##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



LEGACY BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page No.Part I  Financial InformationItem 1 Financial StatementsConsolidated Balance Sheets as of September 30, 2010
and December 31, 2009
    
    
    2Consolidated Statements of Operations for the three and
nine
months ended September 30, 2010 and 2009
    
    
    3Consolidated Statements of Changes in Stockholders Equity
for the nine months ended September 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows for the nine
months ended September 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    15Item 3 Quantitative and Qualitative Disclosures about Market Risks
    
    
    28Item 4 Controls and Procedures
    
    
    28Part II  Other InformationItem 1 Legal Proceedings
    
    
    29Item 1A Risk Factors
    
    
    29Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3 Defaults Upon Senior Securities
    
    
    30Item 4 (Removed and Reserved)
    
    
    30Item 5 Other Information
    
    
    30Item 6 Exhibits
    
    
    31EX-31.1EX-31.2EX-32
  1




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1: Financial Statements
 LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS  (Dollars in thousands, except per share amounts)
 September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)ASSETSCash and due from banks
    
    $
    18,152
    
    
    $
    11,281Short-term investments
    
    
    14,371
    
    
    
    28,874Cash and cash equivalents
    
    
    32,523
    
    
    
    40,155Securities  Available for sale
    
    
    199,569
    
    
    
    167,426Securities  Held to maturity
    
    
    97
    
    
    
    97Restricted equity securities and other investments  at cost
    
    
    19,595
    
    
    
    17,193Loans held for sale
    
    
    2,470
    
    
    
    706Loans, net of allowance for loan losses of $9,375
in 2010 and $11,089 in 2009
    
    
    643,834
    
    
    
    652,628Premises and equipment, net
    
    
    19,427
    
    
    
    19,568Accrued interest receivable
    
    
    2,942
    
    
    
    3,306Goodwill, net
    
    
    11,558
    
    
    
    9,730Other intangible assets
    
    
    3,676
    
    
    
    2,654Net deferred tax asset
    
    
    9,270
    
    
    
    10,202Bank-owned life insurance
    
    
    16,832
    
    
    
    16,263Foreclosed assets
    
    
    2,103
    
    
    
    1,195Other assets
    
    
    8,144
    
    
    
    5,142$
    972,040
    
    
    $
    946,265LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    80,510
    
    
    $
    75,232Interest-bearing
    
    
    614,488
    
    
    
    576,146Total deposits
    
    
    694,998
    
    
    
    651,378Securities sold under agreements to repurchase
    
    
    4,169
    
    
    
    6,386Federal Home Loan Bank advances
    
    
    145,092
    
    
    
    160,352Mortgagors escrow accounts
    
    
    1,098
    
    
    
    1,058Accrued expenses and other liabilities
    
    
    9,238
    
    
    
    5,724Total liabilities
    
    
    854,595
    
    
    
    824,898Commitments and contingenciesStockholders EquityPreferred 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 September 30,
2010 and December 31, 2009; 8,653,712 outstanding at
September 30,
2010 and 8,734,712 outstanding at December 31, 2009)
    
    
    103
    
    
    
    103Additional paid-in-capital
    
    
    103,031
    
    
    
    102,788Unearned Compensation  ESOP
    
    
    (6,956
    )
    
    
    (7,322
    )Unearned Compensation  Equity Incentive Plans
    
    
    (1,479
    )
    
    
    (2,078
    )Retained earnings
    
    
    44,213
    
    
    
    48,998Accumulated other comprehensive income
    
    
    992
    
    
    
    711Treasury stock, at cost (1,654,888 shares at September 30, 2010
and 1,573,888 shares at December 31, 2009)
    
    
    (22,459
    )
    
    
    (21,833
    )Total stockholders equity
    
    
    117,445
    
    
    
    121,367$
    972,040
    
    
    $
    946,265
  2




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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS  (Dollars in thousands, except per share amounts)
 Three Months Ended
    
    
    Nine MonthsSeptember 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Unaudited)Interest and dividend income:Loans
    
    $
    9,005
    
    
    $
    9,642
    
    
    $
    27,328
    
    
    $
    29,478Securities:Taxable
    
    
    1,106
    
    
    
    1,552
    
    
    
    3,534
    
    
    
    4,911Tax-Exempt
    
    
    83
    
    
    
    167
    
    
    
    409
    
    
    
    488Short-term investments
    
    
    4
    
    
    
    3
    
    
    
    17
    
    
    
    10Total interest and dividend income
    
    
    10,198
    
    
    
    11,364
    
    
    
    31,288
    
    
    
    34,887Interest expense:Deposits
    
    
    2,193
    
    
    
    2,656
    
    
    
    6,910
    
    
    
    8,460Federal Home Loan Bank advances
    
    
    1,398
    
    
    
    1,748
    
    
    
    4,249
    
    
    
    5,561Other borrowed funds
    
    
    5
    
    
    
    16
    
    
    
    23
    
    
    
    52Total interest expense
    
    
    3,596
    
    
    
    4,420
    
    
    
    11,182
    
    
    
    14,073Net interest income
    
    
    6,602
    
    
    
    6,944
    
    
    
    20,106
    
    
    
    20,814Provision for loan losses
    
    
    2,174
    
    
    
    101
    
    
    
    8,350
    
    
    
    2,334Net interest income after provision for loan losses
    
    
    4,428
    
    
    
    6,843
    
    
    
    11,756
    
    
    
    18,480Non-interest income:Total other-than-temporary impairment losses
    
    
    (14
    )
    
    
    (3,426
    )
    
    
    (379
    )
    
    
    (8,927
    )Related loss (gain) recognized in other
comprehensive income
    
    
    
    
    
    
    (226
    )
    
    
    
    
    
    
    2,264Net impairment losses
    
    
    (14
    )
    
    
    (3,652
    )
    
    
    (379
    )
    
    
    (6,663
    )Customer service fees
    
    
    731
    
    
    
    736
    
    
    
    2,216
    
    
    
    2,140Portfolio management fees
    
    
    595
    
    
    
    233
    
    
    
    1,355
    
    
    
    723Income from bank owned life insurance
    
    
    177
    
    
    
    90
    
    
    
    474
    
    
    
    418Insurance, annuities and mutual fund fees
    
    
    19
    
    
    
    25
    
    
    
    103
    
    
    
    84Gain on sales of securities, net
    
    
    343
    
    
    
    199
    
    
    
    1,573
    
    
    
    241Gain on sales of loans, net
    
    
    119
    
    
    
    156
    
    
    
    249
    
    
    
    725Miscellaneous
    
    
    12
    
    
    
    9
    
    
    
    72
    
    
    
    33Total non-interest income
    
    
    1,982
    
    
    
