##### 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, 2008
 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
  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
 8,781,912




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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, 2008
and December 31, 2007
    
    
    2Consolidated Statements of Income for the three and nine months
Ended September 30, 2008 and 2007
    
    
    3Consolidated Statements of Changes in Stockholders Equity
for the nine months ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows for the nine
months ended September 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    9Item 3 Quantitative and Qualitative Disclosures about Market Risks
    
    
    21Item 4 Controls and Procedures
    
    
    21Part II  Other InformationItem 1 Legal Proceedings
    
    
    22Item 1A Risk Factors
    
    
    22Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3 Defaults Upon Senior Securities
    
    
    22Item 4 Submission of Matters to a Vote of Security Holders
    
    
    22Item 5 Other Information
    
    
    22Item 6 Exhibits
    
    
    23EX-31.1 Certification pursuant to Rule 13a-14(a)/15d-14(a) of J. Williar DunlaevyEX-31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a) of Paul H. BruceEX-32 Certification pursuant to 18 U.S.C. Section 1350
  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)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)ASSETSCash and due from banks
    
    $
    10,533
    
    
    $
    13,931Short-term investments
    
    
    5,588
    
    
    
    48,294Cash and cash equivalents
    
    
    16,121
    
    
    
    62,225Securities and other investments
    
    
    159,621
    
    
    
    152,054Loans held for sale
    
    
    
    
    
    
    395Loans, net of allowance for loan losses of $5,829
in 2008 and $5,568 in 2007
    
    
    688,152
    
    
    
    653,629Premises and equipment, net
    
    
    19,157
    
    
    
    18,866Accrued interest receivable
    
    
    3,426
    
    
    
    3,404Goodwill, net
    
    
    9,687
    
    
    
    9,687Net deferred tax asset
    
    
    7,726
    
    
    
    5,580Bank-owned life insurance
    
    
    15,306
    
    
    
    14,788Other assets
    
    
    4,301
    
    
    
    3,913$
    923,497
    
    
    $
    924,541LIABILITIES AND STOCKHOLDERS EQUITYDeposits
    
    $
    593,456
    
    
    $
    610,447Securities sold under agreements to repurchase
    
    
    4,847
    
    
    
    4,055Federal Home Loan Bank advances
    
    
    191,437
    
    
    
    167,382Mortgagors escrow accounts
    
    
    1,222
    
    
    
    1,034Accrued expenses and other liabilities
    
    
    6,912
    
    
    
    8,531Total liabilities
    
    
    797,874
    
    
    
    791,449Commitments 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,
2008 and
December 31, 2007; 8,812,260 outstanding at
September 30,
2008, and 9,240,960 outstanding at December 31, 2007)
    
    
    103
    
    
    
    103Additional paid-in-capital
    
    
    102,303
    
    
    
    101,720Unearned Compensation  ESOP
    
    
    (8,238
    )
    
    
    (8,787
    )Unearned Compensation  Equity Incentive Plan
    
    
    (2,937
    )
    
    
    (3,525
    )Retained earnings
    
    
    59,381
    
    
    
    58,709Accumulated other comprehensive (loss) income
    
    
    (3,893
    )
    
    
    270Treasury stock, at cost (1,496,340 shares at September 30,
2008 and 1,067,640 shares at December 31, 2007)
    
    
    (21,096
    )
    
    
    (15,398
    )Total stockholders equity
    
    
    125,623
    
    
    
    133,092$
    923,497
    
    
    $
    924,541
  2




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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
 Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)
    
    
    (Unaudited)Interest and dividend income:Loans
    
    $
    10,564
    
    
    $
    10,321
    
    
    $
    31,468
    
    
    $
    29,861Securities:Taxable
    
    
    1,895
    
    
    
    2,039
    
    
    
    5,752
    
    
    
    6,109Tax-Exempt
    
    
    135
    
    
    
    64
    
    
    
    377
    
    
    
    196Short-term investments
    
    
    24
    
    
    
    120
    
    
    
    238
    
    
    
    413Total interest and dividend income
    
    
    12,618
    
    
    
    12,544
    
    
    
    37,835
    
    
    
    36,579Interest expense:Deposits
    
    
    3,261
    
    
    
    4,692
    
    
    
    11,322
    
    
    
    13,337Federal Home Loan Bank advances
    
    
    2,067
    
    
    
    1,863
    
    
    
    5,856
    
    
    
    5,253Other borrowed funds
    
    
    25
    
    
    
    30
    
    
    
    73
    
    
    
    93Total interest expense
    
    
    5,353
    
    
    
    6,585
    
    
    
    17,251
    
    
    
    18,683Net interest income
    
    
    7,265
    
    
    
    5,959
    
    
    
    20,584
    
    
    
    17,896Provision for loan losses
    
    
    4
    
    
    
    160
    
    
    
    575
    
    
    
    598Net interest income after provision for loan
losses
    
    
    7,261
    
    
    
    5,799
    
    
    
    20,009
    
    
    
    17,298Non-interest income:Customer service fees
    
    
    826
    
    
    
    700
    
    
    
    2,435
    
    
    
    2,348Portfolio management fees
    
    
    272
    
    
    
    293
    
    
    
    855
    
    
    
    856Income from bank owned life insurance
    
    
    227
    
    
    
    192
    
    
    
    469
    
    
    
    314Insurance, annuities and mutual fund fees
    
    
    33
    
    
    
    61
    
    
    
    147
    
    
    
