##### 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, 2011
 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
    
    
    28ITEM 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    34ITEM 4  Controls and Procedures
    
    
    35PART II  OTHER INFORMATION
    
    
    36SIGNATURES
    
    
    38Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



Item 1.
    
    Financial Statements
 March 31,
    
    
    December 31,2011
    
    
    2010(unaudited)ASSETSCash and due from financial institutions
    
    $
    10,461
    
    
    $
    10,024Interest-bearing deposits
    
    
    64,714
    
    
    
    23,497Total cash and cash equivalents
    
    
    75,175
    
    
    
    33,521Securities available-for-sale
    
    
    67,045
    
    
    
    69,597Securities held-to-maturity
    
    
    1,238
    
    
    
    1,313Total securities
    
    
    68,283
    
    
    
    70,910Loans held for sale, at lower of cost or fair value
    
    
    353
    
    
    
    753Loans
    
    
    408,244
    
    
    
    424,864Less allowance for loan losses
    
    
    (10,300
    )
    
    
    (12,247
    )Net loans
    
    
    397,944
    
    
    
    412,617Real estate owned
    
    
    4,611
    
    
    
    5,284Investment in FHLB stock
    
    
    3,799
    
    
    
    3,799Premises and equipment, net
    
    
    12,898
    
    
    
    13,175Bank-owned life insurance
    
    
    17,240
    
    
    
    17,073Accrued interest receivable and other assets
    
    
    7,539
    
    
    
    7,973Total assets
    
    $
    587,842
    
    
    $
    565,105LIABILITIESDepositsNoninterest-bearing
    
    $
    63,384
    
    
    $
    63,695Interest-bearing
    
    
    425,761
    
    
    
    401,381Total deposits
    
    
    489,145
    
    
    
    465,076Federal funds purchased and other short-term borrowings
    
    
    1,161
    
    
    
    1,265Federal Home Loan Bank advances
    
    
    57,655
    
    
    
    58,502Accrued interest payable and other liabilities
    
    
    2,384
    
    
    
    2,848Total liabilities
    
    
    550,345
    
    
    
    527,691SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized, 4,273,908 issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    47,919
    
    
    
    47,883Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive loss
    
    
    (713
    )
    
    
    (760
    )Total shareholders equity
    
    
    37,497
    
    
    
    37,414Total liabilities and shareholders equity
    
    $
    587,842
    
    
    $
    565,105
   3




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##### Table of Contents



Three Months EndedMarch 31,2011
    
    
    2010Interest and dividend incomeLoans
    
    $
    5,328
    
    
    $
    6,456Taxable securities
    
    
    510
    
    
    
    722Tax-exempt securities
    
    
    93
    
    
    
    199Federal funds sold and other
    
    
    21
    
    
    
    18Total interest income
    
    
    5,952
    
    
    
    7,395Interest expenseDeposits
    
    
    702
    
    
    
    1,210Borrowings
    
    
    637
    
    
    
    691Total interest expense
    
    
    1,339
    
    
    
    1,901Net interest income
    
    
    4,613
    
    
    
    5,494Provision for loan losses
    
    
    675
    
    
    
    1,961Net interest income after provision for loan losses
    
    
    3,938
    
    
    
    3,533Noninterest incomeService charges on deposit accounts
    
    
    651
    
    
    
    605Trust department income
    
    
    259
    
    
    
    225Net gain on sales of assets
    
    
    111
    
    
    
    98Gains on sale of loans
    
    
    18
    
    
    
    29Treasury management fees
    
    
    107
    
    
    
    130Data processing servicing fees
    
    
    141
    
    
    
    132Earnings on bank owned life insurance
    
    
    167
    
    
    
    167Total other-than-temporary impairment losses
    
    
    (75
    )
    
    
    (80
    )Portion of loss recognized in (reclassified from) other comprehensive loss (before taxes)
    
    
    (17
    )
    
    
    (950
    )Net impairment losses recognized in income
    
    
    (92
    )
    
    
    (1,030
    )Other
    
    
    140
    
    
    
    80Total noninterest income
    
    
    1,502
    
    
    
    436Noninterest expenseSalaries and other employee benefits
    
    
    2,405
    
    
    
    2,624Occupancy and equipment
    
    
    1,027
    
    
    
    1,030Professional services
    
    
    406
    
    
    
    307Advertising
    
    
    86
    
    
    
    74Postage, freight and courier
    
    
    95
    
    
    
    87Supplies
    
    
    38
    
    
    
    30State franchise taxes
    
    
    125
    
    
    
