UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011



OR

[  ] 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 0-21554



DENMARK BANCSHARES, INC.

(Exact name of registrant as specified in its charter)





|Wisconsin                                                      | 39-1472124                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer Identification No.)

103 East Main Street, Denmark, Wisconsin 54208-0130

(Address of principal executive offices, zip code)



(920) 863-2161

(Registrant's telephone number, including area code)





---

(Former name, former address and former fiscal year, if changed since last report)



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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

___ Large accelerated filer      					 Accelerated filer

_ Non-accelerated filer					_X_Smaller reporting company





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



As of August 4, 2011, there were 118,917 shares of the registrant's common stock (no par value) outstanding.



DENMARK BANCSHARES, INC.

TABLE OF CONTENTS



Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2011





Page No.

PART I.  Financial Information

Item 1. Financial Statements

Consolidated Statements of Financial Condition	3

Consolidated Statements of Income	4

Consolidated Statements of Changes in Stockholders' Equity	5

Consolidated Statements of Cash Flows	6

Notes to Consolidated Financial Statements	7

Item 2.  	Management's Discussion and Analysis of Financial Condition

and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4. 	Controls and Procedures	25

PART II.  Other Information

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 6.	Exhibits	26

Signatures		26











































Item 1.  Financial Statements



Denmark Bancshares, Inc. and Subsidiaries

Consolidated Statements of Financial Condition

|                                                                           |                                                         | June 30,     |  | December 31, | 
|-------------------------------------------------------------------------- | ------------------------------------------------------- | ------------ |  | ------------ | 
|                                                                           |                                                         | 2011         |  | 2010         | 
|                                                                           |                                                         | (Unaudited)  |  |              | 
|Assets                                                                     |                                                         |              |  |             
|                                                                           | Cash and due from banks                                 | $15,570,661  |  | $16,917,728  | 
|                                                                           | Federal funds sold                                      | 12,548,000   |  | 18,321,000   | 
|                                                                           | Investment securities available-for-sale, at fair value | 68,546,513   |  | 63,049,646   | 
|                                                                           | Loans                                                   | 293,854,612  |  | 299,355,004  | 
|                                                                           | Allowance for credit losses                             | (6,387,542)  |  | (6,864,497)  | 
|                                                                           | Net loans                                               | $287,467,070 |  | $292,490,507 | 
|                                                                           | Loans held for sale                                     | 272,340      |  | 3,715,671    | 
|                                                                           | Premises and equipment, net                             | 7,201,737    |  | 7,368,904    | 
|                                                                           | Other investments, at cost                              | 4,642,936    |  | 4,608,899    | 
|                                                                           | Accrued interest receivable                             | 1,246,501    |  | 1,204,984    | 
|                                                                           | Other assets                                            | 12,527,062   |  | 12,637,998   | 
|                                                                           | TOTAL ASSETS                                            | $410,022,820 |  | $420,315,337 | 
|                                                                           |                                                         |              |  |              | 
|Liabilities                                                                |                                                         |              |  |             
|                                                                           | Deposits                                                |              |  |              | 
|                                                                           | Noninterest-bearing                                     | $35,537,135  |  | $37,965,690  | 
|                                                                           | Interest-bearing                                        | 274,673,030  |  | 282,533,731  | 
|                                                                           | Total Deposits                                          | $310,210,165 |  | $320,499,421 | 
|                                                                           |                                                         |              |  |              | 
|                                                                           | Short-term borrowings                                   | 12,458,861   |  | 13,888,046   | 
|                                                                           | Accrued interest payable                                | 377,801      |  | 404,467      | 
|                                                                           | Other liabilities                                       | 1,780,837    |  | 1,897,580    | 
|                                                                           | Long-term debt                                          | 30,149,999   |  | 29,699,999   | 
|                                                                           | Total Liabilities                                       | $354,977,663 |  | $366,389,513 | 
|Stockholders' Equity                                                       |                                                         |              |  |             
|                                                                           | Common stock, no par value,                             | $18,173,975  |  | $18,173,975  | 
|                                                                           | authorized 640,000 shares; outstanding 118,917          |              |  |              | 
|                                                                           | Treasury stock shares, at cost (2,613 shares)           | (2,125,865)  |  | (2,125,865)  | 
|                                                                           | Paid in capital                                         | 469,986      |  | 469,986      | 
|                                                                           | Retained earnings                                       | 38,950,630   |  | 38,031,717   | 
|                                                                           | Accumulated other comprehensive loss                    | (423,569)    |  | (623,989)    | 
|                                                                           | Total Stockholders' Equity                              | $55,045,157  |  | $53,925,824  | 
|                                                                           | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              | $410,022,820 |  | $420,315,337 | 
|                                                                           |                                                         |              |  |              | 
|The accompanying notes are an integral part of these financial statements. |                                                         |              | 





















Denmark Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

|                                                                           |                                                    |         | For the Three Months Ended |         | For the Six Months Ended
|-------------------------------------------------------------------------- | -------------------------------------------------- | ------- | -------------------------- | ------- | ------------------------
|                                                                           |                                                    |         | June 30,                   |         | June 30,                
|                                                                           |                                                    |         | 2011                       |         | 2010                    
|Interest Income                                                            |                                                    |         |                            |         |                         
|                                                                           | Loans including fees                               |         | $3,935,613                 |         | $4,278,427              
|                                                                           | Investment securities:                             |         |                            |         |                         
|                                                                           | Taxable                                            |         | 302,294                    |         | 253,840                 
|                                                                           | Exempt from federal tax                            |         | 251,676                    |         | 379,941                 
|                                                                           | Interest on federal funds sold                     |         | 3,504                      |         | 6,139                   
|                                                                           | Other interest income                              |         | 19,209                     |         | 12,037                  
|                                                                           |                                                    |         | $4,512,296                 |         | $4,930,384              
|Interest Expense                                                           |                                                    |         |                            |         |                         
|                                                                           | Deposits                                           |         | $769,912                   |         | $959,932                
|                                                                           | Short-term borrowings                              |         | 27,894                     |         | 45,920                  
|                                                                           | Long-term debt                                     |         | 254,824                    |         | 268,669                 
|                                                                           |                                                    |         | $1,052,630                 |         | $1,274,521              
|                                                                           | Net interest income                                |         | $3,459,666                 |         | $3,655,863              
|Provision for Credit Losses                                                |                                                    | 150,000 |                            | 330,000 |                         
|                                                                           | Net interest income after                          |         |                            |         |                         
|                                                                           | provision for credit losses                        |         | $3,309,666                 |         | $3,325,863              
|Other Income                                                               |                                                    |         |                            |         |                         
|                                                                           | Service fees and commissions                       |         | $238,604                   |         | $226,486                
|                                                                           | Loan sale gains                                    |         | 39,628                     |         | 53,891                  
|                                                                           | Investment security gains                          |         | 31,953                     |         | 8,889                   
|                                                                           | Other                                              |         | 198,691                    |         | 188,861                 
|                                                                           |                                                    |         | $508,876                   |         | $478,127                
|Other-than-Temporary Impairment Losses, Net                                |                                                    |         |                            |         |                         
|                                                                           | Total other-than-temporary impairment losses       |         | $46,536                    |         | $0                      
|                                                                           | Amount in other comprehensive income, before taxes |         | 33,817                     |         | 0                       
|                                                                           |                                                    |         | $80,353                    |         | $0                      
|Other Expense                                                              |                                                    |         |                            |         |                         
|                                                                           | Salaries and employee benefits                     |         | $1,497,646                 |         | $1,598,849              
|                                                                           | Occupancy expenses                                 |         | 239,011                    |         | 249,649                 
|                                                                           | FDIC Insurance                                     |         | 81,000                     |         | 166,073                 
|                                                                           | Data processing expenses                           |         | 194,752                    |         | 175,942                 
|                                                                           | Professional fees                                  |         | 87,743                     |         | 82,390                  
|                                                                           | Amortization of intangibles                        |         | 48,098                     |         | 48,098                  
|                                                                           | (Gain) loss on sale of other real estate           |         | 11,371                     |         | 30,695                  
|                                                                           | Other real estate expenses                         |         | 74,615                     |         | 84,378                  
|                                                                           | Other operating expenses                           |         | 252,276                    |         | 245,744                 
|                                                                           |                                                    |         | $2,486,512                 |         | $2,681,818              
|                                                                           | Income before income taxes                         |         | $1,251,677                 |         | $1,122,172              
|                                                                           | Income tax expense                                 |         | 383,481                    |         | 281,917                 
|                                                                           | NET INCOME                                         |         | $868,196                   |         | $840,255                
|                                                                           | Per Share                                          |         |                            |         |                         
|                                                                           | Net income                                         |         | $7.30                      |         | $7.07                   
|                                                                           | Dividends declared                                 |         | $7.25                      |         | $7.25                   
|                                                                           | Weighted average shares outstanding                |         | 118,917                    |         | 118,917                 
|                                                                           |                                                    |         |                            |         |                         
|The accompanying notes are an integral part of these financial statements. |                                                    |         |                            |        



|Denmark Bancshares, Inc.                                   
|-----------------------------------------------------------
|Consolidated Statement of Changes in Stockholders' Equity  
|(Unaudited)                                                
|                                                           
|                                                           
|                                                           
|                                                           
|                                                           
|Balance, December 31, 2010                                 
|Comprehensive income                                       
|Net income                                                 
|Other comprehensive income, net of tax                     
|Change in unrealized loss on securities available-for-sale,
|net of reclassification adjustment (1)                     
|Total comprehensive income                                 
|Cash dividends, $7.25 per share                            
|Balance, June 30, 2011                                     
|                                                           





|(1) Disclosure of reclassification amount:                                       |  |  |  |        |  |          |          
|-------------------------------------------------------------------------------- |  |  |  | ------ |  | -------- | ---------
|Unrealized gains arising during the period                                       |  |  |  |        |  |          | $304,975 
|Plus: Tax expense on unrealized gains                                            |  |  |  |        |  |          | (148,279)
|Plus: Reclassification adjustment for losses realized and included in net income |  |  |  | 72,874
|Plus: Reclassification adjustment for tax benefit on realized losses             |  |  |  |        |  | (29,150)
|Net change in unrealized losses on securities                                    |  |  |  |        |  |          | $200,420 
|                                                                                 |  |  |  |        |  |          |          
|The accompanying notes are an integral part of these financial statements.       |  |  |  |       



