Danvers Bancorp, Inc. Reports Results for the Three Months and Year Ended December 31, 2008.

DANVERS, Mass. -- Danvers Bancorp, Inc. (the "Company") (NASDAQ: DNBK), the holding company for Danversbank (the "Bank"), today reported net loss of $37,000 for the quarter ended December 31, 2008 compared to net income of $1.1 million for the same quarter in 2007. Higher provision for loan losses, primarily related to the growth of the Company's loan portfolio, an increase in non-interest expenses and higher provision for income taxes offset measurable increases in net interest income. In particular, net interest income improved by $2.7 million or 27.6% from the comparable three-month period in 2007.

Compared to the quarter ended September 30, 2008, net income decreased to a net loss of $37,000 from net income of $48,000. Increases in net interest income and non-interest income were offset by increases in both the provision for loan losses, non-interest expense and higher income tax provision in relation to pretax income.

For the year ended December 31, 2008, the Company recorded a net loss of $2.7 million compared to net income of $4.4 million in 2007. The 2008 loss was primarily due to two non-recurring items; a $6.9 million pretax charge related to the establishment of the Danversbank Charitable Foundation (the ''Foundation") and a $3.7 million pretax charge related to the acceleration of the Company's phantom stock plan. Both charges are directly related to the Company's conversion in 2008 from a mutual form of organization to a public stock holding company. Due to the dramatic growth of the loan portfolio during 2008, the Company's provision for loan losses expense increased $3.4 million between the two periods. In addition, the Company incurred $2.8 million in other real estate owned expense in 2008 primarily related to a residential subdivision that was sold during the third quarter.

Fourth quarter financial highlights include:

* 23% annual growth in gross loans;

* 12% annual growth in total deposits;

* Non-performing assets to total assets of 0.41% compared to 0.50% for Q3 '08 and .55% for Q4 '07;

* Net interest margin of 3.24% compared to 3.25% for Q3 '08 and 3.09% for Q4 '07;

* Net interest income increased 28% compared to the same period in 2007;

* Net interest income increased 7% compared to Q3 '08;

* Non-interest income decreased 8% compared to the same period in 2007; and

* Non-interest income increased 16% compared to Q3 '08.

"Overall we are pleased with both our financial performance during the past year and our financial condition at the end of the year. A strong capital position following our conversion to a public company in January, robust growth in our loan portfolio and strong asset quality metrics are particularly noteworthy," stated Kevin T. Bottomley, President and CEO.

Earnings per share basic and diluted for the fourth quarter was $(0.002). Earnings per share are not applicable for the year ended December 31, 2008, as shares were not outstanding for the entire period.

Dividend Declared

The Board of Directors of the Company has declared a cash dividend on its common stock of $0.02 per share. The dividend will be paid on or after February 20, 2009 to shareholders of record as of February 6, 2009.

2008 Earnings Summary

The Company's net interest income reflected a significant increase of $2.7 million, or 27.6%, during the fourth quarter of 2008 when compared with the same period in 2007. The increase was attributable to both an improvement in the Company's net interest margin and continued strong loan growth during the quarter. The Company's net interest income increased $798,000 when compared to the third quarter of 2008. While the overall volume of business, particularly in the loan area, increased during the quarter, the Company experienced a 1 basis point decline in its net interest margin ("NIM") for the quarter. The change, however, was considerably less than the 13 basis point decline in NIM that the Company experienced between the second and third quarter in 2008. Both the Company's asset yields and liability costs declined slightly during the fourth quarter. Deposit funding costs were identical between the two time periods. The Company's NIM was 3.24% for the quarter ended December 31, 2008, compared to 3.25% for the quarter ended September 30, 2008 and 3.09% for the quarter ended December 31, 2007.

Non-interest income for the fourth quarter of 2008 totaled $1.7 million, a decrease of $151,000, or 8.3%, compared to the fourth quarter of 2007. Increases in other operating income and service charges on deposits were offset by a decrease in gains on sales of securities. Non-interest income increased $225,000 on a linked quarter basis. The change reflects increases in service charges on deposits, income on bank-owned life insurance and other operating income.

