None
----

Securities registered under Section 12(g) of the Exchange Act:

Common Shares, No par value
---------------------------
     (Title of class)

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 in response 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.  [X]

At February 29, 2000, the aggregate market value of the voting stock held by
nonaffiliates of the registrant, based on a share price of $13.75 per share
(such price being the average of the bid and asked prices on such date) was
$53,023,000.

At February 29, 2000, the registrant had 4,273,200 common shares issued and
4,178,200 common shares outstanding.



<PAGE>   2




                                     PART I

ITEM 1 - DESCRIPTION OF BUSINESS

GENERAL

DCB Financial Corp (the "Corporation") was incorporated under the laws of the
State of Ohio in 1997, at the direction of management of The Delaware County
Bank and Trust Company (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. The
Bank is the wholly-owned subsidiary of the Corporation and its only significant
asset.

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. General
economic conditions in the Corporation's market area have been sound.
Unemployment statistics have generally been among the lowest in the state of
Ohio and real estate values have been stable to rising.

The Bank is not significantly affected by seasonal activity or large deposits of
any individual depositor. At year-end 1999, deposits of public funds (funds of
governmental agencies and municipalities) were 1.8% 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. 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.

                                       2
<PAGE>   3


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
make repayment from employment and other income. Management assesses the
borrower's ability to repay the debt through 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.

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. 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. The Bank sets aside a
reserve to cover potential deficiencies in the residual value of the leased
vehicle or equipment upon the termination of the lease.


EMPLOYEES

At December 31, 1999, the Bank employed 208 employees, 184 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.

                                       3
<PAGE>   4


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 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. 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 weekly 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.

On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act of 1999 that, effective March 11, 2000, 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. The Gramm-Leach-Bliley Act may significantly change the competitive
environment in which the Company conducts business. See "Supervision and
Regulation" for further discussion.


SUPERVISION AND REGULATION

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. 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 bank holding company, the Corporation is
subject to supervision, regulation and periodic examination by the Federal
Reserve Board.

Financial Modernization

On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act which, effective March 11, 2000, 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

                                       4
<PAGE>   5

restrictions, which could include 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.


STATISTICAL DISCLOSURES

The following schedules present, for the periods indicated, certain financial
and statistical information of the Corporation as required under the Securities
and Exchange Commission's Industry Guide 3, or a specific reference as to the
location of required disclosures included as a part of this Form 10-K as of and
for the year ended December 31, 1999.

      I.   DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
           INTEREST RATES AND INTEREST DIFFERENTIAL

           A&B. AVERAGE BALANCE SHEET AND RELATED ANALYSIS OF NET INTEREST
           EARNINGS

           This information is included under the heading "Yields Earned and
           Rates Paid" on pages 22 through 24 of this document.

           C. INTEREST DIFFERENTIAL

           This information is included under the heading "Yields Earned and
           Rates Paid" on page 24 of this document.

    II.    SECURITIES PORTFOLIO

           A. The following is a schedule of the carrying value of securities
              at year-end 1999, 1998 and 1997.

<TABLE>
<CAPTION>
           (In thousands of dollars)                                              1999         1998         1997
                                                                                  ----         ----         ----

<S>                                                                           <C>           <C>          <C>
         Securities available for sale (at fair value)
              U.S. Treasury                                                   $    2,261    $   4,556    $    5,568
              U.S. Government agencies and corporations                           53,262       50,556        33,409
              States and political subdivisions                                    6,011        6,192           203
              Mortgage-backed                                                     28,980       28,908        13,705
                                                                              ----------    ---------    ----------
              Total debt securities                                               90,514       90,212        52,885
              Other securities                                                     1,395        1,187         1,050
                                                                              ----------    ---------    ----------

              Total securities available for sale                             $   91,909    $  91,399    $   53,935
                                                                              ==========    =========    ==========

         Securities held to maturity (at amortized cost)
              U.S. Government agencies and corporations                       $       --    $   1,000   $        --
              States and political subdivisions                                    6,777        7,994         6,523
              Corporate                                                              995       12,150        21,089
              Mortgage-backed                                                     27,473       28,040        26,222
                                                                              ----------    ---------    ----------

              Total securities held to maturity                               $   35,245    $  49,184    $   53,834
                                                                              ==========    =========    ==========
</TABLE>

                                       5
<PAGE>   6


           B.   The following is a schedule of maturities for each category of
                debt securities and the related weighted-average yield of such
                securities as of year-end 1999:

<TABLE>
<CAPTION>
(In thousands of dollars)
                           -----------------------------------------Maturing----------------------------------------
                                                         After One            After Five
                                 One Year              Year Through          Years Through              After
                                  or Less               Five Years             Ten Years              Ten Years
                            Amount       Yield      Amount       Yield     Amount       Yield       Amount      Yield
                            ------       -----      ------       -----     ------       -----       ------      -----
<S>                        <C>           <C>      <C>            <C>      <C>         <C>        <C>          <C>
Available for sale
     U.S. Treasury         $   1,234     6.48%    $    1,027     6.01%    $      --       --%    $      --       --%
     U.S. Government
       agencies and
       corporations            1,470     5.52         14,895     6.31        30,727     6.15         6,170      6.74
     States and political
       subdivisions               --       --            469     5.55           723     6.59         4,819      6.84
     Mortgage-backed              10     5.64            175     6.32         7,146     5.81        21,649      6.33
                           ---------              ----------              ---------              ---------

         Total             $   2,714     5.96%    $   16,566     6.27%    $  38,596     6.10%    $  32,638      6.48%
                           =========   ======     ==========   ======     =========   ======     =========    ======

Held to maturity
     States and political
       subdivisions        $     637     6.98%    $    4,637     7.44%    $   1,037     7.23%    $     466      9.09%
     Corporate                   995     6.09             --        --           --        --           --        --
     Mortgage-backed             389     6.46          4,702     6.59         8,515     6.70        13,867      6.63
                           ---------              ----------              ---------              ---------

         Total             $   2,021     6.44%    $    9,339     7.01%    $   9,552     6.72%    $  14,333      6.71%
                           =========   ======     ==========   ======     =========   ======     =========    ======
</TABLE>

                The weighted-average yields are calculated using amortized cost
                of investments and are based on coupon rates for securities
                purchased at par value and on effective interest rates
                considering amortization or accretion if the securities were
                purchased at a premium or discount. The weighted-average yield
                on tax-exempt obligations is presented on a taxable equivalent
                basis based on the Corporation's marginal federal income tax
                rate of 34%. Equity securities consist of Federal Home Loan Bank
                stock and stock of other financial institutions that bear no
                stated maturity or yield and are not included in this analysis.

           C.   Excluding holdings of U.S. Treasury securities and other
                agencies and corporations 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
                1999.

    III.   LOAN PORTFOLIO

           A.   Types of Loans - Total loans on the balance sheet are comprised
                of the following  classifications at December 31:

<TABLE>
<CAPTION>
                (In thousands of dollars)               1999         1998         1997         1996         1995
                                                        ----         ----         ----         ----         ----

<S>                                                 <C>          <C>          <C>           <C>          <C>
                Commercial and industrial           $   39,063   $   39,864   $   37,486    $  36,836    $   40,631
                Commercial real estate                  82,954       66,501       56,434       45,487        40,328
                Residential real estate and
                  home equity                           69,611       63,140       53,686       52,752        41,864
                Real estate construction                29,723       32,382       29,104       23,489        10,235
                Consumer and credit card                45,977       44,050       42,914       38,269        35,493
                Lease financing, net                    10,140        9,352        9,010        6,759         4,988
                                                    ----------   ----------   ----------    ---------    ----------

                    Total loans                     $  277,468   $  255,289   $  228,634    $ 203,592    $  173,539
                                                    ==========   ==========   ==========    =========    ==========
</TABLE>

                                       6
<PAGE>   7


           B.   Maturities and Sensitivities of Loans to Changes in Interest
                Rates - The following is a schedule of maturities of loans based
                on contractual terms and assuming no amortization or
                prepayments, excluding residential real estate and home equity
                loans, consumer and credit card loans and leases, as of December
                31, 1999:

<TABLE>
<CAPTION>
                                                                 ---------------------Maturing ------------------
                                                                   One Year    One Through   After Five
           (In thousands of dollars)                                or Less    Five Years       Years        Total
                                                                    -------    ----------       -----        -----
<S>                                                              <C>          <C>           <C>          <C>
           Fixed rate
           ----------
           Commercial and industrial                             $    1,089   $    7,073    $   1,681    $    9,843
           Commercial real estate                                       509        2,986        8,967        12,462
           Real estate construction and land development              2,558        1,155          551         4,264
                                                                 ----------   ----------    ---------    ----------

                Total                                            $    4,156   $   11,214    $  11,199    $   26,569
                                                                 ==========   ==========    =========    ==========

           Variable rate
           -------------
           Commercial and industrial                             $   16,124   $    6,426    $   6,670    $   29,220
           Commercial real estate                                     4,627        5,356       60,509        70,492
           Real estate construction and land development              8,028        1,527       15,904        25,459
                                                                 ----------   ----------    ---------    ----------

                Total                                            $   28,779   $   13,309    $  83,083    $  125,171
                                                                 ==========   ==========    =========    ==========
</TABLE>

           C.   Risk Elements

                1.  Nonaccrual, Past Due and Restructured Loans - The following
                    schedule summarizes nonaccrual, past due and restructured
                    loans.

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                                  ------------
                (In thousands of dollars)                     1999        1998        1997       1996        1995
                                                              ----        ----        ----       ----        ----
<S>                                                        <C>         <C>         <C>         <C>        <C>
              (a) Loans accounted for on a nonaccrual
                    basis                                  $    472    $     753   $   1,188   $    501   $   2,014

              (b) Accruing loans which are
                    contractually past due 90 days or
                    more as to interest or principal
                    payments                                    156          325         238        489          65

              (c) Loans which are "troubled debt
                    restructurings" as defined in
                    Statement of Financial
                    Accounting Standards No. 15
                    (exclusive of loans in
                    (a) or (b) above):                           --           --          --        143         150
                                                           --------    ---------   ---------   --------   ---------

                      Totals                               $    628    $   1,078   $   1,426   $  1,133   $   2,229
                                                           ========    =========   =========   ========   =========
</TABLE>

                    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.

                                       7

<PAGE>   8


                    During 1999, $36,000 would have been recorded on nonaccruing
                    loans had such loans been accruing pursuant to contractual
                    terms.

              (d)   Impaired Loans - Information regarding impaired loans at
                    year-end 1999, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                                      1999        1998       1997
                                                                                      ----        ----       ----
<S>                                                                               <C>         <C>         <C>
                    (In thousands of dollars)
                    Year-end impaired loans with no allowance for loan
                      losses allocated                                            $     --    $      --   $      --
                    Year-end impaired loans with allowance for loan
                      losses allocated                                                  --           --         265
                    Amount of the allowance allocated                                   --           --         173
</TABLE>

                    Impaired loans are comprised of commercial and commercial
                    real estate loans, and are carried at present value of
                    expected cash flows, discounted at the loan's effective
                    interest rate or at fair value of collateral, if the loan is
                    collateral dependent. A portion of the allowance for loan
                    losses is allocated to impaired loans.

                    Smaller-balance homogeneous loans are evaluated for
                    impairment in total. Such loans include residential first
                    mortgage and construction loans secured by one- to
                    four-family residences, consumer, credit card and home
                    equity loans. Such loans are included in nonaccrual and past
                    due disclosures in (a) and (b) above, but not in impaired
                    loan totals. Commercial loans and mortgage loans secured by
                    other properties are evaluated individually for impairment.
                    In addition, loans held for sale and leases are excluded
                    from consideration of impairment. When analysis of borrower
                    operating results and financial condition indicates that
                    borrower's underlying cash flows are not adequate to meet
                    its debt service requirements, the loan is evaluated for
                    impairment. Impaired loans, or portions thereof, are charged
                    off when deemed uncollectible.

                2.  Potential Problem Loans - At year-end 1999, no loans were
                    identified which management has serious doubts about the
                    borrowers' ability to comply with present loan repayment
                    terms and which are not included in item III.C.1. above.

                3.  Foreign Outstandings - There were no foreign outstandings
                    during any period presented.

                4.  Loan Concentrations - At year-end 1999, there were no
                    concentrations of loans greater than 10% of total loans
                    which are not otherwise disclosed as a category of loans in
                    Item III.A. above.

           D.   Other Interest-Bearing Assets - At year-end  1999, there were no
                other interest-bearing  assets required to be disclosed under
                Item III.C.1. or 2. if such assets were loans.

                                       8
<PAGE>   9


           IV.  SUMMARY OF LOAN LOSS EXPERIENCE

           A.   The following schedule presents an analysis of the allowance for
                loan losses, average loan data and related ratios for the years
                ended December 31:

<TABLE>
<CAPTION>
                (In thousands of dollars)         1999           1998           1997          1996          1995
                                                  ----           ----           ----          ----          ----
<S>                                            <C>           <C>           <C>           <C>            <C>
                  Average loans
                    outstanding during
                    period                     $   264,737   $   238,844   $   215,680   $   188,679    $   172,688
                                               ===========   ===========   ===========   ===========    ===========

               ALLOWANCE FOR LOAN
                 LOSSES
                  Balance at beginning of
                    period                     $     1,948   $     1,842   $     1,923   $     1,940    $     1,865
                  Loans charged off:
                      Commercial                      (358)         (112)         (263)          (66)           (57)
                      Commercial real
                        estate                          --            --           (15)           --             --
                      Residential real
                        estate and home
                        equity                         (27)           --            --            --             --
                      Real estate
                        construction                    --            --            --            --             --
                      Consumer and credit
                        card                          (441)         (443)         (346)         (352)          (334)
                      Lease financing                   --           (13)          (20)         (110)           (33)
                                               -----------   -----------   -----------   -----------    -----------
                           Total loans
                             charged off              (826)         (568)         (644)         (528)          (424)
                                               -----------   -----------   -----------   -----------    -----------
                  Recoveries of loans previously
                    charged off:
                      Commercial                        43            40            77            30             16
                      Commercial real
                        estate                          --            --            --            --              4
                      Residential real
                        estate and home
                        equity                           1            --            --            --             --
                      Real estate
                        construction                    --            --            --            --             --
                      Consumer and credit
                        card                           124           141           151           114            111
                      Lease financing                    8            24            15             1              6
                                               -----------   -----------   -----------   -----------    -----------
                           Total loan
                             recoveries                176           205           243           145            137
                                               -----------   -----------   -----------   -----------    -----------

                  Net loans charged off               (650)         (363)         (401)         (383)          (287)
                  Provision charged to
                    operating expense                1,495           469           320           366            362
                                               -----------   -----------   -----------   -----------    -----------

                  Balance at end of period     $     2,793   $     1,948   $     1,842   $     1,923    $     1,940
                                               ===========   ===========   ===========   ===========    ===========

               Ratio of net charge-offs to
                 average loans outstanding
                 for period                    .25%          .15%          .19%          .20%           .17%
</TABLE>

                                       9
<PAGE>   10


                The allowance for loan losses balance and provision charged to
                expense are determined by management based on periodic reviews
                of the loan portfolio, past loan loss experience, economic
                conditions and various other circumstances which are subject to
                change over time. In making this judgment, management reviews
                selected large loans as well as impaired loans, other
                delinquent, nonaccrual and problem loans and loans to industries
                experiencing economic difficulties. The collectibility of these
                loans is evaluated after considering current operating results
                and financial position of the borrower, estimated market value
                of collateral, guarantees and the Corporation's collateral
                position versus other creditors. Judgments, which are
                necessarily subjective, as to probability of loss and amount of
                such loss are formed on these loans, as well as other loans
                taken together.