    (2,204
    )
    
    
    5,663
    
    
    
    (2,299
    )Non-interest expenses:Salaries and employee benefits
    
    
    3,786
    
    
    
    3,447
    
    
    
    10,979
    
    
    
    10,343Occupancy and equipment
    
    
    974
    
    
    
    931
    
    
    
    2,956
    
    
    
    3,001Data processing
    
    
    750
    
    
    
    691
    
    
    
    2,204
    
    
    
    2,025Professional fees
    
    
    359
    
    
    
    287
    
    
    
    950
    
    
    
    765Advertising
    
    
    249
    
    
    
    367
    
    
    
    949
    
    
    
    1,072FDIC deposit insurance
    
    
    285
    
    
    
    250
    
    
    
    824
    
    
    
    1,190Other general and administrative
    
    
    1,232
    
    
    
    997
    
    
    
    3,712
    
    
    
    3,302Total non-interest expenses
    
    
    7,635
    
    
    
    6,970
    
    
    
    22,574
    
    
    
    21,698Loss before income taxes
    
    
    (1,225
    )
    
    
    (2,331
    )
    
    
    (5,155
    )
    
    
    (5,517
    )Benefit for income taxes
    
    
    (446
    )
    
    
    (633
    )
    
    
    (1,756
    )
    
    
    (1,533
    )Net loss
    
    $
    (779
    )
    
    $
    (1,698
    )
    
    $
    (3,399
    )
    
    $
    (3,984
    )Earnings (loss) per shareBasic
    
    $
    (0.10
    )
    
    $
    (0.21
    )
    
    $
    (0.42
    )
    
    $
    (0.50
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.21
    )
    
    $
    (0.42
    )
    
    $
    (0.50
    )Weighted average shares outstandingBasic
    
    
    7,996,245
    
    
    
    7,978,928
    
    
    
    8,015,066
    
    
    
    7,981,042Diluted
    
    
    7,996,245
    
    
    
    7,978,928
    
    
    
    8,015,066
    
    
    
    7,981,042
  3




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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009  (Dollars in thousands, except per share amounts)  (Unaudited)
 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, 2008
    
    
    8,781,912
    
    
    $
    103
    
    
    $
    102,475
    
    
    $
    (8,055
    )
    
    $
    (2,727
    )
    
    $
    58,534
    
    
    $
    (4,722
    )
    
    $
    (21,466
    )
    
    $
    124,142Comprehensive income (loss):Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,984
    )
    
    
    
    
    
    
    
    
    
    
    (3,984
    )Net unrealized gain/loss on securities
available for sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,301
    
    
    
    
    
    
    
    4,301Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    317Cash dividends declared ($0.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,204
    )
    
    
    
    
    
    
    
    
    
    
    (1,204
    )Common stock repurchased - 5% stock repurchase
Program announced March 2009
    
    
    (35,100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    





    (379
    )
    
    
    (379
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    356Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630Common stock held by ESOP committed
to be released (41,235 shares)
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    436Balance at September 30, 2009
    
    
    8,746,812
    
    
    $
    103
    
    
    $
    102,717
    
    
    $
    (7,505
    )
    
    $
    (2,097
    )
    
    $
    53,346
    
    
    $
    (421
    )
    
    $
    (21,845
    )
    
    $
    124,298Balance 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)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,399
    )
    
    
    
    
    
    
    
    
    
    
    (3,399
    )Net unrealized gain/loss on securities
available for sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    
    
    
    
    281Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,118
    )Cash dividends declared ($0.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,206
    )
    
    
    
    
    
    
    
    
    
    
    (1,206
    )Common stock repurchased - 5% stock repurchase
Program announced March 2009
    
    
    (91,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (790
    )
    
    
    (790
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    717Issuance of restricted stock
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    (71
    )
    
    
    
    
    
    
    164
    
    
    
    Common stock held by ESOP committed
to be released (27,489 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    366
    
    
    
    
    
    
    
    (109
    )
    
    
    
    
    
    
    
    
    
    
    257Balance at September 30, 2010
    
    
    8,653,712
    
    
    $
    103
    
    
    $
    103,031
    
    
    $
    (6,956
    )
    
    $
    (1,479
    )
    
    $
    44,213
    
    
    $
    992
    
    
    $
    (22,459
    )
    
    $
    117,445
  4




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##### Table of Contents



LEGACY BANCORP, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  (Dollars in thousands)
 Nine months ended September 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (3,399
    )
    
    $
    (3,984
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Provision for loan losses
    
    
    8,350
    
    
    
    2,334Net amortization of securities
    
    
    632
    
    
    
    453Amortization of intangible assets
    
    
    529
    
    
    
    523Depreciation and amortization expense
    
    
    1,195
    
    
    
    1,214(Gain) loss on sales/impairment of securities, net
    
    
    (1,194
    )
    
    
    6,422Loss on sales/writedowns of foreclosed real estate, net
    
    
    332
    
    
    
    Gain on sales of loans, net
    
    
    (249
    )
    
    
    (725
    )Loans originated for sale
    
    
    (21,321
    )
    
    
    (56,678
    )Proceeds from sales of loans
    
    
    19,806
    
    
    
    57,024Share-based compensation expense
    
    
    935
    
    
    
    986Deferred tax provision (benefit)
    
    
    790
    
    
    
    (1,745
    )Employee Stock Ownership Plan expense
    
    
    257
    
    
    
    436Net change in:Bank-owned life insurance
    
    
    (569
    )
    
    
    (421
    )Accrued interest receivable
    
    
    364
    
    
    
    286Other assets
    
    
    (3,002
    )
    
    
    201Accrued expenses and other liabilities
    
    
    3,514
    
    
    
    (2,017
    )Net cash provided by operating activities
    
    
    6,970
    
    
    
    4,309Cash flows from investing activities:Activity in available-for-sale securities:Sales
    
    
    34,257
    
    
    
    33,306Maturities, prepayments and calls
    
    
    110,733
    
    
    
    43,896Purchases
    
    
    (175,812
    )
    
    
    (117,548
    )Purchase of other investments
    
    
    (2,740
    )
    
    
    (673
    )Maturities, prepayments and calls of other investments
    
    
    2
    
    
    
    Loan originations and purchases, net of principal payments
    
    
    (2,590
    )
    
    
    34,929Additions to premises and equipment
    
    
    (1,054
    )
    
    
    (661
    )Additions to goodwill
    
    
    (1,828
    )
    
    
    Additions to other intangible assets
    
    
    (1,551
    )
    
    
    Additions to other real estate owned
    
    
    
    
    
    
    (990
    )Net cash received in branch acquisition
    
    
    
    
    
