Danvers Bancorp (DNBK) 10-Q 2011 Q1 Quarterly report

DANVERS BANCORP, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

Commission file number: 001-33896

DANVERS BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		04-3445675
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)
One Conant Street, Danvers, Massachusetts		01923
(Address of Principal Executive Officers)		(Zip Code)
	(978) 777-2200
	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  (Check one):

Large accelerated filer o Accelerated filer x

Non-accelerated filer o (Do not check if smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Shares outstanding of the registrant’s common stock, $0.01 par value, at April 30, 2011: 20,686,592

DANVERS BANCORP, INC.

TABLE OF CONTENTS

			Page
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	-	Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010	3
	-	Consolidated Statements of Income for the Three Months Ended
		March 31, 2011 and 2010	4
	-	Consolidated Statements of Changes in Stockholders' Equity for the
		Three Months Ended March 31, 2011 and 2010	5
	-	Consolidated Statements of Cash Flows for the Three Months Ended
		March 31, 2011 and 2010	6
	-	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of
	Operations		31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		41
Item 4.	Controls and Procedures		42
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings		43
Item 1A.	Risk Factors		44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 3.	Defaults Upon Senior Securities		44
Item 4.	[Removed and Reserved]		45
Item 5.	Other Information		45
Item 6.	Exhibits		46

2

DANVERS BANCORP, INC.

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2011			2010
	(In thousands)
ASSETS
Cash and cash equivalents	$	30,292		$	30,282
Securities available for sale, at fair value		641,332			723,610
Securities held to maturity, at cost		148,267			152,731
Loans held for sale		192			2,881
Loans		1,791,291			1,782,741
Less allowance for loan losses		(18,930	)		(17,900	)
Loans, net		1,772,361			1,764,841
Restricted stock, at cost		18,172			18,172
Premises and equipment, net		41,198			39,793
Bank-owned life insurance		34,533			34,250
Other real estate owned		1,506			832
Accrued interest receivable		10,453			9,845
Deferred tax asset, net		16,977			15,675
Goodwill and intangible assets		32,616			33,119
Prepaid FDIC assessment		5,539			6,215
Other assets		20,987			21,099
	$	2,774,425		$	2,853,345
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits	$	258,426		$	246,973
Savings and NOW accounts		455,084			449,036
Money market accounts		860,203			837,647
Term certificates over $100,000		336,895			344,165
Other term certificates		214,629			222,205
Total deposits		2,125,237			2,100,026
Short-term borrowings		131,440			214,330
Long-term debt		187,946			196,778
Subordinated debt		19,655			29,965
Accrued expenses and other liabilities		24,032			26,972
Total liabilities		2,488,310			2,568,071
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		239,665			239,163
Retained earnings		90,489			88,067
Accumulated other comprehensive loss		(3,975	)		(2,102	)
Unearned restricted shares - 398,861 and 530,558 shares at March 31, 2011
and December 31, 2010, respectively		(4,902	)		(5,331	)
Unearned compensation - ESOP; 1,195,447 and 1,213,290 shares at
March 31, 2011 and December 31, 2010, respectively		(11,954	)		(12,133	)
Treasury stock, at cost; 1,629,533 and 1,592,382 shares at March 31, 2011
and December 31, 2010, respectively		(23,431	)		(22,613	)
Total stockholders' equity		286,115			285,274
	$	2,774,425		$	2,853,345

The accompanying notes are an integral part of these consolidated financial statements.

3

DANVERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
	(Dollars in thousands, except
Interest and dividend income:	per share amounts)
Interest and fees on loans	$	24,161		$	23,389
Interest on debt securities:
Taxable		6,357			5,381
Non-taxable		580			242
Dividends on equity securities		14			-
Interest on cash equivalents and certificates of deposit		3			47
Total interest and dividend income		31,115			29,059
Interest expense:
Interest on deposits:
Savings and NOW accounts		1,235			1,053
Money market accounts		2,105			2,255
Term certificates		2,476			2,597
Interest on short-term borrowings		171			96
Interest on long-term debt and subordinated debt		2,084			2,277
Total interest expense		8,071			8,278
Net interest income		23,044			20,781
Provision for loan losses		1,200			1,200
Net interest income, after provision for loan losses		21,844			19,581
Non-interest income:
Service charges on deposits		1,113			1,084
Loan servicing fees		119			58
Net gain on sales of loans		330			99
Net gain on sales of securities		300			71
Loss on limited partnerships, net		(180	)		(34	)
Increase in cash surrender value of bank-owned life insurance		283			316
Trust services		404			393
Other operating income		954			675
Total non-interest income		3,323			2,662
Non-interest expenses:
Salaries and employee benefits		10,459			9,856
Occupancy		2,531			2,089
Equipment		1,022			1,020
Outside services		819			546
Other real estate owned expense		108			186
Deposit insurance expense		729			582
Advertising expense		138			209
Merger expense		2,288			-
Other operating expense		3,188			2,998
Total non-interest expenses		21,282			17,486
Income before income taxes		3,885			4,757
Provision for income taxes		684			506
Net income	$	3,201		$	4,251
Weighted-average shares outstanding:
Basic		19,495,533			20,423,418
Diluted		19,843,457			20,423,418
Earnings per share:
Basic	$	0.16		$	0.21
Diluted	$	0.16		$	0.21

The accompanying notes are an integral part of these consolidated financial statements.

4

DANVERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

											Accumulated
					Additional						Other			Unearned			Unearned						Total
	Common Stock				Paid-In			Retained			Comprehensive			Restricted			Compensation -			Treasury			Stockholders'
	Shares		Amount		Capital			Earnings			Income (Loss)			Shares			ESOP			Stock			Equity
	(Dollars in thousands)
Balance at December 31, 2009		22,316,125	$	223	$	237,577		$	71,864		$	3,650		$	(6,793	)	$	(12,846	)	$	(8,009	)	$	285,666
Comprehensive income:
Net income		-		-		-			4,251			-			-			-			-			4,251
Net unrealized gain on securities
available for sale, net of
reclassification adjustments
and tax effect		-		-		-			-			674			-			-			-			674
Change in fair value and
amortization of derivative used
for cash flow hedge, net of
tax effect		-		-		-			-			(1	)		-			-			-			(1	)
Total comprehensive income																								4,924
Restricted stock awards
(33,715 shares)		-		-		(12	)		-			-			(444	)		-			456			-
Purchase of shares for stock
repurchase plan (67,340 shares)		-		-		-			-			-			-			-			(951	)		(951	)
Equity incentive shares earned
(81,002 shares)		-		-		307			-			-			431			-			-			738
Common stock held by ESOP
committed to be released
(17,843 shares)		-		-		70			-			-			-			178			-			248
Dividends paid
($.02 per share)		-		-		-			(411	)		-			-			-			-			(411	)
Balance at March 31, 2010		22,316,125	$	223	$	237,942		$	75,704		$	4,323		$	(6,806	)	$	(12,668	)	$	(8,504	)	$	290,214
Balance at December 31, 2010		22,316,125	$	223	$	239,163		$	88,067		$	(2,102	)	$	(5,331	)	$	(12,133	)	$	(22,613	)	$	285,274
Comprehensive income:
Net income		-		-		-			3,201			-			-			-			-			3,201
Net unrealized loss on securities
available for sale, net of
reclassification adjustments
and tax effect		-		-		-			-			(1,872	)		-			-			-			(1,872	)
Change in fair value and
amortization of derivative used
for cash flow hedge, net of
tax effect		-		-		-			-			(1	)		-			-			-			(1	)
Total comprehensive income																								1,328
Purchase of shares for stock
repurchase plan (37,151 shares)		-		-		-			-			-			-			-			(818	)		(818	)
Equity incentive shares earned
(82,385 shares)		-		-		311			-			-			429			-			-			740
Common stock held by ESOP
committed to be released
(17,843 shares)		-		-		191			-			-			-			179			-			370
Dividends paid
($.04 per share)		-		-		-			(779	)		-			-			-			-			(779	)
Balance at March 31, 2011		22,316,125	$	223	$	239,665		$	90,489		$	(3,975	)	$	(4,902	)	$	(11,954	)	$	(23,431	)	$	286,115

The accompanying notes are an integral part of these consolidated financial statements.

5

DANVERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
	(In thousands)
Cash flows from operating activities:
Net income	$	3,201		$	4,251
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses		1,200			1,200
Depreciation and amortization of premises and equipment and acquisition accounting, net		842			543
Accretion of net deferred loan fees and costs		(237	)		(291	)
Deferred tax provision		-			3,973
Amortization of core deposit intangible and servicing rights		486			596
Amortization of stock-based compensation and ESOP expense		1,110			986
Amortization of securities, net		225			227
Net gain on sales of securities		(300	)		(71	)
Change in fair value of derivative financial instruments		(2	)		3
Net loss on sales of other real estate owned		-			72
Loans originated for sale		(26,625	)		(5,103	)
Proceeds from sales of loans originated for sale		29,314			6,836
Changes in other assets and liabilities:
Accrued interest receivable		(608	)		556
Other assets and bank-owned life insurance		385			(4,585	)
Accrued expenses and other liabilities		(2,803	)		(5,832	)
Net cash provided by operating activities		6,188			3,361
Cash flows from investing activities:
Purchases of certificates of deposit		-			(119	)
Maturities of certificates of deposit		-			10,798
Activity in available-for-sale securities:
Sales		33,210			5,769
Maturities, prepayments and calls		46,093			57,919
Purchases		-			(47,688	)
Activity in held-to-maturity securities:
Maturities, prepayments and calls		4,341			7,883
Purchases		-			(5,743	)
Proceeds from sales of other real estate owned		-			647
Net loan payments (originations)		(9,150	)		5,817
Purchase of premises and equipment		(2,558	)		(1,746	)
Net cash provided by investing activities		71,936			33,537

The accompanying notes are an integral part of these consolidated financial statements.

