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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30, 2007            
|OR                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number: 001-33896

DANVERS BANCORP, INC.(Exact Name of Registrant as Specified in Its Charter)

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

Indicate
by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities 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 o No ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer
and lard accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large
accelerated filer o                Accelerated filer o                Non-accelerated
filer ý

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

As of December 28, 2007, there were no shares of the registrant's common stock outstanding.



---





EXPLANATORY NOTE

Danvers Bancorp, Inc. (the "Company") filed a Registration Statement on Form S-1 (File No. 333-145785) (the "Registration Statement"), as
amended, with the Securities and Exchange Commission (the "SEC"), which the SEC declared effective on November 13, 2007. The Registration Statement included unaudited consolidated financial
statements of Danvers Bancorp, Inc., a Massachusetts-chartered mutual holding company (the "MHC"), Danversbank, a Massachusetts-chartered savings bank, and the wholly-owned subsidiaries of
Danversbank and the predecessors of these entities for the interim period ended June 30, 2007. Therefore, the Company is filing this Form 10-Q pursuant to Rule 13a-13 of the
Securities Exchange Act of 1934, as amended, in order to file financial statements for the first quarter subsequent to the quarter reported in the Registration Statement.

2

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Table of Contents



|                              |                                                                                       |  |                                                                                                    |  | Page No.
|----------------------------- | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------
|PART I. FINANCIAL INFORMATION |                                                                                       | 
|Item 1.                       | Financial Statements (Unaudited)                                                      |  | 4                                                                                                 
|                              |                                                                                      |  | Consolidated Balance Sheets as of September 30, 2007 and December 31, 2006                         |  | 5       
|                              |                                                                                      |  | Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2007 and 2006  |  | 6       
|                              |                                                                                      |  | Consolidated Statements of Retained Earnings for the Nine Months Ended September 30, 2007 and 2006 |  | 7       
|                              |                                                                                      |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006        |  | 8       
|                              |                                                                                      |  | Notes to the Consolidated Financial Statements                                                     |  | 11      
|Item 2.                       | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 14                                                                                                
|Item 3.                       | Quantitative and Qualitative Disclosures About Market Risk                            |  | 21                                                                                                
|Item 4.                       | Controls and Procedures                                                               |  | 23                                                                                                
|Item 4T.                      | Controls and Procedures                                                               |  | 23                                                                                                
|Part II. OTHER INFORMATION    |                                                                                       | 
|Item 1.                       | Legal Proceedings                                                                     |  | 24                                                                                                
|Item 1A.                      | Risk Factors That May Affect Future Results                                           |  | 24                                                                                                
|Item 2.                       | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 24                                                                                                
|Item 3.                       | Defaults Upon Senior Securities                                                       |  | 24                                                                                                
|Item 4.                       | Submission of Matters to a Vote of Security Holders                                   |  | 24                                                                                                
|Item 5.                       | Other Information                                                                     |  | 24                                                                                                
|Item 6.                       | Exhibits                                                                              |  | 24                                                                                                

3

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Part I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

The Company, a Delaware corporation, was incorporated on August 31, 2007 by the MHC and Danversbank to be the holding company for Danversbank upon
completion of the MHC's conversion from a mutual bank holding company to a stock bank holding company. At September 30, 2007, the Company had no assets and conducted no operations, and,
therefore, the information presented in this report relates to the MHC and Danversbank. Unless otherwise specified or the context otherwise requires, the use herein of the terms "we," "our," "us" and
the "Company" when referring to time periods up to the conversion refer to the MHC, its consolidated subsidiary Danversbank, and/or their predecessors. The use of such terms when referring to time
periods after the conversion refer to Danvers Bancorp, Inc., a Delaware corporation, and its consolidated subsidiary Danversbank. Following the MHC's conversion from the mutual to stock form of
organization, the Company will own all of Danversbank's capital stock and will direct, plan, and coordinate Danversbank's business activities. See note 1 to the unaudited consolidated financial
statements.

4

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DANVERS BANCORP, INC.        CONSOLIDATED BALANCE SHEETS  (Unaudited)

|                                       |                                 | September 30,
2007 |           | December 31,
2006 |        
|-------------------------------------- | ------------------------------- | ------------------ | --------- | ----------------- | -------
|
|ASSETS                                 |                                
|Cash and cash equivalents              |                                 | $                  | 24,597    |                   | $      
|Securities available for sale          |                                 |                    | 354,943   |                   |        
|Loans held for sale                    |                                 |                    |          |                   |        
|Loans                                  |                                 |                    | 876,532   |                   |        
|Less allowance for loan losses         |                                 |                    | (8,871    | )                 |        
|                                       |                                 |                    |           |                   |        
|                                       |                                 | Loans, net         |           |                   | 867,661
|                                       |                                 |                    |           |                   |        
|Federal Home Loan Bank stock, at cost  |                                 |                    | 9,922     |                   |        
|Premises and equipment, net            |                                 |                    | 19,050    |                   |        
|Bank-owned life insurance              |                                 |                    | 23,328    |                   |        
|Other real estate owned                |                                 |                    | 2,877     |                   |        
|Accrued interest receivable            |                                 |                    | 7,129     |                   |        
|Deferred tax asset, net                |                                 |                    | 7,602     |                   |        
|Other assets                           |                                 |                    | 7,033     |                   |        
|                                       |                                 |                    |           |                   |        
|                                       |                                 | $                  | 1,324,142 |                   | $      
|                                       |                                 |                    |           |                   |        
|LIABILITIES AND RETAINED EARNINGS      |                                
|Deposits:                              |                                 |                    |           |                   |        
|                                       | Demand deposits                 |                    | $         | 126,810           |        
|                                       | Savings and NOW accounts        |                    |           | 167,743           |        
|                                       | Money market accounts           |                    |           | 338,566           |        
|                                       | Term certificates over $100,000 |                    |           | 211,892           |        
|                                       | Other term certificates         |                    |           | 140,295           |        
|                                       |                                 |                    |           |                   |        
|                                       |                                 | Total deposits     |           |                   | 985,306
|Short-term borrowings                  |                                 |                    | 75,957    |                   |        
|Long-term debt                         |                                 |                    | 148,550   |                   |        
|Subordinated debt                      |                                 |                    | 29,965    |                   |        
|Accrued expenses and other liabilities |                                 |                    | 14,409    |                   |        
|                                       |                                 |                    |           |                   |        
|                                       |                                 |                    | 1,254,187 |                   |        
|                                       |                                 |                    |           |                   |        
|Retained earnings                      |                                 |                    | 70,064    |                   |        
|Accumulated other comprehensive loss   |                                 |                    | (109      | )                 |        
|                                       |                                 |                    |           |                   |        
|                                       |                                 |                    | 69,955    |                   |        
|                                       |                                 |                    |           |                   |        
|                                       |                                 | $                  | 1,324,142 |                   | $      
|                                       |                                 |                    |           |                   |        

