##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
 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 : 000-51525
 LEGACY BANCORP, INC.
  Delaware
    
    20-3135053(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)
 99 NORTH STREET
PITTSFIELD, MASSACHUSETTS 01201
 (413) 443-4421
  Title of each class
    
    Name of each exchange on which registeredCommon Stock ($0.01 par value per share)
    
    NASDAQ Stock Market, LLC
  o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated Filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
   Documents
Incorporated By Reference




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##### 



TABLE OF CONTENTS
 PagePart IItem 1. Business
    
    
    2Item 1a. Risk Factors
    
    
    32Item 1b. Unresolved Staff Comments
    
    
    37Item 2. Properties
    
    
    38Item 3. Legal proceedings
    
    
    39Item 4. (Removed and reserved)
    
    
    39Part IIItem 5. Market for registrants common equity, related stockholder matters
and issuer purchases of equity securities
    
    
    39Item 6. Selected financial data
    
    
    41Item 7. Managements discussion and analysis of financial condition
and results of operations
    
    
    42Item 7a. Quantitative and qualitative disclosures about market risk
    
    
    53Item 8. Financial statements and supplementary data
    
    
    59Item 9. Changes in and disagreements with accountants on accounting
and financial disclosure
    
    
    121Item 9a. Controls and procedures
    
    
    121Item 9b. Other information
    
    
    122Part IIIItem 10. Directors, executive officers and corporate governance
    
    
    122Item 11. Executive compensation
    
    
    122Item 12. Security ownership of certain beneficial owners and management
and related stockholder matters
    
    
    122Item 13. Certain relationships and related transactions,
and director independence
    
    
    123Item 14. Principal accountant fees and services
    
    
    123Part IVItem 15. Exhibits and financial statement schedules
    
    
    124Signatures
    
    
    124EX-14.0EX-21.0EX-23.0EX-31.1EX-31.2EX-32
  1




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##### Table of Contents



Part I
 
 Item 1. Business
 Recent Developments:
 Forward-Looking Statements :
 General:
 Market Area and Competition :
 2




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##### Table of Contents



Lending Activities
  At December 31,2010
    
    
    2009
    
    
    2008Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Mortgage loans on real estate:Residential
    
    $
    276,765
    
    
    
    45.02
    %
    
    $
    285,618
    
    
    
    43.12
    %
    
    $
    344,235
    
    
    
    49.15
    %Commercial
    
    
    225,027
    
    
    
    36.61
    
    
    
    263,910
    
    
    
    39.85
    
    
    
    246,374
    
    
    
    35.18Home equity
    
    
    74,328
    
    
    
    12.09
    
    
    
    69,625
    
    
    
    10.51
    
    
    
    63,138
    
    
    
    9.01576,120
    
    
    
    93.72
    
    
    
    619,153
    
    
    
    93.48
    
    
    
    653,747
    
    
    
    93.34Other loans:Commercial
    
    
    28,123
    
    
    
    4.57
    
    
    
    31,373
    
    
    
    4.74
    
    
    
    34,242
    
    
    
    4.89Consumer and other
    
    
    10,518
    
    
    
    1.71
    
    
    
    11,791
    
    
    
    1.78
    
    
    
    12,386
    
    
    
    1.7738,641
    
    
    
    6.28
    
    
    
    43,164
    
    
    
    6.52
    
    
    
    46,628
    
    
    
    6.66Total loans
    
    
    614,761
    
    
    
    100.00
    %
    
    
    662,317
    
    
    
    100.00
    %
    
    
    700,375
    
    
    
    100.00
    %Other Items:Net deferred loan costs
    
    
    1,351
    
    
    
    
    
    
    
    1,400
    
    
    
    
    
    
    
    1,531Allowance for loan losses
    
    
    (9,010
    )
    
    
    
    
    
    
    (11,089
    )
    
    
    
    
    
    
    (6,642
    )Total Loans, net
    
    $
    607,102
    
    
    
    
    
    
    $
    652,628
    
    
    
    
    
    
    $
    695,264
 3




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##### Table of Contents



At December 31,2007
    
    
    2006Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Mortgage loans on real estate:Residential
    
    $
    349,772
    
    
    
    53.17
    %
    
    $
    325,407
    
    
    
    55.85
    %Commercial
    
    
    212,191
    
    
    
    32.26
    
    
    
    170,971
    
    
    
    29.35Home equity
    
    
    56,752
    
    
    
    8.63
    
    
    
    56,856
    
    
    
    9.76618,715
    
    
    
    94.06
    
    
    
    553,234
    
    
    
    94.96Other loans:Commercial
    
    
    27,664
    
    
    
    4.20
    
    
    
    22,903
    
    
    
    3.93Consumer and other
    
    
    11,421
    
    
    
    1.74
    
    
    
    6,451
    
    
    
    1.1139,085
    
    
    
    5.94
    
    
    
    29,354
    
    
    
    5.04Total loans
    
    
    657,800
    
    
    
    100.00
    %
    
    
    582,588
    
    
    
    100.00
    %Other Items:Net deferred loan costs
    
    
    1,397
    
    
    
    
    
    
    
    891Allowance for loan losses
    
    
    (5,568
    )
    
    
    
    
    
    
    (4,677
    )Total Loans, net
    
    $
    653,629
    
    
    
    
    
    
    $
    578,802
 General:
 Item 1a Risk Factors  Proposed Merger with Berkshire Hills Bancorp, Inc
 Residential Real Estate Loans:
  4




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Commercial Real Estate Loans:
    5




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##### Table of Contents



Home Equity Lines-of-Credit and Loans:
 Wall Street Journal
 Commercial Loans:
 Wall Street
Journal
 Consumer and Other Loans:
 Loan Origination and Underwriting:
 6




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##### Table of Contents



For the Years Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Dollars in Thousands)Loans at beginning of year
    
    $
    662,317
    
    
    $
    700,375
    
    
    $
    657,800
    
    
    $
    582,588
    
    
    $
    551,359Originations:Mortgage loans on real estate:Residential
    
    
    104,272
    
    
    
    95,427
    
    
    
    73,660
    
    
    
    75,047
    
    
    
    55,223Commercial
    
    
    20,318
    
    
    
    45,408
    
    
    
    69,618
    
    
    
    69,375
    
    
    
    50,239Home Equity
    
    
    11,962
    
    
    
    8,827
    
    
    
    18,820
    
    
    
    28,928
    
    
    
    28,997136,552
    
    
    
    149,662
    
    
    
    162,098
    
    
    
    173,350
    
    
    
    134,459Other Loans:Commercial Business
    
    
    12,952
    
    
    
    10,914
    
    
    
    17,365
    
    
    
    18,932
    
    
    
    17,330Consumer and other
    
    
    1,097
    
    
    
    1,193
    
    
    
    1,496
    
    
    
    3,037
    
    
    
    2,18314,049
    
    
    
    12,107
    
    
    
    18,861
    
    
    
    21,969
    
    
    
    19,513Total loans originated
    
    
    150,601
    
    
    
    161,769
    
    
    
    180,959
    
    
    
    195,319
    
    
    
    153,972Loans purchased
    
    
    
    
    
    
    910
    
    
    
    2,421
    
    
    
    4,042
    
    
    
    3,106Deduct:Principal loan repayments and prepayments
    
    
    124,204
    
    
    
    133,223
    
    
    
    112,810
    
    
    
    105,761
    
    
    
    114,281Loan sales
    
    
    61,310
    
    
    
    66,949
    
    
    
    27,416
    
    
    
    18,170
    
    
    
    11,405Charge-offs
    
    
    12,643
    
    
    
    565
    
    
    
    579
    
    
    
    218
    
    
    
    163Total deductions
    
    
    198,157
    
    
    
    200,737
    
    
    
    140,805
    
    
    
    124,149
    
    
    
    125,849Net increase (decrease) in loans
    
    
    (47,556
    )
    
    
    (38,058
    )
    
    
    42,575
    
    
    
    75,212
    
    
    
    31,229Loans at end of year
    
    $
    614,761
    
    
    $
    662,317
    
    
    $
    700,375
    
    
    $
    657,800
    
    
    $
    582,588
  7




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Maturity and Sensitivity of Loan Portfolio:
 Contractual MaturityDue Less Than
    
    
    Due After One
    
    
    Due AfterOne Year
    
    
    To Five Years
    
    
    Five Years
    
    
    Total(Dollars in Thousands)Commercial Real Estate Loans
    
    $
    43,766
    
    
    $
    127,848
    
    
    $
    39,817
    
    
    $
    211,431Commercial Construction loans
    
    
    4,173
    
    
    
    6,175
    
    
    
    3,248
    
    
    
    13,596Sub-total: Total Commercial Real Estate Loans
    
    $
    47,939
    
    
    $
    134,023
    
    
    $
    43,065
    
    
    $
    225,027Residential Construction Loans
    
    
    
    
    
    
    
    
    
    
    4,023
    
    
    
    4,023Total
    
    $
    47,939
    
    
    $
    134,023
    
    
    $
    47,088
    
    
    $
    229,050
  Loan Quality
 General:
 8




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##### Table of Contents



Delinquent Loans: th th
 Other Real Estate Owned:
 Classification of Assets and Loan Review:
 9




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##### Table of Contents



Non-Performing Loans:
  10




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##### Table of Contents



At December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Dollars in Thousands)Non-accrual loans:Residential mortgage
    
    $
    4,176
    
    
    $
    4,822
    
    
    $
    1,190
    
    
    $
    499
    
    
    $
    483Commercial mortgage
    
    
    8,128
    
    
    
    13,942
    
    
    
    5,777
    
    
    
    539
    
    
    
    179Commercial
    
    
    315
    
    
    
    743
    
    
    
    410
    
    
    
    386
    
    
    
    132Home equity, consumer and other
    
    
    125
    
    
    
    71
    
    
    
    172
    
    
    
    108
    
    
    
    85Total non-accrual loans
    
    
    12,744
    
    
    
    19,578
    
    
    
    7,549
    
    
    
    1,532
    
    
    
    879Loans greater than 90 days delinquent and still accruing:Residential mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity, consumer and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total loans 90 days delinquent and still accruing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-performing loans
    
    $
    12,744
    
    
    $
    19,578
    
    
    $
    7,549
    
    
    $
    1,532
    
    
    $
    879Other real estate owned
    
    $
    2,216
    
    
    $
    1,195
    
    
    $
    
    
    
    $
    185
    
    
    $
    Total non-performing assets
    
    $
    14,960
    
    
    $
    20,773
    
    
    $
    7,549
    
    
    $
    1,717
    
    
    $
    879Troubled debt restructurings included in NPAs
    
    $
    2,451
    
    
    $
    5,905
    
    
    $
    
    
    
    $
    
    
    
    $
    Troubled debt restructurings not included in NPAs
    
    
    2,098
    
    
    
    4,887
    
    
    
    
    
    
    
    
    
    
    
    943Total troubled debt restructurings
    
    $
    4,549
    
    
    $
    10,792
    
    
    $
    
    
    
    $
    
    
    
    $
    943Ratios:Non-performing loans to total loans
    
    
    2.07
    %
    
    
    2.96
    %
    
    
    1.08
    %
    
    
    0.23
    %
    
    
    0.15
    %Non-performing assets to total assets
    
    
    1.63
    %
    
    
    2.20
    %
    
    
    0.80
    %
    
    
    0.17
    %
    
    
    0.11
    %
  Allowance for Loan Losses.
  11




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##### Table of Contents



At or for the Years Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Dollars in Thousands)Balance at beginning of period
    
    $
    11,089
    
    
    $
    6,642
    
    
    $
    5,568
    
    
    $
    4,677
    
    
    $
    4,220Charge-offs:Mortgage loans on real estate
    
    
    (11,778
    )
    
    
    (82
    )
    
    
    (121
    )
    
    
    
    
    
    
    (50
    )Other loans:Commercial
    
    
    (761
    )
    
    
    (265
    )
    
    
    (198
    )
    
    
    (104
    )
    
    
    (19
    )Consumer and other
    
    
    (104
    )
    
    
    (218
    )
    
    
    (260
    )
    
    
    (114
    )
    
    
    (94
    )Total other loans
    
    
    (865
    )
    
    
    (483
    )
    
    
    (458
    )
    
    
    (218
    )
    
    
    (113
    )Total charge-offs
    
    
    (12,643
    )
    
    
    (565
    )
    
    
    (579
    )
    
    
    (218
    )
    
    
    (163
    )Recoveries:Mortgage loans on real estate
    
    
    39
    
    
    
    1
    
    
    
    89
    
    
    
    
    
    
    
    10Other loans:Commercial
    
    
    12
    
    
    
    48
    
    
    
    15
    
    
    
    15
    
    
    
    316Consumer and other
    
    
    45
    
    
    
    80
    
    
    
    84
    
    
    
    43
    
    
    
    61Total other loans
    
    
    57
    
    
    
    128
    
    
    
    99
    
    
    
    58
    
    
    
    377Total recoveries
    
    
    96
    
    
    
    129
    
    
    
    188
    
    
    
    58
    
    
    
    387Net recoveries (charge-offs)
    
    
    (12,547
    )
    
    
    (436
    )
    
    
    (391
    )
    
    
    (160
    )
    
    
    224Provision for loan losses
    
    
    10,468
    
    
    
    4,883
    
    
    
    1,465
    
    
    
    1,051
    
    
    
    233Balance at end of period
    
    $
    9,010
    
    
    $
    11,089
    
    
    $
    6,642
    
    
    $
    5,568
    
    
    $
    4,677Ratios:Net recoveries (charge-offs)
to average loans outstanding
    
    
    (1.93
    %)
    
    
    (0.06
    %)
    
    
    (0.06
    %)
    
    
    (0.03
    %)
    
    
    0.04
    %Allowance for loan losses to
non-performing loans at end
of period
    
    
    70.70
    %
    
    
    56.64
    %
    
    
    87.99
    %
    
    
    363.45
    %
    
    
    532.08
    %Allowance for loan losses to
total loans at end of period
    
    
    1.47
    %
    
    
    1.67
    %
    
    
    0.95
    %
    
    
    0.85
    %
    
    
    0.80
    %
 12




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##### Table of Contents



At December 31,2010
    
    
    2009
    
    
    2008Percentof Loans
    
    
    
    
    
    
    
    
    
    
    Percent ofLoan
    
    
    Percent of
    
    
    
    
    
    
    
    
    
    
    in Each
    
    
    
    
    
    
    Loan
    
    
    Loans inAllowance
    
    
    Balances
    
    
    Loans in Each
    
    
    Allowance
    
    
    Loan
    
    
    Category
    
    
    Allowance
    
    
    Balances
    
    
    Eachfor Loan
    
    
    by
    
    
    Category to
    
    
    for Loan
    
    
    Balances by
    
    
    to Total
    
    
    for Loan
    
    
    by
    
    
    Category toLosses
    
    
    Category
    
    
    Total Loans
    
    
    Losses
    
    
    Category
    
    
    Loans
    
    
    Losses
    
    
    Category
    
    
    Total Loans(Dollars in Thousands)Mortgage loans
on real estate:Residential
    
    $
    2,358
    
    
    $
    276,765
    
    
    
    45.02
    %
    
    $
    1,112
    
    
    $
    285,618
    
    
    
    43.12
    %
    
    $
    980
    
    
    $
    344,235
    
    
    
    49.15
    %Commercial
    
    
    5,285
    
    
    
    225,027
    
    
    
    36.61
    
    
    
    8,852
    
    
    
    263,910
    
    
    
    39.85
    
    
    
    4,550
    
    
    
    246,374
    
    
    
    35.18Home equity
    
    
    446
    
    
    
    74,328
    
    
    
    12.09
    
    
    
    359
    
    
    
    69,625
    
    
    
    10.51
    
    
    
    286
    
    
    
    63,138
    
    
    
    9.018,089
    
    
    
    576,120
    
    
    
    93.72
    
    
    
    10,323
    
    
    
    619,153
    
    
    
    93.48
    
    
    
    5,816
    
    
    
    653,747
    
    
    
    93.34Other loans:Commercial
    
    
    667
    
    
    
    28,123
    
    
    
    4.57
    
    
    
    579
    
    
    
    31,373
    
    
    
    4.74
    
    
    
    632
    
    
    
    34,242
    
    
    
    4.89Consumer and other
    
    
    254
    
    
    
    10,518
    
    
    
    1.71
    
    
    
    187
    
    
    
    11,791
    
    
    
    1.78
    
    
    
    194
    
    
    
    12,386
    
    
    
    1.77921
    
    
    
    38,641
    
    
    
    6.28
    
    
    
    766
    
    
    
    43,164
    
    
    
    6.52
    
    
    
    826
    
    
    
    46,628
    
    
    
    6.66Total
    
    $
    9,010
    
    
    $
    614,761
    
    
    
    100.00
    %
    
    $
    11,089
    
    
    $
    662,317
    
    
    
    100.00
    %
    
    $
    6,642
    
    
    $
    700,375
    
    
    
    100.00
    %
 At December 31,2007
    
    
    2006Percent of
    
    
    
    
    
    
    
    
    
    
    Percent ofLoan
    
    
    Loans in
    
    
    
    
    
    
    Loan
    
    
    Loans inBalances
    
    
    Each
    
    
    Allowance
    
    
    Balances
    
    
    EachAllowance for
    
    
    by
    
    
    Category to
    
    
    for Loan
    
    
    by
    
    
    Category toLoan Losses
    
    
    Category
    
    
    Total Loans
    
    
    Losses
    
    
    Category
    
    
    Total Loans(Dollars in Thousands)Mortgage loans on real estate:Residential
    
    $
    946
    
    
    $
    349,772
    
    
    
    53.17
    %
    
    $
    892
    
    
    $
    325,407
    
    
    
    55.85
    %Commercial
    
    
    3,688
    
    
    
    212,191
    
    
    
    32.26
    
    
    
    3,015
    
    
    
    170,971
    
    
    
    29.35Home equity
    
    
    245
    
    
    
    56,752
    
    
    
    8.63
    
    
    
    249
    
    
    
    56,856
    
    
    
    9.764,879
    
    
    
    618,715
    
    
    
    94.06
    
    
    
    4,156
    
    
    
    553,234
    
    
    
    94.96Other loans:Commercial
    
    
    507
    
    
    
    27,664
    
    
    
    4.20
    
    
    
    426
    
    
    
    22,903
    
    
    
    3.93Consumer and other
    
    
    182
    
    
    
    11,421
    
    
    
    1.74
    
    
    
    95
    
    
    
    6,451
    
    
    
    1.11689
    
    
    
    39,085
    
    
    
    5.94
    
    
    
    521
    
    
    
    29,354
    
    
    
    5.04Total
    
    $
    5,568
    
    
    $
    657,800
    
    
    
    100.00
    %
    
    $
    4,677
    
    
    $
    582,588
    
    
    
    100.00
    %
 13




---



##### Table of Contents



Investment Activities
 General.
   Government Sponsored Enterprises (GSE).
 Municipal Bonds.
 Corporate Bonds and Other Obligations.
 Mortgage-Backed Securities (MBS).
 14




---



##### Table of Contents



Marketable Equity Securities.
 Other Equity Securities and Investments.
  15




---



##### Table of Contents



At December 31, 2010
    
    
    At December 31, 2009
    
    
    At December 31, 2008Amortized Cost
    
    
    Fair Value
    
    
    Amortized Cost
    
    
    Fair Value
    
    
    Amortized Cost
    
    
    Fair Value(Dollars in Thousands)Securities available for sale:Government-sponsored enterprises (GSE)
    
    $
    132,221
    
    
    $
    131,624
    
    
    $
    80,393
    
    
    $
    79,976
    
    
    $
    36,459
    
    
    $
    36,832Municipal bonds
    
    
    3,145
    
    
    
    3,145
    
    
    
    17,521
    
    
    
    17,875
    
    
    
    15,876
    
    
    
    15,632Corporate bonds and other obligations
    
    
    401
    
    
    
    402
    
    
    
    1,321
    
    
    
    1,351
    
    
    
    363
    
    
    
    363GSE residential mortgage-backed
    
    
    6,370
    
    
    
    6,594
    
    
    
    29,591
    
    
    
    30,503
    
    
    
    42,710
    
    
    
    43,458U.S. Government guaranteed residential
mortgage-backed
    
    
    42,775
    
    
    
    42,967
    
    
    
    33,625
    
    
    
    33,636
    
    
    
    8,969
    
    
    
    9,032Private issue mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,588
    
    
    
    21,496Total debt securities
    
    
    184,912
    
    
    
    184,732
    
    
    
    162,451
    
    
    
    163,341
    
    
    
    132,965
    
    
    
    126,813Marketable equity securities
    
    
    888
    
    
    
    956
    
    
    
    3,239
    
    
    
    4,085
    
    
    
    6,314
    
    
    
    5,544Total securities available for sale
    
    
    185,800
    
    
    
    185,688
    
    
    
    165,690
    
    
    
    167,426
    
    
    
    139,279
    
    
    
    132,357Securities held to maturity:Other bonds and obligations
    
    
    97
    
    
    
    97
    
    
    
    97
    
    
    
    97
    
    
    
    97
    
    
    
    97Restricted equity securities and other investments:Federal Home Loan Bank of Boston stock
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932Savings Bank Life Insurance
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709Real estate partnerships
    
    
    3,815
    
    
    
    3,815
    
    
    
    4,397
    
    
    
    4,397
    
    
    
    7,360
    
    
    
    7,360Other investments
    
    
    90
    
    
    
    90
    
    
    
    155
    
    
    
    155
    
    
    
    184
    
    
    
    184Total
restricted equity securities and other investments
    
    
    16,546
    
    
    
    16,546
    
    
    
    17,193
    
    
    
    17,193
    
    
    
    20,185
    
    
    
    20,185Total securities
    
    $
    202,443
    
    
    $
    202,331
    
    
    $
    182,980
    
    
    $
    184,716
    
    
    $
    159,561
    
    
    $
    152,639
  More than One year
    
    
    More than five yearsOne Year or Less
    
    through Five years
    
    through Ten years
    
    More than Ten years
    
    Total SecuritiesWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAmortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    Average
    
    
    Amortized
    
    
    AverageCost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield(Dollars in Thousands)Securities available for sale (AFS):Government-sponsored enterprises
    
    $
    5,233
    
    
    
    1.32
    %
    
    $
    103,146
    
    
    
    1.24
    %
    
    
    13,043
    
    
    
    2.00
    %
    
    $
    10,799
    
    
    
    1.56
    %
    
    $
    132,221
    
    
    
    1.35
    %Municipal Bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    660
    
    
    
    4.03
    %
    
    
    2,485
    
    
    
    4.06
    %
    
    
    3,145
    
    
    
    4.06
    %Corporate bonds and other
obligations
    
    
    401
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    401
    
    
    
    4.13
    %Subtotal
    
    
    5,634
    
    
    
    
    
    
    
    103,146
    
    
    
    
    
    
    
    13,703
    
    
    
    
    
    
    
    13,284
    
    
    
    
    
    
    
    135,767GSE Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    536
    
    
    
    4.00
    %
    
    
    5,834
    
    
    
    5.52
    %
    
    
    6,370
    
    
    
    5.39
    %GNMA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,775
    
    
    
    4.88
    %
    
    
    42,775
    
    
    
    4.88
    %Total AFS debt securities
    
    
    5,634
    
    
    
    
    
    
    
    103,146
    
    
    
    
    
    
    
    14,239
    
    
    
    
    
    
    
    61,893
    
    
    
    
    
    
    
    184,912Securities held to maturity (HTM):Corporate bonds and other
obligations
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    3.00
    %
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    3.00
    %
    
    
    97
    
    
    
    3.00
    %Total HTM debt securities
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    97Total debt securities
    
    $
    5,634
    
    
    
    
    
    
    $
    103,228
    
    
    
    
    
    
    $
    14,239
    
    
    
    
    
    
    $
    61,908
    
    
    
    
    
    
    $
    185,009
 Sources of Funds
 General.
 16




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##### Table of Contents



Deposits.
    Years Ended December 31,2010
    
    
    2009
    
    
    2008Average

    
    
    
    
    
    
    Weighted
    
    
    Average
    
    
    
    
    
    
    Weighted
    
    
    Average
    
    
    
    
    
    WeightedBalance
    
    
    Percent
    
    

Average Rate
    
    
    Balance
    
    
    Percent
    
    

Average Rate
    
    
    Balance
    
    
    Percent
    
    
    Average Rate(Dollars in Thousands)Deposit type:Demand
    
    $
    71,231
    
    
    
    10.7
    %
    
    
    
    %
    
    $
    67,155
    
    
    
    10.6
    %
    
    
    
    %
    
    $
    60,444
    
    
    
    10.2
    %
    
    
    
    %NOW deposits
    
    
    45,647
    
    
    
    6.9
    
    
    
    0.29
    
    
    
    43,527
    
    
    
    6.9
    
    
    
    0.40
    
    
    
    41,378
    
    
    
    7.0
    
    
    
