AMENDMENT TO FORM 10-K

Large accelerated filers

Accelerated filer

Non-accelerated filer

Smaller reporting company

10-K/A 1 d341127d10ka.htm AMENDMENT TO FORM 10-K AMENDMENT TO FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Mark one)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2011

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

For the transition period from to

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		(IRS Employer
incorporation or organization)		Identification No.)

110 Riverbend Ave., Lewis Center, Ohio		43035
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (740) 657-7000


Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Shares, No par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes ¨ No x

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. Yes x No ¨

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). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No x

At June 30, 2011, the aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant, based on a common share price of $3.47 per share (such price being the closing stock price on such date) was $12,899,326.

At March 29, 2012, the registrant had 3,717,385 common shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Parts I and II of Form 10-K – Portions of the Annual Report to Shareholders for the year ended December 31, 2011.

Part III of Form 10-K – Portions of the Proxy Statement for the 2012 Annual Meeting of Shareholders of DCB Financial Corp.

EXPLANATION

The Annual Report on Form 10-K of DCB Financial Corp (“DCB”) for the fiscal year ended December 31, 2011 (the “Form 10-K”) is being amended to: (1) add discussion of additional regulations applicable to DCB; (2) add risk factors; (3) add a share purchase table to Item 5; (4) correct the headings of sections of DCB’s proxy statement being incorporated by reference into the Form 10-K; (5) correct references in the index to exhibits with respect to exhibits being incorporated by reference into the Form 10-K; (6) add Exhibit 4.1 and compensatory contracts and other arrangement descriptions to the exhibits; and (7) make immaterial changes to wording in the description of the business, the annual report to shareholders of DCB attached as Exhibit 13 and the list of subsidiaries at Exhibit 21.

Except as described above, no other changes have been made to the Form 10-K. The Form 10-K/A continues to speak as of the date of the Form 10-K, and DCB has not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Form 10-K.

PART I

Item 1 Business

(a)

General Development of Business

DCB Financial Corp (“DCB” or the “Corporation”) is a financial holding company headquartered in Lewis Center, Ohio. The Corporation has one wholly-owned subsidiary bank, The Delaware County Bank and Trust Company (the “Bank”). The Corporation also has two additional wholly owned subsidiaries, DCB Title and DCB Insurance Services LLC. DCB Title provides standard real estate title services, while DCB Insurance Services LLC provides a variety of insurance products. However, neither nonbank subsidiary is material to the financial results of the Corporation. The Bank has one wholly-owned subsidiary, ORECO, which is used to process other real estate owned.

The Corporation was incorporated under the laws of the State of Ohio in 1997, as a financial holding company under the Bank Holding Company Act of 1956, as amended, by acquiring all outstanding shares of the Bank. The Corporation acquired all such shares of the Bank after an interim bank merger, consummated on March 14, 1997. The Bank is a commercial bank, chartered under the laws of the State of Ohio, and was organized in 1950.

(b)

Narrative Description of Business

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 cash management, bond registrar and paying agent services for commercial and public unit entities. Through its subsidiary Datatasx, the Bank provided data processing and other bank operational services to other financial institutions. Those services were discontinued in September 2011, and were not a significant part of operations or revenue.

The Bank grants residential real estate, commercial real estate, consumer and commercial loans to customers located primarily in Delaware, Franklin and Union Counties, Ohio. General economic conditions in the Corporation’s market area have been pressured by a slowing economic environment. Real estate values, especially in the Bank’s core geographic area, experienced a decline since 2009 and continue to remain under market pressure.

The Bank’s core business is not significantly affected by a single industry; however, a number of the Corporation’s depositors are public fund units which operate within the Bank’s geographic footprint. Though this group’s deposit base is significant, overall balances do not fluctuate materially. No material industry or group concentrations exist in the loan portfolio.

Certain risks are involved in granting loans, primarily related to the borrower’s ability and willingness to repay the debt. Before the Bank extends a loan to a customer, these risks are assessed through a review of the borrower’s repayment capacity, past and current credit history, the collateral being used to secure the transaction in the event that the customer does not repay the debt, the borrower’s character and other factors. Once the decision has been made to extend credit, the Bank’s loan officers, credit administration and loan review personnel monitor these factors throughout the life of the loan. Commercial and commercial real estate loans are assigned a risk rating at inception, and are reviewed annually thereafter when financial statements are received, and at other times when there is an indication that a credit may have weakened or improved. Risk rating changes require the signature of the Chief Credit Officer or his or her designee. The risk rating is also updated after it is reviewed through the process of annual reviews, loan quality reports, extensions, renewals, modifications or audits by external loan review or regulatory agencies. In addition, any loan identified as a problem credit is assigned to the Bank’s “watch list,” and is subject to ongoing monitoring by the Bank’s credit quality and workout committees to ensure proactive action is taken to mitigate loss potential.

Commercial, industrial and agricultural loans are primarily variable rate and include operating lines of credit and term loans made to small businesses primarily based on their ability to repay the loan from the business’ cash flow. These loans are typically secured by business assets such as equipment, accounts receivable, inventory, commercial real estate, agricultural real estate and, occasionally, by the business owner’s principal residence. When the borrower is not an individual, the Bank generally obtains the personal guarantee of the business owner. Commercial lending entails significant risks. These loans typically involve larger loan balances and are generally dependent on the business’ cash flow and, thus, may be subject to adverse conditions in the general economy or in a specific industry. Management reviews the borrower’s historical cash flow to determine if the company has the ability to service proposed and existing obligations.

Commercial real estate and agricultural real estate loans are primarily secured by borrower-occupied business real estate and are dependent on the ability of the related business to generate adequate cash flow to service the debt. Such loans primarily carry adjustable interest rates. Commercial real estate and agricultural real estate loans are typically secured by real property and related improvements that are owned by the borrower. These loans are dependent on the borrower’s ability to generate cash flows from the real estate, which can either be in the form of rental income or, as it relates to agriculture, in the form of crop or livestock revenues. Commercial real estate loans are generally originated with loan-to-value ratios of 75% or less and can require fixed or adjustable interest rates. Owner-occupied real estate loans are generally originated with loan-to-value ratios of 80% or less. Management performs much of the same analysis whether deciding to grant a commercial real estate loan or a commercial loan.

Residential real estate loans and home equity lines of credit can either be fixed rate or carry an adjustable rate. These loans are secured by the borrower’s residence. Such loans are made based on the borrower’s ability to repay the debt from employment and other income. Management assesses the borrower’s ability to repay the debt through a review of credit history and ratings, verification of employment and other income, review of debt-to-income ratios and other measures of repayment ability. Residential real estate loans are generally originated with loan-to-value ratios of 80% or less. An appraisal is obtained from a qualified real estate appraiser for substantially all new loans secured by real estate.

Due to lower levels of economic development in the Bank’s market area, construction lending has become a smaller portion of the Bank’s lending strategy. Construction loans are secured by residential and business real estate, generally occupied by the borrower on completion. The Bank’s construction lending program is established in a manner to minimize risk of this type of lending by not making a significant amount of loans on speculative projects. While not contractually required to do so, the Bank usually makes the permanent loan at the end of the construction phase. Construction loans are generally originated with loan-to-value ratios of 75% or less.

