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 $1.2 million or $0.15 per diluted share for the quarter ended March 31, 2010, compared to a net loss of $792,000 or $0.10 per diluted share in the first quarter of 2009. The first quarter decrease was the result of an increase in the provision for loan losses, partially offset by a decrease in charges on investments deemed to be other-than-temporarily impaired (OTTI). The total shares outstanding resulted in a book value per share and tangible book value per share of $13.80 and $12.40, respectively, at March 31, 2010.

J. Williar Dunlaevy, Chief Executive Officer, commented “While we are disappointed to start off 2010 by reporting a net loss, there are also some bright and encouraging components within our report for the first quarter.

“We continue to be disciplined each and every quarter in assessing credit quality. Individuals and businesses continue to face economic challenges from the recession. While there have been some positive signals, both locally and nationally, unemployment and weak job growth remain major concerns. They impact both borrowers and property valuation. The result is that in the first quarter we added to our loan loss reserves and also took charge-offs against certain non-performing loans. While these charge-offs have lowered the overall reserve ratio to 1.25%, much of those amounts were reserved for in previous quarters. As a result of the charges taken, the levels of non-performing loans and assets declined significantly. Legacy will continue to identify and work problem loan situations diligently.

“On the positive side, we are very pleased with the deposit growth generated by our branch network in the first quarter, which has allowed us to continue to reduce our borrowings from the Federal Home Loan Bank. Additionally, we have been diligent in reducing the overall cost of funds, resulting in an increase to our net interest margin as compared to the fourth quarter of 2009.

“On April 1st Patrick J. Sullivan became President and CEO of Legacy Banks and President of Legacy Bancorp. We could not be more pleased about Pat coming on board. He is a person of high energy with a proven track record of over thirty years of experience building growth and profitability. He already has the management team focused on a profit improvement plan aimed at margin expansion, expense reduction, expanding core commercial services while diversifying away from commercial real estate, and building household relationships through basic lending products.

“Earlier this month we were very proud to announce the agreement to acquire the Renaissance Investment Group, LLC, of Pittsfield, Massachusetts. This registered independent investment advisory company has enjoyed tremendous success since its inception in 2000. This transaction is a significant revenue opportunity as we leverage Renaissance with our existing wealth management programs and our overall customer base.

“Our capital to asset ratio, at 12.7%, continues to be very strong and is the foundation of a very strong balance sheet. While Legacy, and the industry in general, continue to face the current economic and financial challenges, we are more confident than ever in our financial strength, and our ability to grow and build shareholder value.”

The Company’s overall balance sheet remained relatively flat, decreasing by $41,000 from $946.3 million at December 31, 2009 to $946.2 million at March 31, 2010. Within the overall asset balances, the gross loan portfolio, excluding loans held for sale, decreased by $16.0 million, or 2.4% in the first quarter of 2010. Residential mortgages decreased $6.2 million, or 2.2% as the majority of the residential mortgage activity was in the 30 year fixed rate category, a product which the Bank currently sells in the secondary market with servicing retained. Commercial real estate loans decreased $9.0 million, or 3.4%, primarily due to loan payoffs and specific loan charge offs during the quarter. The available-for-sale investment portfolio increased by $12.8 million or 7.6%, while cash and cash equivalents decreased by $1.6 million, or 4.0% at March 31, 2010 as compared to year end.

Deposits have increased by $9.9 million, or 1.5%, to $661.2 million from a balance of $651.4 million at December 31, 2009. Deposits increased primarily in money market accounts and relationship savings which increased $8.4 million, or 13.3% and $13.4 million or 10.7%, respectively. These increases were partially offset by decreases in demand accounts and certificate of deposits (CD’s). Advances from the Federal Home Loan Bank of Boston (FHLBB) have decreased by $10.0 million, or 6.2% at March 31, 2010 as compared to the end of 2009 as the increase in overall deposits allowed the Bank to pay off high rate FHLBB borrowings as they matured during the quarter.

