##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 0-22387
 DCB FINANCIAL CORP
  OHIO
    
    31-1469837(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)110 Riverbend Ave., Lewis Center, Ohio
    
    43035(Address of principal executive offices)
    
    (Zip Code)
 (740) 657-7000
 Securities registered pursuant to Section 12(b) of the Act:
    
    NoneSecurities registered pursuant to Section 12(g) of the Act:
    
    Common Shares, No par value
 o þ
 o þ
 þ o
 o
  Large accelerated filers o
    
    Accelerated filer þ
    
    Non-accelerated filer o
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TABLE OF CONTENTS  PART IItem 1 Description of BusinessItem 1A Risk FactorsItem 1B Unresolved Staff CommentsItem 2 PropertiesItem 3 Legal ProceedingsItem 4 Submission of Matters to a Vote of Security HoldersPART IIItem 5 Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity SecuritiesItem 6 Selected Financial DataItem 7 Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7a Quantitative and Qualitative Disclosures About Market RiskItem 8 Financial Statements and Supplementary DataItem 9 Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A Controls and ProceduresItem 9B Other InformationPART IIIItem 10 Directors and Executive Officers of the RegistrantItem 11 Executive CompensationItem 12 Security Ownership of Certain Beneficial Owners and ManagementItem 13 Certain Relationships and Related TransactionsItem 14 Principal Accountant Fees and ServicesPART IVItem 15 Exhibits, Financial Statement Schedules and Reports on Form 8-KSIGNATURESINDEX TO EXHIBITSEX-11EX-13EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 PART I
 
 Item 1 Description of Business
 (a)
    
    
    General Development of Business
 DCB Financial Corp (DCB or the Corporation) is a financial services holding company
headquartered in Lewis Center, Ohio. The Corporation has one wholly-owned subsidiary bank,
the Delaware County Bank and Trust Company (the Bank).The Corporation was incorporated under the laws of the State of Ohio in 1997, at the
direction of management of the Bank for the purpose of becoming a bank holding company by
acquiring all outstanding shares of the Bank. The Corporation acquired all such shares of
the Bank after an interim bank merger, which transaction was consummated on March 14, 1997.
The Bank is a commercial bank, chartered under the laws of the State of Ohio, and was
organized in 1950.
 (b)
    
    
    Narrative Description of Business
 The Bank provides customary retail and commercial banking services to its customers,
including checking and savings accounts, time deposits, IRAs, safe deposit facilities,
personal loans, commercial loans, real estate mortgage loans, installment loans, trust, and
other wealth management services. The Bank also provides cash management, bond registrar
and paying agent services. Through its own computer department, the Bank provides data
processing and other bank operational services to other financial institutions; however,
such services are not a significant part of operations or revenue.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, including unemployment statistics, which have generally remained stable. Real
estate values, especially in the Banks core geographic area, have been stable to rising for
the last five years.The Bank is not significantly affected by seasonal activity or large deposits of any
individual depositor. At year-end 2005, deposits of public funds (funds of governmental
agencies and municipalities) were 19% 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 repayment capacity, 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 credit officer
monitor 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. Loan review performs a limited
scope review of a minimum of 30 percent of all new loans booked. In addition, any loan
identified as a problem credit by management during loan review is assigned to the Banks
loan watch list, is subject to ongoing monitoring by the Banks credit quality committee
to ensure appropriate action is taken if deterioration occurs.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.
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When the borrower is not an individual, the Bank generally obtains the personal guarantee of
the business owner. As compared to consumer lending, which includes single-family
residence, personal installment loans and automobile loans, commercial lending entails
significant additional risks. These loans typically involve larger loan balances and are
generally dependent on the businesss cash flow and, thus, may be subject to adverse
conditions in the general economy or in a specific industry. Management reviews the
borrowers cash flows when deciding whether to grant the credit to evaluate whether
estimated future cash flows will be adequate to service principal and interest of the new
obligation in addition to existing obligations.Commercial real estate and farmland loans are primarily secured by borrower-occupied
business real estate and are dependent on the ability of the related business to generate
adequate cash flow to service the debt. Such loans primarily carry adjustable interest
rates. Commercial real estate loans are generally originated with a loan-to-value ratio of
80% or less. Management performs much of the same analysis whether deciding to grant a
commercial real estate loan or a commercial loan.Residential real estate loans and home equity lines of credit can either be fixed rate, or
carry an adjustable rate. These loans are secured by the borrowers residence. Such loans
are made based on the borrowers ability to repay the debt from employment and other income.
Management assesses the borrowers ability to repay the debt through a review of credit
history and ratings, verification of employment and other income, review of debt-to-income
ratios and other measures of repayment ability. The Bank generally makes these loans in
amounts of 80% or less of the value of collateral. An appraisal is obtained from a
qualified real estate appraiser for substantially all loans secured by real estate.Due to the high level of growth in the Corporations market area, construction lending has
become a significant part of the Corporations overall lending strategy. Construction loans
are secured by residential and business real estate, generally occupied by the borrower on
completion. The Banks construction lending program is established in a manner to minimize
risk of this type of lending by not making a significant amount of loans on speculative
projects. While not contractually required to do so, the Bank usually makes the permanent
loan at the end of the construction phase. Construction loans also are generally made in
amounts of 80% or less of the value of collateral.Consumer installment loans to individuals include loans secured by automobiles and other
consumer assets, including second mortgages on personal residences. Consumer loans for the
purchase of new automobiles generally do not exceed 85% of the purchase price of the car.
Loans for used cars generally do not exceed average wholesale or trade-in value as
stipulated in a recent auto industry used car price guide. Credit card and overdraft
protection loans are unsecured personal lines of credit to individuals of demonstrated good
credit character with reasonably assured sources of income and satisfactory credit
histories. Consumer loans generally involve more risk than residential mortgage loans
because of the type and nature of collateral and, in certain types of consumer loans, the
absence of collateral. Since these loans are generally repaid from ordinary income of an
individual or family unit, repayment may be adversely affected by job loss, divorce, ill
health or by general decline in economic conditions. The Bank assesses the borrowers
ability to make repayment through a review of credit history, credit ratings, debt-to-income
ratios and other measures of repayment ability.
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(b)
    