    152Federal deposit insurance premiums
    
    
    407
    
    
    
    396Other
    
    
    842
    
    
    
    788Total noninterest expense
    
    
    5,431
    
    
    
    5,488Net income (loss) before income tax credits
    
    
    9
    
    
    
    (1,519
    )Income tax credits
    
    
    (24
    )
    
    
    (631
    )Net income (loss)
    
    $
    33
    
    
    $
    (888
    )Basic and diluted income (loss) per common share
    
    $
    (0.00
    )
    
    $
    (0.24
    )Dividends per share
    
    $
    
    
    
    $
    
   4




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Three Months EndedMarch 31,2011
    
    
    2010Net income (loss)
    
    $
    33
    
    
    $
    (888
    )Reclassification adjustment for other-than-temporary impairment loss recognized in income, net of taxes of $0 and $323
    
    
    
    
    
    
    627Unrealized gains on securities available-for-sale, net of taxes of $18 and $74 for the respective periods
    
    
    35
    
    
    
    144Net 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 $6 and $0
    
    
    11
    
    
    
    Comprehensive income (loss)
    
    $
    79
    
    
    $
    (117
    )
   5




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##### Table of Contents



Three Months EndedMarch 31,2011
    
    
    2010Cash flows provided by (used in) operating activities
    
    $
    (1,046
    )
    
    $
    2,716Cash flows provided by investing activitiesSecuritiesPurchases
    
    
    (3,003
    )
    
    
    (9,861
    )Maturities, principal payments and calls
    
    
    5,759
    
    
    
    9,481Net change in loans
    
    
    16,620
    
    
    
    7,740Proceeds from sale of real estate owned
    
    
    271
    
    
    
    688Investment in unconsolidated affiliate
    
    
    
    
    
    
    5Premises and equipment expenditures
    
    
    (65
    )
    
    
    (49
    )Net cash flows provided by investing activities
    
    
    19,582
    
    
    
    8,004Cash flows provided by financing activitiesNet change in deposits
    
    
    24,069
    
    
    
    16,718Net change in federal funds purchased and other short-term borrowings
    
    
    (104
    )
    
    
    (1,750
    )Repayment of Federal Home Loan Bank advances
    
    
    (847
    )
    
    
    (1,641
    )Net cash provided by financing activities
    
    
    23,118
    
    
    
    13,327Net change in cash and cash equivalents
    
    
    41,654
    
    
    
    24,047Cash and cash equivalents at beginning of period
    
    
    33,521
    
    
    
    41,453Cash and cash equivalents at end of period
    
    $
    75,175
    
    
    $
    65,500Supplemental disclosures of cash flow information:Cash paid during the period for:Interest on deposits and borrowings
    
    $
    1,315
    
    
    $
    1,996Supplemental disclosure of non-cash investing and financing activities:Transfers from loans to real estate owned
    
    $
    33
    
    
    $
    16Cash dividends declared but unpaid
    
    $
    
    
    
    $
    
   6




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Earnings per share
  Three Months EndedMarch 31,2011
    
    
    2010Weighted-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




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Stock option plan
    8




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##### Table of Contents



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Three Months EndedMarch 31,2011WeightedAverageWeighted
    
    
    RemainingAverage Exercise
    
    
    ContractualShares
    
    
    Price
    
    
    LifeOutstanding at beginning of period
    
    
    285,806
    
    
    $
    11.87
    
    
    8.6 yearsForfeited
    
    
    (352
    )
    
    
    3.50Outstanding at end of period
    
    
    285,454
    
    
    $
    12.11
    
    
    7.86 yearsOptions exercisable at period end
    
    
    93,330
    
    
    $
    21.81Year EndedDecember 31,2010WeightedWeighted
    
    
    Average 
RemainingAverage Exercise
    
    
    ContractualShares
    
    
    Price
    
    
    LifeOutstanding at beginning of year
    
    
    204,883
    
    
    $
    24.77
    
    
    8.6 yearsGranted
    
    
    131,816
    
    
    
    3.50
    
    
    9.9 yearsForfeited
    
    
    (50,893
    )
    
    
    21.30Outstanding at end of year
    
    
    285,806
    
    
    $
    11.87
    
    
    8.6 yearsOptions exercisable at year end
    
    
    81,800
    
    
    $
    18.27Weighted-average fair value of
options granted during the year
    
    
    
    
    
    $
    0.76
  9




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Range ofNumber Outstanding
    
    Exercise Prices73,942
    
    $23.00  $30.7044,299
    
    $14.15  $16.90167,233
    
    $3.50  $9.00
 Application of Critical Accounting Policies
       10




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Loans:
  Allowance for Loan Losses:
    11




