##### 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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-22387
 DCB Financial Corp
  Ohio
    
    31-1469837(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 110 Riverbend Avenue, Lewis Center, Ohio 43035
   (Registrants telephone number)
  þ o
  o o
  Large accelerated filers o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
  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
    
    
    30SIGNATURES
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



Financial Statements
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCash and due from financial institutions
    
    $
    11,684
    
    
    $
    19,632Interest bearing deposits
    
    
    51,432
    
    
    
    10,000Federal funds sold and overnight investments
    
    
    10,000
    
    
    
    4,000Total cash and cash equivalents
    
    
    73,116
    
    
    
    33,632Securities available for sale, at fair value
    
    
    97,496
    
    
    
    111,360Securities held to maturity, at amortized cost net of other than temporary impairment
    
    
    4,995
    
    
    
    8,002Total securities
    
    
    102,491
    
    
    
    119,362Loans held for sale, at lower of cost or market
    
    
    2,099
    
    
    
    1,083Loans
    
    
    496,412
    
    
    
    513,213Less allowance for loan losses
    
    
    (8,848
    )
    
    
    (6,137
    )Net loans
    
    
    487,564
    
    
    
    507,076Real estate owned
    
    
    5,248
    
    
    
    5,071Investment in FHLB stock
    
    
    3,796
    
    
    
    3,796Premises and equipment, net
    
    
    14,882
    
    
    
    15,537Investment in unconsolidated affiliates
    
    
    1,420
    
    
    
    1,277Bank-owned life insurance
    
    
    16,124
    
    
    
    15,623Deferred federal income taxes
    
    
    2,946
    
    
    
    1,590Accrued interest receivable and other assets
    
    
    6,814
    
    
    
    8,517Total assets
    
    $
    716,500
    
    
    $
    712,564LIABILITIESDepositsNoninterest-bearing
    
    $
    59,492
    
    
    $
    49,018Interest-bearing
    
    
    534,503
    
    
    
    516,135Total deposits
    
    
    593,995
    
    
    
    565,153Federal funds purchased and other short-term borrowings
    
    
    3,121
    
    
    
    5,370Federal Home Loan Bank advances
    
    
    64,176
    
    
    
    83,014Accrued interest payable and other liabilities
    
    
    2,608
    
    
    
    2,968Total liabilities
    
    
    663,900
    
    
    
    656,505SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,908 issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    62,283
    
    
    
    64,933Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive income
    
    
    26
    
    
    
    835Total shareholders equity
    
    
    52,600
    
    
    
    56,059Total liabilities and shareholders equity
    
    $
    716,500
    
    
    $
    712,564
   3




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##### Table of Contents



Three
Months Ended
    
    

Nine
Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest and dividend incomeLoans
    
    $
    6,815
    
    
    $
    8,113
    
    
    $
    21,149
    
    
    $
    25,233Taxable securities
    
    
    715
    
    
    
    1,021
    
    
    
    2,562
    
    
    
    2,915Tax-exempt securities
    
    
    233
    
    
    
    260
    
    
    
    759
    
    
    
    740Federal funds sold and other
    
    
    31
    
    
    
    131
    
    
    
    140
    
    
    
    564Total interest income
    
    
    7,794
    
    
    
    9,525
    
    
    
    24,610
    
    
    
    29,452Interest expenseDeposits
    
    
    1,704
    
    
    
    2,995
    
    
    
    5,918
    
    
    
    9,685Borrowings
    
    
    747
    
    
    
    1,009
    
    
    
    2,493
    
    
    
    3,115Total interest expense
    
    
    2,451
    
    
    
    4,004
    
    
    
    8,411
    
    
    
    12,800Net interest income
    
    
    5,343
    
    
    
    5,521
    
    
    
    16,199
    
    
    
    16,652Provision for loan losses
    
    
    1,766
    
    
    
    2,800
    
    
    
    6,908
    
    
    
    4,000Net interest income after provision for
loan losses
    
    
    3,577
    
    
    
    2,721
    
    
    
    9,291
    
    
    
    12,652Noninterest incomeService charges on deposit accounts
    
    
    692
    
    
    