    169Gain (loss) on sales of securities, net
    
    
    (166
    )
    
    
    166
    
    
    
    306
    
    
    
    559Loss on impairment of securities
    
    
    (675
    )
    
    
    
    
    
    
    (1,265
    )
    
    
    Gain on sales of loans, net
    
    
    4
    
    
    
    74
    
    
    
    121
    
    
    
    172Miscellaneous
    
    
    11
    
    
    
    11
    
    
    
    44
    
    
    
    31Total non-interest income
    
    
    532
    
    
    
    1,497
    
    
    
    3,112
    
    
    
    4,449Non-interest expenses:Salaries and employee benefits
    
    
    3,739
    
    
    
    4,018
    
    
    
    10,934
    
    
    
    11,590Occupancy and equipment
    
    
    912
    
    
    
    723
    
    
    
    2,754
    
    
    
    2,137Data processing
    
    
    615
    
    
    
    639
    
    
    
    1,898
    
    
    
    1,673Professional fees
    
    
    187
    
    
    
    230
    
    
    
    538
    
    
    
    749Advertising
    
    
    327
    
    
    
    176
    
    
    
    886
    
    
    
    620Other general and administrative
    
    
    1,055
    
    
    
    720
    
    
    
    3,234
    
    
    
    2,258Total non-interest expenses
    
    
    6,835
    
    
    
    6,506
    
    
    
    20,244
    
    
    
    19,027Income before income taxes
    
    
    958
    
    
    
    790
    
    
    
    2,877
    
    
    
    2,720Provision for income taxes
    
    
    394
    
    
    
    270
    
    
    
    981
    
    
    
    982Net income
    
    $
    564
    
    
    $
    520
    
    
    $
    1,896
    
    
    $
    1,738Earnings per shareBasic
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.23
    
    
    $
    0.19Diluted
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.23
    
    
    $
    0.19Weighted average shares outstandingBasic
    
    
    7,960,579
    
    
    
    8,724,814
    
    
    
    8,111,590
    
    
    
    9,021,472Diluted
    
    
    7,994,020
    
    
    
    8,741,902
    
    
    
    8,143,461
    
    
    
    9,043,883
  3




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##### Table of Contents



LEGACY BANCORP, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Dollars in thousands)
(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, 2006
    
    
    10,308,600
    
    
    $
    103
    
    
    $
    106,094
    
    
    $
    (9,519
    )
    
    $
    (5,375
    )
    
    $
    58,863
    
    
    $
    (169
    )
    
    $
    
    
    
    $
    149,997Comprehensive income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,738
    
    
    
    
    
    
    
    
    
    
    
    1,738Net unrealized gain (loss) on securities
available for sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    398
    
    
    
    
    
    
    
    398Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,136Cash dividends declared ($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,120
    )
    
    
    
    
    
    
    
    
    
    
    (1,120
    )Common stock repurchased  Restricted stock
portion
of 2006 Equity Incentive Plan (412,344 shares)
    
    
    (65,844
    )
    
    
    
    
    
    
    (5,579
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,080
    )
    
    
    (6,659
    )Common stock repurchased - 5% Stock Repurchase
Program announced April 2007
    
    
    (515,430
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,534
    )
    
    
    (7,534
    )Common stock repurchased - 5% Stock Repurchase
Program announced August 2007
    
    
    (144,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,027
    )
    
    
    (2,027
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    1,071
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,071Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    806
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    806Common stock held by ESOP committed
to be released (41,235 shares)
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    616Balance at September 30, 2007
    
    
    9,582,826
    
    
    $
    103
    
    
    $
    101,653
    
    
    $
    (8,970
    )
    
    $
    (4,569
    )
    
    $
    59,481
    
    
    $
    229
    
    
    $
    (10,641
    )
    
    $
    137,286Balance 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,896
    
    
    
    
    
    
    
    
    
    
    
    1,896Net unrealized gain (loss) on securities
available for sale, net of reclassification
adjustment and tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,163
    )
    
    
    
    
    
    
    (4,163
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,267
    )Cash dividends declared ($0.15 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,217
    )
    
    
    
    
    
    
    
    
    
    
    (1,217
    )Common stock repurchased - 5% Stock Repurchase
Program announced December 2007
    
    
    (431,700
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,747
    )
    
    
    (5,747
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    588Restricted stock expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630Restricted stock granted
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42
    )
    
    
    (7
    )
    
    
    
    
    
    
    49
    
    
    
    Common stock held by ESOP committed
to be released (41,235 shares)
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    544Balance at September 30, 2008
    
    
    8,812,260
    
    
    $
    103
    
    
    $
    102,303
    
    
    $
    (8,238
    )
    
    $
    (2,937
    )
    
    $
    59,381
    
    
    $
    (3,893
    )
    
    $
    (21,096
    )
    
    $
    125,623
  4




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##### Table of Contents



LEGACY BANCORP, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 Nine Months ended September 30,2008
    
    
    2007(Unaudited)Cash flows from operating activities:Net income
    
    $
    1,896
    
    
    $
    1,738Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    575
    
    
    
    598Net accretion of securities
    
    
    (77
    )
    
    
    (702
    )Depreciation and amortization expense
    
    
    1,085
    
    
    
    871Loss (gain) on sales/impairment of securities, net
    
    
    959
    
    
    
    (559
    )Gain on sales of loans, net
    
    
    (121
    )
    
    
    (172
    )Loans originated for sale
    
    
    (9,260
    )
    
