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~~MARCH 3031, ~~2010~~2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ~~______ TO ______~~ TO

COMMISSION FILE NUMBER : 000-51525

LEGACY BANCORP, INC.

(Exact name of registrant as specified in its charter)


Delaware		20-3135053
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

99 NORTH STREET
PITTSFIELD, MASSACHUSETTS 01201
(Address of principal executive offices) (Zip Code)

(413) 443-4421
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12(b)-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o ~~Smaller reporting company o~~ (Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act).
Yes o No þ

The number of shares of Common Stock outstanding as of ~~November~~ May 39, ~~2010~~2011 was 8,~~641~~631,~~112~~732.

LEGACY BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	~~Page No.~~			Page No.
Part I — Financial Information
Item 1 Financial Statements
	Item 1		Financial Statements
Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		2
			Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010		2
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009		3
			Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010		3
Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2010 and 2009		4
			Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2011 and 2010		4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009		5
			Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010		5
~~Notes to Condensed Consolidated Financial Statements~~		7	Notes to Condensed Consolidated Financial Statements		7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
	Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3 Quantitative and Qualitative Disclosures about Market Risks		28
	Item 3		Quantitative and Qualitative Disclosures about Market Risks		27
Item 4 Controls and Procedures		28
	Item 4		Controls and Procedures		27
Part II — Other Information
Item 1 Legal Proceedings		29
	Item 1		Legal Proceedings		28
Item 1A Risk Factors		29
	Item 1A		Risk Factors		28
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		29
	Item 2		Unregistered Sales of Equity Securities and Use of Proceeds		28
Item 3 Defaults Upon Senior Securities		30
	Item 3		Defaults Upon Senior Securities		28
Item 4 (Removed and Reserved)		30
	Item 4		(Removed and Reserved)		28
Item 5 Other Information		30
	Item 5		Other Information		28
Item 6 Exhibits		31
	Item 6		Exhibits		29
EX-31.1
EX-31.2
EX-32

PART I — FINANCIAL INFORMATION

Item 1: Financial Statements

LEGACY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)

CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts)


	March 31,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Cash and due from banks	$	13,947		$	12,186
Short-term investments		13,680			14,906

Cash and cash equivalents		27,627			27,092

Securities — available for sale		191,853			185,688
Securities — held to maturity		97			97
Restricted equity securities and other investments — at cost		16,863			16,546
Loans held for sale		785			3,839
Loans, net of allowance for loan losses of $8,694 in 2011 and $9,010 in 2010		592,739			607,102
Premises and equipment, net		18,823			19,142
Accrued interest receivable		2,577			2,631
Goodwill, net		11,558			11,558
Mortgage servicing rights		776			737
Other intangible assets		2,675			2,888
Net deferred tax asset		12,428			12,684
Bank-owned life insurance		17,058			17,047
Foreclosed assets		2,365			2,216
Other assets		7,333			7,610


	$	905,557		$	916,877


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	78,115		$	75,116
Interest-bearing		598,680			610,129

Total deposits		676,795			685,245

Securities sold under agreements to repurchase		3,671			5,329
Federal Home Loan Bank advances		105,385			105,388
Mortgagors’ escrow accounts		1,006			1,211
Accrued expenses and other liabilities		6,886			8,145

Total liabilities		793,743			805,318


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 March 31, 2011 and December 31, 2010; 8,631,732 outstanding at March 31, 2011 and December 31, 2010)		103			103
Additional paid-in-capital		103,125			103,168
Unearned compensation — ESOP		(6,956	)		(6,956	)
Unearned compensation — Equity Incentive Plans		(853	)		(1,053	)
Retained earnings		39,434			39,114
Accumulated other comprehensive loss		(455	)		(233	)
Treasury stock, at cost (1,676,868 shares at March 31, 2011 and December 31, 2010)		(22,584	)		(22,584	)

Total stockholders’ equity		111,814			111,559


	$	905,557		$	916,877

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

See accompanying notes to consolidated financial statements

LEGACY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)

CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)


	Three Months Ended March 31,
	2011			2010
	(Unaudited)
Interest and dividend income:
Loans	$	8,018		$	9,296
Securities:
Taxable		870			1,185
Tax-exempt		20			167
Short-term investments		4			6

Total interest and dividend income		8,912			10,654

Interest expense:
Deposits		1,844			2,439
Federal Home Loan Bank advances		1,016			1,449
Other borrowed funds		5			10

Total interest expense		2,865			3,898

Net interest income		6,047			6,756
Provision for loan losses		41			2,421

Net interest income, after provision for loan losses		6,006			4,335

Non-interest income:
Customer service fees		724			722
Portfolio management fees		543			280
Income from bank-owned life insurance		140			154
Insurance, annuities and mutual fund fees		51			20
Gain on sales of securities, net		27			101
Impairment losses on investments		(36	)		(299	)
Gain on sales of loans, net		139			60
Miscellaneous		14			11

Total non-interest income		1,602			1,049

Non-interest expenses:
Salaries and employee benefits		2,826			3,475
Occupancy and equipment		1,018			991
Data processing		699			694
Professional fees		302			323
Advertising		89			319
FDIC deposit insurance		305			269
Foreclosed assets, net		330			118
Other general and administrative		944			984

Total non-interest expenses		6,513			7,173

Income (loss) before income taxes		1,095			(1,789	)
Provision (benefit) for income taxes		372			(545	)

Net income (loss)	$	723		$	(1,244	)


Earnings (loss) per share
Basic	$	0.09		$	(0.15	)
Diluted	$	0.09		$	(0.15	)

Weighted average shares outstanding
Basic		8,014,817			8,028,621
Diluted		8,052,772			8,028,621

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

See accompanying notes to consolidated financial statements

LEGACY BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (Dollars in thousands, except per share amounts) (Unaudited)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (Dollars in thousands, except per share amounts) (Unaudited)


												Unearned						Accumulated
						Additional			Unearned			Compensation —						Other						Total
	Common Stock					Paid-in			Compensation —			Equity			Retained			Comprehensive			Treasury			Stockholders’
	Shares			Amount		Capital			ESOP			Incentive Plan			Earnings			Income (Loss)			Stock			Equity
Balance at December 31, 2009		8,734,712		$	103	$	102,788		$	(7,322	)	$	(2,078	)	$	48,998		$	711		$	(21,833	)	$	121,367

Comprehensive income (loss):
Net income (loss)		—			—		—			—			—			(1,244	)		—			—			(1,244	)
Net unrealized gain/loss on securities available for sale, net of reclassification adjustment and tax effects		—			—		—			—			—			—			333			—			333

Total comprehensive income (loss)																									(911	)

Cash dividends declared ($0.05 per share)		—			—		—			—			—			(408	)		—			—			(408	)
Common stock repurchased — 5% stock repurchase																									—
Program announced March 2009		(15,200	)		—		—			—			—			—			—			(145	)		(145	)
Stock option expense		—			—		69			—			—			—			—			—			69
Restricted stock expense		—			—		—			—			220			—			—			—			220
Common stock held by ESOP committed to be released (13,745 shares)		—			—		—			183			—			(51	)		—			—			132

Balance at March 31, 2010		8,719,512		$	103	$	102,857		$	(7,139	)	$	(1,858	)	$	47,295		$	1,044		$	(21,978	)	$	120,324


Balance at December 31, 2010		8,631,732		$	103	$	103,168		$	(6,956	)	$	(1,053	)	$	39,114		$	(233	)	$	(22,584	)	$	111,559

Comprehensive income (loss):
Net income (loss)		—			—		—			—			—			723			—			—			723
Net unrealized gain/loss on securities available for sale, net of reclassification adjustment and tax effects		—			—		—			—			—			—			(222	)		—			(222	)

Total comprehensive income (loss)																									501

Cash dividends declared ($0.05 per share)		—			—		—			—			—			(403	)		—			—			(403	)
Stock option expense net of cumulative forfeitures		—			—		(48	)		—			—			—			—			—			(48	)
Restricted stock expense		—			—		5			—			200			—			—			—			205

Balance at March 31, 2011		8,631,732		$	103	$	103,125		$	(6,956	)	$	(853	)	$	39,434		$	(455	)	$	(22,584	)	$	111,814

												Unearned						Accumulated
						Additional			Unearned			Compensation -						Other						Total
	Common Stock					Paid-in			Compensation -			Equity			Retained			Comprehensive			Treasury			Stockholders’
	Shares			Amount		Capital			ESOP			Incentive Plan			Earnings			Income (Loss)			Stock			Equity
Balance at December 31, 2008		8,781,912		$	103	$	102,475		$	(8,055	)	$	(2,727	)	$	58,534		$	(4,722	)	$	(21,466	)	$	124,142
Comprehensive income (loss):
Net income (loss)		—			—		—			—			—			(3,984	)		—			—			(3,984	)
Net unrealized gain/loss on securities available for sale, net of reclassification adjustment and tax effects		—			—		—			—			—			—			4,301			—			4,301
Total comprehensive income (loss)																									317
Cash dividends declared ($0.15 per share)		—			—		—			—			—			(1,204	)		—			—			(1,204	)
Common stock repurchased - 5% stock repurchase Program announced March 2009		(35,100	)		—		—			—			—			—			—			(379	)		(379	)
Stock option expense		—			—		356			—			—			—			—			—			356
Restricted stock expense		—			—		—			—			630			—			—			—			630
Common stock held by ESOP committed to be released (41,235 shares)		—			—		(114	)		550			—			—			—			—			436
Balance at September 30, 2009		8,746,812		$	103	$	102,717		$	(7,505	)	$	(2,097	)	$	53,346		$	(421	)	$	(21,845	)	$	124,298
Balance at December 31, 2009		8,734,712		$	103	$	102,788		$	(7,322	)	$	(2,078	)	$	48,998		$	711		$	(21,833	)	$	121,367
Comprehensive income (loss):
Net income (loss)		—			—		—			—			—			(3,399	)		—			—			(3,399	)
Net unrealized gain/loss on securities available for sale, net of reclassification adjustment and tax effects		—			—		—			—			—			—			281			—			281
Total comprehensive income (loss)																									(3,118	)
Cash dividends declared ($0.15 per share)		—			—		—			—			—			(1,206	)		—			—			(1,206	)
Common stock repurchased - 5% stock repurchase Program announced March 2009		(91,000	)		—		—			—			—			—			—			(790	)		(790	)
Stock option expense		—			—		218			—			—			—			—			—			218
Restricted stock expense		—			—		25			—			692			—			—			—			717
Issuance of restricted stock		10,000			—		—			—			(93	)		(71	)		—			164			—
Common stock held by ESOP committed to be released (27,489 shares)		—			—		—			366			—			(109	)		—			—			257
Balance at September 30, 2010		8,653,712		$	103	$	103,031		$	(6,956	)	$	(1,479	)	$	44,213		$	992		$	(22,459	)	$	117,445

See accompanying notes to consolidated financial statements

LEGACY BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)


	Three Months Ended March 31,
	2011			2010
	(Unaudited)
Cash flows from operating activities:
Net income (loss)	$	723		$	(1,244	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		41			2,421
Net amortization of securities		149			205
Amortization of mortgage servicing rights		33			23
Amortization of other intangible assets		213			154
Depreciation and amortization expense		374			395
(Gain) loss on sales/impairment of securities, net		9			198
Loss on sales/writedowns of foreclosed real estate, net		213			75
Gain on sales of loans, net		(139	)		(60	)
Loans originated for sale		(6,860	)		(5,667	)
Proceeds from sales of loans		9,981			5,415
Share-based compensation expense		157			289
Deferred tax provision		390			1,195
Employee Stock Ownership Plan expense		—			132
Net change in:
Bank-owned life insurance		(143	)		(156	)
Accrued interest receivable		54			115
Other assets		277			(2,517	)
Accrued expenses and other liabilities		(1,259	)		1,323

Net cash provided by operating activities		4,213			2,296

Cash flows from investing activities:
Activity in available-for-sale securities:
Sales		2,097			2,141
Maturities, prepayments and calls		22,935			28,010
Purchases		(31,675	)		(42,494	)
Purchase of other investments		(353	)		(196	)
Loan originations and purchases, net of principal payments		13,827			9,986
Redemption of bank-owned life insurance		132			—
Additions to premises and equipment		(55	)		(481	)
Proceeds from sales of foreclosed assets		133			—

Net cash provided (used) by investing activities		7,041			(3,034	)

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

(continued)

See accompanying notes to consolidated financial statements.