    700
    
    
    
    1,940
    
    
    
    1,974Trust department income
    
    
    191
    
    
    
    231
    
    
    
    661
    
    
    
    743Net gains on sale of securities
    
    
    
    
    
    
    
    
    
    
    462
    
    
    
    278Net losses on sale of assets
    
    
    (91
    )
    
    
    (619
    )
    
    
    (251
    )
    
    
    (735
    )Gains on sale of loans
    
    
    63
    
    
    
    42
    
    
    
    253
    
    
    
    179Treasury management fees
    
    
    107
    
    
    
    149
    
    
    
    378
    
    
    
    400Data processing servicing fees
    
    
    167
    
    
    
    138
    
    
    
    440
    
    
    
    499Earnings on bank owned life insurance
    
    
    167
    
    
    
    165
    
    
    
    501
    
    
    
    495Other-than-temporary lossesTotal other-than-temporary impairment losses
    

    (3,036
    )

    
    
    
    
    
    
    (3,036
    )
    
    
    Portion of loss recognized in other
comprehensive income (before taxes)
    
    
    2,203
    
    
    
    
    
    
    
    2,203
    
    
    
    Net impairment losses recognized in income
    
    
    (833
    )
    
    
    
    
    
    
    (833
    )
    
    
    Other
    
    
    123
    
    
    
    59
    
    
    
    318
    
    
    
    326Total noninterest income
    
    
    586
    
    
    
    865
    
    
    
    3,869
    
    
    
    4,159Noninterest expenseSalaries and employee benefits
    
    
    2,590
    
    
    
    2,554
    
    
    
    7,717
    
    
    
    7,664Occupancy and equipment
    
    
    1,138
    
    
    
    1,103
    
    
    
    3,292
    
    
    
    3,168Professional services
    
    
    109
    
    
    
    421
    
    
    
    632
    
    
    
    830Advertising
    
    
    122
    
    
    
    112
    
    
    
    307
    
    
    
    320Postage, freight and courier
    
    
    84
    
    
    
    75
    
    
    
    237
    
    
    
    219Supplies
    
    
    63
    
    
    
    94
    
    
    
    217
    
    
    
    245State franchise taxes
    
    
    149
    
    
    
    150
    
    
    
    487
    
    
    
    341Federal deposit insurance premiums
    
    
    757
    
    
    
    194
    
    
    
    1,411
    
    
    
    239Other
    
    
    833
    
    
    
    749
    
    
    
    2,894
    
    
    
    2,223Total noninterest expense
    
    
    5,845
    
    
    
    5,452
    
    
    
    17,194
    
    
    
    15,249Income (loss) before income taxes
    
    
    (1,682
    )
    
    
    (1,866
    )
    
    
    (4,034
    )
    
    
    1,562Income tax credits
    
    
    (833
    )
    
    
    (1,654
    )
    
    
    (1,905
    )
    
    
    (748
    )Net income (loss)
    
    $
    (849
    )
    
    $
    (212
    )
    
    $
    (2,129
    )
    
    $
    2,310Basic and diluted earnings (loss)
per common share
    
    $
    (0.23
    )
    
    $
    (0.06
    )
    
    $
    (0.57
    )
    
    $
    0.62Dividends per share
    
    $
    0.02
    
    
    $
    0.16
    
    
    $
    0.06
    
    
    $
    0.48
   4




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (849
    )
    
    $
    (212
    )
    
    $
    (2,129
    )
    
    $
    2,310Unrealized gains (losses) on securities
available for sale, net
of taxes (benefits) of $463, $292,
$489 and ($129) for the
respective periods
    
    
    899
    
    
    
    566
    
    
    
    950
    
    
    
    (250
    )Net unrealized losses on securities held-
to-maturity for which a portion of an
other-than-temporary impairment
has been recognized in income,
net of taxes of $749
    
    
    (1,454
    )
    
    
    
    
    
    
    (1,454
    )
    
    
    Reclassification adjustment for realized
gains included in net income, net of tax
of $0, $0, $157 and $95 for the respective
periods
    
    
    
    
    
    
    
    
    