    
    Narrative Description of Business (Continued)
 EmployeesAt December 31, 2005, the Bank employed 207 employees, 174 of whom were full-time. The Bank
offers a number of employee benefits such as health, dental and life insurance, as well as
education assistance for qualified employees. A 401(k) retirement plan is also available
for eligible employees. No employee is represented by a union or collective bargaining
group. Management considers its employee relations to be good. All of the Corporations
employees are also employed by the Bank.CompetitionThe Bank operates in a highly competitive industry due to statewide and interstate branching
by banks, savings and loan associations and credit unions. In its primary market area of
Delaware County, Ohio and surrounding counties, the Bank competes for new deposit dollars
and loans with several financial service companies, including large regional and smaller
community banks, as well as savings and loan associations, credit unions, finance companies,
insurance companies, brokerage firms and investment companies. According to the most recent
market data, there are approximately fifteen other deposit-taking and lending institutions
competing in the Banks primary market. In addition, according to the market data, the Bank
currently ranks first in market share with approximately 34.1% of the deposits in the
primary market. The ability to generate earnings is impacted in part by competitive pricing
on loans and deposits, and by changes in the rates on various U.S. Treasury, U. S.
Government Agency and State and political subdivision issues which comprise a significant
portion of the Banks investment portfolio, and which rates are used as indices on various
loan products. The Bank is competitive with interest rates and loan fees that it charges,
and in pricing and the 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 over Prime depends on the overall account relationship and the
creditworthiness of the borrower. Deposit rates are reviewed weekly by management and are
normally discussed by the Asset/Liability Committee on a monthly basis. The Banks primary
objective in setting deposit rates is to remain competitive in the market area, while
developing funding opportunities that earn an adequate interest rate margin.Supervision and RegulationThe business in which the Corporation and its subsidiaries are engaged is subject to
extensive supervision, regulation and examination by various bank regulatory authorities and
other governmental agencies. The Bank is subject to supervision, regulation and periodic
examination by the State of Ohio Superintendent of Financial Institutions and the Federal
Deposit Insurance Corporation (FDIC). The supervision, regulation and examination to
which the Corporation and its subsidiaries are subject are intended primarily for the
protection of depositors and the deposit insurance funds that insure the deposits of banks,
rather than for the protection of security holders.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
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financial holding company, the Corporation is subject to supervision, regulation and
periodic examination by the Federal Reserve Board, and is subject to the rules of the SEC.
 Liability for Banking SubsidiariesUnder Federal Reserve Board policy, a bank holding company is expected to act as a source of
financial and managerial strength for each of its subsidiary banks and to commit resources
to their support. This support may be required at times when the bank holding company may
not have the resources to provide it. Similarly, under the cross-guarantee provisions of
the Federal Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution
liable for any loss suffered or anticipated by the FDIC in connection with (1) the default
of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided
by the FDIC to a commonly controlled FDIC-insured depository institution in danger of
default.FDICIAThe Federal Deposit Insurance Corporation Act of 1991 (FDICIA), and the regulations
promulgated under FDICIA, among other things, established five capital categories for
insured depository institutions-well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized, and requires federal bank
regulatory agencies to implement systems for prompt corrective action for insured
depository institutions that do not meet minimum capital requirements based on these
categories. Unless a bank is well capitalized, it is subject to restrictions on its ability
to offer brokered deposits and on certain other aspects of its operations. As of December
31, 2005, the Corporation and the Bank were both considered well-capitalized based on the
guidelines implemented by the Federal Reserve and FDIC.Financial ModernizationThe Gramm-Leach-Bliley Act (GLBA) was signed into law in 1999, and became effective in
2000. It permits bank holding companies to become financial holding companies and thereby
affiliate with securities firms and insurance companies and engage in other activities that
are financial in nature. A bank holding company may become a financial holding company if
each of its subsidiary banks is well capitalized under regulatory prompt corrective action
provisions, is well managed, and has at least a satisfactory rating under the Community
Reinvestment Act (CRA) by filing a declaration that the bank holding company wishes to
become a financial holding company. No regulatory approval will be required for a financial
holding company to acquire a company, other than a bank or savings association, engaged in
activities that are financial in nature or incidental to activities that are financial in
nature, as determined by the Federal Reserve Board.The GLBA defines financial in nature to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance underwriting and
agency; merchant banking activities; and activities that the Board has determined to be
closely related to banking. Subsidiary banks of a financial holding company must continue
to be well capitalized and well managed in order to continue to engage in activities that
are financial in nature without regulatory actions or restrictions, which could include
divestiture of the financial 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.
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(c)
    
