##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: JUNE 30, 2009
 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 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 110 Riverbend Avenue, Lewis Center, Ohio 43035
 (Registrants telephone number)
 þ o
 Yes
o No
o
  Large accelerated filers o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### Table of Contents




    
    The recognition of other-than-temporary-impairment (OTTI) for the second quarter
of $780 reflecting changes in the Banks estimates related to cash flow and credit quality on
its CDO portfolio.
    
    The Corporations net loss after tax for the three-months ending June 30, 2009 increased from $209 thousand to $721 thousand.
    
    The Corporations loss per share increased from $0.06 to $0.19 for the reported quarter.
    2




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##### 



PagePART I  FINANCIAL INFORMATIONITEM 1  Financial StatementsCondensed Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Operations
    
    
    5Condensed Consolidated Statements of Comprehensive Income (Loss)
    
    
    6Condensed Consolidated Statements of Cash Flows
    
    
    7Notes to the Condensed Consolidated Financial Statements
    
    
    8ITEM 1A  Risk Factors
    
    
    24ITEM 2  Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    26ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    33ITEM 4  Controls and Procedures
    
    
    34PART II  OTHER INFORMATION
    
    
    35SIGNATURES
    
    
    37Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   3




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##### Table of Contents



Item 1. Financial Statements
 June 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)(Restated)ASSETSCash and due from financial institutions
    
    $
    7,385
    
    
    $
    19,632Interest bearing deposits
    
    
    36,990
    
    
    
    10,000Federal funds sold and overnight investments
    
    
    10,000
    
    
    
    4,000Total cash and cash equivalents
    
    
    54,375
    
    
    
    33,632Securities available for sale, at fair value
    
    
    81,235
    
    
    
    111,360Securities held to maturity, at amortized cost
    
    
    2,812
    
    
    
    8,002Total securities
    
    
    84,047
    
    
    
    119,362Loans held for sale, at lower of cost or market
    
    
    4,819
    
    
    
    1,083Loans
    
    
    500,795
    
    
    
    513,213Less allowance for loan losses
    
    
    (7,995
    )
    
    
    (6,137
    )Net loans
    
    
    492,800
    
    
    
    507,076Real estate owned
    
    
    4,672
    
    
    
    5,071Investment in FHLB stock
    
    
    3,814
    
    
    
    3,796Premises and equipment, net
    
    
    14,970
    
    
    
    15,537Investment in unconsolidated affiliates
    
    
    1,321
    
    
    
    1,277Bank-owned life insurance
    
    
    15,957
    
    
    
    15,623Accrued interest receivable and other assets
    
    
    11,000
    
    
    
    10,107Total assets
    
    $
    687,775
    
    
    $
    712,564LIABILITIESDepositsNoninterest-bearing
    
    $
    49,952
    
    
    $
    49,018Interest-bearing
    
    
    513,655
    
    
    
    516,135Total deposits
    
    
    563,607
    
    
    
    565,153Federal funds purchased and other short-term borrowings
    
    
    4,386
    
    
    
    5,370Federal Home Loan Bank advances
    
    
    65,610
    
    
    
    83,014Accrued interest payable and other liabilities
    
    
    3,444
    
    
    
    2,968Total liabilities
    
    
    637,047
    
    
    
    656,505SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,908 issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    62,767
    
    
    
    64,933Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive income (loss)
    
    
    (2,330
    )
    
    
    835Total shareholders
equity
    
    
    50,728
    
    
    
    56,059Total liabilities and shareholders equity
    
    $
    687,775
    
    
    $
    712,564
   4




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Restated)
    
    
    
    
    
    (Restated)Interest and dividend incomeLoans
    
    $
    7,230
    
    
    $
    8,319
    
    
    $
    14,334
    
    
    $
    17,120Taxable securities
    
    
    820
    
    
    
    1,009
    
    
    
    1,847
    
    
    
    1,894Tax-exempt securities
    
    
    252
    
    
    
    249
    
    
    
    526
    
    
    
    480Federal funds sold and other
    
    
    32
    
    
    
    210
    
    
    
    109
    
    
    
    433Total interest income
    
    
    8,334
    
    
    
    9,787
    
    
    
    16,816
    
    
    
    19,927Interest expenseDeposits
    
    
    1,919
    
    
    
    3,119
    
    
    
    4,214
    
    
    
    6,690Borrowings
    
    
    836
    
    
    
    1,007
    
    
    
    1,746
    
    
    
    2,106Total interest expense
    
    
    2,755
    
    
    
    4,126
    
    
    
    5,960
    
    
    
    8,796Net interest income
    
    
    5,579
    
    
    
    5,661
    
    
    
    10,856
    
    
    
