The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying unaudited consolidated interim financial statements include the accounts of Danvers Bancorp, Inc. (“the Company”) and its wholly-owned subsidiary Danversbank (the “Bank”). These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-1 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been omitted.
In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the reporting interim periods have been included. The consolidated balance sheet of the Company as of December 31, 2007 has been derived from the audited consolidated balance sheet of the Company as of that date. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s most recent Securities and Exchange Commission Form 10-K filed by the Company for the year ended December 31, 2007. The results of operation for the nine months ended September 30, 2008 and 2007 are not necessarily indicative of the results to be obtained for a full year.
| 2. | Fair Value of Assets and Liabilities |
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which provides a framework for measuring fair value under generally accepted accounting principles and the Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115, which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company did not elect fair value treatment for any financial assets or liabilities upon adoption.
In accordance with SFAS No. 157, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The three levels are defined as follows:
In October, 2008, the FASB issued FASB Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 was effective immediately upon issuance, and includes prior periods for which financial statements have not been issued. The Company applied the guidance contained in FSP 157-3 in determining fair values at September 30, 2008, and it did not have a material impact on the consolidated financial statements.
Level 1 – Quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Currently, the Company does not have any items classified as Level 1.
Level 2 – Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The fair value of fixed maturity investments included in the Level 2 category were based on market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well established independent broker-dealers. The independent pricing service monitors market indicators, industry and economic events, and for broker-quoted only securities, obtains quotes from market makers or broker-dealers that it recognizes to be market participants. The Level 2 categories include U.S. Government and government-sponsored enterprises, mortgage-backed securities, corporate bonds, foreign government bonds and municipal bonds.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities and involve management judgment. Level 3 assets or liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The Level 3 categories include impaired consumer loans.
Assets measured at fair value on a recurring basis as of September 30, 2008:
| | | | | | | | | | | | Balance at | |
| | | | | | | | | | | | September 30, | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | 2008 | |
| | | (In thousands) | |
| | | | | | | | | | | | | |
| U.S. Government | | $ | - | | | $ | 2,025 | | | $ | - | | | $ | 2,025 | |
| Government-sponsored enterprises | | | - | | | | 162,587 | | | | - | | | | 162,587 | |
| Mortgage-backed | | | - | | | | 194,541 | | | | - | | | | 194,541 | |
| Municipal bonds | | | - | | | | 17,442 | | | | - | | | | 17,442 | |
| Other bonds | | | - | | | | 249 | | | | - | | | | 249 | |
| | | $ | - | | | $ | 376,844 | | | $ | - | | | $ | 376,844 | |
Also, the Company may be required, from time to time, to measure certain other financial assets on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of September 30, 2008:
| | | | | | | | | | | | Quarter Ended | |
| | | | | | | | | | | | September 30, | |
| | | September 30, 2008 | | | 2008 | |
| | | | | | | | | | | | Total | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Gains(Losses) | |
| | | (In thousands) | |
| | | | | | | | | | | | | |
| Other real estate owned | | $ | - | | | $ | 782 | | | $ | - | | | $ | - | |
| Impaired loans | | | - | | | | 745 | | | | - | | | | 280 | |
| | | $ | - | | | $ | 1,527 | | | $ | - | | | $ | 280 | |
The amount of other real estate owned represents the carrying value and related write-downs based on a purchase and sale agreement with a third party or the appraised value of the collateral. The amount of impaired loans in Level 2 represents the carrying value and related charge-offs and FAS 114 allocated reserves on impaired loans for which adjustments are based on appraised value of the collateral. The amount of loans in Level 3 represents the carrying value and related FAS 114 allocated reserves write-downs of impaired consumer loans. As the individual balances are small, the carrying amount of the loan has been reserved.
Basic earnings per share (“EPS”) excludes dilution and is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents (such as stock options and unvested restricted stock) were issued during the period.
For the quarter ended September 30, 2008, there were no potentially dilutive common stock equivalents. Earnings per share are not applicable for year to date and quarterly periods prior to June 30, 2008 as the Company did not issue stock until January 11, 2008. Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.
| 4. | Defined Benefit Pension Plan |
Employee benefits are provided to employees through participation in the Savings Bank’s Employees Retirement Association’s Pension Plan (“SBERA Pension Plan”). The benefits are interrelated with benefits provided under the 401(k) Plan and based on employee’s years of service and annual compensation, as defined in the SBERA Pension Plan. Effective August 15, 2003, the Company curtailed the benefits under the Plan, and no additional employees were eligible to participate in the Plan. Effective June 30, 2007, the Company voted to terminate the Plan.
The net pension expense for the Plan included the following components:
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | (In thousands) | |
| | | | | | | | | | | | | |
| Interest cost | | $ | - | | | $ | 62 | | | $ | - | | | $ | 226 | |
| Expected return on plan assets | | | - | | | | (67 | ) | | | - | | | | (244 | ) |
| Settlement loss | | | - | | | | 180 | | | | - | | | | 180 | |
| Actuarial gain (loss) | | | - | | | | 5 | | | | - | | | | (5 | ) |
| Net pension expense | | $ | - | | | $ | 180 | | | $ | - | | | $ | 157 | |
The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2007, estimated benefits of $253,000 were payable in 2008. As of October 1, 2008, the Plan was terminated and benefits in the amount of $178,000 less termination fees of $34,000 were paid to participants.
On October 23, 2008, the Company declared a quarterly cash dividend on its common stock of $.02 per share. The dividend will be paid on or after November 21, 2008 to shareholders of record as of November 7, 2008.
| 6. | Recent Accounting Pronouncements |
In December 2007, the FASB issued SFAS No. 141 (revised), ‘‘Business Combinations’’, which replaces SFAS No. 141, and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for certain business combinations. This Statement makes significant amendments to other Statements and other authoritative guidance, and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, ‘‘Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.’’ This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008 and the adoption of this Statement is not expected to have a material impact on the Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133”, which changes the disclosure requirements for derivative instruments and hedging activities. This Statement is intended to enhance the current disclosure framework in SFAS No. 133. The Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. This Statement is effective for the Company’s consolidated financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and is not expected to have a material impact on the Company’s consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following analysis discusses the changes in financial position and results of operation of the Company, and should be read in conjunction with both the unaudited consolidated interim financial statements and notes thereto, appearing in Part 1, Item 1 of this report.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include statements of our goals, intentions and expectations, statements regarding our business plans and prospects and growth and operating strategies, statements regarding the asset quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events significantly increased competition among depository and other financial institutions, inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments, general economic conditions, either nationally or in our market areas, that are worse than expected, adverse changes in the securities markets, legislative or regulatory changes that adversely affect our business, our ability to enter new markets successfully and take advantage of growth opportunities, changes in consumer spending, borrowing and savings habits, changes in accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board, and changes in our organization, compensation and benefit plans. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s unaudited consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q. In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and income and expenses during the reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, other than temporary impairment of securities, the valuation of other real estate owned and the valuation of the deferred tax assets.
Comparison of Financial Condition at September 30, 2008 and December 31, 2007
Total Assets. Total assets increased by $152.0 million, or 10.5%, to $1.60 billion at September 30, 2008 from $1.45 billion at December 31, 2007. This increase was primarily due to an increase in loans, which was partially offset by a decline in securities available for sale. The overall increase in the Company’s assets was funded primarily with an increase in deposits and to a lesser extent a combination of short and long-term borrowings.
Cash and Cash Equivalents. Cash and cash equivalents increased by $9.3 million, or 14.1%, to $75.2 million at September 30, 2008 from $65.9 million at December 31, 2007.
Securities. The securities portfolio aggregated $376.8 million at September 30, 2008, a decrease of $29.9 million, or 7.3%, from $406.7 million at December 31, 2007. As a result of the excellent credit opportunities that continue to present themselves to the Company, we sold some securities from the investment portfolio and used the proceeds to fund our loan growth. Within the portfolio, obligations of government-sponsored enterprises decreased by $58.2 million and mortgage-backed securities increased by $29.5 million, as the Company also replaced some fixed-rate agency securities with adjustable-rate mortgage-backed securities.