    
    Available Information
 The Company maintains an Internet web-site at the following web-site address:
http://www.dcbfinancialcorp.com. The Company makes available, free of charge through its
internet address, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and any amendments to these reports as soon as reasonably
practicable after such materials have been filed with or furnished to the SEC. Copies of
these documents may also be obtained, either in electronic or paper form, by contacting Jay
D. Wolf, Vice President of Marketing and Customer Relations at 740-657-7000.
 
 Item 1A Risk Factors
 The following discussion focuses on the major business risks encountered in the
Corporations operating environment.The interest rate environment has compressed our margins and affected our net interest
incomeThe rising interest rate environment has increased the Banks funding costs at a rate
slightly higher than the increase in the yield on loans and investments. This margin
compression has affected our net interest income, which is the largest component of our
earnings. In addition, our deposits costs have increased and our short-term borrowings have
increased at the same time. If these trends continue, we expect that net interest income
will continue to be negatively affected.The rising interest rate environment may also negatively affect the volume of loan
originations. If interest rates continue to rise, we expect that the residential market
mortgage will decline during 2006. If this occurs, loan mortgage originations may be
negatively affected. In addition, an increase in interest rates can have a negative effect
on loan delinquencies for loans with adjustable rates.Competition from other financial institutions in our marketsWe face significant competition in attracting and retaining deposits in all of our markets.
Our most direct competition for deposits has historically come from other financial
institutions doing business in our primary market areas of Ohio. The number of competitors
branches has increased in our primary geographic service area.The ability to extend credit and assessing the allowance for loan lossesCertain 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 repayment capacity, 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 credit officer
monitor these factors throughout the life of the loan.
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The procedures for assessing the adequacy of the allowance for loan losses reflect our
evaluation of credit risk after careful consideration of all information available to us.
In developing this assessment, we must rely on estimates and exercise judgment regarding
matters where the ultimate outcome is unknown such as economic factors, developments
affecting companies in specific industries and issues with respect to single borrowers.
Depending on changes in circumstances, future assessments of credit risk may yield
materially different results, which may require an increase or a decrease in the allowance
for loan losses.Asset and Liability Management and Market RiskThe Corporations ALCO committee utilizes a variety of tools to measure and monitor interest
rate risk. This is defined as the risk that the Corporations financial condition will be
adversely affected due to movements in interest rates. To a lesser extent, the Corporation
is also exposed to liquidity risk, or the risk that changes in cash flows could adversely
affect its ability to honor its financial obligations. The ALCO committee monitors changes
in the interest rate environment and changes to its lending and deposit rates based on
liquidity and profitability analysis.
 
