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 $1.4 million, or $0.17 per diluted share, for the quarter ended June 30, 2010, compared to a net loss of $1.5 million, or $0.19 per diluted share, in the second quarter of 2009. Year to date, the Company has incurred a net loss of $2.6 million, or $0.33 per diluted share, as compared to a net loss of $2.3 million for the same period in 2009. The year to date increase in net loss 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 $13.66 and $11.90, respectively, at June 30, 2010.

J. Williar Dunlaevy, Chief Executive Officer, commented “The major factor behind our reporting a net operating loss for the second quarter is the continuing weak economy, which has turned even weaker in recent weeks. The weak economy manifests itself in a number of ways, including declining asset values, particularly commercial real estate. Objectively seeking and recognizing current property valuations is what led us to increase both our loan loss provision and charge-offs in both the first and second quarters. On the positive side, these actions have also been a factor in our non-performing loan and asset measures improving modestly.

“Patrick J. Sullivan became President and CEO of Legacy Banks effective April 1, 2010. Pat Sullivan brings the large financial institution experience and management strengths the board identified that Legacy would need as we grow and expand. Primary among them are credit, risk and performance management. As expected with a new CEO, he has hit the ground running in his first four months taking the actions that will set the stage for significantly improved performance. Pat Sullivan has our management team focusing on five profit improvement fundamentals: proactive risk management practices, liability repricing opportunities, significant expense reduction, diversification from commercial real estate, and synergies in combining our wealth management platforms.

“Pat has broad and extensive experience in all aspects of risk management. He already has conducted an in depth review of our balance sheet. Credit has been foremost in that process. He has reviewed all of our major credit relationships, as well as credit administration and risk rating integrity. His objective and disciplined approach to valuations was evident in the charges we took in the second quarter. With respect to commercial real estate, we have segmented our former national lending program into in-market (New England and New York) and out-of-market. That out-of-market segment will be allowed to run off through normal amortization and prepayments. Although the national program has performed well, this restructuring makes better use of our lending talent in markets where we have our distribution network.

“In April we announced that we would be acquiring the Renaissance Investment Group, an outstanding independent registered investment advisory firm based in Pittsfield. The acquisition was completed on April 30th, and we have subsequently decided to transfer the investment management portion of Legacy Portfolio Management over to the Renaissance platform. This will enable us to provide enhanced investment management to our clients and also achieve substantial efficiencies on the expense side.

“Legacy continues to have very strong capital and liquidity. We were pleased to pay our 18th consecutive quarterly dividend on July 1, 2010. We also repurchased 43,000 shares during the first half of 2010 as part of our current stock repurchase program. These are both important strategies within the framework of our overall capital planning.

“Our retail network continues to generate strong growth in deposit balances, accounts and customers. This has enabled us to pay down borrowings at the Federal Home Loan Bank of Boston and to stabilize our net interest margin with strategic liability repricing. On the other side of the balance sheet, our new Home Equity Line of Credit promotion has doubled production.”

The Company’s total assets increased by $10.0 million from $946.3 million at December 31, 2009 to $956.2 million at June 30, 2010. Within the overall asset balances, the gross loan portfolio, excluding loans held for sale, decreased by $7.4 million, or 1.1 %, in the first six months of 2010. Residential mortgages have decreased $7.2 million, or 2.6%, 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 $2.1 million, or 0.8%, primarily due to loan payoffs and specific loan charge-offs, while other commercial loans increased $2.4 million, or 7.6%. The available-for-sale investment portfolio increased by $17.1 million, or 10.2%, while cash and cash equivalents decreased by $8.3 million, or 20.6%, at June 30, 2010 as compared to year end.

Deposits have increased by $23.4 million, or 3.6%, to $674.8 million from a balance of $651.4 million at December 31, 2009. Deposits increased primarily in money market accounts and relationship savings which increased $9.3 million, or 14.7%, and $17.2 million, or 13.7%, respectively. These increases were partially offset by decreases in demand accounts. Advances from the Federal Home Loan Bank of Boston (FHLBB) have decreased by $11.8 million, or 7.3%, at June 30, 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 2010.

