During the three and twelve months ended December 31, 2010, net interest income rose to $4.9 million and $19.0 million respectively, compared to $4.1 million and $15.3 million for the same periods of 2009. The increase for both periods was due to higher levels of loan balances combined with a reduction in interest expense. Outstanding loans at December 31, 2010 increased 10.22%, or $36.7 million over December 31, 2009. The reduction in interest expense was due to lower rates on interest-bearing deposits and the paydown of $28.0 million of FHLB borrowings in the year. The net interest margin for the three-month period ended December 31, 2010 was 3.31%, a 60 basis point improvement over the same period of 2009.  The net interest margin for the twelve months ended December 31, 2010 was 3.20%, a 49 basis point increase over 2009.

Non-interest income for the three and twelve month periods ended December 31, 2010 improved to $1.5 million and $5.4 million respectively, compared to $1.3 million and $4.5 million for the same periods of 2009. Included in non-interest income were gains on the sale of securities of $633,000 and $540,000 for the respective quarterly periods of 2010 and 2009 and $2.0 million and $1.4 million for the respective twelve month periods. DNB employs a defensive and conservative approach to balance sheet management as a hedge against rising interest rates, by investing in securities with short durations, strong cash flows, and low price volatility. This approach allows us to grow loans and at the same time use gains in the investment portfolio to offset lower yields and non-recurring costs. Absent the gains on the sale of securities, non-interest income was $886,000 compared to $766,000 and $3.4 million compared to $3.1 million for the respective quarterly and twelve month periods.

 Non-interest expense for the three months ended December 31, 2010 declined approximately $120,000 or 2.86%, compared to the fourth quarter of 2009. A decline in salaries and employee benefits due to staff reductions accounted for most of the variance. For the year, non-interest expenses increased 1.88% or $313,000 over 2009, but included pre-payment penalties amounting to approximately $560,000 for the pre-payment of $18.0 million of high cost FHLB borrowings in the first quarter. Absent these penalties, non-interest expenses declined approximately $247,000 or 1.49% compared to 2009.