    0.53Money market
deposits
    
    
    66,007
    
    
    
    9.9
    
    
    
    0.66
    
    
    
    65,602
    
    
    
    10.3
    
    
    
    1.04
    
    
    
    58,052
    
    
    
    9.8
    
    
    
    2.36Regular savings
    
    
    52,076
    
    
    
    7.9
    
    
    
    0.24
    
    
    
    50,724
    
    
    
    8.0
    
    
    
    0.33
    
    
    
    49,936
    
    
    
    8.5
    
    
    
    0.41Relationship Savings
    
    
    137,742
    
    
    
    20.7
    
    
    
    0.80
    
    
    
    123,297
    
    
    
    19.5
    
    
    
    1.29
    
    
    
    121,990
    
    
    
    20.6
    
    
    
    2.10Total transaction
accounts
    
    
    372,703
    
    
    
    56.1
    
    
    
    0.48
    
    
    
    350,305
    
    
    
    55.3
    
    
    
    0.75
    
    
    
    331,800
    
    
    
    56.1
    
    
    
    1.30Certificates of deposit
    
    
    291,520
    
    
    
    43.9
    
    
    
    2.45
    
    
    
    282,730
    
    
    
    44.7
    
    
    
    2.99
    
    
    
    259,439
    
    
    
    43.9
    
    
    
    3.88Total deposits
    
    $
    664,223
    
    
    
    100.0
    %
    
    
    1.35
    %
    
    $
    633,035
    
    
    
    100.0
    %
    
    
    1.76
    %
    
    $
    591,239
    
    
    
    100.0
    %
    
    
    2.44
    %
  At December 31,2010
    
    
    2009
    
    
    2008(Dollars in thousands)Interest RateLess than 2%
    
    $
    137,365
    
    
    $
    81,282
    
    
    $
    25,5912.00%-2.99%
    
    
    88,589
    
    
    
    83,503
    
    
    
    85,2263.00%-3.99%
    
    
    56,794
    
    
    
    91,122
    
    
    
    106,7844.00%-4.99%
    
    
    12,587
    
    
    
    27,943
    
    
    
    40,3045.00%-5.99%
    
    
    2,372
    
    
    
    5,462
    
    
    
    11,936Total
    
    $
    297,707
    
    
    $
    289,312
    
    
    $
    269,841
 17




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##### Table of Contents



Year ending December 31,
    
    
    After December 31,2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2014
    
    
    Total(Dollars in thousands)Interest RateLess than 2%
    
    $
    104,532
    
    
    $
    25,115
    
    
    $
    7,697
    
    
    $
    21
    
    
    $
    
    
    
    $
    137,3652.00%-2.99%
    
    
    10,637
    
    
    
    2,252
    
    
    
    39,913
    
    
    
    20,624
    
    
    
    15,163
    
    
    
    88,5893.00%-3.99%
    
    
    14,851
    
    
    
    7,097
    
    
    
    19,463
    
    
    
    7,984
    
    
    
    7,399
    
    
    
    56,7944.00%-4.99%
    
    
    8,221
    
    
    
    2,978
    
    
    
    1,062
    
    
    
    326
    
    
    
    
    
    
    
    12,5875.00%-5.99%
    
    
    2,044
    
    
    
    328
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,372Total
    
    $
    140,285
    
    
    $
    37,770
    
    
    $
    68,135
    
    
    $
    28,955
    
    
    $
    22,562
    
    
    $
    297,707
  At December 31, 2010(In Thousands)Three months or less
    
    $
    12,070Over three months through six months
    
    
    14,561Over six months through one year
    
    
    18,395Over one year to three years
    
    
    58,255Over three years
    
    
    32,018Total
    
    $
    135,299
 Borrowings.
 At or For the Years Ended December 31,2010
    
    
    2009
    
    
    2008(Dollars in Thousands)Balance at end of period
    
    $
    105,388
    
    
    $
    160,352
    
    
    $
    197,898Average balance during year
    
    $
    148,001
    
    
    $
    177,261
    
    
    $
    186,170Maximum outstanding at any month end
    
    $
    156,352
    
    
    $
    194,831
    
    
    $
    211,531Weighted average interest rate at end of year
    
    
    3.86
    %
    
    
    3.81
    %
    
    
    4.07
    %Weighted average interest rate during year
    
    
    3.78
    %
    
    
    4.07
    %
    
    
    4.27
    %
  18




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##### Table of Contents



Personnel.
 Segment Reporting:
 Subsidiary Activities and Portfolio Management Services
  LB Funding Corporation
 Legacy Insurance Services of the Berkshires.
 Legacy Securities Corporation.
 CSB Service Corporation.
 Renaissance Investment Group.
 19




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##### Table of Contents



Regulation and Supervision
 General:
  Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
  
    
    Increased Capital Standards and Enhanced Supervision.The federal banking agencies are
required to establish minimum leverage and risk-based capital requirements for banks and
bank holding companies. These new standards will be no lower than current regulatory
capital and leverage standards applicable to insured depository institutions and may, in
fact, be higher when established by the agencies. The Dodd-Frank Act also increases
regulatory oversight, supervision and examination of banks, bank holding companies and
their respective subsidiaries by the appropriate regulatory agency.
 20




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##### Table of Contents




    
    Deposit Insurance.The Dodd-Frank Act permanently increases the maximum deposit
insurance amount for banks, savings institutions and credit unions to $250,000 per
depositor, and extends unlimited deposit insurance to non-interest bearing transaction
accounts through December 31, 2012. The Dodd-Frank Act also broadens the base for FDIC
insurance assessments. Assessments will now be based on the average consolidated total
assets less tangible equity capital of a financial institution. The Dodd-Frank Act requires
the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of
insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to
insured depository institutions when the reserve ratio exceeds certain thresholds.
Effective July 21, 2011, the Dodd-Frank Act eliminates the federal statutory prohibition
against the payment of interest on business checking accounts.
    
    Holding Company Capital Levels. The Dodd-Frank Act requires bank regulators to establish
minimum capital levels for holding companies that are at least of the same nature as those
applicable to financial institutions. All trust preferred securities (TruPs), issued by
bank or thrift holding companies after May 19, 2010 will be counted as Tier 2 capital (with
an exception for certain small bank holding companies).
    
    Enhanced Lending Limits.The Dodd-Frank Act strengthens the existing limits on a
depository institutions credit exposure to one borrower. Current banking law limits a
depository institutions ability to extend credit to one person (or group of related
persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of
these restrictions to include credit exposure arising from derivative transactions,
repurchase agreements, and securities lending and borrowing transactions.
    
    Transactions with Affiliates and Insiders.Effective July 21, 2011, the Dodd-Frank Act
expands the definition of affiliate for purposes of quantitative and qualitative
limitations of Section 23A of the Federal Reserve Act to include mutual funds advised by a
depository institution or its affiliates. The Dodd-Frank Act will apply Section 23A and
Section 22(h) of the Federal Reserve Act (governing transactions with insiders) to
derivative transactions, repurchase agreements and securities lending and borrowing
transaction that create credit exposure to an affiliate or an insider. Any such
transactions with affiliates must be fully secured. The current exemption from Section 23A
for transactions with financial subsidiaries will be eliminated. The Dodd-Frank Act will
additionally prohibit an insured depository institution from purchasing an asset from or
selling an asset to an insider unless the transaction is on market terms and, if
representing more than 10% of capital, is approved in advance by the disinterested
directors.
    
    Compensation Practices. The Dodd-Frank Act provides that the appropriate federal
regulators must establish standards prohibiting as an unsafe and unsound practice any
compensation plan of a bank holding company or other covered financial institution that
provides an insider or other employee with excessive compensation or could lead to a
material financial loss to such firm. On February 7, 2011, the FDIC approved a joint
proposed rulemaking to implement this requirement. The proposed rule prohibits
incentive-based compensation arrangements that encourage officers, employees or directors
to expose the institution to inappropriate risks by providing excessive compensation or
that encourage inappropriate risk-taking that could lead to a material financial loss. The
proposed rule would also require financial institutions to maintain policies and procedures
to ensure compliance with these requirements and to provide an annual report to their
appropriate Federal regulators disclosing the structure of their incentive-based
compensation arrangements.
    
    Consumer Financial Protection Bureau.The Dodd-Frank Act establishes the Consumer
Financial Protection Bureau (CFPB) as an independent bureau within the Federal Reserve.
The Dodd-Frank Act grants the CFPB broad rulemaking, supervisory and enforcement powers
under various federal
consumer financial protection laws. The CFPB will have examination and primary enforcement
authority with respect to depository institutions with $10 billion or more in assets.
Smaller institutions
 21




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##### Table of Contents



will be subject to rules promulgated by the CFPB but will continue to be
examined and supervised by federal banking regulators for consumer compliance purposes. The
CFPB will have authority to prevent unfair, deceptive or abusive practices in connection with
the offering of consumer financial products. The Dodd-Frank Act authorizes the CFPB to
establish certain minimum standards for the origination of residential mortgages including a
determination of the borrowers ability to repay. In addition, the Dodd-Frank Act will allow
borrowers to raise certain defenses to foreclosure if they receive any loan other than a
qualified mortgage as defined by the CFPB. The Dodd-Frank Act permits states to adopt
consumer protection laws and standards that are more stringent than those adopted at the
federal level and, in certain circumstances, permits state attorneys general to enforce
compliance with both the state and federal laws and regulations.
 Massachusetts Banking Laws and Supervision
    Lending Activities:
 Insurance Sales:
 Investment Activities:
 22




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##### Table of Contents



Dividends:
 Protection of Personal Information:
 Parity Regulation:
 Federal Regulations
 Capital Requirements.
   23




---



##### Table of Contents



Dividends:
 Standards for Safety and Soundness.
 Investment Activities.
  24




---



##### Table of Contents



Interstate Banking and Branching.
 Prompt Corrective Regulatory Action.
    25




---



##### Table of Contents



Transaction with Affiliates and Regulation W of the Federal Reserve Regulations.
   Enforcement.
 26




---



##### Table of Contents



Insurance of Deposit Accounts.
     27




---



##### Table of Contents



Privacy Regulations.
 Community Reinvestment Act.
  Consumer Protection and Fair Lending Regulations.
 The USA PATRIOT Act.
 28




---



##### Table of Contents



Federal Reserve System
  Federal Home Loan Bank System
   Holding Company Regulation
 General
 29




---



##### Table of Contents



Acquisition of the Company
 Massachusetts Holding Company Regulation:
 30




---



##### Table of Contents



Federal Securities Laws:
 Taxation
 Federal taxes
 Bad Debt Reserves:
 Distributions:
 Massachusetts Taxation:
 31




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##### Table of Contents



New York Taxation:
 Delaware Taxation:
 Available Information:
 
 Item 1a. Risk Factors
  Risks Related to the Merger
 Proposed Merger with Berkshire Hills Bancorp, Inc.
  32




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##### Table of Contents



Our shareholders will receive a fixed ratio of 0.56385 shares of Berkshire common stock plus $1.30
cash for each share of Legacy common stock regardless of any changes in the market value of Legacy
common stock or Berkshire common stock before the completion of the merger.
   We will be subject to business uncertainties and contractual restrictions while the merger is
pending.
  The merger agreement prohibits us from pursuing alternatives to the merger following shareholder
approval.
  33




---



##### Table of Contents



Regulatory approvals may not be received, may take longer than expected or impose conditions that
are not presently anticipated.
   Risks Related to Our Business
 The economic and financial market downturn has had and may continue to have an adverse effect our
business and financial results.
  We could record future losses on our securities portfolio.
  34




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##### Table of Contents



If our investment in the Federal Home Loan Bank of Boston is classified as other-than-temporarily
impaired or as permanently impaired, our earnings and stockholders equity would decrease.
  Economic conditions may adversely affect our liquidity.
  We cannot predict whether the recently enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act or any of the new regulations contemplated by the Act will adversely affect our
financial condition or operating results.
   35




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##### Table of Contents



Our commercial real estate and commercial loans expose us to increased credit risks, and these
risks will increase if we succeed in increasing these types of loans.
   Our continuing concentration of loans in our primary market areas may increase our risk.
  The concentration within our investment portfolio may increase our risk.
  Changes in market interest rates could adversely affect our financial condition and results of
operations.
  36




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##### Table of Contents



Strong competition within our market area may limit our growth and profitability.
  We operate in a highly regulated environment and may be adversely affected by changes in law and
regulations.
  
 Item 1b. Unresolved Staff Comments
 None
 37




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##### Table of Contents



Item 2. Properties
  Year Opened
    
    Lease
    
    
    
    Year Opened
    
    LeaseOr Acquired
    
    Expires
    
    
    
    Or Acquired
    
    ExpiresOwned:Main Office:99 North Street
    
    2000Pittsfield, MA 01201Branch Offices:76 Park Street
    
    1997
    
    
    
    409 Stockbridge Road
    
    2007Lee, MA 01238
    
    
    
    
    
    Great Barrington, MA 0123025 Main Street
    
    1958
    
    
    
    Route 30 & Mill Lane
    
    2007Lenox, MA 01240
    
    
    
    
    
    Middleburgh, NY 121222 Holmes Road
    
    1978
    
    
    
    4 Elliott Place
    
    2007Lenox, MA 01240
    
    
    
    
    
    East Durham, NY 1242330 East Otis Road
    
    1997
    
    
    
    184 Broadway
    
    2007Otis, MA 01253
    
    
    
    
    
    Whitehall, NY 12887734 Williams Street (Land
leased)
    
    1997
    
    
    
    Route 296
    
    2007Pittsfield, MA 01201
    
    
    
    
    
    Windham, NY 12496331 State Road
    
    2007
    
    
    
    142 Main Street
    
    2009North Adams, MA 01247
    
    
    
    
    
    Haydenville, MA 01039Leased:609 Merrill Road
    
    1971
    
    2023                   (1)
    
    480 West Housatonic Street
    
    2005
    
    
    2015 (1)Pittsfield, MA 01201
    
    
    
    
    
    Pittsfield, MA 01201700 Main Street
    
    1975
    
    2019                   (1)
    
    Route 32, Bryants Market
    
    2007
    
    
    2013Great Barrington, MA 01230
    
    
    
    
    
    Greenville, NY 1208339 North Pearl Street
    
    2008
    
    2018                   (2)
    
    545 Troy-Schenectady Road
    
    2009
    
    
    2019Albany, NY 12207
    
    
    
    
    
    Latham, NY 12110ATM Location Only:Lee Outlet Village
    
    1995
    
    2011Lee, MA 01238
 
 (1)
    
    Legacy Banks has an option to renew for one additional 5 year terms(2)
    Legacy Banks has an option to renew for two additional 5 year terms 38




---



##### Table of Contents



Item 3. Legal Proceedings
  
 Item 4. (Removed and Reserved)
 
 Part II
 
 Item 5. Market For Registrants Common Equity, Related Stockholder Matters And Issuer Purchases Of
Equity Securities
  For the Year Ended December 31, 20104th Quarter
    
    
    3rd Quarter
    
    
    2nd Quarter
    
    
    1st QuarterHigh
    
    $
    13.14
    
    
    $
    8.91
    
    
    $
    9.73
    
    
    $
    9.98Low
    
    $
    7.49
    
    
    $
    7.55
    
    
    $
    8.24
    
    
    $
    9.01Dividend Declared
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.05
 For the Year Ended December 31, 20094th Quarter
    
    
    3rd Quarter
    
    
    2nd Quarter
    
    
    1st QuarterHigh
    
    $
    11.07
    
    
    $
    13.46
    
    
    $
    12.10
    
    
    $
    11.21Low
    
    $
    9.40
    
    
    $
    10.50
    
    
    $
    9.29
    
    
    $
    7.90Dividend Declared
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.05
 Repurchase of Our Equity Securities:
 (d) Maximum Numberor Approximate(c) Total Number of
    
    
    Dollar Value ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased Under(a) Total Number of
    
    
    (b) Average Price
    
    
    announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    Paid per Share
    
    
    Programs
    
    
    ProgramsOctober 1  31
    
    
    10,400
    
    
    $
    7.91
    
    
    
    10,400
    
    
    
    270,445November 1  30
    
    
    2,600
    
    
    $
    7.61
    
    
    
    2,600
    
    
    
    267,845December 1  31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267,845
 39




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##### Table of Contents



Stock Repurchase Overview:
 Stock Performance Graph:
 Comparison Of Cumulative Return Among Legacy Bancorp,
Peer Group Index and Broad Market Index
 
 10/25/05
    
    
    12/31/05
    
    
    12/31/06
    
    
    12/31/07
    
    
    12/31/08
    
    
    12/31/09
    
    
    12/31/10Legacy Bancorp
    
    
    100.00
    
    
    
    133.50
    
    
    
    158.50
    
    
    
    132.60
    
    
    
    106.80
    
    
    
    98.60
    
    
    
    131.40S&P 500 Market Index
    
    
    100.00
    
    
    
    104.32
    
    
    
    118.53
    
    
    
    122.72
    
    
    
    75.49
    
    
    
    93.19
    
    
    
    105.11SNL Thrifts
    
    
    100.00
    
    
    
    107.63
    
    
    
    121.80
    
    
    
    70.45
    
    
    
    43.54
    
    
    
    39.08
    
    
    
    39.43
  40




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##### Table of Contents



Item 6. Selected Financial Data
  At or For the Years Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Dollars in thousands, except per share data)Selected Financial Data:Total assets
    
    $
    916,877
    
    
    $
    946,265
    
    
    $
    944,657
    
    
    $
    924,541
    
    
    $
    808,318Loans, net (1)
    
    
    610,941
    
    
    
    653,334
    
    
    
    695,264
    
    
    
    654,024
    
    
    
    578,802Securities and other investments:
    
    
    202,331
    
    
    
    184,716
    
    
    
    152,639
    
    
    
    152,054
    
    
    
    176,132Deposits
    
    
    685,245
    
    
    
    651,378
    
    
    
    608,088
    
    
    
    610,447
    
    
    
    518,248Federal Home Loan Bank advances
    
    
    105,388
    
    
    
    160,352
    
    
    
    197,898
    
    
    
    167,382
    
    
    
    127,438Repurchase agreements
    
    
    5,329
    
    
    
    6,386
    
    
    
    5,238
    
    
    
    4,055
    
    
    
    5,575Total stockholders equity
    
    
    111,559
    
    
    
    121,367
    
    
    
    124,142
    
    
    
    133,092
    
    
    
    149,997Nonperforming loans
    
    
    12,744
    
    
    
    19,578
    
    
    
    7,549
    
    
    
    1,532
    
    
    
    879Selected Operating Data:Total interest and dividend income
    
    
    40,964
    
    
    
    45,818
    
    
    
    50,327
    
    
    
    49,357
    
    
    
    43,915Total interest expense
    
    
    14,558
    
    
    
    18,348
    
    
    
    22,465
    
    
    
    25,511
    
    
    
    20,339Net interest income
    
    
    26,406
    
    
    
    27,470
    
    
    
    27,862
    
    
    
    23,846
    
    
    
    23,576Provision for loan losses
    
    
    10,468
    
    
    
    4,883
    
    
    
    1,465
    
    
    
    1,051
    
    
    
    233Net interest income after provision for loan losses
    
    
    15,938
    
    
    
    22,587
    
    
    
    26,397
    
    
    
    22,795
    
    
    
    23,343Non-interest income:Service charges and fees
    
    
    5,108
    
    
    
    4,006
    
    
    
    4,541
    
    
    
    4,496
    
    
    
    4,044Gain (loss) on sales or impairment
of securities, net
    
    
    (1,846
    )
    
    
    (10,267
    )
    
    
    (3,194
    )
    
    
    510
    
    
    
    (1,736
    )Gain on sale of loans
    
    
    607
    
    
    
    860
    
    
    
    255
    
    
    
    270
    
    
    
    210FHLB prepayment restructuring charge
    
    
    (1,481
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on curtailment and termination of defined benefit plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    605Other
    
    
    805
    
    
    
    788
    
    
    
    805
    
    
    
    610
    
    
    
    329Total non-interest income (loss)
    
    
    3,193
    
    
    
    (4,613
    )
    
    
    2,407
    
    
    
    5,886
    
    
    
    3,452Total non-interest expense
    
    
    31,043
    
    
    
    28,832
    
    
    
    26,584
    
    
    
    27,187
    
    
    
    21,336Income (loss) before income taxes
    
    
    (11,912
    )
    
    
    (10,858
    )
    
    
    2,220
    
    
    
    1,494
    
    
    
    5,459Provision for income taxes
    
    
    (4,016
    )
    
    
    (3,060
    )
    
    
    776
    
    
    
    249
    
    
    
    2,653Net income (loss)
    
    
    (7,896
    )
    
    
    (7,798
    )
    
    
    1,444
    
    
    
    1,245
    
    
    
    2,806Earnings (loss) per share
    
    $
    (0.99
    )
    
    $
    (0.98
    )
    
    $
    0.18
    
    
    $
    0.14
    
    
    $
    0.29Dividends per share
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.16
    
    
    $
    0.12
 41




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##### Table of Contents



At or For the Years Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Selected Financial Ratios and Other Data:Performance Ratios:Return (loss) on average assets (2)
    
    
    (0.84)
    %
    
    
    (0.82)
    %
    
    
    0.16
    %
    
    
    0.15
    %
    
    
    0.36
    %Return (loss) on average equity (3)
    
    
    (6.48
    )
    
    
    (6.20
    )
    
    
    1.11
    
    
    
    0.88
    
    
    
    1.92Interest rate spread (4)
    
    
    2.79
    
    
    
    2.78
    
    
    
    2.80
    
    
    
    2.26
    
    
    
    2.39Net interest margin (5)
    
    
    3.05
    
    
    
    3.13
    
    
    
    3.27
    
    
    
    3.01
    
    
    
    3.15Efficiency ratio (6)
    
    
    96.10
    
    
    
    84.9
    
    
    
    77.5
    
    
    
    93.0
    
    
    
    74.2Non-interest expense to average assets
    
    
    3.29
    
    
    
    3.04
    
    
    
    2.89
    
    
    
    3.23
    
    
    
    2.70Average interest-bearing assets to
interest-bearing liabilities
    
    
    115.86
    
    
    
    116.87
    
    
    
    117.89
    
    
    
    123.37
    
    
    
    127.61Dividend payout ratio
    
    
    n/a
    
    
    
    n/a
    
    
    
    111.61
    
    
    
    113.82
    
    
    
    40.88Regulatory Capital Ratios(7):Equity to total assets
    
    
    12.2
    %
    
    
    12.8
    %
    
    
    13.1
    %
    
    
    14.4
    %
    
    
    18.6
    %Average equity to average assets
    
    
    12.9
    
    
    
    13.3
    
    
    
    14.1
    
    
    
    16.9
    
    
    
    18.5Total capital (bank only) to risk-weighted assets
    
    
    12.0
    
    
    
    12.3
    
    
    
    13.0
    
    
    
    13.9
    
    
    
    18.9Asset Quality Ratios:Nonperforming assets to total assets
    
    
    1.63
    %
    
    
    2.20
    %
    
    
    0.80
    %
    
    
    0.17
    %
    
    
    0.11
    %Nonperforming loans to total loans
    
    
    2.07
    
    
    
    2.96
    
    
    
    1.08
    
    
    
    0.23
    
    
    
    0.15Allowance for loan losses to nonperforming loans
    
    
    70.70
    
    
    
    56.64
    
    
    
    87.99
    
    
    
    363.45
    
    
    
    532.08Allowance for loan losses to total loans
    
    
    1.47
    
    
    
    1.67
    
    
    
    0.95
    
    
    
    0.85
    
    
    
    0.80Share Data:Book value per share  end of year
    
    $
    12.92
    
    
    $
    13.89
    
    
    $
    14.14
    
    
    $
    14.40
    
    
    $
    14.55Tangible book value per share  end of year
    
    
    11.17
    
    
    
    12.48
    
    
    
    12.74
    
    
    
    13.01
    
    
    
    14.25Market price at year end
    
    
    13.14
    
    
    
    9.86
    
    
    
    10.68
    
    
    
    13.26
    
    
    
    15.85
 
 (1)
    
    Includes loans held for sale.(2)
    
    Net income (loss) divided by average total assets.(3)
    
    Net income (loss) divided by average total equity.(4)
    
    Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted averagecost of interest-bearing liabilities.(5)
    
    Net interest margin represents net interest income as a percentage of average interest-earning assets for the year.(6)
    
    The efficiency ratio represents non-interest expense for the
year less expenses related to the amortization of intangibles divided by the sum of net interest income (before loan loss provision) plus non-interest income (excluding net gains or losses on the sale or impairment of securities).(7)
    
    All capital ratios are as of the end of the year. 
 Item 7. Managements Discussion And Analysis Of Financial Condition And Results Of Operation
 General
 Dividend :
 Stock-based Compensation:
 2006 Equity Incentive Plan:
 42




