##### 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, 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
    
    (I.R.S. Employer Identification Number)incorporation or organization)
 
  
   þ o
  o o
  Large
accelerated
filers oAccelerated
filer þNon-accelerated filer o(Do not check if a smaller reporting company)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
    
    
    32
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Financial Statements
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCash and due from financial institutions
    
    $
    7,385
    
    
    $
    19,632Interest bearing deposits
    
    
    36,990
    
    
    
    10,000Federal funds sold and overnight investments
    
    
    10,000
    
    
    
    4,000Total cash and cash equivalents
    
    
    54,375
    
    
    
    33,632Securities available for sale, at fair value
    
    
    81,235
    
    
    
    111,360Securities held to maturity, at amortized cost
    
    
    8,002
    
    
    
    8,002Total securities
    
    
    89,237
    
    
    
    119,362Loans held for sale, at lower of cost or market
    
    
    4,819
    
    
    
    1,083Loans
    
    
    500,795
    
    
    
    513,213Less allowance for loan losses
    
    
    (7,995
    )
    
    
    (6,137
    )Net loans
    
    
    492,800
    
    
    
    507,076Real estate owned
    
    
    4,672
    
    
    
    5,071Investment in FHLB stock
    
    
    3,814
    
    
    
    3,796Premises and equipment, net
    
    
    14,970
    
    
    
    15,537Investment in unconsolidated affiliates
    
    
    1,321
    
    
    
    1,277Bank-owned life insurance
    
    
    15,957
    
    
    
    15,623Accrued interest receivable and other assets
    
    
    9,234
    
    
    
    10,107Total assets
    
    $
    691,199
    
    
    $
    712,564LIABILITIESDepositsNoninterest-bearing
    
    $
    49,952
    
    
    $
    49,018Interest-bearing
    
    
    513,655
    
    
    
    516,135Total deposits
    
    
    563,607
    
    
    
    565,153Federal funds purchased and other short-term borrowings
    
    
    4,386
    
    
    
    5,370Federal Home Loan Bank advances
    
    
    65,610
    
    
    
    83,014Accrued interest payable and other liabilities
    
    
    3,444
    
    
    
    2,968Total liabilities
    
    
    637,047
    
    
    
    656,505SHAREHOLDERS EQUITYCommon stock, no par value, 7,500,000 shares authorized,
4,273,908 issued
    
    
    3,785
    
    
    
    3,785Retained earnings
    
    
    63,280
    
    
    
    64,933Treasury stock, at cost, 556,523 shares
    
    
    (13,494
    )
    
    
    (13,494
    )Accumulated other comprehensive income
    
    
    581
    
    
    
    835Total shareholders equity
    
    
    54,152
    
    
    
    56,059Total liabilities and shareholders equity
    
    $
    691,199
    
    
    $
    712,564
  3




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest and dividend incomeLoans
    
    $
    7,230
    
    
    $
    8,319
    
    
    $
    14,334
    
    
    $
    17,120Taxable securities
    
    
    820
    
    
    
    1,009
    
    
    
    1,847
    
    
    
    1,894Tax-exempt securities
    
    
    252
    
    
    
    249
    
    
    
    526
    
    
    
    480Federal funds sold and other
    
    
    32
    
    
    
    210
    
    
    
    109
    
    
    
    433Total interest income
    
    
    8,334
    
    
    
    9,787
    
    
    
    16,816
    
    
    
    19,927Interest expenseDeposits
    
    
    1,919
    
    
    
    3,119
    
    
    
    4,214
    
    
    
    6,690Borrowings
    
    
    836
    
    
    
    1,007
    
    
    
    1,746
    
    
    
    2,106Total interest expense
    
    
    2,755
    
    
    
    4,126
    
    
    
    5,960
    
    
    
    8,796Net interest income
    
    
    5,579
    
    
    
    5,661
    
    
    
    10,856
    
    
    
    11,131Provision for loan losses
    
    
    1,707
    
    
    
    600
    
    
    
    5,142
    
    
    
    1,200Net interest income after provision for
loan losses
    
    
    3,872
    
    
    
    5,061
    
    
    
    5,714
    
    
    
    9,931Noninterest incomeService
charges on deposit accounts
    
    
    650
    
    
    
