Federal Income Taxes

12 Months Ended

Dec. 31, 2011

Federal Income Taxes [Abstract]

FEDERAL INCOME TAXES

(11)    FEDERAL INCOME TAXES

        Income tax expense (benefit) was comprised of the following:

	Year Ended December 31
(Dollars in thousands)	2011			2010
Current tax expense:
Federal	$	2,240		$	1,188
State		—			1
Deferred income tax expense (benefit):
Federal		(174	)		440
State		—			—
Income tax expense	$	2,066		$	1,629

        The effective income tax rates of 29.6% for 2011 and 30.7% for 2010 were different than the applicable statutory Federal income tax rate of 34%. The reason for these differences follows:

	Year Ended December 31
(Dollars in thousands)	2011			2010
Federal income taxes at statutory rate	$	2,369		$	1,802
Decrease resulting from:
Low income housing credits		—			(9	)
Tax-exempt interest and dividend preference		(222	)		(94	)
Bank owned life insurance		(84	)		(85	)
Other, net increase		3			15
Income tax expense	$	2,066		$	1,629

        The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

	December 31
(Dollars in thousands)	2011			2010
Deferred tax assets:
Allowance for credit losses	$	2,096		$	2,001
Unrealized losses on securities		4			695
Unrealized losses on reclassified securities		31			—
Unrealized loss on pension obligation		725			447
AMT credit carry forward		—			33
Low income housing tax credit carry forward (LIHC)		—			—
Capital loss disallowance		1			—
State net operating losses		—			543
Unvested stock awards		19			27
Deferred gain on sale / leaseback on buildings		—			—
Deferred compensation (SERP)		380			358
Nonqualified stock options		15			—
Non-accrued interest		347			316
Joint venture difference		64			89
Deferred compensation (BOLI)		248			251
Provision for unfunded loans		34			48
OREO write-downs		69			77
Accrued expenses		48			31
Total gross deferred tax assets		4,081			4,916
Deferred tax liabilities:
Depreciation		(91	)		(119	)
Pension expense		(134	)		(130	)
Bank shares tax credit		(102	)		(86	)
Prepaid expenses		(139	)		(216	)
Total gross deferred tax liabilities		(466	)		(551	)
Valuation allowance		(1	)		(543	)
Net deferred tax asset	$	3,614		$	3,822

        As of December 31, 2011, DNB had no material unrecognized tax benefits or accrued interest and penalties. It is DNB's policy to account for interest and penalties accrued relative to unrecognized tax benefits as a component of income tax expense. Federal and state tax years 2008 through 2011 were open for examination as of December 31, 2011.

        DNB had capital loss carryovers of $1,293,000 which expired on December 31, 2010. DNB had recorded a valuation allowance of $441,000 for the entire amount of tax benefits associated with this item. During 2010, DNB incurred $3,000 of capital losses that could not be used. They will expire on December 31, 2013. A $1,000 valuation allowance has been recorded for the tax benefits associated with this item. In addition, DNB had net operating loss carryovers with the Commonwealth of Pennsylvania of $5.7 million and $5.4 million at December 31, 2011 and 2010, respectively for which a full valuation allowance has been established. These carryovers will begin to expire in 2021. In addition, DNB had AMT carry forwards as of December 31, 2010 of $33,000. The AMT credit carry forward is expected to be fully utilized on the 2011 federal tax return, however, if it is not, it has an indefinite life and management believes it is more likely than not that these credits will be utilized. All LIHC carry forward have been used.