##### 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: JUNE 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number: 0-22387
 DCB Financial Corp
  Ohio
    
    31-1469837(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)
 110 Riverbend Avenue, Lewis Center, Ohio 43035
 (Registrants telephone number)
  þ o
  o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ  o þ




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##### 



PagePART I  FINANCIAL INFORMATIONITEM 1  Financial StatementsCondensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Comprehensive Income (Loss)
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to the Condensed Consolidated Financial Statements
    
    
    7ITEM 1A  Risk Factors
    
    
    20ITEM 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21ITEM 3  Quantitative and Qualitative Disclosures About Market Risk
    
    
    28ITEM 4  Controls and Procedures
    
    
    29PART II  OTHER INFORMATION
    
    
    30SIGNATURES
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Financial Statements
 June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCash and due from financial institutions
    
    $
    11,295
    
    
    $
    10,082Interest bearing deposits
    
    
    36,201
    
    
    
    26,371Federal funds sold and overnight investments
    
    
    
    
    
    
    5,000Total cash and cash equivalents
    
    
    47,496
    
    
    
    41,453Securities available for sale
    
    
    86,892
    
    
    
    94,100Securities held to maturity
    
    
    1,704
    
    
    
    1,752Total securities
    
    
    88,596
    
    
    
    95,852Loans held for sale, at lower of cost or fair value
    
    
    1,782
    
    
    
    2,442Loans
    
    
    463,917
    
    
    
    489,482Less allowance for loan losses
    
    
    (13,114
    )
    
    
    (10,479
    )Net loans
    
    
    450,803
    
    
    
    479,003Real estate owned
    
    
    5,161
    
    
    
    4,912Investment in FHLB stock
    
    
    3,735
    
    
    
    3,773Premises and equipment, net
    
    
    13,771
    
    
    
    14,435Investment in unconsolidated affiliates
    
    
    1,474
    
    
    
    1,439Bank-owned life insurance
    
    
    16,736
    
    
    
    16,326Deferred federal income taxes, net
    
    
    4,964
    
    
    
    5,239Accrued interest receivable and other assets
    
    
    9,763
    
    
    
    10,148Total assets
    
    $
    644,281
    
    
    $
    675,022LIABILITIESDepositsNoninterest-bearing
    
    $
    61,549
    
    
    $
    60,502Interest-bearing
    
    
    470,966
    
    
    
    496,953Total deposits
    
    
    532,515
    
    
    
    557,455Federal funds purchased and other short-term borrowings
    
    
    1,083
    
    
    
    3,011Federal Home Loan Bank advances
    
    
    60,592
    
    
    
    63,148Accrued interest payable and other liabilities
    
    
    2,473
    
    
    
    2,065Total liabilities
    
    
    596,663
    
    
    
    625,679SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,908 issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    57,297
    
    
    
    60,213Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive income (loss)
    
    
    30
    
    
    
    (1,161
    )Total shareholders equity
    
    
    47,618
    
    
    
    49,343Total liabilities and shareholders equity
    
    $
    644,281
    
    
    $
    675,022
   3




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Interest and dividend incomeLoans
    
    $
    6,303
    
    
    $
    7,230
    
    
    $
    12,759
    
    
    $
    14,334Taxable securities
    
    
    683
    
    
    
    820
    
    
    
    1,405
    
    
    
    1,847Tax-exempt securities
    
    
    182
    
    
    
    252
    
    
    
    381
    
    
    
    526Federal funds sold and other
    
    
    28
    
    
    
    32
    
    
    
    46
    
    
    
    109Total interest income
    
    
    7,196
    
    
    
    8,334
    
    
    
    14,591
    
    
    
    16,816Interest expenseDeposits
    
    
    1,142
    
    
    
    1,919
    
    
    
    2,352
    
    
    
    4,214Borrowings
    
    
    692
    
    
    
    836
    
    
    
    1,383
    
    
    
    1,746Total interest expense
    
    
    1,834
    
    
    
    2,755
    
    
    
    3,735
    
    
    
    5,960Net interest income
    
    
    5,362
    
    
    
    5,579
    
    
    
    10,856
    
    
    
    10,856Provision for loan losses
    
    
    3,386
    
    
    
    1,707
    
    
    
    5,347
    
    
    
