##### 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: September 30, 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
  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
  o o
  Large accelerated filers o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company þ
  o þ




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##### 



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
    
    
    28ITEM 4  Controls and Procedures
    
    
    29PART II  OTHER INFORMATION
    
    
    31SIGNATURES
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Financial Statements
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCash and due from financial institutions
    
    $
    10,481
    
    
    $
    10,082Interest bearing deposits
    
    
    31,422
    
    
    
    26,371Federal funds sold and overnight investments
    
    
    
    
    
    
    5,000Total cash and cash equivalents
    
    
    41,903
    
    
    
    41,453Securities available for sale
    
    
    79,974
    
    
    
    94,100Securities held to maturity
    
    
    1,733
    
    
    
    1,752Total securities
    
    
    81,707
    
    
    
    95,852Loans held for sale, at lower of cost or fair value
    
    
    6,109
    
    
    
    2,442Loans
    
    
    448,210
    
    
    
    489,482Less allowance for loan losses
    
    
    (12,727
    )
    
    
    (10,479
    )Net loans
    
    
    435,483
    
    
    
    479,003Real estate owned
    
    
    4,704
    
    
    
    4,912Investment in FHLB stock
    
    
    3,773
    
    
    
    3,773Premises and equipment, net
    
    
    13,429
    
    
    
    14,435Investment in unconsolidated affiliates
    
    
    1,623
    
    
    
    1,439Bank-owned life insurance
    
    
    16,903
    
    
    
    16,326Deferred federal income taxes, net
    
    
    
    
    
    
    5,239Accrued interest receivable and other assets
    
    
    9,536
    
    
    
    10,148Total assets
    
    $
    615,170
    
    
    $
    675,022LIABILITIESDepositsNoninterest-bearing
    
    $
    65,943
    
    
    $
    60,502Interest-bearing
    
    
    445,879
    
    
    
    496,953Total deposits
    
    
    511,822
    
    
    
    557,455Federal funds purchased and other short-term borrowings
    
    
    1,099
    
    
    
    3,011Federal Home Loan Bank advances
    
    
    59,387
    
    
    
    63,148Accrued interest payable and other liabilities
    
    
    3,997
    
    
    
    2,065Total liabilities
    
    
    576,305
    
    
    
    625,679SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,908 issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    48,240
    
    
    
    60,213Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive income (loss)
    
    
    334
    
    
    
    (1,161
    )Total shareholders equity
    
    
    38,865
    
    
    
    49,343Total liabilities and shareholders equity
    
    $
    615,170
    
    
    $
    675,022
   3




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest and dividend incomeLoans
    
    $
    6,097
    
    
    $
    6,815
    
    
    $
    18,856
    
    
    $
    21,149Taxable securities
    
    
    621
    
    
    
    715
    
    
    
    2,026
    
    
    
    2,562Tax-exempt securities
    
    
    145
    
    
    
    233
    
    
    
    526
    
    
    
    759Federal funds sold and other
    
    
    33
    
    
    
    31
    
    
    
    79
    
    
    
    140Total interest income
    
    
    6,896
    
    
    
    7,794
    
    
    
    21,487
    
    
    
    24,610Interest expenseDeposits
    
    
    1,056
    
    
    
    1,704
    
    
    
    3,408
    
    
    
    5,918Borrowings
    
    
    686
    
    
    
    747
    
    
    
    2,069
    
    
    
    2,493Total interest expense
    
    
    1,742
    
    
    
    2,451
    
    
    
    5,477
    
    
    
    8,411Net interest income
    
    
    5,154
    
    
    
    5,343
    
    
    
    16,010
    
    
    
    16,199Provision for loan losses
    
    
    4,531
    
    
    
    1,766
    
    
    
    9,878
    
    
    
    6,908Net interest income after provision for
loan losses
    
    
    623
    
    
    
    3,577
    
    
    
    6,132
    
    
    
    9,291Noninterest incomeService charges on deposit accounts
    
    
    652
    
    
    
    692
    
    
    
    1,915
    
    
    
    1,940Trust department income
    
    
    225
    
    
    
    191
    
    
    
    718
    
    
    
