DCB Financial (DCBF) 10-Q 2009 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: MARCH 31, 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

(Exact name of registrant as specified in its charter)

Ohio	31-1469837
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)

110 Riverbend Avenue, Lewis Center, Ohio 43035

(Address of principal executive offices)

(740) 657-7000

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ     Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero  Accelerated filerþ  Non-accelerated filero
(Do not check if a smaller reporting company) Smaller reporting companyo 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yeso      Noþ

As of May 8, 2009, the latest practicable date, 3,717,385 shares of the registrant’s no par value common stock were issued and outstanding.

DCB FINANCIAL CORP
FORM 10-Q
For the Three Month Periods Ended March 31, 2009 and 2008

Table of Contents

	Page
PART I — FINANCIAL INFORMATION
ITEM 1 — Financial Statements
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Statements of Comprehensive Income (Loss)		5
Condensed Consolidated Statements of Cash Flows		6
Notes to the Condensed Consolidated Financial Statements		7
ITEM 1A — Risk Factors		16
ITEM 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
ITEM 3 — Quantitative and Qualitative Disclosures About Market Risk		22
ITEM 4 — Controls and Procedures		23
PART II — OTHER INFORMATION		24
SIGNATURES		26
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

DCB FINANCIAL CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

Item 1.Financial Statements

	March 31,			December 31,
	2009			2008
	(unaudited)
ASSETS
Cash and due from financial institutions	$	12,722		$	19,632
Interest-bearing deposits		18,992			10,000
Federal funds sold		17,000			4,000
Total cash and cash equivalents		48,714			33,632
Securities available for sale, at fair value		106,648			111,360
Securities held to maturity, at amortized cost		8,002			8,002
Total securities		114,650			119,362
Loans held for sale, at lower of cost or market		4,732			1,083
Loans		514,159			513,213
Less allowance for loan losses		(7,020	)		(6,137	)
Net loans		507,139			507,076
Real estate owned		4,447			5,071
Investment in FHLB stock		3,778			3,796
Premises and equipment, net		15,197			15,537
Investment in unconsolidated affiliates		1,283			1,277
Bank-owned life insurance		15,790			15,623
Accrued interest receivable and other assets		12,975			10,107
Total assets	$	728,705		$	712,564
LIABILITIES
Deposits
Noninterest-bearing	$	52,570		$	49,018
Interest-bearing		533,852			516,135
Total deposits		586,422			565,153
Federal funds purchased and other short-term borrowings		4,459			5,370
Federal Home Loan Bank advances		80,109			83,014
Accrued interest payable and other liabilities		2,830			2,968
Total liabilities		673,820			656,505
SHAREHOLDERS’ EQUITY
Common stock, no par value, 7,500,000 shares authorized, 4,273,908 issued		3,785			3,785
Retained earnings		63,564			64,933
Treasury stock, at cost, 556,523 shares		(13,494	)		(13,494	)
Accumulated other comprehensive income		1,030			835
Total shareholders’ equity		54,885			56,059
Total liabilities and shareholders’ equity	$	728,705		$	712,564

See notes to the condensed consolidated financial statements.

3

DCB FINANCIAL CORP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share data)

	Three Months Ended
	March 31,
	2009			2008
Interest and dividend income
Loans	$	7,104		$	8,801
Taxable securities		1,027			885
Tax-exempt securities		274			231
Federal funds sold and other		77			223
Total interest income		8,482			10,140
Interest expense
Deposits		2,295			3,571
Borrowings		910			1,099
Total interest expense		3,205			4,670
Net interest income		5,277			5,470
Provision for loan losses		3,435			600
Net interest income after provision for loan losses		1,842			4,870
Noninterest income
Service charges on deposit accounts		598			611
Trust department income		236			287
Net gain on sale of securities		—			278
Net loss on sales of assets		(25	)		(30	)
Gains on sale of loans		51			62
Treasury management fees		135			107
Data processing servicing fees		135			178
Earnings on bank owned life insurance		167			165
Other		101			120
Total noninterest income		1,398			1,778
Noninterest expense
Salaries and employee benefits		2,524			2,549
Occupancy and equipment		1,067			991
Professional services		163			159
Advertising		91			109
Postage, freight and courier		85			91
Supplies		77			70
State franchise taxes		169			69
Federal deposit insurance premiums		160			23
Other		739			790
Total noninterest expense		5,075			4,851
Income (loss) before income taxes (credit)		(1,835	)		1,797
Income tax expense (credit)		(764	)		499
Net income (loss)	$	(1,071	)	$	1,298
Basic and diluted earnings (loss) per common share	$	(0.29	)	$	0.35
Dividends per share	$	0.08		$	0.16

See notes to the condensed consolidated financial statements.

4

DCB FINANCIAL CORP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)

	Three Months Ended
	March 31,
	2009			2008
Net income (loss)	$	(1,071	)	$	1,298
Reclassification adjustment for realized gains, net of tax of $95		—			(183	)
Unrealized gains on securities available for sale, net of taxes of $100 and $279 for the respective periods		195			541
Comprehensive income (loss)	$	(876	)	$	1,656
Accumulated other comprehensive income	$	1,030		$	445

See notes to the condensed consolidated financial statements.

