##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: MARCH 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-22387
 DCB Financial Corp
  Ohio
    
    31-1469837(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)
 110 Riverbend Avenue, Lewis Center, Ohio 43035
  (Registrants telephone number)
  þ o
  Large accelerated filers o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ




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##### 



PagePART I  FINANCIAL INFORMATIONITEM 1  Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Comprehensive Income
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to the Condensed Consolidated Financial Statements
    
    
    7ITEM 1A  Risk Factors
    
    
    14ITEM
2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    15ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    19ITEM 4  Controls and Procedures
    
    
    20PART II  OTHER INFORMATION
    
    
    21SIGNATURES
    
    
    23




---



##### 



Financial Statements
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCash and due from financial institutions
    
    $
    14,115
    
    
    $
    18,069Securities available for sale
    
    
    98,114
    
    
    
    96,580Loans held for sale
    
    
    915
    
    
    
    1,640Loans
    
    
    567,905
    
    
    
    553,045Less allowance for loan losses
    
    
    (5,617
    )
    
    
    (5,535
    )Net loans
    
    
    562,288
    
    
    
    547,510Real estate owned
    
    
    263
    
    
    
    386Investment in FHLB stock
    
    
    3,375
    
    
    
    3,327Premises and equipment, net
    
    
    8,976
    
    
    
    8,854Investment in unconsolidated affiliates
    
    
    983
    
    
    
    614Bank owned life insurance
    
    
    9,026
    
    
    
    8,898Accrued interest receivable and other assets
    
    
    5,693
    
    
    
    5,018Total assets
    
    $
    703,748
    
    
    $
    690,896LIABILITIESDepositsNoninterest-bearing
    
    $
    64,155
    
    
    $
    68,977Interest-bearing
    
    
    475,963
    
    
    
    434,929Total deposits
    
    
    540,118
    
    
    
    503,906Federal funds purchased and other short-term borrowings
    
    
    13,729
    
    
    
    25,610Federal Home Loan Bank advances
    
    
    91,090
    
    
    
    102,925Accrued interest payable and other liabilities
    
    
    1,627
    
    
    
    2,201Total liabilities
    
    
    646,564
    
    
    
    634,642SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,200 issued at March 31, 2006 and December 31, 2005
    
    
    3,780
    
    
    
    3,780Retained earnings
    
    
    64,916
    
    
    
    63,552Treasury stock, at cost, 458,786 and 447,112
shares at March 31, 2006 and December 31, 2005
    
    
    (10,841
    )
    
    
    (10,506
    )Accumulated other comprehensive loss
    
    
    (671
    )
    
    
    (572
    )Total shareholders equity
    
    
    57,184
    
    
    
    56,254Total liabilities and shareholders equity
    
    $
    703,748
    
    
    $
    690,896




---



##### 



Three Months EndedMarch 31,2006
    
    
    2005Interest and dividend incomeLoans
    
    $
    9,427
    
    
    $
    7,218Taxable securities
    
    
    854
    
    
    
    760Tax-exempt securities
    
    
    233
    
    
    
    184Federal funds sold and other
    
    
    30
    
    
    
    Total interest income
    
    
    10,544
    
    
    
    8,162Interest expenseDeposits
    
    
    3,646
    
    
    
    1,818Borrowings
    
    
    1,075
    
    
    
    850Total interest expense
    
    
    4,721
    
    
    
    2,668Net interest income
    
    
    5,823
    
    
    
    5,494Provision for loan losses
    
    
    560
    
    
    
    470Net interest income after provision for loan losses
    
    
    5,263
    
    
    
    5,024Noninterest incomeService charges on deposit accounts
    
    
    628
    
    
    
    571Trust department income
    
    
    218
    
    
    
    165Net loss on sales of assets
    
    
    (4
    )
    
    
    (12
    )Gains on sale of loans
    
    
    51
    
    
    
    49Gain on sale of investment in unconsolidated affiliate
    
    
    
    
    
    
    184Treasury management fees
    
    
    153
    
    
    
    101Data processing servicing fees
    
    
    83
    
    
    
    73Earnings on bank owned life insurance
    
    
    128
    
    
    
    96Other
    
    
    127
    
    
    
    190Total noninterest income
    
    
    1,384
    
    
    
    1,417Noninterest expenseSalaries and other employee benefits
    
    
    2,217
    
    
    
    2,212Occupancy and equipment
    
    
    787
    
    
    
    880Professional services
    
    
    115
    
    
    
    182Advertising
    
    
    74
    
    
    
    87Postage, freight and courier
    
    
    97
    
    
    
    94Supplies
    
    
    68
    
    
    
    61State franchise taxes
    
    
    134
    
    
    
