DNBK Danvers Bancorp, Inc. (MM)

Danvers Bancorp, Inc. (the “Company”) (NASDAQ: DNBK), the holding company for Danversbank, today reported net income of $4.9 million for the quarter ended December 31, 2010 compared to $2.6 million for the same quarter in 2009. For the year ended December 31, 2010, net income was $18.2 million compared to $5.3 million for the same period in 2009. The combination of the acquisition of Beverly National Corporation (“Beverly”), organic growth, particularly within the loan portfolio, and the overall improvement of the Company’s net interest margin resulted in a significant increase in net interest income and, to a lesser extent, an increase in non-interest income. These increases were partially offset by increased salaries and benefits expense, occupancy, other operating expenses and provision for income taxes. Most notably, net interest income for the quarter and year ended December 31, 2010 improved by $3.4 million, or 17.9%, and $26.5 million, or 44.9%, respectively, when compared to the same periods in 2009.

Compared to the quarter ended September 30, 2010, net income increased by $703,000, or 16.9%. An increase in net interest income and non-interest income were somewhat offset by increases in the provision for loan losses, non-interest expense and income taxes between the comparable periods.

Proposed Merger

On January 20, 2011, the Company announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with People’s United Financial, Inc. (“People’s United”), a Delaware corporation. Pursuant to the Merger Agreement, People’s United will acquire the Company in a 55% stock and 45% cash merger transaction valued at approximately $493 million, based on the 10-day average closing price of People’s United’s common stock for the period ended January 19, 2011.

The Merger Agreement provides that the Company will be merged with and into People’s United (the “Merger”), with People’s United continuing as the surviving corporation. Simultaneously with the effective time of the Merger, the Company’s subsidiary bank, Danversbank, will be merged with and into People’s United subsidiary bank, People’s United Bank, with People’s United Bank continuing as the surviving entity. The Company anticipates that the Merger will close in the second quarter of 2011, subject to customary closing conditions and receipt of regulatory approvals.

Under the terms and conditions of the Merger Agreement, the Company’s stockholders have the right to elect to receive (i) $23.00 in cash or (ii) 1.624 shares of People’s United common stock for each share of Company common stock, subject to customary pro ration provisions, whereby 55% of Company shares are exchanged for stock and 45% for cash.

“I’m confident that this transaction will benefit Danvers Bancorp shareholders, customers and employees,” said Kevin T. Bottomley, Chairman, President and Chief Executive Officer of Danvers Bancorp. “People’s United brings substantial resources for increased lending, additional products and services and opportunities for professional development for our employees. When coupled with our highly experienced lending staff and extensive eastern Massachusetts branch network, the combined organization will be well positioned to compete with the biggest players in the Greater Boston area.”

Selected 2010 fourth quarter and annual financial highlights include:

• Non-performing assets to total assets of 0.52% compared to 0.77% for Q4 ‘09 and 0.73% for Q3 ‘10;
• Net interest margin of 3.53% compared to 3.57% for Q4 ‘09 and 3.49% for Q3 ‘10;
• Net interest income increased 17.9% compared to Q4 ‘09 and 9.1% compared to Q3 ‘10;
• Non-interest income increased 59.2% compared to Q4 ‘09 and 37.2% compared to Q3 ‘10;
• 7% loan growth in 2010; and
• 19% deposit growth in 2010.

“Deposit growth was strong throughout 2010. Loan growth clearly picked up over the last six months of the year. In combination with our net interest margin, the Company’s results for the full year were extremely encouraging,” noted Mr. Bottomley.

Earnings per share basic and diluted for the fourth quarter of 2010 and 2009 were $0.25 and $0.14, respectively. Earnings per share basic and diluted for the quarter ended September 30, 2010 was $0.21. Earnings per share basic and diluted for the years ended December 31, 2010 and 2009 were $0.91 and $0.31, respectively.

Dividend Declared

The Board of Directors of the Company has declared a cash dividend on its common stock of $0.04 per share. The dividend will be paid on or after February 25, 2011 to shareholders of record as of February 11, 2011.

