##### Table of Contents



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, 2010
 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
 (Exact name of registrant as specified in its charter)
 Ohio
    
    31-1469837(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 110 Riverbend Avenue, Lewis Center, Ohio 43035
 (Registrants telephone number)
 Yes
þ No
o
 Yes
o No
o
  Large accelerated filers o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 Yes
o No
þ




---



##### 



PagePART I  FINANCIAL INFORMATIONITEM 1  Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Comprehensive Income (Loss)
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to the Condensed Consolidated Financial Statements
    
    
    7ITEM 1A  Risk Factors
    
    
    20ITEM 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    21ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    26ITEM 4  Controls and Procedures
    
    
    27PART II  OTHER INFORMATION
    
    
    28SIGNATURES
    
    
    30Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



Financial Statements
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCash and due from financial institutions
    
    $
    11,475
    
    
    $
    10,082Interest bearing deposits
    
    
    54,025
    
    
    
    26,371Federal funds sold and overnight investments
    
    
    
    
    
    
    5,000Total cash and cash equivalents
    
    
    65,500
    
    
    
    41,453Securities available for sale
    
    
    94,455
    
    
    
    94,100Securities held to maturity
    
    
    1,672
    
    
    
    1,752Total securities
    
    
    96,127
    
    
    
    95,852Loans held for sale, at lower of cost or fair value
    
    
    2,313
    
    
    
    2,442Loans
    
    
    480,727
    
    
    
    489,482Less allowance for loan losses
    
    
    (11,314
    )
    
    
    (10,479
    )Net loans
    
    
    469,413
    
    
    
    479,003Real estate owned
    
    
    4,166
    
    
    
    4,912Investment in FHLB stock
    
    
    3,754
    
    
    
    3,773Premises and equipment, net
    
    
    14,052
    
    
    
    14,435Investment in unconsolidated affiliates
    
    
    1,434
    
    
    
    1,439Bank-owned life insurance
    
    
    16,493
    
    
    
    16,326Deferred federal income taxes
    
    
    5,413
    
    
    
    5,239Accrued interest receivable and other assets
    
    
    9,570
    
    
    
    10,148Total assets
    
    $
    688,235
    
    
    $
    675,022LIABILITIESDepositsNoninterest-bearing
    
    $
    61,329
    
    
    $
    60,502Interest-bearing
    
    
    512,844
    
    
    
    496,953Total deposits
    
    
    574,173
    
    
    
    557,455Federal funds purchased and other short-term borrowings
    
    
    1,261
    
    
    
    3,011Federal Home Loan Bank advances
    
    
    61,507
    
    
    
    63,148Accrued interest payable and other liabilities
    
    
    2,068
    
    
    
    2,065Total liabilities
    
    
    639,009
    
    
    
    625,679SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,908 issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    59,325
    
    
    
    60,213Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive loss
    
    
    (390
    )
    
    
    (1,161
    )Total shareholders equity
    
    
    49,226
    
    
    
    49,343Total liabilities and shareholders equity
    
    $
    688,235
    
    
    $
    675,022
   3




---



##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2009Interest and dividend incomeLoans
    
    $
    6,456
    
    
    $
    7,104Taxable securities
    
    
    722
    
    
    
    1,027Tax-exempt securities
    
    
    199
    
    
    
    274Federal funds sold and other
    
    
    18
    
    
    
    77Total interest income
    
    
    7,395
    
    
    
    8,482Interest expenseDeposits
    
    
    1,210
    
    
    
    2,295Borrowings
    
    
    691
    
    
    
    910Total interest expense
    
    
    1,901
    
    
    
    3,205Net interest income
    
    
    5,494
    
    
    
    5,277Provision for loan losses
    
    
    1,961
    
    
    
    3,435Net interest income after provision for loan losses
    
    
    3,533
    
    
    
    1,842Noninterest incomeService charges on deposit accounts
    
    
    605
    
    
    
    598Trust department income
    
    
    225
    
    
    
    236Net gain (loss) on sales of assets
    
    
    98
    
    
    
    (25
    )Gains on sale of loans
    
    
    29
    
    
    
    51Treasury management fees
    
    
    130
    
    
    
    135Data processing servicing fees
    
    
    132
    
    
    
    135Earnings on bank owned life insurance
    
    
    167
    
    
    
    167Total other-than-temporary impairment losses
    
    
    (80
    )
    
    
    Portion of loss recognized in (reclassified from) other comprehensive
loss (before taxes)
    