Consumer installment loans are loans granted to individuals and include loans secured by automobiles and other consumer assets, including second mortgages on personal residences. Consumer loan advances generally do not exceed 90% of the purchase price, plus any add-ons such as tax, title and license fees. Loans for used cars generally do not exceed average wholesale or trade-in value as stipulated in a recent auto industry used car price guide. Credit card and overdraft protection loans are unsecured personal lines of credit to individuals of demonstrated good credit character with reasonably assured sources of income and satisfactory credit histories. Consumer loans generally involve more risk than residential mortgage loans because of the type and nature of the collateral and, in certain types of consumer loans, the absence of collateral. Since these loans are generally repaid from ordinary income of an individual or family unit, repayment may be adversely affected by job loss, divorce, ill health or by general decline in economic conditions. The Bank assesses the borrower’s ability to make repayment through a review of credit history, credit ratings, debt-to-income ratios and other measures of repayment ability.

Employees

At December 31, 2011, the Bank employed 166 employees, 128 of whom were full-time. The Bank offers a number of employee benefits such as health, dental and life insurance, as well as education assistance for qualified employees. A 401(k) retirement plan is also available for eligible employees. No employee is represented by a union or collective bargaining group. Management considers its employee relations to be good. All of the Corporation’s employees are employed by the Bank.

Competition

The Bank operates in a highly competitive industry due to statewide and interstate branching by banks, savings and loan associations and credit unions. In its primary market area of Delaware County, Ohio and surrounding counties, the Bank competes for new deposit dollars and loans with several financial service companies, including large regional and smaller community banks, as well as savings and loan associations, credit unions, finance companies, insurance companies, brokerage firms and investment companies. According to the most recent market data, there are approximately fourteen other deposit-taking and lending institutions competing in the Bank’s primary market. In addition, according to the most recent FDIC market data, the Bank ranks second in market share with approximately 23.1% of the deposits in the primary market. 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, State and Municipal subdivision issues which comprise a significant portion of the Bank’s investment portfolio, and which rates are used as indices on various loan products. The Bank is competitive with interest rates and loan fees that it charges, and in pricing and the variety of accounts it offers to the depositor. The dominant pricing mechanism on loans is the prime interest rate (“Prime”) as published in the Wall Street Journal. The interest spread in relation to Prime depends on the overall account relationship and the creditworthiness of the borrower. Deposit rates are reviewed weekly by management and are 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, while developing funding opportunities that earn an adequate interest rate margin.

Supervision and Regulation

The business in which the Corporation and its subsidiaries are engaged is subject to extensive supervision, regulation and examination by various bank regulatory authorities and other governmental agencies. The Bank is subject to supervision, regulation and periodic examination by the State of Ohio Division of Financial Institutions (the “ODFI”) and the Federal Deposit Insurance Corporation (the “FDIC”). The supervision, regulation and examination to which the Corporation and its subsidiaries are subject are intended primarily for the protection of depositors and the deposit insurance funds that insure the deposits of banks, rather than for the protection of security holders.

Earnings of the Bank are affected by state and federal laws and regulations, and by policies of various regulatory authorities. These policies include, for example, statutory maximum lending rates, requirements on maintenance of reserves against deposits, domestic monetary policies of the Board of Governors of the Federal Reserve System, United States fiscal policy, international currency regulations and monetary policies, certain restrictions on banks’ relationships with many phases of the securities business and capital adequacy and liquidity restraints.

As a financial holding company, the Corporation is subject to supervision, regulation and periodic examination by the Federal Reserve Board and, as a publicly traded corporation, is subject to the rules of the U.S. Securities and Exchange Commission (“SEC”).

Federal Reserve Board. The Federal Reserve Act requires banks to maintain reserves against their net transaction accounts (primarily checking and NOW accounts). The amounts are subject to adjustment by the FRB. At December 31, 2011, the Bank was in compliance with its reserve requirements.

Transactions between DCB and the Bank are subject to statutory limits in Sections 23A and 23B of the Federal Reserve Act, which limit the amounts of such transactions and require that the terms of the transactions be at least as favorable to the Bank as the terms would be of a similar transaction between the Bank and an unrelated party. DCB and the Bank were in compliance with these requirements and restrictions at December 31, 2011.

The FRB must approve the application of a bank holding company to acquire any bank or savings association. The Company’s ability to pay dividends to its shareholders may be restricted. Current FRB policy requires bank holding companies to act as a source of financial strength to its banking subsidiaries. Under this policy, the FRB may require the Company to commit resources or contribute additional capital to the Bank, which could restrict the amount of cash available for dividends to the Company’s shareholders. The FRB has issued guidance on the payment of dividends by bank holding companies, which includes conditions under which bank holding companies must provide advance notification of their intentions to declare and pay dividends.

Under Federal Reserve Board policy, a financial holding company is expected to act as a source of financial and managerial strength for its subsidiary bank and to commit resources to its support. This support may be required at times when the financial holding company may not have the resources to provide it. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, the FDIC can hold any FDIC-insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (1) the “default” of a commonly controlled FDIC-insured depository institution; or (2) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution “in danger of default.”

Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation Act of 1991 (“FDICIA”), and the regulations promulgated under FDICIA, among other things, established five capital categories for insured depository institutions—well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, and requires federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements based on these categories. Unless a bank is well capitalized, it is subject to restrictions on its ability to offer brokered deposits and on certain other aspects of its operations. As of December 31, 2011, the Corporation and the Bank were both considered well capitalized based on the published guidelines implemented by FDIC. However, the Bank has entered into a Consent Order with the FDIC and a Written Agreement with the ODFI that requires tier-1 capital and total risk-based capital to reach levels of 9% and 13% respectively. The Bank has not yet reached those required levels, and continues to operate under certain restrictions as noted in the Consent Order and Written Agreement.

For information about the Bank’s capital, see Note 11 to the Consolidated Financial Statements in Item 8

Financial Modernization and the Dodd-Frank Act. The Gramm-Leach-Bliley Act (“GLBA”) was signed into law in 1999 and became effective in 2000. It permits bank holding companies to become financial holding companies and thereby affiliate with securities firms and insurance companies, and engage in other activities that are financial in nature. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized under regulatory prompt corrective action provisions, is well managed and has at least a satisfactory rating under the Community Reinvestment Act (“CRA”) by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The GLBA defines “financial in nature” to include securities underwriting, dealing and market making; sponsoring mutual funds and investment companies; insurance underwriting and agency; merchant banking activities; and activities that the Board has determined to be closely related to banking. Subsidiary banks of a financial holding company must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in nature without regulatory actions or restrictions, which could include divestiture of the financial subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has CRA rating of satisfactory or better.

On July 21, 2010, President Obama signed into law the Dodd-Frank Act. This new law will significantly change the regulation of financial institutions and the financial services industry. Because the Dodd-Frank Act requires various federal agencies to adopt a broad range of regulations with significant discretion, many of the details of the new law and the effects they will have on our company will not be known for months and even years.

Many of the provisions of the Dodd-Frank Act apply directly only to institutions much larger than ours, and some will affect only institutions with different charters than ours or institutions that engage in activities in which we do not engage. Among the changes to occur pursuant to the Dodd-Frank Act that can be expected to have an effect on our business are the following:

•

the Dodd-Frank Act creates a Consumer Financial Protection Bureau with broad powers to adopt and enforce consumer protection regulations;

•

new capital regulations for bank holding companies will be adopted, which may impose stricter requirements, and any new trust preferred securities will no longer count toward Tier I capital;

•

the federal law prohibition on the payment of interest on commercial demand deposit accounts was eliminated effective in July 2011;

•

the standard maximum amount of deposit insurance per customer is permanently increased to $250,000, and non-interest bearing transaction accounts will have unlimited insurance through December 31, 2012;

•

the assessment base for determining deposit insurance premiums will be expanded to include liabilities other than just deposits;

•

new corporate governance requirements applicable generally to all public companies in all industries will require new compensation practices, including requiring companies to “claw back” incentive compensation under certain circumstances, to provide shareholders the opportunity to cast a non-binding vote on executive compensation, and to consider the independence of compensation advisers, and new executive compensation disclosure requirements.