    
    (11,781
    )Proceeds from sale of loans
    
    
    9,776
    
    
    
    11,953Share-based compensation expense
    
    
    1,218
    
    
    
    1,877Deferred tax provision
    
    
    488
    
    
    
    (335
    )Employee Stock Ownership Plan expense
    
    
    544
    
    
    
    616Net change in:Bank-owned life insurance
    
    
    (518
    )
    
    
    (363
    )Accrued interest receivable
    
    
    (22
    )
    
    
    (445
    )Other assets
    
    
    (388
    )
    
    
    (39
    )Accrued expenses and other liabilities
    
    
    (1,619
    )
    
    
    1,202Net cash provided by operating activities
    
    
    4,536
    
    
    
    4,459Cash flows from investing activities:Activity in available-for-sale securities:Sales
    
    
    38,967
    
    
    
    6,645Maturities, prepayments and calls
    
    
    32,295
    
    
    
    66,774Purchases
    
    
    (84,188
    )
    
    
    (53,632
    )Purchase of Federal Home Loan Bank stock
    
    
    
    
    
    
    (320
    )Purchase of other investments
    
    
    (2,320
    )
    
    
    (903
    )Maturities, prepayments and call of other investments
    
    
    
    
    
    
    40Loan originations and purchases, net of principal payments
    
    
    (35,098
    )
    
    
    (52,191
    )Purchases of bank-owned life insurance
    
    
    
    
    
    
    (9,814
    )Additions to premises and equipment
    
    
    (1,376
    )
    
    
    (2,860
    )Net cash used in investing activities
    
    
    (51,720
    )
    
    
    (46,261
    )
   5




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##### Table of Contents



LEGACY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Dollars in thousands)
 Nine Months ended September 30,2008
    
    
    2007(Unaudited)Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    (16,991
    )
    
    
    22,608Net (decrease) increase in securities sold under
agreements to repurchase
    
    
    792
    
    
    
    (2,305
    )Repayment of Federal Home Loan Bank advances
    
    
    (487,399
    )
    
    
    (157,656
    )Proceeds from Federal Home Loan Bank advances
    
    
    511,454
    
    
    
    198,792Net increase in mortgagors escrow accounts
    
    
    188
    
    
    
    172Repurchase of common stock
    
    
    (5,747
    )
    
    
    (16,220
    )Payment of dividends on common stock
    
    
    (1,217
    )
    
    
    (1,120
    )Net cash provided by financing activities
    
    
    1,080
    
    
    
    44,271Net change in cash and cash equivalents
    
    
    (46,104
    )
    
    
    2,469Cash and cash equivalents at beginning of period
    
    
    62,225
    
    
    
    21,644Cash and cash equivalents at end of period
    
    $
    16,121
    
    
    $
    24,113Supplemental cash flow information:Interest paid on deposits
    
    $
    11,396
    
    
    $
    13,260Interest paid on Federal Home Loan Bank advances
    
    
    5,871
    
    
    
    5,151Interest paid on other borrowed funds
    
    
    73
    
    
    
    93Income taxes paid
    
    
    1,030
    
    
    
    1,480
  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
 Noncontrolling Interests in Consolidated Financial
Statements  An Amendment of ARB No. 51.
 Disclosures about Derivative Instruments and Hedging
Activities
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar
Life Insurance Arrangements
 Fair Values of Assets and Liabilities: Fair Value Measurements The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement No. 115
 7




---



##### Table of Contents



Level 1
 Level 2
 Level 3
  September 30, 2008Assets/LiabilitiesLevel 1
    
    Level 2
    
    Level 3
    
    at Fair Value(Dollars
in thousands)AssetsSecurities available for sale
    
    
    7,363
    
    
    
    132,428
    
    
    
    
    
    
    
    139,791Total assets
    
    
    7,363
    
    
    
    132,428
    
    
    
    
    
    
    
    139,791
  Quarter
    
    Year-to-dateEnded
    
    EndedSeptember 30, 2008
    
    September 30, 2008
    
    September 30, 2008Total
    
    TotalLevel 1
    
    Level 2
    
    Level 3
    
    Gains/(Losses)
    
    Gains/(Losses)(Dollars
in thousands)AssetsLoans
    
    
    
    
    
    
    1,461
    
    
    
    
    
    
    
    (45
    )
    
    
    (78
    )Total assets
    
    
    
    
    
    
    1,461
    
    
    
    
    
    
    
    (45
    )
    
    
    (78
    )
  8




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##### Table of Contents



3. Earnings Per Share
  Three months ended September 30,
    
    
    Nine months ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income applicable to common stock (000s)
    
    $
    564
    
    
    $
    520
    
    
    $
    1,896
    
    
    $
    1,738Average number of shares issued
    
    
    10,308,600
    
    
    
    10,308,600
    
    
    
    10,308,600
    
    
    
    10,308,600Less: average unallocated ESOP shares
    
    
    (632,112
    )
    
    
    (687,091
    )
    
    
    (645,805
    )
    
    
    (700,733
    )Less: average treasury shares
    
    
    (1,447,269
    )
    
    
    (550,195
    )
    
    
    (1,283,025
    )
    
    
    (239,895
    )Less: average unvested restricted stock awards
    
    
    (268,640
    )
    
    
    (346,500
    )
    
    
    (268,180
    )
    
    
    (346,500
    )Average number of basic shares outstanding
    
    
    7,960,579
    
    
    