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##### Table of Contents



NOTE 2  SECURITIES
  March 31, 2011
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCosts
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Government and agency obligations
    
    $
    30,484
    
    
    $
    617
    
    
    $
    (82
    )
    
    $
    31,019State and municipal obligations
    
    
    11,998
    
    
    
    203
    
    
    
    (61
    )
    
    
    12,140Mortgage-backed securities
    
    
    22,866
    
    
    
    1,020
    
    
    
    
    
    
    
    23,886Total
    
    $
    65,348
    
    
    $
    1,840
    
    
    $
    (143
    )
    
    $
    67,045
  Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    ValueCollateralized Debt Obligations
    
    $
    1,238
    
    
    $
    542
    
    
    $
    1,780
 December 31, 2010
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCosts
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Government and agency obligations
    
    $
    29,510
    
    
    $
    599
    
    
    $
    (123
    )
    
    $
    29,986State and municipal obligations
    
    
    12,153
    
    
    
    193
    
    
    
    (84
    )
    
    
    12,262Mortgage-backed securities
    
    
    29,290
    
    
    
    1,059
    
    
    
    
    
    
    
    27,349Total
    
    $
    67,953
    
    
    $
    1,851
    
    
    $
    (207
    )
    
    $
    69,597
  Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    ValueCollateralized Debt Obligations
    
    $
    1,313
    
    
    $
    367
    
    
    $
    1,680
  12




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NOTE 2  SECURITIES
 Credit Losses Recognized on Investments
   Three Months EndedMarch 31,2011
    
    
    2010Credit losses on debt securities heldBeginning of period
    
    $
    3,924
    
    
    $
    2,621Additions related to other-than-temporary losses not
previously recognized
    
    
    92
    
    
    
    1,030Reductions 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
    
    $
    4,016
    
    
    $
    3,651
  13




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NOTE 2  SECURITIES
  March 31, 2011
 (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
    
    
    8
    
    
    $
    7,925
    
    
    $
    (82
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    8
    
    
    $
    7,925
    
    
    $
    (82
    )State and municipal
obligations
    
    
    5
    
    
    
    2,034
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    2,034
    
    
    
    (61
    )Total securities
    
    
    13
    
    
    $
    9,959
    
    
    $
    (143
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    13
    
    
    $
    9,959
    
    
    $
    (143
    )December 31, 2010(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
    
    
    10
    
    
    $
    9,904
    
    
    $
    (123
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    10
    
    
    $
    9,904
    
    
    $
    (123
    )State and municipal
obligations
    
    
    9
    
    
    
    3,575
    
    
    
    (84
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    3,575
    
    
    
    (84
    )Total securities
    
    
    19
    
    
    $
    13,479
    
    
    $
    (207
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    19
    
    
    $
    13,429
    
    
    $
    (207
    )
    14




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NOTE 2  SECURITIES
     Available-for-sale
    
    
    Held-to-maturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    300
    
    
    $
    300
    
    
    $
    
    
    
    $
    Due from one to five years
    
    
    19,757
    
    
    
    19,945
    
    
    
    
    
    
    
    Due from five to ten years
    
    
    14,693
    
    
    
    15,127
    
    
    
    
    
    
    
    Due after ten years
    
    
    7,732
    
    
    
    7,787
    
    
    
    1,238
    
    
    
    1,780Mortgage-backed and
related securities
    
    
    22,866
    
    
    
    23,886
    
    
    
    
    
    
    
    Total
    
    $
    65,348
    
    
    $
    67,045
    
    
    $
    1,238
    
    
    $
    1,780
   15




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##### Table of Contents



NOTE 3  LOANS
  March 31,
    
    
    December 31,2011
    
    
    2010Commercial and industrial
    
    $
    143,584
    
    
    $
    155,410Commercial real estate
    
    
    133,628
    
    
    
    135,035Residential real estate and home equity
    
    
    91,553
    
    
    
    93,646Real estate construction and land development
    
    
    17,517
    
    
    
    17,339Consumer and credit card
    
    
    21,940
    
    
    
    23,411408,222
    
    
    
    424,841Add: Net deferred loan origination costs
    
    
    22
    
    
    
    23Total loans receivable
    
    $
    408,244
    
    
    $
    424,864
  16




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NOTE 4  CREDIT QUALITY
 Allowance for Credit Losses
  Three Months Ended March 31, 2011
 ResidentialReal EstateConsumer and
    