6

DANVERS BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)

(Unaudited)

	Three Months Ended
	March 31,
	2011			2010
	(In thousands)
Cash flows from financing activities:
Net increase (decrease) in:
Term certificates		(14,846	)		25,704
Other deposits		40,057			72,163
Short-term borrowings		(82,890	)		(133,099	)
Activity in long-term debt:
Proceeds from advances		-			1,080
Payment of advances		(8,528	)		(8,884	)
Purchase of shares for incentive plans		(818	)		(951	)
Repayment of subordinated debt		(10,310	)		-
Dividends paid		(779	)		(411	)
Net cash used in financing activities		(78,114	)		(44,398	)
Change in cash and cash equivalents		10			(7,500	)
Cash and cash equivalents at beginning of period		30,282			71,757
Cash and cash equivalents at end of period	$	30,292		$	64,257
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest	$	7,836		$	7,923
Income taxes		1,435			1,000
Non-cash financing and investing activities:
Transfers from loans to other real estate owned		674			563

The accompanying notes are an integral part of these consolidated financial statements.

7

DANVERS BANCORP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

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, 2010 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 Annual Report on Form 10-K for the year ended December 31, 2010 filed by the Company with the Securities and Exchange Commission (“SEC”) on March 15, 2011.  The results of operations for the three months ended March 31, 2011 and 2010 are not necessarily indicative of the results to be obtained for a full year.

2. Derivative Financial Instruments and Hedging Activities

The Company records all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  As the Company’s existing derivatives do not meet specified hedging criteria, all changes in fair value of the Company’s derivative assets and liabilities are recognized directly in other non-interest income.

Risk Management Objective of Using Derivatives

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements to mitigate the interest rate risk inherent in certain of the Company’s assets and liabilities.  Interest rate swap agreements involve the risk of dealing with both Bank customers and institutional derivative counterparties and their ability to meet contractual terms.  The agreements entered into with counterparties meet established credit standards and contain master netting and collateral provisions protecting the at-risk party.  Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant at March 31, 2011 and December 31, 2010.

Non-designated Hedges

Certain derivative instruments do not meet the requirements to be accounted for as hedging instruments.  These derivative instruments are recognized on the consolidated balance sheets at fair value, with changes in fair value recorded in non-interest income.  Fees earned in connection with the execution of derivatives related to this program are recognized in other non-interest income.

8

DANVERS BANCORP, INC.

As of March 31, 2011, the Company had two interest rate swaps and one cap (“interest rate products”) with an aggregate notional amount of $19,812,000 and $50,000,000, respectively, with a variable pay rate of the 1 Month LIBOR and a fixed receive rate ranging from 6.20% through 6.80%.  These interest rate products mature at various dates ranging from April 17, 2012 through May 1, 2015.  During the three months ended March 31, 2011 and 2010, the Company recognized a net gain (loss) of $2,000 and ($3,000), respectively, related to changes in fair value of these interest rate products.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair values of the Company’s derivatives not designated as hedging instruments as well as their balance sheet location as of March 31, 2011 and December 31, 2010.

	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value
	(In thousands)
Derivatives not designated as hedging
instruments:
March 31, 2011:
Interest rate swap agreements	Other assets	$	605	Other liabilities	$	609
Interest rate cap agreements	Other assets		1	Other liabilities		1
Total interest rate products		$	606		$	610
December 31, 2010:
Interest rate swap agreements	Other assets	$	737	Other liabilities	$	743
Interest rate cap agreements	Other assets		4	Other liabilities		4
Total interest rate products		$	741		$	747

Effect of Derivative Instruments on the Income Statement

The table below presents the effect of the Company’s derivatives not designated as hedging instruments on the income statement for the three months ended March 31, 2011 and 2010.

		Gain (Loss)
		Recognized
		in Income on
		Derivatives for the
	Location of Gain (Loss)	Quarter Ended
Derivatives Not Designated	Recognized in	March 31,
as Hedging Instruments	Income on Derivatives	2011		2010
		(In thousands)
Interest rate swap agreements	Other income	$	2	$	(1	)
Interest rate cap agreements	Other income		-		(2	)
Total income (loss) on interest rate products		$	2	$	(3	)

9

DANVERS BANCORP, INC.

3. Securities

The amortized cost and fair value of securities, with gross unrealized gains and losses follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(In thousands)
March 31, 2011:
Securities Available for Sale
Debt securities:
Government-sponsored enterprises:
Federal National Mortgage Association	$	1,235	$	-	$	(55	)	$	1,180
Federal Home Loan Bank		252,854		637		(5,607	)		247,884
Federal Farm Credit Bank		88,120		287		(2,208	)		86,199
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		78,829		1,430		(763	)		79,496
Federal National Mortgage Association		116,290		2,764		(2,452	)		116,602
Government National Mortgage Association		55,855		1,503		(163	)		57,195
Municipal bonds		53,624		349		(2,076	)		51,897
Other bonds and notes		250		-		-			250
Total debt securities		647,057		6,970		(13,324	)		640,703
Marketable equity securities:
Mutual funds		612		17		-			629
Total securities available for sale	$	647,669	$	6,987	$	(13,324	)	$	641,332

Securities Held to Maturity
Debt securities:
Government-sponsored enterprises:
Federal Home Loan Bank	$	60,698	$	33	$	(2,370	)	$	58,361
Federal Farm Credit Bank		26,940		98		(991	)		26,047
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		18,649		55		(93	)		18,611
Federal National Mortgage Association		25,548		200		(164	)		25,584
Government National Mortgage Association		16,232		105		(31	)		16,306
Other bonds		200		-		-			200
Total securities held to maturity	$	148,267	$	491	$	(3,649	)	$	145,109

10

DANVERS BANCORP, INC.

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(In thousands)
December 31, 2010:
Securities Available for Sale
Debt securities:
Government-sponsored enterprises:
Federal National Mortgage Association	$	1,235	$	-	$	(52	)	$	1,183
Federal Home Loan Bank		300,922		1,362		(4,348	)		297,936
Federal Farm Credit Bank		104,670		598		(1,767	)		103,501
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		83,460		1,618		(450	)		84,628
Federal National Mortgage Association		122,674		3,053		(1,906	)		123,821
Government National Mortgage Association		59,375		1,665		(133	)		60,907
Municipal bonds		53,576		197		(3,016	)		50,757
Other bonds and notes		250		-		-			250
Total debt securities		726,162		8,493		(11,672	)		722,983
Marketable equity securities:
Mutual funds		612		15		-			627
Total securities available for sale	$	726,774	$	8,508	$	(11,672	)	$	723,610

Securities Held to Maturity
Debt securities:
Government-sponsored enterprises:
Federal Home Loan Bank	$	64,727	$	126	$	(2,020	)	$	62,833
Federal Farm Credit Bank		23,912		68		(836	)		23,144
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		19,708		74		(56	)		19,726
Federal National Mortgage Association		27,093		289		(123	)		27,259
Government National Mortgage Association		17,091		186		(12	)		17,265
Other bonds and notes		200		-		-			200
Total securities held to maturity	$	152,731	$	743	$	(3,047	)	$	150,427

11

DANVERS BANCORP, INC.

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				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
March 31, 2011:
Securities Available for Sale
Debt securities:
Government-sponsored enterprises:
Federal National Mortgage Association	$	55	$	1,180	$	-	$	-
Federal Home Loan Bank		5,607		207,168		-		-
Federal Farm Credit Bank		2,208		73,555		-		-
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		760		30,594		3		778
Federal National Mortgage Association		2,452		45,246		-		-
Government National Mortgage Association		163		17,437		-		-
Municipal bonds		1,766		29,622		310		6,579
	$	13,011	$	404,802	$	313	$	7,357
Securities Held to Maturity
Debt securities:
Government-sponsored enterprises:
Federal Home Loan Bank	$	2,370	$	56,828	$	-	$	-
Federal Farm Credit Bank		991		20,884		-		-
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		93		12,269		-		-
Federal National Mortgage Association		164		8,121
Government National Mortgage Association		31		3,524		-		-
	$	3,649	$	101,626	$	-	$	-

12

DANVERS BANCORP, INC.

	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
December 31, 2010:
Securities Available for Sale
Debt securities:
Government-sponsored enterprises:
Federal National Mortgage Association	$	52	$	1,183	$	-	$	-
Federal Home Loan Bank		4,348		190,677		-		-
Federal Farm Credit Bank		1,767		74,747		-		-
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		448		24,892		2		921
Federal National Mortgage Association		1,906		43,822		-		-
Government National Mortgage Association		133		20,825		-		-
Municipal bonds		2,854		41,198		162		1,214
	$	11,508	$	397,344	$	164	$	2,135
Securities Held to Maturity
Debt securities:
Government-sponsored enterprises:
Federal Home Loan Bank	$	2,020	$	58,178	$	-	$	-
Federal Farm Credit Bank		836		21,038		-		-
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		56		14,109		-		-
Federal National Mortgage Association		123		12,057		-		-
Government National Mortgage Association		12		3,604		-		-
	$	3,047	$	108,986	$	-	$	-

Gross unrealized losses on available for sale and held to-maturity securities increased $1.7 million, or 14.2% and $602,000 million, or 19.8%, respectively, during the three-month period ended March 31, 2011.  The change is due to interest rate risk and is not related to credit quality.  The Company continues to ladder the securities portfolio to fund loan growth, balance duration risk and improve yield, as appropriate.  