At September 30, 2008 and December 31, 2007, our mortgage-backed securities (“MBS”) totaled 51.6% and 40.6%, respectively, of our investment portfolio and consisted of high quality rated pass-through securities that are directly insured or guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae. The MBS portfolio is primarily backed by pools of 1-4 family mortgages that have loans with interest rates that are within a set range and have varying maturities. None of our MBS are privately issued or have sub-prime residential mortgages or home equity loans as part of their underlying loan pools. We target instruments with four to twelve year weighted average lives, with expected average life extensions up to a maximum of fifteen years in a rising rate environment. In an effort to protect against a rising interest rate environment, we increased our concentration of adjustable-rate MBS in the investment portfolio from 15.4% at December 31, 2007 to 35.1% at September 30, 2008. All our MBS were rated AAA at September 30, 2008 and December 31, 2007. Although unforeseeable changes in market conditions may affect future ratings, management does not expect to downgrade any ratings in our current MBS portfolio.
The amortized cost and fair value of securities available for sale, with gross unrealized gains and losses follows:
| | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | |
| | | (In thousands) | |
| September 30, 2008: | | | | | | | | | | | | |
| U.S. Government | | $ | 2,011 | | | $ | 14 | | | $ | - | | | $ | 2,025 | |
| Government-sponsored enterprises | | | 162,098 | | | | 1,073 | | | | (584 | ) | | | 162,587 | |
| Mortgage-backed | | | 194,091 | | | | 1,407 | | | | (957 | ) | | | 194,541 | |
| Municipal bonds | | | 19,183 | | | | 1 | | | | (1,742 | ) | | | 17,442 | |
| Other bonds | | | 250 | | | | - | | | | (1 | ) | | | 249 | |
| | | $ | 377,633 | | | $ | 2,495 | | | $ | (3,284 | ) | | $ | 376,844 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2007: | | | | | | | | | | | | | | | | |
| U.S. Government | | $ | 2,000 | | | $ | 21 | | | $ | - | | | $ | 2,021 | |
| Government-sponsored enterprises | | | 217,929 | | | | 3,010 | | | | (109 | ) | | | 220,830 | |
| Mortgage-backed | | | 164,062 | | | | 1,240 | | | | (211 | ) | | | 165,091 | |
| Municipal bonds | | | 18,569 | | | | 64 | | | | (191 | ) | | | 18,442 | |
| Other bonds | | | 328 | | | | 4 | | | | (1 | ) | | | 331 | |
| | | $ | 402,888 | | | $ | 4,339 | | | $ | (512 | ) | | $ | 406,715 | |
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:
| | | Less Than Twelve Months | | | Over Twelve Months | |
| | | Gross Unrealized Losses | | | Fair Value | | | Gross Unrealized Losses | | | Fair Value | |
| | | (In thousands) | |
| September 30, 2008: | | | | | | | | | | | | |
| Government-sponsored enterprises | | $ | 567 | | | $ | 50,410 | | | $ | 17 | | | $ | 5,483 | |
| Mortgage-backed | | | 848 | | | | 72,574 | | | | 109 | | | | 13,063 | |
| Municipal bonds | | | 227 | | | | 3,534 | | | | 1,515 | | | | 13,255 | |
| Other bonds | | | - | | | | - | | | | 1 | | | | 149 | |
| | | $ | 1,642 | | | $ | 126,518 | | | $ | 1,642 | | | $ | 31,950 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2007: | | | | | | | | | | | | | | | | |
| Government-sponsored enterprises | | $ | 1 | | | $ | 256 | | | $ | 108 | | | $ | 21,392 | |
| Mortgage-backed | | | 118 | | | | 35,879 | | | | 93 | | | | 13,042 | |
| Municipal bonds | | | 160 | | | | 10,378 | | | | 31 | | | | 2,303 | |
| Other bonds | | | - | | | | - | | | | 1 | | | | 174 | |
| | | $ | 279 | | | $ | 46,513 | | | $ | 233 | | | $ | 36,911 | |
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant more frequent evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has remained less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issue for a period of time sufficient to allow for any anticipated recovery in fair value. At September 30, 2008 and December 31, 2007, the Company determined that all unrealized losses from debt securities are temporary in nature.
Net Loans. Net loans as of September 30, 2008 were $1.1 billion, an increase of $162.8 million, or 18.1%, from net loan balances of $899.4 million as of December 31, 2007. The Company continued to experience significant growth particularly in commercial and industrial (C&I) loan balances. For the first nine months of 2008, a modest decline in the Company’s permanent residential real estate loan portfolio of $2.7 million was offset by increases in C&I, construction and commercial real estate loans of $135.2 million, $18.7 million and $12.7 million, respectively. A significant portion of the C&I originations are associated with the asset based lending group that joined the Company during the fourth quarter of 2007 and continue to transition their former clients over from their prior institution.
The following table sets forth the composition of the loan portfolio at the dates indicated:
| | | September 30, 2008 | | | December 31, 2007 | |
| | | Amount | | | Percent | | | Amount | | | Percent | |
| | | (Dollars in thousands) | |
| Real estate mortgages: | | | | | | | | | | | | |
| Construction | | $ | 127,315 | | | | 11.9 | % | | $ | 108,638 | | | | 11.9 | % |
| Residential | | | 177,780 | | | | 16.5 | | | | 180,511 | | | | 19.9 | |
| Commercial | | | 247,170 | | | | 23.0 | | | | 234,425 | | | | 25.8 | |
| Home equity | | | 38,533 | | | | 3.6 | | | | 36,679 | | | | 4.0 | |
| C&I | | | 474,906 | | | | 44.2 | | | | 339,669 | | | | 37.4 | |
| Consumer | | | 9,049 | | | | 0.8 | | | | 9,564 | | | | 1.0 | |
| Total loans | | | 1,074,753 | | | | 100.0 | % | | | 909,486 | | | | 100.0 | % |
| Allowance for loan losses | | | (11,046 | ) | | | | | | | (9,096 | ) | | | | |
| Net deferred loan fees | | | (1,510 | ) | | | | | | | (989 | ) | | | | |
| Loans, net | | $ | 1,062,197 | | | | | | | $ | 899,401 | | | | | |
The following table sets forth the amounts and categories of our non-performing assets at the dates indicated:
| | | September 30, | | | December 31, | |
| | | 2008 | | | 2007 | |
| | | (Dollars in thousands) | |
| Nonaccrual loans: | | | | | | |
| Real estate mortgages: | | | | | | |
| Construction | | $ | 2,856 | | | $ | 2,618 | |
| Residential | | | 3,051 | | | | 1,225 | |
| Commercial | | | 263 | | | | - | |
| Home equity | | | 227 | | | | 64 | |
| Total real estate mortgages | | | 6,397 | | | | 3,907 | |
| C&I | | | 832 | | | | 451 | |
| Consumer | | | 14 | | | | 29 | |
| Total | | $ | 7,243 | | | $ | 4,387 | |
| | | | | | | | | |
| Total non-performing loans | | $ | 7,243 | | | $ | 4,387 | |
| Other real estate owned | | | 782 | | | | 3,513 | |
| Total non-performing assets | | $ | 8,025 | | | $ | 7,900 | |
| Total non-performing loans to total loans | | | 0.67 | % | | | 0.48 | % |
| Total non-performing loans to total assets | | | 0.45 | % | | | 0.30 | % |
| Total non-performing assets to total assets | | | 0.50 | % | | | 0.55 | % |
The following table sets forth the activity in the allowance for loan losses for the periods indicated:
| | | At or For the Three Months | | | At or For the Nine Months | |
| | | Ended September 30, | | | Ended September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) | |
| | | | | | | | | | | | | |
| Allowance balance at beginning of period | | $ | 10,320 | | | $ | 10,359 | | | $ | 9,096 | | | $ | 10,412 | |
| Provision for loan losses | | | 1,050 | | | | 225 | | | | 2,725 | | | | 450 | |
| Charge-offs: | | | | | | | | | | | | | | | | |
| Real estate mortgages: | | | | | | | | | | | | | | | | |
| Construction | | | - | | | | 1,400 | | | | - | | | | 1,400 | |
| Residential | | | 20 | | | | - | | | | 105 | | | | 5 | |
| Commercial | | | 210 | | | | - | | | | 210 | | | | - | |
| Home equity | | | - | | | | - | | | | 14 | | | | 1 | |
| Total real estate mortgages | | | 230 | | | | 1,400 | | | | 329 | | | | 1,406 | |
| C&I | | | 78 | | | | 314 | | | | 349 | | | | 613 | |
| Consumer | | | 27 | | | | 21 | | | | 125 | | | | 41 | |
| Total charge-offs | | | 335 | | | | 1,735 | | | | 803 | | | | 2,060 | |
| Recoveries: | | | | | | | | | | | | | | | | |
| Real estate mortgages: | | | | | | | | | | | | | | | | |
| Construction | | | - | | | | - | | | | - | | | | - | |
| Residential | | | - | | | | - | | | | 8 | | | | - | |
| Commercial | | | - | | | | - | | | | - | | | | - | |
| Home equity | | | - | | | | - | | | | - | | | | 1 | |
| Total real estate mortgages | | | - | | | | - | | | | 8 | | | | 1 | |
| C&I | | | 10 | | | | 9 | | | | 10 | | | | 27 | |
| Consumer | | | 1 | | | | 13 | | | | 10 | | | | 41 | |
| Total recoveries | | | 11 | | | | 22 | | | | 28 | | | | 69 | |
| Net charge-offs | | | 324 | | | | 1,713 | | | | 775 | | | | 1,991 | |
| Allowance balance at end of period | | $ | 11,046 | | | $ | 8,871 | | | $ | 11,046 | | | $ | 8,871 | |
| | | | | | | | | | | | | | | | | |
| Total loans outstanding | | $ | 1,074,753 | | | $ | 875,970 | | | $ | 1,074,753 | | | $ | 875,970 | |
| Average loans outstanding | | $ | 1,035,109 | | | $ | 866,509 | | | $ | 982,235 | | | $ | 863,593 | |
| | | | | | | | | | | | | | | | | |
| Allowance for loan losses as a percent of | | | | | | | | | | | | | | | | |
| total loans outstanding | | | 1.03 | % | | | 1.01 | % | | | 1.03 | % | | | 1.01 | % |
| Net loans charged off as a percent of | | | | | | | | | | | | | | | | |
| average loans outstanding (annualized) | | | 0.13 | % | | | 0.79 | % | | | 0.11 | % | | | 0.31 | % |
| Allowance for loan losses to non- | | | | | | | | | | | | | | | | |
| performing loans | | | 152.51 | % | | | 692.51 | % | | | 152.51 | % | | | 692.51 | % |
For further information, see "Provision for Loan Losses" of the Management Discussion and Analysis on page 19.