Overall stockholders’ equity decreased by $1.0 million, or 0.9% during the first quarter of 2010. Total equity was impacted by the net loss of $1.2 million, the declaration of a dividend of $0.05 per share during the first quarter and the purchase of 15,200 shares of stock at an average price of $9.56 per share as part of the Stock Repurchase Program announced in March 2009. These decreases to equity were partially offset by the amortization of unearned compensation and an increase in the unrealized gain on available-for-sale investment securities.

Overall nonperforming loans (NPLs) were $12.2 million at March 31, 2010, a decrease of $7.4 million as compared to the end of 2009. Part of this decrease was a result of the Bank charging off $5.4 million of loan balances, $3.8 million of which had been reserved for in previous quarters. These charge-offs also reduced the overall ratio of nonperforming assets to total assets to 1.47% at March 31, 2010 as compared to 2.20% at December 31, 2009. Legacy is, and always has been, diligent in evaluating its loan portfolio, especially given the current volatility in the credit markets. The provision for loan losses was $2.4 million in the first quarter of 2010, an increase of $1.7 million as compared to the same period in 2009. This increase was the result of a continuous review and analysis of current market and economic conditions by management, as well as higher specific reserves established against certain loans in the first quarter of 2010. The charge-offs of NPLs also resulted in the reduction in the ratio of the allowance for loan losses to total loans to 1.25% at March 31, 2010, as compared to 1.67% at December 31, 2009 and 1.05% at March 31, 2009.

The Company’s net interest income decreased by $203,000, or 2.9% in the first quarter of 2010 as compared to the same period in 2009. The net interest margin (NIM) was 3.16% for the three months ended March 31, 2010, a decrease of 2 basis points from the first quarter of 2009, but an increase of 11 basis points from the fourth quarter of 2009 as the Bank has been diligent in lowering the costs of its average interest-bearing liabilities.

Non-interest income for the first quarter increased $1.3 million from the same period of 2009. The primary cause of the increase was the decrease in the amount of writedowns taken on investments deemed to be OTTI. The Bank incurred $299,000 of OTTI charges on certain limited partnership investments in 2010 as compared to OTTI charges of $1.6 million on certain bonds, equity securities and limited partnership investments in the first quarter of 2009. The Bank also had increases in fees from customers, portfolio management fees and gains on sale of investments, partially offset by a decrease on the gain on sale of mortgages.

Operating expenses increased by $96,000, or 1.4% for the first quarter of 2010 as compared to the same period of 2009. The bank had small increases in salaries and benefits, data processing, professional fees and FDIC insurance expense, offset by decreases in occupancy and advertising expense. The Company’s core efficiency ratio (reported efficiency ratio net of effect of non-core adjustments) for the quarter increased to 87.4% as compared to 83.6% in the first quarter of 2009 due to the decrease in net interest income and increase in operating expenses.

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 April 29, 2010. Persons wishing to access the conference call may do so by dialing 877-407-0778. Replays of the conference call will be available beginning April 29, 2010 at 6:00 p.m. (Eastern Time) through May 5, 2010 at 11:59 p.m. (Eastern Time) by dialing 877-660-6853 and using Account #286 and Conference ID #348947 (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, except per share amounts)   March 31,   December 31, 2010 2009 ASSETS (Unaudited) Cash and due from banks $ 14,073 $ 11,281 Short-term investments   24,470     28,874   Cash and cash equivalents 38,543 40,155 Securities - Available for sale 180,195 167,426 Securities - Held to maturity 97 97 Restricted equity securities and other investments - at cost 17,090 17,193 Loans held for sale 1,018 706 Loans, net of allowance for loan losses of $8,099 in 2010 and $11,089 in 2009 639,560 652,628 Premises and equipment, net 19,654 19,568 Accrued interest receivable 3,191 3,306 Goodwill, net 9,730 9,730 Net deferred tax asset 8,810 10,202 Bank-owned life insurance 16,419 16,263 Foreclosed assets 1,781 1,195 Other assets   10,136     7,796   $ 946,224   $ 946,265   LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing $ 68,491 $ 75,232 Interest-bearing   592,753     576,146   Total deposits 661,244 651,378 Securities sold under agreements to repurchase 6,165 6,386 Federal Home Loan Bank advances 150,349 160,352 Mortgagors' escrow accounts 1,095 1,058 Accrued expenses and other liabilities   7,047     5,724   Total liabilities   825,900     824,898   Commitments and contingencies Stockholders' Equity