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##### Table of Contents



Options Granted in
    
    
    Options Granted in
    
    
    Options Granted inDecember 2007
    
    
    March 2008
    
    
    October 2010Fair Value
    
    $
    2.85
    
    
    $
    2.90
    
    
    $
    1.92Risk-free interest rate
    
    
    3.88
    %
    
    
    3.02
    %
    
    
    1.98
    %Expected dividend yield
    
    
    1.24
    %
    
    
    1.13
    %
    
    
    2.57
    %Expected volatility
    
    
    15.90
    %
    
    
    16.44
    %
    
    
    30.81
    %Expected life
    
    6.5 years
    
    
    6.5 years
    
    
    6.5 years
  2010 CEO Inducement Plan:
 43




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##### Table of Contents



Growth Strategy and Challenges:
   Critical Accounting Policies
  Allowance for Loan Losses:
 44




---



##### Table of Contents



Income Taxes:
   Other-Than-Temporary Impairment:
   45




---



##### Table of Contents



Goodwill:
  Fair Values of Assets and Liabilities:
     46




---



##### Table of Contents



Comparison of Financial Condition at December 31, 2010 and December 31, 2009
 Total Assets:
 Cash and Short-term Investments:
 Securities:
 Net Loans:
 Deposits:
 Borrowed Funds:
 Stockholders Equity:
 47




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##### Table of Contents



Operating Results Overview
  Net Interest Income:
 Non-Interest Expense:
 Net income:
 Comparison of Operating Results for the Years Ended December 31, 2010 and 2009
 Analysis of Net Interest Income:
 48




---



##### Table of Contents



Year Ended December 31, 2010
    
    
    Year Ended December 31, 2009
    
    
    Year Ended December 31, 2008Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    Outstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    Interest
    
    
    Yield/ Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/ Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/ Rate(Dollars in thousands)Interest-earning assets:Loans  net (1)
    
    $
    641,498
    
    
    $
    36,014
    
    
    
    5.61
    %
    
    $
    675,661
    
    
    $
    38,849
    
    
    
    5.75
    %
    
    $
    676,222
    
    
    $
    41,944
    
    
    
    6.20
    %Investment securities
    
    
    209,559
    
    
    
    4,927
    
    
    
    2.35
    %
    
    
    181,642
    
    
    
    6,958
    
    
    
    3.83
    %
    
    
    164,242
    
    
    
    8,141
    
    
    
    4.96
    %Short-term investments
    
    
    13,959
    
    
    
    23
    
    
    
    0.16
    %
    
    
    19,165
    
    
    
    11
    
    
    
    0.06
    %
    
    
    11,265
    
    
    
    242
    
    
    
    2.15
    %Total interest-earning assets
    
    
    865,016
    
    
    
    40,964
    
    
    
    4.74
    %
    
    
    876,468
    
    
    
    45,818
    
    
    
    5.23
    %
    
    
    851,729
    
    
    
    50,327
    
    
    
    5.91
    %Non-interest-earning assets
    
    
    79,219
    
    
    
    
    
    
    
    
    
    
    
    73,378
    
    
    
    
    
    
    
    
    
    
    
    67,973Total assets
    
    $
    944,235
    
    
    
    
    
    
    
    
    
    
    $
    949,846
    
    
    
    
    
    
    
    
    
    
    $
    919,702Interest-bearing liabilities:Savings deposits
    
    $
    52,076
    
    
    $
    125
    
    
    
    0.24
    %
    
    $
    50,724
    
    
    $
    170
    
    
    
    0.34
    %
    
    $
    49,936
    
    
    
    203
    
    
    
    0.41
    %Relationship savings
    
    
    137,742
    
    
    
    1,108
    
    
    
    0.80
    %
    
    
    123,297
    
    
    
    1,595
    
    
    
    1.29
    %
    
    
    121,990
    
    
    
    2,557
    
    
    
    2.10
    %Money market
    
    
    66,007
    
    
    
    433
    
    
    
    0.66
    %
    
    
    65,602
    
    
    
    684
    
    
    
    1.04
    %
    
    
    58,052
    
    
    
    1,371
    
    
    
    2.36
    %NOW accounts
    
    
    45,647
    
    
    
    131
    
    
    
    0.29
    %
    
    
    43,527
    
    
    
    173
    
    
    
    0.40
    %
    
    
    41,378
    
    
    
    218
    
    
    
    0.53
    %Certificates of deposits
    
    
    291,520
    
    
    
    7,131
    
    
    
    2.45
    %
    
    
    282,730
    
    
    
    8,449
    
    
    
    2.99
    %
    
    
    259,439
    
    
    
    10,072
    
    
    
    3.88
    %Total interest-bearing deposits
    
    
    592,992
    
    
    
    8,928
    
    
    
    1.51
    %
    
    
    565,880
    
    
    
    11,071
    
    
    
    1.96
    %
    
    
    530,795
    
    
    
    14,421
    
    
    
    2.72
    %Borrowed funds
    
    
    153,591
    
    
    
    5,630
    
    
    
    3.67
    %
    
    
    184,081
    
    
    
    7,277
    
    
    
    3.95
    %
    
    
    191,708
    
    
    
    8,044
    
    
    
    4.20
    %Total interest-bearing liabilities
    
    
    746,583
    
    
    
    14,558
    
    
    
    1.95
    %
    
    
    749,961
    
    
    
    18,348
    
    
    
    2.45
    %
    
    
    722,503
    
    
    
    22,465
    
    
    
    3.11
    %Non-interest-bearing liabilities
    
    
    75,848
    
    
    
    
    
    
    
    
    
    
    
    74,007
    
    
    
    
    
    
    
    
    
    
    
    67,643Total liabilities
    
    
    822,431
    
    
    
    
    
    
    
    
    
    
    
    823,968
    
    
    
    
    
    
    
    
    
    
    
    790,146Equity
    
    
    121,804
    
    
    
    
    
    
    
    
    
    
    
    125,878
    
    
    
    
    
    
    
    
    
    
    
    129,556Total liabilities and equity
    
    $
    944,235
    
    
    
    
    
    
    
    
    
    
    $
    949,846
    
    
    
    
    
    
    
    
    
    
    $
    919,702Net interest income
    
    
    
    
    
    $
    26,406
    
    
    
    
    
    
    
    
    
    
    $
    27,470
    
    
    
    
    
    
    
    
    
    
    $
    27,862Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    
    
    
    2.78
    %
    
    
    
    
    
    
    
    
    
    
    2.80
    %Net interest-earning assets (3)
    
    $
    118,433
    
    
    
    
    
    
    
    
    
    
    $
    126,507
    
    
    
    
    
    
    
    
    
    
    $
    129,226Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    3.13
    %
    
    
    
    
    
    
    
    
    
    
    3.27
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    115.86
    %
    
    
    
    
    
    
    
    
    
    
    116.87
    %
    
    
    
    
    
    
    
    
    
    
    117.89
    %
 
 (1)
    
    Includes loans held for sale.(2)
    
    Net interest rate spread represents the difference between the yield on total average interest-earning assets and the cost
of total average interest-bearing liabilities(3)
    
    Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income divided by average total interest-earning assets. 49




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##### Table of Contents



Year Ended December 31,
    
    
    Year Ended December 31,2010 vs. 2009
    
    
    2009 vs. 2008Increase
    
    
    Total
    
    
    Increase
    
    
    Total(Decrease) Due to
    
    
    Increase
    
    
    (Decrease) Due to
    
    
    IncreaseVolume
    
    
    Rate
    
    
    (Decrease)
    
    
    Volume
    
    
    Rate
    
    
    (Decrease)(Dollars in thousands)Interest-earning assets:Loans  net
    
    $
    (1,913
    )
    
    $
    (922
    )
    
    $
    (2,835
    )
    
    $
    (35
    )
    
    $
    (3,060
    )
    
    $
    (3,095
    )Investment securities
    
    
    1,341
    
    
    
    (3,372
    )
    
    
    (2,031
    )
    
    
    1,028
    
    
    
    (2,211
    )
    
    
    (1,183
    )Short-term investments
    
    
    (2
    )
    
    
    14
    
    
    
    12
    
    
    
    604
    
    
    
    (835
    )
    
    
    (231
    )Total interest-earning assets
    
    
    (574
    )
    
    
    (4,280
    )
    
    
    (4,854
    )
    
    
    1,597
    
    
    
    (6,106
    )
    
    
    (4,509
    )Interest-bearing liabilities:Savings deposits
    
    
    5
    
    
    
    (50
    )
    
    
    (45
    )
    
    
    3
    
    
    
    (36
    )
    
    
    (33
    )Relationship savings
    
    
    217
    
    
    
    (704
    )
    
    
    (487
    )
    
    
    27
    
    
    
    (989
    )
    
    
    (962
    )Money market
    
    
    4
    
    
    
    (255
    )
    
    
    (251
    )
    
    
    208
    
    
    
    (895
    )
    
    
    (687
    )NOW accounts
    
    
    8
    
    
    
    (50
    )
    
    
    (42
    )
    
    
    12
    
    
    
    (57
    )
    
    
    (45
    )Certificates of deposits
    
    
    274
    
    
    
    (1,592
    )
    
    
    (1,318
    )
    
    
    1,044
    
    
    
    (2,667
    )
    
    
    (1,623
    )Total deposits
    
    
    508
    
    
    
    (2,651
    )
    
    
    (2,143
    )
    
    
    1,294
    
    
    
    (4,644
    )
    
    
    (3,350
    )Borrowed funds
    
    
    (1,154
    )
    
    
    (493
    )
    
    
    (1,647
    )
    
    
    (307
    )
    
    
    (460
    )
    
    
    (767
    )Total interest-bearing liabilities
    
    
    (646
    )
    
    
    (3,144
    )
    
    
    (3,790
    )
    
    
    987
    
    
    
    (5,104
    )
    
    
    (4,117
    )Change in net interest income
    
    $
    72
    
    
    $
    (1,136
    )
    
    $
    (1,064
    )
    
    $
    610
    
    
    $
    (1,002
    )
    
    $
    (392
    )
 Net Loss :
 Net Interest Income:
 Interest Income:
 50




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##### Table of Contents



Interest Expense:
 Provision for Loan Losses:
 Non-interest Income:
 Non-interest Expense:
 Income Taxes:
 51




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##### Table of Contents



Comparison of Operating Results for the Years Ended December 31, 2009 and December 31, 2008
 Net Loss :
 Net Interest Income:
 Interest Income:
 Interest Expense:
 Provision for Loan Losses:
 Non-interest Income:
 52




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##### Table of Contents



Non-interest Expense:
 Income Taxes:
 
 Item 7A: Quantitative and Qualitative Disclosures about Market Risk
   Management of Credit Risk:
 Management of Market Risk:
 53




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##### Table of Contents




    
    Emphasizing the origination and retention of adjustable-rate mortgage loans, variable
rate commercial loans and variable rate home equity lines-of-credit;
    
    Investing in securities with relatively short maturities and/or expected average lives;
    
    Classifying nearly all of the investment portfolio as available for sale in order to
provide for flexibility in liquidity management; and
    
    Lengthening liabilities such as certificates of deposits and FHLB borrowings when
appropriate.
    54




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##### Table of Contents



Percentage Change InEstimated Net InterestIncome Over 12 Months AsCompared to Flat Rates500 basis point flattening increase in rates
    
    
    (4.2
    %)200 basis point parallel increase in rates
    
    
    (2.8
    %)Flat interest rates
    
    
    100 basis point parallel decrease in rates
    
    
    0.5
    %
     55




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##### Table of Contents



Liquidity Risk Management:
    Management of Other Risks:
  56




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##### Table of Contents



Off-Balance Sheet Arrangements
  Contractual Obligations :
 December 31, 2010More than One Year
    
    
    More than Three YearsTotal
    
    
    One Year or Less
    
    
    through Three Years
    
    
    through Five Years
    
    
    Over Five Years(Dollars in thousands)Federal Home Loan Bank of Boston advances
    
    $
    105,388
    
    
    $
    
    
    
    $
    35,000
    
    
    $
    32,200
    
    
    $
    38,188Securities sold under agreements to repurchase
    
    
    5,329
    
    
    
    5,329
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    2,683
    
    
    
    343
    
    
    
    669
    
    
    
    571
    
    
    
    1,100Total contractual obligations
    
    $
    113,400
    
    
    $
    5,672
    
    
    $
    35,669
    
    
    $
    32,771
    
    
    $
    39,288
 Loan Commitments :
 December 31, 2010More than One Year
    
    
    More than Three YearsTotal
    
    
    One Year or Less
    
    

through Three Years
    
    
    Through Five Years
    
    
    Over Five years(Dollars in thousands)Commitments to grant loans (1)
    
    $
    18,328
    
    
    $
    18,328
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial loan lines-of-credit
    
    
    17,826
    
    
    
    17,826
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of home equity loans (2)
    
    
    68,108
    
    
    
    2,750
    
    
    
    10,672
    
    
    
    14,535
    
    
    
    40,151Unused portion of construction loans (3)
    
    
    1,351
    
    
    
    1,351
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of overdraft lines-of-credit(4)
    
    
    4,456
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,456Unused portion of personal lines-of-credit(5)
    
    
    709
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    709Standby letters of credit(6)
    
    
    3,213
    
    
    
    3,213
    
    
    
    
    
    
    
    
    
    
    
    Other commitments and contingencies(7)
    
    
    4,287
    
    
    
    
    
    
    
    4,287
    
    
    
    
    
    
    
    Total loan and other commitments
    
    $
    118,278
    
    
    $
    43,468
    
    
    $
    14,959
    
    
    $
    14,535
    
    
    $
    45,316
 
 (1)
    
    Commitments for loans are extended to customers for up to 60 days after which they expire.(2)
    
    Unused portions of home equity loans are available to the borrower for up to 10 years.(3)
    
    Unused portions of residential construction loans are available to the borrower for up to one year. Commercial construction loans
maturities may be longer than one year.(4)
    
    Unused portion of checking overdraft lines-of-credit are available to customers in good standing indefinitely.(5)
    
    Unused portion of personal lines-of-credit are available to customers in good standing indefinitely.(6)
    
    Standby letters of credit are generally available for less than one year.(7)
    
    Other commitments relate primarily to potential additional capital calls the Company is committed to contribute as part of its investment
in certain real estate limited partnerships. 57




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Impact of Inflation and Changing Prices
  Impact of Recent Accounting Pronouncements
  58




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##### Table of Contents



Item 8: Financial Statements And Supplemental Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting
Firm
    
    
    60Consolidated Balance Sheets as of December 31, 2010 and
2009
    
    
    62Consolidated Statements of Operations for the Years Ended
December 31, 2010, 2009 and 2008
    
    
    63Consolidated Statements of Changes in Stockholders Equity
for the Years Ended December 31, 2010, 2009 and 2008
    
    
    64Consolidated Statements of Cash Flows for the Years Ended
December 31, 2010, 2009 and 2008
    
    
    65    66Notes to Consolidated Financial Statements
    
    
    67    120
 59




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##### Table of Contents



Internal Control
Integrated Framework
     60




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Internal ControlIntegrated Framework )
  
 61




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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 December 31,2010
    
    
    2009ASSETSCash and due from banks
    
    $
    12,186
    
    
    $
    11,281Short-term investments
    
    
    14,906
    
    
    
    28,874Cash and cash equivalents
    
    
    27,092
    
    
    
    40,155Securities  Available for sale
    
    
    185,688
    
    
    
    167,426Securities  Held to maturity
    
    
    97
    
    
    
    97Restricted equity securities and other investments  at cost
    
    
    16,546
    
    
    
    17,193Loans held for sale
    
    
    3,839
    
    
    
    706Loans, net of allowance for loan losses of $9,010
in 2010 and $11,089 in 2009
    
    
    607,102
    
    
    
    652,628Premises and equipment, net
    
    
    19,142
    
    
    
    19,568Accrued interest receivable
    
    
    2,631
    
    
    
    3,306Goodwill, net
    
    
    11,558
    
    
    
    9,730Mortgage servicing rights
    
    
    737
    
    
    
    514Other intangible assets
    
    
    2,888
    
    
    
    2,140Net deferred tax asset
    
    
    12,684
    
    
    
    10,202Bank-owned life insurance
    
    
    17,047
    
    
    
    16,263Foreclosed assets
    
    
    2,216
    
    
    
    1,195Other assets
    
    
    7,610
    
    
    
    5,142$
    916,877
    
    
    $
    946,265LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    75,116
    
    
    $
    75,232Interest-bearing
    
    
    610,129
    
    
    
    576,146Total deposits
    
    
    685,245
    
    
    
    651,378Securities sold under agreements to repurchase
    
    
    5,329
    
    
    
    6,386Federal Home Loan Bank advances
    
    
    105,388
    
    
    
    160,352Mortgagors escrow accounts
    
    
    1,211
    
    
    
    1,058Accrued expenses and other liabilities
    
    
    8,145
    
    
    
    5,724Total liabilities
    
    
    805,318
    
    
    
    824,898Commitments and contingenciesStockholders Equity:Preferred Stock ($.01 par value, 10,000,000 shares
authorized, none issued or outstanding)
    
    
    
    
    
    
    Common Stock ($.01 par value, 40,000,000 shares
authorized and 10,308,600 issued at December 31, 2010 and
December 31, 2009; 8,631,732 outstanding at December 31,
2010 and 8,631,732 outstanding at December 31, 2009)
    
    
    103
    
    
    
    103Additional paid-in-capital
    
    
    103,168
    
    
    
    102,788Unearned Compensation  ESOP
    
    
    (6,956
    )
    
    
    (7,322
    )Unearned Compensation  Equity Incentive Plans
    
    
    (1,053
    )
    
    
    (2,078
    )Retained earnings
    
    
    39,114
    
    
    
    48,998Accumulated other comprehensive income (loss)
    
    
    (233
    )
    
    
    711Treasury stock, at cost (1,676,868 shares at December 31, 2010
and 1,573,888 shares at December 31, 2009)
    
    
    (22,584
    )
    
    
    (21,833
    )Total stockholders equity
    
    
    111,559
    
    
    
    121,367$
    916,877
    
    
    $
    946,265
  62




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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Interest and dividend income:Loans
    
    $
    36,014
    
    
    $
    38,849
    
    
    $
    41,944Securities:Taxable
    
    
    4,378
    
    
    
    6,201
    
    
    
    6,964Tax-Exempt
    
    
    442
    
    
    
    656
    
    
    
    526Dividends
    
    
    107
    
    
    
    101
    
    
    
    651Short-term investments
    
    
    23
    
    
    
    11
    
    
    
    242Total interest and dividend income
    
    
    40,964
    
    
    
    45,818
    
    
    
    50,327Interest expense:Deposits
    
    
    8,928
    
    
    
    11,071
    
    
    
    14,421Federal Home Loan Bank advances
    
    
    5,600
    
    
    
    7,210
    
    
    
    7,945Other borrowed funds
    
    
    30
    
    
    
    67
    
    
    
    99Total interest expense
    
    
    14,558
    
    
    
    18,348
    
    
    
    22,465Net interest income
    
    
    26,406
    
    
    
    27,470
    
    
    
    27,862Provision for loan losses
    
    
    10,468
    
    
    
    4,883
    
    
    
    1,465Net interest income after provision for loan losses
    
    
    15,938
    
    
    
    22,587
    
    
    
    26,397Non-interest income:Total other-than-temporary impairment losses on equity securities
    
    
    (42
    )
    
    
    (703
    )
    
    
    (3,020
    )Total other-than-temporary impairment losses on debt securities
    
    
    
    
    
    
    (4,983
    )
    
    
    (530
    )Total other-than-temporary impairment losses on other investments
    
    
    (3,828
    )
    
    
    (3,813
    )Portion of impairment losses on debt securities recognized in other
comprehensive income/loss
    
    
    
    
    
    
    2,264
    
    
    
    Net impairment losses recognized in earnings
    
    
    (3,870
    )
    
    
    (7,235
    )
    
    
    (3,550
    )Customer service fees
    
    
    2,967
    
    
    
    2,870
    
    
    
    3,202Portfolio management fees
    
    
    1,968
    
    
    
    1,007
    
    
    
    1,141Income from bank-owned life insurance
    
    
    689
    
    
    
    710
    
    
    
    714Insurance, annuities and mutual fund fees
    
    
    173
    
    
    
    129
    
    
    
    198Net gain (loss) on sales of available-for-sale securities
    
    
    2,024
    
    
    
    (3,032
    )
    
    
    356Net gain on sales of loans
    
    
    607
    
    
    
    860
    
    
    
    255Prepayment penalty on FHLB advances
    
    
    (1,481
    )
    
    
    
    
    
    
    Miscellaneous
    
    
    116
    
    
    
    78
    
    
    
    91Total non-interest income (loss)
    
    
    3,193
    
    
    
    (4,613
    )
    
    
    2,407Non-interest expenses:Salaries and employee benefits
    
    
    14,797
    
    
    
    13,754
    
    
    
    14,027Occupancy and equipment
    
    
    3,912
    
    
    
    3,921
    
    
    
    3,625Data processing
    
    
    2,934
    
    
    
    2,659
    
    
    
    2,627Professional fees
    
    
    1,924
    
    
    
    1,083
    
    
    
    842Advertising
    
    
    1,047
    
    
    
    1,405
    
    
    
    1,121Deposit insurance
    
    
    1,109
    
    
    
    1,491
    
    
    
    214Foreclosed assets, net
    
    
    886
    
    
    
    163
    
    
    
    83Other general and administrative
    
    
    4,434
    
    
    
    4,356
    
    
    
    4,045Total non-interest expenses
    
    
    31,043
    
    
    
    28,832
    
    
    
    26,584Income (loss) before income taxes
    
    
    (11,912
    )
    
    
    (10,858
    )
    
    
    2,220Provision (benefit) for income taxes
    
    
    (4,016
    )
    
    
    (3,060
    )
    
    
    776Net income (loss)
    
    $
    (7,896
    )
    
    $
    (7,798
    )
    
    $
    1,444Earnings (loss) per shareBasic
    
    $
    (0.99
    )
    
    $
    (0.98
    )
    
    $
    0.18Diluted
    
    $
    (0.99
    )
    
    $
    (0.98
    )
    
    $
    0.18Weighted average shares outstandingBasic
    
    
    7,990,167
    
    
    
    7,977,363
    
    
    
    8,058,594Diluted
    
    
    7,990,167
    
    
    
    7,977,363
    
    
    
    8,082,498
  63




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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Dollars in thousands, except per share amounts)
 Unearned
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    Unearned
    
    
    Compensation -
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Compensation -
    
    
    Equity
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    ESOP
    
    
    Incentive Plan
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    EquityBalance at December 31, 2007
    
    
    9,240,960
    
    
    $
    103
    
    
    $
    101,720
    
    
    $
    (8,787
    )
    
    $
    (3,525
    )
    
    $
    58,709
    
    
    $
    270
    
    
    $
    (15,398
    )
    
    $
    133,092Comprehensive income (loss):Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,444
    
    
    
    
    
    
    
    
    
    
    
    1,444Net unrealized loss on securities
available for sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,079
    )
    
    
    
    
    
    
    (5,079
    )Amortization of benefit plan gains/losses
and prior service costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    87Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,548
    )Cash dividends declared ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,612
    )
    
    
    
    
    
    
    
    
    
    
    (1,612
    )Common stock repurchased - 5% Stock Repurchase
Program announced December 2007
    
    
    (462,048
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,117
    )
    
    
    (6,117
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    784
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    784Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    840Restricted stock granted
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    (7
    )
    
    
    
    
    
    
    49
    
    
    
    Release of ESOP stock
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    703Balance at December 31, 2008
    
    
    8,781,912
    
    
    $
    103
    
    
    $
    102,475
    
    
    $
    (8,055
    )
    
    $
    (2,727
    )
    
    $
    58,534
    
    
    $
    (4,722
    )
    
    $
    (21,466
    )
    
    $
    124,142Comprehensive income (loss):Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,798
    )
    
    
    
    
    
    
    
    
    
    
    (7,798
    )Net unrealized gain on securities
available for sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,296
    
    
    
    
    
    
    
    5,296Amortization of benefit plan gains/losses
and prior service costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    137Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,365
    )Cash dividends declared ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,603
    )
    
    
    
    
    
    
    
    
    
    
    (1,603
    )Common stock repurchased - 5% Stock Repurchase
Program announced March 2009
    
    
    (67,250
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (696
    )
    
    
    (696
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    843Restricted stock granted
    
    
    20,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (194
    )
    
    
    (135
    )
    
    
    
    
    
    
    329
    
    
    
    Release of ESOP stock
    
    
    
    
    
    
    
    
    
    
    (161
    )
    
    
    733
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    572Balance at December 31, 2009
    
    
    8,734,712
    
    
    $
    103
    
    
    $
    102,788
    
    
    $
    (7,322
    )
    
    $
    (2,078
    )
    
    $
    48,998
    
    
    $
    711
    
    
    $
    (21,833
    )
    
    $
    121,367Comprehensive income (loss):Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,896
    )
    
    
    
    
    
    
    
    
    