New regulations pertaining to debit card fees were enacted by the Federal Reserve in October 2011. The new rules cap debit interchange fees for banks with more than $10 billion in assets. While there is no cap for smaller banks and this regulation has no direct impact on the Corporation’s fee income, it is still unclear what other market changes may impact debit card fees.

In addition, the FDIC has recently issued guidance prescribing the order in which Banks may process customer debit items and imposing limits on the overdraft fees Banks may charge. These limitations could negatively impact the Corporation’s earnings.

Although it is impossible for us to predict at this time all the effects the Dodd-Frank Act will have on us and the rest of our industry, it is possible that our non-interest income could decrease, both our interest expense and our non-interest expense could increase, deposit insurance premiums could change, and steps may need to be taken to increase qualifying capital. We expect that our operating and compliance costs will increase and could adversely affect our financial condition and results of operations.

Federal Home Loan Banks. The Federal Home Loan Banks (the FHLBs) provide credit to their members in the form of advances. As a member, the Bank must maintain an investment in the capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1% of the aggregate outstanding principal amount of the Bank’s residential real estate loans, home purchase contracts and similar obligations at the beginning of each year, or 5% of its advances from the FHLB. The Bank is in compliance with this requirement with an investment in FHLB of Cincinnati stock having a book value of $9.1 million at December 31, 2011. The FHLB advances are secured by collateral in one or more specified categories. The amount a member may borrow from the FHLB is limited based upon the amounts of various assets held by the member.

Insurance Agency Regulation The Corporation’s insurance agency subsidiaries are subject to insurance laws and regulations of the State of Ohio and the Ohio Department of Insurance. The insurance laws and regulations require education and licensing of agencies and individual agents, require reports and impose business conduct rules.

(c)

Available Information

The Corporation maintains a website at the following website address: www.dcbfinancialcorp.com. The Corporation makes available, free of charge through its internet address, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports as soon as reasonably practicable after such materials have been filed with or furnished to the SEC. Copies of these documents may also be obtained, either in electronic or paper form, by contacting Jay D. Wolf, Vice President of Marketing and Customer Relations at 740-657-7000.

Item 1A Risk Factors

DCB Financial Corp’s business and results of operations are subject to a number of risks, including economic, competitive, credit, market, liquidity, regulatory and reputational. Though many of these risks are outside the Corporation’s control, DCB Financial Corp has developed a risk management function which has established a framework for identifying, monitoring and controlling these risks on a corporate-wide basis. The following discussion focuses on the major business risks encountered in the Corporation’s operating environment.

Required compliance with a regulatory agreement and a consent order to which the Bank is subject could have an adverse affect on shareholder interests, including profitability, dividends and share price.

The Corporation’s wholly-owned subsidiary, The Delaware County Bank and Trust, entered into a written agreement with the Ohio Division of Financial Institutions (“ODFI”) and a Consent Order with the Federal Deposit Insurance Corporation (“FDIC”) effective October 28, 2010 which address matters pertaining to, among other things: management and operations of the Bank; credit risk management practices and credit administration policies and procedures; Bank actions with respect to problem assets; reserves for loan and lease losses; strengthening the capital position of the Bank; the strategic plan and budget for fiscal years 2011 and 2012; staffing; and submitting a funding contingency plan for the Bank that identifies available sources of liquidity and includes a plan for dealing with potential adverse economic and market conditions.

The Consent Order and the Agreement contain substantially similar provisions. Among other things, they require the Bank to attain a minimum 9% tier-1 capital ratio within 90 days of the effective date, and total risk-based capital ratio of not less than 13% within that same time period; submission of plans related to the reduction of non-performing assets; and a review of accounting matters related to subsidiary companies.

Management and the board of directors have made significant progress towards addressing and resolving these issues which are based on the findings of the ODFI and FDIC during their examinations of the Bank in 2010. Since the completion of the examinations, a number of initiatives have been developed and implemented which address the referenced matters, including: strengthening the Bank’s liquidity position and developing improved liquidity analysis and reporting; improving its credit underwriting and monitoring processes; and utilizing significant resources to address its problem loan portfolio in order to reduce the total level of under-performing loans.

The Agreement and Consent Order also provide that the Bank may not declare or pay dividends to DCB without the prior approval of the FDIC and ODFI. DCB may not declare or pay cash dividends, repurchase any of its shares, incur or guarantee any debt without the prior approval of the Federal Reserve.

As previously noted, the Bank is required to achieve a tier-1 capital ratio of not less than 9% and a total risk-based capital ratio of not less than 13% within 90 days of the effective date of the Agreement and Consent Order, and, to maintain those capital levels during the remaining term of the Agreement and the Consent Order. It may do so by, among other alternatives, raising additional capital, generating sufficient earnings, reducing the bank’s assets, or a combination thereof. The Bank has not yet achieved the 9% tier-1 target or the 13% total risk-based capital target.

Additionally, the Bank is required to submit periodic progress reports to the ODFI and the FDIC regarding various aspects of the foregoing actions and requirements. The Bank board appointed a compliance committee to monitor and coordinate the Bank’s performance under the Agreement and Consent Order. The Agreement and Consent Order will remain in effect until modified or terminated by the ODFI and/or the FDIC. The Bank entered into the Agreement and the Consent Order without admitting or denying any unsafe or unsound banking practices, violations, rule or regulation.

Our business may be adversely affected by current conditions in the financial markets, the real estate market and economic conditions generally.

Beginning in the latter half of 2007 and continuing into 2011, negative developments in the capital markets resulted in uncertainty in the financial markets and an economic downturn. The housing market declined, resulting in decreasing home prices and increasing delinquencies and foreclosures. The credit performance of mortgage and construction loans resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. The declines in the performance and value of mortgage assets encompassed all mortgage and real estate asset types, leveraged bank loans and nearly all other asset classes, including equity securities. These write-downs have caused many financial institutions to seek additional capital or to merge with larger and stronger institutions. Some financial institutions have failed. Although some improvements have occurred, housing prices are still depressed and continue to decline in some markets and unemployment remains high compared to levels prior to the recession.

Concerns over the stability of the financial markets and the economy have resulted in decreased lending by some financial institutions to their customers and to each other. This tightening of credit has led to increased loan delinquencies, lack of customer confidence, increased market volatility and a widespread reduction in general business activity. Competition among depository institutions for deposits has increased significantly, and access to deposits or borrowed funds has decreased for many institutions. It has also become more difficult to assess the creditworthiness of customers and to estimate the losses inherent in our loan portfolio.

Business activity across a wide range of industries and regions is greatly reduced, and local governments and many companies are in serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. A worsening of current conditions would likely adversely affect our business and results of operations, as well as those of our customers. As a result, we may experience increased foreclosures, delinquencies and customer bankruptcies, as well as more restricted access to funds.

The enactment of new legislation and increased regulatory oversight may significantly affect our financial condition and results of operations.