    661Net gains on sale of securities
    
    
    63
    
    
    
    
    
    
    
    143
    
    
    
    462Net gains (losses) on sale of assets
    
    
    28
    
    
    
    (91
    )
    
    
    114
    
    
    
    (251
    )Gains on sale of loans
    
    
    144
    
    
    
    63
    
    
    
    251
    
    
    
    253Treasury management fees
    
    
    117
    
    
    
    107
    
    
    
    361
    
    
    
    378Data processing servicing fees
    
    
    163
    
    
    
    167
    
    
    
    463
    
    
    
    440Earnings on bank owned life insurance
    
    
    167
    
    
    
    167
    
    
    
    577
    
    
    
    501Other-Than-Temporary-LossesTotal other-than-temporary impairment losses
    
    
    
    
    
    
    (1,111
    )
    
    
    (80
    )
    
    
    (6,301
    )Portion of loss recognized in (reclassified from)
other comprehensive income (before taxes)
    
    
    
    
    
    
    (634
    )
    
    
    (950
    )
    
    
    3,776Net impairment losses recognized in income
    
    
    
    
    
    
    (1,745
    )
    
    
    (1,030
    )
    
    
    (2,525
    )Other
    
    
    152
    
    
    
    123
    
    
    
    428
    
    
    
    318Total noninterest income
    
    
    1,711
    
    
    
    (326
    )
    
    
    3,940
    
    
    
    2,177Noninterest expenseSalaries and employee benefits
    
    
    2,611
    
    
    
    2,590
    
    
    
    7,834
    
    
    
    7,717Occupancy and equipment
    
    
    1,104
    
    
    
    1,138
    
    
    
    3,149
    
    
    
    3,292Professional services
    
    
    475
    
    
    
    109
    
    
    
    1,178
    
    
    
    632Advertising
    
    
    121
    
    
    
    122
    
    
    
    294
    
    
    
    307Postage, freight and courier
    
    
    77
    
    
    
    84
    
    
    
    286
    
    
    
    237Supplies
    
    
    43
    
    
    
    63
    
    
    
    102
    
    
    
    217State franchise taxes
    
    
    152
    
    
    
    149
    
    
    
    456
    
    
    
    487Federal deposit insurance premiums
    
    
    375
    
    
    
    757
    
    
    
    1,167
    
    
    
    1,411Other
    
    
    1,284
    
    
    
    832
    
    
    
    3,001
    
    
    
    2,893Total noninterest expense
    
    
    6,242
    
    
    
    5,844
    
    
    
    17,467
    
    
    
    17,193Loss before income taxes
    
    
    (3,908
    )
    
    
    (2,593
    )
    
    
    (7,395
    )
    
    
    (5,725
    )Income tax (credits)
    
    
    5,151
    
    
    
    (1,143
    )
    
    
    4,580
    
    
    
    (2,482
    )Net loss
    
    $
    (9,059
    )
    
    $
    (1,450
    )
    
    $
    (11,975
    )
    
    $
    (3,243
    )Basic and diluted loss per common share
    
    $
    (2.44
    )
    
    $
    (0.39
    )
    
    $
    (3.22
    )
    
    $
    (0.87
    )Dividends per share
    
    $
    
    
    
    $
    0.02
    
    
    $
    
    
    
    $
    0.06
   4




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (9,059
    )
    
    $
    (1,450
    )
    
    $
    (11,975
    )
    
    $
    (3,243
    )Unrealized gain (loss) on securities
available for sale, net of taxes (benefits)
of $67, $292, $476 and $489 for
the respective periods
    
    
    325
    
    
    
    899
    
    
    
    923
    
    
    
    950Net unrealized gain (loss) on securities
held-to-maturity for which a portion
of an other-than-temporary impairment
has been recognized in income,
net of realized losses and net of taxes
of $11, $216, $344 and ($1,284)for the
respective periods
    
    
    21
    
    
    
    418
    
    
    
    667
    
    
    
    (2,492
    )Reclassification adjustment for realized
gains included in net income, net of tax
of $22, $0, $49 and $157 for the respective
periods
    
    
    (42
    )
    
    
    
    
    