5

DCB FINANCIAL CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

	Three Months Ended
	March 31,
	2009			2008
Cash flows provided by (used in) operating activities	$	(3,743	)	$	2,973
Cash flows provided by (used in) investing activities
Securities available for sale
Purchases		(7,479	)		(23,861	)
Maturities, principal payments and calls		12,411			12,487
Net change in loans		(3,447	)		1,740
Proceeds from sale of real estate owned		560			80
Investment in unconsolidated affiliate		(6	)		—
Premises and equipment expenditures		(99	)		(1,063	)
Net cash flows provided by (used in) investing activities		1,940			(10,617	)
Cash flows provided by financing activities
Net change in deposits		21,269			51,877
Net change in federal funds purchased and other short-term borrowings		(911	)		(12,416	)
Repayment of Federal Home Loan Bank advances		(2,905	)		(2,503	)
Cash dividends paid		(568	)		(600	)
Net cash provided by financing activities		16,885			36,358
Net change in cash and cash equivalents		15,082			28,714
Cash and cash equivalents at beginning of period		33,632			32,068
Cash and cash equivalents at end of period	$	48,714		$	60,782
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowings	$	3,141		$	4,219
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gains on securities designated as available for sale, net of tax benefits	$	195		$	541
Transfers from loans to real estate owned	$	—		$	597
Cash dividends declared but unpaid	$	595		$	560

See notes to the condensed consolidated financial statements.

6

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated interim financial statements are prepared without audit and reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of DCB Financial Corp (the “Corporation”) at March 31, 2009, and its results of operations and cash flows for the three month periods ended March 31, 2009 and 2008. All such adjustments are normal and recurring in nature. The accompanying consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not purport to contain all necessary financial disclosures required by accounting principles generally accepted in the United States of America that might otherwise be necessary in the circumstances, and should be read in conjunction with the consolidated financial statements, and notes thereto, included in its 2008 Annual Report. Refer to the accounting policies of the Corporation described in the Notes to Consolidated Financial Statements contained in the Corporation’s 2008 Annual Report. The Corporation has consistently followed these policies in preparing this Form 10-Q. The results of operations for the three months ended March 31, 2009, are not necessarily indicative of the results that may be expected for the entire year.

The accompanying consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiaries, The Delaware County Bank and Trust Company (the “Bank”), DCB Title Services LLC, Datatasx LLC and ORECO (collectively referred to herein after as the “Corporation”). All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Management considers the Corporation to operate within one business segment, banking.

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect amounts reported in the financial statements and disclosures provided, and future results could differ. The allowance for loan losses, fair values of financial instruments and status of contingencies are particularly subject to change.

Income tax expense is based on the effective tax rate expected to be applicable for the entire year. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Earnings per share

Earnings per common share is net income divided by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed including the dilutive effect of additional potential common shares under stock options. Weighted-average shares for basic and diluted earnings per share are presented below.

	Three Months Ended
	March 31,
	2009		2008
Weighted-average common shares outstanding (basic)		3,717,385		3,717,385
Dilutive effect of assumed exercise of stock options		—		—
Weighted-average common shares outstanding (diluted)		3,717,385		3,717,385

Options to purchase 159,284 shares of common stock with a weighted-average exercise price of $22.92, for the three month period ending March 31, 2009 were outstanding, but were excluded from the computation of common share equivalents for the three month period because the exercise price was greater than the average fair value of the shares.

7

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share data)

Options to purchase 164,002 shares of common stock with a weighted-average exercise price of $22.92, were outstanding at March 31, 2008, but were excluded from the computation of common share equivalents for the period then ended because the exercise price was greater than the average stock price during the reported period.

Stock option plan

The Corporation’s shareholders approved an employee share option plan (the “Plan”) in May 2004. This plan grants certain employees the right to purchase shares at a predetermined price. The plan is limited to 300,000 shares. The shares granted to employees vest 20% per year over a five year period. The options expire after ten years. No shares were granted for the period ending March 31, 2009. At March 31, 2009, approximately 49,854 shares were exercisable and 140,130 shares were available for grant under this plan.

The Corporation accounts for its stock option plan in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment.” The compensation cost recorded for unvested equity-based awards is based on their grant-date fair value. The fair value of each option was estimated on the date of grant using the modified Black-Scholes options pricing model with the following weighted-average assumptions used for grants: dividend yield of 2.75% for 2008, expected volatility of 12.0% for 2008, risk-free interest rates with 2.25% for 2008, and expected lives of 10 years for each grant. At March 31, 2009 and December 31, 2008, outstanding options had no intrinsic value.

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the US Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of the Corporation’s stock.

The Corporation recorded $32 and $20 in compensation cost for equity-based awards that vested during the three months ended March 31, 2009 and 2008, respectively. The Corporation has $309 of total unrecognized compensation cost related to non-vested equity-based awards granted under its stock option plan as of March 31, 2009, which is expected to be recognized over a weighted-average period of 4.3 years.