    11,131Provision for loan losses
    
    
    1,707
    
    
    
    600
    
    
    
    5,142
    
    
    
    1,200Net interest income after provision for
loan losses
    
    
    3,872
    
    
    
    5,061
    
    
    
    5,714
    
    
    
    9,931Noninterest incomeService charges on deposit accounts
    
    
    650
    
    
    
    663
    
    
    
    1,248
    
    
    
    1,274Trust department income
    
    
    234
    
    
    
    225
    
    
    
    470
    
    
    
    512Net gains on sale of securities
    
    
    462
    
    
    
    
    
    
    
    462
    
    
    
    278Net losses on sale of assets
    
    
    (135
    )
    
    
    (86
    )
    
    
    (160
    )
    
    
    (116
    )Gains on sale of loans
    
    
    139
    
    
    
    75
    
    
    
    190
    
    
    
    137Treasury management fees
    
    
    136
    
    
    
    144
    
    
    
    271
    
    
    
    251Data processing servicing fees
    
    
    138
    
    
    
    183
    
    
    
    273
    
    
    
    361Earnings on bank owned life insurance
    
    
    167
    
    
    
    165
    
    
    
    334
    
    
    
    330Total other-than-temporary impairment
losses
    
    
    (5,190
    )
    
    
    
    
    
    
    (5,190
    )
    
    
    Portion of loss recognized in other comprehensive
income (before taxes)
    
    
    4,410
    
    
    
    
    
    
    
    4,410
    
    
    
    Net impairment losses recognized in income
    
    
    (780
    )
    
    
    
    
    
    
    (780
    )
    
    
    Other
    
    
    94
    
    
    
    147
    
    
    
    195
    
    
    
    267Total noninterest income
    
    
    1,105
    
    
    
    1,516
    
    
    
    2,503
    
    
    
    3,294Noninterest expenseSalaries and employee benefits
    
    
    2,603
    
    
    
    2,561
    
    
    
    5,127
    
    
    
    5,110Occupancy and equipment
    
    
    1,087
    
    
    
    1,074
    
    
    
    2,154
    
    
    
    2,065Professional services
    
    
    360
    
    
    
    250
    
    
    
    523
    
    
    
    409Advertising
    
    
    94
    
    
    
    99
    
    
    
    185
    
    
    
    208Postage, freight and courier
    
    
    68
    
    
    
    53
    
    
    
    153
    
    
    
    144Supplies
    
    
    77
    
    
    
    81
    
    
    
    154
    
    
    
    151State franchise taxes
    
    
    169
    
    
    
    122
    
    
    
    338
    
    
    
    191Federal deposit insurance premiums
    
    
    494
    
    
    
    22
    
    
    
    654
    
    
    
    45Other
    
    
    1,322
    
    
    
    684
    
    
    
    2,061
    
    
    
    1,474Total noninterest expense
    
    
    6,274
    
    
    
    4,946
    
    
    
    11,349
    
    
    
    9,797Income (loss) before income taxes
(credits)
    
    
    (1,297
    )
    
    
    1,631
    
    
    
    (3,132
    )
    
    
    3,428Income tax expenses (credits)
    
    
    (576
    )
    
    
    407
    
    
    
    (1,339
    )
    
    
    906Net income (loss)
    
    $
    (721
    )
    
    $
    1,224
    
    
    $
    (1,793
    )
    
    $
    2,522Basic and diluted earnings (loss)
per common share
    
    $
    (0.19
    )
    
    $
    0.33
    
    
    $
    (0.48
    )
    
    $
    0.68Dividends per share
    
    $
    0.02
    
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.32
   5




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Restated)
    
    
    
    
    
    (Restated)Net income (loss)
    
    $
    (721
    )
    
    $
    1,224
    
    
    $
    (1,793
    )
    
    $
    2,522Reclassification adjustment for realized
gains included in net income, net of tax
of $157, $157 and $95 for the respective periods
    
    
    (305
    )
    
    
    
    
    
    
    (305
    )
    
    
    (183
    )Net unrealized loss on securities held-to-
maturity for which a portion of an
other-than-temporary impairment
has been recognized in income,
net of taxes of $1,499
    
    
    (2,911
    )
    
    
    
    
    
    
    (2,911
    )
    
    
    Unrealized gain (loss) on securities
available for sale, net of taxes (benefits)
of ($74), ($699), $26 and $(420) for the respective
periods
    
    
    (144
    )
    
    
    (1,357
    )
    
    
    51
    
    
    
    (816
    )Comprehensive loss
    
    $
    (4,081
    )
    
    $
    (133
    )
    
    $
    (4,958
    )
    
    $
    1,523Accumulated other comprehensive loss
    
    $
    (2,330
    )
    