Preferred Stock ($.01 par value, 10,000,000 sharesauthorized, none issued or outstanding)

- -

 

 

Common Stock ($.01 par value, 40,000,000 sharesauthorized and 10,308,600 issued at March 31, 2010 andDecember 31, 2009; 8,719,512 outstanding at March 31, 2010and 8,734,712 outstanding at December 31, 2009)

    103 103 Additional paid-in-capital 102,857 102,788 Unearned Compensation - ESOP (7,139 ) (7,322 ) Unearned Compensation - Equity Incentive Plan (1,858 ) (2,078 ) Retained earnings 47,295 48,998 Accumulated other comprehensive income 1,044 711

Treasury stock, at cost (1,589,088 shares at March 31, 2010and 1,573,888 shares at December 31, 2009)

  (21,978 )   (21,833 ) Total stockholders' equity   120,324     121,367   $ 946,224   $ 946,265       LEGACY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) Three Months Ended March 31, 2010   2009 (Unaudited) Interest and dividend income: Loans $ 9,296 $ 10,033 Securities: Taxable 1,185 1,746 Tax-Exempt 167 154 Short-term investments   6     4   Total interest and dividend income   10,654     11,937   Interest expense: Deposits 2,439 3,005 Federal Home Loan Bank advances 1,449 1,954 Other borrowed funds   10     19   Total interest expense   3,898     4,978   Net interest income 6,756 6,959 Provision for loan losses   2,421     728   Net interest income after provision for loan losses   4,335     6,231     Non-interest income: Customer service fees 722 680 Portfolio management fees 280 221 Income from bank owned life insurance 154 172 Insurance, annuities and mutual fund fees 20 22 Gain (loss) on sales of securities, net 101 (19 ) Impairment losses on securities, net (299 ) (1,581 ) Gain on sales of loans, net 60 199 Miscellaneous   11     12  

Total non-interest income

  1,049     (294 ) Non-interest expenses: Salaries and employee benefits 3,475 3,444 Occupancy and equipment 991 1,049 Data processing 694 664 Professional fees 323 245 Advertising 319 326 FDIC deposit insurance 269 250 Other general and administrative   1,102     1,099   Total non-interest expenses   7,173     7,077     Income (loss) before income taxes (1,789 ) (1,140 )   Provision (benefit) for income taxes   (545 )   (348 )   Net income (loss) $ (1,244 ) $ (792 ) Earnings (loss) per share Basic $ (0.15 ) $ (0.10 ) Diluted $ (0.15 ) $ (0.10 ) Weighted average shares outstanding Basic 8,028,621 7,977,953 Diluted 8,028,621 7,977,953     LEGACY BANCORP, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS AND OTHER DATA (Dollars in thousands except per share data)   Three Months Ended March 31,   2010       2009   Financial Highlights: Net interest income $ 6,756 $ 6,959 Net income (loss) (1,244) (792) Per share data: Earnings (loss) — basic (0.15) (0.10) Earnings (loss) — diluted (0.15) (0.10) Dividends declared 0.05 0.05 Book value per share — end of period 13.80 14.13 Tangible book value per share — end of period 12.40 12.69   Ratios and Other Information: Return (loss) on average assets (0.53) % (0.33) % Return (loss) on average equity (4.02) % (2.53) % Net interest rate spread (1) 2.87 % 2.81 % Net interest margin (2) 3.16 % 3.18 % Efficiency ratio (3) 87.4 % 83.6 %

