LEGC Legacy Bancorp, Inc. (MM)

Legacy Bancorp, Inc. (the �Company� or �Legacy�) (NASDAQ: LEGC), the holding company for Legacy Banks (the �Bank�), today reported a net loss of $494,000, or $0.06 per diluted share for the quarter ended December 31, 2007, which represents an improvement of $97,000 from the net loss of $591,000 reported in the fourth quarter of 2006. For the full year, the Company has generated net income of $1.2 million, or $0.14 per diluted share, a decrease of $1.6 million, or 55.6% from 2006. The decrease in year to date net income is primarily a result of an increase in non-interest expenses as described below. The total shares outstanding resulted in a book value per share and tangible book value per share of $14.40 and $13.01, respectively, at December 31, 2007. J. Williar Dunlaevy, Chief Executive Officer, commented, �The major factors resulting in a loss for the fourth quarter were the charges associated with executive retirements and the reduction in workforce, all of which were announced previously. It is disappointing to report a loss for the quarter and as a result, relatively weak earnings for the year. At the same time we are pleased that the company is positioned for significantly stronger performance and growth in 2008 and beyond. Previously we have commented on our planning process and our determination to improve efficiency. In the fourth quarter we took advantage of some opportunities and took other necessary actions to deliver on that commitment. We begin 2008 with fourteen fewer positions, a workforce reduction of about 7%, much of which was from senior management. We are pleased with the response of our associates to the challenges and opportunities created by this restructuring�. �The acquisition of the New York offices was completed in December as planned with a very smooth transition and data conversion, the result of careful preplanning, training and communications. We are also continuing to seek and evaluate other opportunities to grow and expand�. �Asset quality remains very strong and compares well with the peer comparisons. While there was a modest increase in non-performing loans from September to December, it is still relatively low. Legacy has no subprime loans and no subprime, collateralized debt obligation, or structured investment vehicle exposure anywhere on our balance sheet. We make only loans and investments that we would be comfortable holding on our balance sheet from a quality perspective, and times like these certainly validate that philosophy. While the acquisition of the New York offices contributed to our funding growth for the quarter and year, our total loan growth of $75.2 million, or 12.9%, was organic and demonstrates our ability to generate loans while maintaining quality�. The Company�s balance sheet increased by $116.2�million, or 14.4%, from $808.3 million at December 31, 2006 to $924.5 million at December 31, 2007, largely due to the acquisition of five branch offices of First Niagara Bank (First Niagara) located in eastern New York completed on December 7, 2007. Within the overall asset growth, the gross loan portfolio, excluding loans held for sale, increased by $75.2 million, or 12.9% in 2007. Year to date growth included an increase in residential mortgage balances of $24.4 million, or 7.5%, to $349.8 million, and an increase in commercial real estate and other commercial loans of $46.0 million, or 23.7% to $239.9 million. The securities and other investment portfolio has decreased by $24.1 million or 13.7%, while short-term investments increased $37.1 million, or 331.1% at December 31, 2007 as compared to the prior year end. Cash flow from securities and other investments was utilized to partially fund loan growth, purchase $9.9 million of new bank owned life insurance (BOLI), and repurchase common shares as described below. The increase in short-term investments was influenced by the receipt of the acquired First Niagara deposits. Deposits increased by $92.2 million, or 17.8%, to $610.4�million at December 31, 2007 from $518.3 million at December 31, 2006, with acquired First Niagara deposits representing approximately $76.6 million of this growth. Overall, demand deposits increased $13.6 million, or 26.8% while relationship savings accounts increased $19.7 million, or 21.2%. Certificates of deposit increased $45.5 million, or 20.0%, with $38.3 million attributable to the acquired First Niagara deposits. Advances from the Federal Home Loan Bank of Boston (FHLBB) increased by $39.9 million or 31.3% at December 31, 2007 as the Bank took advantage of some lower cost