    
    Commercial and
    
    
    Commercial
    
    
    and HomeCredit Card
    
    
    Industrial
    
    
    Real Estate
    
    
    Equity
    
    
    TotalBeginning Balance
    
    $
    796
    
    
    $
    4,174
    
    
    $
    6,786
    
    
    $
    491
    
    
    $
    12,247Charge Offs
    
    
    (117
    )
    
    
    (1,419
    )
    
    
    (1,159
    )
    
    
    (35
    )
    
    
    (2,730
    )Recoveries
    
    
    70
    
    
    
    35
    
    
    
    
    
    
    
    3
    
    
    
    108Provision
    
    
    6
    
    
    
    (877
    )
    
    
    1,515
    
    
    
    31
    
    
    
    675Ending Balance
    
    $
    755
    
    
    $
    1,913
    
    
    $
    7,142
    
    
    $
    490
    
    
    $
    10,300Individually
evaluated for
impairment
    
    $
    
    
    
    $
    651
    
    
    $
    5,612
    
    
    $
    
    
    
    $
    6,263Collectively
evaluated for
impairment
    
    
    755
    
    
    
    1,262
    
    
    
    1,530
    
    
    
    490
    
    
    
    4,037Ending Balance
    
    $
    755
    
    
    $
    1,913
    
    
    $
    7,142
    
    
    $
    490
    
    
    $
    10,300Financing ReceivablesIndividually
evaluated for
impairment
    
    $
    
    
    
    $
    15,425
    
    
    $
    36,003
    
    
    $
    
    
    
    $
    51,428Collectively
evaluated for
impairment
    
    
    21,940
    
    
    
    128,159
    
    
    
    115,142
    
    
    
    91,553
    
    
    
    356,794Total
    
    $
    21,940
    
    
    $
    143,584
    
    
    $
    151,145
    
    
    $
    91,553
    
    
    $
    408,222
  17




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##### Table of Contents



NOTE 4  CREDIT QUALITY
 Year Ended December 31, 2010
 ResidentialReal EstateConsumer and
    
    
    Commercial and
    
    
    Commercial
    
    
    and HomeCredit Card
    
    
    Industrial
    
    
    Real Estate
    
    
    Equity
    
    
    TotalBeginning Balance
    
    $
    874
    
    
    $
    2,476
    
    
    $
    6,817
    
    
    $
    312
    
    
    $
    10,479Charge Offs
    
    
    (824
    )
    
    
    (2,261
    )
    
    
    (6,175
    )
    
    
    (498
    )
    
    
    (9,758
    )Recoveries
    
    
    200
    
    
    
    270
    
    
    
    4
    
    
    
    12
    
    
    
    486Provision
    
    
    546
    
    
    
    3,689
    
    
    
    6,140
    
    
    
    665
    
    
    
    11,040Ending Balance
    
    $
    796
    
    
    $
    4,174
    
    
    $
    6,786
    
    
    $
    491
    
    
    $
    12,247Individually
evaluated for
impairment
    
    $
    
    
    
    $
    2,812
    
    
    $
    5,158
    
    
    $
    
    
    
    $
    7,970Collectively
evaluated for
impairment
    
    
    796
    
    
    
    1,362
    
    
    
    1,628
    
    
    
    491
    
    
    
    4,277Ending Balance
    
    $
    796
    
    
    $
    4,174
    
    
    $
    6,786
    
    
    $
    491
    
    
    $
    12,247Financing ReceivablesIndividually
evaluated for
impairment
    
    $
    
    
    
    $
    18,967
    
    
    $
    42,104
    
    
    $
    
    
    
    $
    61,071Collectively
evaluated for
impairment
    
    
    23,411
    
    
    
    136,144
    
    
    
    110,270
    
    
    
    93,646
    
    
    
    363,770Total
    
    $
    23,411
    
    
    $
    155,410
    
    
    $
    152,374
    
    
    $
    93,646
    
    
    $
    424,841
  18




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##### Table of Contents



NOTE 4  CREDIT QUALITY
 Impaired Loans
   At March 31, 2011
 Unpaid
    
    
    
    
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedWith No
Related Allowance RecordedConsumer and Credit Card
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial and Industrial
    
    
    4,542
    
    
    
    5,245
    
    
    
    
    
    
    
    5,170
    
    
    
    63Commercial Real Estate
    
    
    12,713
    
    
    
    13,415
    
    
    
    
    
    
    
    16,009
    
    
    
    178Residential RE and Home
Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    With Allowance RecordedConsumer and Credit Card
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and Industrial
    
    
    10,883
    
    
    