Deposits. The Company’s deposit growth remained strong through the first nine months of 2008. Total deposits increased by $127.2 million to $1,125.4 million at September 30, 2008, an increase of 12.7% from a balance of $998.1 million at December 31, 2007. The Company saw increases across all deposit categories, the largest increase was in the money market accounts which increased by $89.0 million, and to a lesser extent in demand deposit, savings and NOW accounts and total term certificates, which increased by $6.6 million, $3.0 million and $28.6 million, respectively. The Company’s deposit gathering activities have benefited from some of the turmoil in the broader capital markets. The Company’s Snap Deposit (our commercial remote deposit capture initiative) promotion continues to gain acceptance as well; we now have over 100 installations.
The following table sets forth the Company’s deposit accounts at the dates indicated:
| | | September 30, 2008 | | | December 31, 2007 | |
| | | Amount | | | Percent | | | Amount | | | Percent | |
| | | (Dollars in thousands) | |
| | | | | | | | | | | | | |
| Demand deposits | | $ | 130,686 | | | | 11.6 | % | | $ | 124,040 | | | | 12.4 | % |
| Savings and NOW accounts | | | 174,317 | | | | 15.5 | | | | 171,353 | | | | 17.2 | |
| Money market accounts | | | 426,880 | | | | 37.9 | | | | 337,847 | | | | 33.8 | |
| Total non-certificate accounts | | | 731,883 | | | | 65.0 | | | | 633,240 | | | | 63.4 | |
| Term certificates over $100,000 | | | 252,544 | | | | 22.5 | | | | 228,793 | | | | 22.9 | |
| Other term certificates | | | 140,945 | | | | 12.5 | | | | 136,115 | | | | 13.7 | |
| Total certificate accounts | | | 393,489 | | | | 35.0 | | | | 364,908 | | | | 36.6 | |
| Total deposits | | $ | 1,125,372 | | | | 100.0 | % | | $ | 998,148 | | | | 100.0 | % |
Borrowed Funds. The Company relies on borrowings from the Federal Home Loan Bank of Boston, or FHLBB, as an additional funding source as liquidity needs arise. The balance of these borrowings will fluctuate depending on the Company’s ability to attract deposits, coupled with the amount of loan demand in the market and other investment opportunities. Funds borrowed from the FHLBB increased by $18.7 million to $163.7 million at September 30, 2008, a 12.9% increase from a balance of $145.0 million at December 31, 2007. The Company chose to take advantage of the lower rate environment and fund some of the loan originations with attractively priced FHLBB advances.
The Company’s borrowings include securities sold under agreements to repurchase, which are contracts for the sale of securities owned by the Company with an agreement to repurchase those securities at an agreed upon price and date. The Company uses repurchase agreements as an alternative funding tool and as a means of offering commercial deposit customers a commercial sweep checking product. As of September 30, 2008, the Company had $35.0 million outstanding in overnight repurchase agreements, an increase of $11.2 million or 47.2% from $23.8 million December 31, 2007.
Total Stockholders’ Equity. Total stockholders’ equity increased by $155.1 million to $228.6 million at September 30, 2008 from a balance of $73.5 million as of December 31, 2007. This increase was due to the completion of our stock conversion that resulted in an addition to capital of $174.6 million. Stockholders’ equity was reduced by $13.8 million in unallocated common shares held by the Employee Stock Ownership Plan, a $2.7 million decrease in accumulated other comprehensive income (loss) and a net loss for the first nine months of $2.7 million.
Comparison of Operating Results for the Three and Nine Months Ended September 30, 2008 and 2007
Net Income (loss). The Company recorded net income for the three months ended September 30, 2008 of $48,000, a decrease of $1.3 million from net income of $1.3 million for the three months ended September 30, 2007. The decline was due to higher provision for loan losses, non-interest expense and a provision for income taxes. The Company reported a net loss for the nine months ended September 30, 2008 of $2.7 million, a decrease of $5.9 million from net income of $3.2 million for the same period in 2007. The net loss was primarily due to two non-recurring items; a $6.9 million pretax charge related to the establishment of the Danversbank Charitable Foundation and a $3.7 million pretax charge related to the acceleration of the Bank’s phantom stock plan. The “change of control” provisions in the phantom stock plan triggered the accelerated payout. Both charges are directly related to the Company’s stock conversion. In addition, higher than anticipated provision for loan losses and foreclosure expense contributed to the net loss for the same period in 2008.
Net Interest Income. Net interest income for the three months ended September 30, 2008 increased to $11.9 million from $9.4 million for the three months ended September 30, 2007. The increase was directly related to an increase in volume. Average interest-earning assets increased $243.6 million between the two periods. This increase of $2.5 million or 26.9% in net interest income was the combination of a $3.4 million increase due to volume and a $865,000 decrease due to rate. The Company’s net interest margin was 3.25% for the three months ended September 30, 2008 compared to 3.05% for the three months ended September 30, 2007. The Company’s improved margins were directly related to the capital infusion as a result of the Company’s stock conversion.
Net interest income for the nine months ended September 30, 2008 increased to $34.5 million from $27.2 million for the nine months ended September 30, 2007. Average interest-earning assets increased $249.3 million between the two periods. This increase of $7.3 million in net interest income resulted from a $9.6 million increase due to volume and a $2.3 million decrease due to the rates on our interest-earning assets and interest-bearing liabilities. Our net interest margin was 3.21% for the nine months ended September 30, 2008 compared to 3.07% for the nine months ended September 30, 2007. While the Company continues to see opportunities to lower its overall funding costs, the margin improvement for the first nine months is attributable to the aforementioned capital infusion.