Each reporting period, the Company evaluates all securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary (“OTTI”).  OTTI is required to be recognized if (1) the Company intends to sell the security; (2) it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) for debt securities, the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.  Marketable equity securities are evaluated for OTTI based on the severity and duration of impairment and, if deemed to be other than temporary, the declines in fair values are reflected in earnings as realized losses.  For impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings.  For all other impaired debt securities, credit-related OTTI is recognized through earnings and non-credit related OTTI is recognized in other comprehensive income, net of applicable taxes.

The unrealized losses on the Company’s investment in government-sponsored enterprises were primarily caused by interest rate risk.  These securities are guaranteed by the U.S. Government or a government-sponsored enterprise.  Accordingly, it is expected that the securities would not be settled at a price less than the par value of the investment.  Because declines in the market value is attributable to changes in interest rates and not to credit

13

DANVERS BANCORP, INC.

quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2011.

The unrealized losses on the Company’s investment in residential mortgage-backed securities were caused by current dislocations in the market resulting in spreads increasing significantly over historic levels.  This spread increase in combination with generally illiquid markets is responsible for a significant portion of the price declines experienced by these securities.  These securities are guaranteed by the U.S. Government or a government-sponsored enterprise.  Accordingly, it is expected that the securities would not be settled at a price less than the par value of the investment.  Because declines in the market value are attributable to changes in interest rates and not to credit quality, and because the Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at March 31, 2011.

The unrealized losses on the Company’s investment in municipal bonds were caused by current dislocations in the market resulting in spreads increasing significantly over historic levels.  This spread increase in combination with generally illiquid markets is responsible for a significant portion of the price declines experienced by these securities.  Ongoing analysis of these securities indicates no significant deterioration in the underlying credit supporting these securities.  Therefore, it is expected that these bonds would not be settled at a price less than the par value of the investment.  Because the Company does not intend to sell the securities and it is more likely than not that, the Company will not be required to sell the securities before recovery of their amortized costs basis; it does not consider these securities to be other-than-temporarily impaired at March 31, 2011.

4.  Loans and Allowance for Loan Losses

The following table sets forth the composition of the loan portfolio at the dates indicated:

	March 31, 2011						December 31, 2010
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate mortgages:
Construction	$	121,891			6.8	%	$	122,550			6.9	%
Residential		294,398			16.4			305,233			17.1
Commercial		402,592			22.4			403,937			22.6
Home equity		82,641			4.6			83,837			4.7
C&I		889,490			49.6			866,445			48.5
Consumer		2,941			0.2			3,355			0.2
Total loans		1,793,953			100.0	%		1,785,357			100.0	%
Allowance for loan losses		(18,930	)					(17,900	)
Net deferred loan fees		(2,662	)					(2,616	)
Loans, net	$	1,772,361					$	1,764,841

14

DANVERS BANCORP, INC.

Loans obtained as the result of an acquisition are excluded from the collective evaluation for impairment.  Further information pertaining to the allowance for loan losses and principal balance of loan financing receivables follows:

	At or For the Three Months Ended March 31,
	2011																					2010
	Real Estate Mortgages											Other
	Construction			Residential			Commercial			Home Equity		C&I		Consumer			Unallocated		Total			Amount
	(In thousands)
Allowance for loan losses:
Balance at beginning of period	$	2,134		$	824		$	4,267		$	343	$	9,826	$	25		$	481	$	17,900		$	14,699
Provisions		(12	)		347			414			4		404		(6	)		49		1,200			1,200
Recoveries of loans previously charged-off		-			2			1			-		10		7			-		20			5
		2,122			1,173			4,682			347		10,240		26			530		19,120			15,904
Loans charged off		-			(143	)		(42	)		-		-		(5	)		-		(190	)		(395	)
Balance at end of period	$	2,122		$	1,030		$	4,640		$	347	$	10,240	$	21		$	530	$	18,930		$	15,509
Individually evaluated for impairment	$	-		$	400		$	1,060		$	-	$	605	$	9		$	-	$	2,074			N/A
Collectively evaluated for impairment		2,122			610			3,580			299		9,635		12			530		16,788			N/A
Acquired with deteriorated credit quality		-			20			-			48		-		-			-		68			N/A
	$	2,122		$	1,030		$	4,640		$	347	$	10,240	$	21		$	530	$	18,930			N/A
Principal balance of loan financing receivables:
Individually evaluated for impairment	$	-		$	6,496		$	1,202		$	1,031	$	4,417	$	10				$	13,156			N/A
Collectively evaluated for impairment		120,061			243,875			325,355			59,802		801,079		2,358					1,552,530			N/A
	$	120,061		$	250,371		$	326,557		$	60,833	$	805,496	$	2,368				$	1,565,686			N/A
Acquired with deteriorated credit quality	$	-		$	419		$	-		$	48	$	-	$	-				$	467			N/A

	December 31, 2010
	Real Estate Mortgages								Other
	Construction		Residential		Commercial		Home Equity		C&I		Consumer		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	-	$	125	$	656	$	-	$	474	$	13	$	-	$	1,268
Collectively evaluated for impairment		2,134		629		3,611		296		9,337		12		481		16,500
Acquired with deteriorated credit quality		-		70		-		47		15		-		-		132
	$	2,134	$	824	$	4,267	$	343	$	9,826	$	25	$	481	$	17,900
Principal balance of loan financing receivables:
Individually evaluated for impairment	$	-	$	5,497	$	1,204	$	975	$	3,829	$	13			$	11,518
Collectively evaluated for impairment		120,954		251,644		328,203		59,180		775,388		2,499				1,537,868
	$	120,954	$	257,141	$	329,407	$	60,155	$	779,217	$	2,512			$	1,549,386
Acquired with deteriorated credit quality	$	-	$	2,168	$	-	$	68	$	175	$	-			$	2,411

At March 31, 2011 and December 31, 2010, loans accounted for at fair value were $227,800,000 and $233,560,000, respectively.

15

DANVERS BANCORP, INC.

							At or For the
	At or For the Three						Year Ended
	Months Ended March 31,						December 31,
	2011			2010			2010
	(Dollars in thousands)
Total loans outstanding (1)	$	1,794,145		$	1,662,202		$	1,785,622
Average loans outstanding	$	1,802,824		$	1,662,729		$	1,691,942
Allowance for loan losses as a percent of total
loans outstanding		1.06	%		0.93	%		1.00	%
Net loans charged off as a percent of average
loans outstanding (2)		0.04	%		0.09	%		0.12	%
Allowance for loan losses to non-performing
loans		138.22	%		99.80	%		127.75	%

(1)   Includes loans held for sale.

(2) Ratios for the three months ended March 31, 2011 and 2010 are annualized.

For further information, see “Provision for Loan Losses” of the Management Discussion and Analysis on page 37.

16

DANVERS BANCORP, INC.

The following is a summary of information pertaining to impaired and non-accrual loans:

	March 31, 2011						December 31, 2010
			Unpaid		Related				Unpaid		Related
	Recorded		Principal		Valuation		Recorded		Principal		Valuation
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
Impaired loans without a valuation allowance:
Construction	$	-	$	-	$	-	$	-	$	-	$	-
Residential real estate		5,170		5,119		-		5,694		5,644		-
Commercial real estate		51		51		-		456		457		-
Home equity real estate		1,031		1,031		-		995		995		-
C&I		3,433		3,432		-		3,339		3,337		-
Consumer		-		-		-		-		-		-
	$	9,685	$	9,633	$	-	$	10,484	$	10,433	$	-
Impaired loans with a valuation allowance:
Construction	$	-	$	-	$	-	$	-	$	-	$	-
Residential real estate		1,819		1,796		420		2,054		2,021		195
Commercial real estate		1,151		1,151		1,060		747		747		656
Home equity real estate		47		48		48		47		48		47
C&I		985		985		604		667		667		489
Consumer		10		10		10		13		13		13
	$	4,012	$	3,990	$	2,142	$	3,528	$	3,496	$	1,400
Total impaired loans:
Construction	$	-	$	-	$	-	$	-	$	-	$	-
Residential real estate		6,989		6,915		420		7,748		7,665		195
Commercial real estate		1,202		1,202		1,060		1,203		1,204		656
Home equity real estate		1,078		1,079		48		1,042		1,043		47
C&I		4,418		4,417		604		4,006		4,004		489
Consumer		10		10		10		13		13		13
	$	13,697	$	13,623	$	2,142	$	14,012	$	13,929	$	1,400

17

DANVERS BANCORP, INC.

	Three Months Ended March 31, 2011						Year Ended December 31, 2010
	Average						Average
	Recorded		Interest Income Recognized				Recorded		Interest Income Recognized
	Investment		Total		Cash Basis		Investment		Total		Cash Basis
	(In thousands)
Impaired loans without a valuation allowance:
Construction	$	-	$	-	$	-	$	-	$	-	$	-
Residential real estate		5,536		66		66		5,131		237		237
Commercial real estate		52		1		1		2,867		192		6
Home equity real estate		1,008		9		9		1,201		35		35
C&I		3,961		16		3		4,897		137		15
Consumer		-		-		-		-		-		-
	$	10,557	$	92	$	79	$	14,096	$	601	$	293
Impaired loans with a valuation allowance:
Construction	$	-	$	-	$	-	$	182	$	-	$	-
Residential real estate		1,797		10		10		1,098		58		54
Commercial real estate		1,151		24		24		738		44		5
Home equity real estate		48		1		1		195		2		2
C&I		318		1		1		1,237		18		8
Consumer		1,349		-		-		56		2		2
	$	4,663	$	36	$	36	$	3,506	$	124	$	71
Total impaired loans:
Construction	$	-	$	-	$	-	$	182	$	-	$	-
Residential real estate		7,333		76		76		6,229		295		291
Commercial real estate		1,203		25		25		3,605		236		11
Home equity real estate		1,056		10		10		1,396		37		37
C&I		4,279		17		4		6,134		155		23
Consumer		1,349		-		-		56		2		2
	$	15,220	$	128	$	115	$	17,602	$	725	$	364

18

DANVERS BANCORP, INC.