LEGACY BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded) (Dollars in thousands)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)


	Three Months Ended March 31,
	2011			2010
	(Unaudited)
Cash flows from financing activities:
Net (decrease) increase in deposits		(8,450	)		9,866
Net decrease in securities sold under agreements to repurchase		(1,658	)		(221	)
Repayment of Federal Home Loan Bank advances		(13,760	)		(13,021	)
Proceeds from Federal Home Loan Bank advances		13,757			3,018
Net (decrease) increase in mortgagors’ escrow accounts		(205	)		37
Repurchase of common stock		—			(145	)
Payment of dividends on common stock		(403	)		(408	)

Net cash used by financing activities		(10,719	)		(874	)


Net change in cash and cash equivalents		535			(1,612	)

Cash and cash equivalents at beginning of period		27,092			40,155


Cash and cash equivalents at end of period	$	27,627		$	38,543


Supplemental cash flow information:
Interest paid on deposits	$	1,915		$	2,497
Interest paid on Federal Home Loan Bank advances		1,134			1,433
Interest paid on other borrowed funds		5			10
Income taxes paid		20			100
Non-cash activities:
Real estate acquired through foreclosure		495			708

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

See accompanying notes to consolidated financial statements.

LEGACY BANCORP AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~NOTES~~1. TORecent ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Developments ~~(Unaudited)~~

On December 21, 2010, Legacy Bancorp, Inc. (“Legacy” or the “Company”) and Berkshire Hills Bancorp, Inc. (“Berkshire”) jointly announced the execution of a definitive agreement whereby Berkshire will acquire Legacy in a 90% stock and 10% cash transaction. As a result of the merger, Legacy’s shareholders will become shareholders of Berkshire and will receive 0.56385 shares of Berkshire common stock plus $1.30 ~~Basis~~cash for each share of ~~presentation~~Legacy common stock they own. The transaction is expected to be completed during the third quarter of 2011, subject to the approval of regulators and shareholders of both companies. Berkshire’s common stock is listed on the NASDAQ Global Select Market under the trading symbol “BHLB”. On May 9, 2011, the closing sales price of a share of Berkshire common stock was $21.13.

~~The accompanying unaudited condensed consolidated financial statements include the accounts of Legacy Bancorp, Inc~~2. ~~(the~~Basis ~~“Company”) and its wholly-owned subsidiaries, LB Funding Corporation and Legacy Banks (the “Bank”). The accounts~~ of the Bank include all of its wholly-owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are necessary for a fair presentation~~. Financial tables are presented~~ in thousands ($000’s) unless otherwise indicated. The results shown for the interim period ended September 30, 2010 are not necessarily indicative of the results to be obtained for the year ending December 31, 2010. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission for the year ended December 31, 2009.

2The accompanying unaudited condensed consolidated financial statements include the accounts of Legacy Bancorp, Inc. ~~Recent~~(the ~~Accounting~~“Company”) ~~Pronouncements~~and its wholly-owned subsidiaries, LB Funding Corporation and Legacy Banks (the “Bank”). The accounts of the Bank include all of its wholly-owned subsidiaries. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the information reflects all adjustments (consisting solely of normal recurring adjustments) that are necessary for a fair presentation. Financial tables are presented in thousands ($000’s) unless otherwise indicated. The results shown for the interim period ended March 31, 2011 are not necessarily indicative of the results to be obtained for the year ending December 31, 2011. These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission for the year ended December 31, 2010.

~~In June 2009,~~3. ~~the~~Recent ~~Financial~~ Accounting ~~Standards Board~~Pronouncements (“FASB”) issued Accounting Standards Update (“ASU”) 2009-16, changing the accounting principles and disclosure requirements related to securitizations and special-purpose entities. Specifically, this guidance eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This guidance also expands existing disclosure requirements to include more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The recognition and measurement provisions regarding transfers of financial assets shall be applied to transfers that occur on or after the effective date. The Company adopted this new guidance on January 1, 2010, as required, and it did not have any impact on the Company’s consolidated financial statements.

In ~~March~~July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-0920, ~~amending~~Receivables ~~FASB ASC~~ (Topic ~~855~~310), toDisclosures ~~exclude~~about ~~SEC~~the ~~reporting~~Credit ~~entities~~Quality ~~from~~of Financing Receivables and the ~~requirement~~Allowance for Credit Losses. This ASU requires an entity to ~~disclose~~provide disclosures that facilitate financial statement users’ evaluation of (1) the ~~date~~nature onof ~~which~~credit risk inherent in ~~subsequent~~the ~~events~~entity’s ~~have~~loan ~~been~~portfolio ~~evaluated.~~(2) how Itthat ~~further~~risk ~~modifies~~is ~~the~~analyzed ~~requirement~~and toassessed ~~disclose~~in ~~the~~arriving ~~date~~at onthe allowance ~~which~~for ~~subsequent~~loan ~~events~~and ~~have~~lease ~~been~~losses ~~evaluated~~and in(3) the ~~reissued~~changes ~~financial~~and ~~statements~~reasons tofor ~~apply~~those ~~only~~changes toin ~~such~~the allowance for ~~statements~~loan ~~that~~and ~~have~~lease ~~been~~losses. ~~restated~~The toCompany ~~correct~~adopted anthis ~~error~~Update oras toof ~~apply~~January 1, ~~U.S.~~2011 ~~GAAP~~and ~~retrospectively~~this adoption did not have a significant impact on the Company’s consolidated financial statements. The Company has provided ~~complied~~the ~~with~~disclosures ~~ASU~~required ~~No.~~as of March ~~2010-09~~31, 2011 in Note 9.

In ~~January~~ April ~~2010~~2011, the FASB issued ASU No. ~~2010~~2011-~~06:~~02, ~~Fair Value~~Receivables ~~Measurements~~(Topic ~~and~~310), ~~Disclosures~~A ~~amending~~Creditor’s Determination ~~Topic~~of ~~820~~Whether a Restructuring Is a Troubled Debt Restructuring. ~~The~~This ~~ASU~~Update provides ~~for~~ additional guidance ~~disclosures~~and ofclarification ~~transfers~~to ~~between~~help ~~assets~~creditors ~~and~~in ~~liabilities valued~~determining ~~under~~whether ~~Level~~a 1creditor has granted a concession and 2whether ~~inputs~~a asdebtor ~~well~~is asexperiencing ~~additional~~financial ~~disclosures~~difficulties ~~regarding~~for ~~those~~purposes ~~assets~~of ~~and~~determining ~~liabilities~~whether ~~valued~~a ~~under~~restructuring ~~Level~~constitutes 3a ~~inputs.~~troubled ~~The~~debt ~~new~~restructuring ~~disclosures~~(“TDR”). ~~are~~This ~~effective~~Update is effective for the first interim ~~and~~or annual ~~reporting~~ ~~periods~~period beginning on or after ~~December~~June 15, ~~2009~~2011, ~~except~~with ~~for~~retrospective application ~~those~~to ~~provisions~~the ~~addressing~~beginning ~~Level~~of 3the annual period of adoption. The measurement of impairment should ~~fair~~be ~~value~~done ~~measurements~~prospectively ~~which~~in ~~provisions~~the ~~are~~period ~~effective~~of adoption for ~~fiscal~~loans ~~years~~that are newly identified as TDRs upon adoption of this Update. In addition, ~~and~~the ~~periods~~TDR ~~therein~~disclosures required by ASU 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses should be provided beginning ~~after~~in ~~December 15,~~the ~~2010.~~period ~~The~~of adoption of this ~~Statement~~Update. ~~did~~The ~~not~~Company will ~~have~~adopt athis ~~material~~Update ~~impact~~ on July 1, 2011 and is currently evaluating the ~~Company’s~~impact of adoption on its consolidated financial statements.

In ~~July~~April ~~2010~~2011, the FASB issued ASU No. ~~2010~~2011-2003, ~~Receivables~~Reconsideration ~~(Topic 310), Disclosures about the Credit Quality~~ of ~~Financing~~Effective ~~Receivables~~Control ~~and the Allowance~~ for Repurchase ~~Credit Losses~~Agreements. This ~~Update~~update ~~requires an~~revises ~~entity~~the tocriteria ~~provide~~for ~~disclosures~~assessing ~~that~~effective ~~facilitate~~control ~~financial statement users’ evaluation of (1) the~~for ~~nature~~repurchase ofagreements ~~credit~~and ~~risk~~other ~~inherent~~agreements ~~in the entity’s loan portfolio (2) how~~ that ~~risk~~both isentitle ~~analyzed~~ and ~~assessed~~ inobligate ~~arriving~~a attransferor ~~the allowance for loan and lease losses and (3) the changes and reasons for~~to ~~those~~repurchase ~~changes~~or inredeem ~~the~~financial ~~allowance~~assets ~~for~~before ~~loan~~their ~~and lease losses~~maturity. ~~For~~The ~~public~~update ~~entities,~~will ~~the~~be ~~disclosures as of the end of a reporting period are~~ effective for interim and annual reporting periods ~~ending~~beginning on or after December 15, ~~2010.~~2011, ~~The~~early ~~disclosures~~adoption ~~about~~is prohibited, ~~activity~~and ~~that~~the ~~occurs~~amendments ~~during~~will abe ~~reporting~~applied ~~period are~~prospectively ~~effective~~to ~~for~~transactions ~~interim~~or ~~and~~modifications ~~annual~~of existing ~~reporting~~transactions ~~periods~~that ~~beginning~~occur on or after ~~December 15,~~the ~~2010~~effective date. The adoption of this ~~Update~~guidance ~~will~~is not ~~require~~expected ~~significant~~to ~~additional~~have ~~disclosures~~a inmaterial impact on the ~~December 31,~~Company’s ~~2010~~ financial ~~statements~~condition ~~and~~or ~~subsequent~~results ~~financial statements~~of operations.