    
    (7,896
    )Net unrealized loss on securities
available for sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,135
    )
    
    
    
    
    
    
    (1,135
    )Amortization of benefit plan gains/losses
and prior service costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    
    
    
    
    191Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,840
    )Cash dividends declared ($0.20 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,605
    )
    
    
    
    
    
    
    
    
    
    
    (1,605
    )Common stock repurchased - 5% Stock Repurchase
Program announced March 2009
    
    
    (104,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (892
    )
    
    
    (892
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    972Restricted stock granted
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (171
    )
    
    
    (157
    )
    
    
    
    
    
    
    328
    
    
    
    Forfeiture of restricted stock
    
    
    (18,980
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    304
    
    
    
    (117
    )
    
    
    
    
    
    
    (187
    )Release of ESOP stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366
    
    
    
    
    
    
    
    (109
    )
    
    
    
    
    
    
    
    
    
    
    257Balance at December 31, 2010
    
    
    8,631,732
    
    
    $
    103
    
    
    $
    103,168
    
    
    $
    (6,956
    )
    
    $
    (1,053
    )
    
    $
    39,114
    
    
    $
    (233
    )
    
    $
    (22,584
    )
    
    $
    111,559
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LEGACY BANCORP, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (7,896
    )
    
    $
    (7,798
    )
    
    $
    1,444Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Provision for loan losses
    
    
    10,468
    
    
    
    4,883
    
    
    
    1,465Net amortization of securities
    
    
    914
    
    
    
    721
    
    
    
    (53
    )Amortization of intangible assets
    
    
    580
    
    
    
    700
    
    
    
    653Depreciation and amortization expense
    
    
    1,581
    
    
    
    1,615
    
    
    
    1,482Loss on sales/impairment of securities, net
    
    
    1,846
    
    
    
    10,267
    
    
    
    3,194Loss on sales/writedowns of foreclosed real estate, net
    
    
    275
    
    
    
    80
    
    
    
    Gain on sales of loans, net
    
    
    (607
    )
    
    
    (860
    )
    
    
    (255
    )Loans originated for sale
    
    
    (63,836
    )
    
    
    (66,795
    )
    
    
    (10,345
    )Proceeds from sales of loans
    
    
    61,310
    
    
    
    66,949
    
    
    
    23,730Share-based compensation expense
    
    
    1,272
    
    
    
    1,317
    
    
    
    1,624Deferred tax benefit
    
    
    (1,902
    )
    
    
    (3,637
    )
    
    
    (1,237
    )Employee Stock Ownership Plan expense
    
    
    257
    
    
    
    572
    
    
    
    703Net change in:Bank-owned life insurance
    
    
    (784
    )
    
    
    (712
    )
    
    
    (763
    )Accrued interest receivable
    
    
    675
    
    
    
    327
    
    
    
    (229
    )Other assets
    
    
    (2,468
    )
    
    
    (3,716
    )
    
    
    (1,235
    )Accrued expenses and other liabilities
    
    
    990
    
    
    
    (2,320
    )
    
    
    (110
    )Net cash provided by operating activities
    
    
    2,675
    
    
    
    1,593
    
    
    
    20,068Cash flows from investing activities:Activity in available-for-sale securities:Sales
    
    
    74,880
    
    
    
    56,650
    
    
    
    56,456Maturities, prepayments and calls
    
    
    149,792
    
    
    
    71,920
    
    
    
    43,166Purchases
    
    
    (243,716
    )
    
    
    (162,155
    )
    
    
    (108,919
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    
    
    
    
    (210
    )Purchase of other investments
    
    
    (3,182
    )
    
    
    (895
    )
    
    
    (2,587
    )Maturities, prepayments and calls of other investments
    
    
    2
    
    
    
    74
    
    
    
    25Loan originations and purchases, net of principal payments
    
    
    31,980
    
    
    
    36,478
    
    
    
    (55,835
    )Additions to premises and equipment
    
    
    (1,155
    )
    
    
    (939
    )
    
    
    (2,386
    )Net cash paid for acquisition
    
    
    (1,623
    )
    
    
    
    
    
    
    Net cash received in branch acquisition
    
    
    
    
    
    
    9,031
    
    
    
    Proceeds from sales of foreclosed assets
    
    
    1,782
    
    
    
    
    
    
    
    Net cash provided (used) by investing activities
    
    
    8,760
    
    
    
    10,164
    
    
    
    (70,290
    )
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LEGACY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Dollars in thousands)
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Cash flows from financing activities:Net increase in deposits
    
    
    33,867
    
    
    
    33,457
    
    
    
    (2,359
    )Net (decrease) increase in securities sold under
agreements to repurchase
    
    
    (1,057
    )
    
    
    1,148
    
    
    
    1,183Repayment of Federal Home Loan Bank advances
    
    
    (84,395
    )
    
    
    (50,644
    )
    
    
    (871,460
    )Proceeds from Federal Home Loan Bank advances
    
    
    29,431
    
    
    
    13,098
    
    
    
    901,976Net increase in mortgagors escrow accounts
    
    
    153
    
    
    
    43
    
    
    
    (19
    )Repurchase of common stock
    
    
    (892
    )
    
    
    (696
    )
    
    
    (6,117
    )Payment of dividends on common stock
    
    
    (1,605
    )
    
    
    (1,603
    )
    
    
    (1,612
    )Net cash provided (used) by financing activities
    
    
    (24,498
    )
    
    
    (5,197
    )
    
    
    21,592Net change in cash and cash equivalents
    
    
    (13,063
    )
    
    
    6,560
    
    
    
    (28,630
    )Cash and cash equivalents at beginning of period
    
    
    40,155
    
    
    
    33,595
    
    
    
    62,225Cash and cash equivalents at end of period
    
    $
    27,092
    
    
    $
    40,155
    
    
    $
    33,595Supplemental cash flow information:Interest paid on deposits
    
    $
    8,971
    
    
    $
    11,209
    
    
    $
    14,453Interest paid on Federal Home Loan Bank advances
    
    
    5,718
    
    
    
    7,427
    
    
    
    7,933Interest paid on other borrowed funds
    
    
    30
    
    
    
    67
    
    
    
    99Income taxes paid
    
    
    325
    
    
    
    1,870
    
    
    
    1,375Non-cash activities:Real estate acquired through foreclosure
    
    
    2,216
    
    
    
    1,275
    
    
    
    Transfers from loans to loans held for sale
    
    
    16,500
    
    
    
    
    
    
    
    12,735
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LEGACY
BANCORP, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentationThe consolidated financial statements include the accounts of Legacy Bancorp, Inc. (Company
or Legacy), and its wholly-owned subsidiaries, Legacy Banks (Bank) and LB Funding Corp.
The accounts of Legacy Banks include all of its wholly-owned subsidiaries, Legacy Securities
Corporation, Legacy Insurance Services of the Berkshires, Renaissance Investment Group, LLC
and CSB Service Corporation. All significant intercompany balances and transactions have been
eliminated in consolidationMerger agreementOn December 21, 2010, the Company and Berkshire Hills Bancorp, Inc. (Berkshire) jointly
announced the execution of a definitive agreement whereby Berkshire will acquire Legacy in a
90% stock and 10% cash transaction. As a result of the merger, Legacys shareholders will
become shareholders of Berkshire and will receive 0.56385 shares of Berkshire common stock
plus $1.30 cash for each share of Legacy common stock they own. The transaction is expected to
be completed during the second quarter of 2011, subject to the approval of regulators and
shareholders of both companies.BusinessThe Company provides a variety of financial services to individuals and businesses through its
full service offices in western Massachusetts and eastern New York. Its primary deposit
products are savings, checking and term certificate accounts and its primary lending products
are consumer, residential and commercial mortgage loans. The Company also provides investment
management services and insurance services through the Banks subsidiaries, Renaissance and
Legacy Insurance Services.Use of estimatesIn preparing 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 consolidated balance sheet and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material estimates that
are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, valuation of goodwill, other-than-temporary
impairment of securities and other investments and the valuation of deferred tax assets.AcquisitionsOn March 13, 2009, the Bank acquired a community banking branch office from The Bank of
Western Massachusetts. In this acquisition, Legacy assumed approximately $9.8 million in
deposits for a purchase premium of approximately $393,000. The purchase price allocation
resulted in approximately $285,000 of core deposit intangibles, $43,000 of goodwill and
$470,000 of property and equipment.
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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Acquisitions (concluded)On April 30, 2010, the Bank acquired substantially all of the assets of the Renaissance
Investment Group, LLC, a wealth management company located in Pittsfield, Massachusetts. The
purchase price included an estimated contingent portion which is based upon forecasted gross
revenue through September 30, 2011. This estimated contingent component may increase or
decrease based upon actual gross revenue recorded over that period. The purchase price
allocation resulted in approximately $1.6 million of customer list and other intangibles, $1.8
million of goodwill and $5,000 of property and equipment. The goodwill and customer list
intangible is expected to be deducted for tax purposes over a period of 15 years.Significant group concentrations of credit riskMost of the Companys activities are with customers located within the Northeast region of the
United States; specifically Western Massachusetts and Eastern New York. Note 4 discusses the
types of securities that the Company invests in. Note 5 discusses the types of lending that
the Company engages in. The Company does not have any significant concentrations to any one
industry or customer.Operating segmentsAccounting Standards Codification (ASC) 280, Segment Reporting, establishes standards for
the way that public business enterprises report information about operating segments in annual
and interim financial statements. It also establishes standards for related disclosures about
products and services, geographical areas, and major customers. Generally, financial
information is to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Management evaluates the
Companys performance and allocates resources based on a single segment concept.Accordingly, there are no separately identified material operating segments for which discrete
financial information is available. The Company does not derive revenues from, or have assets
located in foreign countries, nor does it derive revenues from any single customer that
represents 10% or more of its total revenues.Cash and cash equivalentsFor purposes of the consolidated statements of cash flows, cash and cash equivalents include
cash and balances due from banks, interest-bearing deposits in banks and short-term
investments with maturities of ninety days or less at date of purchase.
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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Fair value hierarchyThe Company groups its assets that are measured at fair value in three levels, based on the
markets in which the assets are traded and the reliability of the assumptions used to
determine fair value.
 Level 1  Valuation is based on quoted prices in active markets for identical assets.
Valuations are obtained from readily available pricing sources for market transactions
involving identical assets.Level 2  Valuation is based on observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets.Level 3  Valuation is based on unobservable inputs that are supported by little or
no market activity and that are significant to the fair value of the assets. Level 3
assets include financial instruments whose value is determined using unobservable
inputs to pricing models, discounted cash flow methodologies, or similar techniques,
as well as instruments for which the determination of fair value requires significant
management judgment or estimation.
 Transfers between levels are recognized at the end of the reporting period, if applicable.SecuritiesDebt securities that management has the positive intent and ability to hold to maturity are
classified as held to maturity and reported at amortized cost, less principal payments
received. Securities not classified as held to maturity, including equity securities with
readily determinable fair values, are classified as available for sale and reported at fair
value, with unrealized gains and losses excluded from earnings and reported in other
comprehensive income.Purchase premiums and discounts are recognized in interest income using the interest method
over the terms of the securities. Gains and losses on the sale of securities are recorded on
the trade date and are determined using the specific identification method.Each reporting period, the Company evaluates all securities classified as available-for-sale
or held-to-maturity, with a decline in fair value below the amortized cost of the investment,
to determine whether or not the impairment is deemed to be other-than-temporary (OTTI).
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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Securities (concluded)OTTI is required to be recognized (1) if the Company intends to sell the security; (2) if it
is more likely than not that the Company will be required to sell the security before
recovery of its amortized cost basis; or (3) for debt securities, if the present value of
expected cash flows is not sufficient to recover the entire amortized cost basis. Marketable
equity securities are evaluated for OTTI based on the severity and duration of the impairment
and, if deemed to be other than temporary, the declines in fair value are reflected in
earnings as realized losses. For all impaired debt securities that the Company intends to
sell, or more likely than not will be required to sell, the full amount of the depreciation is
recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt
securities is recognized through earnings. Non-credit related OTTI for such debt securities is
recognized in other comprehensive income, net of applicable taxes.Federal Home Loan Bank stock and other investmentsThe Bank, as a member of the FHLB system, is required to maintain an investment in capital
stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market
value and is carried at cost. At its discretion, the FHLB may declare dividends on the stock.
The Bank reviews for impairment based on the ultimate recoverability of the cost basis in the
FHLB stock. As of December 31, 2010, no impairment has been recognized.The Bank also has an investment in Savings Bank Life Insurance Company of Massachusetts
(SBLI) stock. This stock is reported at cost which was the fair value at acquisition as
determined by an appraisal performed by independent investment consultants retained by SBLI.Certain other equity investments that do not have readily determinable fair values are carried
at cost. The investments are reviewed for impairment at least annually or sooner if events or
changes occur which indicate that the carrying value may not be recoverable.Loans held for saleLoans originated and intended for sale in the secondary market are carried at the lower of
cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to income.LoansThe Company grants mortgage, commercial and consumer loans to customers. A substantial
portion of the loan portfolio is represented by residential and commercial real estate
mortgage loans in western Massachusetts. The ability of the Companys debtors to honor their
loans is affected by the local economy and the local real estate market.
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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Loans (concluded)The Companys loan portfolio includes residential real estate, home equity, commercial real estate, commercial,  and consumer loans.
Residential real estate includes 1-4 family owner occupied loans  and land notes; commercial real estate includes commercial construction; and consumer includes manufactured housing, secured and unsecured loans.
Loans that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off generally are reported at their
outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses,
and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid
principal balance. Loan origination costs, net of certain direct origination fees, and loan
purchase premiums, are deferred and recognized as an adjustment of the related loan yield
using the interest method.The accrual of interest on mortgage and commercial loans is discontinued at the time the loan
is 90 days past due unless the credit is well secured and in process of collection. Unsecured
consumer loans are typically charged off no later than 180 days past due. Past due status is
based on contractual terms of the loan. In all cases, loans are placed on non-accrual or
charged off at an earlier date if collection of principal or interest is considered doubtful.All interest accrued but not collected for loans that are placed on non-accrual or charged off
is reversed against interest income. The interest on these loans is accounted for on the
cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.Allowance for loan lossesThe allowance for loan losses is established as losses are estimated to have occurred through
a provision for loan losses charged to earnings. Loan losses are charged against the allowance
when management believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated
on a regular basis by management. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information becomes available.
The allowance
consists of general, allocated and unallocated components, as further described below.General component: The general component of the allowance for loan losses is based on
historical loss experience adjusted for qualitative factors stratified by the following loan
segments: residential real estate, land notes, commercial real estate, home equity loans, commercial and
consumer. Management uses a rolling average of historical losses based on a time frame
appropriate to capture relevant loss data for each loan segment. This historical loss factor
is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in
volume and terms of loans; effects of changes in risk selection and underwriting standards and
other changes in lending policies, procedures and practices; experience/ability/depth of
lending management and staff; and national and local economic trends and conditions. While
there were no changes in the Companys general policies or methodology pertaining to the
general component of the allowance for loan losses during 2010, certain general reserve ratios
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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Allowance for loan losses (continued)were increased during 2010 mainly to reflect the greater risks and uncertainties resulting
from the current economy.The qualitative factors for the general component of the allowance for loan losses are
determined based on the various risk characteristics of each loan segment. Risk
characteristics relevant to each portfolio segment are as follows:
 Residential real estate  For residential mortgage loans to be held in portfolio, Legacy
Banks lends up to a maximum loan-to-value ratio of 100% for first-time home buyers and 95%
for other buyers on mortgage loans secured by owner-occupied property, with the general
condition that private mortgage insurance is required for loans with a loan-to-value ratio in
excess of 80%. A licensed appraiser appraises all properties securing residential first
mortgage purchase loans. All
loans in this segment are collateralized by owner-occupied residential real estate and
repayment is dependent on the credit quality of the individual borrower. The overall health
of the economy, including unemployment rates and housing prices, will have an effect on the
credit quality in this segment. Land loans are also included in residential real estate.Commercial real estate  Loans in this segment are primarily income-producing properties
throughout the Companys market area, with a segment located out of market generated through
the Companys former national commercial real estate lending program which was discontinued
in 2010. The underlying cash flows generated by the properties are adversely impacted by a
downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an
effect on the credit quality in this segment. Management periodically obtains the borrowers
updated financial information and continually monitors the cash flows of these loans.
Commercial construction loans are included in the commercial real estate segment and are
considered to have higher risks due to their ultimate repayment being sensitive to interest
rate changes, demand and supply of alternative real estate, the availability of long-term
financing, and changes in general economic conditions. Construction loans are underwritten
utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of
absorption and lease rates, and financial analyses of the developers and property owners.Home equity loans  Loans in this segment primarily include home equity lines-of-credit and
loans that are secured by first or second mortgages on one-to-four family owner occupied
properties, and are available to be drawn upon for 10 years, at the end of which time they
become term loans amortized over 10 years. Interest rates on home equity lines normally
adjust based on the prime rate of interest as published by the Wall Street Journal.Commercial loans  Loans in this segment are made to businesses and are generally secured by
assets of the business. Repayment is expected from the cash flows of the business. A weakened
economy, and resultant decreased consumer spending, will have an effect on the credit quality
in this segment.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Allowance for loan losses (concluded)
 Consumer and other loans  Certain loans in this segment are unsecured and repayment is dependent on
the credit quality of the individual borrower. This segment includes manufactured housing
loans.
 Allocated component: The allocated component relates to loans that are classified as
impaired. Impairment is measured on a loan by loan basis for commercial and commercial real
estate loans by either the present value of expected future cash flows discounted at the
loans effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is
established when the discounted cash flows (or collateral value) of the impaired loan is lower
than the carrying value of that loan. Large groups of smaller balance homogeneous loans are
collectively evaluated for impairment. Accordingly, the Company generally does not separately
identify individual consumer and residential real estate loans for impairment disclosures,
unless such loans are subject to a troubled debt restructuring agreement.A loan is considered impaired when, based on current information and events, it is probable
that the Company will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on
a case-by-case basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the reasons for the delay, the borrowers
prior payment record, and the amount of the shortfall in relation to the principal and
interest owed.The Company periodically may agree to modify the contractual terms of loans. When a loan is
modified and a concession is made to a borrower experiencing financial difficulty, the
modification is considered a troubled debt restructuring (TDR). All TDRs are initially
classified as impaired.Unallocated Component: An unallocated component is maintained to cover uncertainties
that could affect managements estimate of probable losses. The unallocated component of the
allowance reflects the margin of imprecision inherent in the underlying assumptions used in
the methodologies for estimating allocated and general reserves in the portfolio.The Company also maintains a reserve for unfunded credit commitments to provide for the risk
of loss inherent in these arrangements. This reserve is determined using a methodology similar
to the analysis of the allowance for loan losses, taking into consideration probabilities of
future funding requirements. This reserve for unfunded commitments is included in other
liabilities and amounted to $269 and $326 at December 31, 2010 and 2009, respectively.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Foreclosed assetsAssets acquired through, or in lieu of, loan foreclosure are held for sale and are initially
recorded at fair value, less costs to sell, at the date of foreclosure, establishing a new
cost basis. Subsequent to foreclosure, valuations are periodically performed by management
and the assets are carried at the lower of carrying amount or fair value less costs to sell.
Revenue and expenses from operations, changes in the valuation allowance and any direct
writedowns are included in net expenses from other real estate owned.Premises and equipmentLand is carried at cost. Buildings, improvements and equipment are carried at cost, less
accumulated depreciation and amortization computed primarily on the straight-line method over
the shorter of the lease term or estimated useful lives of the assets. Expected terms include
lease option periods to the extent that the exercise of such options is reasonably assured.ServicingThe Company services mortgage loans for others. Servicing assets are recognized as separate
assets at fair value when rights are acquired through purchase or through sale of financial
assets. The Company uses a simplified valuation model derived from
estimates of the present value of the future cash flows to value these assets at an amount equal
to 0.75% of the loans sold and serviced. Capitalized servicing rights are reported in other
intangible assets and are amortized into non-interest income. Servicing assets are evaluated
for impairment based upon the fair value of the rights as compared to amortized cost.
Impairment is determined by stratifying rights by predominant risk characteristics such as
interest rate and terms. Impairment, if any, is recognized through a valuation allowance for
an individual stratum, to the extent that fair value is less than the capitalized amount for
the stratum. Changes in the valuation allowance are reported in loan servicing fee income.Transfers of Financial AssetsTransfers of an entire financial asset, a group of entire financial assets, or a participating
interest in an entire financial asset are accounted for as sales when control over the assets
has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the
assets have been isolated from the Company, (2) the transferee obtains the right to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective control over
the transferred assets.Effective January 1, 2010, the Company adopted accounting guidance pertaining to transfers of
financial assets. During the normal course of business, the Company may transfer a portion of
a financial asset, for example, a participation loan or the government guaranteed portion of a
loan. In order to be eligible for sales treatment, the transfer of the portion of the loan
must meet the criteria of a participating interest. If it does not meet the criteria of a
participating interest, the transfer must be accounted for as a secured borrowing. In order to
meet the criteria for a participating interest, all cash flows from the loan must be divided
proportionately, the rights of each loan holder must have the same priority, the loan holders
must have no recourse to the transferor other than standard representations and warranties and
no loan holder can have the right to pledge or exchange the entire loan.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Goodwill and other intangible assetsGoodwill results from business acquisitions and represents the excess of the purchase price
over the fair value of acquired tangible assets and liabilities and identifiable intangible
assets. The fair value of goodwill is analyzed at least annually and this analysis utilizes
three separate methodologies. First, a market approach is used which incorporates a review of
comparable market transactions for peer companies, relying on recent merger and acquisition
data from these comparable transactions to estimate the price multiple at which the Company
would be acquired in a hypothetical market transaction. The second approach used is the asset
approach, or replacement cost approach which entails stating the recorded assets and
liabilities of the Company on a fair market value basis, and the value of the Companys equity
is determined as the difference between the total fair value amounts for assets and
liabilities. The third approach utilized is the income approach which
constructs a
discounted cash flow model from financial projections. The concluded
fair value is calculated
by weighting the values obtained based on the relevance of the methodology based on the facts
and circumstances for the Company on the valuation date. The greatest weight, 50%, is placed
on the market approach given the amount of data obtainable on comparable transactions. A 30%
weight is applied to the asset approach due to the precision of the fair value estimates
provided. Lastly, a 20% weight is applied to the income approach/discounted cash
flow model due to the inherent uncertainty in forecasting future performance, and the
appropriate market discount rate. Impairment, if any, identified under this analysis is
recognized in the period identified. If an impairment loss is recorded, it will have little or no impact on the tangible book value
of our common shares or our regulatory capital levels.Identified intangible assets that have
a designated finite life are amortized over their useful lives and are evaluated for
impairment whenever events or changes in circumstances indicate the carrying amount may not be
recoverable.Bank-owned life insuranceBank-owned life insurance policies are reflected on the consolidated balance sheet at cash
surrender value. Changes in cash surrender value of the policies, as well as insurance
proceeds received, are reflected in non-interest income on the consolidated statement of
operations and are not subject to income taxes.Income taxesDeferred income tax assets and liabilities are determined using the liability (or balance
sheet) method. Under this method, the net deferred tax asset or liability is determined based
on the tax effects of the temporary differences between the book and tax bases of the various
balance sheet assets and liabilities and gives current recognition to changes in tax rates and
laws. A valuation allowance is established against deferred tax assets when, based upon the
available evidence including historical and projected taxable income, it is more likely than
not that some or all of the deferred tax assets will not be realized.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Income taxes (concluded)The Company records interest and penalties as part of income tax expense. No interest or
penalties were recorded for the years ended December 31, 2010, 2009 and 2008. The Company
accounts for interest and penalties related to uncertain tax positions as part of its
provision for federal and state income taxes. The Company does not have any uncertain tax
positions at December 31, 2010 and 2009 which require accrual or disclosure.Income tax benefits related to stock compensation that is in excess of grant-date fair value,
less any proceeds on exercise, are recognized as an increase to additional paid-in capital
upon vesting or exercising and delivery of the stock. Any income tax effects related to stock
compensation that are less than grant-date fair value, less any proceeds on exercise, would be
recognized as a reduction of additional paid in capital to the extent of previously recognized
income tax benefits and then through income tax expense for the remaining amount.Postretirement benefits other than pensionsThe Company sponsors a master healthcare, dental and life insurance plan for a small group of
current retirees. The cost of providing retiree healthcare and other postretirement benefits
is recognized over the period the employee renders service to the Company.Employee stock ownership planCompensation expense for the Employee Stock Ownership Plan (ESOP) is recorded at an amount
equal to the shares allocated by the ESOP multiplied by the average fair market value of the
shares during the period. The Company recognizes compensation expense ratably over the year
based upon the Companys estimate of the number of shares expected to be allocated by the
ESOP. Unearned compensation applicable to the ESOP is reflected as a reduction of
stockholders equity in the consolidated balance sheet. The difference between the average
fair market value and the cost of the shares allocated by the ESOP is recorded as an
adjustment to additional paid-in capital. On July 26, 2010, the Company announced that the
Board of Directors of the Company and the Bank had voted to terminate the ESOP effective
August 1, 2010. Please refer to Note 15 for more information related to the ESOP.Share-based compensation plansThe Company measures and recognizes compensation costs relating to share-based payment
transactions based on the grant-date fair value of the equity instruments issued. Share-based
compensation is recognized over the period the employee is required to provide services for
the award. Reductions in compensation expense associated with forfeited options are estimated
at the date of grant, and this estimated forfeiture rate is adjusted periodically based on
actual forfeiture experience. The Company uses the Black-Scholes option pricing model to
determine the fair value of stock options granted.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Advertising costsAdvertising costs are charged to earnings when incurred.Portfolio management assetsPortfolio management assets held in fiduciary or agent capacity are not included in the
accompanying consolidated balance sheets because they are not assets of the Company.Treasury stockCommon stock shares repurchased are recorded as treasury stock at cost.Earnings per common shareBasic earnings per share is determined by dividing net income by the weighted-average number
of net outstanding common shares for the period. The net outstanding common shares equals the
gross number of common shares issued less the average unallocated shares of the ESOP, the
average number of treasury shares and the average number of unvested shares related to
restricted stock awards. Diluted earnings per share is determined by dividing net income by
the average number of net outstanding common shares computed as if all potential common shares
have been issued by the Company. Potential common shares to be issued would include those
related to outstanding options and unvested stock awards determined using the treasury stock
method.Earnings per common share have been computed based upon the following:
 Year Ended December 31,2010
    