    
    (305
    )
    
    
    (183
    )Comprehensive income (loss)
    
    $
    (1,404
    )
    
    $
    354
    
    
    $
    (2,938
    )
    
    $
    1,877Accumulated other comprehensive
income (loss)
    
    $
    26
    
    
    $
    (346
    )
    
    $
    26
    
    
    $
    (346
    )
   5




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##### Table of Contents



Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows provided by operating activities
    
    $
    5,599
    
    
    $
    6,212Cash flows provided by (used in) investing activitiesSecurities available for salePurchases
    
    
    (35,036
    )
    
    
    (53,436
    )Maturities, principal payments and calls
    
    
    32,594
    
    
    
    30,161Sales
    
    
    17,439
    
    
    
    Net change in loans
    
    
    11,528
    
    
    
    1,031Proceeds from sale of real estate owned
    
    
    840
    
    
    
    Investment in unconsolidated affiliate
    
    
    (143
    )
    
    
    Premises and equipment expenditures
    
    
    (646
    )
    
    
    (2,447
    )Net cash provided by (used in) investing activities
    
    
    26,576
    
    
    
    (24,691
    )Cash flows provided by (used in) financing activitiesNet change in deposits
    
    
    28,842
    
    
    
    43,770Net change in federal funds purchased and other short-term borrowings
    
    
    (2,249
    )
    
    
    (11,279
    )Repayment of Federal Home Loan Bank advances
    
    
    (18,838
    )
    
    
    (7,670
    )Cash dividends paid
    
    
    (446
    )
    
    
    (1,789
    )Net cash provided by financing activities
    
    
    7,309
    
    
    
    23,032Net change in cash and cash equivalents
    
    
    39,484
    
    
    
    4,553Cash and cash equivalents at beginning of period
    
    
    33,632
    
    
    
    32,068Cash and cash equivalents at end of period
    
    $
    73,116
    
    
    $
    36,621Supplemental disclosures of cash flow information:Cash paid during the period for:Interest on deposits and borrowings
    
    $
    8,727
    
    
    $
    12,657Income taxes
    
    $
    
    
    
    $
    1,145Supplemental disclosure of non-cash investing and financing activities:Unrealized gain (loss) on securities designated as available
for sale, net of tax benefits
    
    $
    950
    
    
    $
    (250
    )Transfer from loans to real estate owned
    
    $
    1,329
    
    
    $
    881Loans originated upon sale of real estate owned
    
    $
    5,331
    
    
    $
    190Cash dividends declared but unpaid
    
    $
    74
    
    
    $
    595Transfer of securities from available-for-sale to the
held to maturity classification
    
    $
    
    
    
    $
    8,002
   6




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Earnings (loss) per share
  Three and Nine Months EndedSeptember 30,2009


2008Basic 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,
2009WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of period
    
    
    159,284
    
    
    $
    22.92
    
    
    9.2 yearsGranted
    
    
    55,566
    
    
    
    8.93
    
    
    10.0 yearsForfeited
    
    
 (6,139
    )
    
    
    23.78Exercised
    
    

    
    
    
    
    Outstanding at end of period
    
    
    208,711
    
    
    $
    19.59
    
    
    9.4 yearsOptions exercisable at period end
    
    
    66,069
    
    
    $
    24.77Weighted-average fair value of
options granted during the period
    
    
    
    
    
    $
    0.76
 Year EndedDecember 31,2008WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of year
    
    
    108,051
    
    
    $
    25.80
    
    
    8.9 yearsGranted
    
    
    57,643
    
    
    
    16.90
    
    
    9.8 yearsForfeited
    
    
 (6,410
    )
    
    
    22.46Exercised
    
    

    
    
    
    
    Outstanding at end of year
    
    
    159,284
    
    
    $
    22.92
    
    
    9.2 yearsOptions exercisable at year end
    
    
    39,220
    
    
    $
    26.03Weighted-average fair value of
options granted during the year
    
    
    
    
    