    
    (950
    )
    
    
    Net impairment losses recognized in income
    
    
    (1,030
    )
    
    
    Other
    
    
    80
    
    
    
    101Total noninterest income
    
    
    436
    
    
    
    1,398Noninterest expenseSalaries and other employee benefits
    
    
    2,624
    
    
    
    2,524Occupancy and equipment
    
    
    1,030
    
    
    
    1,067Professional services
    
    
    307
    
    
    
    163Advertising
    
    
    74
    
    
    
    91Postage, freight and courier
    
    
    87
    
    
    
    85Supplies
    
    
    30
    
    
    
    77State franchise taxes
    
    
    152
    
    
    
    169Federal deposit insurance premiums
    
    
    396
    
    
    
    160Other
    
    
    788
    
    
    
    739Total noninterest expense
    
    
    5,488
    
    
    
    5,075Loss before income tax credits
    
    
    (1,519
    )
    
    
    (1,835
    )Income tax credits
    
    
    (631
    )
    
    
    (764
    )Net loss
    
    $
    (888
    )
    
    $
    (1,071
    )Basic and diluted loss per common share
    
    $
    (0.24
    )
    
    $
    (0.29
    )Dividends per share
    
    $
    
    
    
    $
    0.02
   4




---



##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2009Net loss
    
    $
    (888
    )
    
    $
    (1,071
    )Reclassification adjustment for other-than-temporary
impairment loss recognized in income,
net of taxes of $323
    
    
    627
    
    
    
    Unrealized gains on securities available for sale,
net of taxes of $74 and $100 for the
respective periods
    
    
    144
    
    
    
    195Comprehensive loss
    
    $
    (117
    )
    
    $
    (876
    )Accumulated other comprehensive income (loss)
    
    $
    (390
    )
    
    $
    1,030
   5




---



##### Table of Contents



Three Months EndedMarch 31,2010
    
    
    2009Cash flows provided by (used in) operating activities
    
    $
    2,716
    
    
    $
    (3,743
    )Cash flows provided by investing activitiesSecuritiesPurchases
    
    
    (9,861
    )
    
    
    (7,479
    )Maturities, principal payments and calls
    
    
    9,481
    
    
    
    12,411Net change in loans
    
    
    7,740
    
    
    
    (3,447
    )Proceeds from sale of real estate owned
    
    
    688
    
    
    
    560Investment in unconsolidated affiliate
    
    
    5
    
    
    
    (6
    )Premises and equipment expenditures
    
    
    (49
    )
    
    
    (99
    )Net cash flows provided by investing activities
    
    
    8,004
    
    
    
    1,940Cash flows provided by financing activitiesNet change in deposits
    
    
    16,718
    
    
    
    21,269Net change in federal funds purchased and other short-term borrowings
    
    
    (1,750
    )
    
    
    (911
    )Repayment of Federal Home Loan Bank advances
    
    
    (1,641
    )
    
    
    (2,905
    )Cash dividends paid
    
    
    
    
    
    
    (568
    )Net cash provided by financing activities
    
    
    13,327
    
    
    
    16,885Net change in cash and cash equivalents
    
    
    24,047
    
    
    
    15,082Cash and cash equivalents at beginning of period
    
    
    41,453
    
    
    
    33,632Cash and cash equivalents at end of period
    
    $
    65,500
    
    
    $
    48,714Supplemental disclosures of cash flow information:Cash paid during the period for:Interest on deposits and borrowings
    
    $
    1,996
    
    
    $
    3,141Supplemental disclosure of non-cash investing and financing activities:Unrealized gains on securities designated as available
for sale, net of tax benefits
    
    $
    144
    
    
    $
    195Unrealized loss on securities designated as held-to-maturity,
net of taxes
    
    $
    53
    
    
    $
    Transfers from loans to real estate owned
    
    $
    16
    
    
    $
    Cash dividends declared but unpaid
    
    $
    
    
    
    $
    595
   6




---



##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Earnings per share
  Three Months EndedMarch 31,2010
    
    
    2009Weighted-average common shares outstanding (basic)
    
    
    3,717,385
    
    
    
    3,717,385Dilutive effect of assumed
exercise of stock options
    
    
    
    
    
    
    Weighted-average common
shares outstanding (diluted)
    
    
    3,717,385
    
    
    
    3,717,385
  7




---



##### Table of Contents



Stock option plan
    8




---



##### Table of Contents



Three Months EndedMarch 31,2010WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of period
    