The Federal Reserve Board, Congress, the Treasury, the FDIC and others have taken numerous actions to address the current liquidity and credit situation in the financial markets. These measures include actions to encourage loan restructuring and modification for homeowners; the establishment of significant liquidity and credit facilities for financial institutions and investment banks; the lowering of the federal funds rate; and coordinated efforts to address liquidity and other weaknesses in the banking sector. The long-term effect of actions already taken as well as new legislation is unknown. Continued or renewed instability in the financial markets could weaken public confidence in financial institutions and adversely affect our ability to attract and retain new customers.

Further, legislation has been proposed that would reduce the amount that our customers are required to pay under existing loan contracts or limit our ability to foreclose on collateral. There can be no assurance that future legislation will not significantly impact our ability to collect on our current loans or foreclose on collateral.

Adverse changes in the financial markets may adversely impact our results of operations.

The global financial markets have experienced increased volatility and an overall loss of investor confidence in recent years. While we generally invest in securities with limited credit risk, certain investment securities we hold possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages, debt obligations and other similar asset-backed assets. Regardless of the level of credit risk, all investment securities are subject to changes in market value due to changing interest rates and implied credit spreads.

Over the last few years, structured investments, like our collateralized debt obligations, have been subject to significant market volatility due to the uncertainty of the credit ratings, deterioration in credit losses occurring within certain types of residential mortgages, changes in prepayments of the underlying collateral and the lack of transparency related to the investment structures and the collateral underlying the structured investment vehicles. These conditions have resulted in our recognizing impairment charges on certain investment securities. Given recent market conditions and changing economic factors, we may be required to recognize additional impairment changes on securities held in our investment portfolio in the future.

A default by another larger financial institution could adversely affect financial markets generally.

The commercial soundness of many financial institutions may be closely interrelated as a result of relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This “systemic risk” may adversely affect our business.

Changes in national and local economic and political conditions could adversely affect our earnings, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline and as loans and deposits decline.

There are inherent risks associated with our lending activities, including credit risk, which is the risk that borrowers may not repay outstanding loans or the value of the collateral securing loans will decrease. Conditions such as inflation, recession, unemployment, changes in interest rates and money supply and other factors beyond our control may adversely affect the ability of our borrowers to repay their loans and the value of collateral securing the loans, which could adversely affect our earnings. Because we have a significant amount of real estate loans, a decline in the value of real estate could have a material adverse affect on us. As of December 31, 2011, 87% of our loan portfolio consisted of commercial and industrial, commercial real estate, real estate construction and installment loans, all of which are generally viewed as having more risk of default than residential real estate loans and all of which, with the exception of installment loans, are typically larger than residential real estate loans. Residential real estate loans held in the portfolio are typically originated using conservative underwriting standards that does not include sub-prime lending. We attempt to manage credit risk through a program of underwriting standards, the review of certain credit decisions and an on-going process of assessment of the quality of the credit already extended. Economic and political changes could also adversely affect our deposits and loan demand, which could adversely affect our earnings and financial condition. Since substantially all of our loans are to individuals and businesses in Ohio, any decline in the economy of this market area could have a materially adverse effect on our credit risk and on our deposit and loan levels.

Changes in interest rates could adversely affect our financial condition and results of operations.

Our results of operations depend substantially on our net interest income, which is the difference between (i) the interest earned on loans, securities and other interest-earning assets and (ii) the interest paid on deposits and borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions, inflation, recession, unemployment, money supply and the policies of various governmental and regulatory authorities. If the interest we pay on deposits and other borrowings increases at a faster rate than the interest we receive on loans and other investments, our net interest income and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on deposits and borrowings. While we have taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that these measures will be effective in avoiding undue interest rate risk.

Increases in interest rates also can affect the value of loans and other assets, including our ability to realize gains on the sale of assets. We originate loans for sale and for our portfolio. Increasing interest rates may reduce the origination of loans for sale and consequently the fee income we earn on such sales. Further, increasing interest rates may adversely affect the ability of borrowers to pay the principal or interest on loans and leases, resulting in an increase in non-performing assets and a reduction of income recognized.

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

During the last few years, there have been higher levels of bank failures, which dramatically increased resolution costs of the FDIC and depleted the deposit insurance fund. In order to maintain a strong funding position and restore reserve ratios of the deposit insurance fund, the FDIC increased assessment rates of insured institutions uniformly by 7 basis points (7 cents for every $100 of deposits) for 2009 and 2010. Additional changes were also made to require riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels.

The Emergency Economic Stabilization Act of 2008 (the “EESA”) instituted two temporary programs to further insure customer deposits at FDIC-member banks: deposit accounts became insured up to $250,000 per customer (up from $100,000) and noninterest bearing transactional accounts became fully insured (unlimited coverage). Since then, the Dodd-Frank Act made the increase in the standard maximum insurance amount permanent, and the unlimited coverage of non-interest bearing transactions accounts has been extended until December 31, 2012.

On May 22, 2009, the FDIC adopted a rule that imposed a special assessment for the second quarter of 2009 of 5 basis points on each insured depository institution’s assets minus its Tier 1 capital as of June 30, 2009, which was collected on September 30, 2009.

On November 12, 2009, the FDIC adopted a rule requiring insured institutions to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The prepaid assessments for these periods were collected on December 30, 2009, along with the regular quarterly risk-based deposit insurance assessment for the third quarter of 2009. For the fourth quarter of 2009 and for all of 2010, the prepaid assessment rate was based on each institution’s total base assessment rate in effect on September 30, 2009, modified to assume that the assessment rate in effect for the institution on September 30, 2009, was in effect for the entire third quarter of 2009. On September 29, 2009, the FDIC increased annual assessment rates uniformly by 3 basis points beginning in 2011. As a result, an institution’s total base assessment rate for purposes estimating an institution’s assessment for 2011 and 2012 was increased by 3 basis points. Each institution’s prepaid assessment base was calculated using its third quarter 2009 assessment base, adjusted quarterly for an estimated five percent annual growth rate in the assessment base through the end of 2012. The three-year prepayment was $3.1 million for us, of which $1.5 million has been expensed through 2011.

On February 7, 2011, the FDIC issued final regulations, effective April 1, 2011, as required by the Dodd-Frank Act to change the deposit insurance assessment base from total domestic deposits to average total assets minus average tangible equity, as well as changing the assessment for larger institutions and the assessment rate schedules. These changes have reduced the Bank’s FDIC premiums due to a lower assessment rate.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional financial institution failures, we may be required to pay even higher FDIC premiums than the recently increased levels. Increases in FDIC insurance premiums may materially adversely affect our results of operations and our ability to continue to pay dividends on our common shares at the current rate or at all.

Our allowance for loan losses may be insufficient.

We maintain an allowance for loan losses to provide for probable loan losses based on management’s quarterly analysis of the loan portfolio. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make significant estimates that affect the financial statements. One of our most critical estimates is the level of the allowance for loan losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not be required to charge earnings for significant unexpected loan losses. For more information on the sensitivity of these estimates, refer to the discussion of our critical accounting policies included in the section of our 2011 Annual Report captioned “Critical Accounting Policies.”

We maintain an allowance for loan losses that we believe is a reasonable estimate of known and inherent losses within the loan portfolio. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and counterparties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition, results of operations and cash flows could be negatively impacted to the extent that we rely on financial statements that do not comply with GAAP or on financial statements and other financial information that are materially misleading.

Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio, the collateral supporting the loans and performance of customers relative to their financial obligations with us. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed current estimates. We cannot fully predict the amount or timing of losses or whether the loss allowance will be adequate in the future. If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions could have a material adverse impact on our financial condition and results of operations. In addition, federal and state regulators periodically review our allowance for loan losses as part of their examination process and may require management to increase the allowance or recognize further loan charge-offs based on judgments different than those of management. Any increase in the provision for loan losses would decrease our pretax and net income.

We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively.

In our market area, we encounter significant competition from other banks, savings and loan associations, credit unions, mortgage banking firms, securities brokerage firms, asset management firms and insurance companies. The increasingly competitive environment is a result primarily of changes in regulation and the accelerating pace of consolidation among financial service providers. DCB is smaller than many of our competitors. Many of our competitors have substantially greater resources and lending limits than we do and may offer services that we do not or cannot provide.

The preparation of financial statements requires management to make estimates about matters that are inherently uncertain.

Management’s accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure that they comply with generally accepted accounting principles and reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. One of the most critical estimates is the level of the allowance of loan losses. Due to the inherent nature of these estimates, we cannot provide absolute assurance that we will not significantly increase the allowance for loan losses or sustain loan losses that are significantly higher than the provided allowance.

Material breaches in security of our systems may have a significant effect on our business.

We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third party service providers. We have security and backup and recovery systems in place, as well as a business continuity plan, to ensure the computer systems will not be inoperable, to the extent possible. We also have implemented security controls to prevent unauthorized access to the computer systems and requires its third party service providers to maintain similar controls. However, management cannot be certain that these measures will be successful. A security breach of the computer systems and loss of confidential information, such as customer account numbers and related information, could result in a loss of customers’ confidence and, thus, loss of business.

Trading in our common shares is very limited, which may adversely affect the time and the price at which you can sell your DCB common shares.

Trading in DCB’s common shares is not active, and the spread between the bid and the asked price is often wide. As a result, you may not be able to sell your shares on short notice, and the sale of a large number of shares at one time could temporarily depress the market price. The price at which you may be able to sell your common shares may be significantly lower than the price at which you could buy DCB common shares at that time.

Future expansion may adversely affect our financial condition and results of operations.

We may acquire other financial institutions or parts of institutions in the future and may open new branches. We also may consider and enter into new lines of business or offer new products or services. Expansions of our business involve a number of expenses and risks, including:

•

the time and costs associated with identifying and evaluating potential acquisitions;

•

the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to the target institutions;

•

the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the expansion;

•

our ability to finance an acquisition or other expansion and the possible dilution to our existing shareholders;

•

the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;

•

entry into unfamiliar markets;

•

the introduction of new products and services into our existing business;

•

the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and

•

the risk of loss of key employees and customers.

We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we expect. Neither can we assure that integration efforts for any future acquisitions will be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders.

Our ability to pay cash dividends is limited.

As noted, the Bank has entered into a written agreement (the “Agreement”) with the Ohio Division of Financial Institutions (“ODFI”) and a Consent Order (the “Consent Order”) with the Federal Deposit Insurance Corporation (“FDIC”) effective October 28, 2010 which address matters pertaining to, among other things: management and operations of the Bank; credit risk management practices and credit administration policies and procedures; Bank actions with respect to problem assets; reserves for loan and lease losses; strengthening the capital position of the Bank; strategic plans and budgets; staffing; and submitting a funding contingency plan for the Bank that identifies available sources of liquidity and includes a plan for dealing with potential adverse economic and market conditions.

As previously noted, the Bank is required to achieve a tier-1 capital ratio, which is capital divided by total average assets, of not less than 9% and a total risk-based capital ratio of not less than 13% within 90 days of the effective date of the Agreement and Consent Order, and to maintain those capital levels during the remaining term of the Agreement and the Consent Order. It may do so by, among other alternatives, raising additional capital, generating sufficient earnings, reducing the bank’s assets, or a combination thereof.

As a result, any payment of dividends in the future by DCB Financial Corp will be dependent, in large part, on the Bank’s ability to satisfy these regulatory restrictions and the Bank’s earnings, capital requirements, financial condition and other factors. Although the Corporation’s financial earnings and condition have allowed it to declare and pay periodic cash dividends in certain historic quarters to its stockholders, there can be no assurance that the dividend policy will allow for dividend payments in future periods.

The percentage of the Bank’s deposits from public institutions present possible liquidity and earnings risks.

At December 31, 2011, approximately 11.49% of the Bank’s deposits were received from public institutions. The possibility of withdrawal of such deposits, which do not tend to be long-term deposits, poses liquidity and earnings risk to the Corporation.

Investment securities may decline in value and require the recognition of an impairment expense, affecting the Corporation’s earnings.

The Corporation invests in various investment securities. Investment securities are exposed to various risks, including interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the accompanying balance sheets. In addition, if an impairment in value is determined to be other than temporary, a reduction in earnings may result.

The Corporation undertakes no obligation and disclaims any intention to publish revised information or updates to forward-looking statements contained in the above risk factors or in any other statement made at any time by any director, officer, employee or other representative of the Corporation unless and until any such revisions or updates are required to be disclosed by applicable securities laws or regulations.

Item 1B Unresolved Staff Comments

The Corporation has no unresolved staff comments.

Item 2 Properties

The Bank owns and operates its main office at 110 Riverbend Avenue, Lewis Center, Ohio 43035. The Bank operates 14 branches and utilizes 10 other properties, including its corporate center, that are owned or leased as noted below:


1.	Corporate Office	110 Riverbend Avenue, Lewis Center, Ohio 43035 (owned)

2.	Downtown Delaware Branch	41 N. Sandusky St., Delaware, Ohio 43015 (leased)

3.	Delaware Center Branch	199 S. Sandusky Street, Delaware, Ohio 43015 (owned)

4.	Galena Branch	10 Park Street, Galena, Ohio 43021 (owned)

5.	Ashley Branch Office	2 West High Street, Ashley, Ohio 43003 (owned)

6.	Buehler’s Central Office	800 West Central Avenue, Delaware, Ohio 43015 (leased)

7.	Sunbury Branch Office	75 S. Miller Dr., Sunbury, Ohio 43074 (owned)

8.	Highland Lakes Branch	6156 Highland Lakes Avenue, Westerville, Ohio 43082 (leased)

9.	Sawmill Parkway Branch	10149 Brewster Lane, Powell, Ohio 43065 (leased)

10.	Willowbrook Branch	100 Willowbrook Way South, Delaware, Ohio 43015 (leased)

11.	Olentangy Crossing Branch	81 Gallopers Ridge East, Lewis Center, Ohio 43035 (leased)

12.	Corporate Center Drive-Thru	Corner of Evergreen & US 23 S., Lewis Center, OH 43035 (owned)

13.	Willowbrook, Delaware Run Branch	100 Delaware Crossing West, Delaware, OH 43015 (leased)

14.	Marysville City Gate Branch	181 North Coleman’s Crossing, Marysville, Ohio 43040 (owned)

15.	Liberty Branch	7319 Sawmill Parkway, Powell, Ohio 43065 (leased)

16.	ATM Express Bank	556 W. Central Ave., Delaware, Ohio 43015 (leased)

17.	ATM Express Bank	Ohio Wesleyan University, Delaware, Ohio 43015 (leased)

18.	ATM Express Bank	8208 Marysville Road West, Ostrander, Ohio 43061 (leased)

19.	ATM Express Bank	1123 Columbus Pike, Delaware, Ohio 43015 (leased)

20.	ATM Express Bank	Dexter’s IGA, 153 West Water Street, Prospect, Ohio 43342 (leased)

21.	ATM Express Bank	240 North Liberty Street, Powell, Ohio 43065 (leased)

22.	ATM Express Bank	33 W. William St., Delaware, Ohio 43015 (leased)

23.	ATM Express Bank	10 West North Street, Ostrander, Ohio 43061 (owned)

24.	ATM Express Bank	1942 Polaris Parkway, Columbus, Ohio 43240 (leased)

Management considers its physical properties to be in good operating condition and suitable for the purposes for which they are being used. All the properties owned by the Bank are unencumbered by any mortgage or security interest and are, in management’s opinion, adequately insured. The lease agreements for branch properties that were closed during the year remained in effect at December 31, 2011. Management intends to sublease those properties where an economic or strategic advantage exists.