           B.   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
<PAGE>   11



<TABLE>
<CAPTION>
                           ---------------------------------Allocation of the Allowance for Loan Losses ----------------------------
(In thousands of dollars)                          Percentage of                       Percentage of                   Percentage of
                                                   Loans in Each                       Loans in Each                   Loans in Each
                               Allowance            Category to    Allowance            Category to    Allowance         Category to
                                Amount              Total Loans     Amount              Total Loans     Amount           Total Loans
                                ------              -----------     ------              -----------     ------           -----------
                                      December 31, 1999                   December 31, 1998                 December 31, 1997
                                      -----------------                   -----------------                 -----------------

<S>                         <C>                      <C>          <C>                       <C>         <C>                   <C>
Commercial and industrial   $       652              14.08%       $       618               15.62%      $      516            16.40%
Commercial real estate              332              29.90                160               26.05              178            24.68
Residential real estate
  and home equity                   111              25.09                 93               24.73               63            23.48
Real estate construction             45              10.71                 49               12.68               30            12.73
Consumer and credit card            575              16.57                494               17.26              465            18.77
Lease financing                      57               3.65                 74                3.66               68             3.94
Unallocated                       1,021                 --                460                  --              522               --
                            -----------          ----------       -----------           ----------      ----------          -------

     Total                  $     2,793             100.00%       $     1,948              100.00%      $    1,842           100.00%
                            ===========          =========        ===========           =========       ==========          ========


                                       December 31, 1996                   December 31, 1995
                                       -----------------                   -----------------

Commercial and industrial   $       519              18.09%       $       526               23.42%
Commercial real estate              273              22.34                262               23.24
Residential real estate and
  home equity                        71              25.91                 78               24.12
Real estate construction             17              11.54                 11                5.90
Installment and credit card         533              18.80                560               20.45
Lease financing                     106               3.32                142                2.87
Unallocated                         404                 --                361                  --
                            -----------          ----------       -----------           ----------

     Total                  $     1,923             100.00%       $     1,940              100.00%
                            ===========          =========        ===========           =========
</TABLE>


                                       11


<PAGE>   12

     V.    DEPOSITS

      A.   The following is a schedule of average deposit amounts and average
           rates paid on each category for the periods indicated:

<TABLE>
<CAPTION>
                                                             Average                            Average
                                                       Amounts Outstanding                     Rate Paid
                                                     Year ended December 31             Year ended December 31
                                                     ----------------------             ----------------------
                                              1999           1998          1997       1999      1998       1997
                                              ----           ----          ----       ----      ----       ----
     (In thousands of dollars)

<S>                                       <C>             <C>           <C>           <C>      <C>         <C>
     Noninterest-bearing demand           $    60,857     $    53,500   $    45,330    N/A        N/A        N/A
     Interest-bearing demand
       deposits                                28,858          27,527        26,295   1.99%     2.41%      2.50%
     Money market investment                  154,736         131,105        97,603   4.97      5.26       5.28
     Savings deposits                          42,316          38,457        37,874   2.81      3.13       3.18
     Time deposits                             83,571          93,498        89,667   5.18      5.53       5.58
                                          -----------     -----------   -----------

         Total deposits                   $   370,338     $   344,087   $   296,769   3.72%     4.05%      4.05%
                                          ===========     ===========   ===========   ====      ====       ====
</TABLE>

      B.   Other categories - not applicable.

      C.   Foreign deposits - not applicable.

      D.   The following is a schedule of maturities of time certificates of
           deposit in amounts of $100,000 or more as of year-end 1999:

<TABLE>
<S>                                                                                    <C>
                Three months or less                                                   $      4,728
                Over three through six months                                                 1,616
                Over six through twelve months                                                  984
                Over twelve months                                                            1,251
                                                                                       ------------

                   Total                                                               $      8,579
                                                                                       ============
</TABLE>

      E.   Time deposits greater than $100,000 issued by foreign offices - not
           applicable.


    VI.    RETURN ON EQUITY AND ASSETS

           This information is included under the heading "ITEM 6 - Selected
           Financial Data" on pages 15 and 16 of this document.
<TABLE>
<CAPTION>
                                                                                      1999        1998       1997
                                                                                      ----        ----       ----

<S>                                                                                   <C>         <C>        <C>
                    Dividend pay-out ratio (dividends declared
                      per share divided by net income per share)                      21.93%      18.58%     23.39%
</TABLE>


   VII.    SHORT-TERM BORROWINGS

           This item is not required for the Corporation because average
           outstanding balances of short-term borrowings for the years ending
           December 31, 1999, 1998 and 1997 were less than 30% of shareholders'
           equity at such dates.

                                       12
<PAGE>   13


ITEM 2 - PROPERTIES

The Bank owns and operates its main office at 41 North Sandusky Street,
Delaware, Ohio 43015. The Bank also operates 16 branches and 4 other properties
that are owned or leased as noted below:

<TABLE>
<S>  <C>
1.   Drive-in Office, 33 W. William St., Delaware, Ohio 43015 (owned)
2.   Delaware Center Branch Office, 199 S. Sandusky Street, Delaware, Ohio 43015 (owned)
3.   Galena Branch Office, 10 Park Street, Galena, Ohio 43021 (owned)
4.   Ostrander Branch Office, 10 West North Street, Ostrander, Ohio 43061 (owned)
5.   Green Meadows Branch Office, 9191 Columbus Pike, Lewis Center, Ohio 43035 (leased)
6.   Ashley Branch Office, 1 West High Street, Ashley, Ohio 43003 (owned)
7.   Buehlers Central Office, 800 West Central Avenue, Delaware, Ohio 43015 (leased)
8.   Marysville Banking Center, 108 South Main Street, Marysville, Ohio 43040 (leased)
9.   Marysville Banking Center II, 11069 West Fifth Street, Marysville, Ohio 43040 (leased)
10.  Powell Office, 22 South Liberty Street, Powell, Ohio 43065 (owned)
11.  Sunbury Office, 492 West Cherry Street, Sunbury, Ohio 43074 (leased)
12.  Highland Lakes Office, 6156 Highland Lakes Avenue, Westerville, Ohio 43085 (leased)
13.  Sawmill Parkway Office, 10149 Brewster Lane, Powell, Ohio 43065 (leased)
14.  Avery Road Office, 6820 Perimeter Loop Road, Dublin, Ohio 43017 (leased)
15.  ATM Express Bank, W. Central Ave., Delaware, Ohio 43015 (leased)
16.  ATM Express Bank, Ohio Wesleyan University, Delaware, Ohio 43015 (leased)
17.  ATM Express Bank, 8208 Marysville Road West, Ostrander, Ohio 43061 (leased)
18.  Operations Center, 163 N. Sandusky Street, Delaware, Ohio 43015 (leased)
19.  ATM Express Bank, 1123 U.S. Route 23 South, Delaware, Ohio 43015 (leased)
20.  Willowbrook Branch Office, 100 Willowbrook Way South, Delaware, Ohio 43015 (leased)
</TABLE>

The Bank 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
houses the main office is leased to two tenants.


ITEM 3 - LEGAL PROCEEDINGS

There is no 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 matter was submitted to a vote of the security holders in the fourth quarter
of 1999.

                                       13


<PAGE>   14


PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Corporation had 4,178,200 common shares outstanding on February 29, 2000,
held of record by approximately 1,507 shareholders. The Corporation's common
stock is not traded on any securities exchange. However, several central Ohio
brokerage firms maintain daily bid and ask prices for the Corporation's common
stock. The range of the average known price per common share by quarter provided
in the chart below is based on information received from such market maker.
Dividends are also shown.

<TABLE>
<CAPTION>
                                              March 31,        June 30,        September 30,   December 31
                                                1999             1999              1999           1999
                                          --------------     -------------    --------------   ----------

<S>                                       <C>                <C>              <C>              <C>
              High                        $     17.75        $   18.00        $   16.63        $     16.50
              Low                               16.00            15.00            13.88              14.13
              Dividends per share                 .06              .06              .06                .07

                                              March 31,        June 30,        September 30,   December 31,
                                                1998             1998              1998            1998
                                          --------------      ------------      ------------   ----------

              High                        $     21.00        $   21.00        $   20.75        $     18.00
              Low                               20.13            20.00            17.25              14.50
              Dividends per share                 .05              .05              .05                .06
</TABLE>

Income of the Corporation primarily consists of dividends, which were
periodically declared and paid by the Board of Directors of the Bank on common
shares of the Bank held by the Corporation. While management expects to maintain
its policy of paying regular cash dividends in the future, no assurances can be
given that any dividends will be declared or, if declared, what the amount of
any such dividends will be. See Note 13 to the consolidated financial statements
for a description of dividend restrictions.


TRANSFER AGENT

DCB Financial Corp acts as transfer agent for the Corporation's common stock.


ANNUAL AND OTHER REPORTS, SHAREHOLDER AND GENERAL INQUIRIES

DCB Financial Corp is required to file an annual report on Form 10-K, for its
fiscal year ended December 31, 1999, with the Securities and Exchange
Commission. Copies of the Form 10-K annual report and the Corporation's
quarterly reports may be obtained without charge by contacting:

     Mr. Donald R. Blackburn
     DCB Financial Corp
     41 N. Sandusky Street
     Delaware, Ohio  43015
     (740) 363-1133

                                       14

<PAGE>   15


ITEM 6 - SELECTED FINANCIAL DATA

The following tables set forth certain information concerning the consolidated
financial condition, earnings and other data regarding the Corporation at the
dates and for the periods indicated. As the Corporation was formed on March 14,
1997, information before the year ended December 31, 1997 is for the Bank.

<TABLE>
<CAPTION>
Selected financial condition                                          At December 31,
  and other data:                        ---------------------------------------------------------------------------
                                              1999          1998            1997            1996           1995
                                         ------------   -------------    -----------   ------------    -------------
                                                                    (In thousands)
<S>                                      <C>            <C>             <C>            <C>             <C>
Assets                                   $    430,005   $     418,540   $    367,118   $    319,117    $    274,078
Cash and cash equivalents                      16,838          15,492         25,283         32,359          36,179
Securities available for sale                  62,929          62,491         40,230         35,694          25,536
Securities held to maturity                     7,772          21,144         27,612          8,176          19,317
Mortgage-backed securities
  available for sale                           28,980          28,908         13,705         11,480           5,942
Mortgage-backed securities
  held to maturity                             27,473          28,040         26,222         23,695          10,160
Loans and leases - net                        274,675         253,341        226,792        201,669         171,599
Deposits                                      371,799         368,918        322,484        279,091         243,856
Borrowed funds                                 16,889           9,450          7,005          6,546             777
Shareholders' equity                           40,387          38,309         36,040         32,579          28,694
</TABLE>
<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                         ----------------------------------------------------------------------------
Summary of earnings:                          1999          1998            1997            1996           1995
                                         ------------   -------------    -----------   ------------    --------------
                                                         (In thousands, except per share data)
<S>                                      <C>            <C>             <C>            <C>             <C>
Interest and dividend income             $     30,001   $      28,928   $     26,409   $     23,467    $     19,972
Interest expense                               14,322          14,323         12,369         10,202           8,110
                                         ------------   -------------   ------------   ------------    ------------
Net interest income                            15,679          14,605         14,040         13,265          11,862
Provision for loan losses                       1,495             469            320            366             362
                                         ------------   -------------   ------------   ------------    ------------
Net interest income after
  provision for loan losses                    14,184          14,136         13,720         12,899          11,500
Noninterest income                              4,683           4,139          3,324          2,890           2,410
Noninterest expense                            11,931          11,373          9,772          8,616           8,765
                                         ------------   -------------   ------------   ------------    ------------
Income before income tax                        6,936           6,902          7,272          7,173           5,145
Income tax expense                              2,154           2,168          2,382          2,293           1,562
                                         ------------   -------------   ------------   ------------    ------------
Net income                               $      4,782   $       4,734   $      4,890   $      4,880    $      3,583
                                         ============   =============   ============   ============    ============

Per Share Data:
Earnings per share                       $       1.14   $        1.13    $      1.14    $      1.14   $        .84
                                         ============   =============   ============   ============    ============

Dividends declared per share             $        .25   $         .21    $     .2667    $     .2234    $       .17
                                         ============   =============   ============   ============    ============
</TABLE>
------------------------

(1)   Earnings and dividends per share for the Corporation have been restated to
      reflect the internal reorganization discussed above.

                                       15

<PAGE>   16


<TABLE>
<CAPTION>
                                                           At or for the year ended December 31,
                                         -------------------------------------------------------------------------
Selected financial ratios:                    1999          1998            1997            1996           1995
                                         ------------   -------------    -----------   ------------    -----------

<S>                                          <C>           <C>             <C>             <C>            <C>
Interest rate spread
(difference between average yield
  on interest-earning assets and
  average cost of interest-
  bearing liabilities)                         3.08%         3.01%           3.42%           3.75%         3.99%
Net interest margin (net
  interest income as a
  percentage of average
  interest-earning assets)                     3.95          3.95            4.37            4.67          4.93
Return on equity (net income
  divided by average equity)                  12.18         13.64           14.00           15.99         13.17
Return on assets (net income
  divided by average total assets)             1.13          1.21            1.44            1.63          1.41
Equity-to-assets ratio (average equity
  divided by average total assets)             9.31          8.89           10.29           10.22         10.71
Allowance for loan losses as a
  percentage of nonperforming loans          444.75        180.71          129.17          194.24         87.03
</TABLE>


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATION (Dollars in thousands, except per share amounts)

BUSINESS OF DCB FINANCIAL CORP

DCB Financial Corp (the "Corporation") was incorporated under the laws of the
State of Ohio on March 14, 1997, at the direction of management and approval of
the shareholders of The Delaware County Bank and Trust Company (the "Bank") for
the purpose of becoming a bank holding company by acquiring all outstanding
shares of the Bank. The Bank is a commercial bank, chartered under the laws of
the State of Ohio, and was organized in 1950. The Bank is the wholly-owned
subsidiary of the Corporation and its only significant asset.