In March 2010, the FASB issued ASU 2010-11, Scope Exception Related to Embedded Credit Derivatives. ASU 2010-11 amends ASC 815 to provide clarifying language regarding when embedded credit derivative features are not considered embedded derivatives subject to potential bifurcation and separate accounting. The provisions of ASU 2010-11 are effective for periods beginning after June 15, 2010 and require re-evaluation of certain preexisting contracts to determine whether the accounting for such contracts is consistent with the amended guidance in ASU 2010-11. If the fair value option is elected for an instrument upon adoption of the amendments to ASC 815, re-evaluation of such preexisting contracts is not required. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset (Topic 310), which is effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending after July 15, 2010. As a result of the amendments in this Update, modification of loans within the pool does not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a

~~troubled debt restructuring~~4. AnEarnings ~~entity~~Per ~~will continue to be required to consider whether the pool of~~Share assets in which the loan is included is impaired if expected cash flows for the pool change. However, loans within the scope of Subtopic 310-30 that are accounted for individually will continue to be subject to the troubled debt restructuring accounting provisions. The provisions of this Update are effective for modifications of loans accounted for as pools in the first interim or annual period ending on or after July 15, 2010. Upon initial adoption of the guidance in this Update, an entity may make a one-time election to terminate accounting for loans as a pool under Subtopic 310-30. The election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration. This update did not have a material impact on the Company’s consolidated financial statements.

3Basic earnings per share is determined by dividing net income by the weighted-average number of net outstanding shares of common stock for the period. The net outstanding shares of common stock equals the gross number of shares of common stock issued less the average unallocated shares of the Legacy Banks Employee Stock Ownership Plan (“ESOP”), the average number of treasury shares and the average number of unvested shares related to restricted stock awards. Diluted earnings per share is determined by dividing net income by the average number of net outstanding common shares computed as if all potential common shares have been issued by the Company. Potential common shares to be issued would include those related to outstanding options and unvested stock awards. Earnings ~~Per~~per ~~Share~~share have been computed as follows:

Basic earnings per share is determined by dividing net income by the weighted-average number of net outstanding shares of common stock for the period. The net outstanding shares of common stock equals the gross number of shares of common stock issued less the average unallocated shares of the Legacy Banks Employee Stock Ownership Plan (“ESOP”), the average number of treasury shares and the average number of unvested shares related to restricted stock awards. Diluted earnings per share is determined by dividing net income by the average number of net outstanding common shares computed as if all potential common shares have been issued by the Company. Potential common shares to be issued would include those related to outstanding options and unvested stock awards. The diluted earnings per share calculation for the three and nine months ended September 30, 2010 excludes 756,280 of stock options and 193,110 unvested shares of restricted stock whose effect would have been antidilutive. Earnings per share have been computed as follows:


	Three Months Ended March 31,
	2011			2010

Net income (loss) applicable to common stock (000’s)	$	723		$	(1,244	)

Average number of shares issued		10,308,600			10,308,600
Less: average unallocated ESOP shares		(522,755	)		(549,640	)
Less: average treasury shares		(1,676,868	)		(1,581,449	)
Less: average unvested restricted stock awards		(94,160	)		(148,890	)

Average number of basic shares outstanding		8,014,817			8,028,621

Plus: dilutive unvested restricted stock awards		31,141			—
Plus: diluted stock option shares		6,814			—

Average number of diluted shares outstanding		8,052,772			8,028,621


Basic earnings (loss) per share	$	0.09		$	(0.15	)
Diluted earnings (loss) per share	$	0.09		$	(0.15	)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net loss applicable to common stock (000’s)	$	(779	)	$	(1,698	)	$	(3,399	)	$	(3,984	)
Average number of shares issued		10,308,600			10,308,600			10,308,600			10,308,600
Less: average unallocated ESOP shares		(522,303	)		(577,133	)		(535,847	)		(590,775	)
Less: average treasury shares		(1,631,162	)		(1,553,799	)		(1,603,779	)		(1,538,043	)
Less: average unvested restricted stock awards		(158,890	)		(198,740	)		(153,908	)		(198,740	)
Average number of basic shares outstanding		7,996,245			7,978,928			8,015,066			7,981,042
Plus: dilutive unvested restricted stock awards		—			—			—			—
Plus: diluted stock option shares		—			—			—			—
Average number of diluted shares outstanding		7,996,245			7,978,928			8,015,066			7,981,042
Basic earnings (loss) per share	$	(0.10	)	$	(0.21	)	$	(0.42	)	$	(0.50	)
Diluted earnings (loss) per share	$	(0.10	)	$	(0.21	)	$	(0.42	)	$	(0.50	)

5. Comprehensive Income (Loss)

4. Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the equity section of the balance sheet, such items, along with net income are components of comprehensive income.

The components of other comprehensive income (loss) and related tax effects for available-for-sale securities follows:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2010			2009
	2011			2010
	(Dollars in thousands)
Securities
Net unrealized holding gains on available for sale (AFS) securities	$	1,954		$	5,773
Net unrealized holding (losses) gains on available for sale (AFS) securities	$	(329	)	$	631
Reclassification adjustment for gains on sales of AFS securities		(~~1,573~~27	)		(~~241~~101	)
Reclassification adjustment for OTTI losses on AFS securities		42			1,474
		(356	)		530
		423			7,006
Tax effect		134			(197	)
Tax effect		(142	)		(2,705	)
Net-of-tax amount	$	(222	)	$	333
Net-of-tax amount	$	281		$	4,301

The components of accumulated other comprehensive income (loss) included in stockholders’ equity are as follows:


	March 31,			December 31,
	2011			2010
	(Dollars in thousands)
Securities
Net unrealized holding gains on available for sale securities	$	(469	)	$	(112	)
Tax effects		183			48

Net-of-tax amount		(286	)		(64	)


Directors’ Fee Plan
Unrecognized net actuarial loss and prior service costs		(285	)		(285	)
Tax effect		116			116

Net-of-tax amount		(169	)		(169	)


	$	(455	)	$	(233	)

	September 30,			December 31,
	2010			2009
	(Dollars in thousands)
Securities
Net unrealized holding gains on available for sale securities	$	2,159		$	1,736
Tax effects		(806	)		(664	)
Net-of-tax amount		1,353			1,072
Directors’ Fee Plan
Unrecognized net actuarial loss and prior service costs		(611	)		(611	)
Tax effect		250			250
Net-of-tax amount		(361	)		(361	)
	$	992		$	711

6. Dividends

5On March 9, 2011, the Company declared a cash dividend of $0.05 ~~Dividends~~per share of common stock which was paid on April 1, 2011 to shareholders of record as of the close of business on March 20, 2011.

~~On September 1, 2010, the Company declared a cash dividend of $0~~7.05 ~~per~~Commitments ~~share~~and ofOther ~~common stock which~~Contingencies ~~was paid on October 1, 2010 to shareholders of record as of the close of business on September 20, 2010.~~

6Outstanding loan commitments and other contingencies totaled $112.7 million ~~Commitments~~at March 31, 2011, compared to $118.2 million as of December 31, 2010. Loan commitments and ~~Other~~other ~~Contingencies~~contingencies primarily consist of commitments to originate new loans as well as the outstanding unused portions of home equity and other lines of credit, unadvanced funds on construction loans and commercial real estate partnership capital commitments.

Outstanding loan commitments and other contingencies totaled $132.0 million at September 30, 2010, compared to $134.3 million as of December 31, 2009. Loan commitments and other contingencies primarily consist of commitments to originate new loans as well as the outstanding unused portions of home equity and other lines of credit, unadvanced funds on construction loans and commercial real estate partnership capital commitments.

The Company provides certain health and dental care and life insurance benefits for certain retired employees. The total expense recognized in connection with these post-retirement benefits for the three and nine month period ended September 30, 2010 was $3,000 and $9,000 respectively.

7. Wealth Management Company Acquisition

On April 30, 2010, Legacy Banks acquired substantially all of the assets of the Renaissance Investment Group, LLC., a wealth management company located in Pittsfield, Massachusetts. The purchase price included an estimated contingent portion which is based upon forecasted gross revenue through September 30, 2011. This estimated contingent component may increase or decrease based upon actual gross revenue recorded over that period. The purchase price allocation resulted in approximately $1.6 million of customer list and other intangibles, $1.8 million of goodwill and $5,000 of property and equipment. The goodwill and customer list intangible is expected to be deducted for tax purposes over a period of 15 years.

The consolidated financial statements of the Company for the nine months ended September 30, 2010 include $570,000 of gross revenue and $497,000 of operating expenses, including approximately $67,000 of amortization of acquisition related intangibles. The Company has also expensed approximately $64,000 in professional fees directly related to the acquisition. The Company anticipates further efficiencies as it continues to consolidate its wealth management division, Legacy Portfolio Management, into Renaissance.

8. Securities

The amortized cost and estimated fair value of securities, with gross unrealized gains and losses, follows:


			March 31, 2011
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
Securities Available for Sale
Debt securities:
Government-sponsored enterprises (GSE)	$	144,881	$	125	$	(1,069	)	$	143,937
Municipal		1,599		25		(9	)		1,615
GSE residential mortgage-backed		5,775		228		—			6,003
U.S. Government guaranteed residential mortgage-backed		39,702		508		(378	)		39,832

Total debt securities		191,957		886		(1,456	)		191,387

Marketable equity securities		365		101		—			466

Total securities available for sale	$	192,322	$	987	$	(1,456	)	$	191,853


Securities Held to Maturity
Other bonds and obligations	$	97	$	—	$	—		$	97

	September 30, 2010
			December 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
Securities Available for Sale
Debt securities:
Government-sponsored enterprises (GSE)	$	~~138~~132,~~772~~221	$	~~753~~244	$	(16841	)	$	~~139~~131,~~509~~624
Municipal		3,~~597~~145		~~181~~36		—(36	)		3,~~778~~145
Corporate and other		~~1,311~~401		281		—			~~1,339~~402
GSE residential mortgage-backed		126,~~410~~370		~~590~~225		(31	)		126,~~997~~594
U.S. Government guaranteed residential mortgage-backed		4042,~~207~~775		~~723~~522		(71330	)		4042,~~859~~967
Total debt securities		~~196~~184,~~297~~912		21,~~275~~028		(901,208	)		~~198~~184,~~482~~732
Marketable equity securities		~~1,112~~888		69114		(9446	)		~~1,087~~956
Total securities available for sale	$	~~197~~185,~~409~~800	$	21,~~344~~142	$	(~~184~~1,254	)	$	~~199~~185,~~569~~688
Securities Held to Maturity
Other bonds and obligations	$	97	$	—	$	—		$	97

	December 31, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
Securities Available for Sale
Debt securities:
Government-sponsored enterprises (GSE)	$	80,393	$	138	$	(555	)	$	79,976
Municipal		17,521		398		(44	)		17,875
Corporate and other		1,321		30		—			1,351
GSE residential mortgage-backed		29,591		983		(71	)		30,503
U.S. Government guaranteed residential mortgage-backed		33,625		248		(237	)		33,636
Total debt securities		162,451		1,797		(907	)		163,341
Marketable equity securities		3,239		889		(43	)		4,085
Total securities available for sale	$	165,690	$	2,686	$	(950	)	$	167,426
Securities Held to Maturity
Other bonds and obligations	$	97	$	—	$	—		$	97

The amortized cost and estimated fair value of debt securities by contractual maturity at March 31, 2011 is as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The amortized cost and estimated fair value of debt securities by contractual maturity at September 30, 2010 is as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars in thousands)

Within 1 year	$	8,791	$	8,825	$	—	$	—
Over 1 year to 5 years		113,652		112,978		82		82
Over 5 years to 10 years		12,099		11,974		—		—
Over 10 years		11,938		11,775		15		15

Total bonds and obligations		146,480		145,552		97		97
Mortgage-backed		45,477		45,835		—		—

Total debt securities	$	191,957	$	191,387	$	97	$	97

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars in thousands)
Within 1 year	$	7,254	$	7,277	$	—	$	—
Over 1 year to 5 years		111,506		112,133		82		82
Over 5 years to 10 years		18,934		19,092		—		—
Over 10 years		5,986		6,124		15		15
Total bonds and obligations		143,680		144,626		97		97
Mortgage-backed		52,617		53,856		—		—
Total debt securities	$	196,297	$	198,482	$	97	$	97

For the three months ended March 31, 2011 and 2010, proceeds from the sale and call of securities available for sale amounted to $6.1 million and $8.2 million respectively. Gross gains of $84,000 and $226,000, respectively, and gross losses of $60,000 and $111,000, respectively, were realized on those sales. Gross gains on called securities were $4,000 and $6,000, respectively and gross losses were $1,000 and $20,000, respectively in the three months ended 2011 and 2010.