8

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share data)

A summary of the status of the Corporation’s stock option plan as of March 31, 2009 and December 31, 2008, and changes during the periods then ended are presented below:

			Three Months Ended
			March 31, 2009
					WEIGHTED
			WEIGHTED		AVERAGE
			AVERAGE		REMAINING
			EXERCISE		CONTRACTUAL
	SHARES		PRICE		LIFE
Outstanding at beginning of period		159,284	$	22.92	9.2 years
Granted		—		—
Forfeited		—		—
Exercised		—		—
Outstanding at end of period		159,284	$	22.92	8.9 years
Options exercisable at period end		49,854	$	24.50

				Year Ended
				December 31,
				2008
						WEIGHTED
				WEIGHTED		AVERAGE
				AVERAGE		REMAINING
				EXERCISE		CONTRACTUAL
	SHARES			PRICE		LIFE
Outstanding at beginning of year		108,051		$	25.80	8.9 years
Granted		57,643			16.90	9.8 years
Forfeited		(6,410	)		22.46
Exercised		—			—
Outstanding at end of year		159,284		$	22.92	9.2 years
Options exercisable at year end		39,220		$	26.03
Weighted-average fair value of options granted during the year				$	1.01

9

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share data)

The following information applies to options outstanding at March 31, 2009:

NUMBER OUTSTANDING	RANGE OF EXERCISE PRICES
104,220	$	23.00 - $30.70
55,064		$16.90

Recent Accounting Standards: In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 (revised 2007), “Business Combinations”,which replaces SFAS 141. The Statement applies to all transactions or other events in which one entity obtains control of one or more businesses. It requires all assets acquired, liabilities assumed and any noncontrolling interest to be measured at fair value at the acquisition date. The Statement requires certain costs such as acquisition-related costs that were previously recognized as a component of the purchase price, and expected restructuring costs that were previously recognized as an assumed liability, to be recognized separately from the acquisition as an expense when incurred.

FAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (January 1, 2009 as to the Corporation) and may not be applied before that date. The Corporation adopted SFAS 141 (R) effective January 1, 2009, as required, without material effect on the Corporation’s financial statements.

Concurrent with SFAS No. 141 (revised 2007), the FASB recently issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51”. SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest (formerly known as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. A subsidiary, as defined by SFAS No. 160, includes a variable interest entity that is consolidated by a primary beneficiary.

A noncontrolling interest in a subsidiary, previously reported in the statement of financial position as a liability or in the mezzanine section outside of permanent equity, will be included within consolidated equity as a separate line item upon the adoption of SFAS No. 160. Further, consolidated net income will be reported at amounts that include both the parent (or primary beneficiary) and the noncontrolling interest with separate disclosure on the face of the consolidated statement of income of the amounts attributable to the parent and to the noncontrolling interest.

SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Corporation adopted SFAS No. 160 effective January 1, 2009, as required, without material effect on the Corporation’s financial statements.

In April 2009, the FASB issued three new FASB Staff Positions (FSPs) to address: (1) determining whether a market is not active and a transaction is not orderly, (2) recognition and presentation of other-than-temporary impairments and (3) interim disclosures of fair value of financial instruments, as follows:

FASB Staff Position (FSP) 157-4 “Determining When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” addresses the criteria to be used in the determination of an active market in determining whether observable transactions are Level 1 or Level 2 under the framework established by FAS 157. The FSP reiterates fair value is based on the notion of exit price in an orderly transaction between willing market participants at the valuation date. The FSP is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.

10

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)

In addition, the FASB issued FSP 115-2 and 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments.” The FASB has concluded that changes were necessary to the process for determining whether impairment on debt securities is other-than-temporary. The FSP replaces the requirement that an entity’s management must assert it has both the intent and the ability to hold an impaired debt security until recovery with a requirement that management assert:

• 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

If those two assertions are true, only the portion of the impairment due to credit loss is recorded in income. Other portions of the impairment (any portions not related to credit loss) are recorded in other comprehensive income. Credit loss is defined in the FSP as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security, the entire amortized cost basis of the security will not be recovered (that is, a credit loss exists) and an other-than-temporary impairment shall be considered to have occurred and the portion of the loss attributable to the credit loss is recorded in net income. The FSP is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.

Finally, the FASB issued FSB 107-1 and APB 28-1 “Interim Disclosures About Fair Values of Financial Instruments.” This FSP requires publicly traded companies to include disclosures about fair value in interim financial statements for all financial instruments within the scope of FAS 107. The specific disclosures required include the method(s) and significant assumptions used to estimate the fair value of financial instruments, as well as changes in those methods and assumptions, and the carrying values of those instruments. The disclosures must clearly identify how the carrying value reported in the disclosures relates to what is reported in the statement of financial position. The FSP is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.

Management is currently evaluating the provisions of the three FSPs, but does not expect the adoption to have a material effect on the Corporation’s financial statements.

Application of Critical Accounting Policies

DCB’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and follow general practices within the financial services industry. The application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.

The most significant accounting policies followed by the Corporation are presented in Note 1 of Notes to Consolidated Financial Statements contained in the Corporation’s 2008 Annual Report. These policies, along with the disclosures presented in the other financial statement notes and in this financial review, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

11

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)

NOTE 2 — SECURITIES

The amortized cost and estimated fair values of securities available for sale were as follows:

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	March 31, 2009
U.S. Government and agency obligations	$	27,933	$	702	$	—		$	28,635
State and municipal obligations		31,080		352		(306	)		31,126
Corporate bonds		1,014		5		(6	)		1,013
Mortgage-backed and related securities		45,004		838		(35	)		45,807
Total debt securities		105,031		1,897		(347	)		106,581
Other securities		57		10		—			67
Total	$	105,088	$	1,907	$	(347	)	$	106,648

The amortized cost and estimated fair values of securities held to maturity were as follows:

			Estimated
	Amortized		Fair
	Cost		Value
	March 31, 2009
Collateralized debt obligations	$	8,002	$	4,081

The table below indicates the length of time individual securities have been in a continuous unrealized loss position at March 31, 2009:

	(Less than 12 months)							(12 months or longer)
			Estimated		Gross					Estimated		Gross					Estimated		Total
Description of	Number of		Fair		Unrealized			Number of		Fair		Unrealized			Number of		Fair		Unrealized
Securities	investments		value		losses			investments		value		losses			investments		value		losses
State and municipal obligations		36	$	13,124	$	(290	)		1	$	363	$	(16	)		37	$	13,487	$	(306	)
Collateralized debt obligations		—		—		—			2		4,081		(3,921	)		2		4,081		(3,921	)
Corporate bonds		1		502		(6	)		—		—		—			1		502		(6	)
Mortgage-backed and other securities		27		1,932		(8	)		16		1,777		(27	)		43		3,709		(35	)
Total temporarily
impaired securities		64	$	15,558	$	(304	)		19	$	6,221	$	(3,964	)		83	$	21,779	$	(4,268	)

12

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)

Management has the intent and ability to hold these securities until the values recover up to the Corporation’s cost basis. The decline in the fair values of the state and municipal obligations and the mortgage-backed securities is primarily due to the effects of changes in market interest rates. The fair values are expected to recover as the securities approach maturity dates.

The collateralized debt obligations included in the above schedule are categorized as held-to-maturity, and were priced utilizing a Level 3 methodology due to the inactivity in the market for these types of securities and the unavailability of standard market pricing. Management was able to obtain pricing from a third-party that was based on the third-party’s assumptions regarding cash flow, potential credit losses and the principal prepayment speeds. Management has the intent and ability to hold these securities to maturity, and based on recent analysis expects to receive full principal and interest payments according to the obligations terms based on the underlying strength and performance of the collateral. Management has concluded that the obligations are not other than temporarily impaired at March 31, 2009.

Substantially all mortgage-backed securities are backed by pools of mortgages that are insured or guaranteed by the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”).

At March 31, 2009, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of shareholders’ equity.

The amortized cost and estimated fair value of all debt securities at March 31, 2009, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Mortgage-backed securities are shown separately since they are not due at a single maturity date.

	Amortized		Fair
	Cost		Value
Due in one year or less	$	2,390	$	2,439
Due from one to five years		16,266		16,597
Due from five to ten years		24,094		24,525
Due after ten years		25,279		21,294
Mortgage-backed and related securities		45,004		45,807
Total debt securities		113,033		110,662
Other securities		57		67
Total	$	113,090	$	110,729

Securities with a carrying value of $99,433 at March 31, 2009 were pledged to secure public deposits and other obligations.

13

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)

NOTE 3 — LOANS

Loans were as follows:

	March 31,
	2009
Commercial and industrial	$	47,033
Commercial real estate		214,381
Residential real estate and home equity		193,773
Real estate construction and land development		36,347
Consumer and credit card		22,478
		514,012
Add: Net deferred loan origination costs		147
Total loans receivable	$	514,159

NOTE 4 — ALLOWANCE FOR LOAN LOSSES

Activity in the allowance for loan losses was as follows:

	Three months ended
	March 31,
	2009			2008
Balance at beginning of period	$	6,137		$	8,298
Provision for loan losses		3,435			600
Loans charged off		(2,654	)		(1,173	)
Recoveries		102			50
Balance at end of period	$	7,020		$	7,775

Nonperforming loans were as follows:

	March 31,		December 31,
	2009		2008
Loans past due 90 days or more and still accruing	$	1,045	$	1,146
Nonaccrual loans		6,000		4,698
Total	$	7,045	$	5,844
Impaired loans are as follows:
Loans with no allocated allowance for unconfirmed loan losses	$	3,485	$	4,644
Loans with allocated allowance for unconfirmed loan losses		13,575		8,166
Total	$	17,060	$	12,810
Amount of the allowance for loan losses allocated to unconfirmed losses on impaired loans	$	3,238	$	2,767
Average of impaired loans during the period	$	12,890	$	13,301

14

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)

NOTE 5 — FAIR VALUE MEASUREMENTS

The Corporation accounts for fair value measurements in accordance with SFAS No. 157, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices in active markets for identical assets or liabilities
Level 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 liabilities
Level 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

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

     Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government agency bonds and mortgage-backed securities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include certain collateralized mortgage and debt obligations and certain municipal securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include other less liquid securities.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheet measured at fair value on a recurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall at March 31, 2009 and December 31, 2008.

			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2009
Available for sale securities	$	106,648	$	1,067	$	105,581	$	—
December 31, 2008
Available for sale securities		111,360		1,926		109,434		—

15

DCB FINANCIAL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)

Following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.

     Impaired loans

At March 31, 2009 and December 31, 2008, impaired loans consisted primarily of loans secured by nonresidential and commercial real estate. Management has determined fair value measurements on impaired loans primarily through evaluations of appraisals performed.

     Real Estate Owned

Real estate acquired through, or in lieu of, loan foreclosure is held for sale and initially recorded at fair value (based on current appraised value) at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Management has determined fair value measurements on real estate owned primarily through evaluations of appraisals performed.

The following table presents the fair value measurements of assets and liabilities measured at fair value on a nonrecurring basis and the level within the FAS 157 fair value hierarchy in which the fair value measurements fall at March 31, 2009 and December 31, 2008.

			Fair Value Measurements Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2009
Impaired loans	$	3,705	$	—	$	—	$	3,705
Real estate owned		1,042		—		—		1,402
December 31, 2008
Impaired loans		5,528		—		—		5,528

NOTE 6 — SUBSEQUENT EVENT

In February 2009, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) voted to amend the restoration plan for the Deposit Insurance Fund (DIF). The amended restoration plan extended the period of time to raise the DIF reserve ratio to 1.15 percent from five to seven years. The amended restoration plan also includes a final rule that sets assessment rates. Under this final rule, beginning on April 1, 2009 the Corporation expects the FDIC premium assessed to the Corporation to increase.