 Item 1B Unresolved Staff Comments
 The Corporation has no unresolved staff comments
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I            Distribution of Assets, Liabilities and Shareholders Equity; Interest Rates and
Interest Differential
 The information required by this item is set forth in the Companys Annual Report to
Shareholders. Such information is incorporated herein by reference.
 II            Investment Portfolio
 The following table sets forth the carrying amount of securities at December 31,
2005, 2004 and 2003.
 (In thousands)
    
    2005
    
    
    2004
    
    
    2003Available for saleU.S. government and agency obligations
    
    $
    24,732
    
    
    $
    26,787
    
    
    $
    38,597States and municipal obligations
    
    
    25,723
    
    
    
    19,710
    
    
    
    21,076Corporate bonds
    
    
    8,025
    
    
    
    8,073
    
    
    
    8,215Mortgage-backed securities
    
    
    38,016
    
    
    
    41,470
    
    
    
    38,201Total debt securities
    
    
    96,496
    
    
    
    96,040
    
    
    
    106,089Other securities
    
    
    84
    
    
    
    83
    
    
    
    99Total
    
    $
    96,580
    
    
    $
    96,123
    
    
    $
    106,188
 The following table sets forth information regarding scheduled maturities, fair value and
weighted average yields of the Corporations debt securities at December 31, 2005. The
weighted average yield has been computed using the historical amortized cost for securities
available for sale. The weighted average yield on tax-exempt obligations is computed on a
taxable equivalent basis based on the statutory federal income tax rate of 34%.
 One
    
    
    FiveOne
    
    
    Through
    
    
    Through
    
    
    AfterYear
    
    
    Five
    
    
    Ten
    
    
    Ten
    
    
    Fair Value(In thousands)
    
    or Less
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalAvailable for saleU.S. government and
agency obligations
    
    $
    5,994
    
    
    $
    12,480
    
    
    $
    5,755
    
    
    $
    503
    
    
    $
    24,732States and municipal
obligations
    
    
    739
    
    
    
    1,702
    
    
    
    9,624
    
    
    
    13,658
    
    
    
    25,723Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,025
    
    
    
    8,025Mortgage-backed securities (1)
    
    
    34
    
    
    
    6,176
    
    
    
    2,535
    
    
    
    29,271
    
    
    
    38,016$
    6,767
    
    
    $
    20,358
    
    
    $
    17,914
    
    
    $
    51,457
    
    
    $
    96,496Weighted average yield
    
    
    3.617
    %
    
    
    4.491
    %
    
    
    3.862
    %
    
    
    5.109
    %
    
    
    4.219
    %
 
 (1)
    
    Based on contractual terms to maturity. Mortgage-backed securities are
subject to prepayment without penalty. 9




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III          Loan Portfolio
 Types of LoansThe amounts of gross loans outstanding at December 31, 2005, 2004, 2003, 2002, and 2001 are shown in the
following table.
 (In thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Commercial and industrial
    
    $
    47,498
    
    
    $
    49,184
    
    
    $
    51,709
    
    
    $
    45,543
    
    
    $
    52,534Commercial real estate
    
    
    202,649
    
    
    
    175,796
    
    
    
    156,836
    
    
    
    144,646
    
    
    
    124,537Residential real estate and
home equity
    
    
    193,787
    
    
    
    170,010
    
    
    
    117,098
    
    
    
    87,548
    
    
    
    88,797Real estate construction and
land development
    
    
    49,553
    
    
    
    34,199
    
    
    
    30,120
    
    
    
    37,603
    
    
    
    34,212Consumer and credit card
    
    
    58,653
    
    
    
    53,156
    
    
    
    48,399
    
    
    
    54,821
    
    
    
    62,513$
    552,140
    
    
    $
    482,345
    
    
    $
    404,162
    
    
    $
    370,161
    
    
    $
    362,593
 Risk Elements
 Nonaccrual and Past Due Loans
 The following table summarizes nonaccrual loans and accruing loans past due greater
than 90 days or more at December 31, 2005, 2004, 2003, 2002, and 2001.
 (In thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Nonaccrual loans
    