Denmark Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)







|                                      |                                                                            | For the Six Months Ended
|------------------------------------- | -------------------------------------------------------------------------- | ------------------------
|                                      |                                                                            | June 30,                
|                                      |                                                                            | 2011                    
|Cash Flows from Operating Activities: |                                                                            |                         
|                                      | Net income                                                                 | $1,781,061              
|                                      | Adjustments to reconcile net income to                                     |                         
|                                      | net cash provided by operating activities:                                 |                         
|                                      | Depreciation                                                               | 202,047                 
|                                      | Provision for credit losses                                                | 300,000                 
|                                      | Amortization of intangibles                                                | 96,196                  
|                                      | Gains on sales of loans                                                    | (119,099)               
|                                      | Loss (gains) on sale of other real estate                                  | 17,891                  
|                                      | Gains on sale of securities                                                | (31,953)                
|                                      | Loss on investment securities impairment writedowns                        | 104,827                 
|                                      | Amortization of bond premium                                               | 216,675                 
|                                      | Accretion of bond discount                                                 | (87,181)                
|                                      | Mortgage loans originated for sale                                         | (7,127,170)             
|                                      | Proceeds from sale of mortgage loans                                       | 10,570,599              
|                                      | Income from bank owned life insurance                                      | (130,070)               
|                                      | (Increase) decrease in interest receivable                                 | (41,517)                
|                                      | Decrease in interest payable                                               | (26,666)                
|                                      | Other, net                                                                 | 58,705                  
|                                      | Net Cash Provided by Operating Activities                                  | $5,784,345              
|Cash Flows from Investing Activities: |                                                                            |                         
|                                      | Maturities of held-to-maturity securities                                  | $0                      
|                                      | Maturities and sales of available-for-sale securities                      | 15,542,834              
|                                      | Purchases of available-for-sale securities                                 | (20,937,094)            
|                                      | Money market mutual funds, net                                             | (34,037)                
|                                      | Federal funds sold, net                                                    | 5,773,000               
|                                      | Proceeds from sale of foreclosed assets                                    | 652,908                 
|                                      | Net decrease (increase) in loans made to customers                         | 4,036,446               
|                                      | Capital expenditures                                                       | (34,880)                
|                                      | Net Cash Provided by (Used in) Investing Activities                        | $4,999,177              
|Cash Flows from Financing Activities: |                                                                            |                         
|                                      | Net increase (decrease) in deposits                                        | ($10,289,256)           
|                                      | Dividends paid                                                             | (862,148)               
|                                      | Debt proceeds                                                              | 1,795,815               
|                                      | Debt repayments                                                            | (2,775,000)             
|                                      | Net Cash Provided by (Used in) Financing Activities                        | ($12,130,589)           
|                                      | Net decrease in cash and cash equivalents                                  | ($1,347,067)            
|                                      | Cash and cash equivalents, beginning                                       | 16,917,728              
|                                      | CASH AND CASH EQUIVALENTS, ENDING                                          | $15,570,661             
|Noncash Investing Activities:         |                                                                            |                         
|                                      | Loans transferred to foreclosed properties                                 | $805,992                
|                                      |                                                                            |                         
|Supplemental Cash Flow Disclosures:   |                                                                            |                         
|                                      | Cash paid for interest                                                     | $1,621,871              
|                                      | Cash paid for income taxes                                                 | 471,980                 
|                                      | The accompanying notes are an integral part of these financial statements.



NOTE 1 - FINANCIAL STATEMENTS

The consolidated financial statements included herein are unaudited.  In the opinion of management, these statements contain all adjustments necessary to present fairly the financial position of Denmark Bancshares, Inc. ("DBI"), its results of operation and cash flows for the periods presented.  All adjustments necessary for the fair presentation of the financial statements are of a normal recurring nature.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes hereto included in DBI's latest annual report on Form 10-K.  DBI's subsidiaries are Denmark State Bank ("DSB"), Denmark Agricultural Credit Corporation ("DACC"), and DBI Properties, Inc. ("Properties").



Reclassifications - Certain amounts in the prior period financial statements have been reclassified for comparative purposes to conform to the presentation in the current year.



NOTE 2 - INVESTMENT SECURITIES



The amortized cost and estimated fair market value of securities available-for-sale were as follows:



|                                       |  | June 30, 2011    
|-------------------------------------- |  | -----------------
|                                       |  |                  
|                                       |  | Amortized        
|                                       |  | Cost             
|U.S. Government-sponsored agencies     |  | $1,476,550       
|U.S. Government-sponsored agency MBS   |  | 32,588,944       
|State and local governments            |  | 25,240,255       
|Residential mortgage-backed securities |  | 10,006,465       
|                                       |  | $69,312,214      
|                                       |  |                  
|                                       |  | December 31, 2010
|                                       |  |                  
|                                       |  | Amortized        
|                                       |  | Cost             
|U.S. Government-sponsored agencies     |  | $0               
|U.S. Government-sponsored agency MBS   |  | 20,854,514       
|State and local governments            |  | 30,524,272       
|Residential mortgage-backed securities |  | 12,741,679       
|                                       |  | $64,120,465      



Proceeds of $6.6 million from calls, $2.1 million from maturities, $2.0 million from sales and $4.8 million from normal pay-downs were primarily used for the purchases of $16.0 million of agency mortgage-backed securities, $3.1 million taxable municipals, $1.5 million of agencies and $0.3 million of tax-exempt municipals to provide better liquidity and less credit risk.  There were no purchases of non-agency mortgage-backed securities.  The sales consisted of two non-agency mortgage-backed securities and one agency mortgage-backed security.  The sales were executed to improve credit quality and to utilize a portion of a capital loss carry forward at the Nevada investment subsidiary.



The amortized cost and estimated fair values of securities at June 30, 2011, by maturity were as follows:



|                            |  | Securities Available-for-Sale
|--------------------------- |  | -----------------------------
|                            |  |                              
|                            |  | Amortized                    
|Amounts Maturing            |  | Cost                         
|Within one year             |  | $2,763,499                   
|From one through five years |  | 40,554,082                   
|From five through ten years |  | 12,981,729                   
|After ten years             |  | 13,012,904                   
|                            |  | $69,312,214                  



Mortgage-backed securities are allocated according to their expected prepayments rather than their contractual maturities.  Certain state and local governments' securities are allocated according to their put date.  Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates could change considerably resulting in a material change in the estimated fair value of the securities.



At June 30, 2011, thirteen debt securities have unrealized losses with aggregate depreciation of 16.0% from DSB's amortized cost basis.  Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:



|June 30, 2011                          |  | Less Than Twelve Months |  | Over Twelve Months
|-------------------------------------- |  | ----------------------- |  | ------------------
|                                       |  | Gross                   |  | Estimated         
|                                       |  | Unrealized              |  | Fair              
|Securities Available for Sale          |  | Losses                  |  | Value             
|U.S. Government-sponsored agencies     |  | $1,000                  |  | $499,000          
|U.S. Government-sponsored agency MBS   |  | 10,340                  |  | 1,687,798         
|State and local governments            |  | 27,869                  |  | 1,269,265         
|Residential mortgage-backed securities |  | 674,256                 |  | 2,585,386         
|Total securities available for sale    |  | $713,465                |  | $6,041,449        
|                                       |  |                         |  |                   
|                                       |  |                         |  |                   
|December 31, 2010                      |  | Less Than Twelve Months |  | Over Twelve Months
|                                       |  | Gross                   |  | Estimated         
|                                       |  | Unrealized              |  | Fair              
|Securities Available for Sale          |  | Losses                  |  | Value             
|U.S. Government-sponsored agency MBS   |  | $41,020                 |  | $5,082,159        
|State and local governments            |  | 67,071                  |  | 3,284,508         
|Residential mortgage-backed securities |  | 628,597                 |  | 2,796,779         
|Total securities available for sale    |  | $736,688                |  | $11,163,446       



All securities with unrealized losses are assessed to determine if the impairment is other-than-temporary.  Factors that are evaluated include the mortgage loan types supporting the securities, delinquency and foreclosure rates, credit support, weighted average loan-to-value, and year of origination, among others.



Currently, a quarterly analysis by a third party is performed on three residential mortgage-backed securities secured by non-traditional loan types in order to determine whether they are other-than-temporarily impaired ("OTTI").  The purpose of the third party evaluation is to determine if the present value of the expected cash flows is less than the amortized costs, thereby resulting in credit loss, in accordance with the authoritative accounting guidance under FASB ASC Topic 320.  The third party determines an estimated fair value for each security based on discounted cash flow analyses.  The estimates are based on the following key valuation assumptions - collateral cash flows, prepayment assumptions, default rates, loss severity, liquidation lag, bond waterfall and internal rate of return.  Since there is currently no active secondary market for these types of securities due to the non-traditional loan types supporting the securities, these valuations are considered Level 3 inputs as defined in Note 5 - Fair Value Measurement.  Additional securities may be analyzed in the future if deemed necessary to determine whether they are OTTI and if so, if any possible credit loss exists.



Two of the three securities supported by non-traditional loan types were found to have credit losses during an analysis as of March 31, 2009 since a portion of the unrealized losses is due to an expected cash flow shortfall.  As such, these securities were determined to be OTTI.  DBI does not intend to sell the investments and it is not more likely than not that DBI will be required to sell the securities before the anticipated recovery of their remaining amortized cost bases, which may be maturity.  The total credit loss that was recognized in earnings as of March 31, 2009 was $0.3 million.  The analysis on the third security did not reveal any credit loss nor was the security found to be OTTI.  Based on the analyses performed in 2010, there was an additional $0.1 million of credit loss recognized on one of the two OTTI securities.  The analysis performed as of June 30, 2011 resulted in an additional $80,353 of credit loss that was recorded through the income statement during the current period, for a total credit loss year-to-date of $104,827 on this security.  Unrealized losses on the three securities analyzed by the third party were recognized through accumulated other comprehensive loss on the balance sheet as of June 30, 2011, net of tax, in the amount of $1.1 million.