    
    204,883
    
    
    $
    19.59
    
    
    8.6 yearsForfeited
    
    
    (4,141
    )
    
    
    14.87Outstanding at end of period
    
    
    200,742
    
    
    $
    19.59
    
    
    8.3 yearsOptions exercisable at period end
    
    
    67,504
    
    
    $
    23.96
 Year EndedDecember 31,2009WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of year
    
    
    159,284
    
    
    $
    22.92
    
    
    8.2 yearsGranted
    
    
    55,566
    
    
    
    8.93
    
    
    9.5 yearsForfeited
    
    
    (9,967
    )
    
    
    21.30Outstanding at end of year
    
    
    204,883
    
    
    $
    19.59
    
    
    8.6 yearsOptions exercisable at year end
    
    
    63,005
    
    
    $
    24.77Weighted-average fair value of
options granted during the year
    
    
    
    
    
    $
    0.76
  9




---



##### Table of Contents



NUMBER OUTSTANDING
    
    RANGE OF EXERCISE PRICES97,097
    
    $23.00  $30.7050,942
    
    $16.9052,703
    
    $7.50  $9.00
 Recent Accounting Standards
     Application of Critical Accounting Policies
   10




---



##### Table of Contents



11




---



##### Table of Contents



NOTE 2  SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMarch 31, 2010U.S. Government and agency obligations
    
    $
    28,356
    
    
    $
    324
    
    
    $
    (54
    )
    
    $
    28,626State and municipal obligations
    
    
    25,127
    
    
    
    647
    
    
    
    (24
    )
    
    
    25,750Corporate bonds
    
    
    1,011
    
    
    
    41
    
    
    
    
    
    
    
    1,052Mortgage-backed and related securities
    
    
    37,765
    
    
    
    1,212
    
    
    
    (2
    )
    
    
    38,975Total debt securities
    
    
    92,259
    
    
    
    2,224
    
    
    
    (80
    )
    
    
    94,403Other securities
    
    
    57
    
    
    
    7
    
    
    
    (12
    )
    
    
    52Total
    
    $
    92,316
    
    
    $
    2,231
    
    
    $
    (92
    )
    
    $
    94,455
 Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2009U.S. Government and agency obligations
    
    $
    27,235
    
    
    $
    297
    
    
    $
    (77
    )
    
    $
    27,455State and municipal obligations
    
    
    25,444
    
    
    
    543
    
    
    
    (35
    )
    
    
    25,952Corporate bonds
    
    
    1,012
    
    
    
    27
    
    
    
    
    
    
    
    1,039Mortgage-backed and related securities
    
    
    38,455
    
    
    
    1,144
    
    
    
    (8
    )
    
    
    39,591Total debt securities
    
    
    92,146
    
    
    
    2,011
    
    
    
    (120
    )
    
    
    94,037Other securities
    
    
    57
    
    
    
    20
    
    
    
    (14
    )
    
    
    63Total
    
    $
    92,203
    
    
    $
    2,031
    
    
    $
    (134
    )
    
    $
    94,100
  Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueMarch 31, 2010Collateralized debt obligations
    
    $
    4,380
    
    
    $
    (2,708
    )
    
    $
    1,672
  12




---



##### Table of Contents



Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueDecember 31, 2009Collateralized debt obligations
    
    $
    5,410
    
    
    $
    (3,658
    )
    
    $
    1,752
   March 31,
    
    
    December 31,2010
    
    
    2009Carrying value before impairment
    
    $
    5,410
    
    
    $
    8,031Other than temporary impairment due to
credit quality issues
    
    
    (1,030
    )
    
    
    (2,621
    )Adjusted carrying value
    
    
    4,380
    
    
    
    5,410Other than temporary impairment not
related to credit quality issues
    
    
    (2,708
    )
    
    
    (3,658
    )Total fair value of securities held to maturity
    
    $
    1,672
    
    
    $
    1,752
 Credit Losses Recognized on Investments
  Accumulated Credit Losses2010
    
    
    2009Credit losses on debt securities heldBeginning of period
    
    $
    2,621
    
    
    $
    Additions related to other-than-temporary losses not
previously recognized
    
    
    1,030
    
    
    
    Reductions due to sales
    
    
    
    
    
    
    Reductions due to change in intent or likelihood of sale
    
    
    
    
    
    
    Additions related to increases in previously recognized
other-than-temporary losses
    
    
    
    
    