    5,142Net interest income after provision for
loan losses
    
    
    1,976
    
    
    
    3,872
    
    
    
    5,509
    
    
    
    5,714Noninterest incomeService charges on deposit accounts
    
    
    658
    
    
    
    650
    
    
    
    1,263
    
    
    
    1,248Trust department income
    
    
    268
    
    
    
    234
    
    
    
    493
    
    
    
    470Net gains on sale of securities
    
    
    80
    
    
    
    462
    
    
    
    80
    
    
    
    462Net gains (losses) on sale of assets
    
    
    (12
    )
    
    
    (135
    )
    
    
    86
    
    
    
    (160
    )Gains on sale of loans
    
    
    78
    
    
    
    139
    
    
    
    107
    
    
    
    190Treasury management fees
    
    
    114
    
    
    
    136
    
    
    
    244
    
    
    
    271Data processing servicing fees
    
    
    168
    
    
    
    138
    
    
    
    300
    
    
    
    273Earnings on bank owned life insurance
    
    
    243
    
    
    
    167
    
    
    
    410
    
    
    
    334Total other-than-temporary impairment losses
    
    
    
    
    
    
    (5,190
    )
    
    
    (80
    )
    
    
    (5,190
    )Portion of loss recognized in (reclassified from)
other comprehensive income (before taxes)
    
    
    
    
    
    
    4,410
    
    
    
    (950
    )
    
    
    4,410Net impairment losses recognized in income
    
    
    
    
    
    
    (780
    )
    
    
    (1,030
    )
    
    
    (780
    )Other
    
    
    196
    
    
    
    94
    
    
    
    276
    
    
    
    195Total noninterest income
    
    
    1,793
    
    
    
    1,105
    
    
    
    2,229
    
    
    
    2,503Noninterest expenseSalaries and employee benefits
    
    
    2,599
    
    
    
    2,603
    
    
    
    5,223
    
    
    
    5,127Occupancy and equipment
    
    
    1,015
    
    
    
    1,087
    
    
    
    2,045
    
    
    
    2,154Professional services
    
    
    396
    
    
    
    360
    
    
    
    703
    
    
    
    523Advertising
    
    
    99
    
    
    
    94
    
    
    
    173
    
    
    
    185Postage, freight and courier
    
    
    122
    
    
    
    68
    
    
    
    209
    
    
    
    153Supplies
    
    
    29
    
    
    
    77
    
    
    
    59
    
    
    
    154State franchise taxes
    
    
    152
    
    
    
    169
    
    
    
    304
    
    
    
    338Federal deposit insurance premiums
    
    
    396
    
    
    
    494
    
    
    
    792
    
    
    
    654Other
    
    
    929
    
    
    
    1,322
    
    
    
    1,717
    
    
    
    2,061Total noninterest expense
    
    
    5,737
    
    
    
    6,274
    
    
    
    11,225
    
    
    
    11,349Loss before income taxes
    
    
    (1,968
    )
    
    
    (1,297
    )
    
    
    (3,487
    )
    
    
    (3,132
    )Income tax expense (credits)
    
    
    60
    
    
    
    (576
    )
    
    
    (571
    )
    
    
    (1,339
    )Net loss
    
    $
    (2,028
    )
    
    $
    (721
    )
    
    $
    (2,916
    )
    
    $
    (1,793
    )Basic and diluted loss per common share
    
    $
    (0.54
    )
    
    $
    (0.19
    )
    
    $
    (0.78
    )
    
    $
    (0.48
    )Dividends per share
    
    $
    
    
    
    $
    0.02
    
    
    $
    
    
    
    $
    0.04
   4




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (2,028
    )
    
    $
    (721
    )
    
    $
    (2,916
    )
    
    $
    (1,793
    )Other comprehensive income (loss),
net of tax:Unrealized gain (loss) on securities
available for sale, net of taxes (benefits)
of $225, ($74), $308 and $26 for
the respective periods
    
    
    438
    
    
    
    (144
    )
    
    
    598
    
    
    
    51Reclassification adjustment for realized
gains included in net income, net of tax
of $27, $157, $27 and $157 for the respective
periods
    
    
    (53
    )
    
    
    (305
    )
    
    
    (53
    )
    