The Bank conducts business from its main office at 41 North Sandusky Street in
Delaware, and from its 16 full-service branch offices located in Delaware and
surrounding communities. The Bank provides customary retail and commercial
banking services to its customers, including checking and savings accounts, time
deposits, IRAs, safe deposit facilities, personal loans, commercial loans, real
estate mortgage loans, installment loans, night depository facilities and trust
services. The Bank also provides cash management, bond registrar and paying
services. Through its information systems 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. General
economic conditions in the Corporation's market area have been very sound.
Unemployment statistics have generally been among the lowest in the State of
Ohio, and real estate values have been stable to rising. The Corporation also
invests in U.S. Government and agency obligations, obligations of states and
political subdivisions, corporate obligations, mortgage-backed securities,
commercial paper and other investments permitted by applicable law. Funds for
lending and other investment activities come primarily from customer deposits,
borrowed funds, loan and security sales and principal repayments.

                                       16
<PAGE>   17

As a bank holding company, the Corporation is subject to regulation, supervision
and examination by the Federal Reserve Board. As a commercial bank chartered
under the laws of the State of Ohio, the Bank is subject to regulation,
supervision and examination by the State of Ohio Superintendent of Financial
Institutions and the Federal Deposit Insurance Corporation (the "FDIC"). The
FDIC insures deposits in the Bank up to applicable limits. The Bank is also a
member of the Federal Home Loan Bank (the "FHLB") of Cincinnati.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

INTRODUCTION

In the following pages, management presents an analysis of the Corporation's
financial condition and results of operations as of and for the year ended
December 31, 1999, compared to prior years. This discussion is designed to
provide shareholders with a more comprehensive review of the operating results
and financial position than could be obtained from an examination of the
financial statements alone. This analysis should be read in conjunction with the
financial statements and related footnotes and the selected financial data
included elsewhere in this report.


FORWARD-LOOKING STATEMENTS

When used in this document, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projected," or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Corporation's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Corporation's market area and competition, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. Factors listed above could affect the Corporation's financial
performance and could cause the Corporation's actual results for future periods
to differ materially from any statements expressed with respect to future
periods.

The Corporation does not undertake, and specifically disclaims any obligation,
to publicly revise any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.


ANALYSIS OF FINANCIAL CONDITION

The Corporation's assets totaled $430,005 at year-end 1999 compared to $418,540
at year-end 1998, an increase of $11,465, or 2.7%. The growth in assets was the
result of the investment of funds provided by borrowings and deposit growth in
loans.

Federal funds sold increased $3,250, or 209.7%, from $1,550 at year-end 1998 to
$4,800 at year-end 1999, as a result of proceeds from the maturities, calls and
principal repayments of securities not being reinvested during the period.

Total securities decreased $13,429, or 9.6%, from $140,583 at year-end 1998 to
$127,154 at year-end 1999. The decrease was the result of proceeds from
maturities, calls and principal repayments being invested in higher-yielding
loans. The Corporation invests primarily in U.S. Treasury notes, Obligations of
U.S. government agencies and corporations, municipal bonds, corporate
obligations and mortgage-backed securities. Mortgage-backed securities include
Federal Home Loan Mortgage Corporation ("FHLMC"), Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA")
participation certificates and Collateralized Mortgage Obligations ("CMOs").
Securities

                                       17
<PAGE>   18

classified as available for sale totaled $91,909, or 72.3% of the total
securities portfolio, at year-end 1999. Management classifies securities as
available for sale to provide the Corporation with the flexibility to move funds
into loans as demand warrants. The mortgage-backed securities portfolio,
totaling $56,453 at year-end 1999, provides the Corporation with a constant cash
flow stream from principal repayments. The Corporation held no derivative
securities or structured notes during any period presented.

Total loans increased $22,179, or 8.7%, from $255,289 at year-end 1998 to
$277,468 at year-end 1999. Growth was experienced in the majority of loan
categories; however, the largest increases were in real estate-related loans.
Commercial real estate loans increased $16,453, or 24.7%, from $66,501 at
year-end 1998 to $82,954 at year-end 1999. In addition, residential real estate
and home equity loans increased $6,471, or 10.2%, from $63,140 at year-end 1998
to $69,611 at year-end 1999 while construction loans, both residential and
commercial, decreased $2,659, or 8.2%. The continued growth in total real estate
loans is related to growth in the Corporation's market area as the Corporation
has not changed its philosophy regarding pricing or underwriting standards
during the year. Strong population growth in the Corporation's market
contributed to the increase. In addition, the Corporation has been able to take
advantage of a strong local economy and the large number of businesses moving
into the market. Commercial and industrial loans decreased $801, or 2.0%. There
is no concentration of lending to any one industry.

Due to the strong loan growth, the gross loan to deposit ratio increased to
74.6% at year-end 1999 compared to 69.2% at year-end 1998.

During 1998, the Corporation purchased insurance contracts on the lives of the
participants in a new supplemental post-retirement benefit plan and named the
Corporation as the beneficiary. Management intends that the revenue from the
insurance contracts be used as a funding source for the plan. Cash surrender
value of life insurance totaled $1,886 at year-end 1999 and $1,414 at year-end
1998.

Total deposits increased $2,881 or 0.8%, from $368,918 at year-end 1998 to
$371,799 at year-end 1999. Noninterest-bearing deposits decreased $777, or 1.3%,
while interest-bearing deposits increased $3,658, or 1.2%. Interest-bearing
demand and money market deposits increased from 58.1% of total interest-bearing
deposits at year-end 1998 to 60.6% of total interest-bearing deposits at
year-end 1999 as the Corporation experienced a $10,100, or 5.6%, increase in
volume of such accounts. The increase was primarily in the Corporation's
"Superior Money Market" deposit accounts which offer a variable interest rate
tied to the 3-month Treasury Bill index. The Corporation experienced a $2,438
increase in savings deposits while such accounts increased from 13.1% of total
interest-bearing deposits at year-end 1998 to 13.8% of total interest-bearing
deposits at year-end 1999. Growth in such deposits has been primarily due to
growth in the Corporation's market area as the Corporation has not used special
promotions to attract the increased volume. Management believes the funds
received from this deposit growth are fairly stable based on the growth in the
Corporation's market area. Certificates of deposit decreased $8,880, or 9.9%,
comprising 25.6% of total interest-bearing deposits at year-end 1999 compared to
28.8% at year-end 1998. The decrease in certificates of deposit was primarily
due to the loss of price-sensitive public funds, which was partially offset by
the transfer of "Prime Time" deposit accounts to certificates of deposit.

Borrowed funds totaled $16,889 at year-end 1999 compared to $9,450 at year-end
1998. The increase resulted as the Corporation borrowed an additional $6,000
from the FHLB through a 31-day advance. At year-end 1999, the Corporation also
had a mortgage-matched advance with a remaining balance of $3,889 with an
original term of 10 years and carrying a fixed interest rate of 5.10%. Principal
and interest on the advance are due monthly. During 1999, the Corporation also
renewed a $5,000 FHLB advance which came due in November 1999. The renewed
advance has a term of 180 days and carries a fixed interest rate of 5.93% with
interest due monthly. Borrowed funds also include a demand note issued to the
U.S. Treasury which totaled $2,000 at year-end 1999 and $225 at year-end 1998.

                                       18
<PAGE>   19


COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998

NET INCOME. Net income for 1999 totaled $4,782, increasing slightly compared to
net income for 1998 of $4,734. Earnings per share was $1.13 for 1998 and $1.14
for 1999. Return on average assets was 1.13% and 1.21% for 1999 and 1998, while
return on average shareholders' equity was 12.18% and 13.64% over the same two
years.

NET INTEREST INCOME. Net interest income represents the amount by which interest
income on interest-earning assets exceeds interest paid on interest-bearing
liabilities. Net interest income is the largest component of the Corporation's
income and is affected by the interest rate environment and the volume and
composition of interest-earning assets and interest-bearing liabilities.

Net interest income was $15,679 for 1999 compared to $14,605 for 1998. The
$1,074 increase in 1999 over 1998 was the result of an increase in the average
level of interest-earning assets partially offset by an increase in the average
level interest-bearing liabilities. Growth in net interest income was also
partly constrained by a decrease in the average yield earned on interest-earning
assets from 7.82% in 1998 to 7.56% in 1999, while the average yield on
interest-bearing liabilities decreased from 4.81% in 1998 to 4.48% in 1999. The
decrease in the average yield earned on interest-earning assets was the result
of the decrease in the average yield earned on loans and leases from 8.82% in
1998 to 8.33% in 1999.

In spite of the aforementioned shifts in the components of interest-earning
assets and interest-bearing liabilities, as well as movements in market interest
rates, the Corporation's net interest margin, which is calculated by dividing
net interest income by average interest-earning assets, remained constant at
3.95% in 1998 and 1999.

PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES. The provision for loan and
lease losses represents the charge to income necessary to adjust the allowance
for loan and lease losses to an amount that represents management's assessment
of the losses inherent in the Corporation's loan portfolio. All lending activity
contains associated risks of loan losses and the Corporation recognizes these
credit risks as a necessary element of its business activity. To assist in
identifying and managing potential loan losses, the Corporation maintains a loan
review function that regularly evaluates individual credit relationships as well
as overall loan-portfolio conditions. One of the primary objectives of this loan
review function is to make recommendations to management as to both specific
loss reserves and overall portfolio-loss reserves.

The provision for loan and lease losses totaled $1,495 in 1999 compared to $469
in 1998. The growth in the provision is due to the Corporation's belief that it
was appropriate to increase the overall allowance as a percentage of total loans
due to changes in loan mix, portfolio characteristics and regulatory
recommendations, as well as continued growth in the loan portfolio and increased
loan charge-offs in 1999. Net charge-offs for 1999 were $650, which represents
 .25% of average loans, compared to net charge-offs of $363, or .15% of average
loans in 1998.

The allowance for loan losses increased from $1,948 at year-end 1998 to $2,793
at year-end 1999. As a percent of gross loans and leases, the allowance
increased from .76% to 1.01% over the same period. Nonperforming loans, defined
as loans on nonaccrual status plus accruing loans past due 90 days or more, were
$628, or .23% of gross loans, at year-end 1999 compared to $1,078, or .42% of
gross loans, at year-end 1998. Such loans have been considered in management's
analysis of the allowance for loan and lease losses. The allowance was 444.75%
of nonperforming loans at year-end 1999, compared to 180.71% at year-end 1998.

Management believes increasing the allowance for loan losses is prudent as total
loans, particularly commercial, commercial real estate, consumer and
construction loans, and leases increase.

NONINTEREST INCOME AND NONINTEREST EXPENSE. Total noninterest income increased
$544, or 13.1%, in 1999 compared to 1998. The increase was due primarily to
increased fee income from deposit and cash

                                       19
<PAGE>   20

management accounts, the Corporation's data service center and trust department
and income from bank-owned life insurance, partially offset by decreased gains
on loan sales.

Total noninterest expense increased $558, or 4.9%, in 1999 compared to 1998. The
increase was primarily the result of increases in salaries and employee benefits
and equipment expense, which comprised $474 of the total increase. These were
planned increases relating to increased staffing and the addition of a new
branch facility in 1999. The new branch is strategically located in an area of
Franklin County currently experiencing strong population growth rates. With its
broad line of products and services, the Corporation expects to be able to meet
the needs of the market and obtain the business needed to sustain the new branch
and contribute to overall profitability.

INCOME TAXES. The change of income tax expense is primarily attributable to the
change in income before income taxes. See Note 11 to the consolidated financial
statements. The provision for income taxes totaled $2,154 in 1999 and $2,168 in
1998 resulting in effective tax rates of 31.1% and 31.4%.


COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997

NET INCOME. Net income for 1998 totaled $4,734, decreasing slightly compared to
net income for 1997 of $4,890. Earnings per share was $1.14 for 1997 and $1.13
for 1998. Return on average assets was 1.21% and 1.44% in 1998 and 1997, while
return on average shareholders' equity was 13.64% and 14.00% over the same two
years.

NET INTEREST INCOME. Net interest income was $14,605 for 1998 compared to
$14,040 for 1997. The $565 increase in 1998 over 1997 was the result of an
increase in the average level of interest-earning assets partially offset by an
increase in the average level interest-bearing liabilities. Growth in net
interest income was also partly constrained by a decrease in the average yield
earned on interest-earning assets from 8.22% in 1997 to 7.82% in 1998 while the
average yield on interest-bearing liabilities remained constant over the same
periods. The average yield earned on interest-earning assets decreased as a
larger proportion of average earning assets were invested in lower yielding
securities and federal funds sold rather than loans as was the case in the prior
year. Also contributing to the decrease was a general decrease in market
interest rates for loans in 1998 which resulted from increased competition and a
50 basis point reduction in the discount rate by the Board of Governors of the
Federal Reserve System during the fourth quarter.

As a result of the aforementioned shifts in the components of interest-earning
assets and interest-bearing liabilities, as well as movements in market interest
rates, the Corporation's net interest margin, which is calculated by dividing
net interest income by average interest-earning assets, declined from 4.37% in
1997 to 3.95% in 1998.

PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES. The provision for loan and
lease losses totaled $469 in 1998 compared to $320 in 1997. The growth in the
provision is reflective of the overall growth in the loan portfolio rather than
of concerns about credit quality. Net charge-offs for 1998 were $363, which
represents .15% of average loans, compared to net charge-offs of $401, or .19%
of average loans, in 1997.

The allowance for loan losses increased from $1,842 at year-end 1997 to $1,948
at year-end 1998. As a percent of gross loans and leases, however, the allowance
decreased from .81% to .76% over the same period. Nonperforming loans, defined
as loans on nonaccrual status plus accruing loans past due 90 days or more, were
$1,078, or .42% of gross loans, at year-end 1998 compared to $1,426, or .62% of
gross loans, at year-end 1997. Such loans have been considered in management's
analysis of the allowance for loan and lease losses. The allowance was 180.71%
of nonperforming loans at year-end 1998 compared to 129.2% at year-end 1997.

NONINTEREST INCOME AND NONINTEREST EXPENSE. Total noninterest income increased
$815, or 24.5%, in 1998 compared to 1997. The increase was due to increased fee
income from the Corporation's data service center

                                       20
<PAGE>   21

and trust department, increased gains on loan sales (both servicing-released and
service-retained) and increased fee income on deposit and cash management
accounts.