    108Other
    
    
    510
    
    
    
    474Total noninterest expense
    
    
    4,002
    
    
    
    4,098Income before income taxes
    
    
    2,645
    
    
    
    2,343Federal income tax expense
    
    
    785
    
    
    
    707Net income
    
    $
    1,860
    
    
    $
    1,636Basic and diluted earnings per common share
    
    $
    0.49
    
    
    $
    0.42Dividends per share
    
    $
    0.13
    
    
    $
    0.11




---



##### 



Three Months EndedMarch 31,2006
    
    
    2005Net income
    
    $
    1,860
    
    
    $
    1,636Unrealized losses on securities
available for sale, net of tax benefits
    
    
    (99
    )
    
    
    (470
    )Comprehensive income
    
    $
    1,761
    
    
    $
    1,166Accumulated other comprehensive loss
    
    $
    (671
    )
    
    $
    (235
    )




---



##### 



Three Months EndedMarch 31,2006
    
    
    2005Cash flows provided by operating activities
    
    $
    1,953
    
    
    $
    976Cash flows used in investing activitiesSecurities available for salePurchases
    
    
    (7,743
    )
    
    
    (8,033
    )Maturities, principal payments and calls
    
    
    2,797
    
    
    
    4,464Sales
    
    
    3,112
    
    
    
    5,020Net change in loans
    
    
    (15,389
    )
    
    
    (24,341
    )Premises and equipment expenditures
    
    
    (347
    )
    
    
    (77
    )Net cash flows used in investing activities
    
    
    (17,570
    )
    
    
    (22,967
    )Cash flows provided by financing activitiesNet change in deposits
    
    
    36,212
    
    
    
    12,820Net change in federal funds purchased and other short-term borrowings
    
    
    (11,881
    )
    
    
    17,408Repayment of Federal Home Loan Bank advances
    
    
    (11,835
    )
    
    
    (6,394
    )Purchase of treasury shares, net
    
    
    (334
    )
    
    
    Cash dividends paid
    
    
    (499
    )
    
    
    (433
    )Net cash provided by financing activities
    
    
    11,663
    
    
    
    23,401Net change in cash and cash equivalents
    
    
    (3,954
    )
    
    
    1,410Cash and cash equivalents at beginning of period
    
    
    18,069
    
    
    
    11,238Cash and cash equivalents at end of period
    
    $
    14,115
    
    
    $
    12,648Supplemental disclosures of cash flow information:Cash paid during the period forInterest on deposits and borrowings
    
    $
    4,567
    
    
    $
    2,292Cash dividends declared but unpaid
    
    $
    497
    
    
    $
    433
  6.




---



##### 



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Earnings per share
  Three Months EndedMarch 31,2006
    
    
    2005Weighted-average common
shares outstanding (basic)
    
    
    3,821,202
    
    
    
    3,934,760Dilutive effect of assumed
exercise of stock options
    
    
    5,573
    
    
    
    1,162Weighted-average common
shares outstanding (diluted)
    
    
    3,826,775
    
    
    
    3,935,922
 7.




---



##### 



Stock option plan
     Three Months EndedMarch 31,2005(In thousands, except per share data)NET EARNINGS
    
    As reported
    
    $
    1,636Stock-based compensation, net of tax
    
    
    (2
    )Pro-forma
    
    $
    1,634EARNINGS PER SHAREBASIC
    
    As reported
    
    $
    0.42Stock-based compensation, net of tax
    
    
    Pro-forma
    
    $
    0.42DILUTED
    
    As reported
    
    $
    0.42Stock-based compensation, net of tax
    
    
    Pro-forma
    
    $
    0.42
 8.




---



##### 



Stock option plan (continued
    Three Months EndedMarch 31,2006WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of year
    
    
    40,687
    
    
    $
    25.31
    
    
    8 yearsGranted
    
    
    6,132
    
    
    
    28.85
    
    
    10 yearsExercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at end of period
    
    
    46,819
    
    
    $
    25.40
    
    
    9 yearsOptions exercisable at period end
    
    
    3,627
    
    
    $
    23.40Weighted-average fair value of
options granted during the period
    
    
    
    
    
    $
    4.34
 9.




---



##### 



Stock option plan (continued)
 Year EndedDecember 31,2005WEIGHTEDAVERAGEEXERCISESHARES
    
    
    PRICEOutstanding at beginning of year
    
    
    15,105
    
    
    $
    23.40Granted
    
    
    26,219
    
    
    $
    25.74Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (637
    )
    
    $
    23.40Outstanding at end of year
    
    
    40,687
    
    
    $
    25.31Options exercisable at year-end
    
    
    2,894
    
    
    $
    23.40Weighted-average fair value of options granted
during the year
    
    
    
    
    
    $
    4.68
  NUMBER OUTSTANDING
    
    RANGE OF EXERCISE PRICES46,819
    
    $23.40  $28.85
 Newly issued Accounting Standards
 10.