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

For the three months ended September 30, 2010 and 2009, proceeds from the sale and call of securities available for sale amounted to $20.3 million and $7.6 million respectively. Gross gains of $444,000 and $448,000, respectively, and gross losses of $110,000 and $249,000, respectively, were realized on those sales. Gross gains on called securities were $9,000 in the three months ended 2010.


	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
			(Dollars in thousands)
March 31, 2011:
Debt securities:
Government-sponsored enterprises (GSE)	$	1,069	$	104,056	$	—	$	—
Municipal		9		605		—		—
U.S. Government guaranteed residential mortgage-backed		338		14,894		40		1,199

Total debt securities		1,416		119,555		40		1,199
Marketable equity securities		—		—		—		—


Total temporarily impaired securities	$	1,416	$	119,555	$	40	$	1,199


December 31, 2010:
Debt securities:
Government-sponsored enterprises (GSE)	$	841	$	73,475	$	—	$	—
Municipal		36		1,577		—		—
GSE residential mortgage-backed		—		—		1		131
U.S. Government guaranteed residential mortgage-backed		330		17,235		—		—

Total debt securities		1,207		92,287		1		131
Marketable equity securities		46		302		—		—


Total temporarily impaired securities	$	1,253	$	92,589	$	1	$	131

~~For~~Management ~~the~~evaluates ~~nine~~securities ~~months~~for ~~ended~~other-than-temporary ~~September~~impairment (OTTI) ~~30,~~at ~~2010~~least ~~and~~on ~~2009~~a quarterly basis, ~~proceeds from the sale~~ and ~~call~~more ~~of securities~~frequently ~~available~~when ~~for~~economic ~~sale~~or ~~amounted~~market toconcerns ~~$51.0 million~~warrant ~~and~~such ~~$64~~evaluation.~~2 million~~ ~~respectively. Gross~~At ~~gains of $1~~March 31,~~824,000~~ ~~and $1~~2011,~~200,000,~~ ~~respectively,~~temporarily ~~and~~impaired ~~gross~~debt ~~losses of $255,000~~ and ~~$949,000, respectively,~~mortgage-backed ~~were realized on those sales. Gross gains on called~~ securities ~~were~~have ~~$56,000,~~unrealized ~~and~~losses ~~gross~~from ~~losses~~the ~~were~~Company’s ~~$52,000~~amortized incost ~~the~~basis ~~nine~~as ~~months ended 2010.~~follows:

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:


					Gross
	# of		Amortized		Unrealized		% of
	Securities		Cost		Loss		Depreciation
			(Dollars in thousands)

Government-sponsored enterprises (GSE)		133	$	105,125	$	1,069		1.0	%
Municipal		2		614		9		1.5	%
U.S. Government guaranteed residential mortgage-backed		22		16,472		378		2.3	%

	Less Than Twelve Months				Over Twelve Months
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
			(Dollars in thousands)
September 30, 2010:
Debt securities:
Government-sponsored enterprises (GSE)	$	16	$	12,877	$	—	$	—
Municipal		—		—		—		—
GSE residential mortgage-backed		—		—		3		290
U.S. Government guaranteed residential mortgage-backed		71		7,560		—		—
Total debt securities		87		20,437		3		290
Marketable equity securities		94		571		—		—
Total temporarily impaired securities	$	181	$	21,008	$	3	$	290

The unrealized losses on the Company’s investment in debt securities and mortgage-backed securities issued by the U.S. government, government-sponsored enterprises and municipal governments were generally caused by interest rate changes. These investments are guaranteed or sponsored by the U.S. Government or an agency thereof or by the municipal government. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the decline in market value is attributable to changes in interest rates and not to credit quality, and because the Company has not decided to sell the securities, and it is more likely than not it will not have to sell the securities before recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2011.

			(Dollars in thousands)
December 31, 2009:
Debt securities:
Government-sponsored enterprises (GSE)	$	555	$	46,751	$	—	$	—
Municipal		2		818		42		2,472
GSE residential mortgage-backed		38		2,983		33		1,779
U.S. Government guaranteed residential mortgage-backed		237		19,171		—		—
Total debt securities		832		69,723		75		4,251
Marketable equity securities		35		472		8		226
Total temporarily impaired securities	$	867	$	70,195	$	83	$	4,477

For the quarter ended March 31, 2011 the Company recognized OTTI losses totaling $36,000 on its investment in certain commercial real estate partnerships which are carried at cost and evaluated for impairment quarterly based on an analysis of the financial statements of the partnerships and underlying real estate projects. At March 31, 2011, the Company had potential additional capital calls of approximately $3.9 million related to these partnership investments. These investments are not redeemable, but are transferrable. The partnerships have limited remaining lives ranging from two to seven years (2012 - 2017) over which the underlying assets are expected to be liquidated by the partnerships.

~~Management evaluates securities for other-than-temporary impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation~~9. AtLoans ~~September 30, 2010, temporarily impaired debt and mortgage-backed securities have unrealized losses from the Company’s amortized cost basis as follows:~~

					Gross
	# of		Amortized		Unrealized		% of
	Securities		Cost		Loss		Depreciation
			(Dollars in thousands)
Government-sponsored enterprises (GSE)		14	$	12,893	$	16		0.1	%
GSE residential mortgage-backed		1		294		3		1.0	%
U.S. Government guaranteed residential mortgage-backed		11		7,630		71		0.9	%

The following table sets forth the composition of the Bank’s loan portfolio (excluding loans held for sale) in dollar amounts and as a percentage of the respective portfolio at the dates indicated:

The unrealized losses on the Company’s investment in debt securities and mortgage-backed securities issued by the U.S. government and government-sponsored enterprises were generally caused by interest rate changes. These investments are guaranteed or sponsored by the U.S. Government or an agency thereof. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the investment. Because the decline in market value is attributable to changes in interest rates and not to credit quality, and because the Company has not decided to sell the securities, and it is more likely than not it will not have to sell the securities before recovery of its cost basis, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2010.

At September 30, 2010, six marketable equity securities have unrealized losses with aggregate depreciation of 14.1% from the Company’s cost basis. Although some issuers may have shown declines in earnings as a result of the weakened economy, the Company has evaluated the near-term prospects of the issuers in relation to the severity and duration of the depreciation of value and has analyzed the issuer’s financial condition and financial performance as well as industry analysts’ reports. Based on that evaluation as well as the Company’s

ability and intent to hold these investments for a reasonable period of time sufficient for a forecasted recovery of fair value, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2010.


	At March 31, 2011						At December 31, 2010
	Amount			Percent			Amount			Percent
				(Dollars in thousands)
Mortgage loans on real estate:
Residential	$	257,034			42.83	%	$	266,166			43.30	%
Land notes		9,777			1.63			10,599			1.72
Home equity		72,679			12.11			74,328			12.09
Commercial		207,315			34.55			211,431			34.40
Commercial contruction		13,496			2.24			13,596			2.21

		560,301			93.36			576,120			93.72

Other loans:
Commercial		29,629			4.94			28,123			4.57
Consumer and other		10,196			1.70			10,518			1.71

		39,825			6.64			38,641			6.28


Total loans		600,126			100.00	%		614,761			100.00	%


Other Items:
Net deferred loan costs		1,307						1,351
Allowance for loan losses		(8,694	)					(9,010	)


Total Loans, net	$	592,739					$	607,102

~~For~~The ~~the quarter ended September 30, 2010 the~~ Company ~~recognized~~has ~~OTTI~~transferred ~~losses~~a ~~totaling~~portion ~~$14,000~~of on its ~~investment~~ inoriginated ~~one equity security as well as certain~~ commercial real estate ~~partnerships~~and ~~which are~~commercial ~~carried~~loans atto ~~cost~~participating ~~and~~lenders. ~~evaluated~~The ~~for~~amounts ~~impairment~~transferred ~~quarterly~~have ~~based~~been onaccounted anfor ~~analysis~~as ofsales ~~the~~and ~~financial~~are ~~statements~~therefore ofnot ~~the~~included ~~partnerships~~in ~~and~~the ~~underlying~~Company’s ~~real~~accompanying ~~estate~~consolidated ~~projects~~balance sheets. ~~For~~The ~~the~~Company ~~nine~~and participating ~~months~~lenders ~~ended September 30,~~share ~~2010~~ratably ~~the~~in ~~Company~~any ~~recognized~~gains ~~OTTI~~or losses ~~totaling~~that ~~$379,000~~may onresult ~~these~~from ~~same~~a ~~investments.~~borrower’s lack Atof ~~September 30,~~compliance ~~2010,~~with ~~the~~contractual ~~Company~~terms ~~had potential additional capital calls~~ of ~~approximately~~the $4loan.~~7 million~~ ~~related~~The Company continues to ~~these~~service ~~partnership~~the ~~investments.~~loans ~~These~~on behalf ~~investments~~of ~~are~~the ~~not~~participating ~~redeemable~~lenders and, ~~the Company~~as ~~does~~such, ~~not~~collects ~~intend~~cash topayments ~~sell~~from ~~any~~the ~~part~~borrowers, ofremits payments ~~these~~(net ~~investments~~of atservicing ~~this~~fees) ~~time.~~to ~~The~~participating ~~partnerships~~lenders ~~have~~and ~~remaining limited~~disburses ~~lives~~required ~~ranging~~escrow ~~from~~funds ~~two~~ to relevant ~~seven~~parties. ~~years~~At ~~(2012~~March 31, —2011 ~~2017)~~and ~~over~~December 31, ~~which~~2010, the ~~underlying~~Company ~~assets~~was ~~are expected~~servicing toloans befor participants ~~liquidated~~aggregating by$13.2 million ~~the~~and ~~partnerships~~$11.7 million, respectively.