The Board of the FDIC also adopted an interim rule imposing a 20 basis point special assessment on insured institutions as of June 30, 2009 which will be payable on September 30, 2009. The interim rule would also allow the assessment of additional special assessments of up to 10 basis points after June 30, 2009 as deemed necessary. On March 5, 2009, the FDIC announced its intention to cut the agencies planned special emergency assessment, from 20 to up to 10 basis points, provided that Congress clears legislation expanding the FDIC’s line of credit with Treasury to $100 billion.

While the Corporation has not fully evaluated the impact the increased assessment rates and the pending special assessment will have on the 2009 financial results, it is anticipated the impact will be material to the 2009 results of operations.

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.

16

DCB FINANCIAL CORP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

In the following pages, management presents an analysis of the consolidated financial condition of DCB Financial Corp (the “Corporation”) at March 31, 2009, compared to December 31, 2008, and the consolidated results of operations for the three months ended March 31, 2009, compared to the same period in 2008. This discussion is designed to provide shareholders with a more comprehensive review of the operating results and financial position than could be obtained from reading the consolidated financial statements alone. This analysis should be read in conjunction with the consolidated financial statements and related footnotes and the selected financial data included elsewhere in this report.

FORWARD-LOOKING STATEMENTS

Certain statements in this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to the financial condition and prospects, lending risks, plans for future business development and marketing activities, capital spending and financing sources, capital structure, the effects of regulation and competition, and the prospective business of both the Corporation and its wholly-owned subsidiary The Delaware County Bank & Trust Company (the “Bank”). Where used in this report, the word “anticipate,” “believe,” “estimate,” “expect,” “intend,” and similar words and expressions, related to the Corporation or the Bank or their respective management, identify forward-looking statements. Such forward-looking statements reflect the current views of the Corporation and are based on information currently available to the management of the Corporation and the Bank and upon current expectations, estimates, and projections about the Corporation and its industry, management’s belief with respect thereto, and certain assumptions made by management. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Potential risks and uncertainties include, but are not limited to: (i) significant increases in competitive pressure in the banking and financial services industries; (ii) changes in the interest rate environment which could reduce anticipated or actual margins; (iii) changes in political conditions or the legislative or regulatory environment; (iv) general economic conditions, either nationally or regionally (especially in central Ohio), becoming less favorable than expected resulting in, among other things, a deterioration in credit quality of assets; (v) changes occurring in business conditions and inflation; (vi) changes in technology; (vii) changes in monetary and tax policies; (viii) changes in the securities markets; and (ix) other risks and uncertainties detailed from time to time in the filings of the Corporation with the Commission.

The Corporation does not undertake, and specifically disclaims any obligation, to publicly revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview of the first quarter of 2009

The Bank provides customary retail and commercial banking services to its customers, including checking and savings accounts, time deposits, IRAs, safe deposit facilities, personal loans, commercial loans, real estate mortgage loans, installment loans, trust, and other wealth management services. The Bank also provides treasury management, bond registrar and paying agent services.

The Corporation, through the Bank, grants residential real estate, commercial real estate, consumer and commercial loans to customers located primarily in Delaware, Franklin, Licking, Morrow, Marion and Union Counties, Ohio. General economic conditions in the Corporation’s market area have been under some pressures mainly attributable to an overall

17

DCB FINANCIAL CORP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

slow down in economic activity and related increases in unemployment levels, loan foreclosure volume and a decline in real estate values. The Corporation’s business has been under pressure due primarily to market interest rate conditions, competition and a slow down in the economy. Real estate values, especially in the Bank’s core geographic area, have declined during the past several years and the lower values have continued into the first three months of 2009.

• The Corporation’s assets totaled $728,705 at March 31, 2009, compared to $712,564 at December 31, 2008, an increase of $16,141, or 2.3%. The increase in assets was mainly attributed to cash and cash equivalents.

• Net loss for the first three months of 2008 totaled $1,071, compared to net income in the same period in 2008 of $1,298.

• The provision for loan losses totaled $3,435 for the three months ended March 31, 2009 compared to $600 in the first three months of 2008. DCB maintains an allowance for loan losses at a level to absorb management’s estimate of probable inherent credit losses in its portfolio.

• With the flattening of the yield curve during 2008, the Corporation’s net interest margin decreased from the preceding period. Net interest income decreased to $5,277 for the three months ended in 2009 compared to $5,470 for the same period in 2008. The $193 decrease was mainly attributed to credit issues and non-accrual loans compared to the same period in the prior year.

• The ability to generate earnings is impacted in part by competitive pricing on loans and deposits, and by changes in the rates on various U.S. Treasury, U. S. Government Agency and State and political subdivision issues which comprise a significant portion of the Bank’s investment portfolio. The Bank is competitive with interest rates and loan fees that it charges, in pricing and variety of accounts it offers to the depositor. The Corporation confirms this by completing regular rate shops and comparisons versus competing financial services companies. The dominant pricing mechanism on loans is the prime interest rate as published in theWall 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, develop funding opportunities while earning an adequate interest rate margin.