    8,724,814
    
    
    
    8,111,590
    
    
    
    9,021,472Plus: dilutive unvested restricted stock awards
    
    
    33,441
    
    
    
    17,088
    
    
    
    31,401
    
    
    
    22,411Plus: diluted stock option shares
    
    
    
    
    
    
    
    
    
    
    470
    
    
    
    Average number of diluted shares outstanding
    
    
    7,994,020
    
    
    
    8,741,902
    
    
    
    8,143,461
    
    
    
    9,043,883Basic earnings per share
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.23
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.23
    
    
    $
    0.19
 4. Dividends
  5. Loan Commitments and Other Contingencies
  
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
  9




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##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses.
 Income Taxes.
 Other-Than-Temporary Impairment.
 Goodwill.
  Comparison of Financial Condition at September 30, 2008 and December 31, 2007
 Overview:
 Investment Activities
 10




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##### Table of Contents



At September 30, 2008
    
    
    At December 31, 2007Amortized
    
    
    
    
    
    
    Amortized
    
    
    FairCost
    
    
    Fair Value
    
    
    Cost
    
    
    Value(Dollars in Thousands)Securities available for sale:Government-sponsored enterprises
    
    $
    30,919
    
    
    $
    30,578
    
    
    $
    48,041
    
    
    $
    48,262Municipal bonds
    
    
    14,243
    
    
    
    13,031
    
    
    
    9,930
    
    
    
    9,941Corporate bonds and other obligations
    
    
    
    
    
    
    
    
    
    
    1,501
    
    
    
    1,531Mortgage-backed securities
    
    
    92,167
    
    
    
    88,819
    
    
    
    65,551
    
    
    
    65,726Total debt securities
    
    
    137,329
    
    
    
    132,428
    
    
    
    125,023
    
    
    
    125,460Common stock
    
    
    7,838
    
    
    
    7,363
    
    
    
    8,100
    
    
    
    9,084Total securities available for sale
    
    
    145,167
    
    
    
    139,791
    
    
    
    133,123
    
    
    
    134,544Securities held to maturity:Other bonds and obligations
    
    
    97
    
    
    
    97
    
    
    
    97
    
    
    
    97Restricted equity securities and other investments:Federal Home Loan Bank of Boston stock
    
    
    10,722
    
    
    
    10,722
    
    
    
    10,722
    
    
    
    10,722Savings Bank Life Insurance
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709
    
    
    
    1,709Other investments
    
    
    7,302
    
    
    
    7,302
    
    
    
    4,982
    
    
    
    4,982Total restricted equity securities
and other investments
    
    
    19,733
    
    
    
    19,733
    
    
    
    17,413
    
    
    
    17,413Total securities
    
    $
    164,997
    
    
    $
    159,621
    
    
    $
    150,633
    
    
    $
    152,054
 Lending Activities:
 At September 30, 2008
    
    
    At December 31, 2007Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Mortgage loans on real estate:Residential
    
    $
    357,485
    
    
    
    51.64
    %
    
    $
    349,772
    
    
    
    53.17
    %Commercial
    
    
    229,145
    
    
    
    33.10
    
    
    
    212,191
    
    
    
    32.26Home equity
    
    
    60,549
    
    
    
    8.74
    
    
    
    56,752
    
    
    
    8.63647,179
    
    
    
    93.48
    
    
    
    618,715
    
    
    
    94.06Other loans:Commercial
    
    
    32,322
    
    
    
    4.67
    
    
    
    27,664
    
    
    
    4.20Consumer and other
    
    
    12,797
    
    
    
    1.85
    
    
    
    11,421
    
    
    
    1.7445,119
    
    
    
    6.52
    
    
    
    39,085
    
    
    
    5.94Total loans
    
    
    692,298
    
    
    
    100.00
    %
    
    
    657,800
    
    
    
    100.00
    %Other Items:Net deferred loan costs
    
    
    1,683
    
    
    
    
    
    
    
    1,397Unamortized premiums
    
    
    
    
    
    
    
    
    
    
    Allowance for loan losses
    
    
    (5,829
    )
    
    
    
    
    
    
    (5,568
    )Total loans, net
    
    $
    688,152
    
    
    
    
    
    
    $
    653,629
  11




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##### Table of Contents



Non-performing Assets:
 At September 30,
    
    
    At December 31,2008
    
    
    2007(Dollars in Thousands)Non-accrual loans:Residential mortgage
    
    $
    561
    
    
    $
    499Commercial mortgage
    
    
    5,526
    
    
    
    539Commercial
    
    
    75
    
    
    
    386Home equity, consumer and other
    
    
    101
    
    
    
    108Total non-accrual loans
    
    
    6,263
    
    
    
    1,532Loans 90 days or greater 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
    
    $
    6,263
    
    
    $
    1,532Other non-performing assets:Real estate owned
    
    $
    59
    
    
    $
    185Troubled debt restructurings
    
    
    
    
    
    
    Total other non-performing assets
    
    $
    59
    
    
    $
    185Total non-performing assets
    
    $
    6,322
    
    
    $
    1,717Ratios:Non-performing loans to total loans
    
    
    0.90
    %
    
    
    0.23
    %Non-performing assets to total assets
    
    
    0.68
    %
    
    
    0.19
    %
  Allowance for Loan Losses :
  12




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##### Table of Contents



At or for the Three Months
    
    
    At or for the Nine MonthsEnded September 30,
    
    
    Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in Thousands)Balance at beginning of period
    