    
    9,031Proceeds from sales of foreclosed assets
    
    
    1,794
    
    
    
    Net cash provided (used) by investing activities
    
    
    (38,789
    )
    
    
    1,290
   5




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##### Table of Contents



LEGACY BANCORP, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS  (Dollars in thousands)
 Nine months ended September 30,2010
    
    
    2009(Unaudited)Cash flows from financing activities:Net increase in deposits
    
    
    43,620
    
    
    
    30,039Net (decrease) increase in securities sold under
agreements to repurchase
    
    
    (2,217
    )
    
    
    1,162Repayment of Federal Home Loan Bank advances
    
    
    (40,294
    )
    
    
    (30,554
    )Proceeds from Federal Home Loan Bank advances
    
    
    25,034
    
    
    
    147Net increase in mortgagors escrow accounts
    
    
    40
    
    
    
    123Repurchase of common stock
    
    
    (790
    )
    
    
    (379
    )Payment of dividends on common stock
    
    
    (1,206
    )
    
    
    (1,204
    )Net cash provided (used) by financing activities
    
    
    24,187
    
    
    
    (666
    )Net change in cash and cash equivalents
    
    
    (7,632
    )
    
    
    4,933Cash and cash equivalents at beginning of period
    
    
    40,155
    
    
    
    33,595Cash and cash equivalents at end of period
    
    $
    32,523
    
    
    $
    38,528Supplemental cash flow information:Interest paid on deposits
    
    $
    6,971
    
    
    $
    8,653Interest paid on Federal Home Loan Bank advances
    
    
    4,267
    
    
    
    5,685Interest paid on other borrowed funds
    
    
    23
    
    
    
    52Income taxes paid
    
    
    325
    
    
    
    1,395Non-cash activities:Real estate acquired through foreclosure
    
    
    2,103
    
    
    
    990
  6




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##### Table of Contents



LEGACY BANCORP AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
 1. Basis of presentation
  2. Recent Accounting Pronouncements
   Fair
Value Measurements and Disclosures
 Receivables (Topic 310), Disclosures about the
Credit Quality of Financing Receivables and the Allowance for Credit Losses.
 Scope Exception Related to Embedded Credit Derivatives
 Effect of a Loan Modification When the Loan is Part of
a Pool that is Accounted for as a Single Asset (Topic 310)
 7




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##### Table of Contents



3. Earnings Per Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss applicable to common stock (000s)
    
    $
    (779
    )
    
    $
    (1,698
    )
    
    $
    (3,399
    )
    
    $
    (3,984
    )Average number of shares issued
    
    
    10,308,600
    
    
    
    10,308,600
    
    
    
    10,308,600
    
    
    
    10,308,600Less: average unallocated ESOP shares
    
    
    (522,303
    )
    
    
    (577,133
    )
    
    
    (535,847
    )
    
    
    (590,775
    )Less: average treasury shares
    
    
    (1,631,162
    )
    
    
    (1,553,799
    )
    
    
    (1,603,779
    )
    
    
    (1,538,043
    )Less: average unvested restricted stock awards
    
    
    (158,890
    )
    
    
    (198,740
    )
    
    
    (153,908
    )
    
    
    (198,740
    )Average number of basic shares outstanding
    
    
    7,996,245
    
    
    
    7,978,928
    
    
    
    8,015,066
    
    
    
    7,981,042Plus: dilutive unvested restricted stock awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plus: diluted stock option shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average number of diluted shares outstanding
    
    
    7,996,245
    
    
    
    7,978,928
    
    
    
    8,015,066
    
    
    
    7,981,042Basic earnings (loss) per share
    
    $
    (0.10
    )
    
    $
    (0.21
    )
    
    $
    (0.42
    )
    
    $
    (0.50
    )Diluted earnings (loss) per share
    
    $
    (0.10
    )
    
    $
    (0.21
    )
    
    $
    (0.42
    )
    
    $
    (0.50
    )
 4. Comprehensive Income (Loss)
   Nine Months Ended September 30,2010
    
    
    2009(Dollars in thousands)SecuritiesNet unrealized holding gains on available for sale (AFS) securities
    
    $
    1,954
    
    
    $
    5,773Reclassification adjustment for gains on sales of AFS securities
    
    
    (1,573
    )
    
    
    (241
    )Reclassification adjustment for OTTI losses on AFS securities
    
    
    42
    
    
    
    1,474423
    
    
    
    7,006Tax effect
    
    
    (142
    )
    
    
    (2,705
    )Net-of-tax amount
    
    $
    281
    
    
    $
    4,301
 8




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##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands)SecuritiesNet unrealized holding gains
on available for sale securities
    
    $
    2,159
    
    
    $
    1,736Tax effects
    
    
    (806
    )
    
    
    (664
    )Net-of-tax amount
    
    
    1,353
    
    
    
    1,072Directors Fee PlanUnrecognized net actuarial loss and prior service costs
    
    
    (611
    )
    
    
    (611
    )Tax effect
    
    
    250
    
    
    
    250Net-of-tax amount
    
    
    (361
    )
    
    
    (361
    )$
    992
    
    
    $
    711
 5. Dividends
  6. Commitments and Other Contingencies
   7. Wealth Management Company Acquisition
   8. Securities
  9




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##### Table of Contents



September 30, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities Available for SaleDebt securities:Government-sponsored enterprises (GSE)
    
    $
    138,772
    
    
    $
    753
    
    
    $
    (16
    )
    
    $
    139,509Municipal
    
    
    3,597
    
    
    
    181
    
    
    
    
    
    
    
    3,778Corporate and other
    
    
    1,311
    
    
    
    28
    
    
    
    
    
    
    
    1,339GSE residential mortgage-backed
    
    
    12,410
    
    
    
    590
    
    
    
    (3
    )
    
    
    12,997U.S. Government guaranteed residential mortgage-backed
    
    
    40,207
    
    
    
    723
    
    
    
    (71
    )
    
    
    40,859Total debt securities
    
    
    196,297
    
    
    
    2,275
    
    
    
    (90
    )
    
    
    198,482Marketable equity securities
    
    
    1,112
    
    
    
    69
    
    
    
    (94
    )
    
    
    1,087Total securities available for sale
    
    $
    197,409
    
    
    $
    2,344
    
    
    $
    (184
    )
    
    $
    199,569Securities Held to MaturityOther bonds and obligations
    
    $
    97
    
    
    $
    
    
    
    $
    
    
    
    $
    97
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities 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
  Available for Sale
    
    
    Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(Dollars in thousands)Within 1 year
    
    $
    7,254
    
    
    $
    7,277
    
    
    $
    
    
    