    
    2009
    
    
    2008Net income (loss) applicable to common stock
    
    $
    (7,896
    )
    
    $
    (7,798
    )
    
    $
    1,444Average number of shares issued
    
    
    10,308,600
    
    
    
    10,308,600
    
    
    
    10,308,600Less: average unallocated ESOP shares
    
    
    (532,433
    )
    
    
    (583,872
    )
    
    
    (638,908
    )Less: average treasury shares
    
    
    (1,632,537
    )
    
    
    (1,547,362
    )
    
    
    (1,342,802
    )Less: average unvested restricted stock awards
    
    
    (153,463
    )
    
    
    (200,003
    )
    
    
    (268,296
    )Average number of basic shares outstanding
    
    
    7,990,167
    
    
    
    7,977,363
    
    
    
    8,058,594Plus: dilutive unvested restricted stock awards
    
    
    
    
    
    
    
    
    
    
    23,551Plus: diluted stock option shares
    
    
    
    
    
    
    
    
    
    
    353Average number of diluted shares outstanding
    
    
    7,990,167
    
    
    
    7,977,363
    
    
    
    8,082,498Basic earnings (loss) per share
    
    $
    (0.99
    )
    
    $
    (0.98
    )
    
    $
    0.18Diluted earnings (loss) per share
    
    $
    (0.99
    )
    
    $
    (0.98
    )
    
    $
    0.18Anti-dilutive
shares not included in the computation of dilutive EPS:Stock options
    
    
    735,170
    
    
    
    803,480
    
    
    
    804,280Unvested
restricted shares
    
    
    161,470
    
    
    
    218,790
    
    
    
    
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Comprehensive income (loss)Accounting principles generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and liabilities are reported as a
separate component of the stockholders equity section of the consolidated balance sheet, such
items, along with net income, are components of comprehensive income (loss).The components of other comprehensive income (loss) and related tax effects are as follows:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008SecuritiesNet unrealized holding gains (losses)
on available- for- sale securities
    
    $
    134
    
    
    $
    2,204
    
    
    $
    (11,537
    )Reclassification adjustment for (gains) losses
on available- for- sale securities
    
    
    (2,024
    )
    
    
    3,032
    
    
    
    (356
    )Reclassification adjustment for OTTI
losses on available- for- sale securities
    
    
    42
    
    
    
    5,686
    
    
    
    3,550Non-credit portion of OTTI on
losses on available- for- sale securities
    
    
    
    
    
    
    (2,264
    )
    
    
    (1,848
    )
    
    
    8,658
    
    
    
    (8,343
    )Tax effect
    
    
    713
    
    
    
    (3,362
    )
    
    
    3,264Net-of-tax amount
    
    
    (1,135
    )
    
    
    5,296
    
    
    
    (5,079
    )Directors Fee PlanGains (losses) arising during the period
    
    
    176
    
    
    
    68
    
    
    
    (42
    )Amortization of benefit plan gains/losses
and prior service costs
    
    
    148
    
    
    
    164
    
    
    
    189Tax effect
    
    
    (133
    )
    
    
    (95
    )
    
    
    (60
    )Net-of-tax amount
    
    
    191
    
    
    
    137
    
    
    
    87$
    (944
    )
    
    $
    5,433
    
    
    $
    (4,992
    )
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Comprehensive income (loss) (concluded)The components of accumulated other comprehensive income (loss) and related tax effects are as
follows:
 December 31,2010
    
    
    2009SecuritiesNet unrealized holding gains (losses)
on available for sale securities
    
    $
    (112
    )
    
    $
    1,736Tax effects
    
    
    48
    
    
    
    (664
    )Net-of-tax amount
    
    
    (64
    )
    
    
    1,072Directors Fee PlanUnrecognized net actuarial loss and prior service
costs
    
    
    (285
    )
    
    
    (611
    )Tax effect
    
    
    116
    
    
    
    250Net-of-tax amount
    
    
    (169
    )
    
    
    (361
    )$
    (233
    )
    
    $
    711
 Included in accumulated other comprehensive loss at December 31, 2010,
is prior service cost of $145 expected to be recognized as components of net periodic pension costs for the year ending
December 31, 2011.
 Recent accounting pronouncementsIn June 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2009-16, Transfers and Servicing (Topic 860) Accounting for Transfers of
Financial Assets. This ASU makes several significant amendments to ASC Topic 860 including the removal of the concept of a qualifying special-purpose entity.
The new guidance also clarifies that a transferor must evaluate whether it has maintained
effective control of a financial asset by considering its continuing direct or indirect
involvement with the transferred financial asset. The new authoritative accounting guidance
became effective for fiscal years beginning after November 15, 2009. The Company adopted the
new guidance under ASU No. 2009-16 on January 1, 2010. The adoption did not have a material
impact on the Companys consolidated financial statements. The Company has provided the
disclosures required as of December 31, 2010 in Note 5.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Recent accounting pronouncements (continued)In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures
(Topic 820), Improving Disclosures about Fair Value Measurements. This ASU requires new
disclosures and clarifies existing disclosures regarding recurring and nonrecurring fair value
measurements to provide increased transparency to users of the financial statements. The new
disclosures and clarification of existing disclosures are effective for interim and annual
periods beginning after December 15, 2009, except for the disclosures pertaining to the roll
forward of activity for Level 3 fair value measurements, which are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal years.
Management adopted this statement, except for the roll forward of activity for Level 3 fair
value measurements, as of January 1, 2010 and this adoption did not have a material impact on
the consolidated financial statements.In April 2010, the FASB issued ASU No. 2010-18, Receivables (Topic 310): Effect of a Loan
Modification When the Loan is Part of a Pool that is Accounted for as a Single Asseta
consensus of the FASB Emerging Issues Task Force. This ASU provides guidance on the accounting
for loan modifications when the loan is part of a pool of loans accounted for as a single
asset such as acquired loans that have evidence of credit deterioration upon acquisition that
are accounted for under the guidance in ASC 310-30. This ASU addresses diversity in practice
on whether a loan that is part of a pool of loans accounted for as a single asset should be
removed from that pool upon a modification that would constitute a troubled debt restructuring
or remain in the pool after modification. This ASU clarifies that modifications of loans that
are accounted for within a pool under ASC 310-30 do not result in the removal of those loans
from the pool even if the modification of those loans would otherwise be considered a troubled
debt restructuring. An entity will continue to be required to consider whether the pool of
assets in which the loan is included is impaired if the expected cash flows for the pool
change. The amendments in this update do not require any additional disclosures and are
effective for modifications of loans accounted for within pools under ASC 310-30 occurring in
the first interim or annual period ending on or after July 15, 2010. The adoption of the ASU
did not have a material impact on the Companys consolidated financial statements.In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310), Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires
an entity to provide disclosures that facilitate financial statement users evaluation of (1)
the nature of credit risk inherent in the entitys loan portfolio (2) how that risk is
analyzed and assessed in arriving at the allowance for loan and lease losses and (3) the
changes and reasons for those changes in the allowance for loan and lease losses. For public
entities, the disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures about activity
that occurs during a reporting period are effective for interim and annual reporting periods
beginning on or after December 15, 2010. The Company has provided the disclosures required as
of December 31, 2010 in Note 5.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 Recent accounting pronouncements (concluded)In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310) Deferral of the
Effective Date of Disclosures about Troubled Debt Restructurings in ASU No. 2010-20. The
amendments in this ASU temporarily delay the effective date of disclosures about troubled debt
restructurings as required by ASU No. 2010-20 for public entities in order to allow FASB to
complete deliberations on what constitutes troubled debt restructuring. At that point, the
effective date for such disclosures and guidance for determining what constitutes troubled
debt restructurings will be coordinated. Currently, that guidance is anticipated to be
effective for interim and annual periods ending after June 15, 2011. The Company does not
believe the adoption of this ASU will have a material impact on the consolidated financial
statements.
 2. RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS
 The Bank is required to maintain average balances on hand or with the Federal Reserve Bank of
Boston. At December 31, 2010 and 2009 these reserve balances amounted to $1,000.
 3. SHORT-TERM INVESTMENTS
 Short-term investments consist of the following:
 December 31,2010
    
    
    2009Federal funds sold
    
    $
    11,884
    
    
    $
    21,119FHLB overnight deposits
    
    
    2,884
    
    
    
    7,755Money market funds
    
    
    138
    
    
    
    $
    14,906
    
    
    $
    28,874
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 4. SECURITIES
 Securities and other investments consist of the following:
 December 31,2010
    
    
    2009Securities available for sale, at fair value
    
    $
    185,688
    
    
    $
    167,426Securities held to maturity, at amortized cost
    
    
    97
    
    
    
    97Restricted equity securities and other investments:Federal Home Loan Bank of Boston stock
    
    
    10,932
    
    
    
    10,932Savings Bank
Life Insurance Company of Massachusetts stock
    
    
    1,709
    
    
    
    1,709Real estate partnerships
    
    
    3,815
    
    
    
    4,397Other investments
    
    
    90
    
    
    
    155Total restricted equity securities and other
investments
    
    
    16,546
    
    
    
    17,193Total securities and other investments
    
    $
    202,331
    
    
    $
    184,716
 The amortized cost and estimated fair value of marketable securities, with gross unrealized
gains and losses, follows:
 December 31, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for SaleDebt securities:Government-sponsored enterprises (GSE)
    
    $
    132,221
    
    
    $
    244
    
    
    $
    (841
    )
    
    $
    131,624Municipal
    
    
    3,145
    
    
    
    36
    
    
    
    (36
    )
    
    
    3,145Corporate and other
    
    
    401
    
    
    
    1
    
    
    
    
    
    
    
    402GSE residential mortgage-backed
    
    
    6,370
    
    
    
    225
    
    
    
    (1
    )
    
    
    6,594U.S.
Government guaranteed residential mortgage-backed
    
    
    42,775
    
    
    
    522
    
    
    
    (330
    )
    
    
    42,967Total debt securities
    
    
    184,912
    
    
    
    1,028
    
    
    
    (1,208
    )
    
    
    184,732Marketable equity securities
    
    
    888
    
    
    
    114
    
    
    
    (46
    )
    
    
    956Total securities available for sale
    
    $
    185,800
    
    
    $
    1,142
    
    
    $
    (1,254
    )
    
    $
    185,688Securities Held to MaturityOther bonds and obligations
    
    $
    97
    
    
    $
    
    
    
    $
    
    
    
    $
    97
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 4. SECURITIES (continued)
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities Available for SaleDebt securities:Government-sponsored enterprises (GSE)
    
    $
    80,393
    
    
    $
    138
    
    
    $
    (555
    )
    
    $
    79,976Municipal
    
    
    17,521
    
    
    
    398
    
    
    
    (44
    )
    
    
    17,875Corporate and other
    
    
    1,321
    
    
    
    30
    
    
    
    
    
    
    
    1,351GSE residential mortgage-backed
    
    
    29,591
    
    
    
    983
    
    
    
    (71
    )
    
    
    30,503U.S.
Government guaranteed residential mortgage-backed
    
    
    33,625
    
    
    
    248
    
    
    
    (237
    )
    
    
    33,636Total debt securities
    
    
    162,451
    
    
    
    1,797
    
    
    
    (907
    )
    
    
    163,341Marketable equity securities
    
    
    3,239
    
    
    
    889
    
    
    
    (43
    )
    
    
    4,085Total securities available for sale
    
    $
    165,690
    
    
    $
    2,686
    
    
    $
    (950
    )
    
    $
    167,426Securities Held to MaturityOther bonds and obligations
    
    $
    97
    
    
    $
    
    
    
    $
    
    
    
    $
    97
 The amortized cost and estimated fair value of debt securities by contractual maturity at
December 31, 2010 are as follows. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
 Available for Sale
    
    
    Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueWithin 1 year
    
    $
    5,634
    
    
    $
    5,662
    
    
    $
    
    
    
    $
    Over 1 year to 5 years
    
    
    103,145
    
    
    
    102,769
    
    
    
    82
    
    
    
    82Over 5 years to 10 years
    
    
    13,703
    
    
    
    13,644
    
    
    
    
    
    
    
    Over 10 years
    
    
    13,285
    
    
    
    13,096
    
    
    
    15
    
    
    
    15Total bonds and obligations
    
    
    135,767
    
    
    
    135,171
    
    
    
    97
    
    
    
    97Mortgage-backed
    
    
    49,145
    
    
    
    49,561
    
    
    
    
    
    
    
    Total debt securities
    
    $
    184,912
    
    
    $
    184,732
    
    
    $
    97
    
    
    $
    97
 For the years ended December 31, 2010, 2009 and 2008, proceeds from the sale and call of
securities available for sale amounted to $78,012, $103,765 and $74,169 respectively. Gross
gains of $2,364, $2,019 and $947, respectively, and gross losses of $354, $5,068 and $653,
respectively, were realized on sales. Gross gains on called securities were $67, $29 and $62
in 2010, 2009 and 2008, respectively and gross losses on called securities in 2010 and 2009
were $53 and $12, respectively. The tax (provision) benefits applicable to these net realized
gains and losses amounts to $682, $(632) and $131 respectively.
 83




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 4. SECURITIES (continued)
 At December 31, 2010 and 2009, the Company has pledged securities with an amortized cost of
$6,919 and $10,898 respectively, and a fair value of $6,966 and $10,914 respectively,
primarily as collateral for repurchase agreements. At December 31, 2010 and 2009, the Company
also has pledged securities with an amortized cost of $2,801 and $16,845, respectively, and a
fair value of $2,805 and $17,199, respectively, to the Federal Reserve Bank as collateral for
its borrowing line. Additionally, certain securities are pledged as collateral to the Federal
Home Loan Bank of Boston as described in Note 11.
 Information pertaining to securities with gross unrealized losses aggregated by investment
category and length of time that individual securities have been in a continuous loss
position, follows:
 Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueDecember 31, 2010:Debt securities:Government-sponsored enterprises (GSE)
    
    $
    841
    
    
    $
    73,475
    
    
    $
    
    
    
    $
    Municipal
    
    
    36
    
    
    
    1,577
    
    
    
    
    
    
    
    GSE residential mortgage-backed
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    131U.S. Government guaranteed
residential mortgage-backed
    
    
    330
    
    
    
    17,235
    
    
    
    
    
    
    
    Total debt securities
    
    
    1,207
    
    
    
    92,287
    
    
    
    1
    
    
    
    131Marketable equity securities
    
    
    46
    
    
    
    302
    
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    1,253
    
    
    $
    92,589
    
    
    $
    1
    
    
    $
    131December 31, 2009:Debt securities:Government-sponsored enterprises (GSE)
    
    $
    555
    
    
    $
    46,751
    
    
    $
    
    
    
    $
    Municipal
    
    
    2
    
    
    
    818
    
    
    
    42
    
    
    
    2,472GSE residential mortgage-backed
    
    
    38
    
    
    
    2,983
    
    
    
    33
    
    
    
    1,779U.S. Government guaranteed
residential mortgage-backed
    
    
    237
    
    
    
    19,171
    
    
    
    
    
    
    
    Total debt securities
    
    
    832
    
    
    
    69,723
    
    
    
    75
    
    
    
    4,251Marketable equity securities
    
    
    35
    
    
    
    472
    
    
    
    8
    
    
    
    226Total temporarily impaired securities
    
    $
    867
    
    
    $
    70,195
    
    
    $
    83
    
    
    $
    4,477
 Management evaluates securities for other-than-temporary impairment at least on a quarterly
basis, and more frequently when economic or market concerns warrant such evaluation.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 4.

SECURITIES (concluded)
 At December 31, 2010, temporarily impaired debt and mortgage-backed securities have unrealized
losses with aggregate depreciation of 1.3% from the Companys amortized cost basis. The
unrealized losses were primarily caused by interest rate increases. These investments are
guaranteed by the U.S. Government, an agency thereof or by the issuing municipal government.
Accordingly, it is expected that the securities would not be settled at a price less than the
par value of the investment. Because the decline in market value is attributable to changes in
interest rates and not to credit quality, and because the Company does not intend to sell the
investments and it is more likely than not that the Company will not be required to sell the
investments before recovery of their amortized cost bases, which may be maturity, the Company
does not consider these investments to be other-than-temporarily impaired at December 31,
2010.
 At December 31, 2010, three marketable equity securities have unrealized losses with aggregate
depreciation of 13.2% from the Companys cost basis. Although some issuers may have shown
declines in earnings as a result of the weakened economy, the Company has evaluated the
near-term prospects of the issuers in relation to the severity and duration of the
depreciation of value and has analyzed the issuers financial condition and financial
performance as well as industry analysts reports. Based on that evaluation as well as the
Companys ability and intent to hold these investments for a reasonable period of time
sufficient for a forecasted recovery of fair value, the Company does not consider these
investments to be other-than-temporarily impaired at December 31, 2010.
 During 2010, the Company recorded other-than-temporary impairment charges related to certain
marketable equity securities in the amount of $42. Additionally, the Company recorded
other-than-temporary impairment charges of $3.8 million on certain investments in commercial
real estate  funds. These funds were adjusted to estimated fair value based on an analysis of
the financial statements of the funds and underlying real estate projects, as well as an
analysis of the market for these types of investments. For further information on the fair
value of these investments please refer to Note 21, Fair Value of Assets.
 During 2009, the Company recorded other-than-temporary impairment charges related to certain
debt and marketable equity securities in the amount of $2.7 million and $703, respectively.
The non-credit portion of impairment losses on debt securities, which had been recognized in
other comprehensive loss, was recognized in earnings during the year ended December 31, 2009
due to the sales of these securities. Additionally, the Company recorded other-than-temporary
impairment charges of $3.8 million on certain investments in
commercial real estate funds. These investments were adjusted to estimated fair value based on an analysis of the
financial statements of the funds and underlying real estate
projects. For further information on the fair value of these
investments please refer to Note 21, Fair Value of Assets.
 85




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 5.

LOANS
 A summary of the balances of loans follows:
 December 31,2010
    
    
    2009Mortgage loans on real estate:Residential
    
    $
    266,166
    
    
    $
    273,469Land Notes
    
    
    10,599
    
    
    
    12,149Home equity
    
    
    74,328
    
    
    
    69,625Commercial
    
    
    211,431
    
    
    
    245,213Commercial contruction
    
    
    13,596
    
    
    
    18,697576,120
    
    
    
    619,153Other loans:Commercial
    
    
    28,123
    
    
    
    31,373Consumer and other
    
    
    10,518
    
    
    
    11,79138,641
    
    
    
    43,164Total loans
    
    
    614,761
    
    
    
    662,317Net deferred loan costs
    
    
    1,351
    
    
    
    1,400Allowance for loan losses
    
    
    (9,010
    )
    
    
    (11,089
    )Loans, net
    
    $
    607,102
    
    
    $
    652,628
 The Company has transferred a portion of its originated commercial real estate loans to
participating lenders. The amounts transferred have been accounted for as sales and are
therefore not included in the Companys accompanying consolidated balance sheets. The Company
and participating lenders share ratably in any gains or losses that may result from a
borrowers lack of compliance with contractual terms of the loan. The Company continues to
service the loans on behalf of the participating lenders and, as such, collects cash payments
from the borrowers, remits payments (net of servicing fees) to participating lenders and
disburses required escrow funds to relevant parties. At December 31, 2010 and 2009, the
Company was servicing loans for participants aggregating $11,675 and 11,818, respectively.
 86




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 5.

LOANS (continued)
 In 2010 the Company sold $16.2 million of its commercial real estate portfolio considered to
be out-of market. The sale resulted in a charge of $1.6 million which was recognized through
the provision for loan losses.
 The Company purchased $5,123 of loans during the year ended
December 31, 2009. These loans are evaluated in the allowance for
loan loss using the same
methodology as loans originated by the Company.
 An analysis of the allowance for loan losses follows:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Balance at beginning of year
    
    $
    11,089
    
    
    $
    6,642
    
    
    $
    5,568Provision for loan losses
    
    
    10,468
    
    
    
    4,883
    
    
    
    1,465Recoveries
    
    
    96
    
    
    
    129
    
    
    
    188Loans charged-off
    
    
    (12,643
    )
    
    
    (565
    )
    
    
    (579
    )Balance at end of year
    
    $
    9,010
    
    
    $
    11,089
    
    
    $
    6,642
 Further information pertaining to the allowance for loan
losses, by segment, at December 31,
2010 follows:
 ResidentialResidential 
Mortgage
    
    

Land
Notes
    
    
    Commercial 
Mortgages
    
    
    Home Equity
    
    
    Commercial 
Business
    
    
    
    
    
    Consumer 
and Other
    
    
    TotalAmount of allowance
for loan losses for
loans deemed to be
impaired
    
    $
    75
    
    
    $
    422
    
    
    $
    496
    
    
    $
    
    
    
    $
    69
    
    
    
    
    
    
    $
    
    
    
    $
    1,062Amount of
allowance for loan
losses for loans
not deemed to be
impaired
    
    
    1,276
    
    
    
    585
    
    
    
    4,789
    
    
    
    446
    
    
    
    598
    
    
    
    
    
    
    
    254
    
    
    
    7,948Loans deemed
to be impaired as
of December 31,
2010
    
    
    3,445
    
    
    
    778
    
    
    
    11,938
    
    
    
    120
    
    
    
    545
    
    
    
    
    
    
    
    5
    
    
    
    16,831Loans not
deemed to be
impaired as of
December 31, 2010
    
    
    262,721
    
    
    
    9,821
    
    
    
    213,089
    
    
    
    74,208
    
    
    
    27,578
    
    
    
    
    
    
    
    10,513
    
    
    
    597,930
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 5.

LOANS (continued)
 Past due and non-accrual loans
 The following is a summary of past due and non-accrual loans,
by class, at December 31, 2010:
 December 31,2010Greater

    
    
    
    
    
    
    Past Due 90 Days or30-59 Days
    
    
    60-89 Days

    
    
    Than 90

    
    
    Total Past

    
    
    More and Still
    
    
    Loans onPast Due
    
    
    Past Due
    
    
    Days
    
    
    Due
    
    
    Accuring
    
    
    Non-AccrualMortgage loans on real estateResidential
    
    $
    1,400
    
    
    $
    799
    
    
    $
    3,445
    
    
    $
    5,644
    
    
    $
    
    
    
    $
    3,445Land notes
    
    
    139
    
    
    
    89
    
    
    
    422
    
    
    
    650
    
    
    
    
    
    
    
    422Home equity
    
    
    178
    
    
    
    14
    
    
    
    120
    
    
    
    312
    
    
    
    
    
    
    
    120Commercial
    
    
    
    
    
    
    125
    
    
    
    7,247
    
    
    
    7,372
    
    
    
    
    
    
    
    7,247Commercial construction
    
    
    
    
    
    
    
    
    
    
    1,190
    
    
    
    1,190
    
    
    
    
    
    
    
    1,190Other LoansCommercial
    
    
    415
    
    
    
    166
    
    
    
    315
    
    
    
    896
    
    
    
    
    
    
    
    315Consumer and other
    
    
    290
    
    
    
    1
    
    
    
    5
    
    
    
    296
    
    
    
    
    
    
    
    5$
    2,422
    
    
    $
    1,194
    
    
    $
    12,744
    
    
    $
    16,360
    
    
    $
    
    
    
    $
    12,744
 Impaired loans
 The following is a summary of impaired loans, by class, at December 31, 2010:
 December 31,2010Unpaid PrincipalRecorded Investment
    
    
    Balance
    
    
    Related AllowanceImpaired loans without a
valuation allowance:Residential
real estate
    
    $
    2,912
    
    
    $
    2,963
    
    
    $
    Land notes
    
    
    356
    
    
    
    356
    
    
    
    Home equity
    
    
    120
    
    
    
    120
    
    
    
    Commercial real estate
    
    
    7,324
    
    
    
    10,235
    
    
    
    Commercial construction
    
    
    1,190
    
    
    
    5,636Commercial
    
    
    433
    
    
    
    690
    
    
    
    Consumer and other
    
    
    5
    
    
    
    5
    
    
    
    Total
    
    
    12,340
    
    
    
    20,005
    
    
    
    Impaired loans with a
valuation allowance:Residential real estate
    
    
    533
    
    
    
    533
    
    
    
    75Land notes
    
    
    422
    
    
    
    422
    
    
    
    422Home equity
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    3,424
    
    
    
    3,424
    
    
    
    496Commercial construction
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    112
    
    
    
    112
    
    
    
    69Total
    
    
    4,491
    
    
    
    4,491
    
    
    
    1,062Total impaired loans
    
    $
    16,831
    
    
    $
    24,496
    
    
    $
    1,062
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 5.