    $
    5,866
    
    
    $
    5,043
    
    
    $
    5,568
    
    
    $
    4,677Charge-offs:Mortgage loans on real estate
    
    
    (3
    )
    
    
    
    
    
    
    (96
    )
    
    
    (31
    )Other loans:Commercial
    
    
    (6
    )
    
    
    (28
    )
    
    
    (188
    )
    
    
    (46
    )Consumer and other
    
    
    (68
    )
    
    
    (29
    )
    
    
    (189
    )
    
    
    (89
    )Total other loans
    
    
    (74
    )
    
    
    (57
    )
    
    
    (377
    )
    
    
    (135
    )Total charge-offs
    
    
    (77
    )
    
    
    (57
    )
    
    
    (473
    )
    
    
    (166
    )Recoveries:Mortgage loans on real estate
    
    
    18
    
    
    
    
    
    
    
    87
    
    
    
    11Other loans:Commercial
    
    
    5
    
    
    
    
    
    
    
    13
    
    
    
    3Consumer and other
    
    
    13
    
    
    
    12
    
    
    
    59
    
    
    
    35Total other loans
    
    
    18
    
    
    
    12
    
    
    
    72
    
    
    
    38Total recoveries
    
    
    36
    
    
    
    12
    
    
    
    159
    
    
    
    49Net charge-offs
    
    
    (41
    )
    
    
    (45
    )
    
    
    (314
    )
    
    
    (117
    )Provision for loan losses
    
    
    4
    
    
    
    160
    
    
    
    575
    
    
    
    598Balance at end of period
    
    $
    5,829
    
    
    $
    5,158
    
    
    $
    5,829
    
    
    $
    5,158Ratios:Net charge-offs to average
loans outstanding  annualized
    
    
    (0.02
    %)
    
    
    (0.03
    %)
    
    
    (0.06
    %)
    
    
    (0.03
    %)Allowance for loan losses to non-performing
loans at end of period
    
    
    93.07
    %
    
    
    469.34
    %
    
    
    93.07
    %
    
    
    469.34
    %Allowance for loan losses to total loans
at end of period
    
    
    0.84
    %
    
    
    0.81
    %
    
    
    0.84
    %
    
    
    0.81
    %
 13




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##### Table of Contents



Deposits
 At September 30, 2008
    
    
    At December 31, 2007Balance
    
    
    Percent
    
    
    Balance
    
    
    Percent(Dollars in Thousands)Deposit type:Demand
    
    $
    63,389
    
    
    
    10.68
    %
    
    $
    64,348
    
    
    
    10.54
    %Regular savings
    
    
    49,089
    
    
    
    8.27
    
    
    
    53,684
    
    
    
    8.79Smart banking/relationship savings
    
    
    123,048
    
    
    
    20.73
    
    
    
    112,705
    
    
    
    18.46Money market deposits
    
    
    63,291
    
    
    
    10.67
    
    
    
    64,373
    
    
    
    10.55NOW deposits
    
    
    42,787
    
    
    
    7.21
    
    
    
    41,981
    
    
    
    6.88Total transaction accounts
    
    
    341,604
    
    
    
    57.56
    
    
    
    337,091
    
    
    
    55.22Certificates of deposit
    
    
    251,852
    
    
    
    42.44
    
    
    
    273,356
    
    
    
    44.78Total deposits
    
    $
    593,456
    
    
    
    100.00
    %
    
    $
    610,447
    
    
    
    100.00
    %
  Borrowings
 Stockholders Equity
 Comparison of Operating Results for the Three Months Ended September 30, 2008 and 2007
  Analysis of Net Interest Income
   14




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##### Table of Contents



Three Months Ended September 30, 2008
    
    
    Three Months Ended September 30, 2007Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    Interest
    
    
    Yield/ Rate(1)
    
    
    Balance
    
    
    Interest
    
    
    Yield/ Rate(1)(Dollars
in thousands)Interest-earning assets:Loans  net (2)
    
    $
    684,825
    
    
    $
    10,564
    
    
    
    6.17
    %
    
    $
    622,526
    
    
    $
    10,321
    
    
    
    6.63
    %Investment securities
    
    
    166,038
    
    
    
    2,030
    
    
    
    4.89
    %
    
    
    161,879
    
    
    
    2,103
    
    
    
    5.20
    %Short-term investments
    
    
    5,112
    
    
    
    24
    
    
    
    1.88
    %
    
    
    9,649
    
    
    
    120
    
    
    
    4.97
    %Total interest-earning assets
    
    
    855,975
    
    
    
    12,618
    
    
    
    5.90
    %
    
    
    794,054
    
    
    
    12,544
    
    
    
    6.32
    %Non-interest-earning assets
    
    
    68,383
    
    
    
    
    
    
    
    
    
    
    
    52,734Total assets
    
    $
    924,358
    
    
    
    
    
    
    
    
    
    
    $
    846,788Interest-bearing liabilities:Savings deposits
    
    $
    50,235
    
    
    
    54
    
    
    
    0.43
    %
    
    $
    45,564
    
    
    
    51
    
    
    
    0.45
    %Smart banking/relationship savings
    
    
    124,647
    
    
    
    582
    
    
    
    1.87
    %
    
    
    105,654
    
    
    
    1,028
    
    
    
    3.89
    %Money market
    
    
    59,428
    
    
    
    298
    
    
    
    2.01
    %
    
    
    58,307
    
    
    
    571
    
    
    