Total noninterest expense increased $1,601, or 16.4%, in 1998 compared to 1997.
The increase was primarily the result of increases in salaries and employee
benefits, occupancy expense and equipment expense, where increases made up
$1,421 of the total increase in 1998. These were planned increases relating to
increased staffing and the addition of new facilities in 1997. During the first
quarter of 1997, the Corporation moved most of its information systems and
operations to a leased facility. Other departmental moves to the new facility
were made in 1998 and additional space in the facility was leased. Expansion of
the Corporation's operations facilities was necessary to support growth. The
Corporation also leased additional computer equipment in 1998 to support its
internal and external data processing service operations.

INCOME TAXES. The change of income tax expense is primarily attributable to the
change in income before income taxes. See Note 11 to the Consolidated Financial
Statements. The provision for income taxes totaled $2,168 in 1998 and $2,382 in
1997 resulting in effective tax rates of 31.4% and 32.8%.


YIELDS EARNED AND RATES PAID. The following table sets forth certain information
relating to the Corporation's average balance sheet information and reflects the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average monthly balance of
interest-earning assets or interest-bearing liabilities, for the periods
presented. Average balances are derived from daily balances, which include
nonaccruing loans in the loan portfolio.

                                       21

<PAGE>   22


<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                               --------------------------------------------------------------------------
                                                                1999                                   1998
                                               ------------------------------------  ------------------------------------
                                                  Average      Interest                   Average     Interest
                                                outstanding     earned/      Yield/     outstanding    earned/     Yield/
                                                  balance        paid         rate        balance       paid        rate
                                                  -------        ----         ----        -------       ----        ----
<S>                                            <C>             <C>           <C>     <C>           <C>              <C>
Interest-earning assets:
    Federal funds sold                         $     6,443     $    348      5.40%   $    14,987   $      802       5.35%
    Bankers acceptances                                 --           --         --            --           --         --
    Securities (1)
       Taxable                                      59,146        3,661      6.19         65,968        4,046       6.15
       Tax-exempt (2)                               12,936          621      4.80          8,416          434       5.17
    Mortgage-backed securities (1)                  53,572        3,327      6.21         41,887        2,586       6.19
    Loans and leases (3)                           264,737       22,044      8.33        238,844       21,060       8.82
                                               -----------     --------              -----------   ----------

       Total interest-earning assets               396,834       30,001      7.56        370,102       28,928       7.82
                                                               --------                            ----------

Noninterest-earning assets:
    Cash and amounts due from banks                 15,324                                13,575
    Premises and equipment, net                      3,849                                 3,781
    Other nonearning assets                          8,113                                 4,580
    Allowance for loan losses                       (2,266)                               (1,903)
                                               -----------                           -----------

       Total assets                            $   421,854                           $   390,135
                                               ===========                           ===========

Interest-bearing liabilities:
    Demand deposits                            $   183,594     $  8,262      4.50%   $   158,632   $    7,560       4.77%
    Savings deposits                                42,316        1,190      2.81         38,457        1,203       3.13
    Certificates of deposit                         83,571        4,331      5.18         93,498        5,173       5.53
                                               -----------     --------              -----------   ----------
       Total deposits                              309,481       13,783      4.45        290,587       13,936       4.80

    Borrowed funds                                  10,330          539      5.22          7,061          387       5.48
                                               -----------     --------              -----------   ----------

       Total interest-bearing liabilities          319,811       14,322      4.48        297,648       14,323       4.81
                                                               --------                            ----------
</TABLE>
<TABLE>
<CAPTION>
                                                    Year ended December 31,
                                               ------------------------------------
                                                               1997
                                               ------------------------------------
                                                   Average       Interest
                                                 outstanding      earned/   Yield/
                                                   balance         paid      rate
                                                   -------         ----      ----
<S>                                            <C>               <C>          <C>
Interest-earning assets:
    Federal funds sold                         $     9,774       $   541      5.54%
    Bankers acceptances                              1,619           126      7.78
    Securities (1)
       Taxable                                      50,780         3,304      6.48
       Tax-exempt (2)                                6,601           356      5.39
    Mortgage-backed securities (1)                  37,202         2,308      6.22
    Loans and leases (3)                           215,680        19,774      9.17
                                               -----------    ----------

       Total interest-earning assets               321,656        26,409      8.22
                                                              ----------

Noninterest-earning assets:
    Cash and amounts due from banks                 12,848
    Premises and equipment, net                      3,240
    Other nonearning assets                          3,598
    Allowance for loan losses                       (1,942)
                                               -----------

       Total assets                            $   339,400
                                               ===========

Interest-bearing liabilities:
    Demand deposits                            $   123,898
                                                               $   5,810      4.69%
    Savings deposits                                37,874         1,204      3.18
    Certificates of deposit                         89,667         5,000      5.58
                                               -----------    ----------
       Total deposits                              251,439        12,014      4.78

    Borrowed funds                                   6,106           355      5.81
                                               -----------    ----------

       Total interest-bearing liabilities          257,545        12,369      4.80
                                                              ----------
</TABLE>


(Continued on next page )

                                       22
<PAGE>   23


<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                               --------------------------------------------------------------------------
                                                                1999                                   1998
                                               ------------------------------------  ------------------------------------
                                                  Average      Interest                   Average     Interest
                                                outstanding     earned/      Yield/     outstanding    earned/     Yield/
                                                  balance        paid         rate        balance       paid        rate
                                                  -------        ----         ----        -------       ----        ----
<S>                                            <C>             <C>           <C>     <C>           <C>              <C>
(Continued)
Noninterest-bearing liabilities:
    Demand deposits                            $    60,857                           $    53,500
    Other liabilities                                1,912                                 4,291
                                               -----------                           -----------

       Total liabilities                           382,580                               355,439

Shareholders' equity                                39,274                                34,696
                                               -----------                           -----------

       Total liabilities & shareholders'
         equity                                $   421,854                           $   390,135
                                               ===========                           ===========

Net interest income; interest rate spread                      $ 15,679      3.08%                 $   14,605       3.01%
                                                               ========   =======                  ==========   ========

Net interest margin (net interest income
  as a percent of average interest-earning
  assets)                                                                    3.95%                                  3.95%
                                                                          =======                               ========

Average interest-earning assets to average
  interest-bearing liabilities                                             124.08%                                124.34%
                                                                          =======                               ========
</TABLE>
<TABLE>
<CAPTION>
                                                        Year ended December 31,
                                               -------------------------------------
                                                               1997
                                               -------------------------------------
                                                   Average       Interest
                                                 outstanding      earned/   Yield/
                                                   balance         paid      rate
                                                   -------         ----      ----
<S>                                            <C>               <C>          <C>
(Continued)
Noninterest-bearing liabilities:
    Demand deposits                            $    45,330
    Other liabilities                                1,588
                                               -----------

       Total liabilities                           304,463

Shareholders' equity                                34,937
                                               -----------

       Total liabilities & shareholders'
         equity                                $   339,400
                                               ===========

Net interest income; interest rate spread                        $ 14,040    3.42%
                                                                 ========  =======

Net interest margin (net interest income
  as a percent of average interest-earning
  assets)                                                                     4.37%
                                                                           =======

Average interest-earning assets to average
  interest-bearing liabilities                                              124.89%
                                                                           =======
</TABLE>
------------------------
(1) Average balance includes unrealized gains and losses while yield is based on
    amortized cost.

(2) Interest on tax-exempt securities is reported on a historical basis without
    tax-equivalent adjustment. Interest on tax-exempt securities on a tax
    equivalent basis was $941 in 1999, $658 in 1998, and $539 in 1997.

(3) Calculated net of deferred loan fees, loan discounts, unearned interest and
    loans in process. Includes nonaccrual loans.

                                       23

<PAGE>   24


The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Corporation's interest income and expense during the years
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to (1) changes in
volume (multiplied by prior year rate); (2) changes in rate (multiplied by prior
year volume); and, (3) total changes in rate and volume. The combined effects of
changes in both volume and rate, that are not separately identified, have been
allocated proportionately to the change due to volume and change due to rate:

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                   ------------------------------------------------------------------
                                                            1999 vs.1998                      1998 vs. 1997
                                                   -------------------------------   --------------------------------
                                                          Increase                         Increase
                                                         (decrease)                       (decrease)
                                                           due to                           due to
                                                   --------------------               ------------
                                                     Volume      Rate       Total      Volume     Rate       Total
                                                     ------      ----       -----      ------     ----       -----

<S>                                                <C>         <C>        <C>         <C>       <C>         <C>
Interest income attributable to:
     Federal funds sold                            $    (461)  $      7   $    (454)  $   280   $    (19)   $   261
     Bankers acceptances                                  --         --          --      (126)        --       (126)
     Securities:
         Taxable                                        (422)        37        (385)      941       (199)       742
         Tax-exempt                                      219        (32)        187        94        (16)        78
     Mortgage-backed securities                          726         15         741       290        (12)       278
     Loans and leases                                  2,199     (1,215)        984     2,064       (778)     1,286
                                                   ---------   --------   ---------   -------   --------    -------

              Total interest income                    2,261     (1,188)      1,073     3,543     (1,024)     2,519
                                                   ---------   --------   ---------   -------   --------    -------

Interest expense attributable to:
     Demand deposits                                   1,141       (439)        702     1,654         96      1,750
     Savings deposits                                    115       (128)        (13)       18        (19)        (1)
     Certificates of deposit                            (527)      (315)       (842)      212        (39)       173
     Borrowings                                          171        (19)        152        53        (21)        32
                                                   ---------   --------   ---------   -------   --------    -------

              Total interest expense                     900       (901)         (1)    1,937         17      1,954
                                                   ---------   --------   ---------   -------   --------    -------

Increase (decrease) in net
  interest income                                  $   1,361   $   (287)  $   1,074   $ 1,606   $ (1,041)   $   565
                                                   =========   ========   =========   =======   ========    =======
</TABLE>


ASSET AND LIABILITY MANAGEMENT AND MARKET RISK

The Corporation's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risks. Interest rate risk is the risk that the
Corporation's financial condition will be adversely affected due to movements in
interest rates. The income of financial institutions is primarily derived from
the excess of interest earned on interest-earning assets over the interest paid
on interest-bearing liabilities. Accordingly, the Corporation places great
importance on monitoring and controlling interest rate risk.

There are several methods employed by the Corporation to monitor and control
interest rate risk. One such method is using a gap analysis. The gap is defined
as the repricing variance between rate sensitive assets and rate sensitive
liabilities within certain periods. The repricing can occur due to changes in
rates on variable rate products as well as maturities of interest-earning assets
and interest-bearing liabilities. A high ratio of interest sensitive
liabilities, generally referred to as a negative gap, tends to benefit net
interest income during periods of falling interest rates as the average rate
paid on interest-bearing liabilities declines faster than the average rate
earned on interest-earning assets. The opposite holds true during periods of
rising interest rates. The Corporation attempts to minimize the interest rate
risk

                                       24
<PAGE>   25

through management of the gap in order to achieve consistent shareholder
return. The Corporation's asset and liability management policy is to maintain a
laddered gap position. One strategy used by the Corporation is to originate
variable rate loans tied to market indices. Such loans reprice on an annual,
quarterly, monthly or daily basis as the underlying market indices change.
Currently, $196,332, or 70.8%, of the Corporation's loan portfolio reprices on a
regular basis. The Corporation also invests excess funds in liquid federal funds
that mature and reprice on a daily basis. The Corporation also maintains most of
its securities in the available for sale portfolio to take advantage of interest
rate swings and to maintain liquidity for loan funding and deposit withdrawals.

The following table provides information about the Corporation's financial
instruments that are sensitive to changes in interest rates as of December 31,
1999, based on information and assumptions set forth in the Notes. The
Corporation believes the assumptions utilized are reasonable. For loans,
securities and liabilities with contractual maturities, the table represents
principal cash flows and the weighted average interest rate. For variable-rate
loans the contractual maturity and weighted-average interest rate was used with
an explanatory footnote as to repricing periods. For liabilities without
contractual maturities such as demand and savings deposit accounts, a decay rate
was utilized to match their most likely withdrawal behavior.

<TABLE>
<CAPTION>
                                                                                                            Estimated
                                                                                                              Fair
                                 2000      2001         2002     2003       2004    Thereafter     Total      Value
                                 ----      ----         ----     ----       ----    ----------     -----      -----

<S>                          <C>         <C>        <C>        <C>        <C>        <C>        <C>         <C>
Rate-sensitive assets:
Fixed-rate loans (1)         $  17,577   $ 10,235   $ 12,752   $ 13,014   $ 16,201   $ 11,357   $  81,136   $  81,835
Average interest rate             8.90%      9.39%      9.49%      9.10%      8.39%      8.75%       8.94%
Variable-rate loans (1) (2)     40,991      5,361      7,771      5,487      7,010    129,712     196,332     197,362
Average interest rate             9.33       9.17       9.23       8.92       8.76       8.52        8.71
Fixed-rate debt securities -
  available for sale (1)         2,704      2,875      3,424      6,295      3,797     42,439      61,534      61,534
Average interest rate             5.54       5.82       6.11       6.09       6.41       6.13        6.10
Fixed-rate debt securities -
  held to maturity (1)           1,632      1,329        757      1,251      1,300      1,503       7,772       7,741
Average interest rate             5.51       4.79       5.28       5.33       5.40       5.48        5.34
Fixed-rate mortgage-backed
  securities - available for
  sale (3)                       2,192      1,854      1,165        934        841      7,569      14,555      14,555
Average interest rate             5.64       6.50       6.32       6.50       6.50       6.50        6.50
Variable-rate mortgage-
  backed securities -
  available for sale (4)           745        708        672        639        607     11,531      14,902      14,902
Average interest rate             5.92       5.92       5.92       5.92       5.92       5.92        5.92
Fixed-rate mortgage-backed
  securities - held to
  maturity (3)                   4,452      3,869      2,553      2,349      2,463     11,787      27,473      27,096
Average interest rate             6.46       6.43       6.69       6.49       6.64       6.64        6.63
Federal funds sold (5)           4,800        --         --         --         --        --         4,800       4,800
Average interest rate             4.50        --         --         --         --        --          4.50

Total rate-sensitive assets     75,110     26,257     29,131     30,022     32,257    217,443     410,220     409,595
Average interest rate             8.39       7.98       8.46       7.92       7.89       7.72        7.92
</TABLE>


(Continued on next page)

                                       25
<PAGE>   26


<TABLE>
<CAPTION>
(Continued)
                                                                                                            Estimated
                                                                                                              Fair
                                 2000      2001         2002     2003       2004    Thereafter     Total      Value
                                 ----      ----         ----     ----       ----    ----------     -----      -----
<S>                          <C>         <C>        <C>        <C>        <C>        <C>        <C>         <C>
Rate-sensitive liabilities:
Noninterest-bearing
  deposits (6)               $  14,258   $ 11,407   $  8,555   $  7,129   $  7,129   $  8,555   $  57,033   $  57,033
Average interest rate
Interest-bearing demand
  deposits (7)                  46,810     46,810     35,108     35,108     23,405     46,810     234,051     234,051
Average interest rate             4.46%      4.46%      4.46%      4.46%      4.46%      4.46%       4.46%
Time deposits (8)               43,853     35,412      1,450        --         --        --        80,715      81,444
Average interest rate             4.93       5.53       5.08        --         --        --          5.20
Fixed-rate borrowings (8)       13,354        372        391        412        433      1,927      16,889      16,219
Average interest rate             5.99       5.10       5.10       5.10       5.10       5.10        5.78

Total rate-sensitive
  liabilities                  118,275     94,001     45,504     42,649     30,967     57,292     388,688     388,747
Average interest rate             4.27       4.32       3.65        3.72      3.44       3.82        4.02
----------------------------
</TABLE>

(1)  Assumes normal amortization based on contractual maturity and repayment.