Overall stockholders’ equity decreased by $2.5 million, or 2.0%, for the first six months of 2010. Total equity was impacted by the net loss of $2.6 million, the declaration of a dividend of $0.05 per share during each of the first and second quarters and the purchase of 43,000 shares of stock at an average price of $9.30 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 $15.8 million at June 30, 2010, a decrease of $3.8 million as compared to the end of 2009. This decrease was primarily the result of the Bank charging off $7.8 million of loan balances, $4.0 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 1.79% at June 30, 2010 as compared to 2.20% at December 31, 2009. The provision for loan losses was $3.8 million in the second quarter of 2010, an increase of $2.3 million as compared to the same period in 2009. Through June 30, 2010 the provision expense was $6.2 million, which represents an increase of $3.9 million as compared to the first half of 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 second 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 1.45% at June 30, 2010, as compared to 1.67% at December 31, 2009.

The Company’s net interest income decreased by $163,000, or 2.4%, in the second quarter of 2010 as compared to the same period in 2009 and by $366,000, or 2.6%, year to date. The net interest margin (NIM) was 3.12% for the three months ended June 30, 2010, a decrease of 4 basis points from the first quarter of 2010, but the same as in the second quarter of 2009. Year to date, the NIM was 3.14% in 2010 as compared to 3.15% in the same period of 2009 as decreases to the cost of funds resulting from the Bank’s diligent efforts in lowering deposit costs were offset by a decrease in asset yields.

Non-interest income for the second quarter increased $2.4 million from the same period of 2009. Year to date, non-interest income totaled $3.7 million as compared to a net charge of $94,000 for the first half of 2009. The primary cause of the increase was the decrease in the amount of writedowns taken on investments deemed to be OTTI as well as an increase in the net gain on the sale of investment securities. The Bank also had increases in customer fees, portfolio management, insurance and other fees, partially offset by a decrease on the gain on sale of mortgages.

Operating expenses increased by $115,000, or 1.5%, for the second quarter of 2010 as compared to the same period of 2009, and by $212,000, or 1.4%, year to date. Increases in salaries and benefits, data processing, professional fees and other general and administration expense were partially offset by a decrease in FDIC insurance expense. The Company’s core efficiency ratio (reported efficiency ratio net of effect of non-core adjustments) for the quarter has increased to 90.9% as compared to 83.1% in the second quarter of 2009 primary due to the decrease in net investment income and the increase in core expenses. Year to date the core efficiency ratio has increased to 89.2% in 2010 from 83.4% in the first six months of 2009.