Average interest-earning assets to averageinterest-bearing liabilities

115.92 % 116.45 %   At period end: Stockholders’ equity $ 120,324 $ 124,112 Total assets 946,224 968,095 Equity to total assets 12.7 % 12.8 % Non-performing assets to total assets 1.47 % 1.16 % Non-performing loans to total loans 1.88 % 1.61 % Allowance for loan losses to non-performing loans 66.56 % 65.42 % Allowance for loan losses to total loans 1.25 % 1.05 % Number of full service offices 19 19  

(1) The net interest rate spread represents the difference between the yield on total average interest-earningassets and the cost of total average interest-bearing liabilities for the period.

(2) The net interest margin represents net interest income as a percent of average interest-earning assets forthe period.

(3) The efficiency ratio represents non-interest expense for the period minus expenses related to theamortization of intangible assets other than the amortization of mortgage servicing rights, divided by thesum of net interest income (before the loan loss provision) plus non-interest income (excluding net gains orlosses on the sale or impairment of securities).

   

Analysis of Net Interest Margin – First Quarter:

                  Three Months Ended March 31, 2010 Three Months Ended March 31, 2009

AverageOutstanding Balance

  Interest   Yield/ Rate(1)

AverageOutstanding Balance

  Interest   Yield/ Rate(1) (Dollars in thousands) Interest-earning assets: Loans - Net (2) $ 647,710 $ 9,296 5.74% $ 694,359 $ 10,033 5.78% Investment securities 190,406 1,352 2.84% 158,293 1,900 4.80% Short-term investments   15,743     6   0.15%   22,121     4   0.07% Total interest-earning assets 853,859 10,654 4.99% 874,773 11,937 5.46% Non-interest-earning assets   78,336   73,681 Total assets $ 932,195 $ 948,454 Interest-bearing liabilities: Savings deposits $ 50,232 33 0.26% $ 50,142 48 0.38% Relationship savings 128,198 324 1.01% 123,614 478 1.55% Money market 64,336 131 0.81% 57,454 199 1.39% NOW accounts 44,208 34 0.31% 41,486 49 0.47% Certificates of deposits   289,174     1,917   2.65%   279,579     2,231   3.19% Total interest-bearing deposits 576,148 2,439 1.69% 552,275 3,005 2.18% Borrowed funds   160,469     1,459   3.64%   198,926     1,973   3.97% Total interest-bearing liabilities 736,617 3,898 2.12% 751,201 4,978 2.65% Non-interest-bearing liabilities   71,916   71,839 Total liabilities 808,533 823,040 Equity   123,662   125,414 Total liabilities and equity $ 932,195 $ 948,454   Net interest income $ 6,756 $ 6,959   Net interest rate spread (3) 2.87% 2.81% Net interest-earning assets (4) $ 117,242 $ 123,572   Net interest margin (5) 3.16% 3.18% Average interest-earning assets to interest-bearing liabilities 115.92% 116.45%   (1) Yields and rates for the three months ended March 31, 2010 and 2009 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 March 31, 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.    

Loan Portfolio Composition:

          At March 31, 2010 At December 31, 2009 Amount Percent   Amount Percent   (Dollars in Thousands) Mortgage loans on real estate: Residential $ 279,419 43.23 % $ 285,618 43.12 % Commercial 254,866 39.44 263,910 39.85 Home equity   68,771 10.64     69,625 10.51     603,056 93.31     619,153 93.48   Other loans: Commercial 31,829 4.93 31,373 4.74 Consumer and other   11,401 1.76     11,791 1.78     43,230 6.69     43,164 6.52   Total loans 646,286 100.00 % 662,317 100.00 % Other Items: Net deferred loan costs 1,373 1,400 Allowance for loan losses   (8,099)   (11,089)   Total Loans, net $ 639,560 $ 652,628    