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

5

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DANVERS BANCORP, INC.        CONSOLIDATED STATEMENTS OF INCOME  (Unaudited)

|                                                     |                                                                   | Three Months Ended
September 30, |                                    | Nine Months Ended
September 30,
|---------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------- | ---------------------------------- | -------------------------------
|
|
|Interest and dividend income:                        |                                                                   |                                  |                                    |                                
|                                                     | Interest and fees on loans                                        |                                  | $                                  | 16,064                         
|                                                     | Interest on debt securities:                                      |                                  |                                    |                                
|                                                     |                                                                   | Taxable                          |                                    |                                
|                                                     |                                                                   | Non-taxable                      |                                    |                                
|                                                     | Dividends on equity securities                                    |                                  |                                    | 171                            
|                                                     | Interest on cash equivalents                                      |                                  |                                    | 119                            
|                                                     |                                                                   |                                  |                                    |                                
|                                                     |                                                                   |                                  | Total interest and dividend income |                                
|                                                     |                                                                   |                                  |                                    |                                
|Interest expense:                                    |                                                                   |                                  |                                    |                                
|                                                     | Interest on deposits:                                             |                                  |                                    |                                
|                                                     |                                                                   | Savings and NOW accounts         |                                    |                                
|                                                     |                                                                   | Money market accounts            |                                    |                                
|                                                     |                                                                   | Term certificates                |                                    |                                
|                                                     | Interest on short-term borrowings                                 |                                  |                                    | 244                            
|                                                     | Interest on long-term debt and subordinated debt                  |                                  |                                    | 2,444                          
|                                                     |                                                                   |                                  |                                    |                                
|                                                     |                                                                   |                                  | Total interest expense             |                                
|                                                     |                                                                   |                                  |                                    |                                
|Net interest income                                  |                                                                   |                                  | 9,366                              |                                
|Provision for loan losses                            |                                                                   |                                  | 225                                |                                
|                                                     |                                                                   |                                  |                                    |                                
|Net interest income, after provision for loan losses |                                                                   |                                  | 9,141                              |                                
|                                                     |                                                                   |                                  |                                    |                                
|Non-interest income:                                 |                                                                   |                                  |                                    |                                
|                                                     | Service charges on deposits                                       |                                  |                                    | 692                            
|                                                     | Loan servicing fees                                               |                                  |                                    | 68                             
|                                                     | Gain on sales of loans                                            |                                  |                                    | 13                             
|                                                     | Net loss on sales of securities                                   |                                  |                                    |                               
|                                                     | Change in fair value of derivative financial instruments          |                                  |                                    |                               
|                                                     | Gain (loss) on limited partnership investments                    |                                  |                                    |                               
|                                                     | Net increase in cash surrender value of bank-owned life insurance |                                  |                                    | 189                            
|                                                     | Other operating income                                            |                                  |                                    | 359                            
|                                                     |                                                                   |                                  |                                    |                                
|                                                     |                                                                   |                                  | Total non-interest income          |                                
|                                                     |                                                                   |                                  |                                    |                                
|Non-interest expenses:                               |                                                                   |                                  |                                    |                                
|                                                     | Salaries and employee benefits                                    |                                  |                                    | 5,239                          
|                                                     | Occupancy                                                         |                                  |                                    | 1,133                          
|                                                     | Equipment                                                         |                                  |                                    | 731                            
|                                                     | Outside services                                                  |                                  |                                    | 113                            
|                                                     | Other operating expense                                           |                                  |                                    | 1,674                          
|                                                     |                                                                   |                                  |                                    |                                
|                                                     |                                                                   |                                  | Total non-interest expenses        |                                
|                                                     |                                                                   |                                  |                                    |                                
|Income before provision for income taxes             |                                                                   |                                  | 1,572                              |                                
|Provision for income taxes                           |                                                                   |                                  | 247                                |                                
|                                                     |                                                                   |                                  |                                    |                                
|                                                     |                                                                   |                                  | Net income                         |                                
|                                                     |                                                                   |                                  |                                    |                                

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

6

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DANVERS BANCORP, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS  (Unaudited)

|                                                     |                                                                                                 | Retained
Earnings
(Restated) |        | Accumulated Other Comprehensive Income (Loss) (Restated) |   | Total Retained
Earnings
(Restated)
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ---------------------------- | ------ | -------------------------------------------------------- | - | ----------------------------------
|
|Balance at December 31, 2005, as previously reported |                                                                                                 | $                            | 62,803 |                                                          | $ | (3,769                            
|                                                     | Cumulative effect relating to derivative transaction                                            |                              |        | (181                                                     | ) |                                   
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   
|Balance at December 31, 2005 as restated             |                                                                                                 |                              | 62,622 |                                                          |   | (3,588                            
|Comprehensive income:                                |                                                                                                 |                              |        |                                                          |   |                                   
|                                                     | Net income                                                                                      |                              |        | 3,371                                                    |   |                                   
|                                                     | Net unrealized gain on securities available for sale, net of tax effect                         |                              |        |                                                         |   |                                   
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   
|                                                     |                                                                                                 | Total comprehensive income   |        |                                                          |   |                                   
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   
|Balance at September 30, 2006                        |                                                                                                 | $                            | 65,993 |                                                          | $ | (2,125                            
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   
|Balance at December 31, 2006                         |                                                                                                 | $                            | 66,859 |                                                          | $ | (1,780                            
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   
|Comprehensive income:                                |                                                                                                 |                              |        |                                                          |   |                                   
|                                                     | Net income                                                                                      |                              |        | 3,205                                                    |   |                                   
|                                                     | Net unrealized gain on securities available for sale, net of reclassification and tax effect    |                              |        |                                                         |   |                                   
|                                                     | Change in fair value and amortization of derivative used for cash flow hedge, net of tax effect |                              |        |                                                         |   |                                   
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   
|                                                     |                                                                                                 | Total comprehensive income   |        |                                                          |   |                                   
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   
|Balance at September 30, 2007                        |                                                                                                 | $                            | 70,064 |                                                          | $ | (109                              
|                                                     |                                                                                                 |                              |        |                                                          |   |                                   