(2)  Variable-rate commercial and home-equity loans are based on the prime rate
     of interest as stated in the Wall Street Journal and are subject to
     repricing when the prime rate is adjusted. Variable-rate mortgage loans are
     based on a constant-maturity treasury index and are subject to repricing on
     a 1-, 3- and 5-year basis.

(3)  In addition to amounts contractually due in the periods indicated,
     fixed-rate mortgage-backed securities assume a prepayment rate on the
     remaining balances of 15% for the first two years and 10% for years 3, 4
     and 5 with the remaining 40% being more than 5 years.

(4)  In addition to amounts contractually due in the periods indicated,
     variable-rate mortgage-backed securities assume a prepayment rate on the
     remaining balances of 5% for each year with the remaining 75% being more
     than 5 years.

(5)  The interest rate on federal funds is subject to daily repricing and is
     that which is currently offered by the correspondent banks buying these
     short-term, overnight funds.

(6)  Noninterest-bearing checking accounts assume a decay rate of 25% for year
     1, 20% for year 2, 15% for year 3 and 12.5% for each of years 4 and 5 with
     the remaining 15% being more than 5 years.

(7)  Savings, NOW and money market accounts assume a decay rate of 20% for each
     of years 1 and 2, 15% for each of years 3 and 4 and 10% for year 5 with the
     remaining 20% being more than 5 years.

(8)  Based on contractual maturity as management believes expected maturity is
     not significantly different from contractual maturity.


The principal cash flows and the weighted-average interest rates of
rate-sensitive assets and liabilities expected at year-end 1999 did not
significantly change from year-end 1998. The following table provides summary
information about the Corporation's financial instruments that were sensitive to
changes in interest rates as of year-end 1998 and was prepared using assumptions
similar to that of the above table.

<TABLE>
<CAPTION>
                                                                                                            Estimated
                                                                                                              Fair
                                 1999      2000         2001     2002       2003    Thereafter     Total      Value
                                 ----      ----         ----     ----       ----    ----------     -----      -----

<S>                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total rate-sensitive assets   $  88,924  $  24,584  $  27,887  $  25,945  $  31,643  $ 197,252  $ 396,235  $ 398,182
Average interest rate              7.71%      8.38%      8.20%      8.38%      8.12%      7.65%      7.82%

Total rate-sensitive
  liabilities                $  143,110   $ 65,011  $  44,312  $  40,846  $  29,789  $  55,300  $ 378,368  $ 378,949
Average interest rate              4.24%      3.51%      3.34%      3.37%      3.10%      3.48%      3.72%
</TABLE>

                                       26
<PAGE>   27


LIQUIDITY

Liquidity is the ability of the Corporation to fund customers' needs for
borrowing and deposit withdrawals. The purpose of liquidity management is to
assure sufficient cash flow to meet all of the financial commitments and to
capitalize on opportunities for business expansion. This ability depends on the
institution's financial strength, asset quality and types of deposit and
investment instruments offered by the Corporation to its customers. The
Corporation's principal sources of funds are deposits, loan and securities
repayments, maturities of securities, sales of securities available for sale and
other funds provided by operations. The Bank also has the ability to borrow from
the FHLB. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan and mortgage-backed
security prepayments are more influenced by interest rates, general economic
conditions and competition. The Corporation maintains investments in liquid
assets based upon management's assessment of (1) need for funds, (2) expected
deposit flows, (3) yields available on short-term liquid assets and (4)
objectives of the asset/liability management program.

Cash and cash equivalents increased $1,346, or 8.7%, from $15,492 at year-end
1998 to $16,838 at year-end 1999. Cash and cash equivalents at year-end 1999
represented 3.9% of total assets compared to 3.7% of total assets at year-end
1998. The Corporation has the ability to borrow funds from the Federal Home Loan
Bank and has various federal fund sources from correspondent banks, should the
Corporation need to supplement its future liquidity needs in order to meet loan
demand or to fund investment opportunities. Management believes the
Corporation's liquidity position is strong based on its high level of cash, cash
equivalents, core deposits, the stability of its other funding sources and the
support provided by its capital base.

As summarized in the Consolidated Statements of Cash Flows, the most significant
transactions which affected the Corporation's level of cash and cash
equivalents, cash flows and liquidity during 1999 were the net increase in loans
of $29,240; the receipt of proceeds from maturities and repayments of securities
of $63,211; securities purchases of $128,802 and securities sales of $13,342.


CAPITAL RESOURCES

Total shareholders' equity increased $2,078 primarily due to earnings retained.
The increase is net of cash dividends paid of $1,045 and the $1,659 after-tax
reduction in the fair value of securities available for sale. The Corporation
did not purchase any shares of treasury stock during 1999. However, management
may purchase shares in the future, as opportunities arise. The number of shares
to be purchased and the price to be paid will depend upon the availability of
shares, the prevailing market prices and any other considerations which may, in
the opinion of the Corporation's Board of Directors or management, affect the
advisability of purchasing shares.

The components of shareholders' equity changed during the first quarter of 1997
with the formation of the holding company. Shareholders of the Bank received
three shares of Corporation stock, no par value, for each share of Bank's $1.00
par value stock owned. This exchange resulted in the reclassification of
additional paid-in capital to common stock. The holding Corporation was formed
to allow management to pursue other forms of financial services or acquisitions
of full-service banking operations or branches of other organizations.

Tier 1 capital is shareholders' equity excluding the unrealized gain or loss on
securities classified as available for sale and intangible assets. Tier 2
capital, or total capital, includes Tier 1 capital plus the allowance for loan
losses not to exceed 1.25% of risk weighted assets. Risk weighted assets are the
Corporation's total assets after such assets are assessed for risk and assigned
a weighting factor based on their inherent risk.

                                       27
<PAGE>   28

The Corporation and its subsidiaries meet all regulatory capital requirements.
The ratio of total capital to risk-weighted assets was 14.7% at year-end 1999,
while the Tier 1 risk-based capital ratio was 13.8%. Regulatory minimums call
for a total risk-based capital ratio of 8%, at least half of which must be Tier
1 capital. The Corporation's leverage ratio, defined as Tier 1 capital divided
by average assets, of 9.7% at year-end 1999 exceeded the regulatory minimum for
capital adequacy purposes of 4.0%.

In 1999, the Bank announced plans to construct a new corporate headquarters in
Delaware, Ohio. As of December 31, 1999, the Bank had not paid any costs related
to the new corporate headquarters.


YEAR 2000 ISSUE

The Corporation did not experience any Year 2000-related computer system
problems, nor was the Corporation aware of any Year 2000-related problems with
any of its loan customers which would impact their ability to meet their debt
service requirements. The Corporation did not experience any significant unusual
deposit activity from its customers.


IMPACT OF NEW ACCOUNTING STANDARDS

Beginning January 1, 2001 a new accounting standard will require all derivatives
to be recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. This is not expected to have a material effect but the
effect will depend on derivative holdings when this standard applies.


IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and Notes included herein have been
prepared in accordance with generally accepted accounting principles ("GAAP").
Presently, GAAP requires the Corporation to measure financial position and
operating results primarily in terms of historic dollars. Changes in the
relative value of money due to inflation or recession are generally not
considered.

In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.


ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is included under the heading "Asset and Liability Management
and Market Risk" in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," on pages 24 through 26 of this document.

                                       28
<PAGE>   29


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA









                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
DCB Financial Corp
Delaware, Ohio


We have audited the accompanying consolidated balance sheets of DCB Financial
Corp (the "Corporation") as of December 31, 1999 and 1998, and related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of DCB
Financial Corp as of December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.



                                              /s/ CROWE, CHIZEK AND COMPANY LLP
                                              ---------------------------------
                                              Crowe, Chizek and Company LLP
Columbus, Ohio
February 4, 2000

                                       29

<PAGE>   30

                               DCB FINANCIAL CORP
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1999 and 1998
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                             1999           1998
                                                                                             ----           ----
<S>                                                                                     <C>             <C>
ASSETS
Cash and due from banks                                                                 $    12,038     $    13,942
Federal funds sold                                                                            4,800           1,550
                                                                                        -----------     -----------
     Total cash and cash equivalents                                                         16,838          15,492
Securities available for sale, at fair value                                                 91,909          91,399
Securities held to maturity (estimated fair value of $34,837 in 1999
  and $49,697 in 1998)                                                                       35,245          49,184
Loans and leases                                                                            277,468         255,289
Less allowance for loan and lease losses                                                     (2,793)         (1,948)
                                                                                        -----------     -----------
     Net loans and leases                                                                   274,675         253,341
Premises and equipment, net                                                                   4,384           3,965
Cash surrender value of life insurance                                                        1,886           1,414
Accrued interest receivable and other assets                                                  5,068           3,745
                                                                                        -----------     -----------

              Total assets                                                              $   430,005     $   418,540
                                                                                        ===========     ===========


LIABILITIES
Deposits
     Noninterest-bearing                                                                $    57,033     $    57,810
     Interest-bearing                                                                       314,766         311,108
                                                                                        -----------     -----------
         Total deposits                                                                     371,799         368,918
Borrowed funds                                                                               16,889           9,450
Accrued interest payable and other liabilities                                                  930           1,863
                                                                                        -----------     -----------
     Total liabilities                                                                      389,618         380,231

SHAREHOLDERS' EQUITY
Common stock, no par value, 7,500,000 shares authorized,
  4,273,200 issued                                                                            3,779           3,779
Retained earnings                                                                            40,020          36,283
Treasury stock, 95,000 shares, at cost                                                       (1,978)         (1,978)
Accumulated other comprehensive income                                                       (1,434)            225
                                                                                        -----------     -----------
     Total shareholders' equity                                                              40,387          38,309
                                                                                        -----------     -----------

              Total liabilities and shareholders' equity                                $   430,005     $   418,540
                                                                                        ===========     ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       30
<PAGE>   31


                               DCB FINANCIAL CORP
                        CONSOLIDATED STATEMENTS OF INCOME
              For the years ended December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------


                                                                                  1999         1998         1997
                                                                                  ----         ----         ----
<S>                                                                           <C>           <C>          <C>
INTEREST INCOME
     Loans, including fees                                                    $   22,044    $  21,060    $   19,774
     Securities
         Taxable                                                                   6,988        6,632         5,612
         Tax-exempt                                                                  621          434           356
     Federal funds sold and other                                                    348          802           667
                                                                              ----------    ---------    ----------
              Total interest income                                               30,001       28,928        26,409

INTEREST EXPENSE
     Deposits                                                                     13,783       13,936        12,014
     Borrowings                                                                      539          387           355
                                                                              ----------    ---------    ----------
              Total interest expense                                              14,322       14,323        12,369
                                                                              ----------    ---------    ----------

NET INTEREST INCOME                                                               15,679       14,605        14,040

Provision for loan and leases losses                                               1,495          469           320
                                                                              ----------    ---------    ----------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                               14,184       14,136        13,720

NONINTEREST INCOME
     Service charges on deposit accounts                                           1,887        1,487         1,389
     Trust department income                                                         306          231           166
     Securities gains                                                                 21            -            36
     Net gains from sales of loans                                                   535          752           268
     Data service fees                                                               443          367           276
     Increase in cash surrender value of life insurance                              195            -             -
     Other                                                                         1,296        1,302         1,189
                                                                              ----------    ---------    ----------
              Total noninterest income                                             4,683        4,139         3,324

NONINTEREST EXPENSE
     Salaries and other employee benefits                                          6,274        5,866         5,070
     Equipment                                                                     1,318        1,252           813
     Occupancy                                                                       965          991           805
     State franchise taxes                                                           510          516           503
     Other                                                                         2,864        2,748         2,581
                                                                              ----------    ---------    ----------
              Total noninterest expense                                           11,931       11,373         9,772
                                                                              ----------    ---------    ----------

INCOME BEFORE INCOME TAXES                                                         6,936        6,902         7,272

Provision for income taxes                                                         2,154        2,168         2,382
                                                                              ----------    ---------    ----------

NET INCOME                                                                    $    4,782    $   4,734   $    4,890
                                                                              ==========    =========    =========

EARNINGS PER COMMON SHARE                                                     $     1.14    $    1.13    $    1.14
                                                                              ==========    =========    =========
</TABLE>


                                  (Continued)

                                       31
<PAGE>   32


                               DCB FINANCIAL CORP
               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
           EQUITY For the years ended December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------



                                                                                        Accumulated
                                          Additional                                       Other           Total
                            Common          Paid-in       Retained       Treasury      Comprehensive   Shareholders'
                             Stock          Capital       Earnings         Stock          Income          Equity
                             -----          -------       --------         -----          ------          ------

<S>                       <C>            <C>            <C>             <C>            <C>             <C>
BALANCE, JANUARY 1,
  1997                    $    1,424     $    2,355     $   28,682      $        -     $      118      $  32,579

Comprehensive income:
  Net income                       -              -          4,890               -              -          4,890
  Other comprehensive
    income (loss), net of tax      -              -              -               -            127            127
                                                                                                       ---------
      Total comprehensive
        Income                                                                                             5,017

Cash dividends
  ($.2667 per share)               -              -         (1,140)              -              -         (1,140)

Formation of holding
  company                      2,355         (2,355)             -               -              -              -

Purchase of 20,000
  treasury shares                  -              -              -            (416)             -           (416)
                          ----------     ----------     ----------      ----------     ----------      ---------

BALANCE, DECEMBER 31,
  1997                         3,779              -         32,432            (416)           245         36,040

Comprehensive income:
  Net income                       -              -          4,734               -              -          4,734
  Other comprehensive
    income (loss), net of tax      -              -              -               -            (20)           (20)
                                                                                                       ---------
      Total comprehensive
        Income                                                                                             4,714

Cash dividends
  ($.21 per share)                 -              -           (883)              -              -           (883)