    $
    Over 1 year to 5 years
    
    
    111,506
    
    
    
    112,133
    
    
    
    82
    
    
    
    82Over 5 years to 10 years
    
    
    18,934
    
    
    
    19,092
    
    
    
    
    
    
    
    Over 10 years
    
    
    5,986
    
    
    
    6,124
    
    
    
    15
    
    
    
    15Total bonds and obligations
    
    
    143,680
    
    
    
    144,626
    
    
    
    97
    
    
    
    97Mortgage-backed
    
    
    52,617
    
    
    
    53,856
    
    
    
    
    
    
    
    Total debt securities
    
    $
    196,297
    
    
    $
    198,482
    
    
    $
    97
    
    
    $
    97
 10




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##### Table of Contents



Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    Value(Dollars in thousands)September 30, 2010:Debt securities:Government-sponsored enterprises (GSE)
    
    $
    16
    
    
    $
    12,877
    
    
    $
    
    
    
    $
    Municipal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GSE residential mortgage-backed
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    290U.S. Government guaranteed residential
mortgage-backed
    
    
    71
    
    
    
    7,560
    
    
    
    
    
    
    
    Total debt securities
    
    
    87
    
    
    
    20,437
    
    
    
    3
    
    
    
    290Marketable equity securities
    
    
    94
    
    
    
    571
    
    
    
    
    
    
    
    Total temporarily impaired securities
    
    $
    181
    
    
    $
    21,008
    
    
    $
    3
    
    
    $
    290
 (Dollars in thousands)December 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
  Gross# of
    
    
    Amortized
    
    
    Unrealized
    
    
    % ofSecurities
    
    
    Cost
    
    
    Loss
    
    
    Depreciation(Dollars in thousands)Government-sponsored enterprises (GSE)
    
    
    14
    
    
    $
    12,893
    
    
    $
    16
    
    
    
    0.1
    %GSE residential mortgage-backed
    
    
    1
    
    
    
    294
    
    
    
    3
    
    
    
    1.0
    %U.S. Government guaranteed residential mortgage-backed
    
    
    11
    
    
    
    7,630
    
    
    
    71
    
    
    
    0.9
    %
   11




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##### Table of Contents



9. Fair Values of Assets and Liabilities
      Cash and cash equivalents
 Interest-bearing deposits in banks
 Securities available for sale
 Federal Home Loan Bank stock
 Restricted equity securities and other investments
 Loans receivable
 12




---



##### Table of Contents



Deposit liabilities
 Short-term borrowings
 Long-term borrowings
 Accrued interest
  September 30, 2010Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(Dollars in thousands)AssetsDebt Securities:Government-sponsored enterprises (GSE)
    
    $
    
    
    
    $
    139,509
    
    
    $
    
    
    
    $
    139,509Municipal bonds
    
    
    
    
    
    
    3,778
    
    
    
    
    
    
    
    3,778Corporate bonds and other obligations
    
    
    
    
    
    
    1,339
    
    
    
    
    
    
    
    1,339GSE residential mortgage-backed
    
    
    
    
    
    
    12,997
    
    
    
    
    
    
    
    12,997U.S. Government guaranteed residential
mortgage-backed
    
    
    
    
    
    
    40,859
    
    
    
    
    
    
    
    40,859Marketable equity securities
    
    
    1,087
    
    
    
    
    
    
    
    
    
    
    
    1,087Securities available for sale
    
    
    1,087
    
    
    
    198,482
    
    
    
    
    
    
    
    199,569Total assets
    
    $
    1,087
    
    
    $
    198,482
    
    
    $
    
    
    
    $
    199,569
 December 31, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(Dollars in thousands)AssetsDebt Securities:Government-sponsored enterprises (GSE)
    
    $
    
    
    
    $
    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
mortgage-backed
    
    
    
    
    
    
    33,636
    
    
    
    
    
    
    
    33,636Marketable equity securities
    
    
    4,085
    
    
    
    
    
    
    
    
    
    
    
    4,085Securities available for sale
    
    
    4,085
    
    
    
    163,341
    
    
    
    
    
    
    
    167,426Total assets
    
    $
    4,085
    
    
    $
    163,341
    
    
    $
    
    
    
    $
    167,426
   13




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##### Table of Contents



Nine MonthsQuarter Ended
    
    
    EndedSeptember 30, 2010
    
    
    September 30, 2010
    
    
    September 30, 2010Total
    
    
    TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Gains/(Losses)
    
    
    Gains/(Losses)(Dollars in thousands)AssetsImpaired loans
    
    $
    
    
    
    $
    
    
    
    $
    17,229
    
    
    $
    (1,241
    )
    
    $
    (6,646
    )Other investments
    
    
    
    
    
    
    
    
    
    
    6,954
    
    
    
    (13
    )
    
    
    (336
    )Foreclosed assets
    
    
    
    
    
    
    
    
    
    
    2,103
    
    
    
    (68
    )
    
    
    (332
    )Total assets
    
    $
    
    
    
    $
    
    
    
    $
    26,286
    
    
    $
    (1,322
    )
    
    $
    (7,314
    )
 Nine MonthsQuarter Ended
    
    
    EndedSeptember 30, 2009
    
    
    September 30, 2009
    
    
    September 30, 2009Total
    
    
    TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Gains/(Losses)
    
    
    Gains/(Losses)(Dollars in thousands)AssetsImpaired loans
    
    $
    
    
    
    $
    8,744
    
    
    $
    
    
    
    $
    (20
    )
    
    $
    (1,943
    )Other investments
    
    
    
    
    
    
    
    
    
    
    4,761
    
    
    
    (1,736
    )
    
    
    (3,267
    )Total assets
    
    $
    
    
    
    $
    8,744
    
    
    $
    4,761
    
    
    $
    (1,756
    )
    
    $
    (5,210
    )
    Summary of Fair Values of Financial Instruments
  14




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(Dollars in thousands)Financial assets:Cash and cash equivalents
    
    $
    32,523
    
    
    $
    32,523
    
    
    $
    40,155
    
    
    $
    40,155Securities  Available for sale
    
    
    199,569
    
    
    
    199,569
    
    
    
    167,426
    
    
    
    167,426Securities  Held to maturity
    
    
    97
    
    
    
    97
    
    
    
    97
    
    
    
    97Federal Home Loan Bank of
Boston stock
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932Savings Bank Life Insurance
stock
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709Other investments
    
    
    6,954
    
    
    
    6,954
    
    
    
    4,552
    
    
    
    4,552Loans and loans held for sale
    
    
    646,304
    
    
    
    667,243
    
    
    
    653,334
    
    
    
    656,978Accrued interest receivable
    
    
    2,942
    
    
    