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

7

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DANVERS BANCORP, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)

|                                      |                                                                       | Nine Months Ended
September 30,                              |                                           
|------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------
|
|
|Cash flows from operating activities: |                                                                       |                                                              |                                           
|                                      | Net income                                                            |                                                              | $                                         
|                                      | Adjustments to reconcile net income to net cash provided by operating |                                                              |                                           
|                                      |                                                                       |                                                              | activities:                               
|                                      |                                                                       | Provision for loan losses                                    |                                           
|                                      |                                                                       | Depreciation and amortization                                |                                           
|                                      |                                                                       | Amortization of net deferred loan fees and costs             |                                           
|                                      |                                                                       | Deferred tax benefit                                         |                                           
|                                      |                                                                       | Amortization of core deposit intangible and servicing rights |                                           
|                                      |                                                                       | Accretion of securities, net                                 |                                           
|                                      |                                                                       | Net loss on sales of securities                              |                                           
|                                      |                                                                       | Change in fair value of derivative financial instruments     |                                           
|                                      |                                                                       | Loans originated for sale                                    |                                           
|                                      |                                                                       | Proceeds from sale of loans originated for sale              |                                           
|                                      |                                                                       | Changes in other assets and liabilities:                     |                                           
|                                      |                                                                       |                                                              | Accrued interest receivable               
|                                      |                                                                       |                                                              | Other assets and bank-owned life insurance
|                                      |                                                                       |                                                              | Accrued expenses and other liabilities    
|                                      |                                                                       |                                                              |                                           
|                                      |                                                                       |                                                              |                                           
|                                      |                                                                       |                                                              |                                           
|Cash flows from investing activities: |                                                                       |                                                              |                                           
|                                      | Activity in available-for-sale securities:                            |                                                              |                                           
|                                      |                                                                       | Sales                                                        |                                           
|                                      |                                                                       | Maturities, prepayments and calls                            |                                           
|                                      |                                                                       | Purchases                                                    |                                           
|                                      | Redemption (purchase) of Federal Home Loan Bank stock                 |                                                              |                                           
|                                      | Funds advanced on other real estate owned                             |                                                              |                                           
|                                      | Net loan (originations) payments                                      |                                                              |                                           
|                                      | Purchase of premises and equipment                                    |                                                              |                                           
|                                      |                                                                       |                                                              |                                           
|                                      |                                                                       |                                                              |                                           
|                                      |                                                                       |                                                              |                                           

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

8

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DANVERS BANCORP, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)  (Unaudited)

|                                                                         |                                                 | Nine Months Ended
September 30, |                                          
|------------------------------------------------------------------------ | ----------------------------------------------- | ------------------------------- | -----------------------------------------
|
|
|Cash flows from financing activities:                                    |                                                 |                                 |                                          
|                                                                         | Net increase (decrease) in:                     |                                 |                                          
|                                                                         |                                                 | Term certificates               |                                          
|                                                                         |                                                 | Other deposits                  |                                          
|                                                                         |                                                 | Short-term borrowings           |                                          
|                                                                         | Activity in long-term debt:                     |                                 |                                          
|                                                                         |                                                 | Proceeds from advances          |                                          
|                                                                         |                                                 | Payment of advances             |                                          
|                                                                         | Proceeds from the issuance of subordinated debt |                                 |                                          
|                                                                         |                                                 |                                 |                                          
|                                                                         |                                                 |                                 | Net cash provided by financing activities
|                                                                         |                                                 |                                 |                                          
|Change in cash and cash equivalents                                      |                                                 |                                 | (20,523                                  
|Cash and cash equivalents at beginning of period                         |                                                 |                                 | 45,120                                   
|                                                                         |                                                 |                                 |                                          
|Cash and cash equivalents at end of period                               |                                                 | $                               | 24,597                                   
|                                                                         |                                                 |                                 |                                          
|Supplementary disclosure of cash flow information:                       |                                                 |                                 |                                          
|                                                                         | Cash paid during the period for:                |                                 |                                          
|                                                                         |                                                 | Interest                        |                                          
|                                                                         |                                                 | Income taxes                    |                                          
|Supplementary disclosure of non-cash financing and investing activities: |                                                 |                                 |                                          
|                                                                         | Unsettled securities transactions               |                                 |                                          
|                                                                         | Transfers from loans to other real estate owned |                                 |                                          

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

9

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RESTATEMENT OF DERIVATIVE TRANSACTIONS

The accompanying consolidated financial statements for 2006 have been restated to reclassify changes in fair value of a swap contract, entered into by the Company
in 2003, from other comprehensive income to net income. Total comprehensive income for all periods presented remains unchanged, and there is no impact on the Company's assets, liabilities or total
capital (retained earnings plus accumulated other comprehensive income) for the periods presented. After further review, management determined that the Company had not sufficiently documented its
hedge strategy to qualify the swap agreement for hedge accounting treatment under SFAS 133.

10

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NOTES TO CONSOLIDATED FINANACIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated interim financial statements include the accounts of the MHC and Danversbank. These financial statements have been
prepared in accordance with generally accepted accounting principles 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, they do not include all the information and footnotes required by GAAP for complete financial statements.

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, 2006 has been derived from the audited consolidated balance
sheet of the Company as of that date. Certain information and note disclosures normally included in the Company's annual financials statements prepared in accordance with GAAP have been omitted. The
accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2006, included
in the Company's Registration Statement on Form S-1 (the "Registration Statement"), as amended, which the Securities and Exchange Commission (the "SEC") declared effective on
November 13, 2007. The Registration Statement included financial statements for the interim period ended June 30, 2007. The results of operation for the three and nine months ended
September 30, 2007 are not necessarily indicative of the results to be expected for the full fiscal year.

2. Plan of Conversion and Change in Corporate Form

On June 15, 2007, the Board of Trustees of Danversbank and the Board of Directors of the MHC adopted a Plan of Conversion (the "Plan") whereby the MHC will
convert to a Delaware-chartered stock corporation, Danvers Bancorp, Inc. (DBI) and DBI will become the holding company of Danversbank and offer up to 14,950,000 shares (subject to adjustment to
17,195,500 shares) of common
stock on a priority basis to qualifying depositors, tax-qualified employee plans, and employees, officers and directors of Danversbank and the MHC, with any remaining shares to be offered to the
public in a direct community offering and possibly in a syndicated community offering (the "Conversion") at a price of $10.00 per share.

As
part of the Conversion, Danversbank will establish a liquidation account in an amount equal to the net worth of Danversbank as of the date of the latest consolidated balance sheet
appearing in the final prospectus distributed in connection with the Conversion. The liquidation account will be maintained for the benefit of eligible account holders and supplemental eligible
account holders who maintain their accounts at Danversbank after the Conversion. The liquidation account will be reduced annually to the extent that such account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases will not restore an account holder's interest in the liquidation account. In the event of a complete liquidation, each eligible account
holder will be entitled to receive balances for accounts then held.

Subsequent
to the Conversion, the Company may not declare or pay dividends on, and may not repurchase, any of its shares of common stock if the effect thereof would cause stockholders'
equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration, payment or repurchase would otherwise violate regulatory requirements.

Conversion
costs will be deferred and reduce the proceeds from the shares sold in the Conversion. If the Conversion is not completed, all costs will be expensed. As of
September 30, 2007 Conversion costs amounting to $972,000 have been incurred and are included in other assets in the accompanying balance sheet.