    
    (95
    )
    
    
    (305
    )Comprehensive loss
    
    $
    (8,755
    )
    
    $
    (133
    )
    
    $
    (10,480
    )
    
    $
    (5,090
    )Accumulated other comprehensive
income (loss)
    
    $
    334
    
    
    $
    (1,012
    )
    
    $
    334
    
    
    $
    (1,012
    )
   5




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Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows provided by operating activities
    
    $
    1,474
    
    
    $
    5,599Cash flows provided by (used in) investing activitiesSecurities available for salePurchases
    
    
    (19,734
    )
    
    
    (35,036
    )Maturities, principal payments and calls
    
    
    25,739
    
    
    
    32,594Sales
    
    
    9,435
    
    
    
    17,439Net change in loans
    
    
    32,895
    
    
    
    11,528Proceeds from sale of real estate owned
    
    
    2,465
    
    
    
    840Investment in unconsolidated affiliate
    
    
    (184
    )
    
    
    (143
    )Premises and equipment expenditures
    
    
    (334
    )
    
    
    (646
    )Net cash provided by investing activities
    
    
    50,282
    
    
    
    26,576Cash flows provided by (used in) financing activitiesNet change in deposits
    
    
    (45,633
    )
    
    
    28,842Net change in federal funds purchased and other short-term borrowings
    
    
    (1,912
    )
    
    
    (2,249
    )Repayment of Federal Home Loan Bank advances
    
    
    (3,761
    )
    
    
    (18,838
    )Cash dividends paid
    
    
    
    
    
    
    (446
    )Net cash used in financing activities
    
    
    (51,306
    )
    
    
    7,309Net change in cash and cash equivalents
    
    
    450
    
    
    
    39,484Cash and cash equivalents at beginning of period
    
    
    41,453
    
    
    
    33,632Cash and cash equivalents at end of period
    
    $
    41,903
    
    
    $
    73,116Supplemental disclosures of cash flow information:Cash paid during the period for:Interest on deposits and borrowings
    
    $
    4,885
    
    
    $
    8,727Supplemental disclosure of non-cash investing and financing activities:Unrealized gain on securities designated as available
for sale, net of tax benefits
    
    $
    125
    
    
    $
    950Transfer from loans to real estate owned
    
    $
    2,356
    
    
    $
    1,329Loans originated upon sale of real estate owned
    
    $
    
    
    
    $
    5,331Cash dividends declared but unpaid
    
    $
    
    
    
    $
    74
   6




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Earnings (loss) per share
  Three and Nine Months EndedSeptember 30,2010
    
    
    2009Basic and diluted
weighted-average common
shares outstanding
    
    
    3,717,385
    
    
    
    3,717,385
   7




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Stock option plan
    8




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##### Table of Contents



Nine Months EndedSeptember 30,2010WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of period
    
    
    204,833
    
    
    $
    19.59
    
    
    8.6 yearsForfeited
    
    
    (31,484
    )
    
    $
    19.65Outstanding at end of period
    
    
    173,349
    
    
    $
    18.76
    
    
    6.9 yearsOptions exercisable at period end
    
    
    86,606
    
    
    $
    22.32
 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




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NUMBER OUTSTANDING
    
    RANGE OF EXERCISE PRICES77,788
    
    $23.00  $30.7047,711
    
    $16.9047,850
    
    $7.50  $9.00
 Income taxes
   Recent Accounting Standards
      10




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Application of Critical Accounting Policies
       11




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##### Table of Contents



NOTE 2  SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2010U.S. Government and agency obligations
    
    $
    29,843
    
    
    $
    1,260
    
    
    $
    (5
    )
    
    $
    31,098State and municipal obligations
    
    
    16,955
    
    
    
    748
    
    
    
    (1
    )
    
    
    17,702Mortgage-backed and related securities
    
    
    30,023
    
    
    
    1,155
    
    
    
    (4
    )
    
    
    31,174Total debt securities
    
    
    76,821
    
    
    
    3,163
    
    
    
    (10
    )
    
    
    79,974Other securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    76,821
    
    
    $
    3,163
    
    
    $
    (10
    )
    