    
    (305
    )Net unrealized gain (loss) on securities
held-to-maturity for which a portion
of an other-than-temporary impairment
has been recognized in income,
net of realized losses and net of taxes
of $11, ($1,499), $333 and
($1,499) for the respective periods
    
    
    21
    
    
    
    (2,911
    )
    
    
    646
    
    
    
    (2,911
    )Comprehensive loss
    
    $
    (1,622
    )
    
    $
    (4,081
    )
    
    $
    (1,725
    )
    
    $
    (4,958
    )Accumulated other comprehensive
income (loss)
    
    $
    30
    
    
    $
    (2,330
    )
    
    $
    30
    
    
    $
    (2,330
    )
   5




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Six Months EndedJune 30,2010
    
    
    2009Cash flows provided by operating activities
    
    $
    5,456
    
    
    $
    431Cash
flows provided by (used in) investing activitiesSecurities available for salePurchases
    
    
    (16,195
    )
    
    
    (11,472
    )Maturities, principal payments and calls
    
    
    9,754
    
    
    
    25,109Sales
    
    
    15,322
    
    
    
    17,439Net change in loans
    
    
    21,004
    
    
    
    9,324Proceeds from sale of real estate owned
    
    
    529
    
    
    
    645Investment in unconsolidated affiliate
    
    
    (35
    )
    
    
    (45
    )Premises and equipment expenditures
    
    
    (368
    )
    
    
    (383
    )Net cash provided by investing activities
    
    
    30,011
    
    
    
    40,617Cash flows provided by (used in) financing activitiesNet change in deposits
    
    
    (24,940
    )
    
    
    (1,546
    )Net change in federal funds purchased and other short-term borrowings
    
    
    (1,928
    )
    
    
    (984
    )Repayment of Federal Home Loan Bank advances
    
    
    (2,556
    )
    
    
    (17,404
    )Cash dividends paid
    
    
    
    
    
    
    (371
    )Net cash used in financing activities
    
    
    (29,424
    )
    
    
    (20,305
    )Net change in cash and cash equivalents
    
    
    6,043
    
    
    
    20,743Cash and cash equivalents at beginning of period
    
    
    41,453
    
    
    
    33,632Cash and cash equivalents at end of period
    
    $
    47,496
    
    
    $
    54,375Supplemental disclosures of cash flow information:Cash paid during the period for:Interest on deposits and borrowings
    
    $
    3,815
    
    
    $
    6,065Supplemental disclosure of non-cash investing and financing activities:Unrealized gain on securities designated as available
for sale, net of tax benefits
    
    $
    598
    
    
    $
    51Transfer from loans to real estate owned
    
    $
    1,955
    
    
    $
    897Loans originated upon sale of real estate owned
    
    $
    
    
    
    $
    397Cash dividends declared but unpaid
    
    $
    
    
    
    $
    74
   6




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




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##### Table of Contents



Stock option plan
   Income taxes
    8




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##### Table of Contents



Six Months EndedJune 30,2010WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of period
    
    
    204,883
    
    
    $
    19.59
    
    
    8.6 yearsForfeited
    
    
    (4,141
    )
    
    
    14.87Outstanding at end of period
    
    
    200,742
    
    
    $
    19.59
    
    
    8.0 yearsOptions exercisable at period end
    
    
    85,609
    
    
    $
    24.26
 Year EndedDecember 31,2009WEIGHTEDWEIGHTED
    
    
    AVERAGEAVERAGE
    
    
    REMAININGEXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of year
    
    
    159,284
    
    
    $
    22.92
    
    
    8.2 yearsGranted
    
    
    55,566
    
    
    
    8.93
    
    
    9.5 yearsForfeited
    
    
    (9,967
    )
    
    
    21.30Outstanding at end of year
    
    
    204,883
    
    
    $
    19.59
    
    
    8.6 yearsOptions exercisable at year end
    
    
    63,005
    
    
    $
    24.77Weighted-average fair
value of options granted during
the year
    
    
    
    
    
    $
    0.76
  9




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##### Table of Contents



RANGE OFNUMBER OUTSTANDING
    
    EXERCISE PRICES97,097
    
    $
    23.00 - $30.7050,942
    
    $
    16.9052,703
    
    $
    7.50 - $9.00
 Recent Accounting Standards
        10




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Application of Critical Accounting Policies
       11