    $
    (912
    )
    
    $
    (2,330
    )
    
    $
    (912
    )
   6




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Six Months EndedJune 30,2009
    
    
    2008(Restated)Cash flows provided by operating activities
    
    $
    431
    
    
    $
    3,928Cash flows provided by (used in) investing activitiesSecurities available for salePurchases
    
    
    (11,472
    )
    
    
    (46,813
    )Maturities, principal payments and calls
    
    
    25,109
    
    
    
    23,229Sales
    
    
    17,439
    
    
    
    Net change in loans
    
    
    9,324
    
    
    
    2,270Proceeds from sale of real estate owned
    
    
    645
    
    
    
    Investment in unconsolidated affiliate
    
    
    (45
    )
    
    
    Premises and equipment expenditures
    
    
    (383
    )
    
    
    (1,918
    )Net cash provided by (used in) investing activities
    
    
    40,617
    
    
    
    (23,232
    )Cash flows provided by (used in) financing activitiesNet change in deposits
    
    
    (1,546
    )
    
    
    37,660Net change in federal funds purchased and other short-term borrowings
    
    
    (984
    )
    
    
    (1,226
    )Repayment of Federal Home Loan Bank advances
    
    
    (17,404
    )
    
    
    (5,208
    )Cash dividends paid
    
    
    (371
    )
    
    
    (1,194
    )Net cash provided by (used in) financing activities
    
    
    (20,305
    )
    
    
    30,032Net change in cash and cash equivalents
    
    
    20,743
    
    
    
    10,728Cash and cash equivalents at beginning of period
    
    
    33,632
    
    
    
    32,068Cash and cash equivalents at end of period
    
    $
    54,375
    
    
    $
    42,796Supplemental disclosures of cash flow information:Cash paid during the period for:Interest on deposits and borrowings
    
    $
    6,065
    
    
    $
    8,786Income taxes
    
    $
    
    
    
    $
    850Supplemental disclosure of non-cash investing and financing
activities:Unrealized gain (loss) on securities designated as available
for sale, net of tax benefits
    
    $
    51
    
    
    $
    (816
    )Unrealized loss on securities designated as held-to-maturity, net of
tax benefits
    
    $
    (2,911
    )
    
    $
    Transfer from loans to real estate owned
    
    $
    897
    
    
    $
    2,047Loans originated upon sale of real estate owned
    
    $
    397
    
    
    $
    190Cash dividends declared but unpaid
    
    $
    74
    
    
    $
    595
   7




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Earnings
(loss) per share
 Three and Six Months EndedJune 30,2009
    
    
    2008Basic and diluted weighted-average common
shares outstanding
    
    
    3,717,385
    
    
    
    3,717,385
   8




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Stock option plan
      9




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##### Table of Contents



Six Months EndedJune 30,2009WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of period
    
    
    159,284
    
    
    $
    22.92
    
    
    9.2 yearsGranted
    
    
    55,566
    
    
    
    8.93
    
    
    10.0 yearsForfeited
    
    
    (6,139
    )
    
    
    23.78Exercised
    
    
    
    
    
    
    Outstanding at end of period
    
    
    208,711
    
    
    $
    19.59
    
    
    9.6 yearsOptions exercisable at period end
    
    
    66,069
    
    
    $
    24.77Weighted-average fair value of
options granted during the period
    
    
    
    
    
    $
    0.76
 Year EndedDecember 31,2008WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of year
    
    
    108,051
    
    
    $
    25.80
    
    
    8.9 yearsGranted
    
    
    57,643
    
    
    
    16.90
    
    
    9.8 yearsForfeited
    
    
    (6,410
    )
    
    
    22.46Exercised
    
    
    
    
    
    
    Outstanding at end of year
    
    
    159,284
    
    
    $
    22.92
    
    
    9.2 yearsOptions exercisable at year end
    
    
    39,220
    
    
    $
    26.03Weighted-average fair value of
options granted during the year
    
    
    
    
    
    $
    1.01
  10




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NUMBER OUTSTANDING
    
    RANGE OF EXERCISE PRICES99,265
    
    $23.00  $30.7053,880
    
    $16.9055,566
    
    $7.50  $9.00
 Recent Accounting Standards ,
   
     11




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
    
    It does not have the intent to sell the security; and
 
    
    It is more-likely-than-not it will not have to sell the security before recovery of its
amortized cost basis less any current period credit losses
    Subsequent Events
 Accounting for Transfers of Financial Assets: an
Amendment of FASB Statement No. 140. Accounting for the Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities
   12




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Amendments to FASB Interpretation No. 46(R)
  Application of Critical Accounting Policies
  NOTE 2  SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueJune 30, 2009U.S. Government and agency obligations
    