    
    Reductions due to increases in expected cash flows
    
    
    
    
    
    
    End of period
    
    $
    3,651
    
    
    $
    
  13




---



##### Table of Contents



March 31, 2010
 (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
    
    
    losses(Restated)
    
    
    
    
    
    
    (Restated)U.S. Government and
agency obligations
    
    
    8
    
    
    $
    8,199
    
    
    $
    (54
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    8
    
    
    $
    8,199
    
    
    $
    (54
    )State and municipal
obligations
    
    
    6
    
    
    
    2,450
    
    
    
    (20
    )
    
    
    1
    
    
    
    303
    
    
    
    (4
    )
    
    
    7
    
    
    
    2,754
    
    
    
    (24
    )Mortgage-backed and
other securities
    
    
    6
    
    
    
    629
    
    
    
    (2
    )
    
    
    2
    
    
    
    52
    
    
    
    (12
    )
    
    
    8
    
    
    
    681
    
    
    
    (14
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1,672
    
    
    
    (2,708
    )
    
    
    2
    
    
    
    1,672
    
    
    
    (2,708
    )Total temporarily
impaired securities
    
    
    20
    
    
    $
    11,278
    
    
    $
    (76
    )
    
    
    5
    
    
    $
    2,027
    
    
    $
    (2,724
    )
    
    
    25
    
    
    $
    13,306
    
    
    $
    (2,800
    )
 December 31, 2009
 (Less than 12 months)
    
    
    (12 months or longer)
    
    
    
    
    
    
    
    
    
    
    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
    
    
    5
    
    
    $
    5,087
    
    
    $
    (77
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    5
    
    
    $
    5,087
    
    
    $
    (77
    )State and municipal
obligations
    
    
    9
    
    
    
    3,504
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    3,504
    
    
    
    (35
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1,752
    
    
    
    (3,658
    )
    
    
    2
    
    
    
    1,752
    
    
    
    (3,658
    )Mortgage-backed
securities and other
    
    
    5
    
    
    
    1,048
    
    
    
    (1
    )
    
    
    6
    
    
    
    931
    
    
    
    (21
    )
    
    
    11
    
    
    
    1,979
    
    
    
    (22
    )Total temporarily
impaired securities
    
    
    19
    
    
    $
    9,639
    
    
    $
    (113
    )
    
    
    8
    
    
    $
    2,683
    
    
    $
    (3,680
    )
    
    
    27
    
    
    $
    12,322
    
    
    $
    (3,792
    )
   14




---



##### Table of Contents



Available for sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    1,660
    
    
    $
    1,675
    
    
    $
    
    
    
    $
    Due from one to five years
    
    
    14,508
    
    
    
    14,799
    
    
    
    
    
    
    
    Due from five to ten years
    
    
    26,995
    
    
    
    27,414
    
    
    
    
    
    
    
    Due after ten years
    
    
    11,331
    
    
    
    11,540
    
    
    
    4,380
    
    
    
    1,672Mortgage-backed and related securities
    
    
    37,765
    
    
    
    38,975
    
    
    
    
    
    
    
    Total debt securities
    
    
    92,259
    
    
    
    94,403
    
    
    
    4,380
    
    
    
    1,672Other securities
    
    
    57
    
    
    
    52
    
    
    
    
    
    
    
    Total
    
    $
    92,316
    
    
    $
    94,455
    
    
    $
    4,380
    
    
    $
    1,672
   15




---



##### Table of Contents



NOTE 3  LOANS
  March 31,2010Commercial and industrial
    
    $
    41,976Commercial real estate
    
    
    210,451Residential real estate and home equity
    
    
    185,705Real estate construction and land development
    
    
    25,728Consumer and credit card
    
    
    16,785480,645Add: Net deferred loan origination costs
    
    
    82Total loans receivable
    
    $
    480,727
 NOTE 4  ALLOWANCE FOR LOAN LOSSES
  Three months endedMarch 31,2010
    
    
    2009Balance at beginning of period
    
    $
    10,479
    
    
    $
    6,137Provision for loan losses
    
    
    1,961
    
    
    
    3,435Loans charged off
    
    
    (1,233
    )
    
    
    (2,654
    )Recoveries
    
    
    107
    
    
    
    102Balance at end of period
    
    $
    11,314
    
    
    $
    7,020
  March 31,
    
    
    December 31,2010
    
    
    2009Loans past due 90 days or more and still accruing
    
    $
    1,252
    
    
    $
    886Nonaccrual loans
    
    
    15,160
    
    
    