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##### Table of Contents



NOTE 2  SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueJune 30, 2010U.S. Government and agency obligations
    
    $
    29,885
    
    
    $
    769
    
    
    $
    
    
    
    $
    30,654State and municipal obligations
    
    
    19,953
    
    
    
    537
    
    
    
    (7
    )
    
    
    20,483Mortgage-backed and related securities
    
    
    34,275
    
    
    
    1,430
    
    
    
    (2
    )
    
    
    35,703Total debt securities
    
    
    84,113
    
    
    
    2,736
    
    
    
    (9
    )
    
    
    86,840Other securities
    
    
    57
    
    
    
    8
    
    
    
    (13
    )
    
    
    52Total
    
    $
    84,170
    
    
    $
    2,744
    
    
    $
    (22
    )
    
    $
    86,892
 Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2009U.S. Government and agency obligations
    
    $
    27,235
    
    
    $
    297
    
    
    $
    (77
    )
    
    $
    27,455State and municipal obligations
    
    
    25,444
    
    
    
    543
    
    
    
    (35
    )
    
    
    25,952Corporate bonds
    
    
    1,012
    
    
    
    27
    
    
    
    
    
    
    
    1,039Mortgage-backed and related securities
    
    
    38,455
    
    
    
    1,144
    
    
    
    (8
    )
    
    
    39,591Total debt securities
    
    
    92,146
    
    
    
    2,011
    
    
    
    (120
    )
    
    
    94,037Other securities
    
    
    57
    
    
    
    20
    
    
    
    (14
    )
    
    
    63Total
    
    $
    92,203
    
    
    $
    2,031
    
    
    $
    (134
    )
    
    $
    94,100
  Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueJune 30, 2010Collateralized debt obligations
    
    $
    4,380
    
    
    $
    (2,890
    )
    
    $
    1,490
  12




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Adjusted
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueDecember 31, 2009Collateralized debt obligations
    
    $
    5,410
    
    
    $
    (3,658
    )
    
    $
    1,752
   June 30,
    
    
    December 31,2010
    
    
    2009Carrying value before impairment
    
    $
    5,410
    
    
    $
    8,031Other than temporary impairment due to
credit quality issues
    
    
    (1,030
    )
    
    
    (2,621
    )Adjusted amortized cost
    
    
    4,380
    
    
    
    5,410Other than temporary impairment not
related to credit quality issues
    
    
    (2,676
    )
    
    
    (3,658
    )Adjusted carrying value
    
    $
    1,704
    
    
    $
    1,752Fair value of securities held to maturity
    
    $
    1,490
    
    
    $
    1,752
 Credit Losses Recognized on Investments
  Accumulated Credit Losses2010
    
    
    2009Credit losses on debt securities heldBeginning of period
    
    $
    2,621
    
    
    $
    Additions related to other-than-temporary losses not
previously recognized
    
    
    1,030
    
    
    
    780Reductions due to sales
    
    
    
    
    
    
    Reductions due to change in intent or likelihood of sale
    
    
    
    
    
    
    Additions related to increases in previously recognized
other-than-temporary losses
    
    
    
    
    
    
    Reductions due to increases in expected cash flows
    
    
    
    
    
    
    End of period
    
    $
    3,651
    
    
    $
    780
  13




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June 30, 2010
 (Less than 12 months)
    
    
    (12 months or longer)Estimated
    
    
    Gross
    
    
    
    
    
    
    Estimated
    
    
    Gross
    
    
    
    
    
    
    Estimated
    
    
    TotalDescription of
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    Unrealized
    
    
    Number of
    
    
    Fair
    
    
    UnrealizedSecurities
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    losses
    
    
    investments
    
    
    value
    
    
    lossesState and municipal
obligations
    
    
    3
    
    
    $
    1,150
    
    
    $
    (4
    )
    
    
    1
    
    
    $
    504
    
    
    $
    (3
    )
    
    
    4
    
    
    $
    1,654
    
    
    $
    (7
    )Mortgage-backed and
other securities
    
    
    1
    
    
    
    537
    
    
    
    (2
    )
    
    
    2
    
    
    
    51
    
    
    
    (13
    )
    
    
    3
    
    
    
    588
    
    
    
    (15
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1,490
    
    
    