2010 Earnings Summary

The Company’s net interest income increased $3.4 million, or 17.9%, during the fourth quarter of 2010 compared to the same period in 2009. For the years ended December 31, 2010 and 2009, net interest income increased $26.5 million, or 44.9%. These increases are attributable to the overall growth of the Company and, in particular, the growth of the loan portfolio and the improvement in the Company’s net interest margin (“NIM”). The Company’s NIM improved by 29 basis points from 3.27% for the year ended December 31, 2009 to 3.56% for the year ended December 31, 2010 mainly due to a 69 basis point decline in overall funding costs.

The Company’s fourth quarter net interest income increased $1.9 million, or 9.1%, compared to the third quarter of 2010 mainly due to the decrease in the cost of interest-bearing liabilities. We experienced an 8 basis point decrease in the yield on earning assets, while the cost of interest-bearing liabilities decreased by 12 basis points. As a result, the Company’s NIM increased from 3.49% to 3.53% between the third and fourth quarters of 2010.

“Deposit funding is abundant at the moment and these balances can be acquired at a reasonable cost. The competition for new loan originations however, especially from some of the larger institutions, remains extremely challenging. We expect that the pressure on loan pricing could impact our net interest margin as we transition into 2011,” mentioned Mr. Bottomley.

Non-interest income for the fourth quarter of 2010 totaled $3.8 million, an increase of $1.4 million, or 59.2%, compared to the fourth quarter of 2009. The improvement was primarily due to an increase of $166,000 in net gain on sales of loans, $110,000 in trust services fees, $82,000 in additional deposit account service fees and a $1.1 million increase in the other operating income that was primarily related to a gain in one of the Company’s limited partnership investments. For the year ended December 31, 2010, non-interest income increased $5.8 million, or 76.2%, compared to the same period in 2009. Net gain on sales of securities, trust services fees and service charges on deposits were the largest contributors to the increase.

Non-interest income for the fourth quarter of 2010 increased $1.0 million, or 37.2%, compared to the third quarter of 2010. This increase was primarily due to a $910,000 gain on one limited partnership investment. While the Company’s general levels of non-interest revenues have shown incremental improvement, developing additional and meaningful sources of non-interest income remains a significant challenge.

Non-interest expense increased $740,000, or 4.2%, between the quarters ended December 31, 2010 and 2009, respectively, due primarily to increases in salaries and employee benefits and occupancy expense as a result of the additional personnel and branches related to the Beverly acquisition and the overall expansion of the Company’s branch network. For the year ended December 31, 2010, non-interest expense increased $14.6 million, or 26.2%, from the comparable period in 2009. Salaries and benefits, occupancy and general other operating expense, related to operating the larger combined franchise, were the primary reasons for the increase in non-interest expense.

Non-interest expense increased by $677,000, or 3.9%, for the fourth quarter of 2010 compared to the third quarter of 2010. Increases in salaries and benefits and advertising expense were the primary reasons for the increase.

Since the fully taxable components of the Company’s revenues have increased as a result of the Beverly acquisition and organic growth of the franchise, the Company’s 2010 effective tax rate has increased when compared to the comparable three and twelve month periods in 2009. As of December 31, 2010, the Company’s effective tax rate was 20.9%.

Balance Sheet Summary

Total assets increased by $353.6 million, or 14.1%, during the year ended December 31, 2010. Net loans (including loans held for sale) increased $114.3 million, or 6.9%, securities, in aggregate, increased by $273.6 million, or 45.4%, and cash and cash equivalents decreased $41.5 million, or 57.8%, during the year. On the liability side, deposit balances increased by $334.2 million, or 18.9%, for the year ended December 31, 2010. After experiencing very strong loan, deposit and overall balance sheet growth in 2008 and 2009, the Company’s growth pattern for the year ended December 31, 2010 has been more modest. While the Company has experienced a constant inflow of deposits during the year, it was only during the third and fourth quarters that the Company’s loan balances and origination activities have demonstrated a meaningful increase. The Company continues to focus much of its lending resources on commercial and industrial (“C&I”) and selected permanent commercial real estate opportunities.