    $
    15,568
    
    
    $
    194
    
    
    $
    (42
    )
    
    $
    15,720State and municipal obligations
    
    
    27,624
    
    
    
    287
    
    
    
    (211
    )
    
    
    27,700Corporate bonds
    
    
    1,013
    
    
    
    
    
    
    
    (70
    )
    
    
    943Mortgage-backed securities
    
    
    36,094
    
    
    
    733
    
    
    
    (24
    )
    
    
    36,803Total debt securities
    
    
    80,299
    
    
    
    1,214
    
    
    
    (347
    )
    
    
    81,166Other securities
    
    
    57
    
    
    
    27
    
    
    
    (15
    )
    
    
    69Total
    
    $
    80,356
    
    
    $
    1,241
    
    
    $
    (362
    )
    
    $
    81,235
  13




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Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2008U.S. Government and agency obligations
    
    $
    32,492
    
    
    $
    705
    
    
    $
    
    
    
    $
    33,197State and municipal obligations
    
    
    29,221
    
    
    
    286
    
    
    
    (346
    )
    
    
    29,161Mortgage-backed securities
    
    
    48,324
    
    
    
    658
    
    
    
    (52
    )
    
    
    48,930Total debt securities
    
    
    110,037
    
    
    
    1,649
    
    
    
    (398
    )
    
    
    111,288Other securities
    
    
    57
    
    
    
    30
    
    
    
    (15
    )
    
    
    72Total
    
    $
    110,094
    
    
    $
    1,679
    
    
    $
    (413
    )
    
    $
    111,360
  Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueJune 30, 2009(Restated)Collateralized debt obligations
    
    $
    7,222
    
    
    $
    4,410
    
    
    $
    2,812
 Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueDecember 31, 2008Collateralized debt obligations
    
    $
    8,002
    
    
    $
    3,923
    
    
    $
    4,079
  (Restated)Carrying value before impairment
    
    $
    8,002Other than temporary impairment due to
credit quality issues
    
    
    (780
    )Adjusted carrying value
    
    
    7,222Other than temporary impairment not
related to credit quality issues
    
    
    (4,410
    )Total securities held to maturity
    
    $
    2,812
  14




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Credit Losses Recognized on Investments
 The following table provides information about debt securities for which only a credit loss
was recognized in income and other losses are recorded in other comprehensive income for the
periods ended June 30, 2009 and 2008.
 Accumulated Credit Losses2009
    
    
    2008Credit losses on debt securities heldBeginning of period
    
    $
    
    
    
    $
    Additions related to other-than-temporary losses not
previously recognized
    
    
    780
    
    
    
    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
    
    $
    780
    
    
    $
    
  (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
    
    
    3
    
    
    $
    3,062
    
    
    $
    (42
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    3
    
    
    $
    3,062
    
    
    $
    (42
    )State and municipal
obligations
    
    
    21
    
    
    
    7,457
    
    
    
    (122
    )
    
    
    9
    
    
    
    3,976
    
    
    
    (89
    )
    
    
    30
    
    
    
    11,433
    
    
    
    (211
    )Corporate bonds
    
    
    2
    
    
    
    943
    
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    943
    
    
    
    (70
    )Mortgage-backed and
other securities
    
    
    11
    
    
    
    560
    
    
    
    (6
    )
    
    
    9
    
    
    
    1,477
    
    
    
    (33
    )
    
    
    20
    
    
    
    2,037
    
    
    
    (39
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2,812
    
    
    
    (4,410
    )
    
    
    2
    
    
    
    2,812
    
    
    
    (4,410
    )Total temporarily
impaired securities
    
    
    37
    
    
    $
    12,022
    
    
    $
    (240
    )
    
    
    20
    
    
    $
    8,265
    
    
    $
    (4,532
    )
    
    
    57
    
    
    $
    20,287
    
    
    $
    (4,772
    )
  15




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##### Table of Contents



(Less than 12 months)
    
    
    (12 months or longer)Estimated
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    TotalDescription of
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    UnrealizedSecurities
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    lossesState and municipal
obligations
    
    
    33
    
    
    $
    12,246
    
    
    $
    (342
    )
    
    
    1
    
    
    $
    302
    
    
    $
    (2
    )
    
    
    34
    
    
    $
    12,548
    
    
    $
    (344
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    4,079
    
    
    
    (3,923
    )
    
    
    2
    
    
    
    4,079
    
    
    
    (3,923
    )Mortgage-backed
securities and other
    
    
    39
    
    
    
    6,130
    
    
    
    (37
    )
    
    
    17
    
    
    
    729
    
    
    
    (30
    )
    
    
    56
    
    
    