11

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As
part of the Conversion, the Company intends to implement an employee stock ownership plan and other benefit and salary continuation plans for directors, officers and employees. In
addition, as part of the Conversion, the Company intends to form a charitable foundation (the "Foundation") by donating to the Foundation a number of shares of its authorized but unissued
common stock in an amount equal to 5% of the number of shares of common stock sold in the offering, up to a maximum of 650,000 shares, and $350,000 in cash.

3. Recent Accounting Pronouncements

In March 2006, the Financial Accounting Standards Board ("FASB") issued Statement No. 156, "Accounting for Servicing of Financial Assets", which
amends FASB Statement No. 140. This Statement requires that all separately recognized servicing rights be initially measured at fair value, if practicable. For each class of separately
recognized servicing assets and liabilities, this Statement permits an entity to choose either of the following subsequent measurement methods: (1) amortize servicing assets or liabilities in
proportion to and over the period of estimated net servicing income or net servicing loss, or (2) report servicing assets or liabilities at fair value at each reporting date and report changes
in fair value in earnings in the period in which the changes occur (the "fair value method"). This Statement also requires additional disclosures for all separately recognized servicing rights and is
effective for new transactions occurring and for subsequent measurement at the beginning of the Company's 2007 calendar year. Management did not adopt the fair value method of accounting for its
servicing rights, and as a result this Statement did not have an impact on the Company's consolidated financial statements.

In
July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), which clarifies the accounting
for uncertainty in income taxes recognized in an entity's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. FIN 48 was adopted by the Company on January 1, 2007 and did not have a
material impact on the Company's consolidated financial statements.

In
September 2006, the FASB issued Statement No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement is effective for the Company on January 1, 2008 and is not
expected to have a material impact on the Company's consolidated financial statements.

On
February 15, 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities", which provides companies with an option to
report selected financial assets and liabilities at fair value. Statement No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for the Company's 2008 calendar year with early adoption in 2007 permitted and is
not expected to have a material impact on the Company's consolidated financial statements.

12

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The
Company is the sole owner of life insurance policies pertaining to certain of the Company's executives. The Company has entered into agreements with these executives whereby the
Company will pay to the executives' estates or beneficiaries a portion of the death benefit that the Company will receive as beneficiary of such policies. No liability has been recognized on the
consolidated balance sheet for such death benefits. In September 2006, the FASB ratified EITF Issue 06-4, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements". This Issue addresses accounting for split-dollar life insurance arrangements whereby the employer purchases a policy to insure the life of an employee, and
separately enters into an agreement to split the policy benefits between the employer and the employee. This Issue states that an obligation arises as a result of a substantive agreement with an
employee to provide future postretirement benefits. Under EITF 06-4, the obligation is not settled upon entering into an insurance arrangement. Since the obligation is not settled, a liability should
be recognized in accordance with applicable authoritative guidance. EITF 06-4 is effective for fiscal years beginning after December 15, 2007 and this Statement is not expected to have a
material impact on the Company's consolidated financial statements.

13

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

The following analysis discusses the financial position and results of operation of the Company, and should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in Item 1 of Part 1 of this report and the consolidated financial statements of Danversbank and the notes thereto included in the Company's
Registration Statement filed on Form S-1 for the year ended December 31, 2006, including note 2 which describes Danversbank's significant accounting policies, including its use of
estimates.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate,
plan, seek, expect and similar expressions. These forward-looking statements include statements of our goals, intentions and expectations, statements regarding our business plans and prospects and
growth and operating strategies, statements regarding the asset quality of our loan and investment portfolios; and estimates of our risks and future costs and benefits. These forward-looking
statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events
significantly increased competition among depository and other financial institutions, inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of
financial instruments, general economic conditions, either nationally or in our market areas, that are worse than expected, adverse changes in the securities markets, legislative or regulatory changes
that adversely affect our business, our ability to enter new markets successfully and take advantage of growth opportunities, changes in consumer spending, borrowing and savings habits, changes in
accounting policies and practices, as may be adopted by the bank regulatory agencies and the Financial Accounting Standards Board, and changes in our organization, compensation and benefit plans.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations is based upon the Company's unaudited consolidated financial
statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for
Form 10-Q. In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and income and expenses during the reported period. Actual results could differ
from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses and the valuation of the deferred tax
assets.

Comparison of Financial Condition at September 30, 2007 and December 31, 2006

Total Assets.Total assets increased by $61.5 million, or 4.9%, to $1.32 billion at
September 30, 2007 from $1.26 billion at December 31, 2006. This increase was primarily due to an increase in securities available for sale and was partially offset by a decrease
in cash and cash equivalents.

Cash and Cash Equivalents.Cash and cash equivalents declined by $20.5 million, or 45.5%, to
$24.6 million at September 30, 2007 from $45.1 million at December 31, 2006, as we used these assets to fund the purchase of securities.

Securities.The securities portfolio aggregated $354.9 million at September 30, 2007,
an increase of $81.8 million, or 30.0%, from $273.1 million at December 31, 2006. This increase was due to Danversbank's decision to take advantage of

14

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favorable
yields available on mortgage-backed securities and municipal bonds. Within the portfolio, obligations of government-sponsored enterprises decreased by $23.0 million, mortgage-backed
securities increased by $93.1 million and municipal bonds increased by $12.1 million.

Net Loans.Net loans as of September 30, 2007 were $867.7 million, a decrease of
$3.4 million, or 0.4%, from net loan balances of $871.1 million as of December 31, 2006. Overall loan demand was lower than anticipated for the first nine months of 2007. A
decrease in Danversbank's construction loan portfolio of $16.4 million over the first nine months of 2007 was partially offset by an increase in residential real estate and C&I loans of
$4.6 million and $8.3 million, respectively. Despite Danversbank's continuing commitment to grow its C&I and commercial real estate segments, there continues to be considerable
competition, especially for permanent commercial real estate financing, in Danversbank's primary markets. We continued to allow our construction loan portfolio to payoff without replacing these loans
due to our concerns about the inventory of single-family residential properties and residential condominiums in our primary lending markets.

Deposits.Danversbank's deposit growth remained strong through the first nine months of 2007. Total
deposits increased by $32.1 million to $985.3 million at September 30, 2007, an increase of 3.4% from a balance of $953.2 million at December 31, 2006. We
experienced the largest increase in money market accounts, which increased by $36.6 million, and to a lesser extent in demand deposit accounts and savings and NOW accounts, which increased by
$10.5 million and $11.7 million, respectively. The increases in these three deposit categories were partially offset by a reduction in the total term certificates of
$26.8 million. Danversbank continued to focus on attracting commercial and personal checking as well as money market accounts in 2007. This has allowed us to reduce our reliance on higher cost
term certificates.

