William J. Hieb, President and COO, said, "As we move forward, we won't lose sight of the continued importance of expense control. We believe we have instilled that sense of ownership and pride that makes controlling costs a part of our daily operations."
Total assets were reduced by $31.9 million, to $602.3 million at December 31, 2010 compared to $634.2 million at December 31, 2009. The overall decline in assets was part of DNB's strategy to reduce the cost of funds and improve core earnings by substituting loans for investment securities. The reduction was due to a $17.5 million decrease in cash and cash equivalents and a $49.3 million decrease in investment securities, offset by a $36.7 million increase in net loans and leases.
Deposits declined by $14.6 million, or 2.88%, to $492.7 million at December 31, 2010 compared to $507.3 million at December 31, 2009. Core deposits, i.e., demand deposits, money market accounts, NOW and savings accounts, increased $18.3 million in aggregate or 5.44%, while time deposits declined $32.9 million or 19.22%. DNB's composite cost of funds for the fourth quarter of 2010 dropped 71 basis points to 1.05% compared to 1.76% for the three months ended December 31, 2009.
Capital remained strong at the end of the fourth quarter of 2010, as DNB's tier 1 leverage ratio stood at 9.25% and its total risk-based capital ratio stood at 14.28%, well above the levels of 5.00% and 10.00% respectively to be deemed "well capitalized" for regulatory purposes. These are levels management feels are appropriate for current market conditions. Shareholder's equity increased $2.3 million to $45.2 million at December 31, 2010 compared to December 31, 2009, reflecting our solid earnings growth.Asset quality improved significantly during the year. The level of non-performing loans at 1.82% on December 31, 2010 compares to 2.55% a year earlier. During the fourth quarter of 2010, DNB provided $775,000 for credit losses compared to $625,000 for the same period in 2009. For the respective twelve month periods of 2010 and 2009, DNB provided $2.2 million and $1.3 million. The allowance for credit losses was $5.9 million at December 31, 2010 compared to $5.5 million at December 31, 2009. This improved our coverage ratio, defined as the allowance for credit losses as a percentage of non-performing loans, from 59.65% a year ago to 81.46% on December 31, 2010.