    6,859
    
    
    
    (67
    )Total temporarily
impaired securities
    
    
    72
    
    
    $
    18,376
    
    
    $
    (379
    )
    
    
    20
    
    
    $
    5,110
    
    
    $
    (3,955
    )
    
    
    92
    
    
    $
    23,486
    
    
    $
    (4,334
    )
      16




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    1,050
    
    
    $
    1,060Due from one to five years
    
    
    12,188
    
    
    
    12,331Due from five to ten years
    
    
    16,647
    
    
    
    16,759Due after ten years
    
    
    14,320
    
    
    
    14,213Mortgage-backed and related securities
    
    
    36,094
    
    
    
    36,803Total debt securities
    
    
    80,299
    
    
    
    81,166Other securities
    
    
    57
    
    
    
    69Total
    
    $
    80,356
    
    
    $
    81,235
   Six Months EndedJune 30,2009
    
    
    2008Proceeds from sales
    
    $
    17,439
    
    
    $
    278Gross gains
    
    
    462
    
    
    
    278
  NOTE 3  LOANS
  June 30,2009Commercial and industrial
    
    $
    47,292Commercial real estate
    
    
    208,054Residential real estate and home equity
    
    
    188,542Real estate construction and land development
    
    
    35,060Consumer and credit card
    
    
    21,740500,688Add: Net deferred loan origination costs
    
    
    107Total loans receivable
    
    $
    500,795
  17




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##### Table of Contents



NOTE 4  ALLOWANCE FOR LOAN LOSSES
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    7,020
    
    
    $
    7,775
    
    
    $
    6,137
    
    
    $
    8,298Provision for loan losses
    
    
    1,707
    
    
    
    600
    
    
    
    5,142
    
    
    
    1,200Loans charged off
    
    
    (893
    )
    
    
    (787
    )
    
    
    (3,547
    )
    
    
    (1,959
    )Recoveries
    
    
    161
    
    
    
    96
    
    
    
    263
    
    
    
    145Balance at end of period
    
    $
    7,995
    
    
    $
    7,684
    
    
    $
    7,995
    
    
    $
    7,684
  June 30,
    
    
    December 31,2009
    
    
    2008Loans past due 90 days or more and still accruing
    
    $
    691
    
    
    $
    1,146Nonaccrual loans
    
    
    5,242
    
    
    
    4,698Total
    
    $
    5,933
    
    
    $
    5,844Impaired loans were as follows:Loans with no allocated allowance for unconfirmed loan losses
    
    $
    2,216
    
    
    $
    4,644Loans with allocated allowance for unconfirmed loan losses
    
    
    14,261
    
    
    
    8,166Total
    
    $
    16,477
    
    
    $
    12,810Amount of the allowance for loan losses allocated to unconfirmed
losses on impaired loans
    
    $
    4,051
    
    
    $
    2,767Average of impaired loans during the period
    
    $
    12,171
    
    
    $
    13,301
 NOTE 5
 FAIR VALUE MEASUREMENTS
 The Corporation accounts for fair value measurements in accordance with SFAS No. 157, which
defines fair value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements.
 FAS 157 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value.
  18




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##### Table of Contents



Level 1
    
    Quoted prices in active markets for identical assets or liabilities
 Level 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 liabilities
 Level 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
 Following is a description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance sheet, as well as
the general classification of such instruments pursuant to the valuation hierarchy.
 Securities
 Where quoted market prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 securities include equity and municipal
securities. If quoted market prices are not available, then fair values are estimated by
using pricing models, quoted prices of securities with similar characteristics or discounted
cash flows. Level 2 securities include U.S. Government and agency obligations, state and
municipal obligations, corporate bonds and mortgage-backed securities. In certain cases
where Level 1 or Level 2 inputs are not available, securities are classified within Level 3
of the hierarchy and include other less liquid securities.
 The following table presents the fair value measurements of assets recognized in the
accompanying balance sheets measured at fair value on a recurring basis and the level within
the FAS 157 fair value hierarchy in which the fair value measurements fall at June 30, 2009
and December 31, 2008.
 Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsJune 30, 2009
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government and agency
obligations
    
    $
    15,720
    
    
    $
    
    
    
    $
    15,720
    
    
    $
    State and
municipal obligations
    
    
    27,700
    
    
    
    410
    
    
    
    27,290
    
    
    
    Corporate bonds
    
    
    943
    
    
    
    
    
    
    
    943
    
    
    
    Mortgage-backed and
other securities
    
    
    36,872
    
    
    
    69
    
    
    
    36,803
    
    
    
    Total
    
    $
    81,235
    
    
    $
    479
    
    
    $
    80,756
    
    
    $
    
  19




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##### Table of Contents



Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsDecember 31, 2008
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government and agency
obligations
    