The following is a summary of past due and non-accrual loans at the dates indicated:

	March 31, 2011
													Recorded
													Investment
													Greater than
					Greater than								90 Days		Total
	30-59 Days		60-89 Days		90 Days		Total				Total		Past Due and		Non-Accrual
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Still Accruing		Loans
	(In thousands)
Real estate mortgages
Construction	$	395	$	-	$	-	$	395	$	121,496	$	121,891	$	-	$	-
Residential		2,892		5		3,356		6,253		288,145		294,398		-		6,989
Commercial		625		51		-		676		401,916		402,592		-		1,202
Home equity real estate		356		28		38		422		82,219		82,641		-		1,078
Total real estate mortgages		4,268		84		3,394		7,746		893,776		901,522		-		9,269
C&I		2,045		2,058		2,496		6,599		882,891		889,490		-		3,539
Consumer		6		1		-		7		2,934		2,941		-		9
	$	6,319	$	2,143	$	5,890	$	14,352	$	1,779,601	$	1,793,953	$	-	$	12,817

	December 31, 2010
													Recorded
													Investment
													Greater than
					Greater than								90 Days		Total
	30-59 Days		60-89 Days		90 Days		Total				Total		Past Due and		Non-Accrual
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Still Accruing		Loans
	(In thousands)
Real estate mortgages
Construction	$	-	$	-	$	-	$	-	$	122,550	$	122,550	$	-	$	-
Residential		2,872		714		3,710		7,296		297,937		305,233		-		7,748
Commercial		-		-		-		-		403,937		403,937		-		1,203
Home equity real estate		64		427		-		491		83,346		83,837		-		1,042
Total real estate mortgages		2,936		1,141		3,710		7,787		907,770		915,557		-		9,993
C&I		143		82		2,787		3,012		863,433		866,445		-		3,079
Consumer		10		-		1		11		3,344		3,355		-		13
	$	3,089	$	1,223	$	6,498	$	10,810	$	1,774,547	$	1,785,357	$	-	$	13,085

Credit Quality Indicators

The Company uses a ten grade internal loan rating system for all commercial real estate, construction and C&I loans as follows:

Loans rated 1-6:  Loans in these categories are considered “pass” rated loans with low to generally acceptable risk.

Loans rated 7:  Loans in this category are considered “special mention.”  These loans have potential weaknesses that may affect the asset or inadequately protect the Company’s position and are closely monitored by management.

19

DANVERS BANCORP, INC.

Loans rated 8:  Loans in this category are considered “substandard.”  Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligators and/or the collateral pledged.  There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 9:  Loans in this category are considered “doubtful.”  Loans classified doubtful have all the weaknesses inherent in those loans classified substandard with the exception of adequate sources of repayment to avoid loss.

Loans rated 10:  Loans in this category are considered uncollectible “loss” and should be charged-off.

On an annual basis, or more often if necessary, the Company formally reviews the rating on all commercial real estate, construction and C&I loans.  During the year, the Company engages an independent third party to perform reviews on a significant portion of loans within these segments.  Management uses the results of these reviews as part of its annual review process.

For all other loans, the Company initially assesses credit quality based upon the borrower’s ability to service the debt and monitors the debt based upon the borrower’s payment activity.

The following is a summary of the credit quality indicators pertaining to the loan portfolio:

	March 31, 2011
											Credit Risk Profile
	Credit Risk Profile Based on Internally Assigned Grade										Based on Payment Activity				Total
													Non-
		1 - 6			7		8			9	Performing		Performing
	(In thousands)
Commercial Credit Exposure:
Construction	$	102,325		$	17,504	$	2,062		$	-	$	-	$	-	$	121,891
Commercial real estate		390,006			5,347		7,239	(1)		-		-		-		402,592
C&I		859,497	(2)		19,526		10,467	(3)		-		-		-		889,490
Total commercial credit exposure		1,351,828			42,377		19,768			-		-		-		1,413,973
Consumer Credit Exposure:
Residential real estate		-			-		-			-		287,409		6,989		294,398
Home equity real estate		-			-		-			-		81,563		1,078		82,641
Consumer		-			-		-			-		2,932		9		2,941
Total consumer credit exposure		-			-		-			-		371,904		8,076		379,980
Total commercial and consumer
credit exposure	$	1,351,828		$	42,377	$	19,768		$	-	$	371,904	$	8,076	$	1,793,953
(1) Included in commercial real estate loans risk rated 8 are non-performing loans in the amount of $1,202,000, at March 31, 2011.
(2) Included in C&I loans risk rated 5-6 are non-performing loans in the amount of $204,000 at March 31 2011.
(3) Included in C&I loans risk rated 8 are non-performing loans in the amount of $3,335,000 at March 31 2011.

20

DANVERS BANCORP, INC.

The following table sets forth the amounts and categories of our non-performing assets at the dates indicated:

	March 31,			December 31,
	2011			2010
	(Dollars in thousands)
Non-accrual loans:
Real estate mortgages:
Construction	$	-		$	-
Residential		6,989			7,748
Commercial		1,071			1,072
Home equity		1,078			1,042
Total real estate mortgages		9,138			9,862
C&I		2,725			2,263
Consumer		10			13
Troubled debt restructured loans - non-accrual		945			947
Total non-accrual loans (1)	$	12,818		$	13,085
Troubled debt restructured loans - accruing (2)	$	879		$	927
Total non-performing loans	$	13,697		$	14,012
Other real estate owned		1,506			832
Total non-performing assets	$	15,203		$	14,844
Total non-performing loans to total loans (3)		0.76	%		0.78	%
Total non-performing loans to total assets		0.49	%		0.49	%
Total non-performing assets to total assets		0.55	%		0.52	%

(1) All loans on non-accrual status are considered non-performing.

(2) Troubled debt restructured loans that have been performing in accordance with their modified terms for a period of less than 12 months are considered non-performing.

(3) Total loans include loans held for sale.

It is the Company’s policy to cease accrual of interest on loans when the loan is delinquent in excess of 90 days (based on contractual terms), unless the timing of collections are reasonably estimable and collection is probable.  When a loan is placed on non-accrual status, all previously accrued but uncollected interest is reversed against current period income.  The interest on non-accrual loans is accounted for on the cash-basis or cost-recovery method, until the borrower has demonstrated performance in accordance with the contractual terms of the note, which is generally six months.  The Company recognized $115,000 on the cash-basis in interest income on non-accrual loans during the three months ended March 31, 2011.  The Company did not have any loans in the portfolio over 90 days and still accruing at March 31, 2011.

Troubled debt restructured loans represent loans for which concessions are granted due to the borrower’s financial condition.  Such concessions may include modifications of repayment terms and/or a reduction of interest rates to below market rates.  At March 31, 2011, the Company had 8 restructured loans totaling $1.8 million with a combined appraised value of $2.6 million.  Of the Company’s 8 restructured loans, 5 were on accrual status at the time of the restructure and at March 31, 2011, and as of the date of this report, all accruing restructured loans were performing in accordance with their modified terms and conditions.  The Company recognized $13,000 on the accrual-basis in interest income on restructured loans during the three months ended March 31, 2011.

The Company had $1.5 million in other real estate owned (“OREO”) at March 31, 2011.  The OREO balance consists of four properties.  Management does not anticipate any material losses on any of the properties at this time.

21

DANVERS BANCORP, INC.

5. Fair Value of Assets and Liabilities

Fair Value Hierarchy

The Company groups its assets and 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.

Level 1—Valuation is based on quoted prices in active markets for identical assets or liabilities.  Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market.  Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2—Valuation is 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 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 fair value of interest rate products are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rates and also include the value associated with counterparty credit risk.

Level 3—Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and 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.

Transfers between levels are recognized at the actual date of the event that caused the transfer.

The following methods and assumptions were used by the Company in estimating fair value disclosures:

Cash and cash equivalents—The carrying amounts for cash and cash equivalents approximate fair value because they mature in 90 days or less and do not present unanticipated valuation risk.

Securities available for sale—All fair value measurements are obtained from a third party service and are not adjusted by management.  The available for sale securities measured at fair value in Level 1 are based on quoted market prices in an active market.  Level 2 are 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-quotes on securities, obtains quotes from market makers or broker-dealers that it recognizes to be market participants.  The securities measured at fair value in Level 3 are based on target prices obtained from independent third party services using dividend discount models and peer group analysis.

Restricted stock—The fair value of Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock is equal to cost based on redemption provisions.

22

DANVERS BANCORP, INC.

Loans and loans held for sale—Fair values are estimated for portfolios of loans with similar financial and credit characteristics.  The loan portfolio was evaluated in the following segments: construction, residential real estate, commercial real estate, home equity, Commercial and Industrial (“C&I”) and other consumer loans.  The fair value of performing commercial and commercial real estate loans is estimated by discounting cash flows through the estimated maturity using discount rates that reflect the expected maturity and the credit and interest rate risk inherent in such loans.  The fair value of residential mortgage loans is estimated by discounting contractual cash flows, adjusted for prepayment estimates using discount rates based on secondary market sources.  The fair value of home equity and other consumer loans is estimated based on secondary market prices for asset-backed securities with similar characteristics.  The fair values of loans held for sale is based on observable market prices.  Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposits—The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand as of the reporting date.  The fair value of term certificates is based on the discounted value of contractual cash flows.  The discount rate used is based on market interest rates currently offered for funding sources of similar remaining maturities.