    11,275Total
    
    $
    16,412
    
    
    $
    12,161Impaired loans are as follows:Loans with no allocated allowance for unconfirmed loan losses
    
    $
    11,062
    
    
    $
    15,321Loans with allocated allowance for unconfirmed loan losses
    
    
    40,033
    
    
    
    31,985Total
    
    $
    51,095
    
    
    $
    47,306Amount of the allowance for loan losses allocated to unconfirmed
losses on impaired loans
    
    $
    7,680
    
    
    $
    6,326Average of impaired loans during the period
    
    $
    43,205
    
    
    $
    20,435
  16




---



##### Table of Contents



NOTE 5  FAIR VALUE MEASUREMENTS
   The standard describes three levels of inputs that may be used to measure fair value:
 Level 1
    

    Quoted prices in active markets for identical assets or liabilitiesLevel 2
    

    Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilitiesLevel 3
    
    Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities
  Securities
   March 31, 2010Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government and agency
obligations
    
    $
    28,626
    
    
    $
    2,033
    
    
    $
    26,593
    
    
    $
    State and municipal obligations
    
    
    25,750
    
    
    
    
    
    
    
    25,750
    
    
    
    Corporate bonds
    
    
    1,052
    
    
    
    
    
    
    
    1,052
    
    
    
    Mortgage-backed and other securities
    
    
    39,027
    
    
    
    1,135
    
    
    
    37,892
    
    
    
    Total
    
    $
    94,455
    
    
    $
    3,168
    
    
    $
    91,287
    
    
    $
    
  17




---



##### Table of Contents



December 31, 2009Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government and agency obligations
    
    $
    27,455
    
    
    $
    998
    
    
    $
    26,457
    
    
    $
    State and municipal obligations
    
    
    25,952
    
    
    
    
    
    
    
    25,952
    
    
    
    Corporate bonds
    
    
    1,039
    
    
    
    
    
    
    
    1,039
    
    
    
    Mortgage-backed and  other securities
    
    
    39,654
    
    
    
    63
    
    
    
    39,591
    
    
    
    Total
    
    $
    94,100
    
    
    $
    1,061
    
    
    $
    93,039
    
    
    $
    
  Securities
  Impaired loans
  Real Estate Owned
   18




---



##### Table of Contents



Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableFair
    
    
    Assets
    
    
    Inputs
    
    
    InputsValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)March 31, 2010Collateralized debt obligations
    
    $
    1,672
    
    
    $
    
    
    
    $
    
    
    
    $
    1,672Impaired loans
    
    
    40,907
    
    
    
    
    
    
    
    
    
    
    
    40,907Real estate owned
    
    
    2,013
    
    
    
    
    
    
    
    
    
    
    
    2,013December 31, 2009Collateralized debt obligations
    
    $
    1,752
    
    
    $
    
    
    
    $
    
    
    
    $
    1,752Impaired loans
    
    
    6,326
    
    
    
    
    
    
    
    
    
    
    
    6,326Real estate owned
    
    
    1,470
    
    
    
    
    
    
    
    
    
    
    
    1,470
  March 31,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    65,500
    
    
    $
    65,500
    
    
    $
    41,453
    
    
    $
    41,453Securities available for sale
    
    
    94,455
    
    
    
    94,455
    
    
    
    94,100
    
    
    
    94,100Securities held to maturity
    
    
    1,672
    
    
    
    1,672
    
    
    
    1,752
    
    
    
    1,752Loans held for sale
    
    
    2,313
    
    
    
    2,313
    
    
    
    2,442
    
    
    
    2,442Loans
    
    
    480,727
    
    
    
    480,526
    
    
    
    489,482
    
    
    
    490,446FHLB stock
    
    
    3,754
    
    
    
    3,754
    
    
    
    3,773
    
    
    
    3,773Accrued interest receivable
    
    
    2,266
    
    
    
    2,266
    
    
    
    2,348
    
    
    
    2,348
  19




---



##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial liabilitiesNoninterest-bearing deposits
    
    $
    61,329
    
    
    $
    61,329
    
    
    $
    60,502
    
    
    $
    60,502Interest-bearing deposits
    
    
    512,844
    
    
    
    513,321
    
    
    
    496,953
    
    
    
    497,434Federal funds purchased and
other short-term borrowings
    
    
    1,261
    
    
    
    1,261
    
    
    
    3,011
    
    
    
    3,011FHLB advances
    
    
    61,507
    
    
    
    62,180
    
    
    
    63,148
    
    
    
    64,040Accrued interest payable
    
    
    699
    
    
    
    699
    
    
    
    654
    
    
    
    654
   
 Risk Factors
   20




---



##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
  FORWARD-LOOKING STATEMENTS
    Overview of the first quarter of 2010
   21




---



##### Table of Contents




    
    The Corporations assets totaled $688,235 at March 31, 2010, compared to $675,022 at
December 31, 2009, an increase of $13,213, or 2.0%. The increase in assets was mainly
attributed to an increase in cash and cash equivalents.
 