    $
    33,197
    
    
    $
    
    
    
    $
    33,197
    
    
    $
    State and municipal obligations
    
    
    29,161
    
    
    
    1,926
    
    
    
    27,235
    
    
    
    Mortgage-backed and
other securities
    
    
    49,002
    
    
    
    71
    
    
    
    48,931
    
    
    
    Total
    
    $
    111,360
    
    
    $
    1,997
    
    
    $
    109,363
    
    
    $
    
  Securities
  Impaired loans
  Real Estate Owned
   Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(Restated)
    
    
    
    
    
    
    
    
    (Restated)June 30, 2009Collateralized debt
obligations
    
    $
    2,812
    
    
    $
    
    
    
    $
    
    
    
    $
    2,812Impaired loans
    
    
    13,638
    
    
    
    
    
    
    
    
    
    
    
    13,638Real estate owned
    
    
    1,717
    
    
    
    
    
    
    
    
    
    
    
    1,717December 31, 2008Impaired loans
    
    $
    5,528
    
    
    $
    
    
    
    $
    
    
    
    $
    5,528
  20




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(Restated)Financial assetsCash and cash equivalents
    
    $
    54,375
    
    
    $
    54,375
    
    
    $
    33,632
    
    
    $
    33,632Securities available for sale
    
    
    81,235
    
    
    
    81,235
    
    
    
    111,360
    
    
    
    111,360Securities held to maturity
    
    
    2,812
    
    
    
    2,812
    
    
    
    8,002
    
    
    
    4,079Loans held for sale
    
    
    4,819
    
    
    
    4,819
    
    
    
    1,083
    
    
    
    1,083Loans
    
    
    500,795
    
    
    
    503,272
    
    
    
    513,213
    
    
    
    517,956FHLB stock
    
    
    3,814
    
    
    
    3,814
    
    
    
    3,796
    
    
    
    3,796Accrued interest receivable
    
    
    2,413
    
    
    
    2,413
    
    
    
    2,790
    
    
    
    2,790Financial liabilitiesNoninterest-bearing deposits
    
    $
    49,952
    
    
    $
    49,952
    
    
    $
    49,018
    
    
    $
    49,018Interest-bearing deposits
    
    
    513,655
    
    
    
    514,386
    
    
    
    516,135
    
    
    
    508,503Federal funds purchased and
other short-term borrowings
    
    
    4,386
    
    
    
    4,386
    
    
    
    5,370
    
    
    
    5,370FHLB advances
    
    
    65,610
    
    
    
    65,187
    
    
    
    83,014
    
    
    
    82,258Accrued interest payable
    
    
    1,330
    
    
    
    1,330
    
    
    
    1,309
    
    
    
    1,309
    21




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##### Table of Contents



NOTE 6
 RESTATEMENT OF PREVIOUSLY ISSUED STATEMENTS
  Previously
    
    
    Effect ofRestated
    
    
    Reported
    
    
    ChangeCondensed Consolidated Balance Sheet at June 30, 2009:Securities held to maturity, at amortized cost
    
    $
    2,812
    
    
    $
    8,002
    
    
    $
    (5,190
    )Total securities
    
    
    84,047
    
    
    
    89,237
    
    
    
    (5,190
    )Accrued interest receivable and other assets
    
    
    11,000
    
    
    
    9,234
    
    
    
    1,766Total assets
    
    
    687,775
    
    
    
    691,199
    
    
    
    (3,424
    )Retained earnings
    
    
    62,767
    
    
    
    63,280
    
    
    
    (513
    )Accumulated other comprehensive income (loss)
    
    
    (2,330
    )
    
    
    581
    
    
    
    (2,911
    )Total shareholders equity
    
    
    50,728
    
    
    
    54,152
    
    
    
    (3,424
    )Total liabilities and shareholders equity
    
    
    687,775
    
    
    
    691,199
    
    
    
    (3,424
    )
 Previously
    
    
    Effect ofRestated
    
    
    Reported
    
    
    ChangeCondensed Consolidated Statements of Operations:Three Months Ended June 30, 2009:Total
other-than-temporary impairment losses
    
    $
    (5,190
    )
    
    $
    
    
    
    $
    (5,190
    )Portion of loss recognized in other comprehensive
income (before taxes)
    
    
    4,410
    
    
    
    
    
    
    
    4,410Net impairment losses recognized in income
    
    
    (780
    )
    
    
    
    
    
    
    (780
    )Total noninterest income
    
    
    1,105
    
    
    
    1,885
    
    
    
    (780
    )Income (loss) before income taxes (credits)
    
    
    (1,297
    )
    
    
    (517
    )
    