Interest and Dividend Income. Interest income increased $571,000, or 2.8%, to $21.0 million for the three months ended September 30, 2008 from $20.4 million for the three months ended September 30, 2007. The increase was primarily due to a higher average balance of our interest-earning assets, partially offset by a decrease in yields. In particular, average loans increased by $168.6 million between the two periods. The Company also experienced an increase in the average balances of securities of $34.6 million and cash equivalents of $40.3 million. The average yield on loans decreased from 7.42% for the three months ended September 30, 2007 to 6.28% for the same period in 2008, and the overall yield on interest-earning assets decreased from 6.65% to 5.75% for the 2007 and 2008 periods, respectively. The overall decline in asset yields is directly related to the downward trend of the current interest rate environment.
Interest income increased $4.2 million, or 7.1 %, to $63.4 million for the nine months ended September 30, 2008 from $59.2 million for the nine months ended September 30, 2007. The increase was directly related to a higher balance of average interest-earning assets. Loans, securities and cash equivalents increased on average by $118.6 million, $93.6 million and $37.0 million, respectively between the two periods. The average yield on loans decreased from 7.38% for the nine months ended September 30, 2007 to 6.47% for the same period in 2008 and the overall yield on interest-earning assets decreased from 6.68% to 5.90% for the 2007 and 2008 periods, respectively. Despite a significant increase in the Company’s Commercial and Industrial lending activities and the shift of a segment of the securities portfolio into loan originations, the overall decline in asset yields is the byproduct of the declining trend of the current interest rate environment.
Interest Expense. Interest expense for the three months ended September 30, 2008 decreased by $2.0 million, or 17.6%, to $9.1 million compared to interest expense of $11.1 million for the three months ended September 30, 2007. Average interest-bearing liabilities increased by $94.3 million between the two periods and the balance increase translated into a $1.0 million increase in interest expense. A decrease of 95 basis points, or 23.6%, in the average cost of the Company’s interest-bearing liabilities resulted in a decrease in interest expense of $2.9 million. The overall rates on interest-bearing liabilities decreased from 4.03% to 3.08% for the 2007 and 2008 periods, respectively, and the average cost of deposits decreased from 3.84% for the three months ended September 30, 2007 to 2.76% for the same period in 2008. The decline in deposit and other interest-bearing liability costs relates to the overall decline in interest rates during the period.
Interest expense for the nine months ended September 30, 2008 decreased by $3.1 million, or 9.6%, to $28.9 million compared to interest expense of $31.9 million for the nine months ended September 30, 2007. Average interest-bearing liabilities increased by $101.1 million between the two periods and this resulted in a $2.8 million increase in interest expense. A decrease of 72 basis points, or 17.9%, in the average cost of the Company’s interest-bearing liabilities resulted in a decrease in interest expense of $5.9 million. The overall rates on interest-bearing liabilities decreased from 4.03% to 3.31% for the 2007 and 2008 periods, respectively, and the average cost of deposits decreased from 3.82% for the nine months ended September 30, 2007 to 3.04% for the same period in 2008. The overall decrease in deposit and interest-bearing liability costs is a byproduct of the current rate environment.
Provision for Loan Losses. The Company records a provision for loan losses as a charge to its earnings when necessary in order to maintain the allowance for loan losses at a level sufficient to absorb losses inherent in the loan portfolio. The Company recorded provision expense of $1.1 million and $225,000 during the three months ended September 30, 2008 and 2007, respectively. The Company recorded $2.7 million and $450,000 in provision expense during the nine months ended September 30, 2008 and 2007, respectively. Provisions in all periods are reflective of portfolio growth, changes to the loan portfolio composition, an evaluation of the quality of the loan portfolio, and net charge offs, the difference between loan charge-offs net of recoveries on loans previously charged off. In particular, the Company’s loan portfolio increased by more than $162 million during the first nine months of 2008. The Company’s allowance for loan losses increased by $1.95 million over the past nine months commensurate with the growth and composition of the portfolio. Net charge-offs were $324,000 and $1.7 million for the three months ended September 30, 2008 and 2007, respectively and $775,000 and $2.0 million for the nine months ended September 30, 2008 and 2007, respectively. At September 30, 2008, the allowance for loan losses totaled $11.0 million, or 1.03% of the loan portfolio compared to 1.00% at December 31, 2007 and 1.01% at September 30, 2007.
Non-interest Income. Non-interest income for the three months ended September 30, 2008 increased by $120,000 or 9.1% to $1.4 million, compared to $1.3 million for the three months ended September 30, 2007. This increase was primarily the result of gains on the sale of securities totaling $77,000 and an increase of $52,000 in cash surrender value income for the Company’s bank-owned life insurance.
Non-interest income for the nine months ended September 30, 2008 increased by $1.4 million or 35.3% to $5.4 million, compared to $4.0 million for the nine months ended September 30, 2007. This overall increase was attributable to increases in gains on sales of securities, income on our bank-owned life insurance holdings, or BOLI and loan swap fee income of $903,000, $207,000 and $129,000, respectively. During the first nine months, management chose to sell some fixed-rate investment securities and replace them with adjustable-rate investments in an effort to protect the portfolio against a rising interest rate environment. While the Company has experienced some success at increasing its non-interest revenues to varying degrees and across a variety of categories, developing reliable and stable sources of non-interest income to complement the Company’s primary lines of business continues to be an area of focus.
Non-interest Expense. Non-interest expense increased $1.8 million, or 19.8%, for the third quarter of 2008 when compared to the same period of 2007. The most notable factors contributing to this increase relate to increases in salaries and benefits expense of $616,000 and other operating expense of $593,000. Increases in general and administrative expenses, most notably in the areas of deposit insurance, legal, marketing, investor relations and Delaware Corporation franchise taxes were the primary reasons for the increases between comparable periods.
Non-interest expense increased by $16.3 million between the nine months ended September 30, 2008 and 2007. The increase was primarily due to two non-recurring items; a $6.9 million pretax charge related to the establishment of the Danversbank Charitable Foundation and a $3.7 million pretax charge related to the acceleration of the Bank’s phantom stock plan. There was also a substantial increase in other real estate owned expense of $1.8 million, which relates to a housing subdivision that the Company foreclosed on in 2007. The charges taken against this project relate to write-downs in the carrying value of the property and the estimated costs to complete the project. The property was sold during the third quarter of 2008.
Income Taxes. The Company recorded an income tax expense of $1.6 million for the three months ended September 30, 2008; an increase of $1.3 million when compared to a $247,000 expense for the three months ended September 30, 2007. The effective tax rate for the three months period ended September 30, 2008 was 97.0% compared to 15.7% for the same period in 2007. The change in the effective tax rate for the three months period ended September 30, 2008 reflects the recognition of a reduction in the Massachusetts statutory tax rate enacted in July 2008 from 10.5% to 9.0% for deferred taxes amounting to $180,000. In addition, due to a reduction in income before taxes for the period the projection of the annual effective tax results resulted in a 97% effective tax rate.
The Company recorded an income tax benefit of $3.2 million for the nine months ended September 30, 2008; a decrease of $4.0 million, compared to a $735,000 expense for the nine months ended September 30, 2007. The effective tax rate for the nine months period ended September 30, 2008 was 54.9% compared to 18.7% for the same period in 2007. The effective tax rate for the nine month period ended September 30, 2008 is a result of the level of income associated with permanent differences relating principally to BOLI and tax exempt securities and income from the securities corporations compared to the loss before taxes. The benefit in the nine month period was reduced by the $180,000 expense associated with the change in the Massachusetts statutory tax rate.