LOANS (continued)
 Impaired loans (concluded)
 December 31,2009Impaired loans with no valuation allowance
    
    $
    10,081Impaired loans with a valuation allowance
    
    
    22,202Total impaired loans
    
    $
    32,283Valuation allowance allocated to impaired loans
    
    $
    4,928
 The following is a summary of information pertaining to impaired and non-accrual loans:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Average investment in impaired loans
    
    $
    26,390
    
    
    $
    19,057
    
    
    $
    7,808Interest income recognized on impaired loans on a cash basis
    
    $
    1,098
    
    
    $
    107
    
    
    $
    Interest income recognized on impaired loans still accruing
    
    $
    1,117
    
    
    $
    871
    
    
    $
    Non-accrual loans
    
    $
    12,744
    
    
    $
    19,578
    
    
    $
    7,549
 There were no loans past-due ninety days or more and still accruing at December 31, 2010, 2009
and 2008. The Company generally does not advance additional funds in connection with impaired
loans. However, in 2009 the Company did advance an additional $185 to one loan considered
impaired as part of a forbearance agreement with the borrower to allow the project to be more
marketable.
 Credit quality information
 The Company utilizes a seven grade internal loan rating system for commercial real estate,
home equity and commercial loans as follows:
 Loans rated 1-3A: Loans in these categories are considered pass rated loans with
low to average risk.
 Loans rated 4: Loans in this category are considered special mention. These loans
are starting to show signs of potential weakness and are being closely monitored by
management. If not corrected or mitigated, the weakness may expose the bank to an increased
risk of loss.
 89




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 5.

LOANS (continued)
 Credit quality information (concluded)
 Loans rated 5: Loans in this category are considered substandard. Generally, a loan
is considered substandard if it is inadequately protected by the current net worth and paying
capacity of the obligors and/or the collateral pledged. There is a distinct possibility that
the Company will sustain some loss if the weakness is not corrected.
 Loans rated 6: Loans in this category are considered doubtful. Weaknesses in these
credits or relationships are so significant that the bank has identified a probable loss of
principal. Loans classified as doubtful have all the weaknesses inherent in those classified
substandard with the added characteristic that the weaknesses make collection or liquidation
in full, on the basis of currently existing facts, highly questionable and improbable. These
credits must be placed on non-accrual if not already classified as such.
 Loans rated 7: Loans in this category are considered uncollectible (loss) and of
such little value that their continuance as loans is not warranted. Weaknesses in these
credits are so severe collection of any amount is unlikely and the loan shall no longer be
carried as an asset on the banks books. These loans are charged to the Allowance for Loan and
Lease Loss.
 On at least an annual basis, the Bank formally reviews the ratings on all commercial real
estate and commercial loans. Semi-annually, the Bank engages an independent third-party to
review a significant portion of loans within these segments. Management uses the results of
these reviews as part of its annual review process.
 The following table presents the Companys loans by risk rating at December 31, 2010.
 Commercial Real Estate
    
    
    CommercialLoans rated 1- 3A
    
    $
    177,985
    
    
    $
    20,474Loans rated 4
    
    
    17,900
    
    
    
    1,988Loans rated 5
    
    
    29,142
    
    
    
    5,603Loans rated 6
    
    
    
    
    
    
    58Loans rated 7
    
    
    
    
    
    
    $
    225,027
    
    
    $
    28,123
 6.

SERVICING
 Mortgage loans serviced for others are not included in the accompanying consolidated balance
sheets. The risks inherent in mortgage servicing assets relate primarily to changes in
prepayments that result from shifts in mortgage interest rates. The unpaid principal balances
of mortgage loans serviced for others were $105,787, $77,269 and $24,046 at December 31, 2010,
2009 and 2008, respectively. The Company utilized an independent consultant to determine the
fair value of servicing rights as of December 31, 2010. The fair value calculation uses a
discount rate of 8.25% and published prepayment data for mortgage loans stratified by the term
and rate of the loan pools. Servicing fee income amounted to $135, $42, and $17 for the years
ended December 31, 2010, 2009 and 2008, respectively.
 90




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 6.

SERVICING (concluded)
 Servicing assets are evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is recognized through a valuation allowance to the
extent that fair value is less than the capitalized amount. Changes in the valuation allowance
are reported in loan servicing fee income. As of December 31, 2010, 2009 and 2008,
the Company has not established a valuation allowance related to servicing
assets.
 The following summarizes mortgage servicing rights capitalized and amortized, along with the
aggregate activity in related valuation allowances:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Mortgage servicing rights:Balance at beginning of year
    
    $
    514
    
    
    $
    138
    
    
    $
    24Additions
    
    
    319
    
    
    
    464
    
    
    
    128Amortization
    
    
    (96
    )
    
    
    (88
    )
    
    
    (14
    )Mortgage servicing assets, net
    
    $
    737
    
    
    $
    514
    
    
    $
    138Fair value of mortgage
servicing assets
    
    $
    981
    
    
    $
    514
    
    
    $
    138
 7.

PREMISES AND EQUIPMENT
 A summary of the cost and accumulated depreciation and amortization of premises and equipment
is as follows:
 December 31,
    
    
    Estimated2010
    
    
    2009
    
    
    Useful LivesPremises:Land
    
    $
    1,520
    
    
    $
    1,520Buildings and improvements
    
    
    21,219
    
    
    
    21,180
    
    
    5  39 YearsFurniture and equipment
    
    
    9,881
    
    
    
    9,303
    
    
    3  10 YearsConstruction in process
    
    
    
    
    
    
    25032,620
    
    
    
    32,253Accumulated depreciation and
amortization
    
    
    (13,478
    )
    
    
    (12,685
    )$
    19,142
    
    
    $
    19,568
 Depreciation and amortization expense for the years ended December 31, 2010, 2009 and 2008
amounted to $1,581, $1,615 and $1,482, respectively. Construction in process as of December
31, 2009 represented costs incurred in connection with leasehold improvements to a branch
location in Pittsfield, Massachusetts which were completed in February 2010.
 91




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 8.

GOODWILL AND OTHER INTANGIBLE ASSETS
 Goodwill
 The Company recorded goodwill in connection with the purchase of a financial institution in
1997. The Company also recorded goodwill in connection with the purchase of five branch
offices located in Eastern New York State in 2007, as well as the purchase of a single branch
office located in Haydenville, Massachusetts in 2009. In 2010 the Company recorded goodwill
in connection with the purchase of substantially all the assets of Renaissance Investment
Group. The Company performs annual impairment testing as of June 30. The impairment testing
as of June 30, 2010 and 2009 indicated that no impairment charge was required as of those
dates and no events have occurred through December 31, 2010 that would require the
reevaluation of impairment. The activity in the balance for goodwill during the year is as
follows:
 Year Ended December 31,2010
    
    
    2009Balance at beginning of the year
    
    $
    9,730
    
    
    $
    9,687Acquired goodwill
    
    
    1,828
    
    
    
    43Balance at end of year
    
    $
    11,558
    
    
    $
    9,730
 Other intangible assets
 Other intangible assets include core deposit intangible assets arising from the acquisition of
branch offices in 2007 and 2009. These assets were initially measured at fair value and are
being amortized on a straight line method over the estimated useful lives, which were
determined to be 5 years. Other intangible assets also include a customer list intangible
asset arising from the acquisition of Renaissance in 2010. This asset was initially measured
at fair value and is being amortized on a straight line method over its estimated useful life
of 11 years. Amortization expense is reported in other general
and administrative expenses in the consolidated statement of
operations.
 December 31,2010
    
    
    2009Gross carrying value
    
    
    5,083
    
    
    
    3,532Accumulated amortization
    
    
    (2,195
    )
    
    
    (1,392
    )2,888
    
    
    
    2,140
 Estimated future amortization expense is as follows:
 Year Ending December 31,2011
    
    
    8472012
    
    
    8002013
    
    
    1982014
    
    
    1502015
    
    
    141Thereafter
    
    
    752$
    2,888
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 9. DEPOSITS
 A summary of deposit balances, by type, is as follows:
 December 31,2010
    
    
    2009Demand
    
    $
    75,116
    
    
    $
    75,232Regular savings
    
    
    53,504
    
    
    
    49,883Relationship savings
    
    
    142,110
    
    
    
    125,328Money market deposits
    
    
    68,611
    
    
    
    63,077NOW deposits
    
    
    48,197
    
    
    
    48,546Total non-certificate accounts
    
    
    387,538
    
    
    
    362,066Term certificates less than $100,000
    
    
    162,408
    
    
    
    174,284Term certificates of $100,000 or more
    
    
    135,299
    
    
    
    115,028Total certificate accounts
    
    
    297,707
    
    
    
    289,312Total deposits
    
    $
    685,245
    
    
    $
    651,378
 A summary of certificate accounts by maturity is as follows:
 Maturing Duringthe Year Ending
    
    AmountDecember 31,
    
    2010
    
    
    20092010
    
    $
    
    
    
    $
    190,3702011
    
    
    140,285
    
    
    
    46,5582012
    
    
    37,770
    
    
    
    13,7712013
    
    
    68,135
    
    
    
    30,2582014
    
    
    28,955
    
    
    
    8,2532015
    
    
    22,486
    
    
    
    27Therafter
    
    
    76
    
    
    
    75$
    297,707
    
    
    $
    289,312
 At December 31, 2010 and 2009, brokered certificates of deposit in the amount of $12,506 and
$18,625, respectively, with a weighted average rate of 3.03% and 3.59%, respectively, are
included in certificates of deposits.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
 Securities sold under agreements to repurchase (repurchase agreements) are funds borrowed
from customers on an overnight basis that are collateralized by securities. At December 31,
2010 and 2009 securities sold under agreements to repurchase amounted to $5,329 and $6,386
respectively, mature on a daily basis and are secured by U.S. Government securities with a
fair value of $6,966 and $10,158 respectively. The weighted average interest rate on these
agreements was 1.02% and 1.08% respectively. The obligations to repurchase the securities sold
are reflected as a liability in the consolidated balance sheets. The dollar amount of the
securities underlying the agreements remains in the asset accounts. The securities pledged are
registered in the Companys name; however, the securities are held by the designated trustee
of the broker. Upon maturity of the agreements, the identical securities pledged as collateral
are returned to the Company.
 11. FEDERAL HOME LOAN BANK ADVANCES
 A summary of outstanding advances from the Federal Home Loan Bank of Boston, by maturity, is
as follows at December 31, 2010 and 2009:
 Maturing During
    
    
    
    
    
    
    
    
    
    Weighted Averagethe Year Ending
    
    Amount
    
    
    Interest RateDecember 31,
    
    2010
    
    
    2009
    
    
    2010
    
    
    20092010
    
    $
    
    
    
    $
    20,250
    
    
    
    
    %
    
    
    4.52
    %2011
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    3.462012
    
    
    20,000
    
    
    
    27,000
    
    
    
    4.24
    
    
    
    4.022013
    
    
    15,000
    
    
    
    32,700
    
    
    
    3.77
    
    
    
    3.452014
    
    
    22,700
    
    
    
    25,200
    
    
    
    4.02
    
    
    
    3.962015
    
    
    9,500
    
    
    
    9,500
    
    
    
    3.05
    
    
    
    3.05Thereafter
    
    
    38,188
    
    
    
    38,202
    
    
    
    3.78
    
    
    
    3.78$
    105,388
    
    
    $
    160,352
    
    
    
    3.86
    %
    
    
    3.81
    %
 All advances are fixed-rate as of December 31, 2010 and 2009. Certain advances have early
call provisions through 2018. The amount of callable advances by maturity date as of December
31, 2010 is as follows:
 2012
    
    $
    20,0002013
    
    
    2,0002014
    
    
    13,0002015
    
    
    9,500Thereafter
    
    
    38,000$
    82,500
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 11. FEDERAL HOME LOAN BANK ADVANCES (concluded)
 The Company also has an Ideal Way line of credit at the Federal Home Loan Bank in an amount up
to $5,000. There were no advances under this line of credit as of December 31, 2010 or 2009.
All borrowings from the Federal Home Loan Bank of Boston are secured by a blanket lien on
certain qualified collateral, defined principally as 75% of the carrying value of certain
first mortgage loans on owner-occupied residential property, 50% of the carrying value of
certain non-owner occupied first mortgage loans and home equity loans, and 90% of the market
value of U.S. Government-sponsored enterprise obligations.
 12. INCOME TAXES
 Allocation of federal and state income taxes between current and deferred portions is as
follows:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Current tax provision
(benefit):Federal
    
    $
    (2,390
    )
    
    $
    507
    
    
    $
    1,709State
    
    
    276
    
    
    
    70
    
    
    
    304(2,114
    )
    
    
    577
    
    
    
    2,013Deferred tax benefit:Federal
    
    
    (351
    )
    
    
    (4,249
    )
    
    
    (1,154
    )State
    
    
    (201
    )
    
    
    (797
    )
    
    
    (208
    )(552
    )
    
    
    (5,046
    )
    
    
    (1,362
    )Change in valuation reserve
    
    
    (1,350
    )
    
    
    1,409
    
    
    
    125(1,902
    )
    
    
    (3,637
    )
    
    
    (1,237
    )Total provision (benefit)
    
    $
    (4,016
    )
    
    $
    (3,060
    )
    
    $
    776
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 12. INCOME TAXES (continued)The reasons for the differences between the statutory federal income tax rate and the
effective tax rates are summarized as follows:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Statutory tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Increase (decrease) resulting from:State taxes, net of federal tax benefit
    
    
    (0.4
    )
    
    
    4.4
    
    
    
    2.9Bank owned life insurance
    
    
    2.0
    
    
    
    2.2
    
    
    
    (10.9
    )Dividends received deduction
    
    
    0.2
    
    
    
    0.2
    
    
    
    (2.6
    )Additions to valuation reserve, net of
expiration of contribution
carryover
    
    
    (4.4
    )
    
    
    (13.0
    )
    
    
    5.6Tax-exempt income
    
    
    1.0
    
    
    
    1.6
    
    
    
    (6.4
    )Stock based compensation plan
    
    
    (1.6
    )
    
    
    (1.7
    )
    
    
    7.8Other, net
    
    
    2.9
    
    
    
    0.5
    
    
    
    4.6Effective tax rates
    
    
    33.7
    %
    
    
    28.2
    %
    
    
    35.0
    %
 The components of the net deferred tax asset are as follows:
 December 31,2010
    
    
    2009Deferred tax assets:Federal
    
    $
    13,119
    
    
    $
    12,615State
    
    
    2,834
    
    
    
    2,58415,953
    
    
    
    15,199Valuation reserve
    
    
    (1,713
    )
    
    
    (3,063
    )14,240
    
    
    
    12,136Deferred tax liabilities:Federal
    
    
    (1,205
    )
    
    
    (1,549
    )State
    
    
    (351
    )
    
    
    (385
    )(1,556
    )
    
    
    (1,934
    )Net deferred tax asset
    
    $
    12,684
    
    
    $
    10,202
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 12. INCOME TAXES (continued)The tax effects of each type of item that gives rise to deferred tax assets (liabilities) are
as follows:
 December 31,2010
    
    
    2009Net unrealized loss (gain) on securities available
for sale
    
    $
    49
    
    
    $
    (664
    )Depreciation and amortization
    
    
    64
    
    
    
    64Deferred income
    
    
    (545
    )
    
    
    (559
    )Allowance for loan losses
    
    
    3,598
    
    
    
    4,429Employee benefit plans
    
    
    3,353
    
    
    
    3,100Capital loss carryforward
    
    
    1,560
    
    
    
    1,851Charitable contribution carryforward
    
    
    
    
    
    
    1,866Net operating loss carryforward
    
    
    1,822
    
    
    
    Projected benefit obligation  Directors fee plan
    
    
    117
    
    
    
    250Impairment losses
    
    
    4,054
    
    
    
    2,829Other
    
    
    325
    
    
    
    99Valuation reserve
    
    
    (1,713
    )
    
    
    (3,063
    )Net deferred tax asset
    
    $
    12,684
    
    
    $
    10,202
 A summary of the change in the valuation reserve for deferred tax assets is as follows:
 December 31,2010
    
    
    2009
    
    
    2008Balance at beginning of year
    
    $
    3,063
    
    
    $
    1,654
    
    
    $
    1,529Reserve for charitable contribution
carryforward
    
    
    (1,855
    )
    
    
    201
    
    
    
    125Reserve for capital loss carryforward
    
    
    505
    
    
    
    1,208
    
    
    
    Balance at end of year
    
    $
    1,713
    
    
    $
    3,063
    
    
    $
    1,654
 A federal income tax reserve was established in the fourth quarter of 2005 to reflect the
uncertainty of fully utilizing a five-year charitable contribution carryforward of
approximately $7,200. This reserve was increased by $201 and $125 in 2009 and 2008,
respectively, to reflect greater uncertainty of full utilization. At December 31, 2010, the
reserve was reduced to $0 and the asset was charged-off to reflect the expiration of the
contribution carryforward period. The carryforward was created as a result of the
contribution of 763,600 shares of the Companys common stock to the Legacy Banks Foundation as
part of the mutual to stock conversion in 2005.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 12. INCOME TAXES (concluded)
 A federal income tax reserve of $1,208 was established in the fourth quarter of 2009 to
reflect the uncertainty of fully utilizing a five-year capital loss carryforward of
approximately $5,400. This reserve was increased by $505 in 2010 to reflect greater
uncertainty of full utilization. The carryforward was created primarily by the sale of the
Companys remaining portfolio of private-label mortgage-backed securities during 2009.
 The federal income tax reserve for loan losses at the Companys base year is $5,416. If any
portion of the reserve is used for purposes other than to absorb loan losses, approximately
150% of the amount actually used (limited to the amount of the reserve) would be subject to
taxation in the year in which used. As the Company intends to use the reserve only to absorb
loan losses, a deferred tax liability of $2,161 has not been provided.
 The Companys income tax returns are subject to review and examination by federal and state
taxing authorities. The Company is currently open to audit under the applicable statutes of
limitations by the Internal Revenue Service for the years ended December 31, 2007 through
2009. The years open to examination by state taxing authorities vary by jurisdiction; no years
prior to 2007 are open.
 13. COMMITMENTS AND CONTINGENCIES
 In the normal course of business, there are outstanding commitments and contingencies which
are not reflected in the accompanying consolidated financial statements.Loan and other financial commitments
 The Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments
include commitments to extend credit and standby letters of credit. Such commitments involve,
to varying degrees, elements of credit and interest rate risk in excess of the amount
recognized in the accompanying consolidated balance sheets.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 13. COMMITMENTS AND CONTINGENCIES (continued)Loan and other financial commitments (concluded)
 The Companys exposure to credit loss in the event of nonperformance by the other party to the
financial instrument is represented by the contractual amount of these commitments. The
Company uses the same credit policies in making commitments as it does for on-balance-sheet
instruments. A summary of financial instruments outstanding whose contract amounts represent
credit risk is as follows at December 31, 2010 and 2009:
 December 31,2010
    
    
    2009Commitments to grant loans
    
    $
    18,328
    
    
    $
    20,996Unused funds on commercial lines-of-credit
    
    
    17,826
    
    
    
    20,707Unadvanced funds on home equity lines-of-credit
    
    
    68,108
    
    
    
    64,110Unadvanced funds on construction loans
    
    
    1,351
    
    
    
    12,600Commercial real estate partnership capital commitments
    
    
    4,287
    
    
    
    6,514Standby letters-of-credit and other commitments
    
    
    8,378
    
    
    
    9,330
 Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. The
commitments for lines-of-credit may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements. The Company
evaluates each customers credit worthiness on a case-by-case basis. Funds disbursed for
mortgage loans, construction loans and home equity lines-of-credit are collateralized by real
estate. Commercial lines-of-credit are generally secured by business assets.
 Standby letters-of-credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. These letters-of-credit are primarily issued to
support borrowing arrangements. The credit risk involved in issuing letters-of-credit is
essentially the same as that involved in extending loan facilities to customers. Other
commitments relate primarily to potential additional capital calls the Company is committed to
contribute as part of its investment in certain limited partnerships.
 ASC 460-10-05, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, requires a guarantor to recognize, at the
inception of a guarantee, a liability in an amount equal to the fair value of the obligation
undertaken in issuing the guarantee. The Company considers standby letters of credit to be
guarantees under ASC 460-10-05. The amount of the liability related to guarantees at December
31, 2010 and 2009 was not material.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 13.
    