    663
    
    
    
    1,248
    
    
    
    1,274Trust department income
    
    
    234
    
    
    
    225
    
    
    
    470
    
    
    
    512Net gains on sale of securities
    
    
    462
    
    
    
    
    
    
    
    462
    
    
    
    278Net losses on sale of assets
    
    
    (135
    )
    
    
    (86
    )
    
    
    (160
    )
    
    
    (116
    )Gains on sale of loans
    
    
    139
    
    
    
    75
    
    
    
    190
    
    
    
    137Treasury management fees
    
    
    136
    
    
    
    144
    
    
    
    271
    
    
    
    251Data processing servicing fees
    
    
    138
    
    
    
    183
    
    
    
    273
    
    
    
    361Earnings on
bank owned life insurance
    
    
    167
    
    
    
    165
    
    
    
    334
    
    
    
    330Other
    
    
    94
    
    
    
    147
    
    
    
    195
    
    
    
    267Total noninterest income
    
    
    1,885
    
    
    
    1,516
    
    
    
    3,283
    
    
    
    3,294Noninterest expenseSalaries and employee benefits
    
    
    2,603
    
    
    
    2,561
    
    
    
    5,127
    
    
    
    5,110Occupancy and equipment
    
    
    1,087
    
    
    
    1,074
    
    
    
    2,154
    
    
    
    2,065Professional services
    
    
    360
    
    
    
    250
    
    
    
    523
    
    
    
    409Advertising
    
    
    94
    
    
    
    99
    
    
    
    185
    
    
    
    208Postage, freight and courier
    
    
    68
    
    
    
    53
    
    
    
    153
    
    
    
    144Supplies
    
    
    77
    
    
    
    81
    
    
    
    154
    
    
    
    151State franchise taxes
    
    
    169
    
    
    
    122
    
    
    
    338
    
    
    
    191Federal deposit insurance premiums
    
    
    494
    
    
    
    22
    
    
    
    654
    
    
    
    45Other
    
    
    1,322
    
    
    
    684
    
    
    
    2,061
    
    
    
    1,474Total noninterest expense
    
    
    6,274
    
    
    
    4,946
    
    
    
    11,349
    
    
    
    9,797Income (loss) before income taxes
(credits)
    
    
    (517
    )
    
    
    1,631
    
    
    
    (2,352
    )
    
    
    3,428Income tax expenses (credits)
    
    
    (308
    )
    
    
    407
    
    
    
    (1,072
    )
    
    
    906Net income (loss)
    
    $
    (209
    )
    
    $
    1,224
    
    
    $
    (1,280
    )
    
    $
    2,522Basic and diluted earnings (loss)
per common share
    
    $
    (0.06
    )
    
    $
    0.33
    
    
    $
    (0.34
    )
    
    $
    0.68Dividends per share
    
    $
    0.02
    
    
    $
    0.16
    
    
    $
    0.04
    
    
    $
    0.32
  4




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income (loss)
    
    $
    (209
    )
    
    $
    1,224
    
    
    $
    (1,280
    )
    
    $
    2,522Reclassification
adjustment for realized
gains included in net
income, net of tax
of $157, $157 and $95 for
the respective
periods
    
    
    (305
    )
    
    
    
    
    
    
    (305
    )
    
    
    (183
    )Unrealized gain (loss) on
securities
available for sale, net of
taxes (benefits)
of ($74), ($699), $26 and
$(420) for
for the respective periods
    
    
    (144
    )
    
    
    (1,357
    )
    
    
    51
    
    
    
    (816
    )Comprehensive income (loss)
    
    $
    (658
    )
    
    $
    (133
    )
    
    $
    (1,534
    )
    
    $
    1,523Accumulated other
comprehensive
income (loss)
    
    $
    581
    
    
    $
    (912
    )
    
    $
    581
    
    
    $
    (912
    )
  5




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




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NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Earnings (loss) per share
  Three and Six Months EndedJune 30,2009
    
    2008Basic and diluted weighted-average common
shares outstanding
    
    
    3,717,385
    
    
    
    3,717,385
  7




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Stock option plan
     8




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Six Months EndedJune 30,2009WEIGHTEDWEIGHTED
    