9.Information ~~Fair~~pertaining ~~Values~~to ofthe ~~Assets~~allowance for loan losses, by segment, at March 31, 2011 and ~~Liabilities~~December 31, 2010 follows:


	March 31, 2011
	Residential				Commercial		Home		Commercial		Consumer
	Residential		Land Notes		Mortgages		Equity		Business		and other		Total
Amount of allowance for loans individually evaluated for impairement	$	164	$	313	$	266	$	—	$	69	$	—	$	812
Amount of allowance for loans collectively evaluated for impairement	$	1,028	$	568	$	5,085	$	400	$	576	$	225	$	7,882
Loans individually evaluated for impairement	$	3,642	$	579	$	10,408	$	313	$	248	$	2	$	15,192
Loans collectively evaluated for impairement	$	253,392	$	9,198	$	210,403	$	72,366	$	29,381	$	10,194	$	584,934


	December 31, 2010
	Residential				Commercial		Home		Commercial		Consumer
	Residential		Land Notes		Mortgages		Equity		Business		and other		Total
Amount of allowance for loans individually evaluated for impairement	$	75	$	422	$	496	$	—	$	69	$	—	$	1,062
Amount of allowance for loans collectively evaluated for impairement	$	1,276	$	585	$	4,789	$	446	$	598	$	254	$	7,948
Loans individually evaluated for impairement	$	3,445	$	778	$	11,938	$	120	$	545	$	5	$	16,831
Loans collectively evaluated for impairement	$	262,721	$	9,821	$	213,089	$	74,208	$	27,578	$	10,513	$	597,930

The following table sets forth activity in the Bank’s allowance for loan losses for the periods indicated:


	For the three months ended March 31, 2011
	Residential			Land			Commercial			Home			Commercial		Consumer
	Mortgages			Notes			Mortgages			Equity			Business		& Other			Total

Beginning balance	$	1,351		$	1,007		$	5,285		$	446		$	667	$	254		$	9,010
Charge-offs		(54	)		—			(349	)		—			—		(33	)		(436	)
Recoveries		—			—			—			—			70		9			79
Provision		91			(126	)		70			(9	)		—		15			41

Ending balance	$	1,388		$	881		$	5,006		$	437		$	737	$	245		$	8,694


	For the three months ended March 31, 2010
	Residential			Land			Commercial			Home			Commercial			Consumer
	Mortgages			Notes			Mortgages			Equity			Business			& Other			Total

Beginning balance	$	1,041		$	36		$	8,922		$	348		$	561		$	181		$	11,089
Charge-offs		(35	)		—			(5,177	)		—			(198	)		(20	)		(5,430	)
Recoveries		—			—			—			—			—			19			19
Provision		(5	)		(2	)		2,231			(4	)		206			(5	)		2,421

Ending balance	$	1,001		$	34		$	5,976		$	344		$	569		$	175		$	8,099

The allowance consists of general, allocated and unallocated components, as further described below.

General component: The general component of the allowance for loan losses is based on historical loss experience adjusted for qualitative factors stratified by the following loan segments: residential real estate, land notes, commercial real estate, home equity loans, commercial and consumer. Management uses a rolling average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment. This historical loss factor is adjusted for the following qualitative factors: levels/trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. While there were no changes in the Company’s general policies or methodology pertaining to the general component of the allowance for loan losses during 2010, certain general reserve ratios were increased during 2010 mainly to reflect the greater risks and uncertainties resulting from the current economy. There were no adjustments to the general reserve ratios for the three months ended March 31, 2011.

The qualitative factors for the general component of the allowance for loan losses are determined based on the various risk characteristics of each loan segment. Risk characteristics relevant to each portfolio segment are as follows:

Residential real estate — For residential mortgage loans to be held in portfolio, Legacy Banks lends up to a maximum loan-to-value ratio of 100% for first-time home buyers and 95% for other buyers on mortgage loans secured by owner-occupied property, with the general condition that private mortgage insurance is required for loans with a loan-to-value ratio in excess of 80%. A licensed appraiser appraises all properties securing residential first mortgage purchase loans. All loans in this segment are collateralized by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this segment. Land loans are also included in residential real estate.

Commercial real estate — Loans in this segment are primarily income-producing properties throughout the Company’s market area, with a segment located out of market generated through the Company’s former national commercial real estate lending program which was discontinued in 2010. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management periodically obtains the borrower’s updated financial information and continually monitors the cash flows of these loans. Commercial construction loans are included in the commercial real estate segment and are considered to have higher risks due to their ultimate repayment being sensitive to interest rate changes, demand and supply of alternative real estate, the availability of long-term financing, and changes in general economic conditions. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analyses of absorption and lease rates, and financial analyses of the developers and property owners.

Home equity loans — Loans in this segment primarily include home equity lines-of-credit and loans that are secured by first or second mortgages on one-to-four family owner occupied properties, and are available to be drawn upon for 10 years, at the end of which time they become term loans amortized over 10 years. Interest rates on home equity lines normally adjust based on the prime rate of interest as published by the Wall Street Journal.

Commercial loans — Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer spending, will have an effect on the credit quality in this segment.

Consumer and other loans — Certain loans in this segment are unsecured and repayment is dependent on the credit quality of the individual borrower. This segment includes manufactured housing loans.

Allocated component: The allocated component relates to loans that are classified as impaired. Impairment is measured on a loan by loan basis for commercial and commercial real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. An allowance is established when the discounted cash flows (or collateral value) of the impaired loan is lower than the carrying value of that loan. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company generally does not separately identify individual consumer and residential real estate loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring agreement.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). All TDRs are initially classified as impaired.

Unallocated Component: An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio.

The Company also maintains a reserve for unfunded credit commitments to provide for the risk of loss inherent in these arrangements. This reserve is determined using a methodology similar to the analysis of the allowance for loan losses, taking into consideration probabilities of future funding requirements. This reserve for unfunded commitments is included in other liabilities and amounted to $266,000 and $269,000 at March 31, 2011 and December 31, 2010, respectively.

The following is a summary of past due and non-accrual loans, by class, at March 31, 2011 and December 31, 2010:


	March 31, 2011
									Past due 90
					Greater				days or more		Loan on
	30-59 Days		60-89 Days		Than 90		Total Past		and still		non-
	Past Due		Past Due		Days		Due		accruing		accrual

Mortgage loans on real estate
Residential	$	1,424	$	—	$	3,524	$	4,948	$	—	$	3,524
Land notes		248		82		313		643		—		313
Home equity		930		14		277		1,221		—		277
Commercial		2,166		—		6,485		8,651		—		6,485
Commercial Construction		—		—		1,589		1,589		—		1,589
Other Loans
Commercial		245		108		183		536		—		183
Consumer and other		13		1		2		16		—		2

	$	5,026	$	205	$	12,373	$	17,604	$	—	$	12,373


	December 31, 2010
									Past due 90
					Greater				days or more		Loan on
	30-59 Days		60-89 Days		Than 90		Total Past		and still		non-
	Past Due		Past Due		Days		Due		accruing		accrual

Mortgage loans on real estate
Residential	$	1,400	$	799	$	3,445	$	5,644	$	—	$	3,445
Land notes		139		89		422		650		—		422
Home equity		178		14		120		312		—		120
Commercial		—		125		7,247		7,372		—		7,247
Commercial Construction		—		—		1,190		1,190		—		1,190
Other Loans
Commercial		415		166		315		896		—		315
Consumer and other		290		1		5		296		—		5

	$	2,422	$	1,194	$	12,744	$	16,360	$	—	$	12,744

The following is a summary of impaired loans, by class, at March 31, 2011 and December 31, 2010:


							For the three months ended
	At March 31, 2011						March 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Residential real estate	$	2,576	$	2,576	$	—	$	3,275	$	23
Land notes		266		266		—		266		—
Home equity		313		313		—		385		—
Commercial real estate		6,838		9,918		—		7,364		46
Commercial construction		1,589		6,035		—		1,236		—
Commercial		145		367		—		150		7
Consumer and other		2		2		—		8		—

Total		11,729		19,477		—		12,684		76

Impaired loans with a valuation allowance:
Residential real estate	$	1,066	$	1,066	$	164	$	887	$	—
Land notes		313		313		313		313		—
Home equity		—		—		—		—		—
Commercial real estate		1,981		1,981		266		1,985		26
Commercial construction		—		—		—		—		—
Commercial		103		103		69		104		2
Consumer and other		—		—		—		—		—

Total		3,463		3,463		812		3,289		28

Total impaired loans	$	15,192	$	22,940	$	812	$	15,973	$	104


	At December 31, 2010
			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
Impaired loans without a valuation allowance:
Residential real estate	$	2,912	$	2,963	$	—
Land notes		356		356		—
Home equity		120		120		—
Commercial real estate		7,324		10,235		—
Commercial construction		1,190		5,636		—
Commercial		433		690		—
Consumer and other		5		5		—

Total		12,340		20,005		—

Impaired loans with a valuation allowance:
Residential real estate	$	533	$	533	$	75
Land notes		422		422		422
Home equity		—		—		—
Commercial real estate		3,424		3,424		496
Commercial construction		—		—		—
Commercial		112		112		69
Consumer and other		—		—		—

Total		4,491		4,491		1,062

Total impaired loans	$	16,831	$	24,496	$	1,062

For the year ended December 31, 2010, the average balance of impaired loans was $26.4 million. No additional funds are committed to be advanced in connection with impaired loans. The $15.2 million of impaired loans at March 31, 2011 include $12.4 million of non-accrual loans and $811,000 of accruing troubled debt restructured loans as of March 31, 2011. The remaining $2 million are loans that the Company believes based on current information and events it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

The Company utilizes a seven grade internal loan rating system for commercial real estate and commercial loans as follows:

Loans rated 1-3A: Loans in these categories are considered “pass” rated loans with low to average risk.

Loans rated 4: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management. If not corrected or mitigated, the weakness may expose the bank to an increased risk of loss.

Loans rated 5: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

Loans rated 6: Loans in this category are considered “doubtful.” Weaknesses in these credits or relationships are so significant that the bank has identified a probable loss of principal. Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. These credits must be placed on non-accrual if not already classified as such.

Loans rated 7: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted. Weaknesses in these credits are so severe collection of any amount is unlikely and the loan shall no longer be carried as an asset on the banks books. These loans are charged to the Allowance for Loan and Lease Loss.

On at least an annual basis, the Bank formally reviews the ratings on all commercial real estate and commercial loans. Semi-annually, the Bank engages an independent third-party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process.

The following table presents the Company’s loans by risk rating at March 31, 2011 and December 31, 2010:


	March 31, 2011				December 31, 2010
	Commercial				Commercial
	Real Estate		Commercial		Real Estate		Commercial

Loans rated 1-3A	$	182,296	$	24,458	$	177,985	$	20,474
Loans rated 4		15,959		2,251		17,900		1,988
Loans rated 5		22,556		2,869		29,142		5,603
Loans rated 6		—		51		—		58
Loans rated 7		—		—		—		—

	$	220,811	$	29,629	$	225,027	$	28,123

10. Fair Values of Assets and Liabilities


The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value, as follows:

Level 1 — Valuation is based on quoted prices in active markets for identical assets or liabilities. ~~Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market.~~ Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 — Valuation is based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 — Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The following methods and assumptions were used by the Company in estimating fair value disclosures:

Cash and cash equivalents — The carrying amounts of cash and short-term instruments approximate fair values based on the short-term nature of the assets.