Short-term borrowings—The carrying amount of short-term borrowings approximate fair value because they mature in 90 days or less and do not present unanticipated valuation risk.

Long-term borrowings—The fair value of these borrowings is based on the discounted value of contractual cash flows.  The discount rate used is based on the estimated market rates currently offered for borrowings of similar remaining maturities.

Subordinated debt—The fair value of these borrowings is based on the discounted value of contractual cash flows.  The carrying amount of adjustable rate borrowings approximates fair value as they reprice quarterly.  The discount rate used is based on the 3 Month LIBOR plus a market index.

Accrued interest—The carrying amounts approximate fair value.

Interest rate products—The fair value of interest rate swap and cap agreements are based on a valuation model that uses primarily observable inputs, such as benchmark yield curves and interest rates and also include the value associated with counterparty credit risk.

Off-balance sheet credit related instruments—The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  The fair value of these fees at March 31, 2011 and December 31, 2010 was immaterial to the consolidated financial statements.

23

DANVERS BANCORP, INC.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	March 31, 2011
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities Available for Sale:
Debt securities:
Government-sponsored enterprises:
Federal National Mortgage Association	$	-	$	1,180	$	-	$	1,180
Federal Home Loan Bank		-		247,884		-		247,884
Federal Farm Credit Bank		-		86,199		-		86,199
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		-		79,496		-		79,496
Federal National Mortgage Association		-		116,602		-		116,602
Government National Mortgage Association		-		57,195		-		57,195
Municipal bonds		-		51,897		-		51,897
Other bonds and notes		-		250		-		250
Marketable equity securities:
Mutual funds		-		629		-		629
Other:
Interest rate products		-		606		-		606
Total assets	$	-	$	641,938	$	-	$	641,938
Liabilities
Interest rate products	$	-	$	610	$	-	$	610

24

DANVERS BANCORP, INC.

	December 31, 2010
	Level 1		Level 2		Level 3		Fair Value
	(In thousands)
Assets
Securities Available for Sale:
Debt securities:
Other government-sponsored enterprises:
Federal Home Loan Mortgage Corporation	$	-	$	1,183	$	-	$	1,183
Federal Home Loan Bank		-		297,936		-		297,936
Federal Farm Credit Bank		-		103,501		-		103,501
Residential mortgage-backed:
Federal Home Loan Mortgage Corporation		-		84,628		-		84,628
Federal National Mortgage Association		-		123,821		-		123,821
Government National Mortgage Association		-		60,907		-		60,907
Municipal bonds		-		50,757		-		50,757
Other bonds and notes		-		250		-		250
Marketable equity securities:
Mutual funds		-		627		-		627
Other:
Interest rate products		-		741		-		741
Total assets	$	-	$	724,351	$	-	$	724,351
Liabilities
Interest rate products	$	-	$	747	$	-	$	747

There were no transfers between Level 1 and Level 2 assets and liabilities for the periods ended March 31, 2011 and December 31, 2010.

The table below presents, for the period ended March 31, 2010, the changes in Level 3 assets measured at fair value on a recurring basis.  The Company did not have any assets in Level 3 for the period ended March 31, 2011.

	Assets
	Securities
	Available
	for Sale
	(In thousands)
Balance as of December 31, 2009	$	692
Total unrealized losses included in other comprehensive income		(108	)
Purchases		-
Balance as of March 31, 2010	$	584
Change in unrealized losses relating to instruments still held at
March 31, 2010	$	(108	)

25

DANVERS BANCORP, INC.

Assets Measured at Fair Value on a Non-recurring Basis

The Company may also be required, from time to time, to measure certain other financial assets on a non-recurring basis in accordance with GAAP.  These adjustments to fair value usually result from application of lower-of-cost-or-market accounting, write-downs, charge-offs or specific loan loss allocations of individual assets.  There were no liabilities measured at fair value on a non-recurring basis at March 31, 2011 and December 31, 2010.

The following tables summarize the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of March 31, 2011 and December 31, 2010.  The losses represent the amount of write-down recorded during the three months period on the assets held at March 31, 2011 and 2010, respectively:

							Three Months
							Ended
							March 31,
	March 31, 2011						2011
							Total
	Level 1		Level 2		Level 3		Losses
	(In thousands)
Assets
Other real estate owned	$	-	$	-	$	1,506	$	23
Impaired loans		-		-		1,847		1,029
	$	-	$	-	$	3,353	$	1,052

							Three Months
							Ended
							March 31,
	December 31, 2010						2010
							Total
	Level 1		Level 2		Level 3		Losses
	(In thousands)
Assets
Other real estate owned	$	-	$	-	$	832	$	-
Impaired loans		-		-		2,128		677
	$	-	$	-	$	2,960	$	677

At March 31, 2011 and December 31, 2010, the amount of other real estate owned represents the carrying value and related charge-offs for which adjustments are based on current appraised value of the collateral or where current appraised value is not obtained, management’s discounted estimate of the collateral.  At March 31, 2011 and December 31, 2010, the amount of impaired loans represents the carrying value and related charge-offs and allocated reserves on impaired loans for which adjustments are based on current appraised value of the collateral or where current appraised value is not obtained, management’s discounted estimate of the collateral.  Appraised values are typically based on a blend of (a) an income approach using observable cash flows to measure fair value and (b) a market approach using observable market comparables.

26

DANVERS BANCORP, INC.

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows.  Certain financial instruments and all nonfinancial instruments are exempt from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

	March 31, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	30,292	$	30,292	$	30,282	$	30,282
Securities available for sale		641,332		641,332		723,610		723,610
Securities held to maturity		148,267		145,109		152,731		150,427
Restricted stock		18,172		18,172		18,172		18,172
Loans and loans held for sale, net		1,772,553		1,773,733		1,767,722		1,764,429
Accrued interest receivable		10,453		10,453		9,845		9,845
Financial liabilities:
Deposits:
Demand deposits		258,426		258,426		246,973		246,973
Savings and NOW accounts		445,084		445,084		449,036		449,036
Money market accounts		860,203		860,203		837,647		837,647
Term certificates		551,524		558,375		566,370		571,849
Short-term borrowings		131,440		131,440		214,330		214,330
Long-term debt		187,946		189,113		196,778		200,628
Subordinated debt		19,655		18,688		29,965		29,228
Accrued interest payable		1,470		1,470		1,235		1,235
On-balance sheet derivative
financial instruments:
Interest rate products:
Assets		606		606		741		741
Liabilities		610		610		747		747

6. Goodwill and Intangible Assets

The Company has recorded goodwill and core deposit intangible (“CDI”) assets in connection with the acquisition of financial institutions.  The Company’s goodwill represents the excess purchase price over the fair value of the assets acquired and liabilities assumed arising from the Company’s acquisition of Beverly National Corporation (“Beverly National”) on October 30, 2009.  The Company’s CDI represents the long-term value of depositor relationships arising from the contractual rights acquired in the Company’s acquisition of Revere Federal Savings Bank (“Revere”) on September 26, 2001 and the Beverly National acquisition on October 30, 2009.

Goodwill

Goodwill is not amortized, but tested for impairment at least annually or when events or changes in circumstances indicate the asset might be impaired.  At March 31, 2011 and December 31, 2010, the gross carrying amount of the Company’s goodwill was $23,857,000.  As of March 31, 2011 and December 31, 2010, the Company did not record any impairment of its goodwill.

27

DANVERS BANCORP, INC.

Intangible Assets

The Company amortizes CDI premiums over a 10-year period, from the date of acquisition, on an accelerated basis.  The Company periodically evaluates the realizability of intangible assets based on the value of the underlying depositor relationships.  If the value is less than the carrying amount of the intangible asset, the Company would recognize an impairment loss.  As of March 31, 2011 and December 31, 2010, the Company has not recorded any impairment of its CDI assets.

The gross carrying amount, accumulated amortization, net carrying amount and weighted average amortization period of intangible assets, by major class, is as follows:

								Weighted
						Net		Average
	Gross Carrying		Accumulated			Carrying		Amortization
	Amount		Amortization			Amount		Period
	(In thousands)
March 31, 2011:
Revere acquisition, September 26, 2001	$	1,603	$	(1,514	)	$	89	10 years
Beverly National acquisition, October 30, 2009		11,561		(2,891	)		8,670	10 years
	$	13,164	$	(4,405	)	$	8,759
December 31, 2010:
Revere acquisition, September 26, 2001	$	1,603	$	(1,485	)	$	118	10 years
Beverly National acquisition, October 30, 2009		11,561		(2,417	)		9,144	10 years
	$	13,164	$	(3,902	)	$	9,262

The current period and estimated amortization expense for intangible assets in the succeeding years is as follows:

	Three
	Months Ended
Aggregate Amortization Expense:	March 31, 2011
	(In thousands)
Amortization expense	$	503
Remaining Estimated Amortization
Expense for the Years Ending December 31,	Amount
	(In thousands)
2011	$	1,473
2012		1,647
2013		1,436
2014		1,226
2015		1,016
Thereafter		1,961
	$	8,759

28

DANVERS BANCORP, INC.

7. Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase mature on a daily basis and amounted to $33,440,000 and $45,330,000 at March 31, 2011 and December 31, 2010, respectively.  These agreements are secured by obligations of government-sponsored enterprises with a carrying value of $44,074,000 and $53,150,000 at March 31, 2011 and December 31, 2010, respectively.  The obligations to repurchase the securities sold are reflected as a liability in the consolidated balance sheets.  The dollar amount of the securities underlying the agreements remains in the asset accounts.  The securities pledged are registered in the Company’s name; however, the securities are held by the designated trustee of the broker.  Upon maturity of the agreements, the identical securities pledged as collateral are returned to the Company.