Nonperforming Loans:

    At March 31, At December 31, 2010 2009 (Dollars in Thousands) Non-accrual loans: Residential mortgage $ 3,519 $ 4,822 Commercial mortgage 7,974 13,942 Commercial 666 743 Home equity, consumer and other   9     71   Total non-accrual loans   12,168     19,578   Loans greater than 90 days delinquent and still accruing: Residential mortgage - - Commercial mortgage - - Commercial - - Home equity, consumer and other   -     -   Total loans 90 days delinquent and still accruing   -     -   Total non-performing loans   12,168     19,578   Other real estate owned   1,781     1,195   Total non-performing assets (NPAs) $ 13,949   $ 20,773   Troubled debt restructurings included in NPAs $ 3,514 $ 5,904 Troubled debt restructurings not included in NPAs   5,526     4,886   Total troubled debt restructurings $ 9,040   $ 10,790   Ratios: Non-performing loans to total loans 1.88 % 2.96 % Non-performing assets to total assets 1.47 % 2.20 %    

Securities and Other Investment Portfolio Composition:

        At March 31, 2010 At December 31, 2009

Amortized Cost

Fair Value

Amortized Cost

  Fair Value (Dollars in Thousands) Securities available for sale: Government-sponsored enterprises (GSE) $ 91,117 $ 91,233 $ 80,393 $ 79,976 Municipal bonds 17,034 17,359 17,521 17,875 Corporate bonds and other obligations 1,318 1,347 1,321 1,351 GSE residential mortgage-backed 27,869 28,808 29,591 30,503 U.S. Government guaranteed residential mortagage-backed   37,471   37,627   33,625   33,636 Total debt securities   174,809   176,374   162,451   163,341 Common stock   3,120   3,821   3,239   4,085 Total securities available for sale   177,929   180,195   165,690   167,426 Securities held to maturity:         Other bonds and obligations   97   97   97   97 Restricted equity securities and other investments: Federal Home Loan Bank of Boston stock 10,932 10,932 10,932 10,932 Savings Bank Life Insurance 1,709 1,709 1,709 1,709 Real estate partnerships 4,296 4,296 4,397 4,397 Other investments   153   153   155   155

Total restricted equity securitiesand other investments

  17,090   17,090   17,193   17,193 Total securities $ 195,116 $ 197,382 $ 182,980 $ 184,716    

Deposit Accounts Composition:

        At March 31, 2010 At December 31, 2009 Balance Percent   Balance Percent   (Dollars in Thousands) Deposit type: Demand $ 68,491 10.36 % $ 75,232 11.55 % Regular savings 51,563 7.80 49,883 7.66 Relationship savings 138,761 20.99 125,328 19.24 Money market deposits 71,453 10.80 63,077 9.68 NOW deposits   43,895 6.64     48,546 7.45   Total transaction accounts   374,163 56.58     362,066 55.58   Term certificates less than $100,000 172,053 26.02 174,284 26.76 Term certificates $100,000 or more   115,028 17.40     115,028 17.66   Total certificate accounts   287,081 43.42     289,312 44.42   Total deposits $ 661,244 100.00 % $ 651,378 100.00 %    

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 difficult to predict, 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 March 31,   2010         2009     Net Income (loss) (GAAP) $ (1,244 ) $ (792 ) Less: (Gain) loss on sale or impairment of securities, net 198 1,600

Adjustment: Income taxes related to non-recurring adjustments noted above

(60 ) (488 ) Adjustment to deferred tax valuation reserve   -       -     Net Income (Core) $ (1,106 )   $ 320     Efficiency Ratio (As Reported) 87.4 % 83.6 % Effect of gain or loss on sale or impairment of securities, net - - Effect of FDIC deposit insurance special assessment   -       -     Efficiency Ratio (Core)   87.4   %   83.6   %