The unrealized losses on the remainder of the residential mortgage-backed securities are due to the distressed and illiquid markets for collateralized mortgage obligations.  The securities are investments in senior tranches with adequate credit support from subordinate tranches, are supported by traditional mortgage loans that originated between 2002 and 2005, have low delinquency and foreclosure rates, and reasonable loan-to-value ratios.  DBI does not consider these investments to be OTTI at June 30, 2011.



Changes in credit losses recognized for securities with OTTI were as follows:



|                                                          |  |            |  |            | For the Six Months Ended |            | For the Year Ended | 
|--------------------------------------------------------- |  | ---------- |  | ---------- | ------------------------ | ---------- | ------------------ | 
|                                                          |  |            |  |            | June 30,                 |            | December 31,       | 
|                                                          |  |            |  |            | 2011                     |            | 2010               | 
|Credit losses recognized in earnings, beginning of period |  | ($432,488) |  | ($312,716) |                          | ($312,716) |                   
|Credit losses for OTTI not previously recognized          |  | (104,827)  |  | 0          |                          | (119,772)  |                   
|Credit losses recognized in earnings, end of period       |  | ($537,315) |  | ($312,716) |                          | ($432,488) |                   



NOTE 3 - LOANS



Loans are reported at the principal amount outstanding, net of the allowance for credit losses.  Interest on loans is calculated and accrued by using the simple interest method on the daily balance of the principal amount outstanding.  Loan origination fees are credited to income when received and the related loan origination costs are expensed as incurred.  Capitalization of the fees net of the related costs would not have a material effect on the consolidated financial statements.



DBI's customer information system tracks the past due status of all loans beginning with the first day a payment is late.  On a weekly basis, lenders are given a report with all loans past due one day or more to allow them to actively monitor the portfolio and attempt to keep past due levels to a minimum.



All loans are given an internal risk rating when the loan is originated.  On a quarterly basis, risk rating reports are distributed to the lenders to ensure that loans are appropriately rated.  On an annual basis, all commercial loans over $100,000 and agricultural loans over $200,000 are reviewed by the loan officer and/or credit analyst.  All loans over $1 million are independently reviewed annually by the Chief Credit Officer.  An independent third party also performs periodic reviews of risk ratings to ensure that loans are accurately graded.  The internal risk ratings are defined as:

- Non-classified loans are assigned a risk rating of 1 - 4 with a one-rated credit being the highest quality.  Non-classified loans have credit quality that ranges from well above average quality to some inherent industry weaknesses that may present higher than average risk due to conditions affecting the borrower, the borrower's industry or economic environment.
- Special mention loans are assigned a risk rating of 5.  Potential weaknesses exist that deserve management's close attention.  If left uncorrected, the potential weaknesses may result in deterioration of repayment prospects or in the bank's credit position at some future date.
- Substandard loans are assigned a rating of 6.  These loans are inadequately protected by the current worth and borrowing capacity of the borrower.  Well-defined weaknesses exist that may jeopardize the liquidation of the debt.  There is a possibility of some loss if the deficiencies are not corrected.  At this point, the loan may still be performing and accruing.
- Doubtful loans are rated 7 and have all the weaknesses of a substandard credit plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of current facts, conditions and values highly questionable and improbable.  The possibility of loss is extremely high but because of certain important and reasonable specific pending factors, which may work to the advantage of strengthening the asset, its classification as an estimated loss is deferred until its more exact status can be determined.
- Loss loans are internally rated as an 8.  A loss amount has been determined and this has been charged-off against the allowance for loan losses.  All or a portion of the charge-off may be recovered in the future and any such recoveries would also be recorded through the allowance.



DBI's policy is to place into nonaccrual status all loans that are contractually past due 90 days or more, along with other loans as to which reasonable doubt exists to the full and timely collection of principal and/or interest based on management's view of the financial condition of the borrower.  When a loan is placed on nonaccrual, all interest previously accrued but not collected is reversed against current period interest income.  Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable.  Interest accruals are resumed on such loans only when they are brought current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.



Loan charge-offs for all loans will occur as soon as there is a reasonable probability of loss.  When the amount of the loss can be readily calculated, the charge-off will be recorded as soon as practical within the calendar quarter the loss was identified.  Loans that are partially charged-off will be placed in nonaccrual status unless the remaining loan is restructured with adequate collateral and payments are assured and current.



A loan is impaired when, based on current information and events, it is probable that not all amounts due will be collected according to the contractual terms of the loan agreement.  Interest income is recognized in the same manner described above for nonaccrual loans.  Further detail on the analysis of impaired loans can be found below in the discussion of the Allowance for Loan Losses.



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that estimated to have been incurred in the loan portfolio.  The allowance is based on two basic accounting principles: (1) FASB Accounting Standards Codification (ASC) Topic 310-10 "Receivables - Overall," (formerly FAS 114) which requires that losses be accrued when it is probable that DBI will not collect all principal and interest payments according to the loan's contractual terms, and, (2) FASB ASC Topic 450, "Contingencies,"(formerly FAS 5) which requires that losses be accrued when they are probable of occurring and estimable.  The FFIEC "Interagency Policy Statement on the Allowance for Loan and Lease Losses" provides additional guidance on the allowance methodology.



On a quarterly basis, management utilizes a systematic methodology to determine an appropriate allowance for loan losses.  This methodology includes a loan grading system that requires quarterly reviews; identification of loans to be evaluated on an individual basis for impairment; results of independent reviews of asset quality and the adequacy of the allowance by regulatory agencies; consideration of current trends and volumes of nonperforming, past-due, nonaccrual and potential problem loans; as well as national and local economic trends and industry conditions.



In applying the methodology, all troubled debt restructurings, regardless of size, are considered impaired and will be individually evaluated.  All nonaccrual and watchlist commercial real estate, construction and land development, agricultural real estate, multifamily residential real estate, commercial, and agricultural production loans over $50,000 are evaluated individually to determine if they are impaired.  Nonaccrual residential real estate or consumer loans that are larger than customary for DBI will also be considered impaired and evaluated individually as there would be no pool of similar loans to evaluate these loans under ASC Topic 450.  Impaired loans are measured at the estimated fair value of the collateral.  If the estimated fair value of the impaired loan is less than the recorded investment in the loan, an impairment is recognized by creating a valuation allowance in conjunction with ASC Topic 310-10.



Loans that are not impaired are segmented into groups by type of loan.  The following loan types are utilized so each segment of loans will have similar risk factors: (1) residential real estate, (2) agricultural real estate, (3) commercial real estate, (4) construction and land development, (5) commercial, (6) agricultural, (7) consumer, (8) guaranteed loans and (9) other.  These loans are further segmented by internal risk ratings of non-classified, special mention, substandard and doubtful, which are defined above.



Risk factor percentages are applied to the risk rating segments of the non-impaired loans to calculate an allowance allocation in conjunction with ASC Topic 450.  The risk factor percentages are based on historical loan loss experience for each loan type and are adjusted for current economic conditions and trends as well as internal loan quality trends.  The historical loan loss percentages are applied to the non-classified portion of the portfolio to determine the required allocation to the allowance.  The historical loan loss percentages are then multiplied by a factor based on current economic conditions to calculate the allocation for each of the remaining risk rating categories of the non-impaired loans.  The current economic conditions take into account items such as vacancy rates for rental properties; property values based on actual sales transactions; income projections based on current prices such as dairy commodities; and other available economic data.

The above steps result in calculations that estimate the credit losses inherent in the portfolio at that time.  The calculations are used to confirm the adequacy and appropriateness of the actual balance of the allowance, recognizing that the allowance represents an aggregation of judgments and estimates by management.  Such calculations will influence the amount of future provisions for loan losses charged to expense.



The calculation is submitted to DSB's Board of Directors quarterly along with a recommendation for the amount of the monthly provision to the allowance.  If the mix and amount of future charge-offs differ significantly from those assumptions used by management in making its determination, the allowance and provision expense could be materially affected.



Major categories of loans included in the loan portfolio are as follows:



|                   |  |  | June 30,     |  | December 31,
|------------------ |  |  | ------------ |  | ------------
|                   |  |  | 2011         |  | 2010        
|Real Estate:       |  |  |              |  |             
|Residential        |  |  | $74,371,943  |  | $77,983,729 
|Commercial         |  |  | 61,907,992   |  | 58,304,345  
|Agricultural       |  |  | 71,864,115   |  | 71,782,458  
|Construction       |  |  | 11,985,029   |  | 12,792,496  
|                   |  |  | 220,129,079  |  | 220,863,028 
|                   |  |  |              |  |             
|Commercial         |  |  | 38,622,955   |  | 42,427,251  
|Agricultural       |  |  | 24,858,698   |  | 24,725,859  
|Consumer and other |  |  | 10,243,880   |  | 11,338,866  
|TOTAL              |  |  | $293,854,612 |  | $299,355,004





























































The following tables show the investment in impaired loans and the corresponding allowance for those loans along with the reduction in interest income associated with impaired loans:



Impaired Loans

As of June 30, 2011 and 2010

|                           |         |            |          |         |           |           |         |            |          |            |         
|-------------------------- | ------- | ---------- | -------- | ------- | --------- | --------- | ------- | ---------- | -------- | ---------- | --------
|                           | $(000)s |            |          |         | Unpaid    |           |         |            | Average  |            | Interest
|                           |         |            | Recorded |         | Principal |           | Related |            | Recorded |            | Income  
|2011                       |         | Investment |          | Balance |           | Allowance |         | Investment |          | Recognized
|With no related allowance: |         |            |          |         |           |           |         |            |         
|Residential Real Estate    |         | $428       |          | $567    |           | $0        |         | $573       |          | $5        
|Commercial Real Estate     |         | 1,426      |          | 1,831   |           | 0         |         | 1,862      |          | 11        
|Construction & Land Dev    |         | 2,339      |          | 2,339   |           | 0         |         | 2,344      |          | 52        
|Agricultural Real Estate   |         | 246        |          | 246     |           | 0         |         | 246        |          | 2         
|Commercial                 |         | 686        |          | 944     |           | 0         |         | 950        |          | 6         
|Agricultural               |         | 0          |          | 0       |           | 0         |         | 0          |          | 0         
|Consumer                   |         | 43         |          | 43      |           | 0         |         | 44         |          | 1         
|                           |         |            |          |         |           |           |         |            |          |            |         
|With a related allowance:  |         |            |          |         |           |           |         |            |          |           
|Residential Real Estate    |         | $1,182     |          | $1,272  |           | $299      |         | $1,282     |          | $7        
|Commercial Real Estate     |         | 3,528      |          | 4,090   |           | 698       |         | 4,122      |          | 8         
|Construction & Land Dev    |         | 1,961      |          | 1,961   |           | 89        |         | 1,962      |          | 45        
|Agricultural Real Estate   |         | 0          |          | 0       |           | 0         |         | 0          |          | 0         
|Commercial                 |         | 40         |          | 42      |           | 17        |         | 42         |          | 0         
|Agricultural               |         | 116        |          | 116     |           | 101       |         | 116        |          | 0         
|Consumer                   |         | 146        |          | 147     |           | 133       |         | 149        |          | 0         
|                           |         |            |          |         |           |           |         |            |          |            |         
|Total:                     |         |            |          |         |           |           |         |            |          |           
|Residential Real Estate    |         | $1,610     |          | $1,839  |           | $299      |         | $1,855     |          | $12       
|Commercial Real Estate     |         | 4,954      |          | 5,921   |           | 698       |         | 5,984      |          | 19        
|Construction & Land Dev    |         | 4,300      |          | 4,300   |           | 89        |         | 4,306      |          | 97        
|Agricultural Real Estate   |         | 246        |          | 246     |           | 0         |         | 246        |          | 2         
|Commercial                 |         | 726        |          | 986     |           | 17        |         | 992        |          | 6         
|Agricultural               |         | 116        |          | 116     |           | 101       |         | 116        |          | 0         
|Consumer                   |         | 189        |          | 190     |           | 133       |         | 193        |          | 1         
|                           | Total   |            | $12,141  |         | $13,598   |           | $1,337  |            | $13,692  |            | $137    









































|                           | $(000)s |            |          |         | Unpaid    |           |         |            | Average  |            | Interest
|-------------------------- | ------- | ---------- | -------- | ------- | --------- | --------- | ------- | ---------- | -------- | ---------- | --------
|                           |         |            | Recorded |         | Principal |           | Related |            | Recorded |            | Income  
|2010                       |         | Investment |          | Balance |           | Allowance |         | Investment |          | Recognized
|With no related allowance: |         |            |          |         |           |           |         |            |         
|Residential Real Estate    |         | $856       |          | $951    |           | $0        |         | $773       |          | $4        
|Commercial Real Estate     |         | 2,765      |          | 4,067   |           | 0         |         | 2,342      |          | 36        
|Construction & Land Dev    |         | 2,001      |          | 2,001   |           | 0         |         | 667        |          | 27        
|Agricultural Real Estate   |         | 0          |          | 0       |           | 0         |         | 0          |          | 0         
|Commercial                 |         | 321        |          | 434     |           | 0         |         | 296        |          | 1         
|Agricultural               |         | 130        |          | 130     |           | 0         |         | 109        |          | (1)       
|Consumer                   |         | 20         |          | 20      |           | 0         |         | 16         |          | 1         
|                           |         |            |          |         |           |           |         |            |          |            |         
|With a related allowance:  |         |            |          |         |           |           |         |            |          |           
|Residential Real Estate    |         | $738       |          | $738    |           | $253      |         | $641       |          | $18       
|Commercial Real Estate     |         | 2,024      |          | 2,447   |           | 405       |         | 2,257      |          | 28        
|Construction & Land Dev    |         | 438        |          | 438     |           | 204       |         | 394        |          | 10        
|Agricultural Real Estate   |         | 0          |          | 0       |           | 0         |         | 0          |          | 0         
|Commercial                 |         | 253        |          | 299     |           | 157       |         | 233        |          | 3         
|Agricultural               |         | 0          |          | 0       |           | 0         |         | 0          |          | 0         
|Consumer                   |         | 0          |          | 0       |           | 0         |         | 0          |          | 0         
|                           |         |            |          |         |           |           |         |            |          |            |         
|Total:                     |         |            |          |         |           |           |         |            |          |           
|Residential Real Estate    |         | $1,594     |          | $1,689  |           | $253      |         | $1,414     |          | $22       
|Commercial Real Estate     |         | 4,789      |          | 6,514   |           | 405       |         | 4,599      |          | 64        
|Construction & Land Dev    |         | 2,439      |          | 2,439   |           | 204       |         | 1,061      |          | 37        
|Agricultural Real Estate   |         | 0          |          | 0       |           | 0         |         | 0          |          | 0         
|Commercial                 |         | 574        |          | 733     |           | 157       |         | 529        |          | 4         
|Agricultural               |         | 130        |          | 130     |           | 0         |         | 109        |          | (1)       
|Consumer                   |         | 20         |          | 20      |           | 0         |         | 16         |          | 1         
|                           | Total   |            | $9,546   |         | $11,525   |           | $1,019  |            | $7,728   |            | $127    



Recorded Investment in Financing Receivables

|                         |         |          | June 30, |         |                |          |                  
|------------------------ | ------- | -------- | -------- | ------- | -------------- | -------- | -----------------
|                         |         |          | 2011     |         | 2010           |          | December 31, 2010
|                         |         |          |          |         | Ending Balance |          |                  
|                         |         |          |          |         | Individually   |          |                  
|                         | $(000)s |          | Ending   |         | Evaluated      |          | Ending           
|                         |         |          | Balance  |         | for Impairment |          | Balance          
|Residential Real Estate  |         | $74,372  |          | $1,610  |                | $83,081  |                  
|Commercial Real Estate   |         | 61,908   |          | 4,954   |                | 64,957   |                  
|Construction & Land Dev  |         | 11,985   |          | 4,300   |                | 13,997   |                  
|Agricultural Real Estate |         | 71,864   |          | 246     |                | 61,552   |                  
|Commercial               |         | 38,623   |          | 726     |                | 30,423   |                  
|Agricultural             |         | 24,859   |          | 116     |                | 35,802   |                  
|Consumer                 |         | 10,244   |          | 189     |                | 11,167   |                  
|Unallocated              |         | 0        |          | 0       |                | 0        |                  
|Total                    |         | $293,855 |          | $12,141 |                | $300,979 |                  



Allowance for Loan Losses

For the Six Months Ended June 30, 2011 and 2010

|$(000)s2011              |  | Beginning
Balance
1/1/2011 |  | Charge-offs |  | Recoveries |  | Provision |  | Ending
Balance
6/30/2011 |  | Ending
Balance
Individually
Evaluated
for Impairment
|------------------------ |  | -------------------------- |  | ----------- |  | ---------- |  | --------- |  | ------------------------ |  | ----------------------------------------------------
|Residential Real Estate  |  | $1,429                     |  | ($32)       |  | $19        |  | $68       |  | $1,484                   |  | $299                                                
|Commercial Real Estate   |  | 2,849                      |  | (431)       |  | 3          |  | 272       |  | 2,693                    |  | 698                                                 
|Construction & Land Dev  |  | 880                        |  | (139)       |  | 25         |  | 47        |  | 813                      |  | 89                                                  
|Agricultural Real Estate |  | 204                        |  | 0           |  | 0          |  | 1         |  | 205                      |  | 0                                                   
|Commercial               |  | 278                        |  | (252)       |  | 29         |  | 187       |  | 242                      |  | 17                                                  
|Agricultural             |  | 347                        |  | 0           |  | 5          |  | (10)      |  | 342                      |  | 101                                                 
|Consumer                 |  | 160                        |  | (7)         |  | 3          |  | (2)       |  | 154                      |  | 133                                                 
|Unallocated              |  | 718                        |  | 0           |  | 0          |  | (263)     |  | 455                      |  | 0                                                   
|Total                    |  | $6,865                     |  | ($861)      |  | $84        |  | $300      |  | $6,388                   |  | $1,337                                              
|                         |  |                            |  |             |  |            |  |           |  |                          |  |                                                     
|                         |  |                            |  |             |  |            |  |           |  |                          |  |                                                     
|$(000)s2010              |  | Beginning
Balance
1/1/2011 |  | Charge-offs |  | Recoveries |  | Provision |  | Ending
Balance
6/30/2011 |  | Ending
Balance
Individually
Evaluated
for Impairment
|Residential Real Estate  |  | $1,748                     |  | ($107)      |  | $6         |  | ($285)    |  | $1,362                   |  | $253                                                
|Commercial Real Estate   |  | 2,221                      |  | (339)       |  | 8          |  | (10)      |  | 1,880                    |  | 405                                                 
|Construction & Land Dev  |  | 1,319                      |  | 0           |  | 0          |  | 259       |  | 1,578                    |  | 204                                                 
|Agricultural Real Estate |  | 67                         |  | 0           |  | 14         |  | 89        |  | 170                      |  | 0                                                   
|Commercial               |  | 310                        |  | (13)        |  | 22         |  | 122       |  | 441                      |  | 157                                                 
|Agricultural             |  | 150                        |  | 0           |  | 4          |  | 153       |  | 307                      |  | 0                                                   
|Consumer                 |  | 59                         |  | (37)        |  | 10         |  | (14)      |  | 18                       |  | 0                                                   
|Unallocated              |  | 352                        |  | 0           |  | 0          |  | 416       |  | 768                      |  | 0                                                   
|Total                    |  | $6,226                     |  | ($496)      |  | $64        |  | $730      |  | $6,524                   |  | $1,019                                              

Nonaccrual loans totaled $7.2 million and $8.6 million at June 30, 2011 and December 31, 2010, respectively.  There were no loans past due ninety days or more and still accruing.  A schedule of loans by the number of days past due (including nonaccrual loans) along with a schedule of credit quality indicators follows:



Age Analysis of Past Due Financing Receivables

|                         |                   |      | 30-89 Days |       | 90 Days |       | Total    |         |          |         | Total Financing
|------------------------ | ----------------- | ---- | ---------- | ----- | ------- | ----- | -------- | ------- | -------- | ------- | ---------------
|                         | $(000)s           |      | Past Due   |       | & Over  |       | Past Due |         | Current  |         | Receivables    
|                         |                   |      |            |       |         |       |          |         |          |         |                
|                         | June 30, 2011     |      |            |       |         |       |          |         |          |         |                
|Residential Real Estate  |                   | $545 |            | $176  |         | $721  |          | $73,651 |          | $74,372
|Commercial Real Estate   |                   | 218  |            | 3,942 |         | 4,160 |          | 47,828  |          | 61,908 
|Construction & Land Dev  |                   | 0    |            | 250   |         | 250   |          | 11,735  |          | 11,985 
|Agricultural Real Estate |                   | 0    |            | 246   |         | 246   |          | 71,618  |          | 71,864 
|Commercial               |                   | 296  |            | 33    |         | 329   |          | 48,214  |          | 38,623 
|Agricultural             |                   | 2    |            | 115   |         | 117   |          | 24,742  |          | 24,859 
|Consumer                 |                   | 28   |            | 53    |         | 81    |          | 10,163  |          | 10,244 
|                         |                   |      |            |       |         |       |          |         |          |         |                
|                         | Total             |      | $1,089     |       | $4,815  |       | $5,904   |         | $287,951 |         | $293,855       
|                         |                   |      | 30-89 Days |       | 90 Days |       | Total    |         |          |         | Total Financing
|                         | $(000)s           |      | Past Due   |       | & Over  |       | Past Due |         | Current  |         | Receivables    
|                         |                   |      |            |       |         |       |          |         |          |         |                
|                         | December 31, 2010 |      |            |       |         |       |          |         |          |         |                
|Residential Real Estate  |                   | $376 |            | $396  |         | $772  |          | $77,212 |          | $77,984
|Commercial Real Estate   |                   | 0    |            | 4,220 |         | 4,220 |          | 54,084  |          | 58,304 
|Construction & Land Dev  |                   | 0    |            | 402   |         | 402   |          | 12,391  |          | 12,793 
|Agricultural Real Estate |                   | 0    |            | 0     |         | 0     |          | 71,782  |          | 71,782 
|Commercial               |                   | 4    |            | 61    |         | 65    |          | 42,362  |          | 42,427 
|Agricultural             |                   | 0    |            | 116   |         | 116   |          | 24,610  |          | 24,726 
|Consumer                 |                   | 74   |            | 30    |         | 104   |          | 11,235  |          | 11,339 
|                         |                   |      |            |       |         |       |          |         |          |         |                
|                         | Total             |      | $454       |       | $5,225  |       | $5,679   |         | $293,676 |         | $299,355       
|                         |                   |      |            |       |         |       |          |         |          |         |                



Credit Quality Indicators

|                         | $(000)s           |          |                |         |                 |         |             |        |          |          |      
|------------------------ | ----------------- | -------- | -------------- | ------- | --------------- | ------- | ----------- | ------ | -------- | -------- | -----
|                         | June 30, 2011     |          | Non-Classified |         | Special
Mention |         | Substandard |        | Doubtful |          | Total
|Residential Real Estate  |                   | $58,945  |                | $7,528  |                 | $6,962  |             | $937   |          | $74,372 
|Commercial Real Estate   |                   | 47,746   |                | 5,450   |                 | 4,442   |             | 4,270  |          | 61,908  
|Construction & Land Dev  |                   | 4,378    |                | 2,386   |                 | 4,971   |             | 250    |          | 11,985  
|Agricultural Real Estate |                   | 63,455   |                | 8,163   |                 | 246     |             | 0      |          | 71,864  
|Commercial               |                   | 34,611   |                | 2,751   |                 | 1,083   |             | 178    |          | 38,623  
|Agricultural             |                   | 20,735   |                | 4,002   |                 | 6       |             | 116    |          | 24,859  
|Consumer                 |                   | 9,800    |                | 189     |                 | 102     |             | 153    |          | 10,244  
|Total                    |                   | $239,670 |                | $30,469 |                 | $17,812 |             | $5,904 |          | $293,855
|                         |                   |          |                |         |                 |         |             |        |          |          |      
|                         | $(000)s           |          |                |         |                 |         |             |        |          |          |      
|                         | December 31, 2010 |          | Non-Classified |         | Special
Mention |         | Substandard |        | Doubtful |          | Total
|Residential Real Estate  |                   | $62,133  |                | $7,782  |                 | $6,903  |             | $1,166 |          | $77,984 
|Commercial Real Estate   |                   | 42,362   |                | 7,249   |                 | 3,163   |             | 5,530  |          | 58,304  
|Construction & Land Dev  |                   | 4,311    |                | 3,289   |                 | 4,791   |             | 402    |          | 12,793  
|Agricultural Real Estate |                   | 66,103   |                | 5,630   |                 | 49      |             | 0      |          | 71,782  
|Commercial               |                   | 38,383   |                | 2,953   |                 | 870     |             | 221    |          | 42,427  
|Agricultural             |                   | 22,283   |                | 2,320   |                 | 7       |             | 116    |          | 24,726  
|Consumer                 |                   | 10,929   |                | 113     |                 | 142     |             | 155    |          | 11,339  
|Total                    |                   | $246,504 |                | $29,336 |                 | $15,925 |             | $7,590 |          | $299,355

NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS



In April 2011, FASB issued Accounting Standards Update ("ASU") No. 2011-02 A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring ("TDR").  This update to Topic 310, "Receivables,"provides guidance for evaluating whether a restructuring constitutes a TDR.  The ASU indicates that the creditor's evaluation must separately conclude that both the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties.  The amendments also further clarify the guidance on a creditor's evaluation of whether a concession has been granted and whether a debtor is experiencing financial difficulties.  The amendments in this update are effective for the first interim or annual period beginning after June 15, 2011.  Adoption of these amendments did not have a significant impact on DBI's financial statements.

In April 2011, FASB issued ASU No. 2011-03 Reconsideration of Effective Control for Repurchase Agreements.  This update to Topic 860, "Transfers and Servicing," modifies the criteria for determining when repurchase agreements would be accounted for as a secured borrowing rather than a sale.  The provisions of ASU No. 2011-03 remove from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and the collateral maintenance implementation guidance related to that criterion.  This update does not change the other existing criteria used in the assessment of effective control.  ASU No. 2011-03 is effective prospectively for transactions, or modifications of existing transactions, that occur on or after January 1, 2012.  These amendments will not have an impact on DBI's financial statements.



In May 2011, FASB issued ASU No. 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  These amendments to Topic 820, "Fair Value Measurement," result in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS").  The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows; (a) the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets; (b) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets.  ASU No. 2011-04 extends that prohibition to all fair value measurements; (c) an exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity's net exposure to either of those risks.  This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (d) aligns the fair value measurement of instruments classified within an entity's shareholders' equity with the guidance for liabilities; and (e) disclosure requirements have been enhanced for recurring Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to describe the sensitivity of fair value measurements to changes in unobservable inputs and interrelationships between those inputs.  In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed.  The provisions of ASU No. 2011-04 are effective for interim reporting periods beginning on or after December 15, 2011.  The adoption of ASU No. 2011-04 is not expected to have a material impact on DBI's financial statements.



In June 2011, FASB issued ASU No. 2011-05, Presentation of Comprehensive Income.  This update to Topic 220, "Comprehensive Income,"allow an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  The statement(s) are required to be presented with equal prominence as the other primary financial statements.  ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive must be reclassified to net income.  ASU No. 2011-05 is effective for interim reporting periods beginning on or after December 15, 2011, with retrospective application required.  The adoption of ASU No. 2011-05 is expected to result in presentation changes to DBI's income statement and the addition of a statement of other comprehensive income.  The adoption will have no impact on DBI's statement of financial condition.





NOTE 5 - FAIR VALUE MEASURMENT



Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in a transaction between market participants on the measurement date.  Some assets and liabilities are measured on a recurring basis while others are measured on a non-recurring basis, as required by U.S. GAAP, which also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument.  The three levels of inputs defined in the standard that may be used to measure fair value are as follows:



- Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
- Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
- Level 3: Significant unobservable inputs that are supported by little, if any, market activity.  These unobservable inputs reflect estimates that market participants would use in pricing the assets or liability.



DBI used the following methods and significant assumptions to estimate fair value:



Cash, Cash Equivalents, and Federal Funds Sold: For cash, cash equivalents and federal funds sold, the carrying amount is a reasonable estimate of fair value.



Investment Securities: Investment securities available-for-sale ("AFS") are recorded at fair value on a recurring basis.  The fair value measurement of most of DBI's AFS securities is currently determined by an independent provider using Level 2 inputs (except as noted below).  The measurement is based upon quoted prices for similar assets, if available.  If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speed and default rates.  Two of DBI's AFS mortgage-backed securities ("MBS") that are secured by non-traditional mortgage loans and one AFS MBS secured by traditional mortgage loans that was downgraded during 2009 were analyzed by a third party in order to determine an estimated fair value.  The estimated fair values were based on discounted cash flow analyses and are considered Level 3 inputs.



Refer to Note 2 - Investment Securities above for additional detail on the assumptions used in determining the estimated fair values and additional disclosures regarding DBI's investment securities.  For other securities held as investments, fair value equals quoted market price, if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.



Loans Receivable: The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.



Loans Held for Sale: Mortgage loans held for sale are recorded at the lower of cost or market value.  The fair value is based on a market commitment for the sale of the loan in the secondary market.  These loans are typically sold within one week of funding.  DBI classifies mortgage loans held for sale as nonrecurring Level 2 assets.