    $
    79,974
 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
    
    
    ValueSeptember 30, 2010Collateralized debt obligations
    
    $
    4,380
    
    
    $
    (2,647
    )
    
    $
    1,733
  12




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Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueDecember 31, 2009Collateralized debt obligations
    
    $
    5,410
    
    
    $
    (3,658
    )
    
    $
    1,752
   September 30,
    
    
    December 31,2010
    
    
    2009Carrying value before impairment
    
    $
    5,410
    
    
    $
    8,031Other than temporary impairment due to
credit quality issues
    
    
    (1,030
    )
    
    
    (2,621
    )Adjusted amortized cost
    
    
    4,380
    
    
    
    5,410Other than temporary impairment not
related to credit quality issues
    
    
    (2,647
    )
    
    
    (3,658
    )Adjusted carrying value
    
    $
    1,733
    
    
    $
    1,752Fair value of securities held to maturity
    
    $
    1,733
    
    
    $
    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
    
    
    
    780Reductions 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
    
    
    $
    780
  13




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September 30, 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
    
    
    lossesU.S. Government and agency obligations
    
    
    1
    
    
    $
    995
    
    
    $
    (5
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    995
    
    
    $
    (5
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1,733
    
    
    
    (2,647
    )
    
    
    2
    
    
    
    1,733
    
    
    
    (2,647
    )State and municipal
obligations
    
    
    2
    
    
    
    815
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    815
    
    
    
    (1
    )Mortgage-backed
    
    
    1
    
    
    
    492
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    492
    
    
    
    (4
    )Total temporarily
impaired securities
    
    
    4
    
    
    $
    2,302
    
    
    $
    (10
    )
    
    
    2
    
    
    $
    1,733
    
    
    $
    (2,647
    )
    
    
    6
    
    
    $
    4,035
    
    
    $
    (2,657
    )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
    
    
    
    (3,659
    )
    
    
    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




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##### Table of Contents



Available for sale
    
    
    Held-to-maturityAdjustedAmortized
    
    
    Fair
    
    
    Carrying
    
    
    FairCost
    
    
    Value
    
    
    Value
    
    
    ValueDue in one year or less
    
    $
    964
    
    
    $
    967
    
    
    $
    
    
    
    $
    Due from one to five years
    
    
    16,616
    
    
    
    17,001
    
    
    
    
    
    
    
    Due from five to ten years
    
    
    19,119
    
    
    
    20,291
    
    
    
    
    
    
    
    Due after ten years
    
    
    10,099
    
    
    
    10,541
    
    
    
    4,380
    
    
    
    1,733Mortgage-backed and related securities
    
    
    30,023
    
    
    
    31,174
    
    
    
    
    
    
    
    Total debt securities
    
    
    76,821
    
    
    
    79,974
    
    
    
    4,380
    
    
    
    1,733Other securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    76,821
    
    
    $
    79,974
    
    
    $
    4,380
    
    
    $
    1,733
  NOTE 3  LOANS
  September 30,
    
    
    December 31,2010
    
    
    2009Commercial and industrial
    
    $
    41,608
    
    
    $
    44,123Commercial real estate
    
    
    216,599
    
    
    
    207,808Residential real estate and home equity
    
    
    154,456
    
    
    
    180,779Real estate construction and land development
    
    
    22,001
    
    
    
    37,989Consumer and credit card
    
    
    13,504
    
    
    
    18,745448,168
    
    
    
    489,444Add: Net deferred loan origination costs
    
    
    42
    
    
    
    38Total loans receivable
    
    $
    448,210
    
    
    $
    489,482
  15




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##### Table of Contents



NOTE 4  ALLOWANCE FOR LOAN LOSSES
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    13,114
    
    
    $
    7,995
    
    
    
    10,479
    
    
    $
    6,137Provision for loan losses
    
    
    4,531
    
    
    
    1,766
    
    
    
    9,878
    
    
    
    6,908Loans charged off
    
    
    (5,062
    )
    
    
    (986
    )
    
    
    (8,012
    )
    
    
    (4,533
    )Recoveries
    
    
    144
    
    
    
    73
    
    
    
    382
    
    
    