CONFERENCE CALL

J. Williar Dunlaevy, Chairman and Chief Executive Officer, and Paul H. Bruce, Chief Financial Officer, will host a conference call at 9:00 a.m. (Eastern Time) on Tuesday July 27, 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 July 27, 2010 at 6:00 p.m. (Eastern Time) through August 27, 2010 at 11:59 p.m. (Eastern Time) by dialing 877-660-6853 and using Account #286 and Conference ID #353483 (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)   June 30,   December 31, 2010 2009 ASSETS (Unaudited) Cash and due from banks $ 13,028 $ 11,281 Short-term investments   18,859     28,874   Cash and cash equivalents 31,887 40,155 Securities - Available for sale 184,560 167,426 Securities - Held to maturity 97 97 Restricted equity securities and other investments - at cost 18,998 17,193 Loans held for sale 804 706 Loans, net of allowance for loan losses of $9,468 in 2010 and $11,089 in 2009 646,781 652,628 Premises and equipment, net 19,515 19,568 Accrued interest receivable 3,191 3,306 Goodwill, net 11,558 9,730 Other intangible assets 3,816 2,654 Net deferred tax asset 9,231 10,202 Bank-owned life insurance 16,651 16,263 Foreclosed assets 1,336 1,195 Other assets   7,814     5,142   $ 956,239   $ 946,265   LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing $ 70,651 $ 75,232 Interest-bearing   604,125     576,146   Total deposits 674,776 651,378 Securities sold under agreements to repurchase 3,927 6,386 Federal Home Loan Bank advances 148,595 160,352 Mortgagors' escrow accounts 930 1,058 Accrued expenses and other liabilities   9,125     5,724   Total liabilities   837,353     824,898   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 June 30, 2010 and December 31, 2009; 8,701,712 outstanding at June 30, 2010 and 8,734,712 outstanding at December 31, 2009) 103 103 Additional paid-in-capital 102,951 102,788 Unearned Compensation - ESOP (6,956 ) (7,322 ) Unearned Compensation - Equity Incentive Plans (1,729 ) (2,078 ) Retained earnings 45,395 48,998 Accumulated other comprehensive income 1,191 711 Treasury stock, at cost (1,606,888 shares at June 30, 2010 and 1,573,888 shares at December 31, 2009)   (22,069 )   (21,833 ) Total stockholders' equity   118,886     121,367   $ 956,239   $ 946,265           LEGACY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2010 2009 2010 2009 (Unaudited) (Unaudited) Interest and dividend income: Loans $ 9,027 $ 9,803 $ 18,323 $ 19,835 Securities: Taxable 1,243 1,613 2,428 3,359 Tax-Exempt 160 168 327 322 Short-term investments   7     3     13     7   Total interest and dividend income   10,437     11,587     21,091     23,523   Interest expense: Deposits 2,278 2,798 4,717 5,804 Federal Home Loan Bank advances 1,402 1,859 2,851 3,813 Other borrowed funds   8     18     19     36   Total interest expense   3,688     4,675     7,587     9,653   Net interest income 6,749 6,912 13,504 13,870 Provision for loan losses   3,756     1,506     6,176     2,234   Net interest income after provision for loan losses   2,993     5,406     7,328     11,636     Non-interest income: Customer service fees 764 725 1,485 1,404 Portfolio management fees 480 269 761 490 Income from bank owned life insurance 142 156 297 329 Insurance, annuities and mutual fund fees 64 37 83 59 Gain on sales of securities, net 1,129 60 1,230 42 Impairment losses on securities, net (66 ) (1,430 ) (365 ) (3,011 ) Gain on sales of loans, net 70 370 131 570 Miscellaneous   48     11     59     23   Total non-interest income   2,631     198     3,681     (94 ) Non-interest expenses: Salaries and employee benefits 3,717 3,451 7,193 6,896 Occupancy and equipment 991 1,021 1,982 2,070 Data processing 760 671 1,454 1,334 Professional fees 268 232 591 477 Advertising 381 379 700 705 FDIC deposit insurance 271 665 540 897 Other general and administrative   1,377     1,231     2,479     2,348   Total non-interest expenses   7,765     7,650     14,939     14,727     Income (loss) before income taxes (2,141 ) (2,046 ) (3,930 ) (3,185 )   Provision (benefit) for income taxes   (765 )   (553 )   (1,310 )   (900 )   Net income (loss) $ (1,376 ) $ (1,493 ) $ (2,620 ) $ (2,285 )   Earnings (loss) per share Basic $ (0.17 ) $ (0.19 ) $ (0.33 ) $ (0.29 ) Diluted $ (0.17 ) $ (0.19 ) $ (0.33 ) $ (0.29 )  

Weighted average shares outstanding

Basic 8,020,690 7,979,133 8,024,633 7,978,768 Diluted 8,020,690 7,979,133 8,024,633 7,978,768           LEGACY BANCORP, INC. AND SUBSIDIARIES SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS AND OTHER DATA (Dollars in thousands except per share data) Three Months Ended June 30, Six Months Ended June 30, 2010 2009 2010 2009 Financial Highlights: Net interest income $ 6,749 $ 6,912 $ 13,504 $ 13,870 Net income (loss) (1,376 ) (1,493 ) (2,620 ) (2,285 ) Per share data: Earnings (loss) — basic (0.17 ) (0.19 ) (0.33 ) (0.29 ) Earnings (loss) — diluted (0.17 ) (0.19 ) (0.33 ) (0.29 ) Dividends declared 0.05 0.05 0.10 0.10 Book value per share — end of period 13.66 14.09 13.66 14.09 Tangible book value per share — end of period 11.90 12.64 11.90 12.64   Ratios and Other Information: Return (loss) on average assets (0.58 )% (0.62 )% (0.56 )% (0.48 )% Return (loss) on average equity (4.49 )% (4.73 )% (4.26 )% (3.63 )% Net interest rate spread (1) 2.86 % 2.76 % 2.87 % 2.79 % Net interest margin (2) 3.12 % 3.12 % 3.14 % 3.15 % Efficiency ratio (3) 90.9 % 88.1 % 89.2 % 85.9 % Average interest-earning assets to average interest-bearing liabilities 115.63 % 116.51 % 115.77 % 116.48 %   At period end: Stockholders’ equity $ 118,886 $ 123,386 Total assets 956,239 949,971 Equity to total assets 12.4 % 13.0 % Non-performing assets to total assets 1.79 % 1.57 % Non-performing loans to total loans 2.41 % 2.20 % Allowance for loan losses to non-performing loans 59.93 % 59.00 % Allowance for loan losses to total loans 1.45 % 1.30 % Number of full service offices 19 19   (1) The 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 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 other than the amortization of mortgage servicing rights, divided by the sum of net interest income (before the loan loss provision) plus non-interest income (excluding net gains or losses on the sale or impairment of securities).  