    3.92
    %NOW accounts
    
    
    42,024
    
    
    
    53
    
    
    
    0.50
    %
    
    
    35,082
    
    
    
    58
    
    
    
    0.66
    %Certificates of deposits
    
    
    249,441
    
    
    
    2,274
    
    
    
    3.65
    %
    
    
    245,401
    
    
    
    2,984
    
    
    
    4.86
    %Total interest-bearing deposits
    
    
    525,775
    
    
    
    3,261
    
    
    
    2.48
    %
    
    
    490,008
    
    
    
    4,692
    
    
    
    3.83
    %Borrowed funds
    
    
    201,279
    
    
    
    2,092
    
    
    
    4.16
    %
    
    
    159,315
    
    
    
    1,893
    
    
    
    4.75
    %Total interest-bearing liabilities
    
    
    727,054
    
    
    
    5,353
    
    
    
    2.95
    %
    
    
    649,323
    
    
    
    6,585
    
    
    
    4.06
    %Non-interest-bearing liabilities
    
    
    69,037
    
    
    
    
    
    
    
    
    
    
    
    57,376Total liabilities
    
    
    796,091
    
    
    
    
    
    
    
    
    
    
    
    706,699Equity
    
    
    128,267
    
    
    
    
    
    
    
    
    
    
    
    140,089Total liabilities and equity
    
    $
    924,358
    
    
    
    
    
    
    
    
    
    
    $
    846,788Net interest income
    
    
    
    
    
    $
    7,265
    
    
    
    
    
    
    
    
    
    
    $
    5,959Net interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.95
    %
    
    
    
    
    
    
    
    
    
    
    2.26
    %Net interest-earning assets (4)
    
    $
    128,921
    
    
    
    
    
    
    
    
    
    
    $
    144,731Net interest margin (5)
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.00
    %Average interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    117.73
    %
    
    
    
    
    
    
    
    
    
    
    122.29
    %
 
 (1)
    
    Yields and rates for the three months ended September 30, 2008 and 2007 are annualized.(2)
    
    Includes loans held for sale.(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.(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.  15




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##### Table of Contents



Three Months Ended September 30,2008 vs. 2007Increase
    
    Total(Decrease) Due to
    
    IncreaseVolume
    
    Rate
    
    (Decrease)(Dollars in thousands)Interest-earning assets:Loans  net
    
    $
    792
    
    
    $
    (549
    )
    
    $
    243Investment securities
    
    
    56
    
    
    
    (129
    )
    
    
    (73
    )Short-term investments
    
    
    (41
    )
    
    
    (55
    )
    
    
    (96
    )Total interest-earning assets
    
    
    807
    
    
    
    (733
    )
    
    
    74Interest-bearing liabilities:Savings deposits
    
    
    5
    
    
    
    (2
    )
    
    
    3Smart banking/relationship savings
    
    
    236
    
    
    
    (682
    )
    
    
    (446
    )Money market
    
    
    11
    
    
    
    (284
    )
    
    
    (273
    )NOW accounts
    
    
    18
    
    
    
    (23
    )
    
    
    (5
    )Certificates of deposits
    
    
    50
    
    
    
    (760
    )
    
    
    (710
    )Total deposits
    
    
    320
    
    
    
    (1,751
    )
    
    
    (1,431
    )Borrowed funds
    
    
    377
    
    
    
    (178
    )
    
    
    199Total interest-bearing liabilities
    
    
    697
    
    
    
    (1,929
    )
    
    
    (1,232
    )Change in net interest income
    
    $
    110
    
    
    $
    1,196
    
    
    $
    1,306
 Net interest income
 Interest income
 Interest expense
 Provision for loan loss expense
 Non-interest income
 16




---



##### Table of Contents



Non-interest expense
 Income tax expense
 Comparison of Operating Results for the Nine Months Ended September 30, 2008 and 2007
  Analysis of Net Interest Income
   17




---



##### Table of Contents



Nine Months Ended September 30, 2008
    
    
    Nine Months Ended September 30, 2007Average
    
    
    
    
    
    
    
    
    
    
    AverageOutstanding
    
    
    
    
    
    
    
    
    
    
    OutstandingBalance
    
    
    Interest
    
    
    Yield/ Rate(1)
    
    
    Balance
    
    
    Interest
    
    
    Yield/ Rate(1)(Dollars in thousands)Interest-earning assets:Loans  net (2)
    
    $
    670,527
    
    
    $
    31,468
    
    
    
    6.26
    %
    
    $
    604,706
    
    
    $
    29,861
    
    
    
    6.58
    %Investment securities
    
    
    166,390
    
    
    
    6,129
    
    
    
    4.91
    %
    
    
    165,529
    
    
    
    6,305
    
    
    
    5.08
    %Short-term investments
    
    
    12,334
    
    
    
    238
    
    
    
    2.57
    %
    
    
    11,120
    
    
    
    413
    
    
    
    4.95
    %Total interest-earning assets
    
    
    849,251
    
    
    
    37,835
    
    
    
    5.94
    %
    
    
    781,355
    
    
    
    36,579
    
    
    
    6.24
    %Non-interest-earning assets
    
    
    67,202
    
    
    
    
    
    
    
    
    
    
    
    48,303Total assets
    
    $
    916,453
    
    
    
    
    
    
    
    
    
    
    $
    829,658Interest-bearing liabilities:Savings deposits
    
    $
    50,375
    
    
    