8. Post Retirement Benefits

Defined Benefit Plan

The Company provides pension benefits to eligible former Beverly National employees through a defined benefit plan.  Effective January 1, 2006, the plan was suspended so that participating employees no longer earn additional defined benefits for future services.

The net pension expense for the plan included the following components:

	Three Months
	Ended March 31,
	2011			2010
	(In thousands)
Interest cost	$	123		$	124
Expected return on plan assets		(135	)		(128	)
Net pension benefit	$	(12	)	$	(4	)

The Company expects to contribute $274,000 to the retirement plan in 2011.  As of March 31, 2011, the Company has contributed $48,000 to its defined benefit plan.

Supplemental Retirement Plan

The Company provides supplemental retirement and death benefits for certain officers of the Company under the terms of the Supplemental Pension Agreement (the “Agreement”).  Benefits to be paid under the Agreement are based primarily on the officer’s salary and years of service.  The Agreement provides nonfunded retirement benefits designed to supplement benefits available through the Beverly’s retirement plan for employees.  The Agreement provides that the officers do not have any right, title or interest in or to any specified assets of the Company or any trust or escrow arrangement.  In connection with the Agreement, two trust agreements were established.  The Company is not the trustee of the trusts.

29

DANVERS BANCORP, INC.

The net pension expense for the supplemental retirement plan included the following components:

	Three Months
	Ended March 31,
	2011		2010
	(In thousands)
Interest cost	$	13	$	15
Expected return on plan assets		-		-
Net pension expense	$	13	$	15

The Company expects to contribute $123,000 to its supplemental retirement plan in 2011.  As of March 31, 2011, the Company has contributed $31,000 to its supplemental retirement plan.

9. Earnings Per Share

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.  If rights to dividends on unvested awards are non-forfeitable, these unvested awards are considered outstanding in the computation of basic earnings per share.  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, as well as any adjustments to income that would result from the assumed issuance.

Unallocated common shares held by the Employee Stock Ownership Plan (“ESOP”) and treasury shares 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.

Earnings per common share have been computed based on the following:

	Three Months Ended
	March 31,
	2011			2010
Average number of common shares issued		22,316,125			22,316,125
Less:  Average treasury shares		(1,613,448	)		(614,193	)
Less:  Average unallocated ESOP shares		(1,207,144	)		(1,278,514	)
Average number of common shares outstanding used to
calculate basic earnings per common share		19,495,533			20,423,418
Effect of dilutive unvested stock awards		347,924			-
Average number of common shares outstanding used to
calculate diluted earnings per common share		19,843,457			20,423,418

At March 31, 2011 and 2010, options for 1,648,000 and 1,663,000 shares, respectively, were not included in the computation for dilutive earnings per share because to do so would have been antidilutive.

30

DANVERS BANCORP, INC.

10. Dividend Declared

On April 28, 2011, the Company declared a cash dividend on its common stock of $.04 per share.  The dividend will be paid on or after May 13, 2011 to shareholders of record as of April 29, 2011.

11.      Recent Accounting Pronouncements

In July 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  This ASU requires an entity to provide disclosures that facilitate financial statement users’ evaluation of (1) the nature of credit risk inherent in the entity’s loan portfolio (2) how that risk is analyzed and assessed in arriving at the allowance for loan and lease losses and (3) the changes and reasons for those changes in the allowance for loan and lease losses.  For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010.  The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010 and the adoption of this ASU had a significant impact on the disclosures in the Company’s March 31, 2011 and December 31, 2010 financial statements.  The Company has provided the disclosures required as of March 31, 2011 and December 31, 2010 beginning on page 14 of this report.

In April 2011, the FASB issued an ASU, Receivables (Topic 310), A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  This ASU provides additional guidance and clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring (“TDR”).  For public companies, this ASU is effective for the first interim or annual period beginning on or after June 15, 2011, with retrospective application to the beginning of the annual period of adoption.  The measurement of impairment should be done prospectively in the period of adoption for loans that are newly identified as TDRs upon adoption of this ASU.  In addition, the TDR disclosures required by ASU 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses should be provided beginning in the period of adoption of this ASU.  The Company will adopt this ASU on July 1, 2011 and is currently evaluating the impact of adoption on its 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 condition 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 report contains forward-looking statements, statements that are considered forward-looking 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.

Forward-looking statements, which involve risks and uncertainties, can be identified by the use of such words as may, will, should, could, would, estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions.

These forward-looking statements include:

· statements of our goals, intentions and expectations;

31

DANVERS BANCORP, INC.

· 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.

Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results.  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, whether national or regional, and conditions in the real estate markets that could affect the demand for our loans and other products and ability of borrowers to repay loans, lead to further declines in credit quality and increased loan losses, and continue to negatively affect the value and salability of the real estate that is the collateral for many of our loans or that we own directly;

· changing business, banking, or regulatory conditions or policies, or new legislation affecting the financial services industry, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, that could lead to changes in the competitive balance among financial institutions, restrictions on bank activities, changes in costs (including deposit insurance premiums), increased regulatory scrutiny, declines in consumer confidence in depository institutions or changes in the secondary market for bank loan and other products;

· 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 FASB; 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.  We discuss these and other uncertainties in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010 and in “Risk Factors” on page 41.  Forward-looking statements speak only as of the date on which they are made.  We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

32

DANVERS BANCORP, INC.

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 approval by bank regulatory authorities and by the stockholders of the Company.  A special meeting of stockholders of the Company will be held at the Peabody Marriott Hotel, 8A Centennial Drive, Peabody, Massachusetts 01960 on May 13, 2011 at 10:00 a.m., local time.  People’s United’s shareholder approval is not required for the Merger.

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.

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, goodwill and intangibles and the valuation of the deferred tax asset.

Comparison of Financial Condition at March 31, 2011 and December 31, 2010

Total Assets.Total assets decreased by $78.9 million, or 2.8%, for the quarter ended March 31, 2011.  Net loans (including loans held for sale) increased $4.8 million, or 0.3%, securities declined by $86.7 million, or 9.9%, and cash and cash equivalents remained flat for the quarter.  For ALCO purposes, management chose to sell some long-term fixed-rate residential mortgage loans during the quarter.  The bulk of the sales activity was included in one package of loans totaling $25.9 million.  In addition, the combination of sales, calls, maturities and scheduled cash flow resulted in a sizeable decline in the Company’s securities portfolio.  These declines were only partially offset by increases in commercial and industrial and permanent commercial real estate loan balances during the period.  Deposit balances increased by $25.2 million, or 1.2%, for the quarter ended March 31, 2011.  Despite the low levels of short-term interest rates, the Company has experienced success in raising core deposit balances.

33

DANVERS BANCORP, INC.

Cash and Cash Equivalents.Cash and cash equivalents remained flat at $30.3 million at March 31, 2011.  The cash flows provided by the securities portfolio were used to pay down short-term borrowings.

Securities.The securities portfolio, aggregated $789.6 million at March 31, 2011, a decrease of $86.7 million, or 9.9%, from $876.3 million at December 31, 2010.  A combination of sales, calls, maturities and scheduled cash flow were the reasons for the decline.

At March 31, 2011 and December 31, 2010, mortgage-backed securities (“MBS”) totaled 39.7% and 38.0%, 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 backed by pools of one- to four-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 five- to twelve-year weighted average lives, with expected average life extensions up to a maximum of fifteen years in a rising rate environment.  All our MBS were rated AAA at March 31, 2011 and December 31, 2010.  Although unforeseeable changes in market conditions may affect future ratings, management does not expect a ratings downgrade to any of the Company’s MBS holdings.

The Company holds some municipal bonds in its investment portfolio due to the tax advantages they provide.  At March 31, 2011 and December 31, 2010, all our municipal bonds were rated B or better by a nationally recognized rating agency and mature in thirty years or less.  All of the Company’s holdings, with the exception of four bonds issued by the Town of Danvers, are privately insured.

Net Loans (Excluding Loans Held for Sale).  Net loans as of March 31, 2011 were $1.77 billion, an increase of $7.5 million, or 0.4%, from net loan balances of $1.76 billion as of December 31, 2009.  The most notable increase was in the C&I segment which increased $23.0 million or 2.7%.  This increase was offset by a decline in all of the Company’s other loan segments.  The largest decrease was in the residential real estate segment which declined by $10.8 million or 3.5%, due to the bulk sale of $25.9 million in loans.  Increased competition, and in particular very competitive pricing, from some of the larger banks in our market area continues to be a challenge.

Deposits.Total deposits increased by $25.2 million to $2.13 billion at March 31, 2011, an increase of 1.2% from a balance of $2.10 billion at December 31, 2010.  During the quarter, the Company experienced increases in demand, savings and NOW and money market account deposit categories.  This growth is attributable to the Company’s expanded retail branch presence and on-line banking initiatives.  The Company opened its first retail Boston location in the first quarter of 2010 and its Needham location in the third quarter of 2010.  The previously announced Lexington branch is tentatively scheduled to open during the second quarter of 2011.  Despite the low levels of short-term interest rates, the Company has experienced considerable success at raising core deposit balances.

34

DANVERS BANCORP, INC.