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, and discounts and premiums that are amortized or accreted to interest income or expense. Tax-exempt income and yields have not been adjusted to a tax-equivalent basis. The Company does not accrue interest on loans on non-accrual status; however, the balance of these loans is included in the total average balance, which has the effect of lowering average loan yields.
| | | Three Months Ended | |
| | | September 30, 2008 | | | September 30, 2007 | |
| | | Average Outstanding Balance | | Interest Earned/Paid | | Average Yield/Rate (1) | | | Average Outstanding Balance | | Interest Earned/Paid | | | Average Yield/Rate (1) | |
| | | (Dollars in thousands) | |
| Interest-earning assets: | | | | | | | | | | | | | | | |
| Interest-earning cash equivalents | | $ | 50,212 | | $ | 276 | | 2.20 | % | | $ | 9,869 | | $ | 119 | | | 4.80 | % |
| Debt securities: (2) | | | | | | | | | | | | | | | | | | | |
| U.S. Government | | | 2,014 | | | 17 | | 3.38 | | | | 2,005 | | | 24 | | | 4.67 | |
| Government-sponsored enterprises | | | 153,981 | | | 1,876 | | 4.87 | | | | 203,492 | | | 2,423 | | | 4.72 | |
| Mortgage-backed | | | 188,771 | | | 2,288 | | 4.85 | | | | 106,548 | | | 1,431 | | | 5.33 | |
| Municipal bonds | | | 19,186 | | | 195 | | 4.07 | | | | 18,246 | | | 185 | | | 4.03 | |
| Other | | | 250 | | | 2 | | 3.20 | | | | 328 | | | 4 | | | 5.11 | |
| Equity securities | | | 11,528 | | | 91 | | 3.16 | | | | 10,495 | | | 171 | | | 6.46 | |
| Real estate mortgages (3) | | | 589,204 | | | 9,134 | | 6.20 | | | | 554,118 | | | 9,889 | | | 7.08 | |
| C&I loans (3) | | | 379,419 | | | 6,231 | | 6.57 | | | | 258,510 | | | 5,434 | | | 8.34 | |
| IRBs (3) | | | 57,123 | | | 694 | | 4.86 | | | | 44,310 | | | 549 | | | 4.92 | |
| Consumer loans (3) | | | 9,363 | | | 188 | | 8.03 | | | | 9,571 | | | 192 | | | 7.95 | |
| Total interest-earning assets | | | 1,461,051 | | | 20,992 | | 5.75 | | | | 1,217,492 | | | 20,421 | | | 6.65 | |
| Allowance for loan losses | | | (10,653 | ) | | | | | | | | (9,680 | ) | | | | | | |
| Total earning assets less | | | | | | | | | | | | | | | | | | | |
| allowance for loan losses | | | 1,450,398 | | | | | | | | | 1,207,812 | | | | | | | |
| Non-interest-earning assets | | | 98,660 | | | | | | | | | 82,350 | | | | | | | |
| Total assets | | $ | 1,549,058 | | | | | | | | $ | 1,290,162 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | | | | | | | | |
| Savings and NOW accounts | | $ | 180,041 | | | 551 | | 1.22 | | | $ | 166,948 | | | 452 | | | 1.07 | |
| Money market accounts | | | 420,442 | | | 2,692 | | 2.56 | | | | 349,224 | | | 3,642 | | | 4.14 | |
| Term certificates (4) | | | 353,383 | | | 3,333 | | 3.77 | | | | 348,146 | | | 4,273 | | | 4.87 | |
| Total deposits | | | 953,866 | | | 6,576 | | 2.76 | | | | 864,318 | | | 8,367 | | | 3.84 | |
| Borrowed funds: | | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | | 34,973 | | | 108 | | 1.24 | | | | 45,089 | | | 244 | | | 2.15 | |
| Long-term debt | | | 164,000 | | | 1,865 | | 4.55 | | | | 149,110 | | | 1,782 | | | 4.74 | |
| Subordinated debt | | | 29,965 | | | 558 | | 7.45 | | | | 29,965 | | | 662 | | | 8.76 | |
| Total interest-bearing liabilities | | | 1,182,804 | | | 9,107 | | 3.08 | | | | 1,088,482 | | | 11,055 | | | 4.03 | |
| Non-interest-bearing deposits | | | 132,442 | | | | | | | | | 125,433 | | | | | | | |
| Other non-interest-bearing liabilities | | | 6,055 | | | | | | | | | 9,122 | | | | | | | |
| Total non-interest-bearing liabilities | | | 138,497 | | | | | | | | | 134,555 | | | | | | | |
| Total liabilities | | | 1,321,301 | | | | | | | | | 1,223,037 | | | | | | | |
| Stockholders' equity | | | 227,757 | | | | | | | | | 67,125 | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 1,549,058 | | | | | | | | $ | 1,290,162 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | $ | 11,885 | | | | | | | | $ | 9,366 | | | | |
| Net interest rate spread (5) | | | | | | | | 2.67 | % | | | | | | | | | 2.62 | % |
| Net interest-earning assets (6) | | $ | 278,247 | | | | | | | | $ | 129,010 | | | | | | | |
| Net interest margin (7) | | | | | | | | 3.25 | % | | | | | | | | | 3.05 | % |
| Ratio of interest-earning assets | | | | | | | | | | | | | | | | | | | |
| to total interest-bearing liabilities | | | 1.24 | x | | | | | | | | 1.12 | 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) Term certificates include brokered and non-brokered CDs.
(5) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities at the period indicated.
(6) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(7) Net interest margin represents net interest income divided by average total interest-earning assets.
| | | Nine Months Ended | |
| | | September 30, 2008 | | September 30, 2007 | |
| | | Average Outstanding Balance | | Interest Earned/ Paid | | Average Yield/ Rate (1) | | Average Outstanding Balance | | Interest Earned/ Paid | | | Average Yield/ Rate (1) | |
| | | (Dollars in thousands) | |
| Interest-earning assets: | | | | | | | | | | | | | | |
| Interest-earning cash equivalents | | $ | 46,166 | | $ | 959 | | 2.77 | % | $ | 9,129 | | $ | 377 | | | 5.53 | % |
| Debt securities: (2) | | | | | | | | | | | | | | | | | | |
| U.S. Government | | | 2,032 | | | 62 | | 4.07 | | | 2,456 | | | 86 | | | 4.66 | |
| Government-sponsored enterprises | | | 170,022 | | | 6,183 | | 4.85 | | | 204,296 | | | 6,710 | | | 4.39 | |
| Mortgage-backed | | | 202,225 | | | 7,607 | | 5.02 | | | 80,209 | | | 3,219 | | | 5.37 | |
| Municipal bonds | | | 18,950 | | | 578 | | 4.07 | | | 13,280 | | | 400 | | | 4.03 | |
| Other | | | 295 | | | 11 | | 4.97 | | | 369 | | | 15 | | | 5.51 | |
| Equity securities | | | 11,196 | | | 301 | | 3.58 | | | 10,493 | | | 532 | | | 6.77 | |
| Real estate mortgages (3) | | | 573,119 | | | 27,232 | | 6.34 | | | 552,891 | | | 29,636 | | | 7.17 | |
| C&I loans (3) | | | 347,930 | | | 17,965 | | 6.88 | | | 258,539 | | | 16,051 | | | 8.30 | |
| IRBs (3) | | | 51,799 | | | 1,899 | | 4.89 | | | 42,192 | | | 1,546 | | | 4.90 | |
| Consumer loans (3) | | | 9,387 | | | 569 | | 8.08 | | | 9,971 | | | 585 | | | 7.84 | |
| Total interest-earning assets | | | 1,433,121 | | | 63,366 | | 5.90 | | | 1,183,825 | | | 59,157 | | | 6.68 | |
| Allowance for loan losses | | | (9,871 | ) | | | | | | | (10,147 | ) | | | | | | |
| Total earning assets less | | | | | | | | | | | | | | | | | | |
| allowance for loan losses | | | 1,423,250 | | | | | | | | 1,173,678 | | | | | | | |
| Non-interest-earning assets | | | 101,998 | | | | | | | | 78,725 | | | | | | | |
| Total assets | | $ | 1,525,248 | | | | | | | $ | 1,252,403 | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | | | | | | | |
| Savings and NOW accounts | | $ | 179,717 | | | 1,762 | | 1.31 | | $ | 163,189 | | | 1,057 | | | 0.87 | |
| Money market accounts | | | 408,529 | | | 8,716 | | 2.84 | | | 329,497 | | | 10,252 | | | 4.16 | |
| Term certificates (4) | | | 351,537 | | | 10,927 | | 4.14 | | | 349,486 | | | 12,771 | | | 4.89 | |
| Total deposits | | | 939,783 | | | 21,405 | | 3.04 | | | 842,172 | | | 24,080 | | | 3.82 | |
| Borrowed funds: | | | | | | | | | | | | | | | | | | |
| Short-term borrowings | | | 35,767 | | | 427 | | 1.59 | | | 39,753 | | | 663 | | | 2.23 | |
| Long-term debt | | | 156,385 | | | 5,299 | | 4.52 | | | 148,895 | | | 5,211 | | | 4.68 | |
| Subordinated debt | | | 29,965 | | | 1,736 | | 7.72 | | | 29,965 | | | 1,986 | | | 8.86 | |
| Total interest-bearing liabilities | | | 1,161,900 | | | 28,867 | | 3.31 | | | 1,060,785 | | | 31,940 | | | 4.03 | |
| Non-interest-bearing deposits | | | 141,450 | | | | | | | | 116,926 | | | | | | | |
| Other non-interest-bearing liabilities | | | 8,303 | | | | | | | | 9,185 | | | | | | | |
| Total non-interest-bearing liabilities | | | 149,753 | | | | | | | | 126,111 | | | | | | | |
| Total liabilities | | | 1,311,653 | | | | | | | | 1,186,896 | | | | | | | |
| Stockholders' equity | | | 213,595 | | | | | | | | 65,507 | | | | | | | |
| Total liabilities and stockholders' equity | | $ | 1,525,248 | | | | | | | $ | 1,252,403 | | | �� | | | | |
| | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | $ | 34,499 | | | | | | | $ | 27,217 | | | | |
| Net interest rate spread (5) | | | | | | | | 2.59 | % | | | | | | | | 2.65 | % |
| Net interest-earning assets (6) | | $ | 271,221 | | | | | | | $ | 123,040 | | | | | | | |
| Net interest margin (7) | | | | | | | | 3.21 | % | | | | | | | | 3.07 | % |
| Ratio of interest-earning assets | | | | | | | | | | | | | | | | | | |
| to total interest-bearing liabilities | | | 1.23 | x | | | | | | | 1.12 | 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) Term certificates include brokered and non-brokered CDs.