    155
    
    
    
    0.41
    %
    
    $
    47,401
    
    
    
    155
    
    
    
    0.44
    %Smart banking/relationship savings
    
    
    122,409
    
    
    
    1,993
    
    
    
    2.17
    %
    
    
    100,466
    
    
    
    3,020
    
    
    
    4.01
    %Money market
    
    
    59,374
    
    
    
    1,109
    
    
    
    2.49
    %
    
    
    54,395
    
    
    
    1,492
    
    
    
    3.66
    %NOW accounts
    
    
    41,474
    
    
    
    165
    
    
    
    0.53
    %
    
    
    35,546
    
    
    
    171
    
    
    
    0.64
    %Certificates of deposits
    
    
    259,590
    
    
    
    7,900
    
    
    
    4.06
    %
    
    
    238,669
    
    
    
    8,499
    
    
    
    4.75
    %Total interest-bearing deposits
    
    
    533,222
    
    
    
    11,322
    
    
    
    2.83
    %
    
    
    476,477
    
    
    
    13,337
    
    
    
    3.73
    %Borrowed funds
    
    
    185,343
    
    
    
    5,929
    
    
    
    4.27
    %
    
    
    152,396
    
    
    
    5,346
    
    
    
    4.68
    %Total interest-bearing
liabilities
    
    
    718,565
    
    
    
    17,251
    
    
    
    3.20
    %
    
    
    628,873
    
    
    
    18,683
    
    
    
    3.96
    %Non-interest-bearing liabilities
    
    
    66,904
    
    
    
    
    
    
    
    
    
    
    
    56,529Total liabilities
    
    
    785,469
    
    
    
    
    
    
    
    
    
    
    
    685,402Equity
    
    
    130,984
    
    
    
    
    
    
    
    
    
    
    
    144,256Total liabilities and equity
    
    $
    916,453
    
    
    
    
    
    
    
    
    
    
    $
    829,658Net interest income
    
    
    
    
    
    $
    20,584
    
    
    
    
    
    
    
    
    
    
    $
    17,896Net interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    2.74
    %
    
    
    
    
    
    
    
    
    
    
    2.28
    %Net interest-earning assets (4)
    
    $
    130,686
    
    
    
    
    
    
    
    
    
    
    $
    152,482Net interest margin (5)
    
    
    
    
    
    
    
    
    
    
    3.23
    %
    
    
    
    
    
    
    
    
    
    
    3.05
    %Average interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    118.19
    %
    
    
    
    
    
    
    
    
    
    
    124.25
    %
 
 (1)
    
    Yields and rates for the nine months ended September 30, 2008 and 2007 are annualized.(2)
    
    Includes loans held for sale.(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.(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.  18




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##### Table of Contents



Nine Months Ended September 30,2008 vs. 2007Increase
    
    Total(Decrease) Due to
    
    IncreaseVolume
    
    Rate
    
    (Decrease)(Dollars in thousands)Interest-earning assets:Loans  net
    
    $
    2,905
    
    
    $
    (1,298
    )
    
    $
    1,607Investment securities
    
    
    33
    
    
    
    (209
    )
    
    
    (176
    )Short-term investments
    
    
    51
    
    
    
    (226
    )
    
    
    (175
    )Total interest-earning assets
    
    
    2,989
    
    
    
    (1,733
    )
    
    
    1,256Interest-bearing liabilities:Savings deposits
    
    
    7
    
    
    
    (7
    )
    
    
    Smart banking/relationship savings
    
    
    934
    
    
    
    (1,961
    )
    
    
    (1,027
    )Money market
    
    
    154
    
    
    
    (537
    )
    
    
    (383
    )NOW accounts
    
    
    114
    
    
    
    (120
    )
    
    
    (6
    )Certificates of deposits
    
    
    913
    
    
    
    (1,512
    )
    
    
    (599
    )Total deposits
    
    
    2,122
    
    
    
    (4,137
    )
    
    
    (2,015
    )Borrowed funds
    
    
    979
    
    
    
    (396
    )
    
    
    583Total interest-bearing liabilities
    
    
    3,101
    
    
    
    (4,533
    )
    
    
    (1,432
    )Change in net interest income
    
    $
    (112
    )
    
    $
    2,800
    
    
    $
    2,688
 Net interest income
 Interest income
 Interest expense
 Provision for loan loss expense
 Non-interest income
 19




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##### Table of Contents



Non-interest expense
 Income tax expense
 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, 2008:Total capital to risk weighted assets
    
    $
    91,127
    
    
    
    13.5
    %
    
    $
    54,113
    
    
    
    8.0
    %
    
    $
    67,641
    
    
    
    10.0
    %Tier 1 capital to risk weighted
assets:
    
    
    85,020
    
    
    
    12.6
    
    
    
    27,056
    
    
    
    4.0
    
    
    
    40,584
    
    
    
    6.0Tier 1 capital to average assets:
    
    
    85,020
    
    
    
    9.6
    
    
    
    26,676
    
    
    
    3.0
    
    
    
    44,460
    
    
    
    5.0December 31, 2007:Total capital to risk weighted
assets:
    
    $
    89,183
    
    
    
    13.9
    %
    
    $
    51,265
    
    
    
    8.0
    %
    
    $
    64,081
    
    
    
    10.0
    %Tier 1 capital to risk weighted
assets:
    
    
    82,937
    
    
    
    12.9
    
    
    
    25,632
    
    
    
    4.0
    
    
    