    2,942
    
    
    
    3,306
    
    
    
    3,306Financial liabilities:Deposits
    
    
    694,998
    
    
    
    703,332
    
    
    
    651,378
    
    
    
    656,038Repurchase agreements
    
    
    4,169
    
    
    
    4,169
    
    
    
    6,386
    
    
    
    6,386FHLB advances
    
    
    145,092
    
    
    
    156,752
    
    
    
    160,352
    
    
    
    167,331Mortgagors escrow accounts
    
    
    1,098
    
    
    
    1,098
    
    
    
    1,058
    
    
    
    1,058
 10. Termination of ESOP Plan
  
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  15




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##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses: Allowance for
Loan Losses
 Income Taxes:
  Other-Than-Temporary Impairment (OTTI):
 Fair Values of Assets and Liabilities: Fair Values of Assets and Liabilities
 Goodwill:
  16




---



##### Table of Contents



Comparison of Financial Condition at September 30, 2010 and December 31, 2009
 Overview:
 Investment Activities
 17




---



##### Table of Contents



At September 30, 2010
    
    
    At December 31, 2009Amortized
    
    
    
    
    
    
    AmortizedCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair Value(Dollars in thousands)Securities available for sale:Government-sponsored enterprises (GSE)
    
    $
    138,772
    
    
    $
    139,509
    
    
    $
    80,393
    
    
    $
    79,976Municipal bonds
    
    
    3,597
    
    
    
    3,778
    
    
    
    17,521
    
    
    
    17,875Corporate bonds and other obligations
    
    
    1,311
    
    
    
    1,339
    
    
    
    1,321
    
    
    
    1,351GSE residential mortgage-backed
    
    
    12,410
    
    
    
    12,997
    
    
    
    29,591
    
    
    
    30,503U.S. Government guaranteed residential mortgage-backed
    
    
    40,207
    
    
    
    40,859
    
    
    
    33,625
    
    
    
    33,636Total debt securities
    
    
    196,297
    
    
    
    198,482
    
    
    
    162,451
    
    
    
    163,341Marketable equity securities
    
    
    1,112
    
    
    
    1,087
    
    
    
    3,239
    
    
    
    4,085Total securities available for sale
    
    
    197,409
    
    
    
    199,569
    
    
    
    165,690
    
    
    
    167,426Securities held to maturity:Other bonds and obligations
    
    
    97
    
    
    
    97
    
    
    
    97
    
    
    
    97Restricted equity securities and other investments:Federal Home Loan Bank of Boston stock
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932
    
    
    
    10,932Savings Bank Life Insurance
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709Real estate partnerships
    
    
    6,801
    
    
    
    6,801
    
    
    
    4,397
    
    
    
    4,397Other investments
    
    
    153
    
    
    
    153
    
    
    
    155
    
    
    
    155Total restricted equity securities
and other investments
    
    
    19,595
    
    
    
    19,595
    
    
    
    17,193
    
    
    
    17,193Total securities
    
    $
    217,101
    
    
    $
    219,261
    
    
    $
    182,980
    
    
    $
    184,716
 Lending Activities:
 At September 30, 2010
    
    
    At December 31, 2009Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Mortgage loans on real estate:Residential
    
    $
    280,464
    
    
    
    43.02
    %
    
    $
    285,618
    
    
    
    43.12
    %Commercial
    
    
    257,391
    
    
    
    39.49
    
    
    
    263,896
    
    
    
    39.85Home equity
    
    
    72,302
    
    
    
    11.09
    
    
    
    69,625
    
    
    
    10.51610,157
    
    
    
    93.60
    
    
    
    619,139
    
    
    
    93.48Other loans:Commercial
    
    
    30,867
    
    
    
    4.73
    
    
    
    31,373
    
    
    
    4.74Consumer and other
    
    
    10,885
    
    
    
    1.67
    
    
    
    11,791
    
    
    
    1.7841,752
    
    
    
    6.40
    
    
    
    43,164
    
    
    
    6.52Total loans
    
    
    651,909
    
    
    
    100.00
    %
    
    
    662,303
    
    
    
    100.00
    %Other Items:Net deferred loan costs
    
    
    1,300
    
    
    
    
    
    
    
    1,414Allowance for loan losses
    
    
    (9,375
    )
    
    
    
    
    
    
    (11,089
    )Total Loans, net
    
    $
    643,834
    
    
    
    
    
    
    $
    652,628
  18




---



##### Table of Contents



Non-performing Assets:
 At September 30,
    
    
    At December 31,2010
    
    
    2009(Dollars in thousands)Non-accrual loans:Residential mortgage
    
    $
    2,717
    
    
    $
    4,822Commercial mortgage
    
    
    11,585
    
    
    
    13,942Commercial
    
    
    647
    
    
    
    743Home equity, consumer and other
    
    
    69
    
    
    
    71Total non-accrual loans
    
    
    15,018
    
    
    
    19,578Loans 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
    
    
    15,018
    
    
    
    19,578Other real estate owned
    
    
    2,103
    
    
    
    1,195Total non-performing assets (NPAs)
    
    $
    17,121
    
    
    $
    20,773Troubled debt restructurings included in NPAs
    
    $
    2,559
    
    
    $
    5,904Troubled debt restructurings not included in NPAs
    
    
    4,890
    
    
    
    4,886Total troubled debt restructurings
    
    $
    7,449
    
    
    $
    10,790Ratios:Non-performing loans to total loans
    
    
    2.30
    %
    
    
    2.96
    %Non-performing assets to total assets
    
    
    1.76
    %
    
    
    2.20
    %
  Allowance for Loan Losses :
  19




---



##### Table of Contents



At or for the three
    
    
    At or for the nine monthsmonths ended September 30,
    
    
    ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands)Balance at beginning of period
    
    $
    9,468
    
    
    $
    8,813
    
    
    $
    11,089
    
    
    $
    6,642Charge-offs:Mortgage loans on residential real estate:
    
    
    (236
    )
    
    
    (20
    )
    
    
    (271
    )
    
    
    (20
    )Mortgage loans on commercial real estate:
    
    
    (1,876
    )
    
    
    (2
    )
    
    
    (9,225
    )
    
    
    (2
    )Other loans:Commercial
    
    
    (166
    )
    
    
    (45
    )
    
    
    (564
    )
    
    
    (59
    )Consumer and other
    
    
    (36
    )
    
    
    (45
    )
    
    
    (79
    )
    
    
    (170
    )Total other loans
    
    
    (202
    )
    
    
    (90
    )
    
    
    (643
    )
    
    
    (229
    )Total charge-offs
    
    
    (2,314
    )
    
    
    (112
    )
    
    
    (10,139
    )
    