The following table sets forth the Company’s deposit accounts at the dates indicated:

	March 31, 2011					December 31, 2010
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Demand deposits	$	258,426		12.2	%	$	246,973		11.7	%
Savings and NOW accounts		455,084		21.4			449,036		21.4
Money market accounts		860,203		40.5			837,647		39.9
Total non-certificate accounts		1,573,713		74.1			1,533,656		73.0
Term certificates over $100,000		336,895		15.8			344,165		16.4
Other term certificates		214,629		10.1			222,205		10.6
Total certificate accounts		551,524		25.9			566,370		27.0
Total deposits	$	2,125,237		100.0	%	$	2,100,026		100.0	%

Borrowed Funds.The Company relies on borrowings from the Federal Home Loan Bank of Boston (“FHLBB”), as an alternative funding source to deposits and to augment the Company’s short-term liquidity needs.  The balance of these borrowings fluctuates depending upon our ability to attract deposits, coupled with the overall level of loan demand and other investment opportunities.  Funds borrowed from the FHLBB on a short-term and long-term basis decreased by $70.0 million, or 41.7%, and $8.8 million or 4.5%, at March 31, 2011.  Management paid down a portion of Company’s short-term FHLBB borrowings with the aforementioned security portfolio cash inflows and in the process has lessened the Company’s reliance on any single short-term funding source.  The Company had $187.9 million in various FHLBB long-term advances at March 31, 2011.

At March 31, 2011, the Company’s short-term borrowings consisted of $33.4 million in overnight customer repurchase agreements (“REPOs”), a decrease of $11.9 million, or 26.2% from $45.3 million at December 31, 2010.  The Company’s REPOs are 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 a secondary funding source and as a means of offering commercial deposit customers a commercial sweep account product.

On February 8, 2011, in order to take advantage of the current interest rate environment, the Company exercised the call provision on its Danvers Capital Trust II subordinated debt issuance in the amount of $10,392,000.  The transaction consisted of principal and interest of $10,310,000 and $82,000, respectively.

From a funding and liquidity perspective, the Company has ready access to a number of large and well-diversified short-term funding sources and these alternatives are available at highly competitive rates given the current rate environment.

35

DANVERS BANCORP, INC.

The following table sets forth the Company’s short-term borrowings and long-term debt for the dates indicated:

	March 31,		December 31,
	2011		2010
	(In thousands)
Short-term borrowings:
Repurchase agreements	$	33,440	$	45,330
FHLB advances		98,000		168,000
Federal Reserve Bank		-		1,000
Total short-term borrowings		131,440		214,330
Long-term debt:
FHLB advances		187,946		196,778
Total borrowed funds	$	319,386	$	411,108

Total Stockholders’ Equity.Total stockholders’ equity increased by $841,000 to $286.1 million, or 0.3% at March 31, 2011 from a balance of $285.3 million at December 31, 2010.  This increase was primarily due to net income of $3.2 million which was partially offset by a decline of $1.9 million in net unrealized gains on securities available for sale and $779,000 in dividends paid.

Comparison of Operating Results for the Three Months Ended March 31, 2011 and 2010

Net Income.The Company recorded net income for the three months ended March 31, 2011 of $3.2 million, a decrease of $1.1 million from net income of $4.3 million for the three months ended March 31, 2010.  Increases in net interest income and non-interest income were offset by $2.3 million in merger related expenses during the quarter.

Net Interest Income.  Average interest-earning assets and average interest-bearing liabilities increased for the comparable three month periods in 2011 and 2010 due to organic growth.  Net interest income for the three months ended March 31, 2011 increased to $23.0 million from $20.7 million for the three months ended March 31, 2010.  Average interest-earning assets increased by $412.6 million between the two periods.  The increase of $2.3 million or 10.9% in net interest income was the combination of a $3.8 million increase due to volume and a $1.5 million decrease due to rate.  The Company’s net interest margin was 3.43% for the three months ended March 31, 2011 compared to 3.66% for the three months ended March 31, 2010.

Interest and Dividend Income.Interest income increased $2.0 million, or 7.1%, to $31.1 million for the three months ended March 31, 2011 from $29.1 million for the three months ended March 31, 2010.  The increase was primarily due to a higher average balance of our interest-earning assets, offset by a decrease in yields, reflective of the current interest rate environment.  In particular, average loans increased by $140.1 million between the comparable periods.  The Company also experienced an increase in the average balances of securities of $293.3 million.  These increases were partially offset by a decrease in the average balance of interest earning cash equivalents of $20.0 million.  The average yield on securities decreased from 3.99% for the three months ended March 31, 2010 to 3.24% for the same period in 2011.  The decline in the securities portfolio yield directly related to redeploying cash flows from maturities, calls and sales in this lower interest rate environment.  There was also a decrease in loan yield between the periods.  The average yield on loans decreased from 5.63% for the three months ended March 31, 2011 to 5.36% for the same period in 2011, and the overall yield on interest-earning assets decreased from 5.12% to 4.64% for the 2010 and 2011 periods, respectively.

36

DANVERS BANCORP, INC.

Interest Expense.  Interest expense for the three months ended March 31, 2011 decreased by $207,000, or 2.5%, when compared to the same three-month period in 2010.  Average interest-bearing liabilities increased by $347.3 million between the comparable periods and resulted in a $676,000 increase in interest expense.  A decrease of 30 basis points, or 17.5%, in the average cost of the Company’s interest-bearing liabilities resulted in an offsetting decrease in interest expense of $883,000.  The average cost of deposits decreased from 1.47% for the three months ended March 31, 2011 to 1.25% for the same period in 2011 and rates on interest-bearing liabilities decreased from 1.71% to 1.41% between the comparable periods.  The respective decline in deposit and interest-bearing liability costs relates to the continued low level of interest rates during the period.

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, in management’s judgment, to absorb losses inherent in the loan portfolio.  The Company recorded provision for loan losses of $1.2 million for both three month periods ended March 31, 2011 and 2010.  Provisions in all periods are reflective of loan balance fluctuations, changes to the loan portfolio composition, management’s evaluation of certain qualitative attributes of the portfolio and net charge-offs.

Gross loans (including loans held for sale) increased $8.7 million during the three months ended March 31, 2011.  Net charge-offs for the three months ended March 31, 2011 and 2010 were $170,000 and $390,000, respectively.  Management increased both its general and specific reserves because of continuing concerns regarding employment and both the local and national economy.  At March 31, 2011, the allowance for loan losses totaled $18.9 million, or 1.06% of total loans outstanding.

Non-interest Income.Non-interest income for the three months ended March 31, 2011 increased by $661,000, or 24.8%, to $3.3 million, compared to $2.7 million for the three months ended March 31, 2010.  This increase was primarily the result of increases in the gain on the sales of loans of $231,000, gain on sales of securities of $229,000 and $279,000 in other operating income.

Non-interest Expense. Non-interest expense increased $3.8 million, or 21.7%, during the first quarter of 2011 when compared to the same period in 2010.  Included in the increase in non interest expense are $2.3 million in costs related to the proposed merger with People’s United.  The Company also experienced increases in salaries and employee benefits, occupancy, outside services, deposit insurance, and other operating expense, and decreases in other real estate owned and advertising expenses during the first quarter.  Increases in salaries and employee benefits and occupancy expense are the result of the additional personnel and branches related to the expansion of the branch footprint.

Income Taxes.The Company recorded an income tax provision of $684,000 for the three months ended March 31, 2011, an increase in income tax expense of $178,000 when compared to an income tax expense of $506,000 for the three months ended March 31, 2010.  The tax provision between the two periods changed as a result of the combination with Beverly National and the resulting change in the taxable and tax deferred elements of the Company’s revenues.  The effective tax rate for the three months period ended March 31, 2011 was 17.6% compared to 10.6% for the same period in 2010.

The following table sets 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.

37

DANVERS BANCORP, INC.

	Three Months Ended March 31,
	2011								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	$	7,055		$	3		0.17	%	$	27,052		$	47		0.69	%
Debt securities: (2)
U.S. Government		-			-		-			15,493			6		0.15
Gov't-sponsored enterprises		480,766			3,506		2.92			218,927			1,943		3.55
Mortgage-backed		321,165			2,848		3.55			294,141			3,129		4.26
Municipal bonds		53,593			580		4.33			24,417			242		3.96
Other		1,062			3		1.13			10,310			303		11.76
Restricted stock		18,172			14		0.31			18,951			-		-
Real estate mortgages (3)		918,151			12,548		5.47			967,439			13,650		5.64
C&I loans (3)		693,367			9,556		5.51			567,021			8,215		5.80
IRBs (3)		188,201			2,022		4.30			124,625			1,468		4.71
Consumer loans  (3)		3,105			35		4.51			3,644			56		6.15
Total interest-earning assets		2,684,637			31,115		4.64			2,272,020			29,059		5.12
Allowance for loan losses		(18,258	)							(15,083	)
Total earning assets less allowance
for loan losses		2,666,379								2,256,937
Non-interest-earning assets		183,187								206,360
Total assets	$	2,849,566							$	2,463,297
Interest-bearing liabilities:
Deposits:
Savings and NOW accounts	$	454,208			1,235		1.09		$	396,621			1,053		1.06
Money market accounts		842,058			2,105		1.00			653,047			2,255		1.38
Term certificates		561,103			2,476		1.77			558,538			2,597		1.86
Total deposits		1,857,369			5,816		1.25			1,608,206			5,905		1.47
Borrowed funds:
Short-term borrowings		213,672			171		0.32			86,494			96		0.44
Long-term debt		193,914			1,654		3.41			216,992			1,835		3.38
Subordinated debt		24,008			430		7.16			29,965			442		5.90
Total interest-bearing liabilities		2,288,963			8,071		1.41			1,941,657			8,278		1.71
Non-interest-bearing deposits		252,534								213,156
Other non-interest-bearing liabilities		21,992								20,612
Total non-interest-bearing liabilities		274,526								233,768
Total liabilities		2,563,489								2,175,425
Stockholders' equity		286,077								287,872
Total liabilities and stockholders' equity	$	2,849,566							$	2,463,297
Net interest income				$	23,044							$	20,781
Net interest rate spread (4)							3.23	%							3.41	%
Net interest-earning assets (5)	$	395,674							$	330,363
Net interest margin (6)							3.43	%							3.66	%
Ratio of interest-earning assets
to total interest-bearing liabilities		1.17	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.