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##### 




    
    Separately recognize financial assets as servicing assets or servicing entities,
each time it undertakes an obligation to service a financial asset by entering into
certain kinds of servicing contracts;
    
    Initially measure all separately recognized servicing assets and liabilities at fair
value, if practicable, and;
    
    Separately present servicing assets and liabilities subsequently measured at fair
value in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing liabilities.
   Application of Critical Accounting Policies
   11.




---



##### 



NOTE 2  SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMarch 31, 2006U.S. Government and agency obligations
    
    $
    23,545
    
    
    $
    8
    
    
    $
    (358
    )
    
    $
    23,195State and municipal obligations
    
    
    26,799
    
    
    
    96
    
    
    
    (200
    )
    
    
    26,695Corporate bonds
    
    
    8,489
    
    
    
    40
    
    
    
    
    
    
    
    8,529Mortgage-backed securities
    
    
    40,245
    
    
    
    82
    
    
    
    (716
    )
    
    
    39,611Total debt securities
    
    
    99,078
    
    
    
    226
    
    
    
    (1,274
    )
    
    
    98,030Other securities
    
    
    53
    
    
    
    38
    
    
    
    (7
    )
    
    
    84Total
    
    $
    99,131
    
    
    $
    264
    
    
    $
    (1,281
    )
    
    $
    98,114
  (Less than 12 months)
    
    
    (12 months or longer)Estimated
    
    
    Gross
    
    
    
    
    
    Estimated
    
    
    Gross
    
    
    
    
    
    Estimated
    
    
    TotalDescription of
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    UnrealizedSecurities
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    lossesU.S. Government and
agency obligations
    
    
    9
    
    
    $
    8,257
    
    
    $
    (79
    )
    
    
    17
    
    
    $
    12,974
    
    
    $
    (279
    )
    
    
    26
    
    
    $
    21,231
    
    
    $
    (358
    )State and municipal
obligations
    
    
    27
    
    
    
    10,064
    
    
    
    (114
    )
    
    
    15
    
    
    
    6,829
    
    
    
    (86
    )
    
    
    42
    
    
    
    16,893
    
    
    
    (200
    )Mortgage-backed and
other securities
    
    
    52
    
    
    
    13,839
    
    
    
    (196
    )
    
    
    51
    
    
    
    18,238
    
    
    
    (527
    )
    
    
    103
    
    
    
    32,077
    
    
    
    (723
    )Total temporarily
impaired securities
    
    
    88
    
    
    $
    32,160
    
    
    $
    (389
    )
    
    
    83
    
    
    $
    38,041
    
    
    $
    (892
    )
    
    
    171
    
    
    $
    70,201
    
    
    $
    (1,281
    )
   12.




---



##### 



Available for saleAmortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    5,793
    
    
    $
    5,740Due from one to five years
    
    
    13,672
    
    
    
    13,491Due from five to ten years
    
    
    16,461
    
    
    
    16,294Due after ten years
    
    
    22,907
    
    
    
    22,894Mortgage-backed and related securities
    
    
    40,245
    
    
    
    39,611Total debt securities
    
    
    99,078
    
    
    
    98,030Other securities
    
    
    53
    
    
    
    84Total
    
    $
    99,131
    
    
    $
    98,114
  NOTE 3  LOANS
  March 31,2006Commercial and industrial
    
    $
    49,207Commercial real estate
    
    
    206,449Residential real estate and home equity
    
    
    204,688Real estate construction and land development
    
    
    50,378Consumer and credit card
    
    
    56,407567,129Add: Net deferred loan origination costs
    
    
    776Total loans receivable
    
    $
    567,905
  13.




---



##### 



NOTE 4  ALLOWANCE FOR LOAN LOSSES
  Three months endedMarch 31,2006
    
    
    2005Balance at beginning of period
    
    $
    5,535
    
    
    $
    4,818Provision for loan losses
    
    
    560
    
    
    
    470Loans charged off
    
    
    (601
    )
    
    
    (194
    )Recoveries
    
    
    123
    
    
    
    21Balance at end of period
    
    $
    5,617
    
    
    $
    5,115
  March 31,
    
    
    December 31,2006
    
    
    2005Loans past due 90 days or more and still accruing
    
    $
    1,433
    
    
    $
    2,648Nonaccrual loans
    
    
    2,015
    
    
    
    2,185Total
    
    $
    3,448
    
    
    $
    4,833Impaired loans (most of which are included in
nonperforming loans above) were as follows:Period-end loans with no allocated allowance for loan losses
    
    $
    
    
    
    $
    Period-end loans with allocated allowance for loan losses
    
    
    2,015
    
    
    
    1,655Total
    
    $
    2,015
    
    
    $
    1,655Amount of the allowance for loan losses allocated
    
    $
    1,035
    
    
    $
    759Average of impaired loans during the period
    
    $
    1,959
    
    
    $
    1,116
 
 Risk Factors
  14.