    $
    1.01
  9




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NUMBER OUTSTANDING
    
    RANGE OF EXERCISE PRICES99,265
    
    $23.00  $30.7053,880
    
    $16.9055,566
    
    $7.50   $9.00
 Recent Accounting Standards
       10




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
    
    It does not have the intent to sell the security; and
 
    
    It is more-likely-than-not it will not have to sell the security before recovery of its
amortized cost basis less any current period credit losses
        11




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Application of Critical Accounting Policies
   NOTE 2  SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSeptember 30, 2009U.S. Government and agency obligations
    
    $
    24,504
    
    
    $
    272
    
    
    $
    (18
    )
    
    $
    24,758State and municipal obligations
    
    
    28,848
    
    
    
    984
    
    
    
    (13
    )
    
    
    29,819Corporate bonds
    
    
    1,013
    
    
    
    35
    
    
    
    
    
    
    
    1,048Mortgage-backed securities
    
    
    40,831
    
    
    
    984
    
    
    
    (7
    )
    
    
    41,808Total debt securities
    
    
    95,196
    
    
    
    2,275
    
    
    
    (38
    )
    
    
    97,433Other securities
    
    
    57
    
    
    
    20
    
    
    
    (14
    )
    
    
    63Total
    
    $
    95,253
    
    
    $
    2,295
    
    
    $
    (52
    )
    
    $
    97,496
  12




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Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2008U.S. Government and agency obligations
    
    $
    32,492
    
    
    $
    705
    
    
    $
    
    
    
    $
    33,197State and municipal obligations
    
    
    29,221
    
    
    
    286
    
    
    
    (346
    )
    
    
    29,161Mortgage-backed securities
    
    
    48,324
    
    
    
    658
    
    
    
    (52
    )
    
    
    48,930Total debt securities
    
    
    110,037
    
    
    
    1,649
    
    
    
    (398
    )
    
    
    111,288Other securities
    
    
    57
    
    
    
    30
    
    
    
    (15
    )
    
    
    72Total
    
    $
    110,094
    
    
    $
    1,679
    
    
    $
    (413
    )
    
    $
    111,360
  Adjusted
    
    
    Gross
    
    
    Estimatedamortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueSeptember 30, 2009Collateralized debt obligations
    
    $
    7,198
    
    
    $
    3,749
    
    
    $
    3,449
  Collateralized debt obligations determined to be
    
    
    
    
    
    Adjustedother than temporarily impaired
    
    
    
    
    
    costCarrying value before impairment
    
    $
    5,031Other than temporary impairment due to
credit quality issues
    
    
    (833
    )Adjusted carrying value
    
    
    4,198
    
    
    $
    4,198Other than temporary impairment not
related to credit quality issues
    
    
    (2,203
    )Fair value of security
    
    
    1,995Securities not determined to be other
than temporarily impaired
    
    
    3,000
    
    
    
    3,000Total securities held to maturity
    
    $
    4,995
    
    
    $
    7,198
 Credit Losses Recognized on Investments
   Accumulated Credit Losses2009
    
    
    2008Credit losses on debt securities heldBeginning of period
    
    $
    
    
    
    $
    Additions related to other-than-temporary losses not
previously recognized
    
    
    833
    
    
    
    Reductions due to sales
    
    
    
    
    
    
    Reductions due to change in intent or likelihood of sale
    
    
    
    
    
    
    Additions related to increases in previously recognized
other-than-temporary losses
    
    
    
    
    
    
    Reductions due to increases in expected cash flows
    
    
    
    
    
    
    End of period
    
    $
    833
    
    
    $
    
  13




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##### Table of Contents



Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueDecember 31, 2008Collateralized debt obligations
    
    $
    8,002
    
    
    $
    3,923
    
    
    $
    4,079
  (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
    
    
    3
    
    
    $
    3,334
    
    
    $
    (18
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    3
    
    
    $
    3,334
    
    
    $
    (18
    )State and municipal
obligations
    
    
    2
    
    
    
    802
    
    
    
    (12
    )
    
    
    1
    
    
    
    228
    
    
    
    (1
    )
    
    
    3
    
    
    
    1,030
    
    
    
    (13
    )Mortgage-backed and
other securities
    
    
    15
    
    
    
    1,233
    
    
    
    (1
    )
    