FHLBB funding during the early part of 2007 in order to fund loan growth. The Company�s stock repurchase programs have resulted in an overall decrease in stockholders� equity of $16.9 million at December 31, 2007. Legacy purchased 412,344 shares of Company stock at an average price of $16.15 per share in the first quarter of 2007 in order to fund the restricted stock portion of the 2006 Equity Incentive Plan (EIP) approved by shareholders in November 2006. Additionally the Company purchased 515,430 shares at an average price of $14.62 during the second and third quarters of 2007 as part of a stock repurchase program announced in April and completed in August 2007. More recently the Company purchased 486,366 shares at an average price of $13.95 during the third and fourth quarters of 2007 as part of a stock repurchase program announced in August and completed in December 2007. Total equity was positively impacted by a contribution of $1.2 million from net income and the amortization of unearned compensation. These increases to equity were offset by the declaration of a $0.04 per share dividend in each quarter of 2007. Asset quality remains strong at the close of 2007, with non-performing assets as a percentage of total assets at 0.17%. The provision for loan losses increased from a credit of $12,000 in the fourth quarter of 2006 to a provision of $453,000 in the fourth quarter of 2007. Year to date, the provision increased by $818,000 or 351.1% as compared to the same period in 2006. This increase was a reflection of both the difference in the amount of and mix of loan growth for the respective periods, as well as loan recoveries in 2006 which resulted in a provision credit in the third and fourth quarters of 2006. The allowance for loan losses to total loans stood at 0.85% at December 31, 2007 as compared to 0.80% at December 31, 2006. The Company�s net interest income increased by $262,000, or 4.6% in the fourth quarter of 2007 as compared to the same period in 2006, and by $270,000, or 1.1% year to date as compared to the same period in 2006. The net interest margin (NIM) was 2.89% for the three months ended December 31, 2007 which represents a decrease of 11 basis points from both the third quarter of 2007 and the fourth quarter of 2006. Year to date the NIM was 3.01%, a decrease of 14 basis points from the same period in 2006. Both the yield curve and the non-core certificate of deposit specials related to the Massachusetts branch office openings in the first and second quarters of 2007 resulted in NIM pressure during the year. Non-interest income for the fourth quarter of 2007 totaled $1.4 million, an increase of $1.3 million compared to the fourth quarter of 2006 primarily due to increases in income from bank owned life insurance and net gains on the sale of securities. Year to date, non-interest income has increased by $2.4 million, or 70.5% as compared to 2006 for the same reasons. The net loss on the sale of securities in 2006 included the effect of the partial balance sheet restructuring completed in the fourth quarter of 2006. Non-interest income in the prior year was also impacted by the pension settlement gain of $605,000 in the fourth quarter of 2006. Excluding these two income categories, non-interest income increased by $56,000, or 3.9% for the quarter and $793,000, or 17.3% for the year over the 2006 periods. Operating expenses increased by $2.4 million, or 41.1% for the fourth quarter of 2007 as compared to the same period of 2006, and by $5.9 million, or 27.4% year to date. The expense increase is primarily in the salaries and benefit categories which increased by $2.0 million, or 61.9% in the fourth quarter and by $4.9 million, or 41.3% year to date as compared to the same prior year periods. The reduction in workforce and executive retirements announced in the fourth quarter of 2007 resulted in a severance accrual of $1.1 million during the fourth quarter of 2007, as well as the acceleration of $479,000 of amortization expense associated with the EIP. For the full year the EIP amortization amounted to $3.0 million as compared to $417,000 expensed in the fourth quarter of 2006. Salary and benefits have also increased as a result of new branch and lending personnel associated with the de novo and acquired branch offices during the year. The Company�s effective tax rate for the year has decreased from 48.6% in 2006 to 16.9% in 2007 primarily as a result of higher permanent tax vs. book deductions, a lower adjustment to the tax valuation reserve related to the federal charitable contribution carryforward, and lower separate company