For the year ended December 31 2008, the Company's net interest income increased by $10.0 million or 27.0%. The Company experienced the combined benefit of improved margins and significantly increased loan volume between the comparable periods. In particular, the Company's loan portfolio increased by more that $210 million for the year. Non-interest income increased by $1.2 million or 21.6% compared to the year ended December 31, 2007. Included in the increase in non-interest income is an increase of $556,000 in securities gains, net. Management sold a portion of the securities portfolio in 2008 in order to reposition a segment of the portfolio, from fixed to adjustable, and to fund the Company's expanded lending activities.

Other operating expense increased by $2.2 million for the fourth quarter of 2008 as compared to the same period in 2007. The most notable factors contributing to this increase were due to an increase in other real estate owned expense of $893,000 and other operating expense of $886,000. The Company established an OREO reserve during the fourth quarter that relates to a performance bond associated with the large residential subdivision that was sold during the third quarter of 2008. Increases in general and administrative expenses, most notably in the areas of deposit insurance, legal, marketing, and investor relations were the primary reasons for the increases between the comparable periods. Non-interest expense increased by $1.7 million for the quarter when compared to the quarter ended September 30, 2008. This was also due to increases in other real estate owned related to the aforementioned subdivision and general and administrative expenses as we continue to expand the Company's presence in the marketplace.

Other operating expense increased significantly between the comparable twelve-month periods. The increase was primarily due to two non-recurring conversion items; a $6.9 million pretax charge related to the establishment of the Danversbank Charitable Foundation and a $3.7 million pretax charge related to the acceleration of the Company's phantom stock plan. In addition, the Company's provision for loan losses and foreclosure expense increased by $3.4 and $2.7 million, respectively, between the two periods. The growth of the loan portfolio and the workout of the residential subdivision were the primary reasons for the respective increases.

Balance Sheet Summary

The Company's total assets increased by $279.5 million, or 19.3%, from $1,448.3 million at December 31, 2007 to $1,727.8 million at December 31, 2008. Net loans increased by $207.4 million, or 23.1% during the year and securities increased $84.1 million, or 20.7%. The change in the Company's mix of business is due primarily to some excellent credit opportunities that continue to present themselves. The overall increase in the Company's assets was funded primarily with an increase in deposits and to a lesser extent a combination of short and long-term borrowing. Deposit balances increased by $120.2 million, or 12.0%, for the year of 2008. Total borrowing increased $162.5 million for the same time period.

The Company experienced significant growth in commercial and industrial (C&I) loan balances in 2008. For 2008, the Company had an increase in C&I loans of $170.7 million including $28.6 million in the fourth quarter. Overall, the loan portfolio increased more than $45 million during the quarter and at $1,118.9 million, gross loans have increased by $210.5 million for the year.

"Our decided focus on C&I lending was a successful strategy in 2008 as this segment accounted for 81% of the growth in our loan portfolio as a whole. Within the C&I area, the performance of the asset based lending group, who joined the Company during the fourth quarter of 2007, was of particular note as it accounted for 54% of the total growth in the C&I loan portfolio," noted Bottomley.

Despite the continuing deterioration experienced in many sectors of the broader credit markets, the Company's asset quality metrics remained satisfactory at December 31, 2008, with non-performing assets as a percentage of total assets of 41 basis points, down from 50 basis points at September 30, 2008 and 55 basis points at December 31, 2007. Non-performing assets totaled $7.1 million at December 31, 2008 compared to $7.9 million at December 31, 2007. The fourth quarter provision for loan losses was $1.5 million compared to $350,000 for the same period in 2007 and $1.1 million during the third quarter of 2008. The growth of the loan portfolio, particularly in the C&I segment, was the primary reason for the increase over the past two quarters. Net charge-offs were $1.2 million for 2008 compared to $2.1 million for 2007. At 11 basis points of total loans, net charge offs in 2008 were consistent with the Company's historical loss trends. The allowance for loan losses increased by $1.1 million, or 9.8%, during the fourth quarter of 2008 and $3.0 million for 2008. The allowance represents 1.08% of loans at December 31, 2008 compared to 1.00% at December 31, 2007. The allowance represents 204.53% of non-performing loans at December 31, 2008.