    
    (251
    )Recoveries:Mortgage loans on residential real estate:
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    Mortgage loans on commercial real estate:
    
    
    17
    
    
    
    
    
    
    
    17
    
    
    
    1Other loans:Commercial
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    42Consumer and other
    
    
    8
    
    
    
    22
    
    
    
    36
    
    
    
    68Total other loans
    
    
    8
    
    
    
    34
    
    
    
    36
    
    
    
    110Total recoveries
    
    
    47
    
    
    
    34
    
    
    
    75
    
    
    
    111Net recoveries (charge-offs)
    
    
    (2,267
    )
    
    
    (78
    )
    
    
    (10,064
    )
    
    
    (140
    )Provision for loan losses
    
    
    2,174
    
    
    
    101
    
    
    
    8,350
    
    
    
    2,334Balance at end of period
    
    $
    9,375
    
    
    $
    8,836
    
    
    $
    9,375
    
    
    $
    8,836Ratios:Net recoveries (charge-offs) to average loans outstanding  12 month
rolling average
    
    
    
    
    
    
    
    
    
    
    (1.58
    %)
    
    
    (0.03
    %)Allowance for loan losses to non-performing loans at end of period
    
    
    
    
    
    
    
    
    
    
    62.43
    %
    
    
    55.98
    %Allowance for loan losses to total loans at end of period
    
    
    
    
    
    
    
    
    
    
    1.44
    %
    
    
    1.33
    %
 20




---



##### Table of Contents



Mortgage Servicing Rights
 Deposits
 At September 30, 2010
    
    
    At December 31, 2009Balance
    
    
    Percent
    
    
    Balance
    
    
    Percent(Dollars in thousands)Deposit type:Demand
    
    $
    80,510
    
    
    
    11.58
    %
    
    $
    75,232
    
    
    
    11.55
    %Regular savings
    
    
    54,196
    
    
    
    7.80
    
    
    
    49,883
    
    
    
    7.66Relationship savings
    
    
    141,956
    
    
    
    20.43
    
    
    
    125,328
    
    
    
    19.24Money market deposits
    
    
    71,189
    
    
    
    10.24
    
    
    
    63,077
    
    
    
    9.68NOW deposits
    
    
    51,999
    
    
    
    7.48
    
    
    
    48,546
    
    
    
    7.45Total transaction accounts
    
    
    399,850
    
    
    
    57.53
    
    
    
    362,066
    
    
    
    55.58Term certificates less than $100,000
    
    
    165,823
    
    
    
    23.86
    
    
    
    174,284
    
    
    
    26.76Term certificates $100,000 or more
    
    
    129,325
    
    
    
    18.61
    
    
    
    115,028
    
    
    
    17.66Total certificate accounts
    
    
    295,148
    
    
    
    42.47
    
    
    
    289,312
    
    
    
    44.42Total deposits
    
    $
    694,998
    
    
    
    100.00
    %
    
    $
    651,378
    
    
    
    100.00
    %
  Borrowings:
 Stockholders Equity:
 Comparison of Operating Results for the Three Months Ended September 30, 2010 and 2009
  Analysis of Net Interest Income
   21




---



##### Table of Contents



Three Months Ended September 30, 2010
    
    
    Three Months Ended September 30, 2009Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    Interest
    
    
    Yield/ Rate(1)
    
    
    Balance
    
    
    Interest
    
    
    Yield/ Rate(1)(Dollars in thousands)Interest-earning assets:Loans  net (2)
    
    $
    646,355
    
    
    $
    9,005
    
    
    
    5.57
    %
    
    $
    665,033
    
    
    $
    9,642
    
    
    
    5.80
    %Investment securities
    
    
    214,961
    
    
    
    1,189
    
    
    
    2.21
    %
    
    
    187,881
    
    
    
    1,719
    
    
    
    3.66
    %Short-term investments
    
    
    10,543
    
    
    
    4
    
    
    
    0.15
    %
    
    
    19,020
    
    
    
    3
    
    
    
    0.06
    %Total interest-earning assets
    
    
    871,859
    
    
    
    10,198
    
    
    
    4.68
    %
    
    
    871,934
    
    
    
    11,364
    
    
    
    5.21
    %Non-interest-earning assets
    
    
    80,325
    
    
    
    
    
    
    
    
    
    
    
    72,929Total assets
    
    $
    952,184
    
    
    
    
    
    
    
    
    
    
    $
    944,863Interest-bearing liabilities:Savings deposits
    
    $
    53,412
    
    
    
    30
    
    
    
    0.22
    %
    
    $
    50,311
    
    
    
    40
    
    
    
    0.32
    %Relationship savings
    
    
    142,016
    
    
    
    271
    
    
    
    0.76
    %
    
    
    123,762
    
    
    
    383
    
    
    
    1.24
    %Money market
    
    
    66,227
    
    
    
    100
    
    
    
    0.60
    %
    
    
    68,342
    
    
    
    160
    
    
    
    0.94
    %NOW accounts
    
    
    46,265
    
    
    
    33
    
    
    
    0.29
    %
    
    
    43,944
    
    
    
    40
    
    
    
    0.36
    %Certificates of deposit
    
    
    292,611
    
    
    
    1,759
    
    
    
    2.40
    %
    
    
    279,790
    
    
    
    2,033
    
    
    
    2.91
    %Total interest-bearing deposits
    
    
    600,531
    
    
    
    2,193
    
    
    
    1.46
    %
    
    
    566,149
    
    
    
    2,656
    
    
    
    1.88
    %Borrowed funds
    
    
    151,510
    
    
    
    1,403
    
    
    
    3.70
    %
    
    
    177,321
    
    
    
    1,764
    
    
    
    3.98
    %Total interest-bearing liabilities
    
    
    752,041
    
    
    
    3,596
    
    
    
    1.91
    %
    
    
    743,470
    
    
    
    4,420
    
    
    
    2.38
    %Non-interest-bearing liabilities
    
    
    78,719
    
    
    
    
    
    
    
    
    
    
    
    75,263Total liabilities
    
    
    830,760
    
    
    
    
    
    
    
    
    
    
    
    818,733Equity
    
    
    121,424
    
    
    
    
    
    
    
    
    
    
    
    126,130Total liabilities and equity
    
    $
    952,184
    
    
    
    
    
    
    
    
    
    
    $
    944,863Net interest income
    
    
    
    
    
    $
    6,602
    
    
    
    
    
    
    
    
    
    
    $
    6,944Net interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.77
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %Net interest-earning assets (4)
    
    $
    119,818
    
    
    
    
    
    
    
    
    
    
    $
    128,464Net interest margin (5)
    
    
    
    
    
    
    