Analysis of Net Interest Margin – Second Quarter:

              Three Months Ended June 30, 2010 Three Months Ended June 30, 2009

AverageOutstandingBalance

  Interest   Yield/ Rate(1)    

AverageOutstandingBalance

  Interest   Yield/ Rate(1) (Dollars in thousands) Interest-earning assets: Loans - Net (2) $ 641,497 $ 9,027 5.63 % $ 685,660 $ 9,803 5.72 % Investment securities 206,586 1,403 2.72 % 183,022 1,781 3.89 % Short-term investments   16,122     7   0.17 %   18,488     3   0.06 % Total interest-earning assets 864,205 10,437 4.83 % 887,170 11,587 5.22 % Non-interest-earning assets   78,636   73,370 Total assets $ 942,841 $ 960,540   Interest-bearing liabilities: Savings deposits $ 51,976 34 0.26 % $ 51,768 44 0.34 % Relationship savings 139,321 300 0.86 % 120,731 380 1.26 % Money market 68,286 115 0.67 % 72,699 186 1.02 % NOW accounts 44,823 32 0.29 % 44,548 45 0.40 % Certificates of deposits   287,989     1,797   2.50 %   281,784     2,143   3.04 % Total interest-bearing deposits 592,395 2,278 1.54 % 571,530 2,798 1.96 % Borrowed funds   155,017     1,410   3.64 %   189,940     1,877   3.95 % Total interest-bearing liabilities 747,412 3,688 1.97 % 761,470 4,675 2.46 % Non-interest-bearing liabilities   72,859   72,890 Total liabilities 820,271 834,360 Equity   122,570   126,180 Total liabilities and equity $ 942,841 $ 960,540   Net interest income $ 6,749 $ 6,912   Net interest rate spread (3) 2.86 % 2.76 % Net interest-earning assets (4) $ 116,793 $ 125,700   Net interest margin (5) 3.12 % 3.12 % Average interest-earning assets to interest-bearing liabilities 115.63 % 116.51 %   (1) Yields and rates for the three months ended June 30, 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 June 30, 2010 and 2009. (4) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. (5) Net interest margin represents net interest income divided by average total interest-earning assets.  

Analysis of Net Interest Margin – Year to date:

              Six Months Ended June 30, 2010 Six Months Ended June 30, 2009

AverageOutstandingBalance

  Interest   Yield/ Rate(1)

AverageOutstandingBalance

  Interest   Yield/ Rate(1) (Dollars in thousands) Interest-earning assets: Loans - Net (2) $ 644,587 $ 18,323 5.69 % $ 689,985 $ 19,835 5.75 % Investment securities 198,540 2,755 2.78 % 170,726 3,681 4.31 % Short-term investments   15,934     13   0.16 %   20,295     7   0.07 % Total interest-earning assets 859,061 21,091 4.91 % 881,006 23,523 5.34 % Non-interest-earning assets   78,486   73,524 Total assets $ 937,547 $ 954,530   Interest-bearing liabilities: Savings deposits $ 51,109 67 0.26 % $ 50,960 93 0.36 % Relationship savings 133,790 623 0.93 % 122,164 858 1.40 % Money market 66,322 246 0.74 % 65,119 385 1.18 % NOW accounts 44,517 65 0.29 % 43,024 94 0.44 % Certificates of deposits   288,579     3,716   2.58 %   280,688     4,374   3.12 % Total interest-bearing deposits 584,317 4,717 1.61 % 561,955 5,804 2.07 % Borrowed funds   157,728     2,870   3.64 %   194,408     3,849   3.96 % Total interest-bearing liabilities 742,045 7,587 2.04 % 756,363 9,653 2.55 % Non-interest-bearing liabilities   72,389   72,367 Total liabilities 814,434 828,730 Equity   123,113   125,800 Total liabilities and equity $ 937,547 $ 954,530   Net interest income $ 13,504 $ 13,870   Net interest rate spread (3) 2.87 % 2.79 % Net interest-earning assets (4) $ 117,016 $ 124,643   Net interest margin (5) 3.14 % 3.15 % Average interest-earning assets to interest-bearing liabilities 115.77 % 116.48 %   (1) Yields and rates for the six months ended June 30, 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 six months ended June 30, 2010 and 2009. (4) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. (5) Net interest margin represents net interest income divided by average total interest-earning assets.  