    
    AVERAGE REMAININGAVERAGE EXERCISE
    
    
    CONTRACTUALSHARES
    
    
    PRICE
    
    
    LIFEOutstanding at beginning of period
    
    
    159,284
    
    
    $
    22.92
    
    
    9.2 yearsGranted
    
    
    55,566
    
    
    
    8.93
    
    
    10.0 yearsForfeited
    
    
    (6,139
    )
    
    
    23.78Exercised
    
    
    
    
    
    
    Outstanding at end of period
    
    
    208,711
    
    
    $
    19.59
    
    
    9.6 yearsOptions exercisable at period end
    
    
    66,069
    
    
    $
    24.77Weighted-average fair value of
options granted during the period
    
    
    
    
    
    $
    0.76
 Year EndedDecember 31,2008WEIGHTEDWEIGHTED
    
    
    AVERAGE REMAININGAVERAGE EXERCISE
    
    
    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
    Subsequent Events
 Accounting for Transfers of Financial Assets: an
Amendment of FASB Statement No. 140. Accounting for the Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities
  11




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Amendments to FASB Interpretation No. 46(R)
  Application of Critical Accounting Policies
   NOTE 2  SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueJune 30, 2009U.S. Government and agency obligations
    
    $
    15,568
    
    
    $
    194
    
    
    $
    (42
    )
    
    $
    15,720State and municipal obligations
    
    
    27,624
    
    
    
    287
    
    
    
    (211
    )
    
    
    27,700Corporate bonds
    
    
    1,013
    
    
    
    
    
    
    
    (70
    )
    
    
    943Mortgage-backed securities
    
    
    36,094
    
    
    
    733
    
    
    
    (24
    )
    
    
    36,803Total debt securities
    
    
    80,299
    
    
    
    1,214
    
    
    
    (347
    )
    
    
    81,166Other securities
    
    
    57
    
    
    
    27
    
    
    
    (15
    )
    
    
    69Total
    
    $
    80,356
    
    
    $
    1,241
    
    
    $
    (362
    )
    
    $
    81,235
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Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2008U.S. Government and agency obligations
    
    $
    32,492
    
    
    $
    705
    
    
    $
    
    
    
    $
    33,197State and municipal obligations
    
    
    29,221
    
    
    
    286
    
    
    
    (346
    )
    
    
    29,161Mortgage-backed securities
    
    
    48,324
    
    
    
    658
    
    
    
    (52
    )
    
    
    48,930Total debt securities
    
    
    110,037
    
    
    
    1,649
    
    
    
    (398
    )
    
    
    111,288Other securities
    
    
    57
    
    
    
    30
    
    
    
    (15
    )
    
    
    72Total
    
    $
    110,094
    
    
    $
    1,679
    
    
    $
    (413
    )
    
    $
    111,360
  Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    FairCost
    
    
    Losses
    
    
    ValueJune 30, 2009Collateralized debt obligations
    
    $
    8,002
    
    
    $
    3,579
    
    
    $
    4,423
 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
    
    
    $
    3,062
    
    
    $
    (42
    )
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    3
    
    
    $
    3,062
    
    
    $
    (42
    )State and municipal
obligations
    
    
    21
    
    
    
    7,457
    
    
    
    (122
    )
    
    
    9
    
    
    
    3,976
    
    
    
    (89
    )
    
    
    30
    
    
    
    11,433
    
    
    
    (211
    )Corporate bonds
    
    
    2
    
    
    
    943
    
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    943
    
    
    
    (70
    )Mortgage-backed and
other securities
    
    
    11
    
    
    
    560
    
    
    
    (6
    )
    
    
    9
    
    
    
    1,477
    
    
    
    (33
    )
    
    
    20
    
    
    
    2,037
    
    
    
    (39
    )Collateralized debt
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    4,423
    
    
    
    (3,579
    )
    
    
    2
    
    
    
    4,423
    
    
    
    (3,579
    )Total temporarily
impaired securities
    
    
    37
    
    
    $
    12,022
    
    
    $
    (240
    )
    
    
    20
    
    
    $
    9,876
    
    
    $
    (3,701)
    
    
    
    57
    
    
    $
    21,898
    
    
    $
    (3,941
    )
 13




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(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
    