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
  FORWARD-LOOKING STATEMENTS
   ANALYSIS OF FINANCIAL CONDITION
   15.




---



##### 



COMPARISON OF RESULTS OF OPERATIONS
 Net Income.
 Net Interest Income.
  16.




---



##### 



Provision and Allowance for Loan Losses.
  Noninterest Income.
 Noninterest Expense.
  Income Taxes.
 LIQUIDITY
  17.




---



##### 



CAPITAL RESOURCES
     PAYMENT DUE BY YEARCONCTRACTUAL
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanOBLIGATIONS
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    91,090
    
    
    $
    
    
    
    $
    14,435
    
    
    $
    14,807
    
    
    $
    61,848Federal funds purchased and
other short-term borrowings
    
    
    13,729
    
    
    
    13,729Operating lease obligations
    
    
    7,533
    
    
    
    859
    
    
    
    1,378
    
    
    
    1,049
    
    
    
    4,247Loan and line of credit
commitments
    
    
    147,105
    
    
    
    147,105
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    259,457
    
    
    $
    161,693
    
    
    $
    15,813
    
    
    $
    15,856
    
    
    $
    66,095
 18.




---



##### 



Quantitative and Qualitative Disclosure About Market Risk
 ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
      19.




---



##### 



Controls and Procedures
   20.




---



##### 



ISSUER PURCHASES OF EQUITY SECURITIES
 (d)(c)
    
    
    Maximum NumberTotal Number of
    
    
    (or Approximate(a)
    
    
    
    
    
    
    Shares (or Units)
    
    
    Dollar Value) ofTotal Number
    
    
    (b)
    
    
    Purchased as Part
    
    
    Shares (or Units) thatof Shares (or
    
    
    Average Price
    
    
    of Publicly
    
    
    May Yet BeUnits)
    
    
    Paid per Share
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    (or Unit)
    
    
    or Programs(1)
    
    
    Plans or ProgramsMonth #l
1/1/2006 to
1/31/2006
    
    
    1,248
    
    
    $
    28.50
    
    
    
    1,248
    
    
    
    90,080Month #2
2/1/2006 to
2/28/2006
    
    
    10,436
    
    
    $
    28.61
    
    
    
    10,436
    
    
    
    79,644Month #3
3/1/2006 to
3/31/2006Total
    
    
    11,684
    
    
    $
    28.56
    
    
    
    11,684
    
    
    
    79,644
 
 (1)
    
    On June 17, 2005, the Company announced a repurchase program which authorizes the repurchase
of up to 200,000 of its common shares over a two year period commencing June 16, 2005. 21.




---



##### 



Exhibit No.
    
    Exhibit3.1
    
    
    Amended and Restated Articles of Incorporation of DCB Financial Corp,
incorporated by reference to the Companys Report on Form 10-Q filed with the
Commission on November 14, 2003.3.2
    
    
    Amended and Restated Articles of Incorporation of DCB Financial Corp,
incorporated by reference to the Companys Report on Form 10-Q filed with the
Commission on November 14, 2003.31.1
    
    
    Certification pursuant to section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification pursuant to section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification pursuant to 18 U.S.C. 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification pursuant to 18 U.S.C. 1350, as enacted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002
 22




---



##### 



DCB FINANCIAL CORP
(Registrant)Date: May 10, 2006
    /s/ Jeffrey Benton(Signature)Jeffrey Benton
President and Chief Executive OfficerDate: May 10, 2006
    /s/ John A. Ustaszewski(Signature)John A. Ustaszewski
Senior Vice President and Chief Financial Officer 23




---



##### 



EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    
    Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference
to the
Companys Report on Form 10-Q filed with the Commission on November 14, 2003.3.2
    
    
    Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference to
the
Companys Report on Form 10-Q filed with the Commission on November 14, 2003.31.1
    
    
    Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification pursuant to 18 U.S.C. 1350, as enacted Pursuant to section 906 of the
Sarbanes-Oxley Act
of 2002.32.2
    
    
    Certification pursuant to 18 U.S.C. 1350, as enacted Pursuant to section 906 of the
Sarbanes-Oxley Act
of 2002.
 24