(5) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities at the period indicated.
(6) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(7) Net interest margin represents net interest income divided by average total interest-earning assets.
The following tables present the dollar amount of changes in interest income and interest expense for the major categories of the Company’s interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances).
| | | Three Months Ended September 30, | |
| | | 2008 vs. 2007 | |
| | | Increase (Decrease) | | | | |
| | | Due to | | | Total | |
| | | Volume | | | Rate | | | Increase (Decrease) | |
| | | (In thousands) | |
| Interest-earning assets: | | | | | | | | | |
| Interest-earning cash equivalents | | $ | 486 | | | $ | (329 | ) | | $ | 157 | |
| Debt securities:(1) | | | | | | | | | | | | |
| U.S. Government | | | - | | | | (7 | ) | | | (7 | ) |
| Government-sponsored enterprises | | | (590 | ) | | | 43 | | | | (547 | ) |
| Mortgage-backed | | | 1,104 | | | | (247 | ) | | | 857 | |
| Municipal bonds | | | 10 | | | | - | | | | 10 | |
| Other | | | (1 | ) | | | (1 | ) | | | (2 | ) |
| Equity securities | | | 17 | | | | (97 | ) | | | (80 | ) |
| Real estate mortgages (2) | | | 626 | | | | (1,381 | ) | | | (755 | ) |
| C&I loans (2) | | | 2,542 | | | | (1,745 | ) | | | 797 | |
| IRBs (2) | | | 159 | | | | (14 | ) | | | 145 | |
| Consumer loans (2) | | | (4 | ) | | | - | | | | (4 | ) |
| Total interest-earning assets | | | 4,349 | | | | (3,778 | ) | | | 571 | |
| | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | |
| Savings and NOW accounts | | | 35 | | | | 64 | | | | 99 | |
| Money market accounts | | | 743 | | | | (1,693 | ) | | | (950 | ) |
| Term certificates (3) | | | 64 | | | | (1,004 | ) | | | (940 | ) |
| Total Deposits | | | 842 | | | | (2,633 | ) | | | (1,791 | ) |
| Borrowed funds: | | | | | | | | | | | | |
| Short-term borrowings | | | (55 | ) | | | (81 | ) | | | (136 | ) |
| Long-term debt | | | 178 | | | | (95 | ) | | | 83 | |
| Subordinated debt | | | - | | | | (104 | ) | | | (104 | ) |
| Total interest-bearing liabilities | | | 965 | | | | (2,913 | ) | | | (1,948 | ) |
| | | | | | | | | | | | | |
| Increase (decrease) in net interest income | | $ | 3,384 | | | $ | (865 | ) | | $ | 2,519 | |
_______________________
(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) Term certificates include brokered and non-brokered certificates of deposit.
| | | Nine Months Ended September 30, | |
| | | 2008 vs. 2007 | |
| | | Increase (Decrease) | | | | |
| | | Due to | | | Total | |
| | | Volume | | | Rate | | | Increase (Decrease) | |
| | | (In thousands) | |
| Interest-earning assets: | | | | | | | | | |
| Interest-earning cash equivalents | | $ | 1,530 | | | $ | (948 | ) | | $ | 582 | |
| Debt securities:(1) | | | | | | | | | | | | |
| U.S. Government | | | (15 | ) | | | (9 | ) | | | (24 | ) |
| Government-sponsored enterprises | | | (1,126 | ) | | | 599 | | | | (527 | ) |
| Mortgage-backed | | | 4,897 | | | | (509 | ) | | | 4,388 | |
| Municipal bonds | | | 171 | | | | 7 | | | | 178 | |
| Other | | | (3 | ) | | | (1 | ) | | | (4 | ) |
| Equity securities | | | 36 | | | | (267 | ) | | | (231 | ) |
| Real estate mortgages (2) | | | 1,084 | | | | (3,488 | ) | | | (2,404 | ) |
| C&I loans (2) | | | 5,550 | | | | (3,636 | ) | | | 1,914 | |
| IRBs (2) | | | 352 | | | | 1 | | | | 353 | |
| Consumer loans (2) | | | (34 | ) | | | 18 | | | | (16 | ) |
| Total interest-earning assets | | | 12,442 | | | | (8,233 | ) | | | 4,209 | |
| | | | | | | | | | | | | |
| Interest-bearing liabilities: | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | |
| Savings and NOW accounts | | | 107 | | | | 598 | | | | 705 | |
| Money market accounts | | | 2,459 | | | | (3,995 | ) | | | (1,536 | ) |
| Term certificates (3) | | | 75 | | | | (1,919 | ) | | | (1,844 | ) |
| Total Deposits | | | 2,641 | | | | (5,316 | ) | | | (2,675 | ) |
| Borrowed funds: | | | | | | | | | | | | |
| Short-term borrowings | | | (66 | ) | | | (170 | ) | | | (236 | ) |
| Long-term debt | | | 262 | | | | (174 | ) | | | 88 | |
| Subordinated debt | | | - | | | | (250 | ) | | | (250 | ) |
| Total interest-bearing liabilities | | | 2,837 | | | | (5,910 | ) | | | (3,073 | ) |
| | | | | | | | | | | | | |
| Increase (decrease) in net interest income | | $ | 9,605 | | | $ | (2,323 | ) | | $ | 7,282 | |
_______________________
(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) Term certificates include brokered and non-brokered certificates of deposit.
Liquidity and Capital Resources
The Company’s primary sources of funds are from deposits, amortization and repayment of loans and mortgage-backed securities, the sale or maturity of securities, advances from the FHLBB, repurchase agreements and cash flows generated by operations. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage loan prepayments can be greatly influenced by interest rate trends, economic conditions and competition. The Company maintains excess cash and short-term interest bearing assets with original maturities of less than 90 days that provide additional liquidity.
The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and advances from the FHLBB, to fund other deposit withdrawals, to meet operating expenses and to invest in other interest-bearing assets.
Contractual Obligations. The following table presents information indicating various contractual obligations and commitments of the Company as of the date indicated and their respective maturity dates:
| | | September 30, 2008 | |
| | | | | | More than | | | More than | | | | | | | |
| | | | | | One Year | | | Three Years | | | | | | | |
| | | One Year | | | Through | | | Through | | | Over | | | | |
| | | or Less | | | Three Years | | | Five Years | | | Five Years | | | Total | |
| | | (In thousands) | |
| Federal Home Loan Bank advances | | $ | 307 | | | $ | 37,598 | | | $ | 25,000 | | | $ | 100,803 | | | $ | 163,708 | |
| Repurchase agreements (1) | | | 35,041 | | | | - | | | | - | | | | - | | | | 35,041 | |
| Subordinated debt | | | - | | | | - | | | | - | | | | 29,965 | | | | 29,965 | |
| Operating leases | | | 2,256 | | | | 4,617 | | | | 3,788 | | | | 9,485 | | | | 20,146 | |
| Total contractual obligations | | $ | 37,604 | | | $ | 42,215 | | | $ | 28,788 | | | $ | 140,253 | | | $ | 248,860 | |
______________________
(1) All repurchase agreements mature on a daily basis and are secured by obligations of government-sponsored enterprises.