    336Balance at end of period
    
    $
    12,727
    
    
    $
    8,848
    
    
    $
    12,727
    
    
    $
    8,848
  September 30,
    
    
    December 31,2010
    
    
    2009Loans past due 90 days or more and still accruing
    
    $
    3,582
    
    
    $
    886Nonaccrual loans
    
    
    13,806
    
    
    
    11,275Total
    
    $
    17,388
    
    
    $
    12,161Impaired loans are as follows:Loans with no allocated allowance for unconfirmed loan losses
    
    $
    23,378
    
    
    $
    15,321Loans with allocated allowance for unconfirmed loan losses
    
    
    39,486
    
    
    
    31,985Total
    
    $
    62,864
    
    
    $
    47,306Amount of the allowance for loan losses allocated to unconfirmed
losses on impaired loans
    
    $
    8,254
    
    
    $
    6,326Average of impaired loans during the period
    
    $
    62,131
    
    
    $
    20,435
  16




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##### Table of Contents



NOTE 5  FAIR VALUE MEASUREMENTS
    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
   September 30, 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
    
    $
    31,098
    
    
    $
    
    
    
    $
    31,098
    
    
    $
    State and municipal obligations
    
    
    17,702
    
    
    
    
    
    
    
    17,702
    
    
    
    Mortgage-backed
    
    
    31,174
    
    
    
    
    
    
    
    31,174
    
    
    
    Total
    
    $
    79,974
    
    
    $
    
    
    
    $
    79,974
    
    
    $
    
  17




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##### 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




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##### Table of Contents



Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableFair
    
    
    Assets
    
    
    Inputs
    
    
    Inputs
    
    
    Change in FairValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Value for 2010September 30, 2010Impaired loans
    
    $
    31,232
    
    
    $
    
    
    
    $
    
    
    
    $
    31,232
    
    
    $
    3,740Real Estate Owned
    
    $
    4,605
    
    
    $
    
    
    
    $
    
    
    
    
    4,605
    
    
    $
    0Collateralized debt obligations
    
    $
    1,733
    
    
    $
    
    
    
    $
    
    
    
    $
    1,733
    
    
    $
    1,030December 31, 2009Collateralized debt obligations
    
    $
    1,752
    
    
    $
    
    
    
    $
    
    
    
    $
    1,752Impaired loans
    
    $
    6,326
    
    
    
    
    
    
    
    
    
    
    
    6,326Real estate owned
    
    $
    1,470
    
    
    
    
    
    
    
    
    
    
    
    1,470
  19




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    41,903
    
    
    $
    41,903
    
    
    $
    41,453
    
    
    $
    41,453Securities available for sale
    
    
    79,974
    
    
    
    79,974
    
    
    
    94,100
    
    
    
    94,100Securities held to maturity
    
    
    1,733
    
    
    
    1,610
    
    
    
    1,752
    
    
    
    1,752Loans held for sale
    
    
    6,109
    
    
    
    6,109
    
    
    
    2,442
    
    
    
    2,442Loans
    
    
    448,210
    
    
    
    446,159
    
    
    
    489,482
    
    
    
    490,446FHLB stock
    
    
    3,773
    
    
    
    3,773
    
    
    
    3,773
    
    
    
    3,773Accrued interest receivable
    
    
    2,231
    
    
    
    2,231
    
    
    
    2,348
    
    
    
    2,348Financial liabilitiesNoninterest-bearing deposits
    
    $
    65,943
    
    
    $
    65,943
    
    
    $
    60,502
    
    
    $
    60,502Interest-bearing deposits
    
    
    445,879
    
    
    
    445,849
    
    
    
    496,953
    
    
    
    497,434Federal funds purchased and
other short-term borrowings
    
    
    1,099
    
    
    
    1,099
    
    
    
    3,011
    
    
    
    3,011FHLB advances
    
    
    59,387
    
    
    
    61,927
    
    
    
    63,148
    
    
    
    64,040Accrued interest payable
    
    
    591
    
    
    
    591
    
    
    
    654
    
    
    
    654
   
 Risk Factors
      20




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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 Third Quarter of 2010
    21




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##### Table of Contents




    
    As previously noted on Form 8-K filed with the Securities Exchange Commission, the Bank
has entered into a Consent Order (Order) with the Federal Deposit Insurance Corp, and a
Written Agreement (Agreement) with the Ohio Division of Financial Institutions. Among
other items, the Bank is required to achieve and maintain a 9% tier-1 capital ratio and a
13% total risk-weighted capital ratio while operating under the Order and Agreement.
    