    
    7
    
    
    
    1,128
    
    
    
    (20
    )
    
    
    22
    
    
    
    2,361
    
    
    
    (21
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    3,449
    
    
    
    (3,749
    )
    
    
    2
    
    
    
    3,449
    
    
    
    (3,749
    )Total temporarily
impaired securities
    
    
    20
    
    
    $
    5,369
    
    
    $
    (31
    )
    
    
    10
    
    
    $
    4,805
    
    
    $
    (3,770
    )
    
    
    30
    
    
    $
    10,174
    
    
    $
    (3,801
    )
  (Less than 12 months)
    
    
    (12 months or longer)Estimated
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    Estimated
    
    
    TotalDescription of
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    UnrealizedSecurities
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    lossesState and municipal
obligations
    
    
    33
    
    
    $
    12,246
    
    
    $
    (342
    )
    
    
    1
    
    
    $
    302
    
    
    $
    (2
    )
    
    
    34
    
    
    $
    12,548
    
    
    $
    (344
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    4,079
    
    
    
    (3,923
    )
    
    
    2
    
    
    
    4,079
    
    
    
    (3,923
    )Mortgage-backed
securities and other
    
    
    39
    
    
    
    6,130
    
    
    
    (37
    )
    
    
    17
    
    
    
    729
    
    
    
    (30
    )
    
    
    56
    
    
    
    6,859
    
    
    
    (67
    )Total temporarily
impaired securities
    
    
    72
    
    
    $
    18,376
    
    
    $
    (379
    )
    
    
    20
    
    
    $
    5,110
    
    
    $
    (3,955
    )
    
    
    92
    
    
    $
    23,486
    
    
    $
    (4,334
    )
   14




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    1,054
    
    
    $
    1,058Due from one to five years
    
    
    18,450
    
    
    
    18,693Due from five to ten years
    
    
    20,062
    
    
    
    20,654Due after ten years
    
    
    14,798
    
    
    
    15,219Mortgage-backed and related securities
    
    
    40,832
    
    
    
    41,809Total debt securities
    
    
    95,196
    
    
    
    97,433Other securities
    
    
    57
    
    
    
    63Total
    
    $
    95,253
    
    
    $
    97,496
   Nine Months EndedSeptember 30,2009
    
    
    2008Proceeds from sales
    
    $
    17,439
    
    
    $
    278Gross gains
    
    
    462
    
    
    
    278
   15




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##### Table of Contents



NOTE 3  LOANS
  September 30,2009Commercial and industrial
    
    $
    48,224Commercial real estate
    
    
    206,831Residential real estate and home equity
    
    
    183,097Real estate construction and land development
    
    
    37,952Consumer and credit card
    
    
    20,236496,340Add: Net deferred loan origination costs
    
    
    72Total loans receivable
    
    $
    496,412
 NOTE 4  ALLOWANCE FOR LOAN LOSSES
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    7,995
    
    
    $
    7,684
    
    
    $
    6,137
    
    
    $
    8,298Provision for loan losses
    
    
    1,766
    
    
    
    2,800
    
    
    
    6,908
    
    
    
    4,000Loans charged off
    
    
    (986
    )
    
    
    (1,698
    )
    
    
    (4,533
    )
    
    
    (3,657
    )Recoveries
    
    
    73
    
    
    
    116
    
    
    
    336
    
    
    
    261Balance at end of period
    
    $
    8,848
    
    
    $
    8,902
    
    
    $
    8,848
    
    
    $
    8,902
  September 30,
    
    
    December 31,2009
    
    
    2008Loans past due 90 days or more and still accruing
    
    $
    664
    
    
    $
    1,146Nonaccrual loans
    
    
    11,973
    
    
    
    4,698Total
    
    $
    12,637
    
    
    $
    5,844Impaired loans were as follows:Loans with no allocated allowance for unconfirmed loan losses
    
    $
    2,927
    
    
    $
    4,644Loans with allocated allowance for unconfirmed loan losses
    
    
    21,227
    
    
    
    8,166Total
    
    $
    24,154
    
    
    $
    12,810Amount of the allowance for loan losses allocated to unconfirmed
losses on impaired loans
    