    38,449
    
    
    
    6.0Tier 1 capital to average assets:
    
    
    82,937
    
    
    
    9.9
    
    
    
    25,161
    
    
    
    3.0
    
    
    
    41,935
    
    
    
    5.0
 Contractual Obligations
 September 30, 2008More than
    
    More thanOne Year
    
    Three YearsOne Year
    
    through
    
    through Five
    
    Over FiveTotal
    
    or Less
    
    Three Years
    
    Years
    
    Years(Dollars in Thousands)Federal Home Loan Bank of Boston advances
    
    $
    191,437
    
    
    $
    43,140
    
    
    $
    55,578
    
    
    $
    30,000
    
    
    $
    62,719Securities sold under agreements to repurchase
    
    
    4,847
    
    
    
    4,847
    
    
    
    
    
    
    
    
    
    
    
    Total FHLBB advances and repurchase agreements
    
    $
    196,284
    
    
    $
    47,987
    
    
    $
    55,578
    
    
    $
    30,000
    
    
    $
    62,719
 20




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##### Table of Contents



Off-Balance Sheet Arrangements:
 September 30, 2008More than
    
    
    More thanOne Year
    
    
    Three YearsOne Year
    
    
    through
    
    
    Through Five
    
    
    Over FiveTotal
    
    
    or Less
    
    
    Three Years
    
    
    Years
    
    
    years(Dollars in Thousands)Commitments to grant loans (1)
    
    $
    52,537
    
    
    $
    52,537
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial loan lines-of-credit
    
    
    22,214
    
    
    
    22,214
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of home equity loans (2)
    
    
    79,401
    
    
    
    947
    
    
    
    4,376
    
    
    
    15,381
    
    
    
    58,697Unused portion of construction loans (3)
    
    
    3,744
    
    
    
    3,744
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of overdraft
lines-of-credit(4)
    
    
    5,274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,274Unused portion of personal
lines-of-credit(5)
    
    
    872
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    872Standby letters of credit(6)
    
    
    732
    
    
    
    732
    
    
    
    
    
    
    
    
    
    
    
    Other commitments and contingencies(7)
    
    
    8,905
    
    
    
    8,905
    
    
    
    
    
    
    
    
    
    
    
    Total loan & other commitments
    
    $
    173,679
    
    
    $
    89,079
    
    
    $
    4,376
    
    
    $
    15,381
    
    
    $
    64,843
 
 (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 construction loans are available to the borrower for up to 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 limited partnerships. 
 Item 3: Quantitative and Qualitative Disclosures about Market Risks
  
 Item 4: Controls and Procedures
   21




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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 December 2007 the Company announced that its
Board of Directors authorized a stock repurchase program (the Stock Repurchase Program)
for the purchase of up to 462,048 shares of the Companys common stock or approximately 5%
of its outstanding common stock. Purchases under this Stock Repurchase Program in the
second quarter of 2008 were as follows:
 (d) Maximum Number or(a) Total
    
    
    
    
    
    (c) Total Number of
    
    Approximate Dollar ValueNumber of
    
    
    
    
    
    Shares Purchased as Part
    
    of Shares that May Yet BeShares
    
    (b) Average Price
    
    of Publicly announced
    
    Purchased Under the PlansPeriod
    
    Purchased
    
    Paid per Share
    
    Plans or Programs
    
    or ProgramsJuly 1  31
    
    
    67,900
    
    
    $
    11.27
    
    
    
    67,900
    
    
    
    90,548August 1  31
    
    
    35,700
    
    
    $
    12.71
    
    
    
    35,700
    
    
    
    54,848September 1  30
    
    
    24,500
    
    
    $
    13.18
    
    
    
    24,500
    
    
    
    30,348
 In the period from October 1, 2008 to October 31, 2008, the Company purchased the remaining
30,348 shares under the repurchase program announced in December 2007, at an average price
of $12.22 per share. Overall the December 2007 program resulted in the repurchase of
462,048 shares at an average cost of $13.24.
 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5 Other Information
  22




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##### Table of Contents



Item 6 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 (3)10.5.7
    
    Separation Agreement and General Release dated as of December 21, 2007 between Legacy Bancorp,
Inc., Legacy Banks and Stephen M. Conley (4)10.5.8
    
    Consulting Agreement dated as of November 5, 2007 between Legacy Bancorp, Inc., Legacy Banks and
Michael A. Christopher (3)10.5.9
    
    Purchase Agreement by and between First Niagara Bank and Legacy Banks dated as of July 25, 2007 (5)10.5.10
    
    Change In Control Agreement between Legacy Bancorp, Inc. and Paul H. Bruce (6)10.5.11
    
    Change In Control Agreement between Legacy Bancorp, Inc. and Kimberly A. Mathews (6)10.11
    
    2007 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, Item 1, 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 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 Current Report on Form 8-K filed November 5,
2007.(4)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed December 21,
2007.(5)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed July 25,
2007.(6)
    
    Incorporated by reference from the Registrants Current Report on Form 8-K filed October 30,
2008. 23




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##### Table of Contents



SIGNATURES
  LEGACY BANCORP, INC.Date: November 6, 2008
    /s/ J. Williar DunlaevyJ. Williar DunlaevyChief Executive Officer and Chairman of the BoardDate: November 6, 2008
    /s/ Paul H. BrucePaul H. BruceSenior Vice President, Chief Financial Officer and
Treasurer (Principal Accounting Officer) 24