    12,435
    
    
    
    651
    
    
    
    12,280
    
    
    
    195Commercial Real Estate
    
    
    23,290
    
    
    
    28,200
    
    
    
    5,612
    
    
    
    23,958
    
    
    
    186Residential RE and Home
Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalConsumer and Credit Card
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and Industrial
    
    
    15,425
    
    
    
    17,680
    
    
    
    651
    
    
    
    17,450
    
    
    
    258Commercial Real Estate
    
    
    36,003
    
    
    
    41,615
    
    
    
    5,612
    
    
    
    39,967
    
    
    
    364Residential RE and Home
Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    51,428
    
    
    $
    59,295
    
    
    $
    6,263
    
    
    $
    57,417
    
    
    $
    622
  19




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##### Table of Contents



NOTE 4  CREDIT QUALITY
 At December 31, 2010
 Unpaid
    
    
    
    
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedWith No
Related Allowance RecordedConsumer and Credit Card
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial and Industrial
    
    
    5,615
    
    
    
    5,757
    
    
    
    
    
    
    
    4,196
    
    
    
    295Commercial Real Estate
    
    
    17,529
    
    
    
    20,855
    
    
    
    
    
    
    
    14,597
    
    
    
    993Residential RE and Home
Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    With Allowance RecordedConsumer and Credit Card
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and Industrial
    
    
    13,352
    
    
    
    15,238
    
    
    
    2,812
    
    
    
    13,651
    
    
    
    741Commercial Real Estate
    
    
    24,575
    
    
    
    28,823
    
    
    
    5,158
    
    
    
    25,209
    
    
    
    821Residential RE and Home
Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalConsumer and Credit Card
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial and Industrial
    
    
    18,967
    
    
    
    20,995
    
    
    
    2,812
    
    
    
    17,847
    
    
    
    1,036Commercial Real Estate
    
    
    42,104
    
    
    
    49,678
    
    
    
    5,158
    
    
    
    39,806
    
    
    
    1,814Residential RE and Home
Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    61,071
    
    
    $
    70,673
    
    
    $
    7,970
    
    
    $
    57,653
    
    
    $
    2,850
   March 31,
    
    
    December 31,2011
    
    
    2010Consumer and credit card
    
    $
    102
    
    
    $
    33Commercial and industrial
    
    
    3,952
    
    
    
    6,043Commercial real estate
    
    
    12,235
    
    
    
    10,102Residential real estate and home equity
    
    
    869
    
    
    
    389Total
    
    $
    17,158
    
    
    $
    16,567
  20




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##### Table of Contents



NOTE 4  CREDIT QUALITY
 Credit Quality Indicators
  Commercial and
    
    
    Commercial RealCategory
    
    Industrial
    
    
    EstatePrime-1
    
    $
    8,312
    
    
    $
    561Good-2
    
    
    19,746
    
    
    
    18,675Fair-3
    
    
    55,852
    
    
    
    29,177Compromised-4
    
    
    30,414
    
    
    
    32,653Vulnerable-5
    
    
    20,032
    
    
    
    6,144Substandard-6
    
    
    9,228
    
    
    
    63,935Doubtful-7
    
    
    
    
    
    
    Loss-8
    
    
    
    
    
    
    Total
    
    $
    143,584
    
    
    $
    151,145
  Commercial and
    
    
    Commercial RealCategory
    
    Industrial
    
    
    EstatePrime-1
    
    $
    8,459
    
    
    $
    561Good-2
    
    
    22,355
    
    
    
    20,404Fair-3
    
    
    45,853
    
    
    
    39,067Compromised-4
    
    
    31,628
    
    
    
    27,692Vulnerable-5
    
    
    22,154
    
    
    
    11,785Substandard-6
    
    
    24,959
    
    
    
    52,865Doubtful-7
    
    
    2
    
    
    
    Loss-8
    
    
    
    
    
    
    Total
    
    $
    155,410
    
    
    $
    152,374
 Risk Category Descriptions
 Prime  1
  Good  2
   21




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##### Table of Contents



NOTE 4  CREDIT QUALITY
 Fair  3
  Compromised  4
  
    
    At inception, the loan was properly underwritten and did not possess an
unwarranted level of credit risk; also the loan met the above criteria for a risk grade
of 1 (Prime), 2 (Good), 3 (Fair) or 4 (Compromised).
 
    
    At inception, the loan was secured with collateral possessing a loan-to-value
adequate to protect the Bank from loss.
 
    
    The loan exhibited two or more years of satisfactory repayment with a reasonable
reduction of the principal balance.
 