The Company experienced some improvement in its asset quality metrics for the quarter ended December 31, 2010. Non-performing assets (“NPAs”) totaled $14.8 million at December 31, 2010 compared to $19.2 million at September 30, 2010 and December 31, 2009. NPAs as a percentage of total assets decreased to 52 basis points at the end of the current quarter. This compares to NPA metrics of 73 basis points and 77 basis points for the quarters ended September 30, 2010 and December 31, 2009, respectively. At December 31, 2010, total NPAs consisted of $13.0 million in loans considered impaired and on non-accrual, $927,000 in performing troubled debt restructures and $832,000 in other real estate owned (“OREO”). Despite the improvement during the fourth quarter of 2010, the number of problem credits being resolved has been offset by an equal number of new problem credits from quarter to quarter. At December 31, 2010, the OREO balance consists of two properties.

Notwithstanding the current economic and employment conditions, the Company’s asset quality metrics and delinquency trends continue to be stable and favorable when compared to many industry peers. The fourth quarter provision for loan losses for both 2010 and 2009 was $1.8 million and $900,000 for the third quarter of 2010, as management continued to augment the allowance during the quarter in response to some relatively strong loan growth. The allowance for loan losses increased $3.2 million, or 21.8%, for the year and represents 1.00% of total loans at December 31, 2010. Net charge-offs for the quarter and year ended December 31, 2010 were $360,000 and $1.9 million, respectively. By comparison, net charge-offs were $929,000 and $2.5 million for the comparable periods in 2009. The allowance represents 128.5% of non-performing loans at December 31, 2010 compared to 82.5% at December 31, 2009.

Deposits increased by $334.2 million, or 18.9%, to $2.1 billion at December 31, 2010 compared to $1.8 billion at December 31, 2009. During the year, the Company experienced increases in all but one deposit category. This growth is attributable to the Company’s expanded retail branch presence and online banking initiatives. The Company opened its Cambridge and Waltham locations in 2009, its first Boston retail location in the first quarter of 2010 and its Needham location in the third quarter of 2010. These branches have already attracted $128.1 million in new deposit balances. The previously announced Lexington branch is slated to open during the first quarter of 2011. Despite the low levels of short-term interest rates, the Company has experienced success in raising core deposit balances.

Short-term Federal Home Loan Bank (“FHLB”) advances, repurchase agreements and Federal Reserve Board (“FRB”) short-term advances increased by $48.0 million, or 40.0%, decreased by $7.5 million, or 14.2% and increased $1.0 million, or 100%, respectively, at December 31, 2010 compared to December 31, 2009. Management has selectively replaced some short and long-term borrowing with the aforementioned deposit inflows and in the process has lessened the Company’s reliance on any single funding source. The Company had approximately $196.8 million in various FHLB term advances outstanding and an additional $214.3 million in short-term borrowings at December 31, 2010. The Company’s short-term borrowings consist of short-term FHLB advances, overnight customer repurchase agreements and FRB short-term advances. From a funding and liquidity perspective, the Company has ready access to a number of large, stable and well-diversified short-term funding sources and these alternatives are available at competitive rates given the current rate environment.

Company Profile

Danvers Bancorp, Inc., the holding company for Danversbank, is headquartered in Danvers, Massachusetts. The Company has grown to $2.9 billion in assets through acquisitions and internal growth, including de novo branching. We conduct business from our main office located at One Conant Street, Danvers, Massachusetts, and our 27 other branch offices located in Andover, Beverly, Boston, Cambridge, Chelsea, Danvers, Hamilton, Malden, Manchester, Middleton, Needham, Peabody, Reading, Revere, Salem, Saugus, Topsfield, Waltham, Wilmington and Woburn, Massachusetts. Our business consists primarily of making loans to our customers, including C&I loans, commercial real estate loans, owner-occupied residential mortgages and consumer loans and investing in a variety of investment securities. We fund these lending and investment activities with deposits from our customers, funds generated from operations and selected borrowings. We also provide wealth management and trust services, treasury management, debit and credit card products and online banking services. Additional information about the Company and its subsidiaries is available at www.danversbank.com.