    $
    2,185
    
    
    $
    1,879
    
    
    $
    1,813
    
    
    $
    3,387
    
    
    $
    3,390Accruing loans past due
90 days or more
    
    $
    2,648
    
    
    $
    1,544
    
    
    $
    1,252
    
    
    $
    187
    
    
    $
    200
 The policy for placing loans on nonaccrual status is to cease accruing interest on
loans when management believes that collection of interest is doubtful, when loans
are past due as to principal and interest 90 days or more, except that in certain
circumstances interest accruals are continued on loans deemed by management to be
fully collectible. In such cases, loans are individually evaluated in order to
determine whether to continue income recognition after 90 days beyond the due dates.
When loans are placed on nonaccrual, any accrued interest is charged against
interest income.The additional amount of interest income that would have been recorded on nonaccrual
loans, had they been current, totaled $127,000, $128,000, and $163,000 for the years
ended December 31, 2005, 2004, and 2003, respectively.Potential Problem LoansA business loan is classified as impaired when full payment under the loan terms is
not expected. Impairment is evaluated in total for smaller balance loans or loans
of a similar nature such as residential mortgage, consumer and credit card loans,
and on an individual basis for commercial and commercial real estate loans.
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Loan ConcentrationsAt year-end 2005, there were no concentrations of loans greater than 10% of total
loans that are not otherwise disclosed as a category of loans in Item III above.
 Other Interest-Bearing AssetsAt year-end 2005, there were no other interest-bearing assets required to be disclosed
under Item III if such assets were loans.
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IV

    
    Summary of Loan Loss Experience
 Analysis of the Allowance for Loan Losses
 The following table sets forth the activity in the Corporations allowance for loan and lease losses for the
years ended December 31, 2005, 2004, 2003, 2002, and 2001.
 (In thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Balance at beginning of year
    
    $
    4,818
    
    
    $
    4,331
    
    
    $
    4,094
    
    
    $
    3,596
    
    
    $
    3,334Loans charged off:Commercial
    
    
    (193
    )
    
    
    (628
    )
    
    
    (654
    )
    
    
    (1,989
    )
    
    
    (278
    )Commercial real estate
    
    
    (61
    )
    
    
    (102
    )
    
    
    (60
    )
    
    
    (73
    )
    
    
    Residential real estate
and home equity
    
    
    (48
    )
    
    
    (60
    )
    
    
    
    
    
    
    (1
    )
    
    
    Real estate construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer and credit card
    
    
    (1,135
    )
    
    
    (524
    )
    
    
    (631
    )
    
    
    (513
    )
    
    
    (487
    )Lease financing
    
    
    (20
    )
    
    
    (71
    )
    
    
    
    
    
    
    (74
    )
    
    
    Total loans charged off
    
    
    (1,457
    )
    
    
    (1,385
    )
    
    
    (1,345
    )
    
    
    (2,650
    )
    
    
    (765
    )Loan recoveries:Commercial
    
    
    14
    
    
    
    21
    
    
    
    50
    
    
    
    91
    
    
    
    28Commercial real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Residential real estate
and home equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer and credit card
    
    
    142
    
    
    
    154
    
    
    
    114
    
    
    
    102
    
    
    
    126Lease financing
    
    
    18
    
    
    
    1
    
    
    
    
    
    
    
    5
    
    
    
    1Total loan recoveries
    
    
    174
    
    
    
    176
    
    
    
    164
    
    
    
    198
    
    
    
    155Net loans charged off
    
    
    (1,283
    )
    
    
    (1,209
    )
    
    
    (1,181
    )
    
    
    (2,452
    )
    
    
    (610
    )Provision for loan losses
    
    
    2,000
    
    
    
    1,696
    
    
    
    1,418
    
    
    
    2,950
    
    
    
    872Balance at end of year
    
    $
    5,535
    
    
    $
    4,818
    
    
    $
    4,331
    
    
    $
    4,094
    
    
    $
    3,596Ratio of net charge-offs to
average loans outstanding
    
    
    0.24
    %
    
    
    0.28
    %
    
    
    0.31
    %
    
    
    0.66
    %
    
    
    0.18
    %
 Allocation of the Allowance for Loan Losses
 The following schedule is a breakdown of the allowance for loan losses allocated by type
of loan and related ratios. While managements periodic analysis of the adequacy of
allowance for loan losses may allocate portions of the allowance for specific
problem-loan situations, the entire allowance is available for any loan charge-off that
occurs.
 12




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##### Table of Contents



Percentage of
    
    
    
    
    
    
    Percentage of
    
    
    
    
    
    
    Percentage ofLoans in Each
    
    
    
    
    
    
    Loans in Each
    
    
    
    
    
    
    Loans in EachAllowance
    
    
    Category to
    
    
    Allowance
    
    
    Category to
    
    
    Allowance
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans(In thousands)
    