Item 3 Legal Proceedings

There is no pending litigation of a material nature, other than routine litigation incidental to the business of the Corporation and Bank, to which the Corporation or any of its affiliates is a party or of which any of their property is the subject. Further, there are no material legal proceedings in which any director, executive officer, principal shareholder or affiliate of the Corporation is a party or has a material interest which is adverse to the Corporation or Bank. There is no routine litigation in which the Corporation or Bank is involved which is expected to have a material adverse impact on the financial position or results of operations of the Corporation or Bank.

Item 4 Mine Safety Disclosures

Not applicable.

PART II

Item 5 Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

The information required by this item is set forth in the Company’s Annual Report to Shareholders under the sections captioned “Common Stock and Shareholder Matters”, and the response to item 12 of this report. Such information is incorporated herein by reference.

As of December 31, 2011, Broadridge Corporate Issuers Solutions, Inc. acted as the transfer agent for the Corporation’s common stock.

The following table sets forth information regarding shares purchased by the Bank during the fourth quarter of 2011 as compensation to the Chief Executive Officer.


	Purchases of Equity Securities
Period	(a) Total number of shares purchased			(b) Average price paid per share		(c) Total number of Shares purchased as Part of publicly Announced plan or programs		(d) Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
October 1, 2011 through October 31, 2011		—			—		—

November 1, 2011 through November 30, 2011		12,755		$	2.74		12,755	$	30,000
December 1, 2011 through December 31, 2011		—			—		—
Total		12,755	(1)	$	2.74		12,755	$	30,000

(1)

Pursuant to the employment agreement executed by the Corporation, the Bank and Ronald J. Seiffert when Mr. Seiffert became the President and Chief Executive Officer of the Corporation and the Bank in September 2011, the Bank purchased on the open market on November 14, 2011, 7,301 shares for Mr. Seiffert’s benefit as a signing bonus when he joined the Corporation. In addition, again pursuant to Mr. Seiffert’s employment agreement, the Bank purchased on November 29, 2011, on the open market 5,454 shares that were a match to purchases made by Mr. Seiffert. Under the terms of the employment agreement, Mr. Seiffert is entitled to $15,000 of such additional matching purchases in each of calendar year 2012 and calendar year 2013. The employment agreement was announced on September 30, 2011.

Item 6 Selected Financial Data

Certain selected financial data is set forth in the Corporation’s Annual Report to Shareholders under the section captioned “Selected Consolidated Financial Information and Other Data.” Such information is incorporated herein by reference.

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Additional information required by this item is set forth in the Corporation’s Annual Report to Shareholders under the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Such information is incorporated herein by reference.

I	Discussion of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential

The information required by this item is set forth in the Corporation’s Annual Report to Shareholders. Such information is incorporated herein by reference.

II	Investment Portfolio

The following table sets forth the carrying amount of securities at December 31, 2011, 2010 and 2009.


(In thousands)	2011		2010		2009
Available for sale

U.S. agency obligations	$	35,808	$	29,986	$	27,455

States and municipal obligations		15,995		12,262		25,952

Corporate bonds		1,837		—		1,039

Mortgage-backed securities		34,473		27,349		39,591

Total debt securities		88,113		69,597		94,037

Other securities, non-debt		—		—		63

Total	$	88,113	$	69,597	$	94,100

Held to maturity

Collateralized debt obligations	$	1,010	$	1,313	$	1,752

The following table sets forth information regarding scheduled maturities, fair value and weighted average yields of the Corporation’s debt securities only at December 31, 2011. The weighted average yield has been computed using the historical amortized cost for securities available for sale. The weighted average yield on tax-exempt obligations is computed on a taxable equivalent basis based on the statutory federal income tax rate of 34%.


				After			After
				One			Five
	One			Through			Through			After
	Year			Five			Ten			Ten			Fair Value
(In thousands)	or Less			Years			Years			Years			Total
Available for sale

U.S. agency obligations	$	—		$	17,114		$	15,636		$	3,058		$	35,808

States and municipal obligations		571			2,525			6,928			5,971			15,995

Corporate bonds		—			1,018			544			275			1,837

Mortgage-backed securities (1)		1			278			6,097			28,097			34,473

Total	$	572		$	20,935		$	29,205		$	37,401		$	88,113

Weighted average yield		3.29	%		1.70	%		2.88	%		3.35	%		2.80	%

(1)	Based on contractual terms to maturity. Mortgage-backed securities are subject to prepayment without penalty.

After

One

Five

One

Through

After

Year

Five

Ten

Fair Value

(In thousands)

or Less

Years

Total

Held to maturity

Collateralized debt obligations

—

1,360

III

Loan Portfolio

Types of Loans

The amounts of gross loans, excluding net deferred loan fees and costs outstanding at December 31, 2011, 2010, 2009, 2008 and 2007 are shown in the following table.


(In thousands)	2011		2010		2009		2008		2007
Commercial and industrial	$	126,225	$	155,410	$	176,799	$	186,318	$	187,807

Commercial real estate		129,958		152,374		182,709		180,360		164,912

Residential real estate and home equity		83,814		93,646		98,542		106,938		118,178

Lease financing		—		—		—		—		73

Consumer and credit card		19,770		23,411		31,394		39,426		49,239

Total	$	359,767	$	424,841	$	489,444	$	513,042	$	520,209

The following table summarizes maturity for commercial real estate and other commercial loans at December 31, 2011. Commercial real estate loans include construction and land development loans.


						After one year					After five years
	Less than one year					through five years					through ten years					After ten years
			Weighted					Weighted					Weighted					Weighted
			Average					Average					Average					Average
(In thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Commercial real estate	$	16,426		4.43	%	$	42,742		5.02	%	$	24,196		4.67	%	$	46,594		4.87	%

Commercial and industrial	$	25,025		5.49	%	$	30,737		5.09	%	$	19,256		4.80	%	$	51,207		5.11	%

As of December 31, 2011, there were $56,565 fixed-rate and $158,167 variable-rate commercial loans maturing in more than one year.

Risk Elements

Nonaccrual, Past Due Loans, and Restructured Loans

The following table summarizes nonaccrual loans and accruing loans, including impaired loans, past due greater than 90 days or more at December 31, 2011, 2010, 2009, 2008, and 2007.


(In thousands)	2011		2010		2009		2008		2007
Nonaccrual loans	$	9,576	$	16,567	$	11,275	$	4,698	$	10,360

Accruing loans past due 90 days or more	$	985	$	1,858	$	886	$	1,146	$	2,740

The policy for placing loans on nonaccrual status is to cease accruing interest on loans when management believes that collection of interest is doubtful, or when loans are past due as to principal and interest 90 days or more, except in certain circumstances when the loan is well secured and in the process of collection. In such cases, loans are individually evaluated in order determine whether to continue income recognition after 90 days beyond the due dates. When loans are placed on nonaccrual, any accrued interest is charged against interest income.