Impaired Loans: As defined below in the Glossary of Loan Terms section, a loan is considered impaired when, based on current information or events, it is probable that not all amounts due will be collected according to the contractual terms of the loan agreement.  Impairment is measured based on the fair value of the underlying collateral.  The collateral value is determined based on appraisals and other market valuations for similar assets.  Under FASB ASC Topic 820, "Fair Value Measurements and Disclosures," the fair value of impaired loans is reported before selling costs of the related collateral, while FASB ASC Topic 310, "Receivables,"requires that impaired loans be reported on the balance sheet net of estimated selling costs.  Therefore, significant estimated selling costs would result in the reported fair value of impaired loans being greater than the measurement value of impaired loans as maintained on the balance sheet.  In most instances, selling costs were estimated for real estate-secured collateral and included broker commissions, legal and title transfer fees and closing costs.  Impaired loans are classified as nonrecurring Level 2 assets.



Other Investments: For other investments, the carrying amount is a reasonable estimate of fair value.



Other Real Estate Owned: Real estate that DBI has taken control of in partial or full satisfaction of debt is valued at the lower of book value or fair value.  The fair value is determined by analyzing the collateral value of the real estate using appraisals and other market valuations for similar assets less any estimated selling costs.  The value carried on the balance sheet for other real estate owned is estimated fair value of the properties.  Other real estate owned is classified as nonrecurring Level 2 assets.



Bank Owned Life Insurance: The carrying amount of bank owned life insurance approximates fair value.



Deposit Liabilities: The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.



Borrowings:  Rates currently available to DSB for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.



Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees Written: The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of guarantees and letters of credit is not material.



Assets Recorded at Fair Value on a Recurring Basis



Assets measured at fair value on a recurring basis, are summarized in the table below:



|                                       | June 30, 2011                
|-------------------------------------- | -----------------------------
|                                       | Fair Value Measurements Using
|Description                            | Level 1                      
|U.S. Government-sponsored agencies     | $0                           
|U.S. Government-sponsored agency MBS   | 0                            
|State and local governments            | 0                            
|Residential mortgage-backed securities | 0                            
|Total securities available for sale    | $0                           
|                                       |                              
|                                       | December 31, 2010            
|                                       | Fair Value Measurements Using
|Description                            | Level 1                      
|U.S. Government-sponsored agencies     | $0                           
|U.S. Government-sponsored agency MBS   | 0                            
|State and local governments            | 0                            
|Residential mortgage-backed securities | 0                            
|Total securities available for sale    | $0                           



The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable (Level 3) for the quarter ended June 30, 2011.



|Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|-----------------------------------------------------------------------
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Beginning balance, January 1, 2011                                     
|Total realized and unrealized gains/(losses):                          
|Included in earnings                                                   
|Included in other comprehensive income                                 
|Purchases, issuances, sales and settlements                            
|Purchases                                                              
|Issuances                                                              
|Sales                                                                  
|Settlements                                                            
|Transfers into Level 3                                                 
|Transfers out of Level 3                                               
|Ending balance, June 30, 2011                                          

Assets Recorded at Fair Value on a Nonrecurring Basis



Assets measured at fair value on a nonrecurring basis, are summarized in the following table:



|                        | June 30, 2011                
|----------------------- | -----------------------------
|                        | Fair Value Measurements Using
|Description             | Level 1                      
|Loans held for sale     | $0                           
|Other real estate owned | 0                            
|Impaired loans          | 0                            
|Total Assets            | $0                           
|                        |                              
|                        |                              
|                        | December 31, 2010            
|                        | Fair Value Measurements Using
|Description             | Level 1                      
|Loans held for sale     | $0                           
|Other real estate owned | 0                            
|Impaired loans          | 0                            
|Total Assets            | $0                           



The table below summarizes fair value of financial assets and liabilities at June 30, 2011 and December 31, 2010.



|                                          | June 30, 2011 |  | December 31, 2010
|----------------------------------------- | ------------- |  | -----------------
|                                          | Carrying      |  | Fair             
|                                          | Amount        |  | Value            
|(In thousands)                            |               |  |                  
|Financial Assets                          |               |  |                  
|Cash and federal funds sold               | $28,119       |  | $28,119          
|Investment securities                     | 68,547        |  | 68,547           
|Loans, net of allowance for credit losses | 287,467       |  | 288,115          
|Loans held for sale                       | 272           |  | 272              
|Bank owned life insurance                 | 6,948         |  | 6,948            
|Other investments, at cost                | 4,642         |  | 4,642            
|TOTAL                                     | $395,995      |  | $396,643         
|Financial Liabilities                     |               |  |                  
|Deposits                                  | $310,210      |  | $308,280         
|Borrowings                                | 42,609        |  | 45,194           
|TOTAL                                     | $352,819      |  | $353,474         



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



|Financial Highlights                  |          |  |          |  |          |  |          |  |         
|------------------------------------- | -------- |  | -------- |  | -------- |  | -------- |  | --------
|                                      | 2nd Qtr  |  | 1st Qtr  |  | 4th Qtr  |  | 3rd Qtr  |  | 2nd Qtr 
|(In thousands, except per share data) | 2011     |  | 2011     |  | 2010     |  | 2010     |  | 2010    
|                                      |          |  |          |  |          |  |          |  |         
|Operating Results                     |          |  |          |  |          |  |          |  |         
|Interest income                       | $4,512   |  | $4,619   |  | $4,773   |  | $4,902   |  | $4,930  
|Interest expense                      | 1,052    |  | 1,103    |  | 1,136    |  | 1,230    |  | 1,275   
|Net interest income                   | 3,460    |  | 3,516    |  | 3,637    |  | 3,672    |  | 3,655   
|Provision for credit losses           | 150      |  | 150      |  | 200      |  | 310      |  | 330     
|Noninterest income                    | 509      |  | 491      |  | 561      |  | 532      |  | 478     
|Noninterest expense                   | 2,487    |  | 2,576    |  | 2,759    |  | 2,651    |  | 2,682   
|Net income                            | 868      |  | 913      |  | 901      |  | 906      |  | 840     
|                                      |          |  |          |  |          |  |          |  |         
|Per Share Data                        |          |  |          |  |          |  |          |  |         
|Net income per share                  | $7.30    |  | $7.68    |  | $7.58    |  | $7.61    |  | $7.07   
|Book value per share                  | $462.89  |  | $460.25  |  | $453.47  |  | $452.11  |  | $441.43 
|                                      |          |  |          |  |          |  |          |  |         
|Financial Condition (1)               |          |  |          |  |          |  |          |  |         
|Total Loans                           | $293,855 |  | $299,539 |  | $299,355 |  | $300,666 |  | $300,979
|Allowance for credit losses           | 6,388    |  | 6,717    |  | 6,864    |  | 6,578    |  | 6,524   
|Investment securities                 | 68,547   |  | 63,934   |  | 63,050   |  | 64,548   |  | 62,572  
|Assets                                | 410,023  |  | 412,803  |  | 420,315  |  | 399,509  |  | 411,704 
|Deposits                              | 310,210  |  | 313,393  |  | 320,499  |  | 301,723  |  | 310,345 
|Other borrowed funds                  | 42,609   |  | 43,363   |  | 43,588   |  | 42,475   |  | 46,431  
|Stockholders' equity                  | 55,045   |  | 54,732   |  | 53,926   |  | 53,763   |  | 52,493  
|                                      |          |  |          |  |          |  |          |  |         
|Financial Ratios                      |          |  |          |  |          |  |          |  |         
|Return on average equity              | 6.41%    |  | 6.86%    |  | 6.78%    |  | 6.95%    |  | 6.50%   
|Return on average assets              | 0.85%    |  | 0.89%    |  | 0.90%    |  | 0.90%    |  | 0.82%   
|Interest rate spread                  | 3.39%    |  | 3.46%    |  | 3.70%    |  | 3.70%    |  | 3.62%   
|Average equity to average assets      | 13.22%   |  | 12.94%   |  | 13.25%   |  | 12.94%   |  | 12.68%  
|Allowance for credit losses           |          |  |          |  |          |  |          |  |         
|to total loans (1)                    | 2.17%    |  | 2.24%    |  | 2.29%    |  | 2.19%    |  | 2.17%   
|Non-performing loans to allowance for |          |  |          |  |          |  |          |  |         
|credit losses (1)                     | 112%     |  | 117%     |  | 126%     |  | 137%     |  | 130%    
|(1)  As of the period ending.         |          |  |          |  |          |  |          |  |         



This report may contain certain forward-looking statements, including without limitation, statements regarding results of operations, the appropriateness of the allowance for loan losses, the amounts of charge-offs and recoveries, capital to asset ratios, capacity for paying dividends and liquidity.  These statements speak of DBI's plans, goals, beliefs or expectations, and refer to estimates or use of similar terms.  Forward-looking statements can generally be identified because they contain words and phrases such as "may," "project," "are confident," "should," "predict," "believe," "plan," "expect," "estimate," "anticipate," and similar expressions.  These forward-looking statements are inherently uncertain and actual results may differ from DBI's expectations.  The factors that, among others, could impact current and future performance include but are not limited to: (i) adverse changes in asset quality and resulting credit risk-related losses and expenses; (ii) adverse changes in the local economy; (iii) fluctuations in market rates and prices which can negatively affect net interest margin, asset valuations and expense expectations; (iv) changes in regulatory requirements of federal and state agencies applicable to banks and bank holding companies; and (v) the factors set forth in Item 1A of DBI's Annual Report on Form 10-K for the year ended December 31, 2010 (the "2010 Annual Report"), which item is incorporated herein by reference, as well as other risks identified in this Report.  When reviewing forward-looking statements to make decisions with respect to DBI, investors and others are cautioned to consider these and other risks and uncertainties.  All forward-looking statements contained in this report are based upon information presently available and DBI assumes no obligation to update any forward-looking statements.



The Dodd-Frank Wall Street Reform and Consumer Protection Act



On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") into law.  This legislation makes extensive changes to the laws regulating financial services firms and requires significant rulemaking.  In addition, the legislation mandates multiple studies, which could result in additional legislative or regulatory action.  While the full effects of the legislation on DBI and DSB cannot yet be determined, this legislation is generally perceived as negatively impacting the banking industry.  This legislation may result in higher compliance and other costs, reduced revenues and higher capital and liquidity requirements, among other things, which could adversely affect DBI's and DSB's business.