state income taxes. The Company�s core efficiency ratio for the fourth quarter of 2007 (GAAP efficiency ratio net of effect of non-core adjustments) increased to 86.9% from 81.2% in the comparable prior year period primarily due to the increase in operating expenses and pressure on the net interest margin as outlined above. For the full year, the Company�s core efficiency ratio increased to 87.2% in 2007 from 75.8% in 2006. CONFERENCE CALL J. Williar Dunlaevy, Chairman and Chief Executive Officer, and Paul H. Bruce, Chief Financial Officer, will host a conference call at 3:00 p.m. (Eastern Time) on Thursday, January 31, 2008. Persons wishing to access the conference call may do so by dialing 877-407-9205. Replays of the conference call will be available beginning January 31, 2008 at 6:00 p.m. (Eastern Time) through February 8, 2008 at 11:59 p.m. (Eastern Time) by dialing 877-660-6853 and using Account #286 and Conference ID #268224 (both numbers are needed to access the replay). FORWARD LOOKING STATEMENTS Certain statements herein constitute �forward-looking statements� within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and expectations of management, as well as the assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. As a result, actual results may differ from those contemplated by these statements. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like �believe,� �expect,� �anticipate,� �estimate,� and �intend� or future or conditional verbs such as �will,� �would,� �should,� �could� or �may.� Certain factors that could cause actual results to differ materially from expected results include changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the businesses in which Legacy Bancorp is engaged and changes in the securities market. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release and the associated conference call. The Company disclaims any intent or obligation to update any forward-looking statements, whether in response to new information, future events or otherwise. NON-GAAP FINANCIAL MEASURES In addition to results presented in accordance with GAAP, this press release contains certain non-GAAP financial measures. We believe that providing certain non-GAAP financial measures, such as core efficiency ratio, provides investors with information useful in understanding our financial performance, our performance trends and financial position. A reconciliation of non-GAAP to GAAP financial measures is included in the accompanying financial tables, elsewhere in this report. LEGACY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, � 2007 � � � 2006 � � ASSETS Cash and due from banks $ 13,931 $ 10,442 Short-term investments � 48,294 � � 11,202 � Cash and cash equivalents 62,225 21,644 Securities and other investments 152,054 176,132 Loans held for sale 395 - Loans, net of allowance for loan losses of $5,568 in 2007 and $4,677 in 2006 653,629 578,802 Premises and equipment, net 18,866 15,416 Accrued interest receivable 3,404 3,552 Goodwill, net 9,687 3,085 Net deferred tax asset 5,580 4,474 Bank-owned life insurance 14,788 4,424 Other assets � 3,913 � � 789 � � $ 924,541 � $ 808,318 � LIABILITIES AND STOCKHOLDERS' EQUITY Deposits $ 610,447 $ 518,248 Securities sold under agreements to repurchase 4,055 5,575 Federal Home Loan Bank advances 167,382 127,438 Mortgagors' escrow accounts 1,034 944 Accrued expenses and other liabilities � 8,531 � � 6,116 � Total liabilities � 791,449 � � 658,321 � Commitments and contingencies Stockholders' Equity Preferred Stock ($.01 par value, 10,000,000 shares - - authorized, none issued or outstanding) Common Stock ($.01 par value, 40,000,000 shares authorized and 10,308,600 issued at December 31, 2007 and 2006; 9,240,960 outstanding at December 31, 2007 and 10,308,600 outstanding at December 31, 2006) 103 103 Additional paid-in-capital 101,720 106,094 Unearned Compensation - ESOP (8,787 ) (9,519 ) Unearned Compensation - Equity Incentive Plan (3,525 ) (5,375 ) Retained earnings 58,709 58,863 Accumulated other comprehensive income (loss) 270 (169 ) Treasury stock, at cost (1,067,640 shares at December 31, 2007) � (15,398 ) � - � Total stockholders' equity � 133,092 � � 149,997 � $ 924,541 � $ 808,318 � LEGACY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) Three Months Ended December 31, � Twelve Months Ended December 31, � 2007 � � � 2006 � � 2007 � � 2006 � � Interest and dividend income: Loans $ 10,599 $ 9,296 $ 40,460 $ 35,905 Securities: Taxable 1,870 1,884 7,979 7,308 Tax-Exempt 86 62 282 239 Short-term investments � 223 � � 167 � � 636 � 463 � Total interest and dividend