    (2,890
    )
    
    
    2
    
    
    
    1,490
    
    
    
    (2,890
    )Total temporarily
impaired securities
    
    
    4
    
    
    $
    1,687
    
    
    $
    (6
    )
    
    
    5
    
    
    $
    2,045
    
    
    $
    (2,906
    )
    
    
    9
    
    
    $
    3,732
    
    
    $
    (2,912
    )
 December 31, 2009
 (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
    
    
    5
    
    
    $
    5,087
    
    
    $
    (77
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    5
    
    
    $
    5,087
    
    
    $
    (77
    )State and municipal
obligations
    
    
    9
    
    
    
    3,504
    
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    3,504
    
    
    
    (35
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1,752
    
    
    
    (3,658
    )
    
    
    2
    
    
    
    1,752
    
    
    
    (3,658
    )Mortgage-backed
securities and other
    
    
    5
    
    
    
    1,048
    
    
    
    (1
    )
    
    
    6
    
    
    
    931
    
    
    
    (21
    )
    
    
    11
    
    
    
    1,979
    
    
    
    (22
    )Total temporarily
impaired securities
    
    
    19
    
    
    $
    9,639
    
    
    $
    (113
    )
    
    
    8
    
    
    $
    2,683
    
    
    $
    (3,680
    )
    
    
    27
    
    
    $
    12,322
    
    
    $
    (3,792
    )
    14




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##### Table of Contents



Held-to-maturityAvailable for sale
    
    
    AdjustedAmortized
    
    
    Fair
    
    
    Carrying
    
    
    FairCost
    
    
    Value
    
    
    Value
    
    
    ValueDue in one year or less
    
    $
    1,963
    
    
    $
    1,973
    
    
    $
    
    
    
    $
    Due from one to five years
    
    
    15,261
    
    
    
    15,598
    
    
    
    
    
    
    
    Due from five to ten years
    
    
    22,368
    
    
    
    23,055
    
    
    
    
    
    
    
    Due after ten years
    
    
    10,246
    
    
    
    10,511
    
    
    
    1,704
    
    
    
    1,490Mortgage-backed and related securities
    
    
    34,275
    
    
    
    35,703
    
    
    
    
    
    
    
    Total debt securities
    
    
    84,113
    
    
    
    86,840
    
    
    
    1,704
    
    
    
    1,490Other securities
    
    
    57
    
    
    
    52
    
    
    
    
    
    
    
    Total
    
    $
    84,170
    
    
    $
    86,892
    
    
    $
    1,704
    
    
    $
    1,490
  NOTE 3  LOANS
  June 30,
    
    
    December 31,2010
    
    
    2009Commercial and industrial
    
    $
    40,081
    
    
    $
    44,123Commercial real estate
    
    
    204,242
    
    
    
    207,808Residential real estate and home equity
    
    
    181,592
    
    
    
    180,779Real estate construction and land development
    
    
    22,146
    
    
    
    37,989Consumer and credit card
    
    
    15,795
    
    
    
    18,745463,856
    
    
    
    489,444Add: Net deferred loan origination costs
    
    
    61
    
    
    
    38Total loans receivable
    
    $
    463,917
    
    
    $
    489,482
  15




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##### Table of Contents



NOTE 4  ALLOWANCE FOR LOAN LOSSES
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    11,314
    
    
    $
    7,020
    
    
    $
    10,479
    
    
    $
    6,137Provision for loan losses
    
    
    3,386
    
    
    
    1,707
    
    
    
    5,347
    
    
    
    5,142Loans charged off
    
    
    (1,718
    )
    
    
    (893
    )
    
    
    (2,951
    )
    
    
    (3,547
    )Recoveries
    
    
    132
    
    
    
    161
    
    
    
    239
    
    
    
    263Balance at end of period
    
    $
    13,114
    
    
    $
    7,995
    
    
    $
    13,114
    
    
    $
    7,995
  June 30,
    
    
    December 31,2010
    
    
    2009Loans past due 90 days or more and still accruing
    
    $
    1,618
    
    
    $
    886Nonaccrual loans
    
    
    15,140
    
    
    
    11,275Total
    
    $
    16,758
    
    
    $
    12,161Impaired loans are as follows:Loans with no allocated allowance for unconfirmed loan losses
    