ANALYSIS OF FINANCIAL CONDITION

The Corporation’s assets totaled $728,705 at March 31, 2009, compared to $712,564 at December 31, 2008, an increase of $16,141, or 2.3%. Cash and cash equivalents increased from $33,632 at December 31, 2008 to $48,714 at March 31, 2009 as a result of the Bank’s initiatives to increase liquidity. Total securities decreased from $119,362 at December 31, 2008 to $114,650 at March 31, 2009. Management utilizes this classification to provide the Corporation with the flexibility to move funds into loans as demand warrants.

The increase in federal funds sold and interest-bearing deposit balances is attributed to strong deposit growth. The decrease in investment securities was primarily due to calls and principal repayments and as a result of the Bank’s initiatives to increase liquidity. The Corporation invests primarily in U.S. Treasury notes, U.S. government agencies, municipal bonds, corporate obligations and mortgage-backed securities.

18

DCB FINANCIAL CORP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

The mortgage-backed securities portfolio, totaling $45,807 at March 31, 2009, provides the Corporation with a constant cash flow stream from principal repayments and interest payments. The Corporation held no structured notes during any period presented.

Total loans, including loans held for sale, increased $4,595, or 0.9%, from $514,296 at December 31, 2008 to $518,891 at March 31, 2009. Commercial and industrial, construction and consumer financing experienced decreases in loans outstanding. The Corporation continues to see growth and good loan opportunities in commercial real estate loans, as many large banks have cut back on lending.

Total deposits increased $21,269, or 3.8%, from $565,153 at December 31, 2008 to $586,422 at March 31, 2009. Deposit growth stems primarily from increased CDARS balances, which provide increased levels of FDIC insurance coverage for CDs. The Bank had approximately $168,000 in CDARS deposits outstanding at March 31, 2009. Management intends to continue to develop new products, and to monitor the rate structure of its deposit products to encourage growth of its deposits. Noninterest-bearing deposits increased $3,552, or 7.2%, and interest bearing deposits increased $17,717, or 3.4% during the quarter ended March 31, 2009.

The Corporation utilizes a variety of alternative funding sources due to competitive challenges within its primary market as borrowings were repaid with proceeds from deposit growth. Total borrowings decreased $3,816 during the three months ended March 31, 2009, from $88,384 at December 31, 2008. Typically, the Company utilizes a matched funding methodology for its borrowing and deposit activities. This is done by matching the rates, terms and expected cash flows of its loans to the various liability products. This matching principle is used to not only provide funding, but also as a means of mitigating interest rate risk associated with originating longer-term fixed-rate loans. Continued reliance on borrowings outside of normal deposit growth may increase the Corporation’s overall cost of funds.

COMPARISON OF RESULTS OF OPERATIONS

Net Income.The Corporation reported a net loss for the three months ended March 31, 2009 totaling $1,071, compared to net income of $1,298 for the same period in 2008. The per share loss was $0.29 for the three months ended March 31, 2009 compared to $0.35 earnings per share for the three months ended March 31, 2008. Net income was negatively impacted by increases in provision expense associated with commercial and commercial real estate loan portfolios. Additionally, operating expenses increased due primarily to increases in state franchise taxes and FDIC insurance costs.

Net Interest Income.Net interest income represents the amount by which interest income on interest-earning assets exceeds interest expense on interest-bearing liabilities. Net interest income is the largest component of the Corporation’s income, and is affected by the interest rate environment and the volume and the composition of interest-earning assets and interest-bearing liabilities.

Net interest income was $5,277 for the three months ended March 31, 2009 and $5,470 for the same period in 2008. An overall decline in loan balances coupled with a decreased net interest margin, period to period, contributed to the reduced interest income. However, due to recent pricing initiatives in both loans and deposits, net interest income increased over the fourth quarter of 2008.

Strong deposit pricing competition and lower overall rates have continued to pressure the net interest margin, though the margin increased over the fourth quarter of 2008. The Bank has mainly experienced growth primarily in CDARS deposits along with good growth in most other deposit products. This has helped reduce funding costs by reducing balances of brokered CDs and borrowed funds. Increased funding costs may further negatively impact the net interest margin in future periods if the current competitive environment remains in effect. The Corporation has been able to reduce its overall borrowings, mainly through the FHLB, by replacing them with customer deposits that have grown significantly. The Corporation’s net interest margin for the first quarter declined slightly compared to the first quarter 2008, from 3.47% to 3.39%, due to increased cash equivalent balances which earn a lower yield, but provide necessary liquidity to the Bank’s balance sheet.

19

DCB FINANCIAL CORP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

The Asset/Liability Management Committee, which is responsible for determining deposit rates, continues to closely monitor the Bank’s cost of funds to take advantage of pricing and cash flow opportunities. Additionally, because of the increased competition in the Bank’s primary marketplace, management has continued to recognize the importance of offering special rates on certain deposit products. These special deposit rates tend to negatively affect the Corporation’s net interest margin. It is likely that these offerings will continue to be offered to secure liquidity while maintaining market share.

Provision and Allowance for Loan Losses.The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the losses known and inherent in the Bank’s loan portfolio. All lending activity contains associated risks of loan losses and the Bank recognizes these credit risks as a necessary element of its business activity.