The additional amount of interest income that would have been recorded on nonaccrual loans, had they been current, totaled $198, $894, and $603 for the years ended December 31, 2011, 2010, and 2009 respectively.

Included in certain impaired loan categories are troubled debt restructurings that were classified as impaired. At December 31, 2011, the Bank had $1,621 of commercial, $20,540 of commercial real estate, and $58 of consumer that were modified in troubled debt restructurings and performing according to the modified terms. In addition to these amounts, the Bank had troubled debt restructurings that were impaired and no longer performing in accordance with their modified terms. At year-end 2011 there were $121 of commercial, and $6,312 of commercial real estate within that category.

Potential Problem Loans

A commercial loan is classified as impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller balance loans or loans of a similar nature such as residential mortgage, consumer and credit card loans, and on an individual basis for commercial and commercial real estate loans.

Loan Concentrations

At year-end 2011, there were no concentrations of loans greater than 10% of total loans that are not otherwise disclosed as a category of loans in Item III above.

Other Interest-Bearing Assets

At year-end 2011, there were no other interest-bearing assets required to be disclosed under Item III if such assets were loans.

IV	Summary of Loan Loss Experience

Analysis of the Allowance for Loan Losses

The following table sets forth the activity in the Corporation’s allowance for loan and lease losses for the years ended December 31, 2011, 2010, 2009, 2008, and 2007.


(In thousands)	2011			2010			2009			2008			2007
Balance at beginning of year	$	12,247			10,479		$	6,137		$	8,298		$	5,442

Loans charged off:

Commercial		(2,034	)		(2,261	)		(1,831	)		(3,250	)		(549	)

Commercial real estate		(5,562	)		(6,175	)		(2,575	)		(6,177	)		(5,549	)

Residential real estate and home equity		(278	)		(498	)		(269	)		(203	)		(330	)

Consumer and credit card		(567	)		(824	)		(1,115	)		(1,024	)		(1,258	)

Lease financing		—			—			—			—			(5	)

Total loans charged off		(8,441	)		(9,758	)		(5,790	)		(10,654	)		(7,691	)

Loan recoveries:

Commercial		58			270			99			35			42

Commercial real estate		27			4			261			5			1

Residential real estate and home equity		10			12			10			7			7

Consumer and credit card		247			200			364			269			338

Lease financing		—			—			—			—			—

Total loan recoveries		342			486			734			316			388

Net loans charged off		(8,099	)		(9,272	)		(5,056	)		(10,338	)		(7,303	)

Provision for loan losses		5,436			11,040			9,398			8,177			10,159

Balance at end of year	$	9,584		$	12,247		$	10,479		$	6,137		$	8,298

Ratio of net charge-offs to average loans outstanding		2.05	%		2.00	%		1.00	%		2.00	%		1.36	%

Allocation of the Allowance for Loan Losses

The following schedule is a breakdown of the allowance for loan losses allocated by type of loan and related ratios. While management’s periodic analysis of the adequacy of allowance for loan losses may allocate portions of the allowance for specific problem-loan situations, the entire allowance is available for any loan charge-off that occurs.


			Percentage of Loans in Each					Percentage of Loan in Each
	Allowance		Category to			Allowance		Category to
	Amount		Total Loans			Amount		Total Loans
(In thousands)	December 31, 2011					December 31, 2010
Commercial and industrial	$	1,952		35.08	%	$	4,174		36.58	%

Commercial real estate		6,916		36.12			6,786		35.86

Residential real estate and home equity		291		23.30			491		22.04

Consumer and credit card		425		5.50			796		5.52

Total	$	9,584		100.00	%	$	12,247		100.00	%


	December 31, 2009					December 31, 2008
Commercial and industrial	$	2,476		36.12	%	$	683		36.32	%

Commercial real estate		6,817		37.33			4,374		35.16

Residential real estate and home equity		312		20.13			410		20.84

Consumer and credit card		874		6.42			670		7.68

Total	$	10,479		100.00	%	$	6,137		100.00	%


	December 31, 2007
Commercial and industrial	$	1,328	36.10	%

Commercial real estate		6,092	31.70

Residential real estate and home equity		129	22.72

Consumer and credit card		746	9.47

Lease financing		3	0.01

Total	$	8,298	100.00	%

V	Deposits

Schedule of Average Deposit Amounts and Rates

The average balance of noninterest-bearing demand deposits totaled $67.6 million, $64.9 million, and $63.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. Additional detail regarding the make-up of the Corporation’s average deposit balances and related interest expense can be found on the Corporation’s attached Annual Report to Shareholders.

Maturity Analysis of Time Deposits Greater than $100,000

The following is a schedule of maturities of time certificates of deposit in amounts of $100,000 or more as of December 31, 2011.


(In thousands)
Three months or less	$	11,682

Over three through six months		9,468

Over six through twelve months		29,504

Over twelve months		39,311

Total	$	89,965

VI	Return on Equity and Assets

The information required by this item is set forth in the Company’s Annual Report to Shareholders.

VII

Short-Term Borrowings

Short term borrowings are defined as obligations with original maturity terms of less than one year. Average outstanding balances of short-term borrowings were $804 for 2011, $1,416 for 2010, and $3,764 for 2009. The maximum amounts of outstanding short term borrowings were $2,002, $2,000, and $3,250 for the years 2011, 2010 and 2009, respectively. Additional detail regarding the make-up of the Corporation’s borrowings can be found on the Corporation’s attached Annual Report to Shareholders.

Item 7a Quantitative and Qualitative Disclosures about Market Risk

The information required by this item is set forth in the Company’s Annual Report to Shareholders under the section captioned “Asset and Liability Management and Market Risk.” Such information is incorporated herein by reference.

Item 8 Financial Statements and Supplementary Data

The information required by this item is set forth in the Company’s Annual Report to Shareholders. Such information is incorporated herein by reference.

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

There were no changes in internal control over financial reporting during the quarter ended December 31, 2011, that materially impacted, or are likely to materially impact, internal control over financial reporting in the future.

Management’s Report on Internal Control over Financial Reporting

Management of DCB Financial Corp (the “Corporation”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934. The Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2011.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Corporation’s management assessed the effectiveness of the Corporation’s internal control over financial reporting at December 31, 2011, as required by Section 404 of the Sarbanes Oxley Act of 2002. Management’s assessment is based on criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and was designed to provide reasonable assurance that the Corporation maintained effective internal control over financial reporting as of December 31, 2011. Based on this assessment, management determined that the Corporation maintained effective internal control over financial reporting as of December 31, 2011.

Item 9B Other Information

None

PART III

Item 10 Directors, Executive Officers and Corporate Governance

The information required by this item is set forth in the Company’s Proxy Statement to Shareholders in connection with its 2012 Annual Meeting, under the sections captioned “Proposal 1 — Election of Directors and Information with Respect to Directors and Officers”,” Board of Directors and Selected Committees”, “Corporate Governance” and “Section 16(A) Beneficial Ownership Reporting Compliance.” Such information is incorporated herein by reference.