    December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Commercial and industrial
    
    $
    2,411
    
    
    
    8.59
    %
    
    $
    3,240
    
    
    
    10.18
    %
    
    $
    2,345
    
    
    
    12.77
    %Commercial real estate
    
    
    887
    
    
    
    36.64
    
    
    
    225
    
    
    
    36.37
    
    
    
    698
    
    
    
    38.92Residential real estate
and home equity
    
    
    529
    
    
    
    35.20
    
    
    
    245
    
    
    
    35.37
    
    
    
    318
    
    
    
    28.92Real estate construction
    
    
    98
    
    
    
    8.96
    
    
    
    
    
    
    
    7.08
    
    
    
    
    
    
    
    7.44Consumer and credit card
    
    
    1,610
    
    
    
    10.49
    
    
    
    1,074
    
    
    
    10.73
    
    
    
    970
    
    
    
    10.98Lease financing
    
    
    
    
    
    
    .12
    
    
    
    34
    
    
    
    .27
    
    
    
    
    
    
    
    .97Total
    
    $
    5,535
    
    
    
    100.00
    %
    
    $
    4,818
    
    
    
    100.00
    %
    
    $
    4,331
    
    
    
    100.00
    % December 31, 2002
    
    December 31, 2001Commercial and industrial
    
    $
    2,120
    
    
    
    12.30
    %
    
    $
    1,765
    
    
    
    14.49
    %Commercial real estate
    
    
    891
    
    
    
    39.08
    
    
    
    94
    
    
    
    34.35Residential real estate and
home equity
    
    
    66
    
    
    
    23.65
    
    
    
    116
    
    
    
    24.49Real estate construction
    
    
    20
    
    
    
    10.16
    
    
    
    57
    
    
    
    9.44Installment and credit card
    
    
    706
    
    
    
    13.08
    
    
    
    799
    
    
    
    14.62Lease financing
    
    
    55
    
    
    
    1.73
    
    
    
    68
    
    
    
    2.61Unallocated
    
    
    236
    
    
    
    
    
    
    
    697
    
    
    
    Total
    
    $
    4,094
    
    
    
    100.00
    %
    
    $
    3,596
    
    
    
    100.00
    %
 13




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##### Table of Contents



V

    
    Deposits
 Schedule of Average Deposit Amounts and Rates
 Average balance of noninterest-bearing demand deposits totaled $67.5 million, $64.8
million, and $76.4 million, for the years ended December 31, 2005, 2004 and 2003.
Additional detail regarding the make-up of the Corporations average deposit balances
and related interest expense can be found on the Corporations attached Annual Report to
Shareholders.
 Maturity Analysis of Time Deposits Greater than $100,000
 The following is a schedule of maturities of time certificates of deposit in amounts of
$100,000 or more as of December 31, 2005.
 (In thousands)Three months or less
    
    $
    42,210Over three through six months
    
    
    21,745Over six through twelve months
    
    
    12,949Over twelve months
    
    
    21,270Total
    
    $
    98,174
 VI
 
    
    Return on Equity and Assets
 The information required by this item is set forth in the Companys Annual Report to Shareholders.
 VII

    
    Short-Term Borrowings
 Average outstanding balances of short-term borrowings were 31% of shareholders equity for the year ending December 31,
2005 and less than 30% for the years ended December 31, 2004 and December 31, 2003.
 14




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##### Table of Contents



Item 2 Properties
  1.
    
    Corporate Office, 110 Riverbend Avenue, Lewis Center, Ohio 43015 (owned)2.
    
    Downtown Delaware Branch Office, 41 N. Sandusky St., Delaware, Ohio 43015 (leased)3.
    
    William Street DriveThru Office, 33 W. William St., Delaware, Ohio 43015 (leased)4.
    
    Delaware Center Branch Office, 199 S. Sandusky Street, Delaware, Ohio 43015 (owned)5.
    
    Galena Branch Office, 10 Park Street, Galena, Ohio 43021 (owned)6.
    
    Ostrander Branch Office, 10 West North Street, Ostrander, Ohio 43061 (owned)7.
    
    Green Meadows Branch Office, 9201 Columbus Pike, Lewis Center, Ohio 43035 (own bldg., lease
land)8.
    
    Ashley Branch Office, 2 West High Street, Ashley, Ohio 43003 (owned)9.
    
    Buehlers Central Office, 800 West Central Avenue, Delaware, Ohio 43015 (leased)10.
    