    
    (780
    )Income tax expenses (credits)
    
    
    (576
    )
    
    
    (308
    )
    
    
    (268
    )Net income (loss)
    
    
    (721
    )
    
    
    (209
    )
    
    
    (512
    )Basic and diluted earnings (loss)
per common share
    
    
    (0.19
    )
    
    
    (0.06
    )
    
    
    (0.13
    )
  22




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##### Table of Contents



NOTE 6
 RESTATEMENT OF PREVIOUSLY ISSUED STATEMENTS (continued)
 Previously
    
    
    Effect ofRestated
    
    
    Reported
    
    
    ChangeCondensed Consolidated Statements of Operations:Six Months Ended June 30, 2009:Total
other-than-temporary impairment losses
    
    $
    (5,190
    )
    
    $
    
    
    
    $
    (5,190
    )Portion of loss recognized in other comprehensive
income (before taxes)
    
    
    4,410
    
    
    
    
    
    
    
    4,410Net impairment losses recognized in income
    
    
    (780
    )
    
    
    
    
    
    
    (780
    )Total noninterest income
    
    
    2,503
    
    
    
    3,283
    
    
    
    (780
    )Income (loss) before income taxes (credits)
    
    
    (3,132
    )
    
    
    (2,352
    )
    
    
    (780
    )Income tax expenses (credits)
    
    
    (1,339
    )
    
    
    (1,072
    )
    
    
    (267
    )Net income (loss)
    
    
    (1,793
    )
    
    
    (1,280
    )
    
    
    (513
    )Basic and diluted earnings (loss)
per common share
    
    
    (0.48
    )
    
    
    (0.34
    )
    
    
    (0.14
    )
 Previously
    
    
    Effect ofRestated
    
    
    Reported
    
    
    ChangeCondensed Consolidated Statements of Comprehensive Income (Loss):Three Months Ended June 30, 2009:Reclassification adjustment for realized gains included in net
income, net of tax for the respective periods
    
    $
    (721
    )
    
    $
    (209
    )
    
    $
    (512
    )Net unrealized loss on securities held-to-maturity for which a
portion of an other-than-temporary impairment has been
recognized in income, net of taxes
    
    
    (2,911
    )
    
    
    
    
    
    
    (2,911
    )Comprehensive loss
    
    
    (4,081
    )
    
    
    (658
    )
    
    
    (3,423
    )Accumulated other comprehensive income (loss)
    
    
    (2,330
    )
    
    
    581
    
    
    
    (2,911
    )
  23




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##### Table of Contents



NOTE 6
 RESTATEMENT OF PREVIOUSLY ISSUED STATEMENTS (continued)
 Previously
    
    
    Effect ofRestated
    
    
    Reported
    
    
    ChangeCondensed Consolidated Statements of Comprehensive Income
(Loss):Six Months Ended June 30, 2009:Reclassification adjustment for realized gains included in net
income, net of tax for the respective periods
    
    $
    (1,793
    )
    
    $
    (1,280
    )
    
    $
    (513
    )Net unrealized loss on securities held-to-maturity for which a
portion of an other-than-temporary impairment has been
recognized in income, net of taxes
    
    
    (2,911
    )
    
    
    
    
    
    
    (2,911
    )Comprehensive loss
    
    
    (4,958
    )
    
    
    (1,534
    )
    
    
    (3,424
    )Accumulated other comprehensive income (loss)
    
    
    (2,330
    )
    
    
    581
    
    
    
    (2,911
    )
 Previously
    
    
    Effect ofRestated
    
    
    Reported
    
    
    ChangeCondensed Consolidated Statements of Cash Flows:Six Months Ended June 30, 2009:Unrealized loss on securities designated as held-to-
maturity, net of tax benefits
    
    $
    (2,911
    )
    
    $
    
    
    
    $
    (2,911
    )
 
 Risk Factors
      24




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##### Table of Contents



25




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
  FORWARD-LOOKING STATEMENTS
   Overview of the second quarter of 2009
   26




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##### Table of Contents




    
    The Corporations assets totaled $687,775 at June 30, 2009, compared to $712,564 at
December 31, 2008, a decrease of $24,789, or 3.5%. The decline is due primarily to an
overall slowdown in loan volume.
    
    Net loss for the three and six months ended June 30, 2009 totaled $721 and $1,793,
respectively, compared to net income in the same periods in 2008 of $1,224 and $2,522,
respectively.
    
    The provision for loan losses totaled $5,142 for the six months ended June 30, 2009
compared to $1,200 in the first six months of 2008. This increase is mainly attributed to
declines in overall credit quality and reserves for specific impaired loans. DCB maintains
an allowance for loan losses at a level to absorb managements estimate of probable
inherent credit losses in its portfolio.
    