    Net loss for the three and nine months ended September 30, 2010 totaled $9,059 and
$11,975, compared to a net loss in the same periods in 2009 of $1,450 and $3,243
respectively. The increase in loss during the comparable periods is mainly attributed to
increase provision expense and the recording of an allowance for the Corporations deferred
tax assets.
    
    The provision for loan losses totaled $4,531 and $9,878 for the three and nine months
ended September 30, 2010, compared to $1,766 and $6,908 in the same respective periods in
2009. The increase is mainly attributed to declines in overall credit quality coupled with
increased provision 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 earning assets, period to period, contributed to the reduced
interest income. Loans declined by $41.3 million from $489.5 million to $448.2 million at
September 30, 2010. Additionally, the Corporations available-for-sale investment portfolio
declined by $14.1 million to $79.9 million at quarter-end. The declines in earning assets
is attributed to reduced loan volume attributed to lower market activity and the
liquidation of securities to provide liquidity for the Corporation.
    
    The Corporations net interest margin for the third quarter increased slightly compared
to the second quarter 2010, from 3.57% to 3.59%. This is attributed to improved deposit
and loan pricing, core deposit growth and reduced high cost broker deposits and long-term
debt.
    
    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.
  22




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##### Table of Contents




    
    Total borrowings decreased by $3.7 million from $63.1 million at December 31, 2009, to
$59.4 million at September 30, 2010. This is mainly due to managements decision to
continue to reduce long term debt in order to lower the costs associated with long-term
debt compared to deposits.
    
    Management reduced deposits by $45.6 million, or 8.2%, from December 31, 2009 by
primarily focusing on reducing reliance on large time deposits from non-core customers and
CDARs time deposits.
 ANALYSIS OF FINANCIAL CONDITION
    COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009
   23




---



##### Table of Contents



Net Interest Income
   Noninterest Income
  Noninterest Expense
  Tax Expense
  Credit Quality Review
   24




---



##### Table of Contents



Provision and Allowance for Loan Losses
  Charge-offs
  COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2010 AND SEPTEMBER 30, 2009
 Net Loss.
 Net Interest Income.
 Provision and Allowance for Loan Losses.
   25




---



##### Table of Contents



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 LIQUIDITY
    CAPITAL RESOURCES
   26




---



##### Table of Contents



PAYMENT DUE BY YEARCONTRACTUAL
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanOBLIGATIONS
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    59,387
    
    
    $
    8,854
    
    
    $
    45,129
    
    
    $
    2,620
    
    
    $
    2,784Federal funds purchased and other
short-term borrowings
    
    
    1,099
    
    
    
    1,099
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    5,979
    
    
    
    757
    
    
    
    1,864
    
    
    
    1,896
    
    
    
    1,462Loan and line of credit
commitments
    
    
    72,977
    
    
    
    72,977
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    139,442
    
    
    $
    83,687
    
    
    $
    46,993
    
    
    $
    4,516
    
    
    $
    4,246
  27




---



##### Table of Contents



Quantitative and Qualitative Disclosure About Market Risk
 ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
        28




---



##### Table of Contents



Controls and Procedures
    29




---



##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7/1/2010 to 7/31/2010Month #2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8/1/2010 to 8/31/2010Month #3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9/1/2010 to 9/30/2010Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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.    30




---



##### 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
  31




---



##### Table of Contents



DCB FINANCIAL CORP
(Registrant)Date:  November 15, 2010
    /s/ David FolkweinDavid FolkweinInterim President and Chief Executive OfficerDate:  November 15, 2010
    /s/ John A. UstaszewskiJohn A. UstaszewskiSenior Vice President and Chief Financial Officer  32




---



##### 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 Interim President and 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.
  33