    $
    5,054
    
    
    $
    2,767Average of impaired loans during the period
    
    $
    14,047
    
    
    $
    13,301
  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
   Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)September 30, 2009U.S. Government and agency
obligations
    
    $
    24,758
    
    
    $
    2,077
    
    
    $
    22,681
    
    
    $
    State and municipal obligations
    
    
    29,819
    
    
    
    554
    
    
    
    29,265
    
    
    
    Corporate bonds
    
    
    1,048
    
    
    
    
    
    
    
    1,048
    
    
    
    Mortgage-backed and other securities
    
    
    41,871
    
    
    
    3,557
    
    
    
    38,314
    
    
    
    Total
    
    $
    97,496
    
    
    $
    6,188
    
    
    $
    91,308
    
    
    $
    
  17




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##### Table of Contents



Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)December 31, 2008U.S. Government and agency
obligations
    
    $
    33,197
    
    
    $
    
    
    
    $
    33,197
    
    
    $
    State and municipal obligations
    
    
    29,161
    
    
    
    1,926
    
    
    
    27,235
    
    
    
    Mortgage-backed and
other securities
    
    
    49,002
    
    
    
    71
    
    
    
    48,931
    
    
    
    Total
    
    $
    111,360
    
    
    $
    1,997
    
    
    $
    109,363
    
    
    $
    
  Securities
  Impaired loans
  Real Estate Owned
   Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)September 30, 2009Collateralized
debt obligations
    
    $
    1,995
    
    
    $
    
    
    
    $
    
    
    
    $
    1,995Impaired loans
    
    
    23,229
    
    
    
    
    
    
    
    
    
    
    
    23,229Real estate owned
    
    
    1,643
    
    
    
    
    
    
    
    
    
    
    
    1,643December 31, 2008Impaired loans
    
    $
    5,528
    
    
    $
    
    
    
    $
    
    
    
    $
    5,528
  18




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##### Table of Contents



September 30,
    
    
    December 31,2009
    
    
    2008Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    73,116
    
    
    $
    73,116
    
    
    $
    33,632
    
    
    $
    33,632Securities available for sale
    
    
    97,496
    
    
    
    97,496
    
    
    
    111,360
    
    
    
    111,360Securities held to maturity
    
    
    4,995
    
    
    
    3,449
    
    
    
    8,002
    
    
    
    4,079Loans held for sale
    
    
    2,099
    
    
    
    2,099
    
    
    
    1,083
    
    
    
    1,083Loans
    
    
    496,412
    
    
    
    497,420
    
    
    
    513,213
    
    
    
    517,956FHLB stock
    
    
    3,796
    
    
    
    3,796
    
    
    
    3,796
    
    
    
    3,796Accrued interest receivable
    
    
    2,428
    
    
    
    2,428
    
    
    
    2,790
    
    
    
    2,790Financial liabilitiesNoninterest-bearing deposits
    
    $
    59,492
    
    
    $
    59,492
    
    
    $
    49,018
    
    
    $
    49,018Interest-bearing deposits
    
    
    534,503
    
    
    
    535,049
    
    
    
    516,135
    
    
    
    508,503Federal funds purchased and
other short-term borrowings
    
    
    3,121
    
    
    
    3,121
    
    
    
    5,370
    
    
    
    5,370FHLB advances
    
    
    64,176
    
    
    
    65,156
    
    
    
    83,014
    
    
    
    82,258Accrued interest payable
    
    
    993
    
    
    
    993
    
    
    
    1,309
    
    
    
    1,309
    19




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##### Table of Contents



NOTE 6  SUBSEQUENT EVENTS
  
 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 2009
   21




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##### Table of Contents




    
    The Corporations assets totaled $716,500 at September 30, 2009, compared to $712,564 at
December 31, 2008, an increase of $3,936, or 0.6%. The growth in the balance sheet is
primarily due to the Corporations increase in deposits.
    
    Net loss for the three and nine months ended September 30, 2009 totaled $849 and $2,129,
respectively, compared to a net loss for the three months ended September 30, 2008 totaling
$212 and net income for the nine months ended September 30, 2008 totaling $2,310,
respectively.
    