    $
    17,621
    
    
    $
    15,321Loans with allocated allowance for unconfirmed loan losses
    
    
    37,961
    
    
    
    31,985Total
    
    $
    55,582
    
    
    $
    47,306Amount of the allowance for loan losses allocated to unconfirmed
losses on impaired loans
    
    $
    7,539
    
    
    $
    6,326Average of impaired loans during the period
    
    $
    51,411
    
    
    $
    20,435
  16




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##### Table of Contents



NOTE 5  FAIR VALUE MEASUREMENTS
    Level 1
    
    Quoted prices in active markets for identical assets or liabilitiesLevel 2
    
    Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilitiesLevel 3
    
    Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or liabilities
  Securities
   June 30, 2010Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsFair Value
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)U.S. Government and agency
obligations
    
    $
    30,654
    
    
    $
    
    
    
    $
    30,654
    
    
    $
    State and municipal obligations
    
    
    20,483
    
    
    
    
    
    
    
    20,483
    
    
    
    Mortgage-backed and
other securities
    
    
    35,755
    
    
    
    52
    
    
    
    35,703
    
    
    
    Total
    
    $
    86,892
    
    
    $
    52
    
    
    $
    86,840
    
    
    $
    
  17




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##### Table of Contents



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




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##### Table of Contents



Fair Value Measurements UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableFair
    
    
    Assets
    
    
    Inputs
    
    
    InputsValue
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)June 30, 2010Impaired loans
    
    $
    55,582
    
    
    $
    
    
    
    $
    
    
    
    $
    55,582December 31, 2009Collateralized
debt obligations
    
    $
    1,752
    
    
    $
    
    
    
    $
    
    
    
    $
    1,752Impaired loans
    
    
    6,326
    
    
    
    
    
    
    
    
    
    
    
    6,326Real estate owned
    
    
    1,470
    
    
    
    
    
    
    
    
    
    
    
    1,470
  19




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##### Table of Contents



June 30,
    
    
    December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    47,496
    
    
    $
    47,496
    
    
    $
    41,453
    
    
    $
    41,453Securities available for sale
    
    
    86,892
    
    
    
    86,892
    
    
    
    94,100
    
    
    
    94,100Securities held to maturity
    
    
    1,704
    
    
    
    1,490
    
    
    
    1,752
    
    
    
    1,752Loans held for sale
    
    
    1,782
    
    
    
    1,782
    
    
    
    2,442
    
    
    
    2,442Loans
    
    
    463,917
    
    
    
    463,302
    
    
    
    489,482
    
    
    
    490,446FHLB stock
    
    
    3,735
    
    
    
    3,735
    
    
    
    3,773
    
    
    
    3,773Accrued interest receivable
    
    
    2,231
    
    
    
    2,231
    
    
    
    2,348
    
    
    
    2,348Financial liabilitiesNoninterest-bearing deposits
    
    $
    61,549
    
    
    $
    61,549
    
    
    $
    60,502
    
    
    $
    60,502Interest-bearing deposits
    
    
    470,966
    
    
    
    471,438
    
    
    
    496,953
    
    
    
    497,434Federal funds purchased and
other short-term borrowings
    
    
    1,083
    
    
    
    1,083
    
    
    
    3,011
    
    
    
    3,011FHLB advances
    
    
    60,592
    
    
    
    63,185
    
    
    
    63,148
    
    
    
    64,040Accrued interest payable
    
    
    714
    
    
    
    714
    
    
    
    654
    
    
    
    654
   
 Risk Factors
   20




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##### Table of Contents



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




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##### Table of Contents




    
    Net loss for the three and six months ended June 30, 2010 totaled $2,028 and $2,916,
respectively, compared to a net loss in the same periods in 2009 of $721 and $1,793,
respectively,
    
    The provision for loan losses totaled $3,386 and $5,347 for the three and six months
ended June 30, 2010, respectively, compared to $1,707 and $5,142 in the same respective
periods in 2009. The increase is mainly attributed to declines in overall credit quality
and reserves for specific impaired loans. DCB maintains an allowance for loan losses at a
level to absorb managements estimate of probable inherent credit losses in its portfolio.
    