Forward Looking Statements

Certain statements herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on the beliefs and expectations of management, as well as the assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. As a result, actual results may differ from those contemplated by these statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” “project,” “seek,” “plan” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.” Certain factors that could cause actual results to differ materially from expected results include changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the risk factors described in the Company’s December 31, 2009 Annual Report on Form 10-K, filed March 16, 2010, as updated by our Quarterly Reports on Form 10-Q, that adversely affect the business in which Danvers Bancorp, Inc. is engaged and changes in the securities market. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release and the associated conference call. The Company disclaims any intent or obligation to update any forward-looking statements, whether in response to new information, future events or otherwise.

 

DANVERS BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

    December 31,   2010     2009   (In thousands) ASSETS Cash and cash equivalents $ 30,282 $ 71,757 Certificates of deposit - 10,679 Securities available for sale, at fair value 723,610 481,100 Securities held to maturity, at cost 152,731 110,932 Loans held for sale 2,881 1,948 Loans 1,782,741 1,666,164 Less allowance for loan losses   (17,900 )   (14,699 ) Loans, net   1,764,841     1,651,465     Restricted stock, at cost 18,172 18,726 Premises and equipment, net 39,793 36,764 Bank-owned life insurance 34,250 32,900 Other real estate owned 832 1,427 Accrued interest receivable 9,845 9,998 Deferred tax asset, net 15,675 9,619 Goodwill and intangible assets 33,119 35,094 Prepaid FDIC assessment 6,215 8,515 Prepaid taxes 393 6,348 Other assets   20,706     12,477   $ 2,853,345   $ 2,499,749     LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand deposits $ 246,973 $ 224,776 Savings and NOW accounts 449,036 376,975 Money market accounts 837,647 621,683 Term certificates over $100,000 344,165 314,097 Other term certificates   222,205     228,272   Total deposits   2,100,026     1,765,803   Short-term borrowings 214,330 172,829 Long-term debt 196,778 218,475 Subordinated debt 29,965 29,965 Accrued expenses and other liabilities   26,972     27,011   Total liabilities   2,568,071     2,214,083     Commitments and contingencies   Stockholders' equity:

Preferred stock; $0.01 par value, 10,000,000 shares authorized; none issued

- -

Common stock; $0.01 par value, 60,000,000 shares authorized; 22,316,125 shares issued

223 223 Additional paid-in capital 239,163 237,577 Retained earnings 88,067 71,864 Accumulated other comprehensive income (loss) (2,102 ) 3,650

Unearned restricted shares - 530,558 and 639,807 shares at December 31, 2010 and 2009, respectively

(5,331 ) (6,793 )

Unearned compensation - ESOP; 1,213,290 and 1,284,660 shares at December 31, 2010 and 2009, respectively

(12,133 ) (12,846 )

Treasury stock, at cost; 1,592,382 and 610,593 shares at December 31, 2010 and 2009, respectively

  (22,613 )   (8,009 ) Total stockholders' equity   285,274     285,666   $ 2,853,345   $ 2,499,749      

DANVERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

        Three Months Ended Years Ended December 31, December 31,   2010   2009     2010     2009   (Dollars in thousands, except per share amounts) Interest and dividend income: Interest and fees on loans $ 25,162 $ 21,650 $ 96,320 $ 71,417 Interest on debt securities: Taxable 5,500 5,842 21,297 21,622 Non-taxable 498 248 1,255 906 Dividends on equity securities - 5 12 6 Interest on cash equivalents and certificates of deposit   20   114     125     406   Total interest and dividend income   31,180   27,859     119,009     94,357     Interest expense: Interest on deposits: Savings and NOW accounts 1,268 875 4,939 2,717 Money market accounts 2,433 2,479 9,628 11,190 Term certificates 2,510 2,822 9,761 11,922 Interest on short-term borrowings 64 103 244 372 Interest on long-term debt and subordinated debt   2,256   2,366     9,107     9,282   Total interest expense   8,531   8,645     33,679     35,483   Net interest income 22,649 19,214 85,330 58,874 Provision for loan losses   1,750   1,750     5,150     5,110   Net interest income, after provision for loan losses   20,899   17,464     80,180     53,764     Non-interest income: Service charges on deposits 1,136 1,054 4,572 3,557 Loan servicing fees 35 60 195 123 Net gain on sales of loans 220 54 929 826 Net gain on sales of securities, net of impairment write-down - 2 2,109 6 Loss on impairment of available for sale securities - - (779 ) - Gain (loss) on limited partnerships 717 (3 ) 57 (99 ) Increase in cash surrender value of bank-owned life insurance 346 331 1,350 884 Trust services 373 263 1,571 263 Other operating income   1,010   649     3,365     2,029   Total non-interest income   3,837   2,410     13,369     7,589     Non-interest expenses: Salaries and employee benefits 10,020 8,683 39,012 30,301 Occupancy 2,073 1,706 8,077 5,960 Equipment 1,071 1,195 4,180 3,659 Outside services 575 929 2,121 2,069 Other real estate owned expense 176 393 827 819 Deposit insurance expense 706 692 2,670 2,807 Advertising expense 416 491 1,272 1,088 Other operating expense   3,183   3,391     12,371     9,192   Total non-interest expenses   18,220   17,480     70,530     55,895   Income before income taxes 6,516 2,394 23,019 5,458 Provision (benefit) for income taxes   1,661   (234 )   4,818     149   Net income $ 4,855 $ 2,628   $ 18,201   $ 5,309     Weighted-average shares outstanding: Basic 19,612,520 18,488,838 20,048,042 16,980,117 Diluted 19,676,484 18,600,778 20,067,767 16,980,117   Earnings per share: Basic $ 0.25 $ 0.14 $ 0.91 $ 0.31 Diluted $ 0.25 $ 0.14 $ 0.91 $ 0.31    

DANVERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

    Three Months Ended December 31, September 30,   2010   2010   (Dollars in thousands, except per share amounts) Interest and dividend income: Interest and fees on loans $ 25,162 $ 23,563 Interest on debt securities: Taxable 5,500 5,441 Non-taxable 498 310 Dividends on equity securities - 8 Interest on cash equivalents and certificates of deposit   20   30   Total interest and dividend income   31,180   29,352     Interest expense: Interest on deposits: Savings and NOW accounts 1,268 1,403 Money market accounts 2,433 2,563 Term certificates 2,510 2,206 Interest on short-term borrowings 64 41 Interest on long-term debt and subordinated debt   2,256   2,377   Total interest expense   8,531   8,590   Net interest income 22,649 20,762 Provision for loan losses   1,750   900   Net interest income, after provision for loan losses   20,899   19,862     Non-interest income: Service charges on deposits 1,136 1,129 Loan servicing fees 35 34 Net gain on sales of loans 220 466 Net gain on sales of securities, net of impairment write-down - 67 Gain (loss) on limited partnerships 717 (462 ) Increase in cash surrender value of bank-owned life insurance 346 346 Trust services 373 362 Other operating income   1,010   854   Total non-interest income   3,837   2,796     Non-interest expenses: Salaries and employee benefits 10,020 9,787 Occupancy 2,073 1,936 Equipment 1,071 1,055 Outside services 575 474 Other real estate owned expense 176 276 Deposit insurance expense 706 683 Advertising expense 416 214 Other operating expense   3,183   3,118   Total non-interest expenses   18,220   17,543   Income before income taxes 6,516 5,115 Provision for income taxes   1,661   963   Net income $ 4,855 $ 4,152     Weighted-average shares outstanding: Basic 19,612,520 19,871,405 Diluted 19,676,484 19,902,305   Earnings per share: Basic $ 0.25 $ 0.21 Diluted $ 0.25 $ 0.21    

DANVERS BANCORP, INC.