Borrowed Funds.Danversbank relies on borrowings from the Federal Home Loan Bank of Boston, or FHLBB,
as an additional funding source as liquidity needs arise. The balance of these borrowings will fluctuate depending on Danversbank's ability to attract deposits, coupled with the amount of loan demand
in the market and other investment opportunities. Funds borrowed from the FHLBB increased by $22.7 million to $190.6 million at September 30, 2007, a 13.5% increase from a balance
of $167.9 million at December 31, 2006. The increase in the securities portfolio was primarily funded by additional FHLBB advances.

Danversbank's
borrowings include securities sold under agreements to repurchase, or repurchase agreements. Repurchase agreements are contracts for the sale of securities owned by
Danversbank, in this case large commercial deposit customers, with an agreement to repurchase those securities at an agreed upon price and date. Danversbank uses repurchase agreements as an
alternative funding tool and as a means of offering some of our commercial deposit customers a commercial sweep checking product. As of September 30, 2007, Danversbank had outstanding
$34.0 million in overnight repurchase agreements, an increase of $3.1 million or 10.0% from $30.9 million at December 31, 2006.

Retained Earnings.Retained earnings increased by $4.9 million to $70.0 million at
September 30, 2007 from a balance of $65.1 million as of December 31, 2006. This increase in retained earnings was due to our net income for the first nine months of
$3.2 million coupled with a $1.7 million decrease in the net unrealized loss on available for sale securities.

Comparison of Operating Results for the Three Months and Nine Months Ended September 30, 2007 and September 30, 2006

Net Income.Net income for the three months ended September 30, 2007 was $1.3 million,
a decrease from net income of $1.4 million for the three months ended September 30, 2006. This decrease was primarily the result of a decrease in non-interest income that is described
below.

15

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Net
income decreased by $166,000 to $3.2 million for the nine months ended September 30, 2007 from $3.4 million for the nine months ended September 30, 2006.
An increase in non-interest income of $225,000 and a reduction in the provision for loan losses of $225,000 were largely offset by increases in non-interest expense and provision for income taxes of
$503,000 and $64,000, respectively.

Net Interest Income.Net interest income for the three months ended September 30, 2007
increased to $9.4 million from $9.3 million for the three months ended September 30, 2006. Average interest-earning assets increased $11.3 million between the two periods.
The slight increase of $71,000 in net interest income resulted from a $93,000 increase due to volume and a $22,000 decrease due to rate of interest-earning assets and interest-bearing liabilities. Our
net interest margin was 3.05% for the three months ended September 30, 2007 compared to 3.06% for the three months ended September 30, 2006, reflecting the impact of a decrease in our
net interest rate spread to 2.62% from 2.70% during the same periods, respectively.

Net
interest income for the nine months ended September 30, 2007 and 2006 was $27.2 million and $27.3 million, respectively. Average interest-earning assets
increased $16.1 million between the two periods. The slight decrease of $49,000 in net interest income is directly attributable to a 5 basis point decrease in our net interest margin. Our net
interest margin was 3.07% for the nine months ended September 30, 2007 compared to 3.12% for the nine months ended September 30, 2006. The lower net interest margin was due to average
yields on interest-earning assets generally increasing at a slower pace than the average cost of funds between the comparative nine months periods.

Interest and Dividend Income.Interest income increased $1.0 million, or 5.1%, to
$20.4 million for the three months ended September 30, 2007 from $19.4 million for the three months ended September 30, 2006. The increase was primarily due to the yield on
interest-earning assets increasing by 26 basis points. Loans decreased on average by $18.0 million between the two periods, along with an increase in the average balances of securities of
$47.9 million and a decrease in cash equivalents of $18.0 million.
The average yield on loans increased from 7.32% for the three months ended September 30, 2006 to 7.35% for the same period in 2007, and the overall yield on interest-earning assets increased
from 6.39% to 6.65% for the 2006 and 2007 periods, respectively.

Interest
income increased $5.2 million, or 9.7%, to $59.2 million for the nine months ended September 30, 2007 from $53.9 million for the nine months ended
September 30, 2006. Loans decreased on average by $1.9 million between the two periods, along with an increase in the average balances of securities of $28.0 million and a
decrease in cash equivalents of $9.9 million. In the absence of strong loan demand, Danversbank has increased its securities portfolio and has funded these purchases with a mix of deposits and
borrowings. The average yield on loans increased from 7.22% for the nine months ended September 30, 2006 to 7.51% for the same period in 2007, and the overall yield on interest-earning assets
increased from 6.17% to 6.68% for the 2006 and 2007 periods, respectively.

Interest Expense.Interest expense for the three months ended September 30, 2007 increased by
$929,000, or 9.2%, to $11.1 million compared to interest expense of $10.1 million for the three months ended September 30, 2006. Average interest-bearing liabilities decreased by
$287,000 between the two periods and this resulted in an $112,000 decrease in interest expense. An increase of 34 basis points, or 9.2%, in the average cost of Danversbank's interest-bearing
liabilities resulted in an increase in interest expense of $1.0 million. The average cost of deposits increased from 3.44% for the three months ended September 30, 2006 to 3.84% for the
same period in 2007, and the overall rates on interest-bearing liabilities increased from 3.69% to 4.03% for the 2006 and 2007 periods, respectively.

Interest
expense for the nine months ended September 30, 2007 increased by $5.3 million, or 19.9%, to $31.9 million compared to interest expense of
$26.6 million for the nine months ended September 30, 2006. Average interest-bearing liabilities increased by $11.7 million between the two periods, and this increase resulted in
a $908,000 increase in interest expense. An increase of 63 basis points, or 18.5%, in the average cost of Danversbank's interest-bearing liabilities

16

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resulted
in an increase in interest expense of $4.4 million. The average cost of deposits increased from 3.07% for the nine months ended September 30, 2006 to 3.82% for the same period
in 2007, and the overall costs on interest-bearing liabilities increased from 3.40% to 4.03% for the 2006 and 2007 periods, due primarily to repricing of interest-bearing liabilities.

Provision for Loan Losses.Danversbank records a provision for loan losses as a charge to its
earnings when necessary in order to maintain the allowance for loan losses at a level sufficient to absorb probable losses inherent in the loan portfolio. Danversbank recorded $225,000 in loan loss
provisions during each of the three months ended September 30, 2007 and 2006. Provisions in both periods were reflective of the change in the loan portfolio composition, an evaluation of the
quality of the loan
portfolio, and net charge offs, the difference between loan charge-offs net of recoveries on loans previously charged off. Net charge-offs were $1.7 million and $44,000 for the three months
ended September 30, 2007 and 2006, respectively. In August 2007, Danversbank foreclosed on a single construction loan in the amount of $3.6 million, and a charge to the allowance
of $1.4 million was recorded following the auction based on the most recent valuation and estimated cost of completion. This charge-off was fully reserved for at June 30, 2007. Asset
quality for the comparable time periods was essentially unchanged. At September 30, 2007, the allowance for loan losses totaled $8.9 million, or 1.01% of the loan portfolio, compared to
$10.5 million, or 1.17%, of total loans at September 30, 2006.