Loan Commitments. Loan 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 and generally have fixed expiration dates or other termination clauses. The following table presents information indicating various loan commitments of the Company as of the date indicated and their respective maturity dates:
| | | September 30, 2008 | |
| | | | | | More than | | | More than | | | | | | | |
| | | | | | One Year | | | Three Years | | | | | | | |
| | | One Year | | | Through | | | Through | | | Over | | | | |
| | | or Less | | | Three Years | | | Five Years | | | Five Years | | | Total | |
| | | (In thousands) | |
| Commitments to grant loans | | $ | 40,544 | | | $ | - | | | $ | - | | | $ | - | | | $ | 40,544 | |
| Unfunded commitments under lines of credit | | | 256,602 | | | | - | | | | - | | | | - | | | | 256,602 | |
| Unadvanced funds on construction loans | | | 19,284 | | | | 5,117 | | | | 13,101 | | | | 6,318 | | | | 43,820 | |
| Commercial and stanby letters of credit | | | 1,411 | | | | 339 | | | | 40 | | | | 4,998 | | | | 6,788 | |
| Total contractual obligations | | $ | 317,841 | | | $ | 5,456 | | | $ | 13,141 | | | $ | 11,316 | | | $ | 347,754 | |
Regulatory Capital Requirements. At September 30, 2008, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%, respectively. Prompt corrective action provisions are not applicable to bank holding companies. At September 30, 2008, the Bank’s total risk-based, Tier 1 risk-based and Tier 1 leverage ratios were 15.68%, 14.73% and 11.26%, respectively. At September 30, 2008, the Company’s total risk-based, Tier 1 risk-based and Tier 1 leverage ratios were 22.96%, 22.01% and 16.86%, respectively.
Management has been closely monitoring the progress of the federal government’s proposed TARP program. Given the Company’s available capital resources and the proposed structure of the TARP, management does not anticipate participating in the program at this time.
Recent Economic Developements
On October 3, 2008 the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted. Among other things, the EESA immediately raised the FDIC insurance limit from $100,000 to $250,000 to be effective through December 31, 2009. On October 14, 2008, the FDIC announced a new program, the Temporary Liquidity Guarantee Program (“TLGP”). The TLGP is a voluntary and time limited program that will be funded through special fees. The program consists of two basic components: (i) a temporary unlimited guarantee of funds in non-interest-bearing transaction accounts at FDIC-insured institutions not otherwise covered by the existing deposit insurance limit of $250,000 (the Transaction Account Guarantee Program); and (ii) a temporary guarantee of newly-issued senior unsecured debt (the Debt Guarantee Program).
Subject to any restrictions that might be imposed by the FDIC, the Company is eligible to participate in the TLGP. For the first 30 days of the program, all eligible entities are covered under the TLGP, and the guarantees provided by the TLGP will be offered at no cost to eligible entities. On or before December 5, 2008, however, eligible entities must inform the FDIC whether they will opt out of the TLGP. An eligible entity may elect to opt out of either the Debt Guarantee Program or the Transaction Account Guarantee Program or of both components of the TLGP. All eligible entities within a U.S. Banking Holding Company structure must make the same decision regarding continued participation in each component of the TLGP.
Although the Company has not reached a final decision on whether to participate in the Transaction Account Guarantee Program of the TLGP, the Company believes the benefits of the program could be worth the incremental costs. After the initial period, participating institutions will be assessed a ten basis point surcharge on balances in accounts covered by the Transaction Account Guarantee Program.
On October 14, 2008, the U.S. Department of the Treasury (the “Treasury”) announced a voluntary Capital Purchase Program (“CPP”) to encourage U.S. financial institutions to build capital, to increase the flow of financing to U.S. businesses and consumers, and to support the U.S. economy. To be eligible for the CPP, the applicant must receive approval of the Treasury. In addition, the applicant must agree to a number of terms and restrictions including, but not limited to, certain limitations on executive compensation and prohibitions on increasing dividends payable to its common shareholders and conducting share repurchase without the Treasury’s prior approval. The subscription amount available to a participating financial institution is a minimum of one percent of the institution’s risk weighted assets to a maximum of three percent of risk weighted assets.
The non-voting senior preferred shares purchased by the Treasury will have a dividend rate of five percent per year until the fifth anniversary of the date of the investment and a dividend rate of nine percent per year thereafter. The Treasury will also receive warrants for common stock of the applicant equivalent in value to 15 percent of the amount of the preferred shares purchased by the Treasury from the applicant under the CPP.
Management has been closely monitoring the progress of CPP. Given the Company’s available capital resources and the proposed structure of CPP, management does not anticipate participating in the program at this time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Exposure to market interest rate risk is managed by the Company through periodic evaluations of the current interest rate risk inherent in its rate-sensitive assets and liabilities, primarily deposits, borrowings, loans and securities, coupled with determinations of the level of risk considered appropriate given the Company’s capital and liquidity requirements, business strategy and performance objectives. Through such management, the Company seeks to manage the vulnerability of its net interest income to changes in interest rates.
The Asset/Liability Committee, or ALCO, chaired by the Chief Financial Officer and comprised of several members of senior management and selected members of the board of directors, is responsible for managing interest rate risk. On a quarterly basis, this committee reviews with the full board of directors its analysis of our exposure to interest rate risk, the effect subsequent changes in interest rates could have on the Company’s future net interest income, key interest rate risk strategies and other activities, and the effect of those strategies on the Company’s operating results. This committee is also actively involved in the Company’s planning and budgeting process as well as in determining pricing strategies for deposits and loans. Management is aided in these efforts by the use of an independent third party that convenes with management on a quarterly basis for a complete asset/liability analysis and review.
The primary method that ALCO uses for measuring and evaluating interest rate risk is an income simulation analysis. This analysis considers the maturity and interest rate repricing characteristics of all of our interest-earning assets and interest-bearing liabilities, as well as the relative sensitivities of these balance sheet components over a range of interest rate scenarios. Interest rate scenarios tested generally include parallel and flattening/steepening rate ramps over a one-year period, and static, or flat, rates. The simulation analysis is used to measure the exposure of net interest income to changes in interest rates over a specified time horizon, usually a two-year period. The simulations also show the net interest income volatility for up to five years.
For September 30, 2008, the Company used a simulation model to project changes for three rising and one declining rate (because of the already low level of interest rates) scenarios. This analysis calculates the difference between net interest income forecasts for these scenarios compared to the net interest income forecast using a flat rate scenario. In each of these instances, Federal Funds is used as the driving rate. The following table sets forth, as of September 30, 2008, the estimated changes in the Company’s net interest income that would result.
| | | | Net Portfolio Value(2) | | | Net Interest Income | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Increase (Decrease) | |
| Change in | | | | | | | | | | | | Estimated | | | in Estimated | |
| Interest Rates | | | Estimated | | | Estimated Increase (Decrease) | | | Net Interest | | | Net Interest Income | |
| (basis points)(1) | | | NPV | | | Amount | | | Percent | | | Income | | | Amount | | | Percent | |
| | | | (Dollars in thousands) | |
| | | | | | | | | | | | | | | | | | | | |
| | +300 | bp | | $ | 202,506 | | | $ | (56,443 | ) | | | -21.8 | % | | $ | 44,973 | | | $ | (5,659 | ) | | | -11.2 | % |
| | +200 | bp | | | 223,642 | | | | (35,307 | ) | | | -13.6 | % | | | 48,326 | | | | (2,306 | ) | | | -4.6 | % |
| | +100 | bp | | | 242,508 | | | | (16,441 | ) | | | -6.3 | % | | | 50,065 | | | | (567 | ) | | | -1.1 | % |
| | 0 | bp | | | 258,949 | | | | - | | | | 0.0 | % | | | 50,632 | | | | - | | | | 0.0 | % |
| | -100 | bp | | | 263,531 | | | | 4,582 | | | | 1.8 | % | | | 49,933 | | | | (699 | ) | | | -1.4 | % |
_______________________
(1) Assumes an instantaneous uniform change in interest rates at all maturities.