~~Interest-bearing~~Securities ~~deposits~~available infor ~~banks~~sale — The ~~carrying~~securities ~~amounts~~measured ofat ~~interest-bearing~~fair value in Level 1 ~~deposits~~are ~~maturing~~based ~~within~~on ~~ninety~~quoted ~~days~~market ~~approximate~~prices ~~their~~in ~~fair~~an ~~values.~~active ~~Fair~~exchange ~~values~~market. ofThese ~~other~~securities include ~~interest-bearing~~marketable ~~deposits~~equity ~~are~~securities. ~~estimated~~Securities ~~using~~measured ~~discounted~~at ~~cash~~fair ~~flow~~value ~~analyses~~in Level 2 are based on ~~current~~unadjusted independent market-based ~~rates~~prices ~~for~~received ~~similar~~from ~~types~~a ofthird-party ~~deposits.~~pricing service who utilizes pricing models that consider

~~Securities available for sale — The securities measured at fair value in Level 1~~16 are based on quoted market prices in an active exchange market. These securities include marketable equity securities. Securities measured at fair value in Level 2 are based on independent unadjusted market-based prices received from a third-party pricing service that utilizes pricing models that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data. These securities include debt and mortgage-backed securities issued by government-sponsored enterprises including Federal Home Loan Mortgage Corporation (FHLMC) Federal National Mortgage Association (FNMA) and Government National Mortgage Association (GNMA) bonds, municipal bonds and corporate and other securities. The Company does not have any securities measured at fair value in Level 3 as of September 30, 2010.

Federal Home Loan Bank stock — The fair value is based upon the redemption value of the stock which equates to its carrying value.

Loans receivable — Fair values for certain mortgage loans (e.g., one-to-four family residential) are based on quoted market prices of similar loans sold in conjunction with securitization transactions adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans and consumer loans) are estimated using discounted cash flow analyses using market interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Non-performing loans are assumed to be carried at their current fair value.

~~Deposit~~standard ~~liabilities~~input —factors ~~The~~such ~~fair~~as ~~values~~observable ~~disclosed~~market ~~for demand deposits (e.g.~~data, ~~interest~~benchmark ~~and~~yields, ~~non-~~interest ~~checking~~rate volatilities, ~~passbook~~broker/dealer ~~savings~~quotes, ~~and~~credit ~~certain~~spreads ~~types~~and ~~of money market~~new ~~accounts)~~issue ~~are,~~data. byThese ~~definition,~~securities ~~equal~~include todebt ~~the~~and ~~amount~~mortgage-backed ~~payable~~securities onissued ~~demand at the reporting date~~by ~~(i.e.,~~government-sponsored ~~their~~enterprises ~~carrying~~including ~~amounts).~~Federal ~~The~~Home ~~carrying~~Loan ~~amounts~~Mortgage ofCorporation ~~certificates of deposit~~ (~~CDs~~FHLMC), ~~originated~~Federal byNational ~~the~~Mortgage ~~company~~Association ~~are~~(FNMA) and ~~valued~~Government ~~using~~National aMortgage ~~replacement~~Association (GNMA) bonds, ~~cost~~municipal ofbonds ~~funds~~and ~~approach~~corporate and ~~are discounted~~other tosecurities. aThe 12Company ~~district~~does ~~FHLB~~not ~~average~~have any ~~curve. Fair values~~ available-for-sale ~~brokered~~securities ~~time~~measured ~~deposits are~~at ~~also~~fair ~~valued~~value ~~using~~in aLevel ~~replacement~~3 ~~cost~~as of ~~funds~~March 31, ~~approach~~2011 ~~and are discounted to the~~or ~~brokered~~December 31, ~~CD curve~~2010.

Federal Home Loan Bank stock — The fair value is based upon the redemption value of the stock which equates to its carrying value.

Restricted equity securities and other investments — The carrying value of restricted equity securities represents redemption value and, therefore, approximates fair value. The fair value of other non-marketable equity securities is estimated based on consideration of credit exposure. Investments measured at fair value in Level 3 include the Bank’s investment in certain real estate partnerships, the values of which are based on an analysis of the financial statements of the partnerships and underlying real estate projects, and adjusted by management to recognize unobservable inputs for specific characteristics of the investments, including, but not limited to, the investments’ liquidity and marketability, the Bank’s ownership percentage, and the nature and type of underlying investments within the funds.

Loans receivable — Fair values for certain mortgage loans (e.g., one-to-four family residential) are based on quoted market prices of similar loans sold in conjunction with securitization transactions adjusted for differences in loan characteristics. Fair values for other loans (e.g., commercial real estate and investment property mortgage loans, commercial and industrial loans and consumer loans) are estimated using discounted cash flow analyses using market interest rates currently being offered for loans and similar terms to borrowers of similar credit quality. Non-performing loans are assumed to be carried at current fair value.

Deposit liabilities — The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of certificates of deposit (CD) originated by the company are valued using a replacement cost funds approach and are discounted to a 12 district FHLB average curve. Fair values for brokered time deposits are also valued using a replacement cost of funds approach and are discounted to the brokered CD curve.

Short-term borrowings — For short-term borrowings maturing within ninety days, carrying values approximate fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Long-term borrowings — The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current incremental borrowing rates in the market for similar types of borrowing arrangements.

Accrued interest — The carrying amounts of accrued interest approximate fair value.

Assets measured at fair value on a recurring basis are summarized below:

	September 30, 2010
	March 31, 2011
	Level 1		Level 2		Level 3		Fair Value
	(Dollars in thousands)		~~(Dollars in thousands)~~
Assets
Debt Securities:
Government-sponsored enterprises (GSE)	$	—	$	~~139~~143,~~509~~937	$	—	$	~~139~~143,~~509~~937
Municipal bonds		—		31,~~778~~615		—		31,~~778~~615
Corporate bonds and other obligations		—		1,339		—		1,339
GSE residential mortgage-backed		—		6,003		—		6,003
GSE residential mortgage-backed		—		12,997		—		12,997
U.S. Government guaranteed residential mortgage-backed		—		39,832		—		39,832
U.S. Government guaranteed residential mortgage-backed		—		40,859		—		40,859
Marketable equity securities		466		—		—		466
Marketable equity securities		1,087		—		—		1,087
Securities available for sale		466		191,387		—		191,853
Securities available for sale		1,087		198,482		—		199,569
Total assets	$	466	$	191,387	$	—	$	191,853
Total assets	$	1,087	$	198,482	$	—	$	199,569

December 31, 2009

December 31, 2010

Level 1

Level 2

Level 3

Fair Value

(Dollars in thousands)

Assets

Debt Securities:

Government-sponsored enterprises (GSE)

—

79131,~~976~~624

—

79131,~~976~~624

Municipal bonds

—

173,~~875~~145

—

173,~~875~~145

Corporate bonds and other obligations

—

~~1,351~~402

—

~~1,351~~402

GSE residential mortgage-backed

—

306,~~503~~594

—

306,~~503~~594

U.S. Government guaranteed residential mortgage-backed

—

3342,~~636~~967

—

3342,~~636~~967

Marketable equity securities

~~4,085~~956

—

~~4,085~~956

Securities available for sale

~~4,085~~956

~~163~~184,~~341~~732

—

~~167~~185,~~426~~688

Total assets

~~4,085~~956

~~163~~184,~~341~~732

—

~~167~~185,~~426~~688

~~There were no transfers to or from Levels 1 and 2 during the nine months ended September 30,~~17 ~~2010. There were no liabilities measured at fair value at September 30, 2010 or December 31, 2009.~~

Also, the Company may be required, from time to time, to measure certain other assets or liabilities on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of September 30, 2010 and 2009. The gains or losses represent the amount of the write-down recorded during the periods noted on the assets held at period end.

										Nine Months
							Quarter Ended			Ended
	September 30, 2010						September 30, 2010			September 30, 2010
							Total			Total
	Level 1		Level 2		Level 3		Gains/(Losses)			Gains/(Losses)
					(Dollars in thousands)
Assets
Impaired loans	$	—	$	—	$	17,229	$	(1,241	)	$	(6,646	)
Other investments		—		—		6,954		(13	)		(336	)
Foreclosed assets		—		—		2,103		(68	)		(332	)
Total assets	$	—	$	—	$	26,286	$	(1,322	)	$	(7,314	)

There were no transfers to or from Levels 1 and 2 during the three months ended March 31, 2011. There were no liabilities measured at fair value at March 31, 2011 or December 31, 2010.

										Nine Months
							Quarter Ended			Ended
	September 30, 2009						September 30, 2009			September 30, 2009
							Total			Total
	Level 1		Level 2		Level 3		Gains/(Losses)			Gains/(Losses)
					(Dollars in thousands)
Assets
Impaired loans	$	—	$	8,744	$	—	$	(20	)	$	(1,943	)
Other investments		—		—		4,761		(1,736	)		(3,267	)
Total assets	$	—	$	8,744	$	4,761	$	(1,756	)	$	(5,210	)

Also, the Company may be required, from time to time, to measure certain other assets or liabilities on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following table summarizes the fair value hierarchy used to determine each adjustment and the carrying value of the related individual assets as of March 31, 2011 and 2010. The gains or losses represent the amount of the write-down recorded during the periods noted on the assets held at period end.

Impaired loans level 3: Certain impaired loans held for investment were written down to the fair value, less costs to sell, of the underlying collateral securing these loans of $17.2 million, resulting in a loss of $1.2 million and $6.6 million, respectively, for the three and nine months ended September 30, 2010, which was recognized in earnings through the provision for loan losses. The fair value of the collateral used by the Company represents that amount expected to be received from the sale of the property as determined by an independent, licensed or certified appraiser in accordance with Uniform Standards of Professional Appraisal Practice, using observable market data and discounted as considered necessary by management based on the date of valuation and new information deemed relevant to the valuation.


							Quarter Ended
	March 31, 2011						March 31, 2011
							Total
	Level 1		Level 2		Level 3		Gains/(Losses)
	(Dollars in thousands)
Assets
Impaired loans	$	—	$	—	$	10,861	$	20
Other investments		—		—		4,132		(36	)
Foreclosed assets		—		—		2,365		(213	)

Total assets	$	—	$	—	$	17,358	$	(229	)

Other investments level 3: Equity investments in certain real estate partnerships were deemed impaired and adjusted to fair value based on an analysis of the financial statements of the partnerships and underlying real estate projects. This adjustment resulted in a loss of $13,000 and $336,000, respectively, for the three and nine months ended September 30, 2010 which was recognized through OTTI charges.


							Quarter Ended
	March 31, 2010						March 31, 2010
							Total
	Level 1		Level 2		Level 3		Gains/(Losses)
	(Dollars in thousands)
Assets
Impaired loans	$	—	$	—	$	16,380	$	(2,103	)
Other investments		—		—		4,449		(299	)
Foreclosed assets		—		—		1,781		(75	)

Total assets	$	—	$	—	$	22,610	$	(2,477	)

~~Foreclosed~~Impaired ~~assets~~loans: ~~level~~Certain 3:impaired ~~Foreclosed~~loans ~~assets~~held for investment were ~~adjusted~~written down to the fair value, less costs to sell, of the underlying collateral securing these loans of $10.8 million. ~~through~~Most ~~either~~of these writedowns occurred in prior periods. For the ~~provision~~three ~~for~~month ~~loan~~period ~~losses~~ended orMarch 31, 2011, ~~other~~adjustments ~~expenses~~related asto these loans resulted in a ~~loss~~net onrecovery ~~other~~of ~~real~~$20,000 ~~estate~~which was recognized ~~owned~~in earnings through the provision for loan losses. The fair value of ~~foreclosed~~the ~~assets~~collateral isused by the Company represents that amount expected to be received from the sale of the property as determined by an independent, licensed or certified appraiser in accordance with Uniform Standards of Professional Appraisal Practice, using observable market data and discounted as considered necessary by management based on the date of valuation and new information deemed relevant to the valuation.