Danversbank
recorded $450,000 and $675,000 in loan loss provisions during the nine months ended September 30, 2007 and 2006, respectively. Provisions in both periods were
reflective of a change in the loan portfolio composition, an evaluation of the quality of the loan portfolio, and net charge offs, the difference between loan charge-offs and recoveries on loans
previously charged off. Net charge-offs were $2.0 million and $294,000 for the nine months ended September 30, 2007 and 2006, respectively (see previous paragraph relating to foreclosed
property).

Non-interest Income.Non-interest income for the three months ended September 30, 2007
decreased by $178,000 or 11.9% to $1.3 million, compared to $1.5 million for the three months ended September 30, 2006. Danversbank experienced a decrease of $140,000 in gains on
the sale of loans due to a lower volume of sales and a decrease of $32,000 in income on our bank-owned life insurance holdings, or BOLI. Developing reliable and stable sources of non-interest income
to complement Danversbank's primary lines of business has been an area of particular focus over the past twelve months.

Non-interest
income for the nine months ended September 30, 2007 increased by $225,000 or 6.02% to $4.0 million, compared to $3.7 million for the nine months ended
September 30, 2006. Danversbank experienced increases across all non-interest income categories between the two periods. This increase was a result of the bank's focus on increasing fee income.
Service charges on deposit accounts increased by $178,000, cash surrender value income on our bank-owned life insurance holdings, or BOLI, increased $76,000, income from nondeposit investment products
and services (through Danversbank's arrangement with Raymond James Financial Services) increased $105,000, and debit card income increased $125,000 between the two periods.

Non-interest Expense.Non-interest expense was unchanged at $8.9 million between the three
months ended September 30, 2007 and 2006. We experienced a decrease in salaries and employee benefits, occupancy and other outside services expenses of $47,000, $23,000 and $58,000,
respectively. Danversbank implemented a salary freeze for all officer-level positions at the end of 2006 in response to the industry-wide margin compression that has impacted all banks over the past
few years. Equipment and other operating expenses increased by $119,000 and $9,000, respectively. The increase in equipment expense reflects our ongoing commitment to technology as a means of growing
the franchise.

17

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Non-interest
expense increased by $503,000, or 1.9%, to $26.8 million for the nine months ended September 30, 2007, compared to $26.3 million for the nine months
ended September 30, 2006. Salaries and employee benefits constituted the largest component of our non-interest expense. Salaries and employee benefits expense increased $181,000, or 1.1%, to
$16.0 million for the nine months ended September 30, 2007. This increase was primarily due to higher health care costs. Equipment expense increased $209,000 to $2.1 million for
the first nine months of 2007 and reflects our ongoing commitment to technology as a means of growing the franchise. Other operating expense increased by $103,000 between the two periods and reflects
increases in supplies, other outside services, including consulting, audit and legal services, and other general and administrative expenses commensurate with the growth of the business.

Income Taxes.Income tax expense was $248,000 for the three months ended September 30, 2007, a
decrease of $25,000, compared to $272,000 for the three months ended September 30, 2006. The effective tax rate for the three months ended September 30, 2007 was 15.7% compared to 16.2%
for the same period in 2006. The decrease is a reflection of a combination of tax planning strategies that have been in place for the past few years.

Income
tax expense was $735,000 for the nine months ended September 30, 2007, an increase of $64,000 or 9.5%, compared to $671,000 for the nine months ended September 30,
2006. The combined federal and state effective tax rates were 18.7% and 16.6% for the nine months ended September 30, 2007 and 2006, respectively. Our relatively low corporate tax rates for
both periods are a reflection of a combination of tax planning strategies that have been in place for the past few years.

The
following tables 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. Danversbank 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.

18

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The following table summarizes average balances and average yields and costs for the three months ended September 30, 2007 and 2006.

|                                                                           |                                                     | For the Three Months Ended September 30,   |        
|-------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------ | -------
|
|
|
|Interest-earning assets:                                                   |                                                     |                                            |        
|Interest-earning cash equivalents                                          |                                                     | $                                          | 9,869  
|Debt securities:(2)                                                        |                                                     |                                            |        
|                                                                           | U.S. Government                                     |                                            |        
|                                                                           | Gov't-sponsored enterprises                         |                                            |        
|                                                                           | Mortgage-backed                                     |                                            |        
|                                                                           | Municipal bonds                                     |                                            |        
|                                                                           | Other                                               |                                            |        
|Equity securities                                                          |                                                     |                                            | 10,495 
|Real estate mortgages(3)                                                   |                                                     |                                            | 554,118
|C&I loans(3)                                                               |                                                     |                                            | 258,510
|IRBs(3)                                                                    |                                                     |                                            | 44,310 
|Consumer loans(3)                                                          |                                                     |                                            | 9,571  
|                                                                           |                                                     |                                            |        
|                                                                           |                                                     | Total interest-earning assets              |        
|                                                                           |                                                     |                                            |        
|Allowance for loan losses                                                  |                                                     |                                            | (9,680 
|                                                                           |                                                     |                                            |        
|                                                                           | Total earning assets less allowance for loan losses |                                            |        
|                                                                           | Non-interest-earning assets                         |                                            |        
|                                                                           |                                                     |                                            |        
|                                                                           |                                                     | Total assets                               |        
|                                                                           |                                                     |                                            |        
|Interest-bearing liabilities:                                              |                                                     |                                            |        
|Deposits:                                                                  |                                                     |                                            |        
|                                                                           | Savings and NOW accounts                            |                                            | $      
|                                                                           | Money market accounts                               |                                            |        
|                                                                           | Term certificates(4)                                |                                            |        
|                                                                           |                                                     |                                            |        
|Total Deposits                                                             |                                                     |                                            | 864,318
|Borrowed funds:                                                            |                                                     |                                            |        
|                                                                           | Short-term borrowings                               |                                            |        
|                                                                           | Long-term debt                                      |                                            |        
|                                                                           | Subordinated debt                                   |                                            |        
|                                                                           |                                                     |                                            |        
|                                                                           |                                                     | Total Interest-bearing liabilities         |        
|                                                                           |                                                     |                                            |        
|Non-interest-bearing deposits                                              |                                                     |                                            | 125,433
|Other non-interest-bearing liabilities                                     |                                                     |                                            | 9,122  
|                                                                           |                                                     |                                            |        
|                                                                           |                                                     | Total non-interest-bearing
    liabilities |        
|                                                                           |                                                     |                                            |        
|                                                                           |                                                     | Total liabilities                          |        
|Equity                                                                     |                                                     |                                            | 67,125 
|                                                                           |                                                     |                                            |        
|                                                                           |                                                     | Total liabilities and equity               |        
|                                                                           |                                                     |                                            |        
|Net interest income                                                        |                                                     |                                            |        
|                                                                           |                                                     |                                            |        
|Net interest rate spread(5)                                                |                                                     |                                            |        
|                                                                           |                                                     |                                            |        
|Net interest-earning assets(6)                                             |                                                     | $                                          | 129,010
|                                                                           |                                                     |                                            |        
|Net interest margin(7)                                                     |                                                     |                                            |        
|                                                                           |                                                     |                                            |        
|Ratio of interest-earning assets to total
    interest-bearing liabilities |                                                     |                                            | 1.12   
|                                                                           |                                                     |                                            |        