Critical Accounting Policies



The accounting and reporting policies of DBI are in accordance with accounting principles generally accepted in the United States of America and conform to general practices in the banking industry.  The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  These estimates and assumptions are based on information available at the date of the financial statements.  Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.  Management believes that DBI's critical accounting policies are those relating to the allowance for loan and lease losses, the valuation of investment securities and intangible assets.



Allowance for Loan and Lease Losses

The allowance for loan and lease losses ("ALLL") is an estimate of the losses that may be sustained in the loan and lease portfolio.  Please refer to the Allowance for Loan Losses section of Note 3 - Loans above for detail on the allowance methodology.  Management believes the ALLL is appropriate as of June 30, 2011.



Valuation of Investment Securities

Investment securities are classified as available-for-sale and are valued at their fair market value.  Please refer to Note 2 - Investment Securities and Note 5 - Fair Value Measurement for additional details on the valuation of investment securities.



Intangible Assets

DBI has a core deposit intangible asset that was originated in connection with DSB's expansion through acquisition of an established branch operation in 1997.  The acquisition did not meet the definition of a business combination in accordance with ASC 805 - "Accounting for Business Combinations Occurring in Periods Beginning before December 15, 2008." As such, DBI continues to amortize the intangible asset related to the acquisition over a period of fifteen years.  Annually DBI reviews the intangible assets for impairment and records an impairment charge, if any, to earnings.



Glossary of Loan Terms



Impaired Loan -



Nonaccrual Loan - DSB's policy is to place in nonaccrual status all loans which are contractually past due 90 days or more as to any payment of principal or interest and all other loans as to which reasonable doubt exists as to the full, timely collection of interest or principal based on management's view of the financial condition of the borrower.  When a loan is placed on nonaccrual, all interest previously accrued but not collected is reversed against current period interest income.  Income on such loans is then recognized only to the extent that cash is received and where the collection of principal is probable.  Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.



Non-Performing Assets - Non-performing assets include nonaccrual loans as defined above and real and personal properties acquired in satisfaction of debts previously owed.



Past Due Accruing Loans - A loan on which all or part of a scheduled payment is delinquent by more than 30 days but less than 90 days past due, except loans that are considered nonaccrual.



Potential Problem Loans - Potential problem loans are accruing loans in which there exists doubt as to the ability of the borrower to comply with present loan repayment terms.  Management's decision to place loans in this category does not necessarily mean that DBI expects losses to occur on these loans, but that management recognizes that a higher degree of risk is associated with these accruing loans and they deserve closer scrutiny.



Restructured Loans - Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in the payment schedule, the amortization term, the interest rate, or a combination of these.



Risk Rating - Risk rating, which is also sometimes referred to as loan grade, is the credit quality grade assigned to each loan.  Loans are assigned a risk rating upon origination.  Lenders and credit review analysts conduct periodic reviews and evaluations and make adjustments to the assigned grades when appropriate. The range of categories from the best quality to the worst is as follows: highest quality, solid quality, some weakness, inherent industry weakness, special mention, substandard, doubtful and loss.  Impaired loans are generally rated a substandard or lower risk rating.



Special Mention Loans - Loans classified "special mention" are one step above substandard loans as described below.  These loans contain some weaknesses, which if not corrected or improved upon could lead to further deterioration and a lower rating.



Substandard - A "substandard" loan is a loan that is inadequately protected by the current net worth and paying capacity of the borrower or the value of the collateral.  Loans classified "substandard" have well-defined weaknesses that jeopardize prospects for liquidation and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected.



Results of Operations



Net income for the quarter ended June 30, 2011, was $0.9 million, a moderate increase of $27,941 or 3.3% from $0.8 million for the corresponding period in 2010.  This improvement was primarily the result of $0.2 million reduction in the provision for loan losses partially offset by increases of $0.1 million in credit losses recognized on an OTTI security and $0.1 million in income tax expense.



Year-to-date net income for 2011 is $1.8 million compared to $1.6 million for the same period in 2010.  This is an increase of $0.2 million or 9.0% and is primarily attributable to a decline of $0.4 million in the provision for loan losses and a reduction in salaries and employee benefits of $0.2 million during the first six months of 2011 compared to the same period of 2010.  These improvements were partially offset by credit losses of $0.1 million on an OTTI security and a $0.2 million increase in income tax expense.



Net interest income for the quarter ended June 30, 2011 was $3.5 million, compared to $3.7 million for the quarter ended June 30, 2010, a decline of $0.2 million or 5.4%.  Net interest income for the first six months of 2011 was $7.0 million, a $0.2 million or 3.1% decline from $7.2 million recognized during the same period in 2010.  The following tables set forth a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates for both the current quarter and year-to-date:





























|                                     | Three Months Ended June 30,
|------------------------------------ | ---------------------------
|                                     | 2011                       
|                                     | Increase (Decrease)        
|                                     | Due to Change In           
|(In thousands)                       | Average                    
|Balance                              |                            
|Interest income:                     |                            
|Loans                                | ($72)                      
|Taxable securities                   | 74                         
|Nontaxable securities                | (106)                      
|Federal funds sold                   | 0                          
|Other investments                    | 39                         
|Total interest income                | ($65)                      
|Interest expense:                    |                            
|NOW accounts                         | $0                         
|Savings accounts                     | 2                          
|Money market accounts                | 16                         
|Certificates and other time deposits | (51)                       
|Other borrowed funds                 | (26)                       
|Total interest expense               | ($59)                      
|Net interest income                  | ($6)                       



|                                     | Six Months Ended June 30,
|------------------------------------ | -------------------------
|                                     | 2011                     
|                                     | Increase (Decrease)      
|                                     | Due to Change In         
|(In thousands)                       | Average                  
|Balance                              |                          
|Interest income:                     |                          
|Loans                                | ($58)                    
|Taxable securities                   | 84                       
|Nontaxable securities                | (179)                    
|Federal funds sold                   | 9                        
|Other investments                    | 52                       
|Total interest income                | ($92)                    
|Interest expense:                    |                          
|NOW accounts                         | $2                       
|Savings accounts                     | 4                        
|Money market accounts                | 48                       
|Certificates and other time deposits | (118)                    
|Other borrowed funds                 | (59)                     
|Total interest expense               | ($123)                   
|Net interest income                  | $31                      



The decline in net interest income for the quarter-ended June 30, 2011 was primarily due to a decline in the yield on loans and securities along with an $8.2 million decline in the average balance of tax-exempt municipal securities.  The net interest rate spread declined 23 basis points during this period from 3.62% for the quarter ended June 30, 2010 to 3.39% for the most recent quarter.  DBI's yield on earning assets declined 49 basis points from 5.20% for the quarter ended June 30, 2010 to 4.71% as of the most recent quarter-end.  The yields on taxable securities, loans and tax-exempt securities declined 41 basis points, 37 basis points and 21 basis points, respectively when comparing the current quarter with the same period of 2010.  This reduction in the yield on earning assets was partially offset by a decline in the cost of funds of 26 basis points from 1.58% for the quarter ended June 30, 2010 to 1.32% during the second quarter of 2011.  This reduction in the cost of funds was primarily impacted by a 39 basis point reduction in the rate on certificates of deposits.



For the second quarter of 2011, DBI's provision for credit losses was $0.2 million compared to $0.3 million during the same period of 2010.  Net charge-offs of $0.5 million were recognized in the second quarter of 2011 compared to net charge-offs of $0.4 million during the corresponding period in 2010.



Noninterest income for the three months ended June 30, 2011 increased $30,749 compared to the corresponding period in 2010, an increase of 6.4%.  Gains on the sale of investment securities were $31,953 for the second quarter of 2011, which were $23,064 higher than the gains recorded during the same period in 2010.  Service fees and commissions increased $12,118 or 5.4% to $238,604 during the second quarter of 2011 due to an increase in commissions from securities brokerage sales.  These improvements were partially offset by a decline in loan sales gains of $14,263 during the second quarter of 2011 compared to the second quarter of 2010.



Noninterest expense decreased by $0.2 million for the three months ended June 30, 2011 compared to the second quarter of 2010.  The decrease is primarily attributable to a decline in salary expense of $0.1 million and a reduction in FDIC insurance expense of $0.1 million during current period.  The reduction in salaries is primarily due to staffing levels, which are lower than last year by three full-time-equivalents.  The lower FDIC insurance premiums are due to a new premium calculation that went into effect as of April 1, 2011.



Additional OTTI credit loss was recognized during the most recent quarter on one of the two securities previously determined to be other-than-temporarily-impaired.  The credit loss recognized through the income statement was $80,353 during the three months ended June 30, 2011, while there was no credit loss recognized during the second quarter of 2010.



For the three months ended June 30, 2011 and 2010, DBI recorded combined federal and state income tax expense of $0.4 million and $0.3 million, respectively.  These provisions reflect effective income tax rates of 31% in 2011 and 25% in 2010.  DBI's combined statutory tax rate is 39%.  The lower effective income tax rates are primarily due to certain federally tax exempt interest earned on state and local government investment securities.  The effective tax rates for the six months ended June 30, 2011 and 2010 were 30% and 24%, respectively.



Financial Condition



Total assets decreased by $10.3 million between December 31, 2010 and June 30, 2011.  Cash, cash equivalents and fed funds sold decreased by $7.1 million since December 31, 2010, while loans declined $5.5 million and loans held for sale fell by $3.4 million during the same period.  An increase in investment securities of $5.5 million during the first six months of 2011 partially offset these declines.



The following table sets forth major types of loans, excluding loans held for sale, by primary collateral and the percentage of total loans for each type:



|                   | June 30, 2011 |  | December 31, 2010
|------------------ | ------------- |  | -----------------
|(In thousands)     | Amount        |  | %                
|Real Estate:       |               |  |                  
|Residential        | $74,372       |  | 25.3%            
|Commercial         | 61,908        |  | 21.1%            
|Agricultural       | 71,864        |  | 24.4%            
|Construction       | 11,985        |  | 4.1%             
|                   | $220,129      |  | 74.9%            
|Commercial         | 38,623        |  | 13.1%            
|Agricultural       | 24,859        |  | 8.5%             
|Consumer and other | 10,244        |  | 3.5%             
|TOTAL              | $293,855      |  | 100.0%           





During the second quarter of 2011, management made the decision to purchase government guaranteed loans given the lack of quality loan growth potential currently available within our lending market.  As of June 30, 2011 there were approximately $4.5 million of commercial real estate government guaranteed loans recorded.  The average maturity of the loans purchased is approximately 10 years. The premiums on the loans are being amortized over a three year period.  Management will continue to evaluate our loan portfolio and make additional purchases as deemed appropriate.  At this point, management is prepared to invest between $10 million and $20 million in government guaranteed loan purchases.