NET INTEREST INCOME ANALYSIS

(Unaudited)

        Three Months Ended December 31, 2010 2009 Average Interest Average Average Interest Average Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate (1) Balance Paid Rate (1) (Dollars in thousands) Interest-earning assets:

Interest-earning cash equivalents and certificates of deposit

$ 40,567 $ 20 0.20 % $ 64,866 $ 114 0.70 % Debt securities: (2) U.S. Government - - - 10,326 5 0.19 Gov't-sponsored enterprises 375,638 2,869 3.06 235,645 2,421 4.11 Mortgage-backed 298,353 2,629 3.52 284,050 3,104 4.37 Municipal bonds 47,130 498 4.23 24,223 248 4.10 Other 1,062 2 0.75 10,774 312 11.58 Restricted stock 18,172 - - 17,579 5 0.11 Real estate mortgages (3) 913,745 12,828 5.62 865,970 12,346 5.70 C&I loans (3) 696,436 10,426 5.99 510,371 7,760 6.08 IRBs (3) 169,379 1,867 4.41 121,196 1,453 4.80 Consumer loans (3)   3,305     41 4.96   5,316     91 6.85 Total interest-earning assets 2,563,787   31,180 4.86 2,150,316   27,859 5.18 Allowance for loan losses   (16,845 )   (14,003 )

Total earning assets less allowance for loan losses

2,546,942 2,136,313 Non-interest-earning assets   193,772     132,633   Total assets $ 2,740,714   $ 2,268,946     Interest-bearing liabilities: Deposits: Savings and NOW accounts $ 450,830 1,268 1.13 $ 318,748 875 1.10 Money market accounts 850,142 2,433 1.14 623,484 2,479 1.59 Term certificates   557,471     2,510 1.80   510,741     2,822 2.21 Total deposits 1,858,443 6,211 1.34 1,452,973 6,176 1.70 Borrowed funds: Short-term borrowings 74,564 64 0.34 121,451 103 0.34 Long-term debt 204,103 1,789 3.51 198,440 1,900 3.83 Subordinated debt   30,073     467 6.21   29,965     466 6.22 Total interest-bearing liabilities 2,167,183   8,531 1.57 1,802,829   8,645 1.92 Non-interest-bearing deposits 260,241 195,679 Other non-interest-bearing liabilities   22,781     22,986   Total non-interest-bearing liabilities   283,022     218,665   Total liabilities 2,450,205 2,021,494 Stockholders' equity   290,509     247,452   Total liabilities and stockholders' equity $ 2,740,714   $ 2,268,946     Net interest income $ 22,649 $ 19,214 Net interest rate spread (4) 3.29 % 3.26 % Net interest-earning assets (5) $ 396,604   $ 347,487   Net interest margin (6) 3.53 % 3.57 %

Ratio of interest-earning assets to total interest-bearing liabilities

  1.18   x   1.19   x       (1) Yields are annualized. (2) Average balances are presented at average amortized cost. (3) Average loans include non-accrual loans and are net of average deferred loan fees/costs. (4) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) Net interest margin represents net interest income divided by average total interest-earning assets.    

DANVERS BANCORP, INC.

NET INTEREST INCOME ANALYSIS

(Unaudited)

        Years Ended December 31, 2010 2009 Average Interest Average Average Interest Average Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate Balance Paid Rate (Dollars in thousands) Interest-earning assets:

Interest-earning cash equivalents and certificates of deposit

$ 57,164 $ 125 0.22 % $ 48,946 $ 406 0.83 % Debt securities: (1) U.S. Government 4,712 8 0.17 3,091 18 0.58 Gov't-sponsored enterprises 293,546 9,759 3.32 202,486 9,412 4.65 Mortgage-backed 289,031 10,761 3.72 252,042 11,678 4.63 Municipal bonds 32,832 1,255 3.82 22,248 906 4.07 Other 7,743 769 9.93 4,710 514 10.91 Restricted stock 18,752 12 0.06 14,791 6 0.04 Real estate mortgages (2) 917,957 52,517 5.72 694,412 39,330 5.66 C&I loans (2) 629,905 37,087 5.89 461,910 27,331 5.92 IRBs (2) 140,646 6,527 4.64 91,618 4,383 4.78 Consumer loans (2)   3,434     189 5.50   4,685     373 7.96 Total interest-earning assets 2,395,722   119,009 4.97 1,800,939   94,357 5.24 Allowance for loan losses   (16,031 )   (12,972 )

Total earning assets less allowance for loan losses

2,379,691 1,787,967 Non-interest-earning assets   193,141     109,488   Total assets $ 2,572,832   $ 1,897,455     Interest-bearing liabilities: Deposits: Savings and NOW accounts $ 425,554 4,939 1.16 $ 230,857 2,717 1.18 Money market accounts 741,898 9,628 1.30 534,321 11,190 2.09 Term certificates   558,238     9,761 1.75   442,476     11,922 2.69 Total deposits 1,725,690 24,328 1.41 1,207,654 25,829 2.14 Borrowed funds: Short-term borrowings 60,621 244 0.40 98,152 372 0.38 Long-term debt 209,597 7,246 3.46 171,401 7,317 4.27 Subordinated debt   29,965     1,861 6.21   29,965     1,965 6.56 Total interest-bearing liabilities 2,025,873   33,679 1.66 1,507,172   35,483 2.35 Non-interest-bearing deposits 235,001 145,025 Other non-interest-bearing liabilities   21,509     14,359   Total non-interest-bearing liabilities   256,510     159,384   Total liabilities 2,282,383 1,666,556 Stockholders' equity   290,449     230,899   Total liabilities and stockholders' equity $ 2,572,832   $ 1,897,455     Net interest income $ 85,330 $ 58,874 Net interest rate spread (3) 3.31 % 2.89 % Net interest-earning assets (4) $ 369,849   $ 293,767   Net interest margin (5) 3.56 % 3.27 %

Ratio of interest-earning assets to total interest-bearing liabilities

  1.18   x   1.19   x       (1) Average balances are presented at average amortized cost. (2) Average loans include non-accrual loans and are net of average deferred loan fees/costs. (3) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. (4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (5) Net interest margin represents net interest income divided by average total interest-earning assets.    

DANVERS BANCORP, INC.

NET INTEREST INCOME ANALYSIS

(Unaudited)

        Three Months Ended December 31, 2010 September 30, 2010 Average Interest Average Average Interest Average Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Balance Paid Rate (1) Balance Paid Rate (1) (Dollars in thousands) Interest-earning assets:

Interest-earning cash equivalents and certificates of deposit

$ 40,567 $ 20 0.20 % $ 45,395 $ 30 0.26 % Debt securities: (2) U.S. Government - - - - - - Gov't-sponsored enterprises 375,638 2,869 3.06 325,286 2,741 3.37 Mortgage-backed 298,353 2,629 3.52 276,293 2,540 3.68 Municipal bonds 47,130 498 4.23 32,050 310 3.87 Other 1,062 2 0.75 9,326 160 6.86 Restricted stock 18,172 - - 23,067 8 0.14 Real estate mortgages (3) 913,745 12,828 5.62 880,169 12,353 5.61 C&I loans (3) 696,436 10,426 5.99 639,855 9,475 5.92 IRBs (3) 169,379 1,867 4.41 142,668 1,686 4.73 Consumer loans (3)   3,305     41 4.96   3,517     49 5.57 Total interest-earning assets 2,563,787   31,180 4.86 2,377,626   29,352 4.94 Allowance for loan losses   (16,845 )   (16,325 )