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19

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The following table summarizes average balances and average yields and costs for the nine months ended September 30, 2007 and 2006.

|                                                                           |                             | For the Nine Months Ended September 30,             |        
|-------------------------------------------------------------------------- | --------------------------- | --------------------------------------------------- | -------
|
|
|
|Interest-earning assets:                                                   |                             |                                                     |        
|Interest-earning cash equivalents                                          |                             | $                                                   | 9,129  
|Debt securities:(2)                                                        |                             |                                                     |        
|                                                                           | U.S. Government             |                                                     |        
|                                                                           | Gov't-sponsored enterprises |                                                     |        
|                                                                           | Mortgage-backed             |                                                     |        
|                                                                           | Municipal bonds             |                                                     |        
|                                                                           | Other                       |                                                     |        
|Equity securities                                                          |                             |                                                     | 10,493 
|Real estate mortgages(3)                                                   |                             |                                                     | 552,891
|C&I loans(3)                                                               |                             |                                                     | 258,539
|IRBs(3)                                                                    |                             |                                                     | 42,192 
|Consumer loans(3)                                                          |                             |                                                     | 9,971  
|                                                                           |                             |                                                     |        
|                                                                           |                             | Total interest-earning assets                       |        
|                                                                           |                             |                                                     |        
|Allowance for loan losses                                                  |                             |                                                     | (10,147
|                                                                           |                             |                                                     |        
|                                                                           |                             | Total earning assets less allowance for loan losses |        
|Non-interest-earning assets                                                |                             |                                                     | 78,725 
|                                                                           |                             |                                                     |        
|                                                                           |                             | Total assets                                        |        
|                                                                           |                             |                                                     |        
|Interest-bearing liabilities:                                              |                             |                                                     |        
|Deposits:                                                                  |                             |                                                     |        
|                                                                           | Savings and NOW accounts    |                                                     | $      
|                                                                           | Money market accounts       |                                                     |        
|                                                                           | Term certificates(4)        |                                                     |        
|                                                                           |                             |                                                     |        
|Total Deposits                                                             |                             |                                                     | 842,172
|Borrowed funds:                                                            |                             |                                                     |        
|                                                                           | Short-term borrowings       |                                                     |        
|                                                                           | Long-term debt              |                                                     |        
|                                                                           | Subordinated debt           |                                                     |        
|                                                                           |                             |                                                     |        
|                                                                           |                             | Total Interest-bearing liabilities                  |        
|                                                                           |                             |                                                     |        
|Non-interest-bearing deposits                                              |                             |                                                     | 116,926
|Other non-interest-bearing liabilities                                     |                             |                                                     | 9,185  
|                                                                           |                             |                                                     |        
|                                                                           |                             | Total non-interest-bearing
    liabilities          |        
|                                                                           |                             |                                                     |        
|                                                                           |                             | Total liabilities                                   |        
|Equity                                                                     |                             |                                                     | 126,110
|                                                                           |                             |                                                     |        
|                                                                           |                             | Total liabilities and equity                        |        
|                                                                           |                             |                                                     |        
|Net interest income                                                        |                             |                                                     |        
|                                                                           |                             |                                                     |        
|Net interest rate spread(5)                                                |                             |                                                     |        
|                                                                           |                             |                                                     |        
|Net interest-earning assets(6)                                             |                             | $                                                   | 123,040
|                                                                           |                             |                                                     |        
|Net interest margin(7)                                                     |                             |                                                     |        
|                                                                           |                             |                                                     |        
|Ratio of interest-earning assets to total
    interest-bearing liabilities |                             |                                                     | 1.12   
|                                                                           |                             |                                                     |        

---

20

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The following table presents the dollar amount of changes in interest income and interest expense for the major categories of Danversbank's interest-earning assets and interest-bearing
liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes
in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances).

|                                           |                             | Three Months Ended September 30,
2007 vs. 2006 |      | Nine Months Ended September 30,
2007 vs. 2006 |    
|------------------------------------------ | --------------------------- | ---------------------------------------------- | ---- | --------------------------------------------- | ---
|
|
|
|
|Interest-earning assets:                   |                             |                                                |      |                                               |    
|Interest-earning cash equivalents          |                             | $                                              | (235 | )                                             | $  
|Debt securities:(1)                        |                             |                                                |      |                                               |    
|                                           | U.S. Government             |                                                |      | (5                                            | )  
|                                           | Gov't-sponsored enterprises |                                                |      | (416                                          | )  
|                                           | Mortgage-backed             |                                                |      | 911                                           |    
|                                           | Municipal bonds             |                                                |      | 138                                           |    
|                                           | Other                       |                                                |      |                                              |    
|Equity securities                          |                             |                                                | (14  | )                                             |    
|Real estate mortgages(2)                   |                             |                                                | (472 | )                                             |    
|C&I loans(2)                               |                             |                                                | (53  | )                                             |    
|IRBs(2)                                    |                             |                                                | 135  |                                               |    
|Consumer loans(2)                          |                             |                                                | (8   | )                                             |    
|                                           |                             |                                                |      |                                               |    
|                                           |                             | Total interest-earning assets                  |      |                                               | (19
|                                           |                             |                                                |      |                                               |    
|Interest-bearing liabilities:              |                             |                                                |      |                                               |    
|Savings and NOW accounts                   |                             |                                                | (5   | )                                             |    
|Money market accounts                      |                             |                                                | 716  |                                               |    
|Term certificates(3)                       |                             |                                                | (591 | )                                             |    
|                                           |                             |                                                |      |                                               |    
|                                           |                             | Total Deposits                                 |      |                                               | 120
|Borrowed funds:                            |                             |                                                |      |                                               |    
|                                           | Short-term borrowings       |                                                |      | 12                                            |    
|                                           | Long-term debt              |                                                |      | (319                                          | )  
|                                           | Subordinated debt           |                                                |      | 75                                            |    
|                                           |                             |                                                |      |                                               |    
|Total interest-bearing liabilities         |                             |                                                | (112 | )                                             |    
|                                           |                             |                                                |      |                                               |    
|Increase (decrease) in net interest income |                             | $                                              | 93   |                                               | $  
|                                           |                             |                                                |      |                                               |    

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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Exposure to market interest rate risk is managed by the Danversbank through periodic evaluations of the current interest rate risk inherent in its rate-sensitive
assets and liabilities, primarily deposits, borrowings, loans and investment securities, coupled with determinations of the level of risk considered appropriate given Danversbank's capital and
liquidity requirements, business strategy and performance objectives. Through such management, Danversbank seeks to manage the vulnerability of its net interest income to changes in interest rates.