Purchase of 75,000
  treasury shares                  -              -              -          (1,562)             -         (1,562)
                          ----------     ----------     ----------      ----------     ----------      ---------

BALANCE, DECEMBER 31,
  1998                    $    3,779     $        -     $   36,283      $   (1,978)    $      225      $  38,309
                          ==========     ==========     ==========      ==========     ==========      =========
</TABLE>


                                  (Continued)


                                       32




<PAGE>   33


                               DCB FINANCIAL CORP
     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
              For the years ended December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------



                                                                                        Accumulated
                                          Additional                                       Other           Total
                            Common          Paid-in       Retained       Treasury      Comprehensive   Shareholders'
                             Stock          Capital       Earnings         Stock          Income          Equity
                             -----          -------       --------         -----          ------          ------

<S>                       <C>            <C>            <C>             <C>            <C>             <C>
BALANCE, JANUARY 1,
  1999                    $    3,779     $        -     $   36,283      $   (1,978)    $      225      $  38,309

Comprehensive income:
  Net income                       -              -          4,782               -              -          4,782
  Other comprehensive
    income (loss), net of tax      -              -              -               -         (1,659)        (1,659)
                                                                                                       ---------
      Total comprehensive
        Income                                                                                             3,123

Cash dividends
  ($.25 per share)                 -              -         (1,045)              -              -         (1,045)
                          ----------     ----------     ----------      ----------     ----------      ---------

BALANCE, DECEMBER 31,
  1999                    $    3,779     $        -     $   40,020      $   (1,978)    $   (1,434)     $  40,387
                          ==========     ==========     ==========      ==========     ==========      =========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       33

<PAGE>   34


                               DCB FINANCIAL CORP
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1999, 1998, and 1997
                             (Dollars in thousands)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------


                                                                                   1999         1998         1997
                                                                                   ----         ----         ----
<S>                                                                           <C>           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                               $    4,782    $   4,734    $    4,890
     Adjustments to reconcile net income to net cash from
       operating activities
         Depreciation                                                                741          677           520
         Provision for loan losses                                                 1,495          469           320
         Deferred tax expense (benefit)                                             (106)         339           612
         Securities gains                                                            (21)           -           (36)
         Net amortization (accretion)                                                 59         (428)          194
         Federal Home Loan Bank stock dividends                                      (85)         (58)          (67)
         Change in loans held for sale                                             6,411       (4,481)       (1,637)
         Changes in other assets and other liabilities, net                       (1,767)        (282)         (369)
                                                                              ----------    ---------    ----------
              Net cash from operating activities                                  11,509          970         4,427

CASH FLOWS FROM INVESTING ACTIVITIES
     Securities available for sale
         Purchases                                                               (44,335)     (62,406)      (29,048)
         Maturities and repayments                                                27,977       24,821        14,247
         Proceeds from sales                                                      13,342            -         8,084
     Securities held to maturity
         Purchases                                                               (21,256)     (76,207)      (58,955)
         Maturities and repayments                                                35,234       81,434        37,050
     Net change in loans                                                         (29,240)     (22,537)      (23,806)
     Premises and equipment expenditures                                          (1,160)        (886)       (1,572)
     Purchase life insurance policies                                                  -       (1,414)            -
     Proceeds from sale of other real estate                                           -            -           201
                                                                              ----------    ---------    ----------
              Net cash from investing activities                                 (19,438)     (57,195)      (53,799)

CASH FLOWS FROM FINANCING ACTIVITIES
     Net change in deposits                                                        2,881       46,434        43,393
     Net change in short-term borrowings                                           7,775       (1,780)          461
     Proceeds from long-term debt                                                      -        9,252         5,000
     Repayment of long-term debt                                                    (336)      (5,027)       (5,002)
     Purchases of treasury stock                                                       -       (1,562)         (416)
     Cash dividends paid                                                          (1,045)        (883)       (1,140)
                                                                              ----------    ---------    ----------
              Net cash from financing activities                                   9,275       46,434        42,296
                                                                              ----------    ---------    ----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                            1,346       (9,791)       (7,076)
Cash and cash equivalents at beginning of year                                    15,492       25,283        32,359
                                                                              ----------    ---------    ----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                      $   16,838    $  15,492    $   25,283
                                                                              ==========    =========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       34
<PAGE>   35


                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the accounts of DCB Financial Corp (the "Corporation") and its
wholly-owned subsidiary, The Delaware County Bank and Trust Company (the
"Bank"). The financial statements of the Bank include accounts of its
wholly-owned subsidiaries, D.C.B. Corporation and 362 Corp. All significant
intercompany accounts and transactions have been eliminated in consolidation.

On March 14, 1997, a holding company was formed through an internal
reorganization whereby each shareholder of the Bank received three shares of the
Corporation's no par value common stock for each share of Bank $1.00 par value
common stock owned. This internal reorganization was accounted for similar to a
pooling of interests, where the historical carrying values of the Bank's assets
and liabilities were carried forward to the consolidated financial statements,
without change. The Corporation transferred $2,355 from paid-in capital to
common stock due to the elimination of par value.

NATURE OF OPERATIONS: The Corporation's revenues, operating income and assets
are primarily from the banking industry. The Corporation operates 16 offices in
Delaware, Franklin and Union Counties, Ohio. Loan customers include a wide range
of individuals, businesses and other organizations. Major portions of loans are
secured by various forms of collateral including real estate, business assets,
consumer property and other items. The Corporation's primary funding source is
deposits from customers in its market area. The Corporation also purchases
investments, operates a trust department and engages in mortgage banking
operations.

BUSINESS SEGMENTS: While the Corporation's chief decision-makers monitor the
revenue streams of the various Corporation products and services, operations are
managed and financial performance is evaluated on a company-wide basis.
Accordingly, all of the Corporation's operations are considered by management to
be aggregated in one reportable operating segment.

USE OF ESTIMATES: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect amounts
reported in the financial statements and disclosures provided; future results
could differ. The collectibility of loans, fair value of financial instruments
and status of contingencies are particularly subject to change.

CASH FLOW REPORTING: Cash and cash equivalents include cash and due from banks
and federal funds sold. Cash flows are reported net for customer loan and
deposit transactions, short-term bankers' acceptances and short-term borrowings.
The Corporation paid interest of $14,312 ,$14,220, and $12,213 for 1999, 1998,
and 1997. Cash paid for income taxes was $2,295, $2,072, and $2,190 for 1999,
1998, and 1997. Noncash transactions in 1997 included a transfer of $2,355 from
additional paid-in capital to common stock due to the elimination of the par
value of common stock upon formation of the holding company. There were no
significant noncash transactions in 1999 or 1998.

SECURITIES: Securities are classified as held to maturity and carried at
amortized cost when management has positive intent and ability to hold them to
maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Securities are classified as trading when held for
short-term periods in anticipation of market gains, and are carried at fair
value.

                                   (Continued)

                                       35
<PAGE>   36
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities are written down to fair value when a decline in fair value is not
temporary. The Corporation held no trading securities during any period
presented.

Realized gains and losses on sales are determined using the amortized cost of
the specific security sold. Interest income includes amortization of purchase
premiums and discounts.

LOANS HELD FOR SALE: Certain residential mortgage loans are originated for sale
in the secondary mortgage-loan market. These loans are included in real estate
mortgage loans and are carried at the lower of cost or estimated fair value
taken together. Net unrealized losses are recognized through a valuation
allowance by charges to income. To mitigate the interest rate risk, fixed
commitments may be obtained at the time loans are originated or identified for
sale. Loans originated and held for sale totaled $486 and $6,897 at year-end
1999 and 1998.

LOANS RECEIVABLE: Loans are reported at the principal balance outstanding, net
of deferred loan fees and costs. Interest income is reported on the interest
method and includes amortization of net deferred loan fees and costs over the
loan term.

Interest income is not recognized when management believes the collection of
interest is doubtful, typically when payments are past due over 90 days.
Payments received on such loans are reported as principal reductions.

ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.

Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer and credit card loans and on an
individual loan basis for other loans. Loans held for sale and leases are
excluded from consideration of impairment. If a loan is impaired, a portion of
the allowance is allocated so that the loan is reported, net, at the present
value of estimated future cash flows using the loan's existing rate or at the
fair value of collateral if repayment is expected solely from the collateral.
Loans are evaluated for impairment when payments are delayed, typically 90 days
or more, or when it is probable that not all principal and interest amounts will
be collected according to the original terms of the loan.

CONCENTRATIONS OF CREDIT RISK: The Corporation grants commercial, real estate
and consumer loans primarily in Delaware County, Ohio, and surrounding areas.
Loans for commercial real estate, farmland, construction and land development
purposes comprise 41% of loans. Loans for commercial purposes comprise 14% of
loans, and include loans secured by business assets and agricultural loans.
Loans for residential real estate purposes aggregate 22% of loans. Loans and
leases for consumer purposes, including home equity loans, are primarily secured
by consumer assets and represent 23% of total loans. The borrowers' ability to
honor their contracts is not dependent on the economic status of any single
industry.



                                   (Continued)

                                       36
<PAGE>   37
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

PREMISES AND EQUIPMENT: Asset cost is reported net of accumulated depreciation.
Depreciation expense is calculated using the straight-line method based on the
estimated useful lives of assets. These assets are reviewed for impairment when
events indicate the carrying amount may not be recoverable.

OTHER REAL ESTATE OWNED: Real estate acquired in settlement of loans is
initially reported at estimated fair value at acquisition. After acquisition, a
valuation allowance reduces the reported amount to the lower of initial amount
or fair value less costs to sell. Expenses are charged to operations as
incurred. Gains and losses on disposition and changes in the valuation allowance
are reported in other income.

LOAN SERVICING: The Corporation has sold various mortgage loans to the Federal
Home Loan Mortgage Corporation ("FHLMC"), while retaining servicing rights.
Gains and losses on loan sales are recorded at the time of the sale. Mortgage
servicing rights are recorded as assets when the related loan is sold. These
assets are amortized in proportion to, and over the period of, estimated net
servicing income and are evaluated periodically for impairment. Impairment is
evaluated based on the fair value of the rights using groupings of underlying
loans with similar characteristics. Mortgage servicing rights totaled $224 and
$217 at year-end 1999 and 1998.

INCOME TAXES: Income tax expense is the sum of the current-year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between carrying amounts and tax bases of assets and liabilities
computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized.

FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or market conditions could significantly affect the
estimates. The fair value estimates of existing on- and off-balance-sheet
financial instruments do not include the value of anticipated future business or
the value of assets and liabilities not considered financial instruments.

DIVIDEND RESTRICTION: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the Bank to the Corporation or by the
Corporation to shareholders.

EARNINGS PER COMMON SHARE: Earnings per share computations are based on the
weighted average number of shares of common stock outstanding during the year.
The weighted average number of shares outstanding was 4,178,200 for 1999,
4,197,077 for 1998 and 4,270,789 for 1997.

COMPREHENSIVE INCOME: Comprehensive income includes both net income and other
comprehensive income, which includes the change in unrealized gains and losses
on securities available for sale.

FINANCIAL STATEMENT PRESENTATION: Some items in prior financial statements have
been reclassified to conform to the current presentation.


                                   (Continued)

                                       37

<PAGE>   38
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 2 - SECURITIES

Year-end securities were as follows:

<TABLE>
<CAPTION>
                                                                         Gross        Gross        Estimated
                                                          Amortized   Unrealized   Unrealized        Fair
                                                            Cost         Gains       Losses          Value
                                                            ----         -----       ------          -----

                                                        ------------------------1999----------------------
<S>                                                     <C>           <C>          <C>          <C>
     SECURITIES AVAILABLE FOR SALE
     U.S. Treasury                                      $    2,264    $        1   $       (4)  $    2,261
     U.S. government agencies and corporations              54,451             7       (1,196)      53,262
     States and political subdivisions                       6,535             2         (526)       6,011
     Mortgage-backed                                        29,457            26         (503)      28,980
                                                        ----------    ----------   ----------   ----------
      Total debt securities                                 92,707            36       (2,229)      90,514

     Other securities                                        1,374            21            -        1,395
                                                        ----------    ----------   ----------   ----------

     Total securities available for sale                $   94,081    $       57   $   (2,229)  $   91,909
                                                        ==========    ==========   ==========   ==========

     SECURITIES HELD TO MATURITY
     States and political subdivisions                  $    6,777    $       68   $     (104)  $    6,741
     Corporate                                                 995             5            -        1,000
     Mortgage-backed                                        27,473            24         (401)      27,096
                                                        ----------    ----------   ----------   ----------

     Total securities held to maturity                  $   35,245    $       97    $   (505)    $  34,837
                                                        ==========    ==========    ========     ==========


                                                        ------------------------1998----------------------
     SECURITIES AVAILABLE FOR SALE
     U.S. Treasury                                      $    4,518    $       38   $        -   $    4,556
     U.S. government agencies and corporations              50,194           395          (33)      50,556
     States and political subdivisions                       6,167            55          (30)       6,192
     Mortgage-backed                                        29,009            59         (160)      28,908
                                                        ----------    ----------   ----------   ----------
      Total debt securities                                 89,888           547         (223)      90,212

     Other securities                                        1,169            18            -        1,187
                                                        ----------    ----------   ----------   ----------

     Total securities available for sale                $   91,057    $      565   $     (223)  $   91,399
                                                        ==========    ==========   ==========   ==========

     SECURITIES HELD TO MATURITY
     U.S. government agencies and corporations          $    1,000    $        2   $        -   $    1,002
     States and political subdivisions                       7,994           330           (7)       8,317
     Corporate                                              12,150             -          (35)      12,115
     Mortgage-backed                                        28,040           230           (7)      28,263
                                                        ----------    ----------   ----------   ----------

     Total securities held to maturity                  $   49,184    $      562   $      (49)  $   49,697
                                                        ==========    ==========   ==========   ==========
</TABLE>

                                  (Continued)

                                       38
<PAGE>   39
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 2 - SECURITIES (Continued)

Substantially all mortgage-backed securities are backed by pools of mortgages
that are insured or guaranteed by the Federal National Mortgage Association
("FNMA"), the Government National Mortgage Association ("GNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC").

The amortized cost and estimated fair value of debt securities at year-end 1999,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because issuers may have the right to call or prepay
obligations. Mortgage-backed securities are shown separately since they are not
due at a single maturity date.