    $
    1,050
    
    
    $
    1,060Due from one to five years
    
    
    12,188
    
    
    
    12,331Due from five to ten years
    
    
    16,647
    
    
    
    16,759Due after ten years
    
    
    14,320
    
    
    
    14,213Mortgage-backed and related securities
    
    
    36,094
    
    
    
    36,803Total debt securities
    
    
    80,299
    
    
    
    81,166Other securities
    
    
    57
    
    
    
    69Total
    
    $
    80,356
    
    
    $
    81,235
   Six Months EndedJune 30,2009
    
    2008Proceeds from sales
    
    $
    17,439
    
    
    $
    278Gross gains
    
    
    462
    
    
    
    278
  NOTE 3  LOANS
  June 30,2009Commercial and industrial
    
    $
    47,292Commercial real estate
    
    
    208,054Residential real estate and home equity
    
    
    188,542Real estate construction and land development
    
    
    35,060Consumer and credit card
    
    
    21,740500,688Add: Net deferred loan origination costs
    
    
    107Total loans receivable
    
    $
    500,795
 15




---



##### Table of Contents



NOTE 4  ALLOWANCE FOR LOAN LOSSES
  Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Balance at beginning of period
    
    $
    7,020
    
    
    $
    7,775
    
    
    $
    6,137
    
    
    $
    8,298Provision for loan losses
    
    
    1,707
    
    
    
    600
    
    
    
    5,142
    
    
    
    1,200Loans charged off
    
    
    (893
    )
    
    
    (787
    )
    
    
    (3,547
    )
    
    
    (1,959
    )Recoveries
    
    
    161
    
    
    
    96
    
    
    
    263
    
    
    
    145Balance at end of period
    
    $
    7,995
    
    
    $
    7,684
    
    
    $
    7,995
    
    
    $
    7,684
  June 30,
    
    
    December 31,2009
    
    
    2008Loans past due 90 days or more and still accruing
    
    $
    691
    
    
    $
    1,146Nonaccrual loans
    
    
    5,242
    
    
    
    4,698Total
    
    $
    5,933
    
    
    $
    5,844Impaired loans were as follows:Loans with no allocated allowance for unconfirmed loan losses
    
    $
    2,216
    
    
    $
    4,644Loans with allocated allowance for unconfirmed loan losses
    
    
    14,261
    
    
    
    8,166Total
    
    $
    16,477
    
    
    $
    12,810Amount of the allowance for loan losses allocated to unconfirmed
losses on impaired loans
    
    $
    4,051
    
    
    $
    2,767Average of impaired loans during the period
    
    $
    12,171
    
    
    $
    13,301
 NOTE 5  FAIR VALUE MEASUREMENTS
   16




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##### Table of Contents



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)June 30, 2009U.S. Government and agency
obligations
    
    $
    15,720
    
    
    $
    
    
    
    $
    15,720
    
    
    $
    State and municipal obligations
    
    
    27,700
    
    
    
    410
    
    
    
    27,290
    
    
    
    Corporate bonds
    
    
    943
    
    
    
    
    
    
    
    943
    
    
    
    Mortgage-backed and
other securities
    
    
    36,872
    
    
    
    69
    
    
    
    36,803
    
    
    
    Total
    
    $
    81,235
    
    
    $
    479
    
    
    $
    80,756
    
    
    $
    
 17




---



##### 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
    
    
    $
    
  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)June 30, 2009Impaired loans
    
    $
    13,638
    
    
    $
    
    
    
    $
    
    
    
    $
    13,638Real estate owned
    
    
    1,717
    
    
    
    
    
    
    
    
    
    
    
    1,717December 31, 2008Impaired loans
    
    $
    5,528
    
    
    $
    
    
    
    $
    
    
    
    $
    5,528
 18




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##### Table of Contents



June 30,
    
    December 31,2009
    
    2008Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assetsCash and cash equivalents
    
    $
    54,375
    
    
    $
    54,375
    
    
    $
    33,632
    
    
    $
    33,632Securities available for sale
    
    
    81,235
    
    
    
    81,235
    
    
    
    111,360
    
    
    
    111,360Securities held to maturity
    
    
    8,002
    
    
    
    3,552
    
    
    
    8,002
    
    
    
    4,079Loans held for sale
    
    
    4,819
    
    
    