The
Asset/Liability Committee, or ALCO, chaired by the Chief Financial Officer and comprised of several members of senior management, is responsible for managing interest rate risk. On a
quarterly basis, this committee reviews with the board of directors its analysis of our exposure to interest rate risk, the effect subsequent changes in interest rates could have on

21

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Danversbank's
future net interest income, key interest rate risk strategies and other activities, and the effect of those strategies on Danversbank's operating results. This committee is also actively
involved in Danversbank'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
June 30, 2007, we used a simulation model to project changes for three rising and three falling rate scenarios. This analysis calculates the difference between net interest
income forecasts for these
scenarios compared to the net interest income forecast using a flat rate scenario. In each of these instances, Federal Funds is used as the driving rate. The table below sets forth, as of
June 30, 2007, the estimated changes in Danversbank's net interest income that would result.

|       |  | Net Portfolio Value(2) |         | Net Interest Income |  
|------ |  | ---------------------- | ------- | ------------------- | -
|
|
|
|
|+300bp |  | $                      | 65,917  |                     | $
|+200bp |  |                        | 80,693  |                     |  
|+100bp |  |                        | 96,704  |                     |  
|0bp    |  |                        | 113,487 |                     |  
|-100bp |  |                        | 125,528 |                     |  
|-200bp |  |                        | 134,736 |                     |  
|-300bp |  |                        | 143,308 |                     |  

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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 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, we have
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

22

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changes
to our credit risk profile as interest rates change. Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan
prepayment rates that differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

For
the rising and falling interest rate scenarios, the base market interest rate forecast was increased or decreased, on an instantaneous and sustained basis, by 100, 200 and 300 basis
points. At June 30, 2007, 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, 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 Danversbank'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 Danversbank's net interest income and
may differ from actual results.

Item 4.    Controls and Procedures

See Item 4T below.

Item 4T.    Controls and Procedures

(a)    Evaluation of Disclosure Controls and Procedures

The Company's President and Chief Executive Officer, its Executive Vice President and Chief Operating Officer, and other members of its senior management team
have evaluated the effectiveness of the Company's disclosure controls and procedures as defined under the Securities and Exchange Act of 1934 Rules 13(a)-15(e), as amended, (the "Exchange
Act"). Based upon their evaluation the President and Chief Executive Officer, the Executive Vice President and Chief Operating Officer, the Senior Vice President and Chief Financial Officer, and the
First Vice President and Chief Accounting Officer have concluded that the Company's disclosure controls and procedures, as for the end of the period covered by this report, were adequate and effective
to provide reasonable assurance that the
information required to be disclosed by the Company, including its consolidated subsidiaries, in reports that are filed or submitted under the Exchange Act, is recorded, processed, summarized, and
reported, within the time periods specified in the SEC's rules and forms.

The
effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions
about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in condition and the risk that the degree of compliance with policies or procedures may deteriorate over time. Due to
such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information
known in a timely manner to the appropriate levels of management.

(b)    Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2007 that have materially affected, or that
are reasonably likely to materially affect, the Company's internal controls over financial reporting.

23

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

None of the Company, the MHC or Danversbank is involved in any legal proceedings other than routine legal proceedings occurring in the ordinary course of
business. Management believes that such proceedings are, in the aggregate, immaterial to our financial condition and results of operations.

Item 1A.    Risk Factors That May Affect Future Results

For information regarding the Company's risk factors, see "Risk Factors", at pages 16-24 of the Company's prospectus, filed with the SEC pursuant to
Rule 424(b)(3) on November 13, 2007 (the "Prospectus"). There have been no material changes in the Company's risk factors during the three months ended September 30, 2007.

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

Not applicable.

Item 3.    Defaults Upon Senior Securities

Not applicable.

Item 4.    Submission of Matters to a Vote of Security Holders

Not applicable.

Item 5.    Other Information

Not applicable.

Item 6.    Exhibits

|2.1  |  | Plan of Conversion*                                                                                 
|---- |  | ----------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Incorporation of Danvers Bancorp, Inc.*                                              
|3.2  |  | By-laws of Danvers Bancorp, Inc.*                                                                   
|4.1  |  | Form of Stock Certificate of Danvers Bancorp, Inc.*                                                 
|10.1 |  | Danversbank Supplemental Executive Retirement Plan*                                                 
|10.2 |  | Supplemental Pension Agreement for L. Mark Panella*                                                 
|10.3 |  | Phantom Stock Plan*                                                                                 
|10.4 |  | Nonqualified Deferred Compensation Plan*                                                            
|10.5 |  | Danversbank SBERA Pension Plan*                                                                     
|10.6 |  | Financial Advisory Agreement*                                                                       
|10.7 |  | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and Kevin T. Bottomley*
|10.8 |  | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and James J. McCarthy* 
|10.9 |  | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and L. Mark Panella*   
|     |  |                                                                                                     

24

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|10.10 |  | Form of Employment Agreement by and among Danvers Bancorp, Inc., Danversbank and John J. O'Neil*                                                                           
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | Form of Change in Control Agreement*                                                                                                                                       
|10.12 |  | Form of Employee Stock Ownership Plan*                                                                                                                                     
|10.13 |  | Form of Employee Stock Ownership Restoration Plan*                                                                                                                         
|10.14 |  | Form of Danvers Bancorp, Inc. Change in Control Severance Pay Plan*                                                                                                        
|10.15 |  | Form of Danvers Bancorp, Inc. 2008 Stock Option and Incentive Plan*                                                                                                        
|11    |  | No statement regarding earnings per share is included because the Company had no shares outstanding during the quarter ended September 30, 2007.                           
|31.1  |  | Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          
|31.2  |  | Certification of Executive Vice President and Chief Operating Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                           
|31.3  |  | Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                              
|32.1  |  | Certification of President and Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.               
|32.2  |  | Certification of Executive Vice President and Chief Operating Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
|32.3  |  | Certification of Senior Vice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.   

---

25

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Signatures

Pursuant to the requirements of the Securities and 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: December 28, 2007 |  | By:                  
|                        |  |                      
|Date: December 28, 2007 |  | By:                  
|                        |  |                      
|Date: December 28, 2007 |  | By:                  
|                        |  |                      

26

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