    COMMITMENTS AND CONTINGENCIES (concluded)Operating lease commitments
 Pursuant to the terms of noncancelable lease agreements in effect at December 31, 2010,
pertaining to banking premises and equipment, future minimum rent commitments are as follows:
 Years EndingDecember 31,
    
    Amount2011
    
    $
    3432012
    
    
    3402013
    
    
    3292014
    
    
    3212015
    
    
    250Thereafter
    
    
    1,100$
    2,683
 Total rent expense for the years ended December 31, 2010, 2009 and 2008 amounted to $433, $409
and $388, respectively.Legal claims
 Various legal claims also arise from time to time in the normal course of business which, in
the opinion of management, will have no material effect on the Companys consolidated
financial statements.Employment and change of control agreements
 The Company and the Bank have entered into employment agreements with two executive officers. The
employment agreements provide for an annual base salary, subject to increase, and certain other
benefits and guarantee customary corporate indemnification and insurance coverage under a standard
directors and officers insurance policy. The initial term of the agreement for the Companys
Chief Executive Officer (CEO) is three years and the term automatically extends annually on each
anniversary date of the agreement for a successive term of three years, unless notice not to renew
is given by either party. The initial term of the agreement for the Companys President is three
years. Commencing on the first anniversary of the agreement, the term of the Presidents agreement
is reduced to 24 months. These agreements also provide salary and bonus payment, and medical and
dental benefit continuation in the event of termination of employment under certain circumstances,
including a change-of-control (as defined in each agreement) of the Company or the Bank.The Company and the Bank have has also entered into change-of-control agreements with certain other
senior executives of the Bank. These agreements provide assurances to these executives regarding
the continued payment of salary, bonus and benefits for a period of time in the event of a change
in control of the Company or the Bank.
 The proposed merger agreement between Legacy Bancorp, Inc. and Berkshire Hills Bancorp, Inc.,
as disclosed in the Companys current report on Form 8-K filed on December 22, 2010, will
result in a change of control.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 14. MINIMUM REGULATORY CAPITAL REQUIREMENTS
 The Bank is subject to various regulatory capital requirements administered by the federal and
state banking agencies. Failure to meet minimal capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Companys consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative measures of its assets,
liabilities and certain off balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications are also subject to qualitative judgments
by the regulators about components, risk weighting and other factors. Prompt corrective
action provisions are not applicable to savings and loan holding companies. The Company will
provide notification to its primary regulator in connection with any dividend declaration and
did so in connection with the dividend declared on March 9, 2011.
 Qualitative measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1
capital to average assets (as defined). As of December 31, 2010 and 2009, the Bank met the
capital adequacy requirements.
 As of December 31, 2010 and 2009, Legacy Banks met the condition to be classified as well
capitalized under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, an institution must maintain minimum total risk-based, Tier 1
risked-based, and Tier 1 leverage ratios as set forth in the following tables. There are no
conditions or events since the notification that management believes have changed the Banks
category. The capital ratios and requirements for the Bank follow:
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 14. MINIMUM REGULATORY CAPITAL REQUIREMENTS (concluded)
 Minimum To Be WellMinimum
    
    
    Capitalized UnderCapital
    
    
    Prompt CorrectiveActual
    
    
    Requirement
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioDecember 31, 2010:Total capital to risk weighted assets
    
    $
    72,341
    
    
    
    12.0
    %
    
    $
    48,249
    
    
    
    8.0
    %
    
    $
    60,311
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets
    
    
    64,754
    
    
    
    10.7
    
    
    
    24,124
    
    
    
    4.0
    
    
    
    36,187
    
    
    
    6.0Tier 1 capital to average assets
    
    
    64,754
    
    
    
    7.2
    
    
    
    36,155
    
    
    
    4.0
    
    
    
    45,194
    
    
    
    5.0December 31, 2009:Total capital to risk weighted assets
    
    $
    81,484
    
    
    
    12.3
    %
    
    $
    52,824
    
    
    
    8.0
    %
    
    $
    66,030
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets
    
    
    72,811
    
    
    
    11.0
    
    
    
    26,412
    
    
    
    4.0
    
    
    
    39,618
    
    
    
    6.0Tier 1 capital to average assets
    
    
    72,811
    
    
    
    8.0
    
    
    
    36,232
    
    
    
    4.0
    
    
    
    45,290
    
    
    
    5.0
 A reconciliation of the Companys year-end total stockholders equity to the Banks regulatory
capital is as follows:
 12/31/2010
    
    
    12/31/2009Total stockholders equity per consolidated financial statements
    
    $
    111,559
    
    
    $
    121,367Adjustments for Bank Tier 1 capital:Holding company equity adjustment
    
    
    (19,846
    )
    
    
    (28,982
    )Net unrealized (gains) losses on available- for- sale securities
    
    
    47
    
    
    
    (1,063
    )Unrecognized net actuarial loss and prior service costs
    
    
    169
    
    
    
    361Net unrealized losses on equity securities
    
    
    
    
    
    
    Disallowed deferred tax assets
    
    
    (12,729
    )
    
    
    (6,951
    )Disallowed goodwill and intangible assets and other adjustments
    
    
    (14,446
    )
    
    
    (11,921
    )Total Bank Tier 1 capital
    
    
    64,754
    
    
    
    72,811Adjustments for total capital:Allowed unrealized gains on equity securities
    
    
    27
    
    
    
    380Includable allowances for loan and commitment losses
    
    
    7,560
    
    
    
    8,293Total Bank capital per regulatory reporting
    
    $
    72,341
    
    
    $
    81,484
 The principal source of revenue for the Holding Company is dividends received from the
Bank as well as interest from short-term investment securities. The Bank cannot pay any
dividends that would cause it to have insufficient capital under regulatory guidelines.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 15. EMPLOYEE BENEFIT PLANSDefined contribution plan
 The Company has a 401(k) plan whereby each employee reaching the age of 21 and having
completed three months of service, beginning with such employees date of hire, automatically
becomes a participant in the plan. The plan provides for voluntary contributions by
participating employees up to 75% of their compensation, subject to certain limitations. The
Company matches up to 100% of the first 5% contributed by the employee after 1 year of
service. Participants become fully vested in the Company paid portion after five years of
service. Total defined contribution plan expense for the years ended December 31, 2010, 2009
and 2008 amounted to $371, $375, and $353 respectively.Supplemental executive plans
 The Bank adopted a Supplemental Executive Retirement Plan (SERP) in 2004 for the benefit of
the Companys Chief Executive Officer (CEO) and Chief Operating Officer (COO) which provides
for monthly benefits upon retirement, subject to certain limitations as set forth in the Plan.
The present value of these future benefits is accrued over the executives required service
periods. On January 1, 2008 the COO retired and became fully vested in his SERP. The Company
and the COO entered into a Separation Agreement and General Release dated as of November 5,
2007 pursuant to which the COO received cash severance equal to $138 on January 1, 2008 and a
lump sum payout related to his SERP agreement equal to $951 in 2008. For the year ended
December 31, 2010, the Company recorded a net benefit of $124 while the expense for the years
ended December 31, 2009, and 2008 amounted to $138 and $419, respectively.
 As part of its investment in Bank-Owned Life Insurance (BOLI), the Bank has agreements in
place with 26 current employees and directors by which the employees named beneficiary will
receive a portion of the proceeds from the policy in the event of the death of the employee.
The named beneficiary will receive $100 if the employee dies while still employed by the Bank.
Upon retirement from the Bank, the post-retirement benefit to the named beneficiary decreases
to $5 until the employees 85th birthday, at which time the benefit is discontinued. This
benefit is also discontinued if employment with the Bank is terminated for cause. The Bank
has fully accrued the estimated liability related to these policies as of December 31, 2010.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 15. EMPLOYEE BENEFIT PLANS(continued)Employee Stock Ownership plan
 As part of the mutual to stock conversion in 2005, the Bank established an Employee Stock
Ownership (ESOP) Plan. The plan awards shares of the Companys common stock to eligible
employees primarily based on their compensation. The Company contributed funds to a subsidiary
to enable it to grant a 15-year loan to the ESOP to enable it to purchase shares of the
Companys common stock in the open market following completion of the offering. The ESOP
completed its open market purchases of 824,688, shares or 8% of the 10,308,600 shares
outstanding on that date. This plan is a tax-qualified retirement plan for the benefit of all
eligible Company employees.
 On July 26, 2010, the Company announced that the Board of Directors of the Company and the
Bank had voted to terminate the ESOP Plan effective August 1, 2010. The Bank has filed a
request for a favorable determination letter with the Internal Revenue Service on the
tax-qualified status of the Plan on termination. On and after termination of the Plan, no
further contributions will be made on the outstanding Plan loan. Contributions made in
2010 released 27,038 additional shares from the
unallocated stock fund. In connection with the termination of the Plan and upon receipt of
the favorable determination letter from the Internal Revenue Service, it is anticipated that
the Plan Trustee will transfer approximately 522,755 shares to LB Funding Corp., a
wholly-owned subsidiary of the Company, to satisfy the Plan loan which has an outstanding
principle balance of $7.7 million as of December 31, 2010. Upon such transfer, the 522,755
shares would be treated as treasury stock. If the shares in the unallocated stock fund are
insufficient to repay the outstanding loan in full, the Company intends to forgive the
remaining balance, subject to Internal Revenue Service approval.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 15. EMPLOYEE BENEFIT PLANS (continued)
 Employee Stock Ownership plan (concluded)
 Shares held by the ESOP include the following:
 December 31,2010
    
    
    2009Allocated
    
    
    258,398
    
    
    
    245,167Unallocated
    
    
    522,755
    
    
    
    549,793781,153
    
    
    
    794,960
 Cash dividends paid on allocated shares are distributed to participants and cash dividends
paid on unallocated shares are used to repay the outstanding debt of the ESOP. The fair value
of unallocated shares was approximately $6.9 million and $5.3 million at December 31, 2010 and
2009, respectively. Unallocated ESOP shares are not considered outstanding for calculating net income per common
share. Unearned compensation attributable to such shares is reflected as a reduction in
stockholders equity in the balance sheet. As ESOP shares are earned by participants, the
Company recognizes compensation expense equal to the fair value of the earned ESOP shares.
Total compensation expense recognized in connection with the ESOP for the years ended December
31, 2010, 2009 and 2008 was $257, $572,and $703, respectively.
 Director fee continuation plan
 The Company has established an unfunded director fee continuation plan which provides certain
benefits to all eligible non-employee members of the boards of directors of the Company and
Bank upon retirement. Information pertaining to the activity in the plan follows:
 December 31,2010
    
    
    2009Change in projected benefit obligation:Benefit obligation at beginning of year
    
    $
    1,803
    
    
    $
    1,719Interest cost
    
    
    99
    
    
    
    99Service cost
    
    
    98
    
    
    
    92Actuarial gain
    
    
    (178
    )
    
    
    (68
    )Benefits paid
    
    
    (76
    )
    
    
    (39
    )Benefit obligation accrued at end of year
    
    
    1,746
    
    
    
    1,803Accumulated benefit obligation
    
    $
    1,668
    
    
    $
    1,697
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 15. EMPLOYEE BENEFIT PLANS (concluded)
 Director fee continuation plan (concluded)
 The assumptions used to determine the benefit obligation are as follows:
 December 31,2010
    
    
    2009Discount rate
    
    
    5.50
    %
    
    
    5.50
    %Rates of fee increase
    
    
    5.00
    %
    
    
    5.00
    %
 The components of net periodic cost are as follows:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Service Cost
    
    $
    98
    
    
    $
    92
    
    
    $
    85Interest Cost
    
    
    99
    
    
    
    99
    
    
    
    92Amortization of prior service cost
    
    
    145
    
    
    
    145
    
    
    
    145Actuarial loss
    
    
    3
    
    
    
    19
    
    
    
    44$
    345
    
    
    $
    355
    
    
    $
    366
 The assumptions used to determine net periodic cost are as follows:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Discount rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    6.00
    %Rates of fee increase
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
 16. POSTRETIREMENT HEALTH AND LIFE INSURANCE BENEFITS
 The Company has provided certain health and dental care and life insurance benefits for
certain retired employees. The components of net periodic postretirement costs follows:
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Interest cost on projected benefits
    
    $
    38
    
    
    $
    38
    
    
    $
    39Recognized net actuarial loss
    
    
    12
    
    
    
    7
    
    
    
    5Net amortization of transition obligation and prior service cost
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )$
    49
    
    
    $
    44
    
    
    $
    43
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 16.

POSTRETIREMENT HEALTH AND LIFE INSURANCE BENEFITS (concluded)The following table sets forth the components of the accrued postretirement benefit obligation
recognized in the Companys consolidated balance sheets:
 December 31,2010
    
    
    2009Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    699
    
    
    $
    661Interest cost
    
    
    38
    
    
    
    38Actuarial gain
    
    
    28
    
    
    
    66Benefits paid
    
    
    (71
    )
    
    
    (66
    )Benefit obligation at end of year
    
    $
    694
    
    
    $
    699
 The assumed health care cost trend rate used in measuring the accumulated postretirement
benefit obligation was an average of 5% at December 31, 2010, 2009 and 2008. The assumed
discount rate used in determining the accumulated postretirement benefit obligation was an
average of 5.50% at December 31, 2010, 5.75% at December 31, 2009 and 6.00% at December 31,
2007, respectively. The health care cost trend rate assumption has an effect on the amount
reported; as an example a 1% increase in health care costs would have the following effects:
 1% decrease
    
    
    1% increaseEffect on total of service and interest cost components for 2010
    
    $
    (2
    )
    
    $
    3Effect on the postretirement benefit obligation as of December 31, 2010
    
    
    (39
    )
    
    
    43
 Subsequent to December 31, 2010, the Company terminated all postretirement health and life
insurance benefits to all eligible retirees. The termination will result in the reversal of
all remaining accrued costs, net of any termination and settlement costs, in the first quarter
of 2011.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 17.

EQUITY INCENTIVE PLANStock options
 Under the Companys 2006 Equity Incentive Plan, approved by the Companys shareholders on
November 1, 2006, the Company may grant options to its directors, officers and employees for
up to 1,030,860 shares of common stock. Both incentive stock options and non-qualified stock
options may be granted under the 2006 Plan. The exercise price of each option equals the
market price of the Companys stock on the date of grant and the maximum term of each option
is 10 years. The vesting period is approximately five years from the date of grant, with
vesting at 20% per year. Vesting is accelerated upon a change of
control (see Note 13). The fair value of
each option grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
 For Options Granted inYears Ended December 31,2010
    
    
    2008
    
    
    2007Fair value
    
    $
    1.92
    
    
    $
    2.90
    
    
    $
    2.85Expected dividends
    
    
    2.57
    %
    
    
    1.13
    %
    
    
    1.24
    %Expected term (years)
    
    
    6.50
    
    
    
    6.50
    
    
    
    6.50Expected volatility
    
    
    30.81
    %
    
    
    16.44
    %
    
    
    15.90
    %Risk-free interest rate
    
    
    1.98
    %
    
    
    3.02
    %
    
    
    3.88
    %
 The expected volatility is based on historical volatility through the date of grant. The
risk-free interest rate for periods within the contractual life of the awards is based on the
U.S. Treasury yield curve in effect at the time of the grant. The expected term of 6.5 years
is based on the simplified method calculation allowed for plain-vanilla share options. The
dividend yield assumption is based on the Companys history and expectation of dividend
payouts.
 The Company is employing an accelerated method of expense recognition for options, whereby
compensation cost is measured on a straight-line basis over the requisite service period for
each separately vesting portion of the award, as if the award was, in-substance, multiple
awards.
 A summary of options under the 2006 Plan as of December 31, 2010, and changes during the year
then ended, is presented below:
 Weighted AverageWeighted Average
    
    
    Remaining
    
    
    AggregateExercise Price Per
    
    
    Contractual Term
    
    
    IntrinsicShares
    
    
    Share
    
    
    (in years)
    
    
    ValueOutstanding at January 1, 2010
    
    
    803,480
    
    
    $
    15.80
    
    
    
    7.1Granted
    
    
    20,000
    
    
    
    7.77
    
    
    
    9.8Forfeited
    
    
    (112,770
    )
    
    
    15.64Outstanding at December 31, 2010
    
    
    710,710
    
    
    $
    15.60
    
    
    
    6.2
    
    
    $
    111Exercisable at December 31, 2010
    
    
    402,104
    
    
    $
    15.89
    
    
    
    6.1
    
    
    $
    2
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 17.

EQUITY INCENTIVE PLAN (concluded)
 Stock options (concluded)Share-based compensation expense applicable to the Plan was $280, $474 and $784 for the years
ended December 31, 2010, 2009 and 2008, respectively. The recognized tax benefit related to
this expense for these years was approximately $66, $111 and $191, respectively. As of
December 31, 2010, unrecognized stock-based compensation expense related to nonvested options
amounted to $409. This amount is expected to be recognized over a weighted average period of
1.2 years.Stock awards
 Under the Companys 2006 Equity Incentive Plan approved by the Companys shareholders on
November 1, 2006, the Company may grant stock awards to its directors, officers and employees
for up to 412,344 shares of common stock. The stock awards vest at
20% per year. Vesting is accelerated upon a change of control (see
Note 13). The fair
market value of the stock allocations, based on the market price at the date of grant, is
recorded as unearned compensation. Unearned compensation is amortized using the straight-line
method over the applicable vesting period. The Company recorded compensation cost related to
stock awards of approximately $878, $843 and $840 for the years ended December 31, 2010, 2009
and 2008, respectively, and the recognized tax benefit related to this expense was
approximately $350, $337 and $335, respectively.
 A summary of the Companys nonvested stock awards is presented below for the year ended
December 31, 2010:
 Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueBalance at beginning of year
    
    
    218,790
    
    
    $
    15.25Granted
    
    
    10,000
    
    
    
    7.77Vested
    
    
    (69,900
    )
    
    
    16.01Forfeited
    
    
    (7,420
    )
    
    
    16.03Balance at end of year
    
    
    151,470
    
    
    $
    14.37
 As of December 31, 2010, there was approximately $973 of total unrecognized compensation cost
related to nonvested stock awards granted under the Plan. That cost is expected to be
recognized over a weighted-average period of 1.3 years.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 18.

CEO INDUCEMENT PLANStock options
 In 2010 the Company granted non-qualified options for 25,000 of common stock as part of its
Chief Executive Officer (CEO) Inducement Plan as contemplated by the Employment Agreement
between the CEO of the Bank and the Company and Bank. The exercise price of each option is
equal to the market price of the Companys stock on the date of grant and the maximum term of
each option is 10 years. The vesting period is approximately five years from the date of
grant, with vesting at 20% per year. Vesting is accelerated upon a change of control (see
Note 13). The fair value of each option grant was estimated on
the date of grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
 For Options GrantedIn Years EndedDecember 31, 2010Fair value
    
    $
    2.54Expected dividends
    
    
    2.16
    %Expected term (years)
    
    
    6.50Expected volatility
    
    
    30.32
    %Risk-free interest rate
    
    
    2.90
    %
 The expected volatility is based on historical volatility through the date of grant. The
risk-free interest rate for periods within the contractual life of the awards is based on the
U.S. Treasury yield curve in effect at the time of the grant. The expected term of 6.5 years
is based on the simplified method calculation allowed for plain-vanilla share options. The
dividend yield assumption is based on the Companys history and expectation of dividend
payouts.
 The Company is employing an accelerated method of expense recognition for options, whereby
compensation cost is measured on a straight-line basis over the requisite service period for
each separately vesting portion of the award, as if the award was, in-substance, multiple
awards. A summary of options under the Plan as of December 31, 2010, and changes during the
year then ended, is presented below:
 Weighted AverageWeighted Average
    
    
    RemainingExercise Price Per
    
    
    Contractual Term
    
    
    Aggregate IntrinsicShares
    
    
    Share
    
    
    (in years)
    
    
    ValueOutstanding at January 1, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Granted
    
    
    10,000
    
    
    
    9.24
    
    
    
    10.0Forfeited or expired
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    10,000
    
    
    $
    9.24
    
    
    
    9.4
    
    
    $
    98Exercisable at December 31, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 110




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 18.

CEO INDUCEMENT PLAN (concluded)
 Stock options (concluded)Share-based compensation expense applicable to the Plan was $20 for the year ended December
31, 2010. The recognized tax benefit related to this expense for these years was
approximately $8. As of December 31, 2010, unrecognized stock-based compensation expense
related to nonvested options amounted to $44. This amount is expected to be recognized over a
weighted average period of 1.9 years.Stock awards
 Under the CEO Inducement Plan, the Company granted time-based stock awards to its new Bank CEO
for 10,000 shares of common stock. The stock awards vest at 20% per year on the anniversary
date of the grant. Vesting is accelerated upon a change of control (see
Note 13). The fair market value of the stock allocations, based on the market price
at the date of grant, is recorded as unearned compensation. Unearned compensation is
amortized using the straight-line method over the applicable vesting period. The Company
recorded compensation cost under this plan related to stock awards of approximately $12 for
the year ended December 31, 2010 and the recognized tax benefit related to this expense was
approximately $5.
 A summary of the status of the Companys stock nonvested awards under this plan is presented
below for the year ended December 31, 2010:
 Weighted-AverageGrant-DateNonvested Shares
    
    Shares
    
    
    Fair ValueBalance at beginning of year
    
    
    
    
    
    $
    Granted
    
    
    10,000
    
    
    
    9.31Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Balance at end of year
    
    
    10,000
    
    
    $
    9.31
 As of December 31, 2010, there was approximately $80 of total unrecognized compensation cost
related to nonvested time-based stock awards granted under the Plan. That cost is expected to
be recognized over a weighted-average period of 2.6 years.
 Under the Plan, the Company also granted performance-based stock awards to its new CEO for up
to 40,000 shares of common stock. The stock awards vest pending the Companys financial
performance as compared to a pre-established group of peer banks. Compensation expense
related to these awards is amortized using the straight-line method over the applicable
vesting period. The Company recorded compensation cost under this plan related to stock
awards of approximately $80 for the year ended December 31, 2010 and the recognized tax
benefit related to this expense was approximately $32.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 19.

RELATED PARTY TRANSACTIONS
 In the ordinary course of business, the Company has granted loans to directors and executive
officers and their affiliates. All loans and commitments included in such transactions were
made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. All loans to directors
and executive officers of the Company and their affiliates are performing in accordance with
the contractual terms of the loans as of December 31, 2010 and 2009.
 An analysis of activity of such loans on an individual basis to directors and executive
officers of the Company and their affiliates is as follows:
 Years Ended December 31,2010
    
    
    2009Balance at beginning of year
    
    $
    3,668
    
    
    $
    2,807Additions/change in status
    
    
    (192
    )
    
    
    1,778Repayments
    
    
    (130
    )
    
    
    (917
    )Balance at end of year
    
    $
    3,346
    
    
    $
    3,668
 20.

RESTRICTIONS ON DIVIDENDS, LOANS AND ADVANCES
 Federal and state banking regulations place certain restrictions on dividends paid and loans
or advances made by the Bank to the Company. The total amount of dividends which may be paid
at any time is generally limited to the retained earnings of the Bank, and loans or advances
are limited to 10 percent of the Banks capital stock and
surplus on a secured basis. In addition, dividends paid by the Bank to the Company would be prohibited if the effect
thereof would cause the Banks capital to be reduced below applicable minimum capital
requirements. The Bank would obtain the approval of the Massachusetts Commissioner of Banks if
it were to declare a cash dividend from net profits to the Company.
 At December 31, 2010, the Banks retained earnings available for the payment of dividends was
approximately $44,816. Accordingly, $46,897 of the Companys equity in the net assets of the
Bank was restricted at December 31, 2010. Funds available for loans or advances by the Bank
to the Company amounted to approximately $4,482.
 The Companys payment of
dividends is subject to certain legal and regulatory restrictions. The Companys primary
federal regulator may also impose additional restrictions on the
payment of dividends. The Company will provide notification to its
primary regulator in connection with any dividend declaration and did
so in connection with the dividend declared on March 9, 2011.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 21.

FAIR VALUE OF ASSETS AND LIABILITIES
 Determination of Fair Value
 The Company uses fair value measurements to record fair value adjustments to certain assets
and liabilities and to determine fair value disclosures. The fair value of a financial
instrument is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Fair
value is best determined based upon quoted market prices. However, in many instances, there
are no quoted market prices for the Companys various financial instruments. In cases where
quoted market prices are not available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an immediate settlement of the
instrument.
 The following methods and assumptions were used by the Company in estimating fair value
disclosures:
 Cash and cash equivalents  The carrying amounts of cash and short-term
instruments approximate fair values based on the short-term nature of the assets.Interest-bearing deposits in banks  The carrying amounts of interest-bearing
deposits maturing within ninety days approximate their fair values. Fair values of
other interest-bearing deposits are estimated using discounted cash flow analyses
based on current market rates for similar types of deposits.Securities available for sale  The securities measured at fair value in
Level 1 are based on quoted market prices in an active exchange market. These
securities include marketable equity securities. Securities measured at fair value in
Level 2 are based on unadjusted independent market-based prices received from a
third-party pricing service who utilizes pricing models that consider standard input
factors such as observable market data, benchmark yields, interest rate volatilities,
broker/dealer quotes, credit spreads and new issue data. These securities include debt
and mortgage-backed securities issued by government-sponsored enterprises including
Federal Home Loan Mortgage Corporation (FHLMC) Federal National Mortgage Association
(FNMA) and Government National Mortgage Association (GNMA) bonds, municipal bonds and
corporate and other securities. The Company does not have any available-for-sale
securities measured at fair value in Level 3 as of December 31, 2010 or 2009.Federal Home Loan Bank stock  The fair value is based upon the redemption
value of the stock which equates to its carrying value.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 21. FAIR VALUE OF ASSETS AND LIABILITIES (continued)
 Determination of Fair Value (continued)
 Restricted equity securities and other investments  The carrying value of
restricted equity securities represents redemption value and, therefore, approximates
fair value. The fair value of other non-marketable equity securities is estimated
based on consideration of credit exposure. Investments measured at fair value in
level 3 include the Banks investment in certain real estate partnerships, the
values of which are based on an analysis of the financial statements of the
partnerships and underlying real estate projects, and adjusted by management to
recognize unobservable inputs for specific characteristics of the investments,
including, but not limited to, the investments liquidity and marketability, the Banks
ownership percentage, and the nature and type of underlying investments within the
funds.Loans receivable  For values for certain mortgage loans (e.g., one-to-four
family residential) are based on quoted market prices of similar loans sold in
conjunction with securitization transactions adjusted for differences in loan
characteristics. Fair values for other loans (e.g., commercial real estate and
investment property mortgage loans, commercial and industrial loans and consumer
loans) are estimated using discounted cash flow analyses using market interest rates
currently being offered for loans and similar terms to borrowers of similar credit
quality. Non-performing loans are assumed to be carried at current fair value.Deposit liabilities  The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts of certificates of
deposit (CD) originated by the company are valued using a replacement cost funds
approach and are discounted to a 12 district FHLB average curve. Fair values for
brokered time deposits are also valued using a replacement cost of funds approach and
are discounted to the brokered CD curve.Short-term borrowings  For short-term borrowings maturing within ninety
days, carrying values approximate fair values. Fair values of other short-term
borrowings are estimated using discounted cash flow analyses based on the current
incremental borrowing rates in the market for similar types of borrowing arrangements.Long-term borrowings  The fair values of the Companys long-term borrowings
are estimated using discounted cash flow analyses based on the current incremental
borrowing rates in the market for similar types of borrowing arrangements.Accrued interest  The carrying amounts of accrued interest approximate fair
value.
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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 21.