    
    During the period that the loan has been outstanding, there has been no evidence of
any credit weakness. Some examples of weakness include slow payment, lack of
cooperation by the borrower, breach of loan covenants, or the business is in an
industry which is known to be experiencing problems. If any of these credit weaknesses
is observed, a lower risk grade may be warranted.
 Vulnerable (Special Mention)  5
 unwarranted
 Substandard  6
  
    
    Loans, which possess a defined credit weakness and the likelihood that a loan will
be paid from the primary source, is uncertain. Financial deterioration is underway and
very close attention is warranted to ensure that the loan is collected without loss.
 
    
    Loans are inadequately protected by the current net worth and paying capacity of the
obligor.
 
    
    The primary source of repayment is gone, and the Bank is forced to rely on a
secondary source of repayment such as collateral liquidation or guarantees.
 
    
    Loans are characterized by the distinct possibility that the Bank will sustain some
loss if deficiencies are not corrected.
 
    
    Unusual courses of action are needed to maintain a high probability of repayment.
 
    
    The borrower is not generating enough cash flow to repay loan principal; however,
continues to make interest payments.
 
    
    The lender is forced into a subordinated or unsecured position due to flaws in
documentation.
 
    
    Loans have been restructured so that payment schedules, terms and collateral
represent concessions to the borrower when compared to the normal loan terms.
 
    
    The lender is seriously contemplating foreclosure or legal action due to the
apparent deterioration in the loan.
 
    
    There is a significant deterioration in the market conditions and the borrower is
highly vulnerable to these conditions.
  22




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##### Table of Contents



NOTE 4  CREDIT QUALITY
 Doubtful  7
  
    
    Loans have all of the weaknesses of those classified as Substandard. Additionally,
however, these weaknesses make collection or liquidation in full based on existing
conditions improbable.
 
    
    The primary source of repayment is gone, and there is considerable doubt as to the
quality of the secondary source of repayment.
 
    
    The possibility of loss is high, but, because of certain important pending factors,
which may strengthen the loan, loss classification is deferred until its exact status
is known. A Doubtful classification is established during this period of deferring the
realization of the loss.
 Loss  8
  Consumer Risk
  Residential RealConsumer and
    
    
    Estate and HomePayment Category
    
    Credit Card
    
    
    EquityPerforming
    
    $
    21,425
    
    
    $
    90,587Non-Performing
    
    
    515
    
    
    
    966Total
    
    $
    21,940
    
    
    $
    91,553
  Residential RealConsumer and
    
    
    Estate and HomePayment Category
    
    Credit Card
    
    
    EquityPerforming
    
    $
    22,970
    
    
    $
    92,832Non-Performing
    
    
    441
    
    
    
    814Total
    
    $
    23,411
    
    
    $
    93,646
  23




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##### Table of Contents



NOTE 4  CREDIT QUALITY
 Age Analysis of Past Due Loans
  Recorded60-89
    
    
    Greater
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    InvestmentDays
    
    
    than 90
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    > 90 days30-59 Days
    
    
    Past
    
    
    Days Past
    
    
    Total
    
    
    
    
    
    
    Financing
    
    
    andCategory
    
    Past Due
    
    
    Due
    
    
    Due
    
    
    Past Due
    
    
    Current
    
    
    Receivables
    
    
    AccruingConsumer and Credit
Card
    
    $
    189
    
    
    $
    130
    
    
    $
    575
    
    
    $
    894
    
    
    $
    21,046
    
    
    $
    21,940
    
    
    $
    413Commercial and
Industrial
    
    
    179
    
    
    
    348
    
    
    
    1,359
    
    
    
    1,886
    
    
    
    141,698
    
    
    
    143,584
    
    
    
    990Commercial Real
Estate
    
    
    171
    
    
    
    574
    
    
    
    9,889
    
    
    
    10,634
    
    
    
    140,511
    
    
    
    151,145
    
    
    
    35Residential Real
Estate and Home
Equity
    
    
    1,415
    
    
    
    14
    
    
    
    746
    
    
    
    2,175
    
    
    
    89,378
    
    
    
    91,553
    
    
    
    98Total
    
    $
    1,954
    
    
    $
    1,066
    
    
    $
    12,569
    
    
    $
    15,589
    
    
    $
    392,633
    
    
    $
    408,222
    
    
    $
    1,536
  Recorded60-89
    
    
    Greater
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    InvestmentDays
    
    
    than 90
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    > 90 days30-59 Days
    
    
    Past
    
    
    Days Past
    
    
    Total
    
    
    
    
    