    
    Net loss for the first three months of 2010 totaled $888, an improvement over the net
loss of $1,071 for the same period in 2009.
 
    
    The provision for loan losses totaled $1,961 for the three months ended March 31, 2010
compared to $3,435 in the first three months of 2009. DCB maintains an allowance for loan
losses at a level to absorb managements estimate of probable inherent credit losses in its
portfolio.
 
    
    The Corporation recognized a $1,030 other-than-temporary impairment charge on its
investment in collateralized debt obligations during the 2010 quarter.
 
    
    The Corporations net interest margin increased from the same period in 2009. Net
interest income increased to $5,494 for the three months ended March 31, 2010 compared to
$5,277 for the same period in 2009. The $217 increase was mainly attributed to
managements ability to re-price deposits on a year to year comparison, which helped reduce
overall funding costs.
 
    
    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. 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 Corporation
confirms this by completing regular rate shops and comparisons versus competing financial
services companies. The dominant pricing mechanism on loans is the prime interest rate as
published in the Wall Street Journal, on a fixed rate plus spread over the index. The
interest spread depends on the overall account relationship and the creditworthiness of the
borrower.
 
    
    Deposit rates are reviewed weekly by management and are generally 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, develop funding opportunities
while earning an adequate interest rate margin.
 
    
    Total borrowings decreased by 5.1%, from $66,159 at December 31, 2009, to $62,768 at
March 31, 2010. This is mainly due to a reduced reliance on borrowed funds because of the
improved ability to raise deposits from its core customer base.
 ANALYSIS OF FINANCIAL CONDITION
   22




---



##### Table of Contents



COMPARISON OF RESULTS OF OPERATIONS
 Net Loss.
 Net Interest Income.
   23




---



##### Table of Contents



Provision and Allowance for Loan Losses.
     24




---



##### Table of Contents



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 LIQUIDITY
   CAPITAL RESOURCES
     25




---



##### Table of Contents



PAYMENT DUE BY YEARLess than 1
    
    
    
    
    
    
    
    
    
    
    More thanCONTRACTUAL OBLIGATIONS
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    61,507
    
    
    $
    4,184
    
    
    $
    50,821
    
    
    $
    3,605
    
    
    $
    2,897Federal funds purchased and other
short-term borrowings
    
    
    1,261
    
    
    
    1,261
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,621
    
    
    
    699
    
    
    
    1,864
    
    
    
    1,864
    
    
    
    2,194Loan and line of credit commitments
    
    
    70,006
    
    
    
    70,006
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    139,395
    
    
    $
    76,150
    
    
    $
    52,685
    
    
    $
    5,469
    
    
    $
    5,091
  
 Quantitative and Qualitative Disclosure About Market Risk
 ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
      26




---



##### Table of Contents



Controls and Procedures
    27




---



##### Table of Contents



ISSUER PURCHASES OF EQUITY SECURITIES
 (a)
    
    
    (b)
    
    
    (c)
    
    
    (d)Maximum NumberTotal Number of
    
    
    (or ApproximateShares (or Units)
    
    
    Dollar Value) ofTotal Number
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1/1/2010 to
1/31/2010Month #2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2/1/2010 to
2/28/2010Month #3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3/1/2010 to
3/31/2010Total
    
    
    
    
    
    
    
    
    
    
    184,907
 (1)
    
    On August 16, 2007, 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 August 15,
2007.  28




---



##### Table of Contents



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
  29




---



##### Table of Contents



DCB FINANCIAL CORP
(Registrant)Date: May 17, 2010
    
    /s/ Jeffrey Benton

Jeffrey BentonPresident and Chief Executive OfficerDate: May 17, 2010
    
    /s/ John A. Ustaszewski

John A. UstaszewskiSenior Vice President and Chief Financial Officer
  30




---



##### Table of Contents



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.
  31