    
    
    
    3.03
    %
    
    
    
    
    
    
    
    
    
    
    3.19
    %Average interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    115.93
    %
    
    
    
    
    
    
    
    
    
    
    117.28
    %
 
 (1)
    
    Yields and rates for the three months ended September 30, 2010 and 2009 are annualized.(2)
    
    Includes loans held for sale and non-accrual loans.(3)
    
    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 for the three months ended September 30, 2010 and 2009.(4)
    
    Net interest-earning assets represents total interest-earning assets less total
interest-bearing liabilities.(5)
    
    Net interest margin represents net interest income divided by average total interest-earning
assets.  22




---



##### Table of Contents



Three Months Ended September 30,2010 vs. 2009Increase
    
    
    Total(Decrease) Due to
    
    
    IncreaseVolume
    
    
    Rate
    
    
    (Decrease)(Dollars in thousands)Interest-earning assets:Loans  net
    
    $
    (264
    )
    
    $
    (373
    )
    
    $
    (637
    )Investment securities
    
    
    304
    
    
    
    (834
    )
    
    
    (530
    )Short-term investments
    
    
    
    
    
    
    1
    
    
    
    1Total interest-earning assets
    
    
    40
    
    
    
    (1,206
    )
    
    
    (1,166
    )Interest-bearing liabilities:Savings deposits
    
    
    2
    
    
    
    (12
    )
    
    
    (10
    )Relationship savings
    
    
    69
    
    
    
    (181
    )
    
    
    (112
    )Money market
    
    
    (5
    )
    
    
    (55
    )
    
    
    (60
    )NOW accounts
    
    
    2
    
    
    
    (9
    )
    
    
    (7
    )Certificates of deposit
    
    
    97
    
    
    
    (371
    )
    
    
    (274
    )Total deposits
    
    
    165
    
    
    
    (628
    )
    
    
    (463
    )Borrowed funds
    
    
    (244
    )
    
    
    (117
    )
    
    
    (361
    )Total interest-bearing liabilities
    
    
    (79
    )
    
    
    (745
    )
    
    
    (824
    )Change in net interest income
    
    $
    119
    
    
    $
    (461
    )
    
    $
    (342
    )
 Net interest income
 Interest income
 Interest expense
 Provision
for loan losses
 Non-interest income
 23




---



##### Table of Contents



Non-interest expense
 Income tax benefit
 Comparison of Operating Results for the Nine Months Ended September 30, 2010 and 2009
  Analysis of Net Interest Income
   24




---



##### Table of Contents



Nine Months Ended September 30, 2010
    
    
    Nine Months Ended September 30, 2009Average
    
    
    
    
    
    
    
    
    
    
    Average OutstandingOutstanding Balance
    
    
    Interest
    
    
    Yield/ Rate(1)
    
    
    Balance
    
    
    Interest
    
    
    Yield/ Rate(1)(Dollars in thousands)Interest-earning assets:Loans  net (2)
    
    $
    645,188
    
    
    $
    27,328
    
    
    
    5.65
    %
    
    $
    681,577
    
    
    $
    29,478
    
    
    
    5.77
    %Investment securities
    
    
    203,984
    
    
    
    3,943
    
    
    
    2.58
    %
    
    
    176,507
    
    
    
    5,399
    
    
    
    4.08
    %Short-term investments
    
    
    14,136
    
    
    
    17
    
    
    
    0.16
    %
    
    
    19,865
    
    
    
    10
    
    
    
    0.07
    %Total interest-earning assets
    
    
    863,308
    
    
    
    31,288
    
    
    
    4.83
    %
    
    
    877,949
    
    
    
    34,887
    
    
    
    5.30
    %Non-interest-earning assets
    
    
    79,098
    
    
    
    
    
    
    
    
    
    
    
    73,324Total assets
    
    $
    942,406
    
    
    
    
    
    
    
    
    
    
    $
    951,273Interest-bearing liabilities:Savings deposits
    
    $
    51,873
    
    
    
    98
    
    
    
    0.25
    %
    
    $
    50,741
    
    
    
    133
    
    
    
    0.35
    %Relationship savings
    
    
    136,512
    
    
    
    894
    
    
    
    0.87
    %
    
    
    122,703
    
    
    
    1,240
    
    
    
    1.35
    %Money market
    
    
    66,283
    
    
    
    346
    
    
    
    0.70
    %
    
    
    66,205
    
    
    
    545
    
    
    
    1.10
    %NOW accounts
    
    
    45,099
    
    
    
    98
    
    
    
    0.29
    %
    
    
    43,335
    
    
    
    134
    
    
    
    0.41
    %Certificates of deposit
    
    
    289,925
    
    
    
    5,474
    
    
    
    2.52
    %
    
    
    280,384
    
    
    
    6,408
    
    
    
    3.05
    %Total interest-bearing
deposits
    
    
    589,692
    
    
    
    6,910
    
    
    
    1.56
    %
    
    
    563,368
    
    
    
    8,460
    
    
    
    2.00
    %Borrowed funds
    
    
    155,665
    
    
    
    4,272
    
    
    
    3.66
    %
    
    
    188,650
    
    
    
    5,613
    
    
    
    3.97
    %Total interest-bearing
liabilities
    
    
    745,357
    
    
    
    11,182
    
    
    
    2.00
    %
    
    
    752,018
    
    
    
    14,073
    
    
    
    2.50
    %Non-interest-bearing
liabilities
    
    
    74,497
    
    
    
    
    
    
    
    
    
    
    
    73,344Total liabilities
    
    
    819,854
    
    
    
    
    
    
    
    
    
    
    
    825,362Equity
    
    
    122,552
    
    
    
    
    
    
    
    
    
    
    
    125,911Total liabilities and equity
    
    $
    942,406
    
    
    
    
    
    
    
    
    
    
    $
    951,273Net interest income
    
    
    
    
    
    $
    20,106
    
    
    
    
    
    
    
    
    
    
    $
    20,814Net interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    2.80
    %Net interest-earning assets (4)
    
    $
    117,951
    
    
    
    
    
    
    
    
    
    
    $
    125,931Net interest margin (5)
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.16
    %Average interest-earning
assets to interest-bearing
liabilities
    
    
    
    
    
    
    
    
    
    
    115.82
    %
    
    
    
    
    
    
    
    
    
    
    116.75
    %
 
 (1)
    
    Yields and rates for the nine months ended September 30, 2010 and 2009 are annualized.(2)
    
    Includes loans held for sale and non-accrual loans.(3)
    
    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 for the nine months ended September 30, 2010 and 2009.(4)
    
    Net interest-earning assets represents total interest-earning assets less total
interest-bearing liabilities.(5)
    