The provision for loan losses totaled $3,435 for the three months ended March 31, 2009, compared to $600 for the same period in 2008. DCB maintains an allowance for loan losses at a level to absorb management’s estimate of probable inherent credit losses in its portfolio. The largest percentage of charge-offs during 2009 was attributed to the economic conditions that affected the Columbus investment property, indirect portfolios and one large commercial loan. Non-accrual loans at March 31, 2009 decreased to $6,000 from $11,990 at March 31, 2008. The majority of non-accrual balances are attributed to loans in the investment real estate sector that were not generating sufficient cash flow to service the debt. In addition, delinquent loans over thirty days from period to period decreased to 1.91% at March 31, 2009 from 3.27% at March 31, 2008, and again are mainly attributed to the real estate investment portfolio. Delinquent loans over thirty days decreased slightly to 1.91% at March 31, 2009 from 1.92% at December 31, 2008. Management will continue to focus on activities related to monitoring, collection, and workout of delinquent loans. Management also continues to monitor exposure to industry segments, and believes that the loan portfolio remains adequately diversified.

Net charge-offs for the three months ended March 31, 2009 increased to $2,552, compared to $1,123 for the three months ended March 31, 2008. Annualized net charge-offs for the three months ended March 31, 2009 were 2.00% compared to 0.86% at March 31, 2008. Management will continue to monitor the credit quality of the loan portfolio and may recognize additional provisions in the future if needed to maintain the allowance for loan losses at an appropriate level. The balance of the allowance for loan losses was $7,020, or 1.37% of total loans at March 31, 2009, compared to $6,137, or 1.20% of total loans at December 31, 2008.

To assist in identifying potential loan losses, management maintains a methodology for establishing appropriate loan loss values. A Board-approved policy directs management to “develop and maintain an appropriate, systematic, and consistently applied process to determine the amounts of the Allowance for Loan Losses.” The methodology that management adopted involves identifying both specific and non-specific components. The specific allowance allocation is determined from information provided through the Bank’s watch list, loan review function and loan grade status applied to specific credits. The allocated allowance is developed by utilizing historical net loss components for each identified segment of the loan portfolio. Additionally, current economic condition factors are used to adjust the historical net loss components. Management performs an analysis of the loan portfolio on a monthly basis, and evaluates economic conditions as they relate to potential credit risk within its portfolios on a quarterly basis.

Noninterest Income.Total noninterest income decreased $380, or 21.4%, for the three months ended March 31, 2009, compared to the same period in 2008. The decrease was primarily attributable to the Bank’s partial redemption of its equity interest in Visa Inc.’s initial public offering during the first quarter 2008, which provided a pretax gain of $278 for that period. The change in noninterest income revenues from period to period was also attributed to a decrease in trust revenue caused by declining investable balances and market conditions.

20

DCB FINANCIAL CORP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

Noninterest Expense.Total noninterest expense increased $224, or 4.6%, for the three months ended March 31, 2009, compared to the same period in 2008. The increase was primarily the result of occupancy expense related to the Corporation’s branch expansion coupled with an increase in the Corporation’s state franchise taxes and Federal deposit insurance premiums. Salaries and benefits expense decreased as a result of staff reductions.

Income Taxes.The Corporation recorded a tax credit totaling $764 for the three months ended March 31, 2009, compared to tax expense of $499 in 2008. The change in income tax expense (benefit) is primarily attributable to the decrease in pre-tax income coupled with an increase in tax exempt income.

LIQUIDITY

Liquidity is the ability of the Corporation to fund customers’ needs for borrowing and deposit withdrawals. The purpose of liquidity management is to assure sufficient cash flow to meet all of the financial commitments and to capitalize on opportunities for business expansion. This ability depends on the financial strength, asset quality and types of deposit and investment instruments offered by the Corporation to its customers. The Corporation’s principal sources of funds are deposits, loan and security repayments, maturities of securities, sales of securities available for sale and other funds provided by operations. The Bank also has the ability to borrow from the FHLB. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan and mortgage-backed security prepayments are more influenced by interest rates, general economic conditions, and competition. The Corporation maintains investments in liquid assets based upon management’s assessment of (1) need for funds, (2) expected deposit flows, (3) yields available on short-term liquid assets and (4) objectives of the asset/liability management program.

Cash and cash equivalents increased $15,082, or 44.8%, to $48,714 at March 31, 2009 compared to $33,632 at December 31, 2008. Cash and equivalents represented 6.7% of total assets at March 31, 2009 and 4.7% of total assets at December 31, 2008. Management has elected to hold large cash and cash equivalent balances to have more flexibility in terms of funding because of the unusually tight liquidity and credit markets in the current economic environment. The Corporation has the ability to borrow funds from the Federal Home Loan Bank and has various correspondent banking partners to purchase overnight federal funds should the Corporation need to supplement its future liquidity needs. Management believes the Corporation’s liquidity position is adequate based on its current level of cash, cash equivalents, core deposits, the stability of its other funding sources, and the support provided by its capital base.

CAPITAL RESOURCES

Total shareholders’ equity decreased $1,174, or 2.1%, between December 31, 2008 and March 31, 2009. The decrease was primarily due to period net losses of $1,071 and the declaration of $297 in dividends, offset somewhat by the increase of $195 in unrealized losses on available for sale securities.

Tier 1 capital is shareholders’ equity excluding the unrealized gain or loss on securities classified as available for sale and intangible assets. Total capital includes Tier 1 capital plus the allowance for loan losses, not to exceed 1.25% of risk-weighted assets. Risk-weighted assets are the Corporation’s total assets after such assets are assessed for risk and assigned a weighting factor defined by regulation based on their inherent risk.