The allowance for loan losses decreased approximately $0.5 million during the first six months of 2011.  Provisions of $0.3 million were added to the allowance in the first half of 2011 and were offset by net charge-offs of $0.8 million during the period.  The allowance equals 2.17% of total loans as of June 30, 2011 compared to 2.29% at December 31, 2010.  Nonaccrual loans totaled $7.2 million at June 30, 2011, a decrease of approximately $1.5 million compared to December 31, 2010.  The following table sets forth nonaccrual loans by major category:



|                               | June 30 |  | December 31,
|------------------------------ | ------- |  | ------------
|$(000)s                        | 2011    |  | 2010        
|Secured By Real Estate:        |         |  |             
|Residential                    | $1,615  |  | $2,042      
|Agricultural                   | 246     |  | 0           
|Commercial                     | 4,532   |  | 5,673       
|Construction                   | 250     |  | 402         
|Subtotal Real Estate Loans     | 6,643   |  | 8,117       
|Secured by commercial assets   | 184     |  | 227         
|Secured by agricultural assets | 116     |  | 116         
|Secured by other assets        | 227     |  | 173         
|TOTAL                          | $7,170  |  | $8,633      



DBI's ratio of loans more than 30 days past due (including nonaccrual loans) to total loans was 2.74% at June 30, 2011, compared to 3.04% at year-end 2010.  As of June 30, 2011, management had identified $46.7 million of potential problem loans compared to $44.1 million at year-end 2010.  Loan quality continues to be a concern and improving the portfolio is the primary focus for management.  DBI has no accruing loans that are past due 90 days or more.



The following table sets forth certain data concerning nonaccrual loans, past due accruing loans, restructured loans and other real estate (property acquired through foreclosure or in satisfaction of loans):



|                            | June 30, 2011 |  | December 31, 2010
|--------------------------- | ------------- |  | -----------------
|                            |               |  | % of Total       
|(In thousands)              | Amount        |  | Loans            
|                            |               |  |                  
|Nonaccrual Loans (1)        | $7,170        |  | 2.4%             
|Restructured Accruing Loans | 5,552         |  | 1.9%             
|Accruing Loans Past Due     |               |  |                  
|90 Days or More             | 0             |  | 0.0%             
|Total                       | $12,722       |  | 4.3%             
|Other Real Estate           | $999          |  |                  



(1)  Includes restructured loans of $2.2 million and $1.3 million as of June 30, 2011 and December 31, 2010, respectively.



Total deposits declined $10.3 million at June 30, 2011 compared to balances at December 31, 2010.  Management attributes this decline to a seasonal fluctuation as deposit balances tend to increase at year-end and then decline in the following months.  Noninterest-bearing deposits decreased by $2.4 million, or 6.4%, during the first six months of 2011.  Interest-bearing deposits fell $7.9 million between December 31, 2010 and June 30, 2011.  NOW accounts declined $11.3 million, or 37.5%, and certificates of deposits fell $6.1 million, or 5.2%, during the first six months of 2011, while money market accounts increased $8.4 million, or 7.4%, during this period.  Given the current interest rate environment, there has been a shift away from certificates of deposits into money market accounts as customers are reluctant to lock into a rate at this time.  DBI's money market rates are comparable to its rates for short-term certificates of deposits.



Interest-bearing deposits consisted of the following:



|(In thousands)          |  |  | 6/30/2011 |  | 12/31/2010
|----------------------- |  |  | --------- |  | ----------
|NOW accounts            |  |  | $18,785   |  | $30,034   
|Savings accounts        |  |  | 20,858    |  | 19,676    
|Money market accounts   |  |  | 121,822   |  | 113,472   
|Certificates of deposit |  |  | 113,208   |  | 119,352   
|TOTAL                   |  |  | $274,673  |  | $282,534  



Short-term borrowings decreased $1.4 million or 10.3% as of June 30, 2011 compared to December 31, 2010 while long-term borrowings increased $0.5 million during the same period.



Capital Resources



Stockholders' equity increased by $1.1 million to $55.0 million as of June 30, 2011 from December 31, 2010 due primarily to earnings for the period of $1.8 million and a decrease in other comprehensive loss of $0.2 million that were partially offset by the dividend payable of $0.9 million.  As of June 30, 2011 DBI's leverage ratio was 13.5%, its risk-based core capital ratio was 18.0% and its risk-based total capital ratio was 19.25%.  DBI and DSB continue to maintain capital levels well above regulatory minimum levels established for "well-capitalized" institutions.  As of June 30, 2011, DSB's leverage ratio was 10.6% and its risk-based total capital ratio was 15.9%. DBI believes its and DSB's capital positions as of June 30, 2011 are adequate under current economic conditions.



Liquidity



Liquidity refers to the ability of DBI to generate adequate amounts of cash to meet its needs.  DBI maintains liquid assets and established lines of credit to meet its liquidity needs.  DBI's Board of Directors annually approves a Consolidated Contingent Liquidity Plan, which reviews the sources and uses of liquidity for DBI, DSB and DACC.  Cash, cash equivalents and federal funds sold decreased $7.1 million or 20.2% to $28.1 million during the first six months of 2011 primarily due to the reduction in deposits of $10.3 million.  The major sources and uses of cash are detailed in the accompanying Consolidated Statements of Cash Flows.



In addition to on-balance sheet sources of funds, DBI also has off-balance sheet sources available to meet liquidity needs.  Specifically, DBI has unused lines of credit of $49.4 million as of June 30, 2011.  This includes a $20.0 million line of credit with the Federal Reserve Bank that was established in 1999.  DSB has not borrowed on this line.  DBI also has $70.1 million of eligible loans and securities that could be pledged to increase its available credit.  Management believes DBI's and DSB's liquidity positions as of June 30, 2011 are adequate under current economic conditions.



Off-Balance Sheet Arrangements



DBI and its subsidiaries are parties to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of their customers.  These financial instruments include commitments to extend credit and stand-by letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition.  The contract or notional amounts of those instruments reflect the extent of involvement DBI and its subsidiaries have in particular classes of financial instruments.



The exposure of DBI and its subsidiaries to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of these instruments.  DBI and its subsidiaries use the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments.  DBI and its subsidiaries require collateral or other security to support financial instruments with credit risk.  The following table sets forth DBI's commitments to extend credit and standby letters of credit:











|                                                                    |  |       |  |  |         | Contract or     |  |        
|------------------------------------------------------------------- |  | ----- |  |  | ------- | --------------- |  | -------
|                                                                    |  |       |  |  |         | Notional Amount |  | Secured
|(In thousands)                                                      |  |       |  |  |         | June 30, 2011   |  | Portion
|Financial instruments whose contract amounts represent credit risk: |  |       |  |  |        
|Commitments to extend credit                                        |  |       |  |  | $46,569 |                 |  | $41,754
|Standby letters of credit and financial guarantees written          |  | 1,826 |  |  | 1,826  



Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  DBI and its subsidiaries evaluate each customer's creditworthiness on a case-by-case basis.  Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.



Standby letters of credit are conditional commitments issued by DSB to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued to support commercial business transactions.  When a customer fails to perform according to the terms of the agreement, DSB honors drafts drawn by the third party in amounts up to the contract amount.  A majority of the letters of credit expire within one year.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.  Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties and residential properties.  All letters of credit are fully collateralized.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



DBI's primary market risk position has not materially changed from that disclosed in DBI's 2010 Annual Report.



Item 4. Controls and Procedures



As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, DBI's management, under the supervision and with the participation of DBI's principal executive officer and principal financial officer, has evaluated DBI's disclosure controls and procedures as of the end of the period covered by this Report.  Based on that evaluation, DBI's principal executive officer and principal financial officer believe that DBI's disclosure controls and procedures are effective as of the end of the period covered by this Report.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness of 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.



There were no significant changes in DBI's internal controls over financial reporting or in other factors that have significantly affected those controls during the fiscal quarter covered by this Report, including any correction actions with regard to significant deficiencies and material weaknesses.



Part II. Other Information



Item 1A. Risk Factors



In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A - Risk Factors of DBI's 2010 Annual Report, which could materially affect DBI's business, financial condition or future results.  There have been no material changes in risk factors as described in such Report.



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



During the quarter ended June 30, 2011, DBI did not sell any equity securities which were not registered under the Securities Act of 1033, as amended, or repurchase any of its equity securities.



The Federal Reserve Board ("the Board") has adopted regulations that deal with the measure of capitalization for bank holding companies.  The Board has also issued a policy statement on the payment of cash dividends by bank holding companies, wherein the Board has stated that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weaken the bank holding company's financial health, such as by borrowing.



The ability of DBI to pay dividends on its common stock is largely dependent upon the ability of DSB to pay dividends on its stock held by DBI.  DSB's ability to pay dividends is restricted by both state and federal laws and regulations.  DSB is subject to policies and regulations issued by the FDIC and the Division of Banking of the Wisconsin Department of Financial Institutions ("the Division"), which, in part, establish minimum acceptable capital requirements for banks, thereby limiting the ability of such banks to pay dividends.  In addition, Wisconsin law provides that state chartered banks may declare and pay dividends out of undivided profits but only after provision has been made for all expenses, losses, required reserves, taxes and interest accrued or due from the bank.  Payments of dividends in some circumstances may require the written consent of the Division.



Item 6. Exhibits



(a)	Exhibits:



31.1 Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



31.2 Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



32.1 Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





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.





DENMARK BANCSHARES, INC.





Date: August X, 2011					/s/ John P. Olsen

John P. Olsen

President and CEO











Date: August X, 2011					/s/ Dennis J. Heim

Dennis J. Heim

Vice President, CFO and Treasurer