Other investments: The Bank maintains an equity investment in several commercial real estate funds. These funds invest in various types of commercial real estate throughout the country with the intent of generating an above-average rate of return. In 2010 these equity investments were deemed impaired and adjusted to fair value based on an analysis of the fund’s financial statements and underlying real estate projects. The values provided by the fund’s financial statements were adjusted by management to recognize unobservable inputs for specific characteristics of the investments, including, but not limited to, the investments’ liquidity and marketability, the Bank’s ownership percentage, and the nature and type of underlying investments within the funds. This adjustment is highly judgmental and resulted in a loss of $36,000 for the three month period ended March 31, 2011 which was recognized through OTTI charges.

Foreclosed assets: Certain properties in foreclosed assets were adjusted to fair value less costs to sell through either the provision for loan losses or other expenses as a loss on other real estate owned. The fair value of foreclosed assets is that amount expected to be received from the sale of the property as determined by an independent, licensed or certified appraiser in accordance with Uniform Standards of Professional Appraisal Practice, using observable market data. If necessary, these appraised values were adjusted by management to recognize unobservable inputs for specific characteristics of the properties.

Summary of Fair Values of Financial Instruments

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein may not necessarily represent the underlying fair value of the Company.

1418

September 30, 2010

December 31, 2009

March 31, 2011

December 31, 2010

Carrying

Fair

Carrying

Fair

Amount

Value

Amount

Value

(Dollars in thousands)

Financial assets:

Cash and cash equivalents

3227,~~523~~627

4027,~~155~~092

Securities — Available for sale

~~199~~191,~~569~~853

~~167~~185,~~426~~688

Securities — Held to maturity

Federal Home Loan Bank of Boston stock

10,932

Savings Bank Life Insurance stock

1,709

Other investments

64,~~954~~222

43,~~552~~905

Loans and loans held for sale

~~646~~593,~~304~~524

~~667~~607,~~243~~248

~~653~~610,~~334~~941

~~656~~626,~~978~~967

Accrued interest receivable

2,~~942~~577

32,~~306~~631

Financial liabilities:

Deposits

~~694~~676,~~998~~795

~~703~~682,~~332~~351

~~651~~685,~~378~~245

~~656~~691,~~038~~501

Repurchase agreements

43,~~169~~671

65,~~386~~329

FHLB advances

~~145~~105,~~092~~385

~~156~~112,~~752~~081

~~160~~105,~~352~~388

~~167~~112,~~331~~882

Mortgagors’ escrow accounts

1,~~098~~006

1,~~058~~211

10. Termination of ESOP Plan

On July 26, 2010, the Company announced that the Board of Directors of the Company and the Bank had voted to terminate the Bank’s Employee Stock Ownership Plan (the “Plan”), effective August 1, 2010. As of September 30, 2010, the Plan held 781,153 shares, or approximately 9% of the Company’s total outstanding shares of common stock, of which 549,792 shares are unallocated. The Bank has filed a request for a favorable determination letter with the Internal Revenue Service on the tax-qualified status of the Plan on termination. On and after termination of the Plan, no further contributions will be made on the outstanding Plan loan. Contributions made in the current Plan year have committed the release of approximately 27,489 additional shares from the unallocated stock fund and those shares will be allocated to participants for the year in which the Plan terminates. In connection with the termination of the Plan and upon receipt of the favorable determination letter from the Internal Revenue Service, it is anticipated that the Plan Trustee will transfer approximately 522,303 shares to LB Funding Corp., a wholly-owned subsidiary of the Company, to satisfy the Plan loan. Upon such transfer, the 522,303 shares would be treated as treasury stock. If the shares in the unallocated stock fund are insufficient to repay the outstanding loan in full, the Company intends to forgive the remaining balance, subject to Internal Revenue Service approval.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis discusses the changes in financial position and results of operations of Legacy Bancorp, Inc. and subsidiaries, and should be read in conjunction with both the unaudited consolidated interim financial statements and the notes thereto, appearing in Part I, Item 1 of this report, as well as the “Management’s Discussion and Analysis” section included in the Company’s most recent Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission for the year ended December 31, ~~2009~~2010.

Forward-Looking Statements

Certain statements ~~herein~~contained in this Quarterly Report on Form 10Q that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Private ~~Securities~~ Securities Litigation Reform Act of 1995. ~~These~~(the ~~statements~~“Act”), ~~are~~notwithstanding ~~based~~that onsuch ~~the~~statements ~~beliefs~~are ~~and~~not ~~expectations~~specifically ofidentified ~~management,~~ as ~~well as the assumptions made using information currently available to management~~such. ~~Since~~In ~~these~~addition, certain statements ~~reflect~~may ~~the~~be ~~views~~contained ofin ~~management~~our ~~concerning~~ future ~~events,~~ ~~these~~filings ~~statements~~with ~~involve~~the ~~risks~~SEC, ~~uncertainties~~in ~~and~~press ~~assumptions. As a result~~releases, ~~actual~~and ~~results~~in ~~may differ~~oral ~~from~~and ~~those~~written ~~contemplated by these~~ statements. ~~Forward-looking~~made ~~statements~~by ~~can~~us beor ~~identified~~with our byapproval ~~the fact~~ that ~~they~~are do not ~~relate~~statements ~~strictly~~of to historical orfact ~~current facts. They often include words like “believe”, “expect”, “anticipate”, “estimate”,~~ and ~~“intend”~~constitute orforward-looking ~~future or conditional~~statements ~~verbs~~within ~~such~~the asmeaning ~~“will”,~~of ~~“would”,~~the ~~“should”, “could”, or “may”~~Act. ~~Certain~~Examples ~~factors~~of ~~that~~forward-looking ~~could~~statements ~~cause actual results to differ materially from expected results~~ include, but are not limited to: ~~changes in~~(i) projections ~~the~~of ~~interest~~revenues, ~~rate environment~~expenses, ~~changes~~income inor ~~general economic conditions~~loss, ~~the~~earnings ~~level~~or ofloss ~~future deposit~~per ~~premiums~~share, the ~~effect of developments in the secondary market affecting our loan pricing,~~payment ~~changes~~or innonpayment ~~consumer~~of ~~spending~~dividends, ~~borrowing~~capital structure and ~~savings~~other ~~habits,~~financial ~~changes~~items; in(ii) statements ~~our~~of ~~organization,~~our ~~compensation and benefit~~ plans, ~~legislative~~objectives and ~~regulatory~~expectations ~~changes~~or ~~that~~those ~~adversely~~of ~~affect~~our ~~the businesses~~management inor ~~which~~Board ~~the~~of ~~Company~~Directors, isincluding those ~~engaged~~relating ~~and~~to ~~changes~~products inor ~~the~~services; ~~securities~~(iii) statements ~~market.~~of ~~Readers~~future ~~are cautioned~~economic ~~not~~performance; toand ~~place~~(iv) statements ~~undue~~of ~~reliance~~assumptions onunderlying ~~these~~such ~~forward-looking~~ statements,. ~~which~~Words ~~speak only~~such as of“believes,” ~~the~~“anticipates,” “expects,” ~~date~~“intends,” of“targeted,” ~~this~~“continue,” ~~report.~~“remain,” ~~The~~“will,” ~~Company~~“should,” ~~disclaims~~“may” ~~any~~and ~~intent~~other orsimilar expressions ~~obligation~~are intended to ~~update~~identify ~~any~~ forward-looking statements, ~~whether~~but inare ~~response~~not tothe ~~new~~exclusive ~~information,~~means ~~future~~of identifying ~~events~~such ~~or otherwise~~statements.

15Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact, changes in the level of non-performing assets and charge-offs; changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; inflation, interest rate, securities market and monetary fluctuations; political instability; acts of war or terrorism; the timely development and acceptance of new products and services and perceived overall value of these products and services by users; changes in consumer spending, borrowings and savings habits; changes in the financial performance and/or condition of our borrowers; technological changes; acquisitions and integration of acquired businesses; the ability to increase market share and control expenses; changes in the competitive environment among financial holding companies and other financial service providers; the quality and composition of our loan or investment portfolio; the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; changes in our organization, compensation and benefit plans; the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews; greater than expected costs or difficulties related to the opening of new branch offices or the integration of new products and lines of business, or both; and/or our success at managing the risk involved in the foregoing items.

Critical Accounting Policies

Critical accounting policies are those that involve significant judgments and assessments by management, and which could potentially result in materially different results under different assumptions and conditions. We consider the following to be critical accounting policies:

Allowance for Loan Losses: The ~~determination of the~~ allowance for loan losses is ~~considered critical~~established ~~due~~as losses are estimated to have ~~the~~occurred ~~high~~through ~~degree~~a ofprovision ~~judgment~~for ~~involved,~~loan ~~the~~losses ~~subjectivity~~charged ofto ~~the~~earnings. ~~underlying assumptions~~Loan ~~used,~~losses ~~and~~are charged against the ~~potential~~allowance ~~for~~when ~~changes~~management inbelieves the ~~economic~~uncollectibility ~~environment~~of ~~that~~a ~~could~~loan ~~result~~balance inis confirmed. ~~material~~Subsequent ~~changes~~recoveries, inif ~~the~~any, ~~amount~~are ofcredited to the allowance. The allowance for loan losses ~~considered necessary. The allowance~~ is evaluated on a regular basis by management. ~~and~~This evaluation is ~~based~~inherently onsubjective aas ~~periodic~~it ~~review of the~~requires ~~collectibility~~estimates ~~of the loans in light of historical experience, the nature and size of the loan portfolio, adverse situations~~ that ~~may~~are ~~affect~~susceptible ~~borrowers’ ability~~ to ~~repay,~~significant ~~the~~revision ~~estimated~~as ~~value~~more ~~of any~~information ~~underlying~~becomes ~~collateral and prevailing economic conditions~~available. Please refer to ~~the~~note ~~Allowance~~9: ~~for Loan~~Loans ~~Losses section~~ within Item 21 for a more detailed discussion of the allowance for loan losses.

Income Taxes: The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance related to deferred tax assets is established when, in management’s judgment, it is more likely than not that all or a portion of such deferred tax assets will not be realized.

In determining whether a valuation allowance is necessary, the Company considers the level of taxable income in prior years to the extent that carrybacks are permitted under current tax law, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. The Company expects to realize the remaining deferred tax assets over the allowable carryback period or in future years. However, if an unanticipated event occurred that materially changed pre-tax and taxable income in future periods, an increase in the valuation allowance may become necessary.