38

DANVERS BANCORP, INC.

The following table presents 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 for the periods indicated.  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 March 31,
	2011 vs. 2010
	Increase (Decrease)						Total
	Due to						Increase
	Volume			Rate			(Decrease)
	(In thousands)
Interest-earning assets:
Interest-earning cash equivalents and certificates of deposit	$	(35	)	$	(9	)	$	(44	)
Debt securities (1):
U.S. Government		(6	)		-			(6	)
Gov't-sponsored enterprises and FHLMC		2,324			(761	)		1,563
Mortgage-backed		287			(568	)		(281	)
Municipal bonds		289			49			338
Other		(272	)		(28	)		(300	)
Equity securities		-			14			14
Real estate mortgages (2)		(695	)		(407	)		(1,102	)
C&I loans (2)		1,831			(490	)		1,341
IRBs (2)		749			(195	)		554
Consumer loans (2)		(8	)		(13	)		(21	)
Total interest-earning assets		4,464			(2,408	)		2,056
Interest-bearing liabilities:
Deposits:
Savings and NOW accounts		153			29			182
Money market accounts		653			(803	)		(150	)
Term certificates		12			(133	)		(121	)
Total deposits		818			(907	)		(89	)
Borrowed funds:
Short-term borrowings		141			(66	)		75
Long-term debt		(195	)		14			(181	)
Subordinated debt		(88	)		76			(12	)
Total interest-bearing liabilities		676			(883	)		(207	)
Increase in net interest income	$	3,788		$	(1,525	)	$	2,263
(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.

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, the FRB discount window, 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

39

DANVERS BANCORP, INC.

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 or FRB, 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:

	March 31, 2011
			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	$	134,515	$	28,159	$	54,835	$	68,437	$	285,946
Repurchase agreements (1)		33,440		-		-		-		33,440
Subordinated debt		-		-		-		19,655		19,655
Operating leases		3,557		6,480		5,701		16,389		32,127
Total contractual obligations	$	171,512	$	34,639	$	60,536	$	104,481	$	371,168

(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:

	March 31, 2011
			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	$	15,519	$	-	$	-	$	-	$	15,519
Unfunded commitments under lines of credit		405,722		-		-		-		405,722
Unadvanced funds on construction loans		20,456		14,826		-		-		35,282
Commercial and standby letters of credit		4,041		211		44		148		4,444
Total contractual obligations	$	445,738	$	15,037	$	44	$	148	$	460,967

Regulatory Capital Requirements.  At March 31, 2011, 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 March 31, 2011, the Bank’s total risk-based, Tier 1 risk-based and Tier 1 leverage ratios were 11.67%, 10.70 and 7.41%, respectively.  At March 31, 2011, the Company’s total risk-based, Tier 1 risk-based and Tier 1 leverage ratios were 15.05%, 14.09% and 9.80%, respectively.

40

DANVERS BANCORP, INC.

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 and Liability Committee (“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 March 31, 2011, the Company used a simulation model to project changes for three rising rate scenarios.  No simulation was run for the falling rate scenarios given that the Federal Funds rate is currently in a range between 0 and 25 basis points.  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, the Federal Funds rate is used as the driving rate.

The following table sets forth, as of March 31, 2011, 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								Estimated		in Estimated
Interest Rates		Net Portfolio		Estimated Increase (Decrease)						Net Interest		Net Interest Income
(basis points)(1)		Value		Amount			Percent			Income		Amount			Percent
		(Dollars in thousands)
	+300bp	$	129,019	$	(131,596	)		-50.5	%	$	76,258	$	(14,539	)		-16.0	%
	+200bp		177,774		(82,841	)		-31.8	%		82,835		(7,962	)		-8.8	%
	+100bp		224,539		(36,076	)		-13.8	%		86,423		(4,374	)		-4.8	%
	0bp		260,615		-			0.0	%		90,797		-			0.0	%
	-100bp		295,629		35,014			13.4	%		90,851		54			0.1	%

(1) Assumes an instantaneous uniform change in interest rates at all maturities.

(2) Net portfolio value is the discounted present value of expected cash flows from interest-earning assets, interest-bearing liabilities and off-balance sheet contracts.

41

DANVERS BANCORP, INC.

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.

The base market interest rate forecast, for a rising interest rate scenario, was increased on an instantaneous and sustained basis by 100, 200 and 300 basis points and, for a falling interest rate scenario, decreased by 100 basis points on an instantaneous and sustained basis.  At March 31, 2011, 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.

Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company’s President and Chief Executive Officer, Executive Vice President and Chief Operating Officer,  Executive 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 in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Based upon their evaluation, the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer and the Executive Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were 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.

42

DANVERS BANCORP, INC.

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 Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011, identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or that are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Michael Rubin, Steven M. Knudsen, and Ralph E. Swift, each alleged Danvers stockholders, filed putative class actions on February 1, 2, and 14, 2011, respectively, allegedly on behalf of all Danvers stockholders against Danvers, the Danvers board of directors, and People’s United.  The Rubin and Knudsen actions were filed in the Delaware Court of Chancery and were consolidated into one action on February 18, 2011, under the caption In re Danvers Bancorp Inc. Shareholders Litigation.  The Swift action was filed in Massachusetts Superior Court, Suffolk County, and was transferred to the Business Litigation Session on February 17, 2011, under the caption Swift v. Bottomley et al.  The Delaware plaintiffs filed a consolidated amended complaint on March 10, 2011, and the Massachusetts plaintiff filed an amended complaint on March 9, 2011.

The amended complaints generally allege, among other things, that (i) the Danvers directors breached their fiduciary duties by approving the merger, (ii) People’s United and Danvers aided and abetted such breaches and (iii) the proxy statement was deficient in that it failed to disclose certain information.  The amended complaints seek, among other relief, injunctive relief, damages and attorneys’ fees.  Danvers, the Danvers board of directors and People’s United deny any wrongdoing in connection with the proposed merger and maintain that they diligently and scrupulously complied with any and all fiduciary and other legal duties.

On April 22, 2011, the defendants entered into a memorandum of understanding with the In re Danvers Bancorp Inc. Shareholders Litigation plaintiffs regarding the settlement of that action.  In connection with the settlement contemplated by the memorandum of understanding, Danvers has agreed to make certain additional disclosures related to the proposed merger, which are contained in the Company’s Form 8-K filed on April 22, 2011.  The memorandum of understanding contemplates that the parties will seek to enter into a stipulation of settlement.

The stipulation of settlement will be subject to customary conditions, including court approval following notice to Danvers’ stockholders.  In the event that the parties enter into a stipulation of settlement, a hearing will be scheduled at which the Delaware Court of Chancery will consider the fairness, reasonableness, and adequacy of the settlement.  There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Delaware Court of Chancery will approve the settlement even if the parties were to enter into such stipulation.  In such event, the proposed settlement as contemplated by the memorandum of understanding may not be consummated.

43

DANVERS BANCORP, INC.

On May 2, 2011, the Massachusetts Superior Court, Business Litigation Session, granted the defendants’ motion to stay the Swift v. Bottomley et al. action pending final resolution of the Delaware litigation.

Item 1A.  Risk Factors

For the three months ended March 31, 2011, there have been no material changes to the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K for the year ended December 31, 2010, filed on March 15, 2011, except to the extent factual information disclosed elsewhere in this Form 10-Q relates to such risk factors.

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

(a)      Unregistered Sales of Equity Securities.  Not applicable.

(b)      Use of Proceeds.  Not applicable.

(c)      Repurchase of Equity Securities.

On May 24, 2010, the Company’s Board of Directors adopted a stock repurchase program to purchase up to 5% of the Company’s outstanding common stock.  Repurchases under this program have been and will be made in open market transactions, through block trades and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act.  This authority may be exercised from time to time and in such amounts as market conditions warrant and subject to regulatory considerations.  The timing and actual number of shares repurchased depends on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities.  Open market purchases are subject to the limitations set forth in Rule 10b-18 of the Exchange Act and other applicable legal requirements.  The stock repurchase program may be suspended or terminated by the Company at any time without prior notice.

As of March 31, 2011, total repurchases under the stock repurchase plan were 854,294 at an average price of $15.28.  In the first quarter of 2011, the Company purchased 37,151 shares, as follows:

					Total Number of		Maximum Number of
	Total				Shares Purchased		Shares That May
	Number		Average		as Part of Publicly		Yet be Purchased
	of Shares		Price Paid		Announced Plans		Under the Plans
Period	Purchased		per Share		or Programs		or Programs
January 1-31		-	$	-		-		260,651
February 1-28		37,151	$	22.02		37,151		223,500
March 1-31		-	$	-		-		223,500
Total		37,151	$	22.02		37,151

Item 3.  Defaults Upon Senior Securities

None.

44

DANVERS BANCORP, INC.

Item 4.  [Removed and Reserved]

Item 5.  Other Information

None.

45

DANVERS BANCORP, INC.

Item 6.                        Exhibits

Exhibit No.	Description
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 Executive 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 Executive Vice President and Chief Financial Officer**
*    Filed herewith.
** Furnished herewith.

46

DANVERS BANCORP, INC.

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:	May 10, 2011	By:	/s/	Kevin T. Bottomley
				Kevin T. Bottomley
				President and Chief Executive Officer
Date:	May 10, 2011	By:	/s/	James J. McCarthy
				James J. McCarthy
				Executive Vice President and Chief
				Operating Officer
Date:	May 10, 2011	By:	/s/	L. Mark Panella
				L. Mark Panella
				Executive Vice President and Chief
				Financial Officer

47