(2) NPV is the discounted present value of expected cash flows from interest-earning assets, interest-bearing liabilities and off-balance sheet contracts.
The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans tied to the Prime lending rate, which are assumed to re-price immediately and to the same extent as the change in market rates, according to their contracted index. Conversely, the Company has various transaction account products that would not increase or decrease in the same increments or at the same speed. Money market accounts, as an example, are assumed to increase sooner and in larger increments than savings and NOW accounts. These assumptions are based on our prior experience with the changes in rates paid on these non-maturity deposits coincident with changes in market interest rates. The model begins by disseminating data into appropriate repricing buckets. Assets and liabilities are then assigned a multiplier to simulate how much that particular balance sheet item will reprice when interest rates change. The final step is to simulate the timing effect of assets and liabilities with a month-by-month simulation to estimate the change in interest income and expense over the next 12 months.
This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It does not incorporate any balance sheet growth, and it assumes that the structure and composition of the balance sheet will remain comparable to the structure at the start of the simulation. It does not account for other factors that might impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change. Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.
For the rising and falling interest rate scenarios, the base market interest rate forecast was increased on an instantaneous and sustained basis, by 100, 200 and 300 basis points and decreased by 100 basis points. At September 30, 2008, our net interest income exposure related to these hypothetical changes in market interest rates was within our established guidelines. There are inherent shortcomings to income simulations, given the number and variety of assumptions that must be made in performing the analysis. The assumptions relied upon in making these calculations of interest rate sensitivity include the level of market interest rates, the shape of the yield curve, the degree to which certain assets and liabilities with similar attributes react to changes in market interest rates, and the degree to which non-maturity deposits, such as checking accounts, react to changes in market rates. Although the analysis shown above provides an indication of the Company’s sensitivity to interest rate changes at a point in time, these estimates are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Company’s net interest income and may differ from actual results.
See Item 4T below.
(a) Evaluation of Disclosure Controls and Procedures
The Company’s President and Chief Executive Officer, its Executive Vice President and Chief Operating Officer, its Senior Vice President and Chief Financial Officer, and other members of its senior management team have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined under the Securities and Exchange Act of 1934 Rules 13a-15(e), as amended, (the “Exchange Act”). Based upon their evaluation they have concluded that the Company’s disclosure controls and procedures, as for the end of the period covered by this report, were adequate and effective to provide reasonable assurance that the information required to be disclosed by the Company, including its consolidated subsidiaries, in reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms.
The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in condition and the risk that the degree of compliance with policies or procedures may deteriorate over time. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.
(b) Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2008 that have materially affected, or that are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II. OTHER INFORMATION
The Company or the Bank is not involved in any legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Management believes that such proceedings are, in the aggregate, immaterial to our financial condition and results of operations.
There have been no material changes to the risk factors set forth in Item 1A to Part I of our Form 10-K, filed on March 28, 2008, for the three and nine months ended September 30, 2008, except as noted below and except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors.
Recent Market Volatility May Impact our Business and the Value of our Common Stock.
The performance of the Company’s business and the trading price of the shares of its common stock may be affected by many factors including the recent volatility in the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and with respect to financial institutions generally. Government action, such as the Emergency Economic Stabilization Act of 2008, may also impact the Company and the value of its common stock. Given the unprecedented nature of this volatility the Company cannot predict what impact, if any, this volatility will have on its business or share price and for these and other reasons the Company’s shares of common stock may trade at a price lower than that at which they were purchased.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the Company was held on September 12, 2008.
The following individuals were elected as directors, each for a three-year term by the following vote:
| | | FOR | | | WITHHELD | |
| Neal H. Goldman | | | 15,918,371 | | | | 300,860 | |
| J. Michael O'Brien | | | 15,936,601 | | | | 282,630 | |
| John J. O'Neil | | | 15,962,691 | | | | 256,540 | |
| John M. Pereira | | | 15,959,014 | | | | 260,217 | |
| Diane T. Stringer | | | 15,752,028 | | | | 467,203 | |
The approval of the Danvers Bancorp, Inc. 2008 Stock Option and Incentive Plan:
| FOR | | | AGAINST | | | ABSTAIN | | | BROKER NON-VOTE | |
| | | | | | | | | | | |
| | 10,025,924 | | | | 1,859,394 | | | | 64,726 | | | | 4,269,187 | |
The appointment of Wolf & Company, P.C., as the Danvers Bancorp, Inc.’s independent registered public accounting firm for the fiscal year ending December 31, 2008 was ratified by the stockholders by the following vote:
| FOR | | | AGAINST | | | ABSTAIN | |
| | | | | | | | |
| | 15,866,945 | | | | 222,124 | | | | 130,162 | |
Item 5. Other Information
Not applicable.
| Exhibit No. | | Description |
| | | |
| 2.1 | | Danvers Bancorp, Inc. Plan of Conversion (1) |
| 3.1 | | Certificate of Incorporation of Danvers Bancorp, Inc.(1) |
| 3.2 | | Bylaws of Danvers Bancorp, Inc.(1) |
| 4.1 | | Form of Common Stock Certificate of Danvers Bancorp, Inc.(1)+ |
| 10.1 | | Amended and Restated Danversbank Supplemental Executive Retirement Plan dated as of April 11, 2008(3)+ |
| 10.3 | | Phantom Stock Plan(1)+ |
| 10.4 | | Nonqualified Deferred Compensation Plan(1)+ |
| 10.5 | | Danversbank SBERA Pension Plan(1)+ |
| 10.6 | | Financial Advisory Agreement(1) |
| 10.7 | | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and Kevin T. Bottomley(1)+ |
| 10.8 | | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and James J. McCarthy(1)+ |
| 10.9 | | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and L. Mark Panella(1)+ |
| 10.10 | | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and John J. O'Neil(1)+ |
| 10.11 | | Form of Change in Control Agreement(1)+ |
| 10.12 | | Form of Employee Stock Ownership Plan(1)+ |
| 10.13 | | Form of Employee Stock Ownership Restoration Plan(1)+ |
| 10.14 | | Form of Danvers Bancorp, Inc. Change in Control Severance Pay Plan(1)+ |
| 10.15 | | Form of Danvers Bancorp, Inc. 2008 Stock Option and Incentive Plan(4)+ |
| 14.1 | | Code of Ethics(2) |
| 21.1 | | Subsidiaries of Registrant(1) |
| 24.1 | | Power of Attorney (set forth on signature page)(2) |
| 31.1 | | Section 302 Certification of President and Chief Executive Officer |
| 31.2 | | Section 302 Certification of Executive Vice President and Chief Operating Officer |
| 31.3 | | Section 302 Certification of Senior Vice President and Chief Financial Officer |
| 32.1 | | Section 906 Certification of President and Chief Executive Officer |
| 32.2 | | Section 906 Certification of Executive Vice President and Chief Operating Officer |
| 32.3 | | Section 906 Certification of Senior Vice President and Chief Financial Officer |
| | | |
| | | |
| + Represents mangement contract or compensatory plan or agreement. |
| (1) Previously filed as an exhibit to the Registration Statement on Form S-1 (No. 333-145875) and incorporated |
| herin by reference. |
| (2) Previously filed as an exhibit to the Annual Report pursuant to Section 13 or 15(d) of the Securities |
| Exchange Act of 1934 Form 10-K (No. 001-33896) and incorporated herin by reference. |
| (3) Previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed on April 16, 2008. |
| (4) Previously filed as an exhibit to the Registrant's Current Report on Form 8-K filed on September 16, 2008. |
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.
Danvers Bancorp, Inc.
Date: November 14, 2008 By: /s/ Kevin T. Bottomley_________________
Kevin T. Bottomley
President and Chief Executive Officer
Date: November 14, 2008 �� By: /s/ James J. McCarthy__________________
James J. McCarthy
Executive Vice President and Chief Operating
Officer
Date: November 14, 2008 By: /s/ L. Mark Panella____________________
L. Mark Panella
Senior Vice President and Chief Financial
Officer