    An overall decline in loan balances, period to period, contributed to the reduced
interest income. The Corporations net interest margin for the second quarter increased
slightly compared to the second quarter 2009, from 3.55% to 3.57%. This is attributed to
improved deposit and loan pricing, core deposit growth and reduced high cost broker
deposits and long-term debt.
    
    Investment securities totaling $6,173 were sold resulting in a net gain on sale of $80.
Management expects the decrease of long term debt corresponding to a similar decrease in
investable cash balances will provide an overall benefit by increasing the net interest
margin. It will also provide additional pledged assets that can be used to secure other
long term borrowing options.
    
    The ability to generate earnings is impacted in part by competitive pricing on loans and
deposits, and by changes in the rates on various U.S. Treasury, U. S. Government Agency and
State and political subdivision issues which comprise a significant portion of the Banks
investment portfolio. The Bank is competitive with interest rates and loan fees that it
charges, in pricing and the variety of accounts it offers to the depositor. The
Corporation confirms this by completing regular rate shops and comparisons versus competing
financial services companies. The dominant pricing mechanism on loans is the prime
interest rate as published in the Wall Street Journal, on a fixed rate plus spread over
funding costs. The interest spread depends on the overall account relationship and the
creditworthiness of the borrower.
    
    Deposit rates are reviewed weekly by management and are generally discussed by the
Asset/Liability Committee on a monthly basis. The Banks primary objective in setting
deposit rates is to remain competitive in the market area and to develop funding
opportunities while earning an adequate interest rate margin.
    
    Total borrowings decreased by 6.8%, from $66,159 at December 31, 2009, to $61,675 at
June 30, 2010. This is mainly due to managements decision to repay long term debt to
reduce cash balances and decrease other costs on borrowed funds.
    
    Management reduced deposits by $24,940, or 4.5%, from December 31, 2009 by primarily
focusing on reducing reliance on wholesale deposits in its CDARS programs.
  22




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##### Table of Contents



ANALYSIS OF FINANCIAL CONDITION
        23




---



##### Table of Contents



COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2010 AND JUNE 30, 2009
 Net Loss.
 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 SIX MONTHS
ENDED JUNE 30, 2010 AND JUNE 30, 2009
 Net Loss.
 Net Interest Income.
  25




---



##### Table of Contents



Provision and Allowance for Loan Losses.
   Noninterest Income.
 Noninterest Expense.
 Income Taxes.
 LIQUIDITY
    26




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##### Table of Contents



CAPITAL RESOURCES
     PAYMENT DUE BY YEARCONCTRACTUALOBLIGATIONS
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 yearsFHLB advances
    
    $
    60,592
    
    
    $
    9,208
    
    
    $
    45,648
    
    
    $
    3,235
    
    
    $
    2,501Federal funds purchased and
other short-term borrowings
    
    
    1,083
    
    
    
    1,083
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,388
    
    
    
    466
    
    
    
    1,864
    
    
    
    1,865
    
    
    
    2,193Loan and line of credit
commitments
    
    
    72,522
    
    
    
    72,522
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    140,585
    
    
    $
    83,279
    
    
    $
    47,512
    
    
    $
    5,100
    
    
    $
    4,694
  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



Item 1 
    
    Legal Proceedings:There are no matters required to be reported under this item.Item 1A 
    
    Risk Factors:There has been no material change in the nature of the risk factors set forth in the
Companys Form 10-K for the year ended December 31, 2009.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 (or
    
    
    Average Price
    
    
    of Publicly
    
    
    May Yet BeUnits)
    
    
    Paid per Share
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    (or Unit)
    
    
    or Programs(1)
    
    
    Plans or ProgramsMonth #l
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4/1/2010 to
4/30/2010Month #2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5/1/2010 to
5/31/2010Month #3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6/1/2010 to
6/30/2010Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,907
 (1)
    
    On August 16, 2007, the Company announced a repurchase program which authorizes the
repurchase of up to 200,000 of its common shares over a two year period commencing August
15, 2007. Item 3 
    
    Defaults Upon Senior Securities:There are no matters required to be reported under this item.
  30




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##### Table of Contents



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
  31




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##### Table of Contents



DCB FINANCIAL CORP
(Registrant)Date:  August 16, 2010
    /s/ David FolkweinDavid FolkweinInterim President and Chief Executive OfficerDate:  August 16, 2010
    /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