    Net interest margin represents net interest income divided by average total interest-earning
assets.  25




---



##### Table of Contents



Nine Months Ended September 30,2010 vs. 2009Increase
    
    
    Total(Decrease) Due to
    
    
    IncreaseVolume
    
    
    Rate
    
    
    (Decrease)(Dollars in thousands)Interest-earning assets:Loans  net
    
    $
    (1,548
    )
    
    $
    (602
    )
    
    $
    (2,150
    )Investment securities
    
    
    1,069
    
    
    
    (2,525
    )
    
    
    (1,456
    )Short-term investments
    
    
    (2
    )
    
    
    9
    
    
    
    7Total interest-earning assets
    
    
    (481
    )
    
    
    (3,118
    )
    
    
    (3,599
    )Interest-bearing liabilities:Savings deposits
    
    
    3
    
    
    
    (38
    )
    
    
    (35
    )Relationship savings
    
    
    160
    
    
    
    (506
    )
    
    
    (346
    )Money market
    
    
    1
    
    
    
    (200
    )
    
    
    (199
    )NOW accounts
    
    
    5
    
    
    
    (41
    )
    
    
    (36
    )Certificates of deposit
    
    
    227
    
    
    
    (1,161
    )
    
    
    (934
    )Total deposits
    
    
    396
    
    
    
    (1,946
    )
    
    
    (1,550
    )Borrowed funds
    
    
    (927
    )
    
    
    (414
    )
    
    
    (1,341
    )Total interest-bearing liabilities
    
    
    (531
    )
    
    
    (2,360
    )
    
    
    (2,891
    )Change in net interest income
    
    $
    50
    
    
    $
    (758
    )
    
    $
    (708
    )
 Net interest income
 Interest income
 Interest expense
 Provision
for loan losses
 Non-interest income
 26




---



##### Table of Contents



Non-interest expense
 Income tax benefit
 Minimum Regulatory Capital Requirements:
 Minimum To Be WellMinimum
    
    
    Capitalized UnderCapital
    
    
    Prompt CorrectiveActual
    
    
    Requirement
    
    
    Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)September 30, 2010:Total capital to risk weighted assets
    
    $
    71,780
    
    
    
    11.1
    %
    
    $
    51,632
    
    
    
    8.0
    %
    
    $
    64,540
    
    
    
    10.0
    %Tier 1 capital to risk weighted assets:
    
    
    63,693
    
    
    
    9.9
    
    
    
    25,816
    
    
    
    4.0
    
    
    
    38,724
    
    
    
    6.0Tier 1 capital to average assets:
    
    
    63,693
    
    
    
    7.0
    
    
    
    36,310
    
    
    
    4.0
    
    
    
    45,387
    
    
    
    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
 Contractual Obligations
 September 30, 2010More than
    
    
    Three YearsOne Year
    
    
    through FiveTotal
    
    
    One Year or Less
    
    
    through Three Years
    
    
    Years
    
    
    Over Five Years(Dollars in thousands)Federal Home Loan Bank of Boston advances
    
    $
    145,092
    
    
    $
    10,000
    
    
    $
    47,000
    
    
    $
    49,900
    
    
    $
    38,192Securities sold under agreements to repurchase
    
    
    4,169
    
    
    
    4,169
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    149,261
    
    
    $
    14,169
    
    
    $
    47,000
    
    
    $
    49,900
    
    
    $
    38,192
 Off-Balance Sheet Arrangements:
 27




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##### Table of Contents



September 30, 2010More than ThreeMore than One Year
    
    
    Years Through FiveTotal
    
    
    One Year or Less
    
    
    through Three Years
    
    
    Years
    
    
    Over Five years(Dollars in thousands)Commitments to grant loans (1)
    
    $
    23,419
    
    
    $
    23,419
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial loan lines-of-credit
    
    
    15,423
    
    
    
    15,423
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of home equity loans (2)
    
    
    77,707
    
    
    
    2,225
    
    
    
    10,562
    
    
    
    13,874
    
    
    
    51,046Unused portion of construction loans (3)
    
    
    2,147
    
    
    
    2,147
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of overdraft lines-of-credit(4)
    
    
    4,612
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,612Unused portion of personal lines-of-credit(5)
    
    
    747
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    747Standby letters of credit(6)
    
    
    3,248
    
    
    
    3,248
    
    
    
    
    
    
    
    
    
    
    
    Other commitments and contingencies(7)
    
    
    4,728
    
    
    
    
    
    
    
    4,728
    
    
    
    
    
    
    
    Total loan and other commitments
    
    $
    132,031
    
    
    $
    46,462
    
    
    $
    15,290
    
    
    $
    13,874
    
    
    $
    56,405
 
 (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. 
 Item 3: Quantitative and Qualitative Disclosures about Market Risks
  
 Item 4: Controls and Procedures
   28




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Financial reform legislation recently enacted by Congress will, among other things, eliminate the
Office of Thrift Supervision, tighten capital standards, create a new Consumer Financial Protection
Bureau and result in new laws and regulations that are expected to increase our costs of
operations.
       
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Unregistered Sales of Equity Securities  Not applicable(b)
    
    Use of Proceeds  Not applicable(c)
    
    Repurchase of Our Equity Securities  In March 2009 the Company announced that its
Board of Directors authorized a stock repurchase program (the Stock Repurchase Program)
for the purchase of up to 439,095 shares of the Companys common stock
 29




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##### Table of Contents



or approximately 5% of its outstanding common stock. Purchases under this Stock Repurchase
Program in the third quarter of 2010 were as follows:
 (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
    
    
    ProgramsJuly 1  31
    
    
    9,700
    
    
    $
    8.46
    
    
    
    9,700
    
    
    
    319,145August 1  31
    
    
    30,400
    
    
    $
    8.05
    
    
    
    30,400
    
    
    
    288,745September 1  30
    
    
    7,900
    
    
    $
    8.00
    
    
    
    7,900
    
    
    
    280,845
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
 
 Item 5 Other Information
  30




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##### Table of Contents



Item 6 Exhibits
 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, 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. Sullivan10.11
    
    2006 Equity Incentive Plan (3)11.0
    
    Statement re: Computation of Per Share Earnings is incorporated herein by reference to Notes to
Consolidated Financial Statementswithin Part I, Financial Statements31.1
    
    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 Registrants Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 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. 31




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##### Table of Contents



SIGNATURES
  LEGACY BANCORP, INC.Date: November 5, 2010
    /s/ J. Williar DunlaevyJ. Williar DunlaevyChief Executive Officer and Chairman of the BoardDate: November 5, 2010
    /s/ Paul H. BrucePaul H. BruceSenior Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 32