Total earning assets less allowance for loan losses

2,546,942 2,361,301 Non-interest-earning assets   193,772     222,869   Total assets $ 2,740,714   $ 2,584,170     Interest-bearing liabilities: Deposits: Savings and NOW accounts $ 450,830 1,268 1.13 $ 435,559 1,403 1.29 Money market accounts 850,142 2,433 1.14 769,254 2,563 1.33 Term certificates   557,471     2,510 1.80   546,500     2,206 1.61 Total deposits 1,858,443 6,211 1.34 1,751,313 6,172 1.41 Borrowed funds: Short-term borrowings 74,564 64 0.34 40,102 41 0.41 Long-term debt 204,103 1,789 3.51 207,606 1,809 3.49 Subordinated debt   30,073     467 6.21   30,481     568 7.45 Total interest-bearing liabilities 2,167,183   8,531 1.57 2,029,502   8,590 1.69 Non-interest-bearing deposits 260,241 242,240 Other non-interest-bearing liabilities   22,781     20,258   Total non-interest-bearing liabilities   283,022     262,498   Total liabilities 2,450,205 2,292,000 Stockholders' equity   290,509     292,170   Total liabilities and stockholders' equity $ 2,740,714   $ 2,584,170     Net interest income $ 22,649 $ 20,762 Net interest rate spread (4) 3.29 % 3.25 % Net interest-earning assets (5) $ 396,604   $ 348,124   Net interest margin (6) 3.53 % 3.49 %

Ratio of interest-earning assets to total interest-bearing liabilities

  1.18   x   1.17   x       (1) Yields are annualized. (2) Average balances are presented at average amortized cost. (3) Average loans include non-accrual loans and are net of average deferred loan fees/costs. (4) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) Net interest margin represents net interest income divided by average total interest-earning assets.    

DANVERS BANCORP, INC.

SELECTED FINANCIAL RATIOS AND OTHER DATA

(Unaudited)

          At or For At or For the At or For the the Three Three Months Ended Years Ended Months Ended December 31, December 31, September 30, 2010 2009 2010 2009 2010   Performance Ratios:   Return on assets (ratio of income to average total assets) (1) 0.71% 0.46% 0.71% 0.28% 0.64% Return on equity (ratio of income to average equity) (1) 6.68% 4.25% 6.27% 2.30% 5.68% Net interest rate spread (1) (2) 3.29% 3.26% 3.31% 2.89% 3.25% Net interest margin (1) (3) 3.53% 3.57% 3.56% 3.27% 3.49% Efficiency ratio (4) 66.83% 81.89% 69.24% 83.39% 72.11% Non-interest expenses to average total assets (1) 2.66% 3.08% 2.74% 2.95% 2.72% Average interest-earning assets to interest-bearing liabilities 1.18x 1.19x 1.18x 1.19x 1.17x   Asset Quality Ratios:   Non-performing assets to total assets 0.52% 0.77% 0.52% 0.77% 0.73% Non-performing loans to total loans 0.78% 1.01% 0.78% 1.01% 1.05% Allowance for loan losses to non-performing loans 128.51% 82.49% 128.51% 82.49% 89.87% Allowance for loan losses to total loans 1.00% 0.88% 1.00% 0.88% 0.94%   Capital Ratios:   Risk-based capital (to risk-weighted assets) 15.40% 15.86% 15.40% 15.86% 15.83% Tier 1 risk-based capital (to risk-weighted assets) 14.48% 15.05% 14.48% 15.05% 14.95% Tier 1 leverage capital (to average assets) 10.44% 12.25% 10.44% 12.25% 11.03% Stockholders' equity to total assets 10.00% 11.43% 10.00% 11.43% 11.16% Average stockholders' equity to average assets 10.60% 10.91% 11.29% 12.17% 11.31%   (1) Ratios for the three months ended December 31, 2010 and 2009 and September 30, 2010 are annualized. (2) The net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. (3) The net interest margin represents net interest income as a percent of average interest-earning assets. (4) The efficiency ratio represents non-interest expense for the period minus expenses related to the amortization of intangible assets divided by the sum of net interest income (before the loan loss provision) plus non-interest income.