Deposits increased by $120.2 million, or 12.0%, to $1,118.3 million at December 31, 2008 compared to $998.1 million at December 31, 2007. Deposit balances decreased by $7.1 million during the fourth quarter. For the year, the Company has experienced increases in most deposit categories with the most notable increase occurring in the Company's money market category. With our commercial focus, successfully raising core deposits is a critical component of the Company's overall strategy. Advances from the Federal Home Loan Bank of Boston (FHLBB) increased by $157.0 million, or 108.2%, at December 31, 2008 compared to December 31, 2007. The vast majority of the increase consisted of overnight borrowing. The Company had the opportunity during the fourth quarter to fund some longer term investments, with embedded call features, with overnight advances from the FHLBB. Many of these overnight advance rates were as low as 6-7 basis points and in all likelihood most of these recent investments will be called over the course of 2009. With the reduction in Prime Rate this year of 400 basis points and Fed Funds rates in the range of zero to 25 basis points, the Company has selectively chosen to fund its growth with short-term advances from the FHLBB and then replace these advances with deposits, over time.

Company Profile

Danvers Bancorp, Inc. is the holding company for Danversbank, a Massachusetts-chartered savings bank headquartered in Danvers, Massachusetts. Originally founded in 1850 as a Massachusetts-chartered mutual savings bank, we have grown to $1.7 billion in assets through acquisitions and internal growth, including de novo branching. We conduct business from our main office located at One Conant Street, Danvers, Massachusetts, and our 16 other branch offices located in Andover, Beverly, Boston, Chelsea, Danvers, Malden, Middleton, Peabody, Reading, Revere, Salem, Saugus, Wilmington, and Woburn, Massachusetts. Our business consists primarily of making loans to our customers, including commercial and industrial, commercial real estate loans, owner-occupied residential mortgages and consumer loans, and investing in a variety of investment securities. We fund these lending and investment activities with deposits from our customers; funds generated from operations and selected borrowings. We also provide non-deposit investment products and services, cash management, debit and credit card products and online banking services. Additional information about the Company and its subsidiaries is available at www.danversbank.com.

Forward Looking Statements

Certain statements herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and expectations of management, as well as the assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. As a result, actual results may differ from those contemplated by these statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate,' and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Certain factors that could cause actual results to differ materially from expected results include changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes and the risk factors described in the Company's December 31, 2007 Form 10-K, issued March 28, 2008, as updated by our Quarterly Reports on Form 10-Q, that adversely affect the business in which Danvers Bancorp is engaged and changes in the securities market. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release and the associated conference call. The Company disclaims any intent or obligation to update any forward-looking statements, whether in response to new information, future events or otherwise.

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(1) Yields are annualized.

(2) Average balances are presented at average amortized cost.

(3) Average loans include non-accrual loans and are net of average deferred loan fees/costs.

(4) Term certificates include brokered and non-brokered CDs.

(5) Net interest rate spread represents the difference between the yield on interest earning assets and the cost of interest-bearing liabilities at the period indicated.

(6) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(7) Net interest margin represents net interest income divided by average total interest-earning assets.

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(1) Average balances are presented at average cost.

(2) Average loans include non-accrual loans and are net of average deferred loan fees/costs.

(3) Term certificates include brokered and non-brokered CDs.

(4) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities at the period indicated.

(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-bearing assets.

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(1) Yields are annualized.

(2) Average balances are presented at average cost.

(3) Average loans include non-accrual loans and are net of average deferred loan fees/costs.

(4) Term certificates include brokered and non-brokered CDs.

(5) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities at the period indicated.

(6) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(7) Net interest margin represents net interest income divided by average total interest-bearing assets.

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(1) Ratios for the three months ended December 31, 2008 and 2007 and three months ended September 30, 2008 are annualized.

(2) The net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.

(3) The net interest margin represents net interest income as a percent of average interest-earning assets for the period.

(4) The efficiency ratio represents non-interest expense for the period minus expenses related to the amortization of intangible assets divided by the sum of net interest income (before the loan loss provision) plus non-interest income.