    4,819
    
    
    
    1,083
    
    
    
    1,083Loans
    
    
    500,795
    
    
    
    503,272
    
    
    
    513,213
    
    
    
    517,956FHLB stock
    
    
    3,814
    
    
    
    3,814
    
    
    
    3,796
    
    
    
    3,796Accrued interest receivable
    
    
    2,413
    
    
    
    2,413
    
    
    
    2,790
    
    
    
    2,790Financial liabilitiesNoninterest-bearing deposits
    
    $
    49,952
    
    
    $
    49,952
    
    
    $
    49,018
    
    
    $
    49,018Interest-bearing deposits
    
    
    513,655
    
    
    
    514,386
    
    
    
    516,135
    
    
    
    508,503Federal funds purchased and
other short-term borrowings
    
    
    4,386
    
    
    
    4,386
    
    
    
    5,370
    
    
    
    5,370FHLB advances
    
    
    65,610
    
    
    
    65,187
    
    
    
    83,014
    
    
    
    82,258Accrued interest payable
    
    
    1,330
    
    
    
    1,330
    
    
    
    1,309
    
    
    
    1,309
   19




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##### Table of Contents



NOTE 6  SUBSEQUENT EVENT
  
 Risk Factors
       20




---



##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of Operations
 INTRODUCTION
  FORWARD-LOOKING STATEMENTS
   Overview of the second quarter of 2009
   21




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##### Table of Contents




    
    The Corporations assets totaled $691,199 at June 30, 2009, compared to $712,564 at
December 31, 2008, a decrease of $21,365, or 3.0%. The decline is due primarily to an
overall slowdown in loan volume.
    
    Net loss for the three and six months ended June 30, 2009 totaled $209 and $1,280,
respectively, compared to net income in the same periods in 2008 of $1,224 and $2,522,
respectively,
    
    The provision for loan losses totaled $5,142 for the six months ended June 30, 2009
compared to $1,200 in the first six months of 2008. This increase is mainly attributed to
declines in overall credit quality and reserves for specific impaired loans. DCB maintains
an allowance for loan losses at a level to absorb managements estimate of probable
inherent credit losses in its portfolio.
    
    An overall decline in loan balances, period to period, contributed to the reduced
interest income. The Corporations net interest margin for the second quarter increased
slightly compared to the second quarter 2008, from 3.50% to 3.55%. Compared to the first
quarter 2009, the margin improved from 3.39% to 3.55%. This is attributed to improved
deposit and loan pricing, core deposit growth and reduced high cost broker deposits and
long-term debt.
    
    Investment securities totaling $16,977 were sold resulting in a gain on sale of $462.
Advances from the Federal Home Loan Bank totaling $13,410 were prepaid and the Corporation
incurred a prepayment fee of $533. Management expects the decrease of long term debt
corresponding to a similar decrease in investable cash balances will provide an overall
benefit by increasing net interest margin. It will also provide additional pledged assets
that can be used to secure other long term borrowing options.
    
    FDIC insurance premiums increased by $609 for the six months ended June 30, 2009,
compared to the same period in 2008, including a one-time special assessment.
    
    The ability to generate earnings is impacted in part by competitive pricing on loans and
deposits, and by changes in the rates on various U.S. Treasury, U. S. Government Agency and
State and political subdivision issues which comprise a significant portion of the Banks
investment portfolio. The Bank is competitive with interest rates and loan fees that it
charges, in pricing and the variety of accounts it offers to the depositor. The
Corporation confirms this by completing regular rate shops and comparisons versus competing
financial services companies. The dominant pricing mechanism on loans is the prime
interest rate as published in the Wall Street Journal, on a fixed rate plus spread over
funding costs. The interest spread depends on the overall account relationship and the
creditworthiness of the borrower.
    
    Deposit rates are reviewed weekly by management and are generally discussed by the
Asset/Liability Committee on a monthly basis. The Banks primary objective in setting
deposit rates is to remain competitive in the market area and to develop funding
opportunities while earning an adequate interest rate margin.
    