    Marysville Downtown Office, 108 South Main Street, Marysville, Ohio 43040 (leased)11.
    
    Marysville Plaza Office, 1169 West Fifth Street, Marysville, Ohio 43040 (leased)12.
    
    Sunbury Office, 75 S. Miller Dr., Sunbury, Ohio 43074 (owned)13.
    
    Highland Lakes Office, 6156 Highland Lakes Avenue, Westerville, Ohio 43085 (leased)14.
    
    Sawmill Parkway Office, 10149 Brewster Lane, Powell, Ohio 43065 (leased)15.
    
    Avery Road Office, 6820 Perimeter Loop Road, Dublin, Ohio 43017 (leased)16.
    
    Willowbrook Branch Office, 100 Willowbrook Way South, Delaware, Ohio 43015 (leased)17.
    
    Corporate Center Drive-Thru Property, Corner of Evergreen & US 23, S., Lewis Center, OH 43035
(owned)18.
    
    ATM Express Bank, 554 W. Central Ave., Delaware, Ohio 43015 (leased)19.
    
    ATM Express Bank, Ohio Wesleyan University, Delaware, Ohio 43015 (leased)20.
    
    ATM Express Bank, 8208 Marysville Road West, Ostrander, Ohio 43061 (leased)21.
    
    ATM Express Bank, 1123 Columbus Pike, Delaware, Ohio 43015 (leased)22.
    
    ATM Express Bank, American Showa, 707 West Cherry Street, Sunbury, Ohio 43074 (leased)23.
    
    ATM Express Bank, Bureau of Motor Vehicles, 8625 Columbus Pike, Lewis Center, Ohio 43035
(leased)24.
    
    ATM Express Bank, Dextars IGA, 153 West Water Street, Prospect, Ohio 43342 (leased)25.
    
    ATM Express Bank, 240 North Liberty Street, Powell, Ohio 43065 (leased)
  
 Item 3 Legal Proceedings
  
 Item 4 Submission of Matters to a Vote of Security Holders
  15




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##### Table of Contents



PART II
 
 Item 5 Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
   
 Item 6 Selected Financial Data
  
 Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
  
 Item 7a Quantitative and Qualitative Disclosures About Market Risk
  
 Item 8 Financial Statements and Supplementary Data
  
 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  16




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##### Table of Contents



Managements Report on Internal Control Over Financial Reporting
     17




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##### Table of Contents



Item 9B Other Information
  
 PART III
 
 Item 10 Directors and Executive Officers of the Registrant
   
 Item 11 Executive Compensation
  
 Item 12 Security Ownership of Certain Beneficial Owners and Management
   Number of securitiesremaining available for futureNumber of securities to be
    
    
    
    
    
    issuance under equityissued upon exercise of
    
    Weighted-average exercise
    
    compensation plansoutstanding options, warrants
    
    price of outstanding options,
    
    (excluding securities reflectedand rights
    
    warrants and rights
    
    in column (a))(a
    )
    
    
    (b
    )
    
    
    (c
    )Equity compensation
plans approved by
security holders
    
    
    40,687
    
    
    $
    25.31
    
    
    
    259,313Equity compensation
plan not approved
by security holders
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    
    40,687
    
    
    $
    25.31
    
    
    
    259,313
 18




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##### Table of Contents



Item 13 Certain Relationships and Related Transactions
  
 Item 14 Principal Accountant Fees and Services
  19




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##### Table of Contents



PART IV
 
 Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K
 (a)
    
    Documents filed as part of Form 10-K
 1
    
    The following consolidated financial statements appear in the
Corporations 2005 Annual Report, Exhibit 13 to Shareholders and are incorporated
herein by reference.
 Report of Independent Registered Public Accounting Firm
    
    Page
    
    
    74Consolidated Balance Sheets
    
    Page
    
    
    42Consolidated Statements of Income
    
    Page
    
    
    43Consolidated Statement of Comprehensive Income
    
    Page
    
    
    44Consolidated Statements of Changes in Shareholders Equity
    
    Page
    
    
    45Consolidated Statements of Cash Flows
    
    Page
    
    
    46Notes to Consolidated Financial Statements
    
    Pages
    
    
    48
 2

    Exhibits
 3.1
    
    Articles of Incorporation of DCB Financial Corp
(incorporated by reference to Registrants Form S-4, File No. 333-15579,
effective January 10, 1997)3.2
    
    Code of Regulations of DCB Financial Corp (incorporated by
reference to Registrants Form S-4, File No. 333-15579, effective January 10,
1997)10.1
    