    An overall decline in loan balances, period to period, contributed to the reduced
interest income. The Corporations net interest margin for the second quarter increased
slightly compared to the second quarter 2008, from 3.50% to 3.55%. Compared to the first
quarter 2009, the margin improved from 3.39% to 3.55%. This is attributed to improved
deposit and loan pricing, core deposit growth and reduced high cost broker deposits and
long-term debt.
    
    Non-interest income decreased $411 for the three months ended June 30, 2009, compared to
the same period in 2008, primarily due to a $780 write down related to
other-than-temporarily impaired securities during the quarter, partially offset by an
increase in gains on sale of loans in the secondary market.
    
    Investment securities totaling $16,977 were sold resulting in a gain on sale of $462.
Advances from the Federal Home Loan Bank totaling $13,410 were prepaid and the Corporation
incurred a prepayment fee of $533. Management expects the decrease of long term debt
corresponding to a similar decrease in investable cash balances will provide an overall
benefit by increasing net interest margin. It will also provide additional pledged assets
that can be used to secure other long term borrowing options.
    
    FDIC insurance premiums increased by $609 for the six months ended June 30, 2009,
compared to the same period in 2008, including a one-time special assessment.
    
    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 the 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
funding costs. 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 and to develop funding
opportunities while earning an adequate interest rate margin.
    
    Total borrowings decreased by 20.8%, from $88,384 at December 31, 2008, to $69,996 at
June 30, 2009. This is mainly due to managements decision to prepay long term debt to
reduce cash balances and decrease other costs on borrowed funds.
  27




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##### Table of Contents



ANALYSIS OF FINANCIAL CONDITION
     COMPARISON
OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2009 AND JUNE 30, 2008
 Net Income (Loss).
  28




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##### Table of Contents



Net Interest Income.
    Provision and Allowance for Loan Losses.
    29




---



##### Table of Contents



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 COMPARISON
OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND JUNE 30, 2008
 Net Income (Loss).
 Net Interest Income.
  Provision and Allowance for Loan Losses.
  30




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##### Table of Contents



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 LIQUIDITY
    31




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##### Table of Contents



CAPITAL RESOURCES
    PAYMENT DUE BY YEARCONTRACTUAL
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanOBLIGATIONS
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    65,610
    
    
    $
    4,928
    
    
    $
    37,160
    
    
    $
    19,764
    
    
    $
    3,758Federal funds purchased and other
short-term borrowings
    
    
    4,386
    
    
    
    4,386
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,471
    
    
    
    466
    
    
    
    1,864
    
    
    
    1,865
    
    
    
    2,276Loan and line of credit
commitments
    
    
    85,689
    
    
    
    85,689
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    162,156
    
    
    $
    95,469
    
    
    $
    39,024
    
    
    $
    21,629
    
    
    $
    6,034
  32




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##### Table of Contents



Quantitative and Qualitative Disclosure About Market Risk
 ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
        33




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##### Table of Contents



Controls and Procedures
        34




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##### Table of Contents



Item 1 
    
    Legal Proceedings:
  Item 1A 
    
    Risk Factors:
  Item 2 
    
    Unregistered Sales of Equity Securities and Use of Proceeds:
 ISSUER PURCHASES OF EQUITY SECURITIES
 (a)
    
    
    (b)
    
    
    (c)
    
    
    (d)Maximum Number(or ApproximateTotal Number of
    
    
    Dollar Value) ofShares (or Units)
    
    
    Shares (or Units)Total Number
    
    
    
    
    
    Purchased as Part
    
    
    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 
4/1/2009 to
4/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #2

5/1/2009 to
5/31/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #3

6/1/2009 to
6/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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.  35




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##### Table of Contents



Item 3 
    
    Defaults Upon Senior Securities:
  Item 4 
    
    Submission of Matters to a Vote of Security Holders:
  Proposal 1  Election of Directors
 Director
    
    Votes for
    
    
    Votes withheldJeffrey T. Benton
    
    
    2,543,860
    
    
    
    81,493Adam Stevenson
    
    
    2,559,065
    
    
    
    66,288Gary M. Skinner
    
    
    2,586,197
    
    
    
    39,156
  Item 5 
    
    Other Information:
  Item 6 
    
    Exhibits:
  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
  36




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##### Table of Contents



DCB FINANCIAL CORP
(Registrant)Date:  March 30, 2010
    /s/ Jeffrey T. BentonJeffrey T. BentonPresident and Chief Executive OfficerDate:  March 30, 2010
    /s/ John A. UstaszewskiJohn A. UstaszewskiSenior Vice President and Chief Financial Officer  37




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##### 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.
  38