The Corporation and its subsidiaries meet all regulatory capital requirements. The ratio of total capital to risk-weighted assets was 11.0% at March 31, 2009, while the Tier 1 risk-based capital ratio was 9.7%. Regulatory minimums call for a total risk-based capital ratio of 8.0%, at least half of which must be Tier 1 capital. The Corporation’s leverage ratio, defined as Tier 1 capital divided by average assets, was 7.4% at March 31, 2009.

21

DCB FINANCIAL CORP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

The following table sets forth the Corporation’s obligations and commitments to make future payments under contract as of March 31, 2009.

	PAYMENT DUE BY YEAR
CONCTRACTUAL			Less than						More than
OBLIGATIONS	Total		1 year		1-3 years		3-5 years		5 years
FHLB advances	$	80,109	$	8,987	$	26,744	$	37,076	$	7,302
Federal funds purchased and other short-term borrowings		4,459		4,459		—		—		—
Operating lease obligations		6,705		699		1,866		1,864		2,276
Loan and line of credit commitments		74,536		74,536		—		—		—
Total Contractual Obligations	$	165,809	$	88,681	$	28,610	$	38,940	$	9,578

In addition the Corporation has an investment in an unconsolidated affiliate in a mezzanine financing fund with an outstanding commitment of $1,103.

Item 3.Quantitative and Qualitative Disclosure About Market Risk

ASSET AND LIABILITY MANAGEMENT AND MARKET RISK

The Corporation’s primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. Interest rate risk is the possibility that the Corporation’s financial condition will be adversely affected due to movements in interest rates. The income of financial institutions is primarily derived from the excess of interest earned on interest-earning assets over the interest paid on interest-bearing liabilities. Accordingly, the Corporation places great importance on monitoring and controlling interest rate risk. The measurement and analysis of the exposure of the Corporation’s primary operating subsidiary, The Delaware County Bank and Trust Company, to changes in the interest rate environment are referred to as asset/liability management. One method used to analyze the Corporation’s sensitivity to changes in interest rates is the “net portfolio value” (“NPV”) methodology.

NPV is generally considered to be the present value of the difference between expected incoming cash flows on interest-earning and other assets and expected outgoing cash flows on interest-bearing and other liabilities. For example, the asset/liability model that the Corporation currently employs attempts to measure the change in NPV for a variety of interest rate scenarios, typically for parallel shifts of 100 to 300 basis points in market rates.

The Corporation’s 2008 Annual Report includes a table depicting the changes in the Corporation’s interest rate risk as of December 31, 2008, as measured by changes in NPV for instantaneous and sustained parallel shifts of -100 to +300 basis points in market interest rates. Management believes that no events have occurred since December 31, 2008 that would significantly change their ratio of rate sensitive assets to rate sensitive liabilities.

The Corporation’s NPV is more sensitive to rising rates than declining rates. From an overall perspective, such difference in sensitivity occurs principally because, as rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when interest rates are declining. Thus, in a rising interest rate environment, because the Corporation has fixed-rate loans in its loan portfolio, the amount of interest the Corporation would receive on its loans would increase relatively slowly as loans are slowly prepaid and new loans at higher rates are made. Moreover, the interest the Corporation would pay on its deposits would increase rapidly because the Corporation’s deposits generally have shorter periods for repricing.

22

DCB FINANCIAL CORP
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)

The Corporation can utilize various tools to reduce exposure to changes in interest rates including offering floating versus fixed rate products, or utilizing interest rate swaps. Additional consideration should also be given to today’s current interest rate levels. Several deposit products are within 200 basis points of zero percent and other products within 300 basis points. Should rates decline, fewer liabilities could be repriced down to offset potentially lower yields on loans. Thus decreases could also impact future earnings and the Corporation’s NPV.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the NPV approach. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Further, in the event of a change in interest rates, expected rates of prepayment on loans and mortgage-backed securities and early withdrawal levels from certificates of deposit would likely deviate significantly from those assumed in making risk calculations.

Item 4.Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2009, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2009, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2009, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

23

DCB FINANCIAL CORP

FORM 10-Q
Quarter ended March 31, 2009
PART II — OTHER INFORMATION

Item 1 —	Legal Proceedings:
	There are no matters required to be reported under this item.
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds:

ISSUER PURCHASES OF EQUITY SECURITIES

							(d)
							Maximum Number (or
					(c)		Approximate Dollar
					Total Number of Shares		Value) of Shares
	(a)				(or Units) Purchased		(or Units) that May
	Total Number of		(b)		as Part of Publicly		Yet Be Purchased
	Shares (or Units)		Average Price Paid		Announced Plans or		Under the Plans or
Period	Purchased		per Share (or Unit)		Programs(1)		Programs
Month #l 1/1/2009 to 1/31/2009		—		—		—		—
Month #2 2/1/2009 to 2/28/2009		—		—		—		—
Month #3 3/1/2009 to 3/31/2009		—		—		—		—
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.

24

DCB FINANCIAL CORP

FORM 10-Q
Quarter ended March 31, 2009
PART II — OTHER INFORMATION

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

Exhibit No.	Exhibit
3.1	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 2002
31.2	Certification 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

25

DCB FINANCIAL CORP

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DCB FINANCIAL CORP (Registrant)
Date: May 11, 2009	/s/ Jeffrey Benton
	Jeffrey Benton
	President and Chief Executive Officer
Date: May 11, 2009	/s/ John A. Ustaszewski
	John A. Ustaszewski
	Senior Vice President and Chief Financial Officer

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DCB FINANCIAL CORP

INDEX TO EXHIBITS

EXHIBIT
NUMBER	DESCRIPTION
3.1	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.

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