    Resignation, Release, and Post-Employment Covenants
Agreement by and between DCB Financial Corp., its wholly-owned subsidiary The
Delaware County Bank and Trust Company, and Larry D. Coburn (incorporated by
reference to Registrants report on Form 8-K, filed with the Commission on
November 21, 2002)10.2
    
    Employment agreement with Mr. Whitney (incorporated by
reference to Registrants Form 10-K, File No. 0-22387, effective March 25,
1998)10.3
    
    Employment agreement with Mr. Bernon (incorporated by
reference to Registrants Form 10-K, File No. 0-22387, effective March 27,
2000)10.4
    
    Employment agreement by and between DCB Financial Corp, its
wholly-owned subsidiary The Delaware County Bank and Trust Company, and
Jeffrey Benton (incorporated by reference to Registrants Form 8-K, File No.
0-22387, effective March 7, 2005).10.5
    
    DCB Financial Corp 2004 Long-Term Stock Incentive Plan
(incorporated by reference to Appendix D to our Proxy Statement, as filed
with the SEC on Schedule 14A on April 14, 2004)11
    
    Statement Regarding Computation of Per Share Earnings13
    
    Annual Report to Shareholders21
    
    Subsidiaries of DCB Financial Corp23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Rule 13a-14 (a) Certifications31.2
    
    Rule 13a-14 (a) Certifications32.1
    
    Section 1350 Certifications32.2
    
    Section 1350 Certifications
 20




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##### Table of Contents



SIGNATURES
  Dated: March 10, 2006
    
    DCB FINANCIAL CORPBy:
    
    /s/ JEFFREY BENTONJeffrey Benton, President & CEO
  March 10, 2006
 Signatures
    
    Title/s/ JEFFREY BENTON
    
    President (Principal Executive Officer),Jeffrey Benton
    
    CEO and Director/s/ JOHN A. USTASZEWSKI
    
    Senior Vice President and Chief FinancialJohn A. Ustaszewski
    
    Officer (Principal Financial Officer)/s/ JEROME J. HARMEYER
    
    DirectorJerome J. Harmeyer/s/ WILLIAM R. OBERFIELD
    
    DirectorWilliam R. Oberfield/s/ EDWARD A. POWERS
    
    DirectorEdward A. Powers/s/ GARY M. SKINNER
    
    DirectorGary M. Skinner
 21




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##### Table of Contents



Signatures
    
    Title/s/ TERRY M. KRAMER
    
    Director, Chairman of the BoardTerry M. Kramer/s/ VICKI J. LEWIS
    
    DirectorVicki J. Lewis/s/ ADAM STEVENSON
    
    DirectorAdam Stevenson/s/ DONALD J. WOLF
    
    DirectorDonald J. Wolf
 22




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description of Document3.1
    
    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)3.2
    
    Code of Regulations of DCB Financial Corp
(incorporated by reference to Registrants Form S-4, File No.
333-15579, effective January 10, 1997)10.1
    
    Resignation, Release, and Post-Employment Covenants
Agreement by and between DCB Financial Corp, its wholly-owned
subsidiary The Delaware County Bank and Trust Company, and Larry
D. Coburn (incorporated by reference to Registrants report on
Form 8-K, filed with the Commission on November 21, 2002)10.2
    
    Employment agreement with Mr. Whitney (incorporated by
reference to Registrants 1997 Form 10-K, File No. 0-22387,
effective March 25, 1998)10.3
    
    Employment agreement with Mr. Bernon (incorporated by
reference to Registrants 1997 Form 10-K, File No. 0-22387,
effective March 27, 2000)10.4
    
    Employment agreement by and between DCB Financial
Corp, its wholly-owned subsidiary The Delaware County Bank and
Trust Company, and Jeffrey Benton (incorporated by reference to
Registrants Form 8-K, File No. 0-22387, effective March 7,
2005).10.5
    
    DCB Financial Corp 2004 Long-Term Stock Incentive Plan
(incorporated by reference to Appendix D to our Proxy
Statement, as filed with the SEC on Schedule 14A on April
14, 2004)11
    
    Statement Regarding Computation of Per Share Earnings13
    
    Annual Report to Shareholders21
    
    Subsidiaries of DCB Financial Corp23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Rule 13a-14 (a) Certifications31.2
    
    Rule 13a-14 (a) Certifications32.1
    
    Section 1350 Certifications32.2
    
    Section 1350 Certifications
 23