    The provision for loan losses totaled $6,908 for the nine months ended September 30,
2009 compared to $4,000 in the first nine months of 2008. This increase is mainly
attributed to declines in overall credit quality and reserves for specific impaired loans.
DCB maintains an allowance for loan losses at a level to absorb managements estimate of
probable inherent credit losses in its portfolio.
    
    An overall decline in loan balances, period to period, contributed to the reduced
interest income. The Corporations net interest margin for the third quarter decreased
slightly compared to the third quarter 2008, from 3.39% to 3.34%.
    
    Non-interest income decreased $279 for the three months ended September 30, 2009,
compared to the same period in 2008, primarily due to an $833 write down related to an
other than temporarily impaired security during the quarter, partially offset by a decline
in losses on sales of foreclosed properties.
    
    FDIC insurance premiums increased by $1,172 for the nine months ended September 30,
2009, compared to the same period in 2008, including a special assessment.
    
    The ability to generate earnings is impacted in part by competitive pricing on loans and
deposits, and by changes in the rates on various U.S. Treasury, U. S. Government Agency and
State and political subdivision issues which comprise a significant portion of the Banks
investment portfolio. The Bank is competitive with interest rates and
loan fees that it charges, in pricing and the variety of accounts it offers to the
depositor. The Corporation confirms this by completing regular rate shops and comparisons
versus competing financial services companies. The dominant pricing mechanism on loans is
the prime interest rate as published in the Wall Street Journal, on a fixed rate plus spread
over funding costs. The interest spread depends on the overall account relationship and the
creditworthiness of the borrower.
    
    Deposit rates are reviewed weekly by management and are generally discussed by the
Asset/Liability Committee on a monthly basis. The Banks primary objective in setting
deposit rates is to remain competitive in the market area and to develop funding
opportunities while earning an adequate net interest margin.
    
    Total borrowings decreased by 23.9%, from $88,384 at December 31, 2008, to $67,297 at
September 30, 2009. This is mainly due to managements decision to prepay long term debt
to reduce cash balances and decrease other costs on borrowed funds.
  22




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##### Table of Contents



ANALYSIS OF FINANCIAL CONDITION
     COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
 Net Income (Loss).
  23




---



##### Table of Contents



Net Interest Income.
    Provision and Allowance for Loan Losses.
    24




---



##### Table of Contents



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008
 Net Income (Loss).
 Net Interest Income.
  Provision and Allowance for Loan Losses.
  25




---



##### Table of Contents



Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 LIQUIDITY
     26




---



##### Table of Contents



CAPITAL RESOURCES
     PAYMENT DUE BY YEARCONTRACTUAL
    
    
    
    
    
    Less than 1
    
    
    
    
    
    
    
    
    
    
    More thanOBLIGATIONS
    
    Total
    
    
    year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    64,176
    
    
    $
    4,560
    
    
    $
    42,836
    
    
    $
    13,327
    
    
    $
    3,453Federal funds purchased and
other
short-term borrowings
    
    
    3,121
    
    
    
    3,121
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,238
    
    
    
    233
    
    
    
    1,864
    
    
    
    1,865
    
    
    
    2,276Loan and line of credit
commitments
    
    
    82,488
    
    
    
    82,488
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    156,023
    
    
    $
    90,402
    
    
    $
    44,700
    
    
    $
    15,192
    
    
    $
    5,729
  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
7/1/2009 to
7/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #2
8/1/2009 to
8/31/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #39/1/2009 to
9/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,907
 (1)
    
    On August 16, 2007, the Company announced a repurchase program which authorizes the
repurchase of up to 200,000 of its common shares over a two year period commencing August
15, 2007.    30




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##### 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




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##### Table of Contents



DCB FINANCIAL CORP
(Registrant)Date:  November 9, 2009
    /s/ Jeffrey T. BentonJeffrey T. BentonPresident and Chief Executive OfficerDate:  November 9, 2009
    /s/ John A. UstaszewskiJohn A. UstaszewskiSenior Vice President and Chief Financial Officer  32




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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.
  33