<TABLE>
<CAPTION>
                                                          Available for sale          Held to maturity
                                                          ------------------          ----------------
                                                          Amortized      Fair       Amortized        Fair
                                                            Cost         Value        Cost           Value
                                                            ----         -----        ----           -----

<S>                                                     <C>           <C>          <C>          <C>
Due in one year or less                                 $    2,721    $    2,704   $    1,632   $    1,638
Due from one to five years                                  16,545        16,391        4,637        4,636
Due from five to ten years                                  32,216        31,450        1,037        1,029
Due after ten years                                         11,768        10,989          466          438
Mortgage-backed securities                                  29,457        28,980       27,473       27,096
                                                        ----------    ----------   ----------   ----------
                                                        $   92,707    $   90,514   $   35,245   $   34,837
                                                        ==========    ==========   ==========   ==========
</TABLE>

Proceeds from the sales of securities available for sale totaled $13,342 for
1999 and $8,084 for 1997. Gross gains of $32 and $53 and gross losses of $11 and
$17 were realized on those sales in 1999 and 1997, respectively. There were no
sales of securities in 1998.

At year-end 1999, there were no holdings of securities of any one issuer, other
than the U.S. government and its agencies and corporations, in an amount greater
than 10% of shareholders' equity.

Investments with a carrying value of approximately $21,032 and $35,520 as of
year-end 1999 and 1998, were pledged to secure public funds and other
obligations.


NOTE 3 - LOANS AND LEASES

Year-end loans and leases were as follows:

<TABLE>
<CAPTION>
                                                                                     1999          1998
                                                                                     ----          ----

<S>                                                                              <C>           <C>
         Commercial and industrial                                               $    39,063   $    39,864
         Commercial real estate                                                       82,954        66,501
         Residential real estate and home equity                                      69,611        63,140
         Real estate construction and land development                                29,723        32,382
         Consumer and credit card                                                     45,977        44,050
         Lease financing, net                                                         10,140         9,352
                                                                                 -----------   -----------

                                                                                 $   277,468   $   255,289
                                                                                 ===========   ===========
</TABLE>

                                  (Continued)

                                       39

<PAGE>   40
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 3 - LOANS AND LEASES (Continued)

Certain directors, executive officers and principal shareholders of the
Corporation, including their immediate families and companies in which they are
principal owners, were loan customers during 1999. A summary of activity on
these borrower relationships with aggregate debt greater than $60,000 is as
follows:

<TABLE>
<CAPTION>
                                                                                        1999
                                                                                        ----

<S>                                                                                  <C>
         Beginning balance                                                           $   4,789
         New loans and advances                                                          5,514
         Payments                                                                       (2,292)
                                                                                     ---------

         Ending balance                                                              $   8,011
                                                                                     =========
</TABLE>

The following is a summary of the components of the Corporation's net investment
in direct financing equipment and vehicle leases at year-end:

<TABLE>
<CAPTION>
                                                                                        1999         1998
                                                                                        ----         ----

<S>                                                                                  <C>         <C>
         Minimum lease payments receivable                                           $   6,160   $   5,377
         Lease residuals (unguaranteed)                                                  5,892       5,694
                                                                                     ---------   ---------
                                                                                        12,052      11,071
         Unearned income                                                                 1,912       1,719
                                                                                     ---------   ---------

                                                                                     $  10,140   $   9,352
                                                                                     =========   =========
</TABLE>


NOTE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES

Activity in the allowance for loan and lease losses was as follows:

<TABLE>
<CAPTION>
                                                                            1999        1998         1997
                                                                            ----        ----         ----

<S>                                                                      <C>         <C>         <C>
         Balance at beginning of year                                    $   1,948   $   1,842   $   1,923
         Provision for loan  and lease losses                                1,495         469         320
         Loans charged off                                                    (826)       (568)       (644)
         Recoveries                                                            176         205         243
                                                                         ---------   ---------   ---------

              Balance at end of year                                     $   2,793   $   1,948   $   1,842
                                                                         =========   =========   =========
</TABLE>

Nonaccrual loans totaled approximately $472 and $753 at December 31, 1999 and
1998. Interest not recognized on nonaccrual loans totaled approximately $36 and
$27 for the years ended December 31, 1999 and 1998. Loans past due 90 days or
more and still accruing interest totaled approximately $156 and $325 at December
31, 1999 and 1998. The Corporation had no impaired loans at December 31, 1999 or
1998 or during the years then ended.

                                  (Continued)

                                       40

<PAGE>   41
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:

<TABLE>
<CAPTION>
                                                                                        1999         1998

<S>                                                                                  <C>         <C>
         Land                                                                        $     552   $     550
         Buildings                                                                       2,805       2,768
         Furniture and equipment                                                         4,711       3,662
                                                                                     ---------   ---------
                                                                                         8,068       6,980
         Accumulated depreciation and amortization                                       3,684       3,015
                                                                                     ---------   ---------

                                                                                     $   4,384   $   3,965
                                                                                     =========   =========
</TABLE>


NOTE 6 - LEASE COMMITMENTS

The Corporation has long-term operating leases for branch offices and equipment,
which expire at various dates through 2019. Rental expense on lease commitments
for 1999, 1998, and 1997 amounted to $678, $686, and $362. The Corporation
entered into two leases in 1997 and one lease in 1999 for branch facilities with
a partnership in which a director of the Corporation holds a controlling
interest. The leases commenced on April 1, 1997, September 1, 1997 and May 24,
1999 and have a term of 20 years each with annual rental payments of $84, $71
and $94, respectively. The following is a summary of the future minimum-lease
payments on the Corporation's lease obligations:

<TABLE>
<S>                                                                             <C>
                           2000                                                 $    667
                           2001                                                      585
                           2002                                                      469
                           2003                                                      335
                           2004                                                      335
                           Thereafter                                              3,445
                                                                                --------

                                                                                $  5,836
                                                                                ========
</TABLE>


NOTE 7 - INTEREST-BEARING DEPOSITS

Year-end interest-bearing deposits were as follows:

<TABLE>
<CAPTION>
                                                                                      1999         1998
                                                                                      ----         ----

<S>                                                                              <C>           <C>
         Interest-bearing demand and money market deposits                       $   190,704   $   180,604
         Savings deposits                                                             43,347        40,909
         Certificates of deposit
              In denominations under $100,000                                         72,136        62,354
              In denominations of $100,000 or more                                     8,579        27,241
                                                                                 -----------   -----------

                                                                                 $   314,766   $   311,108
                                                                                 ===========   ===========
</TABLE>


<PAGE>   42
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


 NOTE 7 - INTEREST-BEARING DEPOSITS (Continued)

At year-end 1999, the scheduled maturities of certificates of deposit were as
follows:


<TABLE>
<S>                                                                          <C>
                           2000                                              $    43,853
                           2001                                                   35,412
                           2002                                                    1,450
                                                                             -----------

                                                                             $    80,715
                                                                             ===========
</TABLE>


NOTE 8 - BORROWED FUNDS

The following table is a summary of year-end borrowings:

<TABLE>
<CAPTION>
                                                                                        1999         1998
                                                                                        ----         ----

<S>                                                                                  <C>        <C>
         Fixed-rate FHLB advance, 5.70%, due May, 1999                               $       -   $   5,000
         Fixed-rate FHLB advance, 6.10%, due January 2000                                6,000           -
         Fixed-rate FHLB advance, 5.93%, due May 2000                                    5,000           -
         Fixed-rate FHLB advance, 5.10%, due October, 2008                               3,889       4,225
         Demand note issued to the U.S. Treasury                                         2,000         225
                                                                                     ---------   ---------

                                                                                     $  16,889   $   9,450
                                                                                     =========   =========
</TABLE>

As a member of the Federal Home Loan Bank of Cincinnati ("FHLB"), the Bank has
the ability to obtain additional borrowings up to a maximum total of 50% of Bank
assets, subject to the level of qualified 1-4 family residential real estate
loans to pledge and FHLB stock owned.

The advances were collateralized by $25,334 and $14,175 of first mortgage loans
under a blanket lien arrangement at year-end 1999 and 1998.


At year-end 1999, required annual principal payments on borrowed funds were as
follows:

<TABLE>
<S>                                                                          <C>
                           2000                                              $    13,354
                           2001                                                      372
                           2002                                                      391
                           2003                                                      412
                           2004                                                      433
                           Thereafter                                              1,927
                                                                             -----------

                                                                             $    16,889
                                                                             ===========
</TABLE>

                                  (Continued)

                                       42
<PAGE>   43
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


 NOTE 9 - RETIREMENT PLANS

The Corporation provides a 401(k) savings plan for all eligible employees. To be
eligible, an individual must have at least 1,000 hours of service during a
12-consecutive-month period and must be 20 or more years of age. Participants
are permitted to make voluntary contributions to the Plan of up to 10% of
individual compensation. The Corporation matches 50% of those contributions up
to a maximum match of 3% of the participant's compensation. The Corporation may
also provide an additional discretionary contribution. Employee voluntary
contributions are vested at all times and Corporation contributions are fully
vested after three years. The 1999, 1998, and 1997 expense related to this plan
was $192, $175, and $170.

In 1998, the Corporation implemented a supplemental post-retirement benefit plan
for the benefit of certain officers. The plan is designed to provide
post-retirement benefits to supplement other sources of retirement income such
as social security and 401(k) benefits. The benefits will be paid for a period
of 15 years after retirement. The amount of each officer's benefit will depend
on their salary at retirement as well as their other sources of retirement
income. The Corporation accrues the cost of these post-retirement benefits
during the working careers of the officers. Expense under this plan was $100 in
1999 and immaterial in 1998.

The Corporation has purchased insurance contracts on the lives of the
participants in the supplemental post-retirement benefit plan and has named the
Corporation as the beneficiary. While no direct connection exists between the
supplemental post-retirement benefit plan and the life insurance contracts, it
is management's current intent that the revenue from the insurance contracts be
used as a funding source for the plan.


NOTE 10 - OTHER NONINTEREST EXPENSE

Other noninterest expense consisted of the following:

<TABLE>
<CAPTION>
                                                                            1999        1998         1997
                                                                            ----        ----         ----

<S>                                                                      <C>         <C>         <C>
         Advertising and marketing                                       $     344   $     285   $     327
         Postage, freight and courier                                          326         292         301
         Office supplies                                                       264         324         319
         Other expenses                                                      1,930       1,847       1,634
                                                                         ---------   ---------   ---------

                                                                         $   2,864   $   2,748   $   2,581
                                                                         =========   =========   =========
</TABLE>


NOTE 11 - INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                            1999        1998         1997
                                                                            ----        ----         ----

<S>                                                                      <C>         <C>         <C>
         Current tax expense                                             $   2,260   $   1,829   $   1,770
         Deferred tax expense (benefit)                                       (106)        339         612
                                                                         ---------   ---------   ---------

                                                                         $   2,154   $   2,168   $   2,382
                                                                         =========   =========   =========
</TABLE>

                                  (Continued)

                                       43
<PAGE>   44
                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 11 - INCOME TAXES (Continued)

Year-end deferred tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                                          1999        1998
                                                                                          ----        ----

<S>                                                                                  <C>          <C>
         Deferred tax assets:
              Allowance for loan losses in excess of tax reserve                     $      764   $    477
              Unrealized loss on securities available for sale                              739          -
              Other                                                                          45          3
                                                                                     ----------   --------
                                                                                          1,548        480
         Deferred tax liabilities:
              Unrealized gain on securities available for sale                               -        (116)
              Investment accretion                                                         (15)        (96)
              Federal Home Loan Bank stock dividends                                       (94)        (64)
              Deferred loan fees and costs                                                 (97)        (55)
              Leases                                                                    (1,106)       (905)
              Depreciation                                                                (123)        (94)
              Mortgage servicing rights                                                    (76)        (74)
                                                                                     ---------   ---------
                                                                                        (1,511)     (1,404)
                                                                                     ---------   ---------

         Net deferred tax asset (liability)                                          $      37   $    (924)
                                                                                     =========   =========
</TABLE>

The difference between financial statement tax provision and amounts computed by
applying the statutory federal income tax rate of 34.0% to income before income
taxes was as follows:

<TABLE>
<CAPTION>
                                                                            1999        1998         1997
                                                                            ----        ----         ----

<S>                                                                      <C>         <C>         <C>
         Income taxes computed at the statutory federal tax rate
           on pre-tax income                                             $   2,358   $   2,347   $   2,472
         Tax effect of
              Tax exempt income                                               (210)       (168)      (157)
              Other                                                              6         (11)         67
                                                                         ---------   ---------     -------

                                                                         $   2,154   $   2,168   $   2,382
                                                                         =========   =========   =========

         Effective tax rate                                                   31.1%       31.4%       32.8%
                                                                         =========   =========   =========
</TABLE>



NOTE 12 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
  WITH OFF-BALANCE-SHEET RISK

LITIGATION: Various contingent liabilities are not reflected in the financial
statements, including claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
effect on financial condition or results of operations.

RESERVE REQUIREMENTS: The Corporation was required to have $6,185 and $5,416 of
cash on hand or on deposit with the Federal Reserve to meet regulatory reserve
requirements at year-end 1999 and 1998. These balances do not earn interest.

                                  (Continued)

                                       44
<PAGE>   45

                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


 NOTE 12 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
  WITH OFF-BALANCE-SHEET RISK (Continued)

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: Some financial instruments
are used in the normal course of business to meet financing needs of customers.
These financial instruments include commitments to extend credit, standby
letters of credit and other financial guarantees. These involve, to varying
degrees, credit and interest-rate risk more than the amount reported in the
financial statements.

Exposure to credit loss if the other party does not perform is represented by
the contractual amount for commitments to extend credit, standby letters of
credit and financial guarantees written. Each customer's creditworthiness is
evaluated on a case-by-case basis. The same credit policies are used for
commitments and conditional obligations as are used for loans. The amount of
collateral obtained, if deemed necessary, on extension of credit is based on
management's credit evaluation. Collateral varies, but may include accounts
receivable, inventory, property, equipment, income-producing commercial
properties, residential real estate and consumer assets.

Commitments to extend credit are agreements to lend to a customer, as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many commitments are expected to expire
without being used, total commitments do not necessarily represent future cash
requirements. Standby letters of credit and financial guarantees written are
conditional commitments to guarantee a customer's performance to a third party.

Financial instruments with off-balance-sheet risk at year-end were as follows:

<TABLE>
<CAPTION>
                                                                                     1999        1998
                                                                                     ----        ----

<S>                                                                              <C>          <C>
         Commitments to extend credit                                            $  76,918    $   60,277
         Standby letters of credit                                                     809           968
</TABLE>

At year-end 1999 and 1998, and included above, commitments to make fixed-rate
loans at current market rates totaled $10,094 and $4,080. There were no
fixed-rate standby letters of credit at year-end 1999 and 1998. The interest
rates on fixed-rate commitments ranged from 6.88% to 10.50% for 1999 and from
5.63% to 11.00% for 1998.

EMPLOYMENT AGREEMENTS: The Bank has employment agreements with certain officers
of the Bank. The agreements provide for terms of one year which renew
automatically unless prior written notice is provided to the officer.