    Total borrowings decreased by 20.8%, from $88,384 at December 31, 2008, to $69,996 at
June 30, 2009. This is mainly due to managements decision to prepay long term debt to
reduce cash balances and decrease other costs on borrowed funds.
 22




---



##### Table of Contents



ANALYSIS OF FINANCIAL CONDITION
      COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS  ENDED JUNE 30, 2009 AND JUNE 30, 2008
 Net Income (Loss).
 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 SIX MONTHS  ENDED JUNE 30, 2009 AND JUNE 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 YEARCONCTRACTUAL
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More thanOBLIGATIONS
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsFHLB advances
    
    $
    65,610
    
    
    $
    4,928
    
    
    $
    37,160
    
    
    $
    19,764
    
    
    $
    3,758Federal funds purchased and
other
short-term borrowings
    
    
    4,386
    
    
    
    4,386
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,471
    
    
    
    466
    
    
    
    1,864
    
    
    
    1,865
    
    
    
    2,276Loan and line of credit
commitments
    
    
    85,689
    
    
    
    85,689
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    $
    162,156
    
    
    $
    95,469
    
    
    $
    39,024
    
    
    $
    21,629
    
    
    $
    6,034
 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:Item 1A  Risk Factors:Item 2  Unregistered Sales of Equity Securities and Use of Proceeds:EX-31.1EX-31.2EX-32.1EX-32.2    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, 2008.
 
 Item 2 
    
    Unregistered Sales of Equity Securities and Use of Proceeds:
 ISSUER PURCHASES OF EQUITY SECURITIES
 (d)Maximum Number(c)
    
    
    (or ApproximateTotal Number of
    
    
    Dollar Value) of(a)
    
    
    
    
    
    
    Shares (or Units)
    
    
    Shares (or Units)Total Number
    
    
    (b)
    
    
    Purchased as Part
    
    
    thatof Shares (or
    
    
    Average Price
    
    
    of Publicly
    
    
    May Yet BeUnits)
    
    
    Paid per Share
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    (or Unit)
    
    
    or Programs(1)
    
    
    Plans or ProgramsMonth #l
4/1/2009 to
4/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #2
5/1/2009 to
5/31/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Month #3
6/1/2009 to
6/30/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,907
 
 (1)
    
    On August 16, 2007, the Company announced a repurchase program which authorizes the
repurchase of up to 200,000 of its common shares over a two year period commencing August
15, 2007. Item 3 
    
    Defaults Upon Senior Securities:There are no matters required to be reported under this item.
 30




---



##### Table of Contents



Item 4 
    
    Submission of Matters to a Vote of Security Holders:At the Annual Meeting of Shareholders held on May 21, 2009 there were 2,625,353 voting
shares present in person or by proxy, which represented 71% of the Corporations
outstanding shares of 3,717,385 as of the record date for the meeting. At the Annual
Meeting, one proposal was submitted to the shareholders for a vote. The shareholders
of the Corporation were asked to consider the Corporations nominees for directors and
to elect three (3) directors to serve for a term of three (3) years. The Corporations
nominees for director were: Jeffrey T. Benton, Adam Stevenson and Gary M. Skinner,
each of whom were elected. The results of shareholder voting are as follows on these
matters:Proposal 1  Election of Directors:
 Director
    
    Votes for
    
    Votes withheldJeffrey T. Benton
    
    
    2,543,860
    
    
    
    81,493Adam Stevenson
    
    
    2,559,065
    
    
    
    66,288Gary M. Skinner
    
    
    2,586,197
    
    
    
    39,156
 Directors continuing in office are: Terry Kramer, Ed Powers, Donald J. Wolf,
Phillip Connolly and Vicki J. Lewis.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




---



##### Table of Contents



DCB FINANCIAL CORP
(Registrant)Date:  August 10, 2009
    /s/ Jeffrey T. BentonJeffrey T. BentonPresident and Chief Executive OfficerDate:  August 10, 2009
    /s/ John A. UstaszewskiJohn A. UstaszewskiSenior Vice President and Chief Financial Officer 32




---



##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION3.1
    
    Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference
to the
Companys Report on Form 10-Q filed with the Commission on November 14, 2003.3.2
    
    Amended and Restated Articles of Incorporation of DCB Financial Corp, incorporated by reference to
the
Companys Report on Form 10-Q filed with the Commission on November 14, 2003.31.1
    
    Certification of 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