    
    Financing
    
    
    andCategory
    
    Past Due
    
    
    Due
    
    
    Due
    
    
    Past Due
    
    
    Current
    
    
    Receivables
    
    
    AccruingConsumer and Credit
Card
    
    $
    300
    
    
    $
    104
    
    
    $
    441
    
    
    $
    845
    
    
    $
    22,566
    
    
    $
    23,411
    
    
    $
    407Commercial and
Industrial
    
    
    359
    
    
    
    3
    
    
    
    1,373
    
    
    
    1,735
    
    
    
    153,675
    
    
    
    155,410
    
    
    
    991Commercial Real
Estate
    
    
    885
    
    
    
    2,050
    
    
    
    10,118
    
    
    
    13,053
    
    
    
    139,321
    
    
    
    152,374
    
    
    
    35Residential Real
Estate and Home
Equity
    
    
    472
    
    
    
    123
    
    
    
    814
    
    
    
    1,409
    
    
    
    92,237
    
    
    
    93,646
    
    
    
    425Total
    
    $
    2,016
    
    
    $
    2,280
    
    
    $
    12,746
    
    
    $
    17,042
    
    
    $
    407,799
    
    
    $
    424,841
    
    
    $
    1,858
  24




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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
   Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsMarch 31, 2011
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government and agency
obligations
    
    $
    31,019
    
    
    $
    3,003
    
    
    $
    28,016
    
    
    $
    State and municipal
obligations
    
    
    12,140
    
    
    
    
    
    
    
    12,140
    
    
    
    Mortgage-backed
    
    
    23,886
    
    
    
    
    
    
    
    23,886
    
    
    
    Total
    
    $
    67,045
    
    
    $
    3,003
    
    
    $
    64,042
    
    
    $
    
  25




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##### Table of Contents



NOTE 5  FAIR VALUE MEASUREMENTS
 Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsDecember 31, 2010
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government and agency
obligations
    
    $
    29,986
    
    
    $
    
    
    
    $
    29,986
    
    
    $
    State and municipal
obligations
    
    
    12,262
    
    
    
    
    
    
    
    12,262
    
    
    
    Mortgage-backed and
other securities
    
    
    27,349
    
    
    
    
    
    
    
    27,349
    
    
    
    Total
    
    $
    69,597
    
    
    $
    
    
    
    $
    69,597
    
    
    $
    
  Securities
  Impaired loans
  Real Estate Owned
   26




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##### Table of Contents



NOTE 5  FAIR VALUE MEASUREMENTS
  Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsMarch 31, 2011
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Collateralized debt obligations
    
    $
    1,780
    
    
    $
    
    
    
    $
    
    
    
    $
    1,780Impaired loans
    
    
    29,270
    
    
    
    
    
    
    
    
    
    
    
    29,270Real estate owned
    
    
    1,468
    
    
    
    
    
    
    
    
    
    
    
    1,468
 Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsDecember 31, 2010
    
    Fair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Collateralized debt obligations
    
    $
    1,313
    
    
    $
    
    
    
    $
    
    
    
    $
    1,313Impaired loans
    
    
    24,187
    
    
    
    
    
    
    
    
    
    
    
    24,187Real estate owned
    
    
    449
    
    
    
    
    
    
    
    
    
    
    
    449
  27




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##### Table of Contents



NOTE 5  FAIR VALUE MEASUREMENTS
  March 31,
    
    
    December 31,2011
    
    
    2010Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    75,175
    
    
    $
    75,175
    
    
    $
    33,521
    
    
    $
    33,521Securities available-for-sale
    
    
    67,045
    
    
    
    67,045
    
    
    
    69,597
    
    
    
    69,597Securities held-to-maturity
    
    
    1,238
    
    
    
    1,780
    
    
    
    1,313
    
    
    
    1,680Loans held for sale
    
    
    353
    
    
    
    353
    
    
    
    753
    
    
    
    753Loans
    
    
    397,944
    
    
    
    387,748
    
    
    
    412,617
    
    
    
    401,967FHLB stock
    
    
    3,799
    
    
    
    3,799
    
    
    
    3,799
    
    
    
    3,799Accrued interest receivable
    
    
    1,556
    
    
    
    1,556
    
    
    
    1,673
    
    
    
    1,673
 March 31,
    
    
    December 31,2011
    
    
    2010Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial liabilitiesNoninterest-bearing deposits
    
    $
    63,384
    
    
    $
    63,384
    
    
    $
    63,695
    
    
    $
    63,695Interest-bearing deposits
    
    
    425,761
    
    
    
    425,992
    
    
    
    401,381
    
    
    
    402,131Federal funds purchased and
other short-term borrowings
    
    
    1,161
    
    
    
    1,161
    
    
    
    1,265
    
    
    
    1,265FHLB advances
    
    
    57,655
    
    
    
    58,875
    
    
    
    58,502
    
    
    
    60,581Accrued interest payable
    
    
    360
    
    
    
    360
    
    
    
    336
    
    
    
    336
   
 Item 1A.
    