NOTE 13 - REGULATORY MATTERS

The Corporation and the Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective-action regulations involve quantitative measures of assets,
liabilities and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings and other
factors, and regulators can lower classifications in certain cases. Failure to
meet various capital requirements can initiate regulatory action having a direct
material effect on the financial statements.



                                  (Continued)

                                       45
<PAGE>   46

                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 13 - REGULATORY MATTERS (Continued)

The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.

The minimum capital requirements are as follows:

<TABLE>
<CAPTION>
                                                              Capital to risk
                                                              weighted assets
                                                              ---------------             Tier 1 capital
                                                          Total             Tier 1       to average assets
                                                          -----             ------       -----------------

<S>                                                          <C>                <C>                <C>
     Well capitalized                                        10%                6%                 5%
     Adequately capitalized                                   8                 4                  4
     Undercapitalized                                         6                 3                  3
</TABLE>

At year-end, actual capital levels and minimum required levels were:

<TABLE>
<CAPTION>
                                                                                               Minimum Required
                                                                                                  To Be Well
                                                                   Minimum Required               Capitalized
                                                                      For Capital           Under Prompt Corrective
                                               Actual              Adequacy Purposes          Action Regulations
                                               ------              -----------------          ------------------
                                         Amount      Ratio          Amount      Ratio         Amount      Ratio
                                         ------      -----          ------      -----         ------      -----
<S>                                     <C>          <C>          <C>            <C>         <C>          <C>
1999
----
Total capital (to risk-weighted assets)
   Corporation                          $  44,602    14.7%        $  24,211      8.0%        $ 30,264     10.0%
   Bank                                    42,562    14.1            24,218      8.0           30,272     10.0
Tier 1 capital (to risk-weighted assets)
   Corporation                             41,800    13.8            12,106      4.0           18,158      6.0
   Bank                                    39,760    13.1            12,109      4.0           18,163      6.0
Tier 1 capital (to average assets)
   Corporation                             41,800     9.7            17,232      4.0           21,540      5.0
   Bank                                    39,760     9.2            17,232      4.0           21,540      5.0

1998
----
Total capital (to risk-weighted assets)
   Corporation                          $  40,011    13.8%        $  23,156      8.0%        $ 28,945     10.0%
   Bank                                    37,888    13.1            23,197      8.0           28,996     10.0
Tier 1 capital (to risk-weighted assets)
   Corporation                             38,063    13.2            11,578      4.0           17,367      6.0
   Bank                                    35,932    12.4            11,598      4.0           17,397      6.0
Tier 1 capital (to average assets)
   Corporation                             38,063     9.2            16,634      4.0           20,793      5.0
   Bank                                    35,932     8.6            16,634      4.0           20,793      5.0
</TABLE>

As of the latest regulatory examinations, the Corporation and the Bank were
categorized as well capitalized. Management is not aware of any matters
subsequent to these examinations that would cause the Corporation's or the
Bank's regulatory capital category to change.


                                  (Continued)

                                       46
<PAGE>   47

                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 13 - REGULATORY MATTERS (Continued)

Dividends are paid by the Corporation from its assets, which are mainly provided
by dividends from the Bank. Restrictions by banking regulations limit the amount
of funds the Bank can transfer to the Corporation in the form of dividends. The
most restrictive provision requires approval by regulatory authorities if
dividends declared in any year exceed the year's net income, as defined, plus
retained net profits of the two preceding years. The amount of the Bank's
retained earnings available for dividends without approval from its supervising
regulator was $7,820 at December 31, 1999.


NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value approximates carrying value for financial instruments
except those described below:

SECURITIES: For debt and marketable equity securities, fair values are based on
quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
instruments.

LOANS: The fair value of most types of loans is estimated by discounting future
cash flows using current rates at which similar loans would be made to
borrowers. Leases are not considered financial instruments under generally
accepted accounting principles and are therefore not included in the following
schedule.

DEPOSITS: The fair value of deposit liabilities with defined maturities is
estimated by discounting future cash flows using the rates currently offered for
deposits of similar remaining maturities.

LONG-TERM DEBT: The fair value of long-term debt is estimated by discounting
future cash flows using currently available rates for similar financing.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The fair values of
these items are not material and are therefore not included on the following
schedule.

                                  (Continued)

                                       47
<PAGE>   48

                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The estimated year-end fair values of financial instruments were as follows:

<TABLE>
<CAPTION>
                                                   ------------1999----------   ------------1998----------
                                                      Carrying        Fair        Carrying         Fair
                                                        Value         Value         Value          Value
                                                        -----         -----         -----          -----
<S>                                                <C>           <C>            <C>            <C>
Financial assets:
         Cash and cash equivalents                 $    16,838   $    16,838    $   15,492     $    15,492
         Securities available for sale                  91,909        91,909        91,399          91,399
         Securities held to maturity                    35,245        34,837        49,184          49,697
         Loans (excluding leases)                      264,535       266,159       243,989         245,423
         Cash surrender value of life
           insurance                                     1,886         1,886         1,414           1,414
         Accrued interest receivable                     2,816         2,816         2,662           2,662

Financial liabilities:
         Noninterest-bearing deposits                  (57,033)      (57,033)      (57,810)        (57,810)
         Interest-bearing deposits                    (314,766)     (315,495)     (311,108)       (311,783)
         Borrowings                                    (16,889)      (16,219)       (9,450)         (9,356)
         Accrued interest payable                       (1,042)       (1,042)       (1,032)         (1,032)
</TABLE>


NOTE 15 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components were as follows:
<TABLE>
<CAPTION>
                                                               1999                   1998                1997
                                                               ----                   ----                ----
<S>                                                        <C>                   <C>               <C>
     Unrealized holding gains and losses on
       available-for-sale securities                       $       (2,493)       $           (30)  $            228
     Reclassification adjustments for gains and losses
       later recognized in income                                     (21)                     -                (36)
                                                           --------------        ---------------   ----------------
     Net unrealized gains and losses                               (2,514)                   (30)               192
     Tax effect                                                       855                     10                (65)
                                                           --------------        ---------------   ----------------

     Other comprehensive income                            $       (1,659)       $           (20)  $            127
                                                           ==============        ===============   ================
</TABLE>
                                  (Continued)

                                       48
<PAGE>   49

                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------


NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of DCB Financial Corp as of December 31, 1999
and 1998, for the years ended December 31, 1999 and 1998 and the period
beginning March 14, 1997, the effective date of the internal reorganization,
through December 31, 1997, is as follows:

                            CONDENSED BALANCE SHEETS
                           December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                             1999           1998
                                                                                             ----           ----
<S>                                                                                    <C>              <C>
         ASSETS
         Cash and cash equivalents                                                     $      1,955     $     2,035
         Investment in subsidiary                                                            38,348          36,179
         Other assets                                                                             -              57
                                                                                       ------------     -----------

              Total assets                                                             $     40,303     $    38,271
                                                                                       ============     ===========

         LIABILITIES
         Other liabilities                                                             $        (84)    $       (38)

         SHAREHOLDERS' EQUITY                                                                40,387          38,309
                                                                                       ------------     -----------

              Total liabilities and shareholders' equity                               $     40,303     $    38,271
                                                                                       ============     ===========
</TABLE>


                         CONDENSED STATEMENTS OF INCOME
              Years ended December 31, 1999 and 1998 and the period
                    From March 14, 1997 to December 31, 1997

<TABLE>
<CAPTION>
                                                                              1999           1998           1997
                                                                              ----           ----           ----
<S>                                                                      <C>            <C>             <C>
         INTEREST AND DIVIDEND INCOME
         Dividends from subsidiary                                       $     1,045    $     2,416     $     3,297
         Other                                                                     -              6               -
                                                                         -----------    -----------     -----------
           Total interest and dividend income                                  1,045          2,422           3,297

         Operating expenses                                                      136             53              73
                                                                         -----------    -----------     -----------

         Income before income taxes and equity in
           undistributed earnings of subsidiary                                  909          2,369           3,224
         Income tax benefit                                                      (45)           (16)            (23)
                                                                         -----------    -----------     -----------
         Income before equity in undistributed
           earnings of subsidiary                                                954          2,385           3,247
         Equity in undistributed earnings of subsidiary                        3,828          2,349             421
                                                                         -----------    -----------     -----------

         NET INCOME                                                      $     4,782    $     4,734     $     3,668
                                                                         ===========    ===========     ===========
</TABLE>

                                  (Continued)

                                       49
<PAGE>   50

                               DCB FINANCIAL CORP
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998 and 1997
                (Dollars in thousands, except per share amounts)

--------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
              Years ended December 31, 1999 and 1998 and the period
                    From March 14, 1997 to December 31, 1997

<TABLE>
<CAPTION>
                                                                              1999           1998           1997
                                                                              ----           ----           ----
<S>                                                                      <C>            <C>             <C>
         CASH FLOWS FROM OPERATING ACTIVITIES
         Net income                                                      $     4,782    $     4,734     $     3,668
         Adjustments to reconcile net income
           to cash provided by operations:
              Equity in undistributed income of subsidiary                    (3,828)        (2,349)           (421)
              Net change in other assets/other liabilities                        11              3             (98)
                                                                         -----------    -----------     -----------
                  Net cash from operating activities                             965          2,388           3,149

         CASH FLOWS FROM INVESTING ACTIVITIES
         Loan to subsidiary                                                        -              -          (2,000)
         Principal payments received on loan to subsidiary                         -          2,000              --
                                                                         -----------    -----------     -----------
                  Net cash from investing activities                               -          2,000          (2,000)

         CASH FLOWS FROM FINANCING ACTIVITIES
         Purchases of treasury stock                                               -         (1,562)           (416)
         Cash dividends paid                                                  (1,045)          (883)           (641)
                                                                         -----------    -----------     -----------
                  Net cash from financing activities                          (1,045)        (2,445)         (1,057)

         Net change in cash and cash equivalents                                 (80)         1,943              92
         Cash and cash equivalents at beginning of period                      2,035             92               -
                                                                         -----------    -----------     -----------

         CASH AT END OF YEAR                                             $     1,955    $     2,035     $        92
                                                                         ===========    ===========     ===========
</TABLE>

                                       50
<PAGE>   51


ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

No changes in or disagreements with the independent accountants on accounting
and financial disclosure have occurred.


PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

This information is included in the definitive Proxy Statement for the 1999
Annual Meeting of Shareholders of DCB Financial Corp (the "Proxy Statement")
under the captions "Election of Directors and Information with Respect to
Directors and Officers", "Security Ownership of Certain Beneficial Owners and
Management" and "Compliance with Section 16(A) of the Securities Exchange Act of
1934" on pages 68 through 75 of this document.


ITEM 11 - EXECUTIVE COMPENSATION


This information is included in the section captioned "Executive Compensation
and Other Information" on pages 70 and 71 of this document.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

This information is included in the section captioned "Security Ownership of
Certain Beneficial Owners and Management" on pages 69 and 70 of this document.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information is included in the section captioned "Certain Relationships and
Related Transactions" on pages 74 and 75 of this document.

                                       51


<PAGE>   52


PART IV

ITEM 14 - EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
            Exhibit
            Number                                        Description of Document
            ------                                        -----------------------

<S>                         <C>
             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            Employment agreement with Mr. Coburn (incorporated by reference to Registrant's Form 8-B, File No.
                            000-22387, effective April 15, 1997)

            10.2            Employment agreement with Mr. Westbrook (incorporated by reference to Registrant's Form 8-B, File No.
                            000-22387, effective April 15, 1997)

            10.3            Employment agreement with Mr. Whitney (incorporated by reference to Registrant's Form 10-K, File No.
                            0-22387, effective March 25, 1998)

            10.4            Employment agreement with Mr. Bernon

            11              Statement Regarding Computation of Per Share Earnings

            21              Subsidiaries of DCB Financial Corp

            23              Consent of Independent Auditors

            27              Financial Data Schedule

            99              Proxy Statement
</TABLE>


No reports on Form 8-K were filed during the last quarter of the period covered
by this report.

                                       52

<PAGE>   53


                                   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.

                                            DCB FINANCIAL CORP

                                            By:    /s/ LARRY D. COBURN
                                            ------------------------------------
                                                Larry D. Coburn, 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 on March 27, 2000.

<TABLE>
<CAPTION>
              Signatures                                                      Title
              ----------                                                      -----

<S>                                                                <C>
/s/ LARRY D. COBURN                                                President (Principal Executive Officer),
--------------------------------------------                       CEO and Director
Larry D. Coburn


/s/ JEROME J. HARMEYER                                             Director, Chairman of the Board
--------------------------------------------
Jerome J. Harmeyer


/s/ CHARLES W. BONNER                                              Director
--------------------------------------------
Charles W. Bonner


/s/ WILLIAM R. OBERFIELD                                           Director
--------------------------------------------
William R. Oberfield


/s/ RODNEY B. HURL, M.D.                                           Director
--------------------------------------------
Rodney B. Hurl, M.D.


/s/ G. WILLIAM PARKER, M.D.                                        Director
--------------------------------------------
G. William Parker, M.D.


/s/ THOMAS T. PORTER                                               Director
--------------------------------------------
Thomas T. Porter


/s/ EDWARD A. POWERS                                               Director
--------------------------------------------
Edward A. Powers


/s/ MERRILL KAUFMAN                                                Director
--------------------------------------------
Merrill Kaufman
</TABLE>

                                       53


<PAGE>   54


/s/ GARY M. SKINNER                                                Director
--------------------------------------------
Gary M. Skinner


/s/ TERRY M. KRAMER                                                Director
--------------------------------------------
Terry M. Kramer


/s/ G. EDWIN JOHNSON                                               Director
--------------------------------------------
G. Edwin Johnson


/s/ VICKIE J. LEWIS                                                Director
--------------------------------------------
Vickie J. Lewis


/s/ RICHARD L. BUMP                                                Director
--------------------------------------------
Richard L. Bump

                                       54


<PAGE>   55


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
            EXHIBIT                                                                                 SEQUENTIAL
            NUMBER                                  DESCRIPTION OF DOCUMENT                            PAGE
            ------                                  -----------------------                            ----

<S>                         <C>                                                                      <C>
              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           Employment  agreement with Mr. Coburn (incorporated by reference
                            to Registrant's Form 8-B, File No. 000-22387, effective April 15, 1997)     N/A

             10.2           Employment agreement with Mr. Westbrook (incorporated by reference
                            to Registrant's Form 8-B, File No. 000-22387, effective April 15, 1997)     N/A

             10.3           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

             10.4           Employment agreement with Mr. Bernon                                         56


             11             Statement Regarding Computation of Per Share Earnings                        61

             21             Subsidiaries of DCB Financial Corp                                           62

             23             Consent of Independent Auditors                                              63

             27             Financial Data Schedule                                                      64

             99             Proxy Statement                                                              66
</TABLE>

                                       55