income � 12,778 � � 11,409 � � 49,357 � 43,915 � Interest expense: Deposits 4,509 4,102 17,846 13,808 Federal Home Loan Bank advances 2,287 1,584 7,539 6,395 Other borrowed funds � 33 � � 36 � � 126 � 136 � Total interest expense � 6,829 � � 5,722 � � 25,511 � 20,339 � Net interest income 5,949 5,687 23,846 23,576 Provision (credit) for loan losses � 453 � � (12 ) � 1,051 � 233 � Net interest income after provision for loan losses � 5,496 � � 5,699 � � 22,795 � 23,343 � � Non-interest income: Customer service fees 711 839 3,059 2,832 Portfolio management fees 327 261 1,183 1,001 Income from bank owned life insurance 187 80 500 222 Insurance, annuities and mutual fund fees 84 90 254 211 Gain (loss) on sales of securities, net (49 ) (1,888 ) 510 (1,736 ) Gain on sales of loans, net 98 86 270 210 Gain on curtailment and termination of defined benefit plan - 605 - 605 Miscellaneous � 79 � � 74 � � 110 � 107 � Total non-interest income � 1,437 � � 147 � � 5,886 � 3,452 � Non-interest expenses: Salaries and employee benefits 5,222 3,226 16,812 11,897 Occupancy and equipment 787 597 2,924 2,482 Data processing 641 516 2,314 1,987 Professional fees 259 463 1,008 1,564 Advertising 264 194 884 747 Other general and administrative � 987 � � 786 � � 3,245 � 2,659 � Total non-interest expenses � 8,160 � � 5,782 � � 27,187 � 21,336 � � Income (loss) before income taxes (1,227 ) 64 1,494 5,459 � Provision (benefit) for income taxes � (733 ) � 655 � � 249 � 2,653 � � Net income (loss) $ (494 ) $ (591 ) $ 1,245 $ 2,806 � Earnings (loss) per share Basic $ (0.06 ) $ (0.06 ) $ 0.14 $ 0.29 Diluted $ (0.06 ) $ (0.06 ) $ 0.14 $ 0.29 Weighted average shares outstanding Basic 8,366,643 9,580,275 8,856,419 9,559,791 Diluted 8,366,643 9,580,275 8,873,227 9,559,791 LEGACY BANCORP, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS AND OTHER DATA (Dollars in thousands except per share data) � Three Months Ended December 31, � Twelve Months Ended December 31, � 2007 � � � � 2006 � � � 2007 � � � 2006 � Financial Highlights: Net interest income $ 5,949 $ 5,687 $ 23,846 $ 23,576 Net income (loss) (494 ) (591 ) 1,245 2,806 Per share data: Earnings (loss) � basic (0.06 ) (0.06 ) 0.14 0.29 Earnings (loss) � diluted (0.06 ) (0.06 ) 0.14 0.29 Dividends declared 0.04 0.03 0.16 0.12 Book value per share � end of period 14.40 14.55 14.40 14.55 Tangible book value per share � end of period 13.01 14.25 13.01 14.25 � Ratios and Other Information: Return (loss) on average assets (0.22 ) % (0.30 ) % 0.15 % 0.36 % Return (loss) on average equity (1.45 ) % (1.63 ) % 0.88 % 1.92 % Net interest rate spread (1) 2.20 % 2.16 % 2.26 % 2.39 % Net interest margin (2) 2.89 % 3.00 % 3.01 % 3.15 % Efficiency ratio (3) 109.8 % 74.9 % 93.0 % 74.2 % Average interest-earning assets to average interest-bearing liabilities 120.96 % 127.81 % 123.37 % 127.61 % � At period end: Stockholders� equity $ 133,092 $ 149,997 Total assets 924,541 808,318 Equity to total assets 14.4 % 18.6 % Non-performing assets to total assets 0.17 % 0.11 % Non-performing loans to total loans 0.23 % 0.15 % Allowance for loan losses to non-performing loans 363.45 % 532.08 % Allowance for loan losses to total loans 0.85 % 0.80 % Number of full service offices 16 10 � (1) The net interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period. (2) The net interest margin represents net interest income as a percent of average interest-earning assets for the period. (3) The efficiency ratio represents non-interest expense for the period minus expenses related to the amortization of intangible assets divided by the sum of net interest income (before the loan loss provision) plus non-interest income (not including gains or losses on the sales of securities). � Three Months Ended December 31, 2007 � Three Months Ended December 31, 2006 Average Outs-tanding Balance � Interest � Yield/ Rate(1) Average Outs-tanding Balance � Interest � Yield/ Rate(1) (Dollars in thousands) Interest-earning assets: Loans - Net (2) $ 643,828 $ 10,599 6.58 % $ 571,783 $ 9,296 6.50 % Investment securities 158,907 1,956 4.92 % 174,663 1,946 4.46 % Short-term investments � 20,791 � 223 4.29 % � 12,905 � 167 5.18 % Total interest-earning assets 823,526 12,778 6.21 % 759,351 11,409 6.01 % Non-interest-earning assets � 55,879 � 41,632 Total assets $ 879,405 $ 800,983 Interest-bearing liabilities: Savings deposits $ 45,756 51 0.45 % $ 52,968 59 0.45 % Relationship Savings 105,748 930 3.52 % 91,094 1,017 4.47 % Money market 50,934 470 3.69 % 53,049 447 3.37 % NOW accounts 34,699 58 0.67 % 36,071 49 0.54 % Certificates of deposits � 246,216 � 3,000 4.87 % � 220,837 � 2,530 4.58 % Total interest-bearing deposits 483,353 4,509 3.73 % 454,019 4,102 3.61 % Borrowed Funds � 197,446 � 2,320 4.70 % � 140,121 � 1,620 4.62 % Total interest-bearing liabilities 680,799 6,829 4.01 % 594,140 5,722 3.85 % Non-interest-bearing liabilities � 62,461 � 61,618 Total liabilities 743,260 655,758 Equity � 136,145 � 145,225 Total liabilities and equity $ 879,405 $ 800,983 � Net interest income $ 5,949 $ 5,687 � Net interest rate spread (3) 2.20 % 2.16 % Net interest-earning assets (4) $ 142,727 $ 165,211 � Net interest margin (5) 2.89 % 3.00 % Average interest-earning assets to interest-bearing liabilities 120.96 % 127.81 % � (1) Yields and rates for the three months ended December 31, 2007 and 2006 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 for the three months ended December 31, 2007 and 2006. (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. � � Twelve Months Ended December 31, 2007 � � Twelve Months Ended December 31, 2006 � Average Out-standing Balance � Interest � Yield/ Rate(1) � Average Out-standing Balance � Interest � Yield/ Rate(1) � (Dollars in thousands) Interest-earning assets: Loans - Net (2) $ 614,567 $ 40,460 6.58 % $ 564,446 $ 35,905 6.36 % Inves-tment securities 163,860 8,261 5.04 % 175,006 7,547 4.31 % Short-term invest-ments � 13,558 � 636 4.69 % � 9,386 � 463 4.93 % Total interest-earning assets 791,985 49,357 6.23 % 748,838 43,915 5.86 % Non-interest-earning assets � 50,212 � 41,187 Total assets $ 842,197 $ 790,025 Interest-bearing liabil-ities: Savings deposits $ 46,986 206 0.44 % $ 56,759 248 0.44 % Relat-ionship Savings 101,798 3,949 3.88 % 78,628 3,049 3.88 % Money market 53,523 1,961 3.66 % 52,911 1,556 2.94 % NOW accounts 35,333 230 0.65 % 37,633 130 0.35 % Certif-icates of deposits � 240,571 � 11,500 4.78 % � 213,448 � 8,825 4.13 % Total interest-bearing deposits 478,211 17,846 3.73 % 439,379 13,808 3.14 % Borrowed Funds � 163,750 � 7,665 4.68 % � 147,421 � 6,531 4.43 % Total interest-bearing liabil-ities 641,961 25,511 3.97 % 586,800 20,339 3.47 % Non-interest-bearing liabil-ities � 58,024 � 57,185 Total liabil-ities 699,985 643,985 Equity � 142,212 � 146,040 Total liabil-ities and equity $ 842,197 $ 790,025 � Net interest income $ 23,846 $ 23,576 � Net interest rate spread (3) 2.26 % 2.39 % Net interest-earning assets (4) $ 150,024 $ 162,038 � Net interest margin (5) 3.01 % 3.15 % Average interest-earning assets to interest-bearing liabilities 123.37 % 127.61 % � (1) Yields and rates for the twelve months ended December 31, 2007 and 2006 are actual. (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 for the twelve months ended December 31, 2007 and 2006. (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. Reconciliation of Non-GAAP Financial Measures This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (�GAAP�). The Company�s management uses these non-GAAP measures in its analysis of the Company�s performance. These measures typically adjust GAAP performance measures to exclude significant gains or losses that are expected to be non-recurring and to exclude the effects of amortization of intangible assets (in the case of the efficiency ratio). Because these items and their impact on the Company�s performance are generally non-recurring, management believes that presentations of financial measures excluding the impact of these items provide useful supplemental information that is essential to a proper understanding of the operating results of the Company�s core businesses. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. � Three Months Ended December 31, � Twelve Months Ended December 31, 2007 � � � 2006 � � 2007 � � � 2006 � � Net Income (loss) (GAAP) $ (494 ) $ (591 ) $ 1,245 $ 2,806 Less: Gain on termination of defined benefit plan - (605 ) - (605 ) Add back: Severance and other expenses related to reduction in workforce and retirements 1,511 - 1,511 - Less: (Gain) loss on sale of securities, net 49 1,888 (510 ) 1,736 Adjustment: Income taxes related to non- recurring adjustments noted above (678 ) (496 ) (450 ) (411 ) Adjustment to tax valuation reserve for charitable contribution carryforward � 40 � � � 659 � � � 40 � � � 659 � � Net Income (Core) $ 428 � � $ 855 � � $ 1,836 � � $ 4,185 � � Efficiency Ratio (As Reported) 109.8 % 74.9 % 93.0 % 74.2 % Effect of gain on termination of defined benefit plan - 6.3 - 1.6 Effect of severance and other expenses related to reduction in workforce and retirements (22.9 ) - (5.8 ) - Effect of gain on sale of securities, net � - � � � - � � � - � � � - � � Efficiency Ratio (Core) � 86.9 � % � 81.2 � % � 87.2 � % � 75.8 � %