    Risk Factors
   28




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
  FORWARD-LOOKING STATEMENTS
    Overview of the first quarter of 2011
   29




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##### Table of Contents




    
    The Corporations consolidated assets totaled $587,842 at March 31, 2011, compared to $565,105 at
December 31, 2010, an increase of $22,737, or 4.0%. The increase in assets was mainly
attributed to an increase in cash and cash equivalents due to an increase in overall
deposits.
 
    
    Net income for the first three months of 2011 totaled $33, an improvement over the net
loss of $888 for the same period in 2010. This is mainly attributed to the decline in the
provision for loan losses period to period.
 
    
    The provision for loan losses totaled $675 for the three months ended March 31, 2011
compared to $1,961 in the first three months of 2010. 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 $92 other-than-temporary impairment charge on its
investment in collateralized debt obligations during the first quarter 2011.
 
    
    The Corporations net interest income declined from the same period in 2010. Net
interest income decreased to $4,613 for the three months ended March 31, 2011 compared to
$5,494 for the same period in 2010. The lower net interest income is mainly attributed to
the overall decline in interest earning assets within the loan and investment portfolios.
 
    
    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, and develop funding
opportunities while earning an adequate interest rate margin.
 
    
    Total borrowings decreased to $57,655 at March 31, 2011 from $58,502 at December 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
   30




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##### Table of Contents



COMPARISON OF RESULTS OF OPERATIONS
 Net Income (Loss).
 Net Interest Income.
     31




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##### Table of Contents



Provision and Allowance for Loan Losses.
    Noninterest Income.
 Noninterest Expense.
 Income Taxes.
  32




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##### Table of Contents



LIQUIDITY
   CAPITAL RESOURCES
      33




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##### Table of Contents



Payment Due by YearLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsFHLB advances
    
    $
    57,655
    
    
    $
    15,000
    
    
    $
    31,877
    
    
    $
    7,617
    
    
    $
    3,161Federal funds purchased and
other
short-term borrowings
    
    
    1,161
    
    
    
    1,161
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    3,712
    
    
    
    705
    
    
    
    1,059
    
    
    
    944
    
    
    
    1,004Loan and line of credit
commitments
    
    
    69,616
    
    
    
    34,364
    
    
    
    
    
    
    
    
    
    
    
    35,252Total Contractual Obligations
    
    $
    132,144
    
    
    $
    51,230
    
    
    $
    32,936
    
    
    $
    8,561
    
    
    $
    39,417
 
 Item 3.
    
    Quantitative and Qualitative Disclosure About Market Risk
 ASSET AND LIABILITY MANAGEMENT AND MARKET RISK
      34




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##### Table of Contents



Item 4.
    
    Controls and Procedures
    35




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##### Table of Contents



Item 1 
    
    Legal Proceedings:
  Item 2 
    
    Unregistered Sales of Equity Securities and Use of Proceeds:
 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
    
    
    Average Price
    
    
    of Publicly
    
    
    May Yet Be(or Units)
    
    
    Paid per Share
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    (or Unit)
    
    
    or Programs(1)
    
    
    Plans or ProgramsBeginning Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,907Month #l
1/1/2011 to
1/31/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #2
2/1/2011 to
2/28/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #3
3/1/2011 to
3/31/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ending Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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.  36




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##### Table of Contents



Item 3 
    
    Defaults Upon Senior Securities:
 There are no matters required to be reported under this item.
 Item 4 
    
    Submission of Matters to a Vote of Security Holders:
 There are no matters required to be reported under this item.
 Item 5 
    
    Other Information:
 There are no matters required to be reported under this item.
 Item 6 
    
    Exhibits:
 Exhibits  The following exhibits are filed as a part of this report:
 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
 
  37




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##### Table of Contents



DCB FINANCIAL CORP
(Registrant)Date:  May 16, 2011
    /s/ David J. FolkweinDavid J. FolkweinPresident and Chief Executive OfficerDate:  May 16, 2011
    /s/ John A. UstaszewskiJohn A. UstaszewskiSenior Vice President and Chief Financial Officer  38




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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.
  39