FAIR VALUE OF ASSETS AND LIABILITIES (continued)
 Assets Measured at Fair Value on a Recurring Basis
 Assets measured at fair value on a recurring basis are summarized below:
 December 31, 2010Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair ValueAssetsDebt Securities:Government-sponsored enterprises
    
    
    
    
    
    
    131,624
    
    
    
    
    
    
    
    131,624Municipal bonds
    
    
    
    
    
    
    3,145
    
    
    
    
    
    
    
    3,145Corporate bonds and other obligations
    
    
    
    
    
    
    402
    
    
    
    
    
    
    
    402GSE residential mortgage-backed
    
    
    
    
    
    
    6,594
    
    
    
    
    
    
    
    6,594U.S. Government guaranteed residential
mortagage-backed
    
    
    
    
    
    
    42,967
    
    
    
    
    
    
    
    42,967Common stock
    
    
    956
    
    
    
    
    
    
    
    
    
    
    
    956Securities available for sale
    
    
    956
    
    
    
    184,732
    
    
    
    
    
    
    
    185,688Total assets
    
    
    956
    
    
    
    184,732
    
    
    
    
    
    
    
    185,688
 December 31, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair ValueAssetsDebt Securities:Government-sponsored enterprises
    
    $
    
    
    
    $
    79,976
    
    
    $
    
    
    
    $
    79,976Municipal bonds
    
    
    
    
    
    
    17,875
    
    
    
    
    
    
    
    17,875Corporate bonds and other obligations
    
    
    
    
    
    
    1,351
    
    
    
    
    
    
    
    1,351GSE residential mortgage-backed
    
    
    
    
    
    
    30,503
    
    
    
    
    
    
    
    30,503U.S. Government guaranteed
residential mortagage-backed
    
    
    
    
    
    
    33,636
    
    
    
    
    
    
    
    33,636Common stock
    
    
    4,085
    
    
    
    
    
    
    
    
    
    
    
    4,085Securities available for sale
    
    
    4,085
    
    
    
    163,341
    
    
    
    
    
    
    
    167,426Total assets
    
    $
    4,085
    
    
    $
    163,341
    
    
    $
    
    
    
    $
    167,426
 Assets Measured at Fair Value on a Non-Recurring Basis
 The Company may also be required, from time to time, to measure certain other assets on a
non-recurring basis in accordance with generally accepted accounting principles. These
adjustments to fair value usually result from application of lower-of-cost-or-market
accounting or write-downs of individual assets. The following table summarizes the fair
value hierarchy used to determine each adjustment and the carrying value of the related
individual assets as of December 31, 2010 and 2009. The loss represents the amount of
write-down recorded during 2010 and 2009 on the assets at December 31, 2010 and 2009,
respectively.
 115




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 21.

FAIR VALUE OF ASSETS AND LIABILITIES (continued)Assets Measured at Fair Value on a Non-Recurring Basis
 Year EndedDecember 31, 2010December 31, 2010
    
    
    TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    LossAssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    10,819
    
    
    $
    (6,654
    )Other investments
    
    
    
    
    
    
    
    
    
    
    3,815
    
    
    
    (3,828
    )Foreclosed assets
    
    
    
    
    
    
    
    
    
    
    2,216
    
    
    
    (275
    )Total assets
    
    $
    
    
    
    $
    
    
    
    $
    16,850
    
    
    $
    (10,757
    )
 Year EndedDecember 31, 2009December 31, 2009
    
    
    TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    LossAssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    18,230
    
    
    $
    (3,972
    )Other investments
    
    
    
    
    
    
    
    
    
    
    4,397
    
    
    
    (3,813
    )Foreclosed assets
    
    
    
    
    
    
    
    
    
    
    1,195
    
    
    
    (80
    )Total assets
    
    $
    
    
    
    $
    
    
    
    $
    23,822
    
    
    $
    (7,865
    )
 Impaired loans: Certain impaired loans held for investment were written down to the
fair value, less costs to sell, of the underlying collateral securing these loans of $10.8
million, resulting in a loss of $6.7 million for the year ended December 31, 2010, which was
recognized in earnings through the provision for loan losses. The fair value of the
collateral used by the Company represents that amount expected to be received from the sale
of the property as determined by an independent, licensed or certified appraiser in
accordance with Uniform Standards of Professional Appraisal Practice, using observable
market data and discounted as considered necessary by management based on the date of
valuation and new information deemed relevant to the valuation.
 Other investments: The Bank maintains an equity investment in several commercial
real estate funds. These funds invest in various types of commercial real estate throughout
the country with the intent of generating an above-average rate of return. In 2010 these
equity investments were deemed impaired and adjusted to fair value based on an analysis of
the funds financial statements and underlying real estate projects. The values provided by
the funds financial statements were adjusted
by management to recognize unobservable inputs for specific characteristics of the
investments, including, but not limited to, the investments liquidity and marketability, the
Banks ownership percentage, and the nature and type of underlying investments within the
funds. This adjustment is highly judgmental and resulted in a loss of $3.8 million for the year ended December 31,
2010 which was recognized through OTTI charges.
 These investments are not redeemable, but are transferrable. The funds have limited remaining lives ranging from
two to seven years (2012  2017) over which the underlying assets are expected to be
liquidated by the funds management. Further information related to the funds as of December
31, 2010 is as follows:
 116




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 21. FAIR VALUE OF ASSETS AND LIABILITIES (concluded)Summary of Fair Value of Financial Instruments
 Fund A
    
    
    Fund B
    
    
    Fund C
    
    
    Fund D
    
    
    TotalAnticipated final fund
liquidation and distribution
    
    
    2012
    
    
    
    2014
    
    
    
    2012
    
    
    
    2017Estimated fair value
    
    $
    
    
    
    
    1,077
    
    
    
    756
    
    
    
    1,982
    
    
    $
    3,815Potential unfunded capital calls
    
    $
    955
    
    
    
    949
    
    
    
    1,678
    
    
    
    705
    
    
    $
    4,287Ownership %
of fund
    
    
    1.30
    %
    
    
    0.79
    %
    
    
    1.88
    %
    
    
    4.08
    %
 Foreclosed assets: Certain properties in foreclosed assets were adjusted to
fair value less costs to sell through either the provision for loan losses or other expenses as a loss on other
real estate owned. The fair value of foreclosed assets is that amount expected to be
received from the sale of the property as determined by an independent, licensed or
certified appraiser in accordance with Uniform Standards of Professional Appraisal Practice,
using observable market data. If necessary, these appraised values were adjusted by
management to recognize unobservable inputs for specific characteristics of the properties.
 The estimated fair values, and related carrying or notional amounts, of the Companys
financial instruments are as follows. Certain financial instruments and all nonfinancial
instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value
amounts presented herein may not necessarily represent the underlying fair value of the
Company.
 December 31,2010
    
    
    2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    27,092
    
    
    $
    27,092
    
    
    $
    40,155
    
    
    $
    40,155Securities available for sale
    
    
    185,688
    
    
    
    185,688
    
    
    
    167,426
    
    
    
    167,426Securities held to maturity
    
    
    97
    
    
    
    97
    
    
    
    97
    
    
    
    97Federal Home Loan Bank ofBoston stock
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932Savings Bank Life Insurance
stock
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709Other investments
    
    
    3,905
    
    
    
    3,905
    
    
    
    4,552
    
    
    
    4,552Loans and loans held for sale
    
    
    610,941
    
    
    
    626,967
    
    
    
    653,334
    
    
    
    656,978Accrued interest receivable
    
    
    2,631
    
    
    
    2,631
    
    
    
    3,306
    
    
    
    3,306Financial liabilities:Deposits
    
    
    685,245
    
    
    
    691,501
    
    
    
    651,378
    
    
    
    656,038Repurchase agreements
    
    
    5,329
    
    
    
    5,329
    
    
    
    6,386
    
    
    
    6,386FHLB advances
    
    
    105,388
    
    
    
    112,882
    
    
    
    160,352
    
    
    
    167,331Mortgagors escrow accounts
    
    
    1,211
    
    
    
    1,211
    
    
    
    1,058
    
    
    
    1,058
 117




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 22. PARENT COMPANY-ONLY CONDENSED FINANCIAL STATEMENTS
 The condensed year end financial statement information pertaining only to the parent, Legacy
Bancorp, Inc., is as follows:
 BALANCE
SHEETS
 December 31,2010
    
    
    2009Cash and cash equilavents
    
    $
    498
    
    
    $
    3,148Securities at fair value
    
    
    12,063
    
    
    
    18,258Investment in common stock of Legacy Banks
    
    
    91,713
    
    
    
    92,384Investment in common stock of LB Funding Corp.
    
    
    6,609
    
    
    
    7,006Accrued interest receivable
    
    
    41
    
    
    
    117Other assets
    
    
    2,022
    
    
    
    1,797Total Assets
    
    $
    112,946
    
    
    $
    122,710Deferred tax liability
    
    $
    1,234
    
    
    $
    1,239Accrued expenses and other liabilties
    
    
    153
    
    
    
    104Stockholders equity
    
    
    111,559
    
    
    
    121,367Total Liabilities and Stockholders Equity
    
    $
    112,946
    
    
    $
    122,710
 CONDENSED
STATEMENTS OF OPERATIONS
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Income:Interest on securities
    
    $
    436
    
    
    $
    888
    
    
    $
    1,019Interest on cash and short-term investments
    
    
    
    
    
    
    2
    
    
    
    96Gain (loss) on sales of securities
    
    
    109
    
    
    
    (1,603
    )
    
    
    41Total Income
    
    
    545
    
    
    
    (713
    )
    
    
    1,156Operating expenses
    
    
    988
    
    
    
    1,052
    
    
    
    1,022Income (loss) before income taxes and equity in
undistributed net income of subsidiaries
    
    
    (443
    )
    
    
    (1,765
    )
    
    
    134Income tax provision (benefit)
    
    
    (151
    )
    
    
    (66
    )
    
    
    50Income (loss) before equity in income (loss) of
subsidiaries
    
    
    (292
    )
    
    
    (1,699
    )
    
    
    84Equity in undistributed income (loss) of Legacy Banks
    
    
    (7,761
    )
    
    
    (6,432
    )
    
    
    1,005Equity in undistributed income of LB Funding
    
    
    157
    
    
    
    333
    
    
    
    355Net income (loss)
    
    $
    (7,896
    )
    
    $
    (7,798
    )
    
    $
    1,444
 118




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 22. PARENT COMPANY-ONLY CONDENSED FINANCIAL STATEMENTS (Concluded)
 CONDENSED
STATEMENT OF CASH FLOWS
 Years Ended December 31,2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    (7,896
    )
    
    $
    (7,798
    )
    
    $
    1,444Adjustments
to reconcile net income (loss) to net cash provided by operating activities:Net amortization (accretion) of securities
    
    
    57
    
    
    
    34
    
    
    
    (67
    )(Gain) loss on sales of securities, net
    
    
    (109
    )
    
    
    1,603
    
    
    
    (41
    )Equity in undistributed (income) loss of
Legacy Banks
    
    
    7,761
    
    
    
    6,432
    
    
    
    (1,005
    )Equity in undistributed income of LB
Funding Corp.
    
    
    (157
    )
    
    
    (333
    )
    
    
    (355
    )Share-based compensation expense
    
    
    1,272
    
    
    
    1,317
    
    
    
    1,624Deferred tax provision (benefit)
    
    
    5
    
    
    
    (611
    )
    
    
    1,093Net change in:Accrued interest receivable
    
    
    76
    
    
    
    8
    
    
    
    94Other assets
    
    
    (218
    )
    
    
    (579
    )
    
    
    (514
    )Accrued expenses and other liabilities
    
    
    45
    
    
    
    1,137
    
    
    
    56Net cash provided by operating activities:
    
    
    836
    
    
    
    1,210
    
    
    
    2,329Cash flows from investing activities:Activities in available-for-sale securities:Sales
    
    
    7,746
    
    
    
    8,466
    
    
    
    12,028Maturities, prepayments and calls
    
    
    20,136
    
    
    
    12,195
    
    
    
    16,854Purchases
    
    
    (21,675
    )
    
    
    (22,067
    )
    
    
    (23,226
    )Equity investment in Legacy Banks
    
    
    (7,750
    )
    
    
    
    
    
    
    Net cash provided (used) by investing activities:
    
    
    (1,543
    )
    
    
    (1,406
    )
    
    
    5,656Cash flows from financing activities:Payment of dividends on common stock
    
    
    (1,605
    )
    
    
    (1,603
    )
    
    
    (1,612
    )Payment of loan from LB Funding
    
    
    554
    
    
    
    1,109
    
    
    
    1,109Repurchase of common stock
    
    
    (892
    )
    
    
    (696
    )
    
    
    (6,117
    )Other, net
    
    
    
    
    
    
    
    
    
    
    Net cash used by financing activities:
    
    
    (1,943
    )
    
    
    (1,190
    )
    
    
    (6,620
    )Net change in cash and cash equivalents
    
    
    (2,650
    )
    
    
    (1,386
    )
    
    
    1,365Cash and cash equivalents at beginning of year
    
    
    3,148
    
    
    
    4,534
    
    
    
    3,169Cash and cash equivalents at end of year
    
    $
    498
    
    
    $
    3,148
    
    
    $
    4,534
 119




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LEGACY BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars in Thousands)
 23.    QUARTERLY DATA (UNAUDITED)
 Quarterly results of operations for the years ended December 31, 2010 and 2009 are as
follows:
 2010
    
    
    2009Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    FirstQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterInterest and dividend
income
    
    $
    9,675
    
    
    $
    10,198
    
    
    $
    10,437
    
    
    $
    10,654
    
    
    $
    10,930
    
    
    $
    11,364
    
    
    $
    11,587
    
    
    $
    11,937Interest expense
    
    
    3,375
    
    
    
    3,596
    
    
    
    3,688
    
    
    
    3,898
    
    
    
    4,275
    
    
    
    4,420
    
    
    
    4,675
    
    
    
    4,978Net interest income
    
    
    6,300
    
    
    
    6,602
    
    
    
    6,749
    
    
    
    6,756
    
    
    
    6,655
    
    
    
    6,944
    
    
    
    6,912
    
    
    
    6,959Provision for loan losses
    
    
    2,118
    
    
    
    2,174
    
    
    
    3,756
    
    
    
    2,421
    
    
    
    2,548
    
    
    
    101
    
    
    
    1,506
    
    
    
    728Non-interest income
    
    
    (2,470
    )
    
    
    1,982
    
    
    
    2,631
    
    
    
    1,049
    
    
    
    (2,313
    )
    
    
    (2,204
    )
    
    
    198
    
    
    
    (294
    )Non-interest expenses
    
    
    8,469
    
    
    
    7,635
    
    
    
    7,765
    
    
    
    7,173
    
    
    
    7,135
    
    
    
    6,970
    
    
    
    7,650
    
    
    
    7,077Provision (benefit) for
income taxes
    
    
    (2,260
    )
    
    
    (446
    )
    
    
    (765
    )
    
    
    (545
    )
    
    
    (1,526
    )
    
    
    (633
    )
    
    
    (553
    )
    
    
    (348
    )Net income (loss)
    
    $
    (4,497
    )
    
    $
    (779
    )
    
    $
    (1,376
    )
    
    $
    (1,244
    )
    
    $
    (3,815
    )
    
    $
    (1,698
    )
    
    $
    (1,493
    )
    
    $
    (792
    )Basic earnings (loss)
per share
    
    $
    (0.57
    )
    
    $
    (0.10
    )
    
    $
    (0.17
    )
    
    $
    (0.15
    )
    
    $
    (0.48
    )
    
    $
    (0.21
    )
    
    $
    (0.19
    )
    
    $
    (0.10
    )Diluted earnings (loss)
per share
    
    $
    (0.57
    )
    
    $
    (0.10
    )
    
    $
    (0.17
    )
    
    $
    (0.15
    )
    
    $
    (0.48
    )
    
    $
    (0.21
    )
    
    $
    (0.19
    )
    
    $
    (0.10
    )
 Results for all four quarters of 2010 were impacted by significant provisions for loan losses.
The fourth quarter of 2010 was also negatively impacted by charges related to the write down
of value of certain investments deemed to be other-than-temporarily impaired as well as a
charge on the prepayment of approximately $34.7 million of advances from the Federal Home Loan
Bank. Furthermore, the Company incurred additional tax expense in 2010 as a result of the
establishment of deferred tax valuation reserve against the amount of capital loss
carryforwards.
 Results for the fourth quarter of 2009 were significantly impacted by charges related to the
writedown of value of certain investments deemed to be other-than-temporarily impaired, as
well as higher provisions for loan losses and FDIC insurance expense. All quarters of 2009
were also impacted by the opening of a new branch office in Latham, NY in January and the
acquisition of a full service branch location in Haydenville, MA in March. The fourth quarter
of 2009 was also impacted by the loss on the sale of the remaining portfolio of non-agency
mortgage-backed securities. Furthermore, the Company incurred additional tax expense in the
fourth quarter of 2009 as a result of a reevaluation of the realizability of the deferred tax
benefit resulting from the contribution of 763,600 shares of common stock to The Legacy Banks
Foundation (the Foundation) in 2005, and the establishment of deferred tax valuation reserve
against the amount of capital loss carryforwards.
 Quarterly data may not sum to annual data due to rounding.
 120




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##### Table of Contents



Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
  
 Item 9a. Controls And Procedures
  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Internal
ControlIntegrated Framework
  121




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##### Table of Contents



Item 9b. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
   
 Item 11. Executive Compensation
  
 Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
 (a)
    
    Security Ownership of Certain Beneficial OwnersInformation required by this item will be included in a Form 10-K/A, which will be filed
within 120 days of the end of our fiscal year ended December 31, 2010 and is incorporated
herein by reference.(b)
    
    Security Ownership of ManagementInformation required by this item will be included in a Form 10-K/A, which will be filed
within 120 days of the end of our fiscal year ended December 31, 2010 and is incorporated
herein by reference.
 122




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##### Table of Contents



(c)
    
    Changes in ControlOn December 21, 2010, the Company and Berkshire Hills Bancorp, Inc. (Berkshire) entered
into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which the Company
will merge with and into Berkshire, with Berkshire as the surviving corporation (the
Merger). The Merger Agreement is on file with the Securities and Exchange Commission as an
exhibit to the Current Report on Form 8-K filed by the Company on December 22, 2010.(d)
    
    Equity Incentive Plan InformationThe following table sets forth information, as of December 31, 2010, about Company common
stock that may be issued upon exercise of options under stock-based benefit plans maintained
by the Company.
 Number of securitiesremaining available forWeighted-average
    
    
    future issuance underNumber of securities to
    
    
    exercise price of
    
    
    equity compensationbe issued upon exercise
    
    
    outstanding
    
    
    plans (excludingof outstanding options,
    
    
    options, warrants
    
    
    securities reflected in thePlan category
    
    warrants and rights
    
    
    and rights
    
    
    first column)Equity compensation plans
approved by security holders
    
    
    710,710
    
    
    $
    15.60
    
    
    
    320,150Equity compensation plans not
approved by security holders
    
    
    25,000
    
    
    $
    9.24
    
    
    
    Total
    
    
    735,710
    
    
    $
    15.39
    
    
    
    320,150
 
 Item 13. Certain Relationships And Related Transactions, and Director Independence
  
 Item 14. Principal Accountant Fees And Services
  123




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##### Table of Contents



PART IV
 
 Item 15. Exhibits And Financial Statement Schedules
  
 SIGNATURES
  Date: March 16, 2011
    /s/ J. Williar DunlaevyJ. Williar DunlaevyChief Executive Officer and Chairman of the Board  LEGACY BANCORP, INC.Date:  March 16, 2011
    /s/ J. Williar DunlaevyJ. Williar DunlaevyChief Executive Officer and Chairman of the Board
(Principal Executive Officer)Date:      March 16, 2011
    /s/ Paul H. BrucePaul H. BruceSenior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)Date:      March 16, 2011
    /s/ Patrick J. SullivanPatrick J. SullivanPresidentDate:      March 16, 2011
    /s/ Eugene A. DelleaEugene A,. DelleaDirectorDate:      March 16, 2011
    /s/ David L. KlausmeyerDavid L. KlausmeyerDirectorDate:      March 16, 2011
    /s/ Barton D. RaserBarton D. RaserDirectorDate:      March 16, 2011
    /s/ Anne W. PaskoAnne W. PaskoDirectorDate:      March 16, 2011
    /s/ Robert B. TraskRobert B. TraskDirectorDate:      March 16, 2011
    /s/ Dorothy B. WinsorDorothy B. WinsorDirector 124




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##### Table of Contents



INDEX TO EXHIBITS
 2.1
    
    Amended and Restated Plan of Conversion (1)3.1
    
    Certificate of Incorporation of Legacy Bancorp, Inc.(1)3.2
    
    Bylaws of Legacy Bancorp, Inc. (as amended)(1)10.1
    
    Legacy Banks ESOP Trust Agreement(2)10.2
    
    ESOP Plan Document(2)10.3
    
    ESOP Loan Documents(2)10.4.1
    
    Employment Agreement between Legacy Banks and J. Williar Dunlaevy(2)10.4.2
    
    Employment Agreement between Legacy Banks and Michael A. Christopher(2)10.4.3
    
    Employment Agreement between Legacy Banks and Steven F. Pierce(2)10.4.4
    
    Employment Agreement between Legacy Banks and Stephen M. Conley(2)10.4.5
    
    Employment Agreement between Legacy Banks and Richard M. Sullivan(2)10.5.1
    
    Employment Agreement between Legacy Bancorp, Inc. and J. Williar Dunlaevy(2)10.5.2
    
    Employment Agreement between Legacy Bancorp, Inc. and Michael A. Christopher(2)10.5.3
    
    Employment Agreement between Legacy Bancorp, Inc. and Steven F. Pierce(2)10.5.4
    
    Employment Agreement between Legacy Bancorp, Inc. and Stephen M. Conley(2)10.5.5
    
    Employment Agreement between Legacy Bancorp, Inc. and Richard M. Sullivan(2)10.5.6
    
    Separation Agreement and General Release dated as of November 5, 2007 between Legacy
Bancorp, Inc., Legacy Banks and Michael A. Christopher (4)10.5.7
    
    Separation Agreement and General Release dated as of December 21, 2007 between Legacy
Bancorp, Inc., Legacy Banks and Stephen M. Conley (5)10.5.8
    
    Consulting Agreement dated as of November 5, 2007 between Legacy Bancorp, Inc., Legacy
Banks and Michael A. Christopher (4)10.5.9
    
    Purchase Agreement by and between First Niagara Bank and Legacy Banks dated as of July
25, 2007 (6)10.5.10
    
    Change In Control Agreement between Legacy Bancorp, Inc. and Paul H. Bruce (7)10.5.11
    
    Change In Control Agreement between Legacy Bancorp, Inc. and Kimberly A. Mathews (7)10.5.12
    
    Purchase Agreement by and between The Bank of Western Massachusetts and Legacy Banks
dated as of December 15, 2008 (8)10.5.13
    
    Amended and Restated Employment Agreement effective as of November 20, 2008 by and
between Legacy Bancorp, Inc., Legacy Banks and J. Williar Dunlaevy (9)10.5.14
    
    Amended and Restated Employment Agreement effective as of November 20, 2008 by and
between Legacy Bancorp, Inc., Legacy Banks and Steven F. Pierce (9)10.5.15
    
    Amended and Restated Employment Agreement effective as of November 20, 2008 by and
between Legacy Bancorp, Inc., Legacy Banks and Richard M. Sullivan (9)10.5.16
    
    Amended and Restated Supplemental Executive Retirement Agreement effective as of November
20, 2008 by and between Legacy Bancorp, Inc., Legacy Banks and J. Williar Dunlaevy (9)10.5.17
    
    Employment Agreement effective as of April 1, 2010 by and between Legacy Bancorp, Inc.,
Legacy Banks and Patrick J. Sullivan (10)10.5.18
    
    Separation Agreement and General Release dated as of May 11, 2010 between Legacy Bancorp,
Inc., Legacy Banks and Steven F. Pierce (11)10.5.19
    
    Change In Control Agreement between Legacy Bancorp, Inc. and Richard M. Sullivan (12)10.5.20
    
    Definitive Merger Agreement between Legacy Bancorp, Inc. and Berkshire Hills Bancorp (13)
 125




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##### Table of Contents



11.0
    
    Statement re: Computation of Per Share Earnings is incorporated herein by reference to
Part II, Item 8, Financial Statements and Supplementary Data14.0
    
    Code of Ethics21.0
    
    List of all subsidiaries of the Registrant23.0
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of J. Williar Dunlaevy31.2
    
    Certification pursuant to Rule 13a-14(a)/15d-14(a) of Paul H. Bruce32
    
    Certification pursuant to 18 U.S.C. Section 1350
 
 (1)
    
    Incorporated by reference from the Registrants Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 2005 filed October 27, 2005.(2)
    
    Incorporated by reference from the Registration Statement on Form S-1 (No. 333-126481) filed
July 8, 2005, as amended.(3)
    
    Incorporated by reference from the Registrants Definitive Proxy Statement on Form DEF 14A
filed September 28, 2006(4)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed November 5,
2007.(5)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed December 21,
2007.(6)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed July 25,
2007.(7)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed October 30,
2008.(8)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed December 16,
2008.(9)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed November 25,
2008.(10)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed March 4,
2010.(11)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed May 11,
2010.(12)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed November 1,
2010.(13)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed December 22,
2010. 126