Loan Portfolio Composition:

        At June 30, 2010 At December 31, 2009 Amount Percent Amount Percent (Dollars in Thousands) Mortgage loans on real estate: Residential $ 278,386 42.51 % $ 285,618 43.12 % Commercial 261,787 39.97 263,910 39.85 Home equity   69,493   10.61     69,625   10.51     609,666   93.09     619,153   93.48   Other loans: Commercial 33,760 5.16 31,373 4.74 Consumer and other   11,492   1.75     11,791   1.78     45,252   6.91     43,164   6.52   Total loans 654,918 100.00 % 662,317 100.00 % Other Items: Net deferred loan costs 1,331 1,400 Allowance for loan losses   (9,468 )   (11,089 )   Total Loans, net $ 646,781   $ 652,628    

Nonperforming Loans:

  At June 30,   At December 31, 2010 2009 (Dollars in Thousands) Non-accrual loans: Residential mortgage $ 3,672 $ 4,822 Commercial mortgage 11,476 13,942 Commercial 583 743 Home equity, consumer and other   68     71   Total non-accrual loans   15,799     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   15,799     19,578   Other real estate owned   1,336     1,195   Total non-performing assets (NPAs) $ 17,135   $ 20,773   Troubled debt restructurings included in NPAs $ 4,475 $ 5,904 Troubled debt restructurings not included in NPAs   6,792     4,886   Total troubled debt restructurings $ 11,267   $ 10,790   Ratios: Non-performing loans to total loans 2.41 % 2.96 % Non-performing assets to total assets 1.79 % 2.20 %  

Securities and Other Investment Portfolio Composition:

  At June 30, 2010 At December 31, 2009

Amortized Cost

  Fair Value

Amortized Cost

  Fair Value (Dollars in Thousands) Securities available for sale: Government-sponsored enterprises (GSE) $ 109,661 $ 110,374 $ 80,393 $ 79,976 Municipal bonds 12,060 12,328 17,521 17,875 Corporate bonds and other obligations 1,315 1,343 1,321 1,351 GSE residential mortgage-backed 16,768 17,631 29,591 30,503 U.S. Government guaranteed residential mortagage-backed   39,217   40,055   33,625   33,636 Total debt securities   179,021   181,731   162,451   163,341   Common stock   3,080   2,829   3,239   4,085   Total securities available for sale   182,101   184,560   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 6,205 6,205 4,397 4,397 Other investments   153   152   155   155 Total restricted equity securities and other investments   18,999   18,998   17,193   17,193   Total securities $ 201,197 $ 203,655 $ 182,980 $ 184,716    

Deposit Accounts Composition:

  At June 30, 2010 At December 31, 2009 Balance   Percent Balance   Percent (Dollars in Thousands) Deposit type: Demand $ 70,651 10.47 % $ 75,232 11.55 % Regular savings 52,461 7.78 49,883 7.66 Relationship savings 142,538 21.12 125,328 19.24 Money market deposits 72,337 10.72 63,077 9.68 NOW deposits   46,516 6.89     48,546 7.45     Total transaction accounts   384,503 56.98     362,066 55.58     Term certificates less than $100,000 168,413 24.96 174,284 26.76 Term certificates $100,000 or more   121,860 18.06     115,028 17.66     Total certificate accounts   290,273 43.02     289,312 44.42     Total deposits $ 674,776 100.00 % $ 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 June 30, Six Months Ended June 30, 2010   2009 2010   2009 Net Income (loss) (GAAP) $ (1,376 ) $ (1,493 ) $ (2,620 ) $ (2,285 )   Less: (Gain) loss on sale or impairment of securities, net (1,063 ) 1,370 (865 ) 2,969

Add: FDIC deposit insurance special assessment

425 425   Adjustment: Income taxes related to non- recurring adjustments noted above 380 (485 ) 264 (959 )   Adjustment to deferred tax valuation reserves   150     -     150     -     Net Income (loss) (Core) $ (1,909 ) $ (183 ) $ (3,071 ) $ 150     Efficiency Ratio (As Reported) 90.9 % 88.1 % 89.2 % 85.9 %   Effect of gain or loss on sale or impairment of securities, net - - - -   Effect of FDIC deposit insurance special assessment   -     (5.0 )   -     (2.5 )   Efficiency Ratio (Core)   90.9 %   83.1 %   89.2 %   83.4 %