The Company’s Board of Directors has adopted a Code of Ethics and Business Conduct that applies to all of its directors, officers, and employees, including its principal executive, principal financial, and principal accounting officers. A copy of the code of ethics will be provided, at no cost, upon written request to the attention of Mr. Jay D. Wolf, Vice President Marketing and Customer Relations, at the Company’s main office, 110 Riverbend Avenue Lewis Center, Ohio. In addition, a copy of the Code of Ethics and Business Conduct is posted on our website at http://www.dcbfinancialcorp.com. In the event we make any amendment to, or grant any waiver of, a provision of the Code of Ethics and Business Conduct that applies to the principal executive officer, a principal financial officer, principal accounting officer, or controller, or persons performing similar functions that require disclosure under applicable SEC rules, we intend to disclose such amendment or waiver, the reasons for it, and the nature of any waiver, the name of the person to whom it was granted, and the date, on our internet website.

Item 11 Executive Compensation

The information required by this item is set forth in the Company’s Proxy Statement to Shareholders in connection with its 2012 Annual Meeting, under the section captioned “Executive Compensation and Other Information” and “Board of Directors and Selected Committees.” Such information is incorporated herein by reference.

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information about beneficial ownership of DCB common shares required by this item is set forth in the Company’s Proxy Statement to Shareholders in connection with its 2012 annual meeting, under the section captioned “Security Ownership of Certain Beneficial Owners and Management.” Such information is incorporated herein by reference.

Equity Compensation Plan Information


	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	216,179	$12.44	83,821

Equity compensation plan not approved by security holders	0	0.00	0

Total	216,179	$12.44	83,821

On May 20, 2004 the Company’s shareholders approved the DCB Financial Corp Long-Term Stock Incentive Plan. This plan authorizes the issuance of up to 300,000 DCB common shares upon exercise of stock options awarded under the plan and in the form of restricted stock and stock awards. Beginning in January 2006, the Company started to expense these options under the methodology set forth in ASC 718 Compensation – Stock Compensation. Options are granted for a maximum of ten years. The options vest at an annual rate of 20% over five years, assuming credited service by the designated employee.

Item 13 Certain Relationships and Related Transactions and Director Independence

Information required by this item is set forth in the Company’s Proxy Statement to Shareholders in connection with its 2012 Annual Meeting, under the sections captioned “Certain Relationships and Related Transactions” and “Board of Directors and Selected Committees”, “Selection of Auditors” and “Principal Accounting Firm Fees.” Such information is incorporated herein by reference.

Item 14 Principal Accountant Fees and Services

Information required by this item is set forth in the Company’s Proxy Statement to Shareholders in connection with its 2012 Annual Meeting under the section captioned “Information Concerning Independent Registered Public Accountants”, and such information is incorporated herein by reference.

PART IV

Item 15 Exhibits, Financial Statement Schedules

(a)

Documents filed as part of Form 10-K

The following consolidated financial statements appear in the Corporation’s 2011 Annual Report, Exhibit 13 to Shareholders and are incorporated herein:


Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Exhibits


3.1		Articles of Incorporation of DCB Financial Corp

3.2		Code of Regulations of DCB Financial Corp

4.1		Agreement to furnish instruments and agreements defining rights of holders of long-term debt.

10.1*		Employment agreement with Ronald J. Seiffert

10.2*		DCB Financial Corp 2004 Long-Term Stock Incentive Plan

10.3*		Special Incentive Agreement with Ronald J. Seiffert

10.4*		Plan for Payment of Fees in DCB Financial Corp Common Stock

10.5*		The Delaware County Bank & Trust Company Senior Manager Severance Policy

10.6*		Annual Incentive Compensation Program Description


10.7*		The Delaware County Bank & Trust Company Executive Deferred Compensation Plan, with amendments

10.8		Consent order by and between The Delaware County Bank and Trust Company, Lewis Center, Ohio and the Federal Deposit Insurance Corporation, dated effective October 28, 2010 (incorporated by reference to Registrant’s Form 8-K filed on October 29, 2010, Exhibit 10.1 (File no. 000-22387)

10.9		Written Agreement by and among The Delaware County Bank and Trust Company, Lewis Center, OH and the State of Ohio, Division of Financial Institutions, Columbus, Ohio, dated effective October 28, 2010 (incorporated by reference to Registrant’s For 8-K on October 29, 2010, Exhibit 10.2 (File No. 000-22387)

13		Annual Report to Shareholders

21		Subsidiaries of DCB Financial Corp

23.1		Consent of Plante & Moran PLLC

23.2		Consent of Plante & Moran PLLC

31.1(a)		Rule 13a-14 (a) Certifications

31.1(b)		Rule 13a-14(a) Certifications

31.2(a)		Rule 13a-14 (a) Certifications

31.2(b)		Rule 13a-14(a) Certifications

32.1(a)		Section 1350 Certifications

32.1(b)		Section 1350 Certifications

32.2(a)		Section 1350 Certifications

32.2(b)		Section 1350 Certifications

*	Compensatory agreement or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

INDEX TO EXHIBITS


Exhibit Number		Description of Document
3.1		Articles of Incorporation of DCB Financial Corp (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, Exhibit 3.1 (File No.000-223887)

3.2		Code of Regulations of DCB Financial Corp (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, Exhibit 3.2 (File No. 000-22387)

4.1		Agreement to furnish instruments and agreements defining rights of holders of long-term debt (included herewith)

10.1*		Employment agreement with Ronald J. Seiffert (included herewith)

10.2*		DCB Financial Corp 2004 Long-Term Stock Incentive Plan (incorporated by reference to Appendix D to the Registrant’s Proxy Statement, as filed with the SEC on Schedule 14A on April 14, 2004)

10.3*		Special Incentive Agreement with Ronald J. Seiffert (included herewith)

10.4*		Plan for Payment of Fees in DCB Financial Corp Common Stock (included herewith)

10.5*		The Delaware County Bank & Trust Company Senior Manager Severance Policy (included herewith)

10.6*		Annual Incentive Compensation Program Description (included herewith)


10.7*		The Delaware County Bank and Trust Company Executive Deferred Compensation Plan, with amendments (included herewith)

10.8		Consent order by and between The Delaware County Bank and Trust Company, Lewis Center, Ohio and the Federal Deposit Insurance Corporation, dated effective October 28, 2010 (incorporated by reference to Registrant’s Form 8-K filed on October 29, 2010, Exhibit 10.1 (File no. 000-22387)

10.9		Written Agreement by and among The Delaware County Bank and Trust Company, Lewis Center, OH and the State of Ohio, Division of Financial Institutions, Columbus, Ohio, dated effective October 28, 2010 (incorporated by reference to Registrant’s For 8-K on October 29, 2010, Exhibit 10.2 (File No. 000-22387)

13		Annual Report to Shareholders (included herewith)

21		Subsidiaries of DCB Financial Corp (included herewith)

23.1		Consent of Plante & Moran PLLC (included with original Form 10-K)

23.2		Consent of Plante & Moran PLLC (included herewith)

31.1(a)		Rule 13a-14 (a) Certifications (included with original Form 10-K)

31.1(b)		Rule 13a-14(a) Certifications (included herewith)

31.2(a)		Rule 13a-14 (a) Certifications (included with original Form 10-K)

31.2(b)		Rule 13a-14(a) Certifications (included herewith)

32.1(a)		Section 1350 Certifications (included with original Form 10-K)

32.1(b)		Section 1350 Certifications (included herewith)

32.2(a)		Section 1350 Certifications (included with original Form 10-K)

32.2(b)		Section 1350 Certifications (included herewith)

*	Compensatory agreement or arrangement.