Other-Than-Temporary Impairment (OTTI): Marketable equity securities are evaluated for OTTI based on the severity and duration of the impairment and, if deemed to be other than temporary, the declines in fair value are reflected in earnings as realized losses. For debt securities, OTTI is required to be recognized (1) if the Company intends to sell the security; (2) if it is “more likely than not” that the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. For all impaired debt securities that the Company intends to sell, or more likely than not will be required to sell, the full amount of the depreciation is recognized as OTTI through earnings. Credit-related OTTI for all other impaired debt securities is recognized through earnings. Non-credit related OTTI for such debt securities is recognized in other comprehensive income, net of applicable taxes.

Fair Values of Assets and Liabilities: The Company groups its assets and liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Please refer to note 910: Fair Values of Assets and Liabilities within Item 1 for a more detailed discussion of fair value.

Goodwill: Goodwill results from business acquisitions and represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. The Company recorded goodwill in connection with the purchase of a financial institution in 1997. Additionally, the Company recorded goodwill in connection with the purchase of branch offices in December 2007 ~~located in Eastern New York State,~~ and in March 2009 ~~located in Haydenville, Massachusetts~~. Most recently, in the second quarter of 2010, the Company recorded goodwill in connection with the acquisition of a wealth management company located in Pittsfield, Massachusetts. The total book value of goodwill is approximately $11.6 million and $9.7 million as of ~~September~~March 3031, ~~2010~~2011 and ~~2009~~2010, respectively.

Generally, financial information is to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. The Company evaluates its performance and allocates resources based on a single segment concept. Accordingly, there are no separately identified material operating segments for which discrete financial information is available. The Company does not derive revenues from, or have assets located in foreign countries, nor does it derive revenues from any single customer that represents 10% or more of its total revenues. Therefore, all of the Company’s operations are considered by management to be aggregated in one reportable segment, and the entire amount of goodwill is allocated to this one reporting segment.

16The fair value of goodwill is analyzed at least annually and this analysis utilizes three separate methodologies. First, a market approach is used which incorporates a review of comparable market transactions for peer companies, relying on recent merger and acquisition data from these comparable transactions to estimate the price multiple at which the Company would be acquired in a hypothetical market transaction. The second approach used is the asset approach, or replacement cost approach which entails stating the recorded assets and liabilities of the Company on a fair market value basis, and the value of the Company’s equity is determined as the difference between the total fair value amounts for assets and liabilities. The third approach utilized is the income approach which constructs a discounted cash flow model from financial projections. The concluded fair value is calculated by weighting the values obtained based on the relevance of the methodology based on the facts and circumstances for the Company on the valuation date. The greatest weight, 50%, is placed on the market approach given the amount of data obtainable on comparable transactions. A 30% weight is applied to the asset approach due to the precision of the fair value estimates provided. Lastly, a 20% weight is applied to the income approach/discounted cash flow model due to the inherent uncertainty in forecasting future performance, and the appropriate market discount rate. Impairment, if any, identified under this analysis is recognized in the period identified. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common shares or our regulatory capital levels.

The fair value of goodwill is analyzed at least annually and this analysis utilizes three separate methodologies. First, a market approach is used which incorporates a review of comparable market transactions for peer companies, relying on recent merger and acquisition data from these comparable transactions to estimate the price multiple at which the Company would be acquired in a hypothetical market transaction. The second approach used was the asset approach, or replacement cost approach which entails stating the recorded assets and liabilities of the Company on a fair market value basis, and the value of the Company’s equity is determined as the difference between the total fair value amounts for assets and liabilities. The third approach utilized was the income approach which constructed a discounted cash flow model from financial projections. The concluded fair value is calculating by weighting the values obtained based on the relevance of the methodology based on the facts and circumstances for the Company on the valuation date. The greatest weight (50%) was placed on the market approach given the amount of data obtainable on comparable transactions. A 30% weight was applied to the asset approach due to the precision of the fair value estimates provided. Lastly, a 20% or smallest weight was applied to the income approach/discounted cash flow model due to the inherent uncertainty in forecasting future performance, and the appropriate market discount rate. Impairment, if any, identified under this analysis is recognized in the period identified. If an impairment determination is made in a future reporting period, our earnings and the book value of these intangible assets will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common shares or our regulatory capital levels. The Company performs an annual impairment test as of June 30. The impairment testing as of June 30, 2010 and 2009 indicated that no impairment charge was required as of those dates. The analysis indicated that the fair value of the Company’s equity exceeded its carrying value by 13.8% and 14.4% as of June 30, 2010 and 2009, respectively.

This discussion has highlighted those accounting policies that management considers to be critical; however all accounting policies are important. See the discussion of each of the policies included in Note 1 to the consolidated financial statements in the most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission to gain a better understanding of how our financial performance is measured and reported.

Comparison of Financial Condition at September 30, 2010 and December 31, 2009

Overview: Total assets have increased $25.8 million, or 2.7% from $946.3 million at December 31, 2009 to $972.0 million at September 30, 2010. Within the overall balance sheet, investment securities increased while short term investments and net loans decreased. On the liability side, an increase in total deposits was partially offset by a decrease in borrowings from the Federal Home Loan Bank of Boston (FHLBB), as discussed below.

Investment Activities: Cash and short-term investments decreased by $7.6 million, or 19.0%, from $40.2 million at December 31, 2009 to $32.5 million at September 30, 2010. Available for sale securities increased $32.1 million, or 19.2%, from $167.4 million at December 31, 2009 to $199.6 million, or 20.5% of total assets, at September 30, 2010. The portfolio consists primarily of debt obligations issued by certain government-sponsored agencies, including municipalities. Additionally, the portfolio includes mortgage-backed securities with a fair value of $53.9 million, all of which are issued or backed by the Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) or other government-sponsored agencies. Restricted equity securities and other investments totaled $19.6 million at September 30, 2010 and consisted primarily of stock in the Federal Home Loan Bank of Boston (FHLBB) totaling $10.9 million, which must be held as a condition of membership in the Federal Home Loan Bank System and as a condition to Legacy Banks’ borrowing under the FHLBB advance program. Other investments also include interests in certain commercial real estate investment partnerships of $6.8 million. At September 30, 2010 the Company had potential additional capital calls of approximately $4.7 million related to these partnership investments. The remaining $1.9 million consisted of investments in Savings Bank Life Insurance of Massachusetts, the Community Investment Fund, Depositors Insurance Fund and other investments. The following table sets forth at the dates indicated information regarding the amortized cost and fair values of the Company’s investment securities.

	At September 30, 2010				At December 31, 2009
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
	(Dollars in thousands)
Securities available for sale:
Government-sponsored enterprises (GSE)	$	138,772	$	139,509	$	80,393	$	79,976
Municipal bonds		3,597		3,778		17,521		17,875
Corporate bonds and other obligations		1,311		1,339		1,321		1,351
GSE residential mortgage-backed		12,410		12,997		29,591		30,503
U.S. Government guaranteed residential mortgage-backed		40,207		40,859		33,625		33,636
Total debt securities		196,297		198,482		162,451		163,341
Marketable equity securities		1,112		1,087		3,239		4,085
Total securities available for sale		197,409		199,569		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		6,801		6,801		4,397		4,397
Other investments		153		153		155		155
Total restricted equity securities and other investments		19,595		19,595		17,193		17,193
Total securities	$	217,101	$	219,261	$	182,980	$	184,716

Lending Activities: Total net loans, excluding loans held for sale, at September 30, 2010 were $643.8 million, a decrease of $8.8 million, or 1.3%, from $652.6 million at December 31, 2009. The following table sets forth the composition of the Bank’s loan portfolio (excluding loans held for sale) in dollar amounts and as a percentage of the respective portfolio at the dates indicated.

	At September 30, 2010						At December 31, 2009
	Amount			Percent			Amount			Percent
				(Dollars in thousands)
Mortgage loans on real estate:
Residential	$	280,464			43.02	%	$	285,618			43.12	%
Commercial		257,391			39.49			263,896			39.85
Home equity		72,302			11.09			69,625			10.51
		610,157			93.60			619,139			93.48
Other loans:
Commercial		30,867			4.73			31,373			4.74
Consumer and other		10,885			1.67			11,791			1.78
		41,752			6.40			43,164			6.52
Total loans		651,909			100.00	%		662,303			100.00	%
Other Items:
Net deferred loan costs		1,300						1,414
Allowance for loan losses		(9,375	)					(11,089	)
Total Loans, net	$	643,834					$	652,628

Residential mortgages decreased $5.2 million, or 1.8% as the majority of the residential mortgage activity was in the 30 year fixed rate category, a product which the Bank generally sells in the secondary market with servicing retained. Commercial real estate loans decreased $6.5 million, or 2.5%, primarily due to loan payoffs and specific loan charge-offs during the year. Offsetting some of this decrease was growth in home equity loans which increased $2.7 million, or 3.8%.

Non-performing Assets: The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. No interest income from these loans was recorded in net income for the three and nine month periods ended September 30, 2010 while they were on non-accrual status. If the non-accrual loans had been current, the gross interest income that would have been recorded was approximately $244,000 and $723,000 for the three and nine month periods ended September 30, 2010, respectively. At September 30, 2010, the Bank had seventeen troubled debt restructurings (loans for which a portion of interest or principal has been forgiven, or the loans have been modified to lower the interest rate or extend the original term) totaling approximately $7.4 million which included $6.8 million of commercial real estate loans, $325,000 of residential real estate loans and $286,000 of other commercial loans. The modifications to these loans generally include either an extension of the maturity date or a change to interest only payments for a temporary period of time. The interest income recorded from these loans amounted to approximately $108,000 and $270,000, respectively, for the three and nine month periods ended September 30, 2010. The Bank had seven troubled debt restructurings totaling $10.8 million at December 31, 2009.

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

Overall nonperforming loans (NPLs) were $15.0 million at September 30, 2010, a decrease of $4.7 million as compared to December 31, 2009. Part of this decrease was a result of the Bank charging off $10.1 million of loan balances, $4.3 million of which had been reserved for prior to December 31, 2009. The increase in charge-off activity relates to the current difficult economic conditions as well as updated valuations of collateral attached to newly identified non-performing loans for the nine months ended September 30, 2010. Collateral dependent loans are adjusted to fair value less selling costs by partial charge-offs once the loss is confirmed on a case by case basis after considering factors such as the borrowers resources, expectation of foreclosure and alternative sources of recovery. These charge-offs also reduced the overall ratio of nonperforming assets to total assets to 1.76% at September 30, 2010 as compared to 2.20% at December 31, 2009. The Bank continues to monitor all loans very closely and analyze their balance to the value of any underlying collateral, with the establishment of a specific reserve against the loan if deemed necessary. The accrual of interest on loans is generally discontinued at the time the loan is 90 days past due unless the credit is well secured and in process of collection. Loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

Allowance for Loan Losses: In originating loans, the Bank recognizes that losses will be experienced on loans and that the risk of loss will vary with many factors, including the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan over the term of the loan. The Bank maintains an allowance for loan losses to absorb losses inherent in the loan portfolio, and as such, this allowance represents management’s best estimate of the probable known and inherent credit losses in the loan portfolio as of the date of the financial statements.

The Board and management take the following into consideration when determining the adequacy of the allowance for loan losses for each loan category or sub-category: (i) changes in the trend of the volume and severity of past due and classified loans, and trends in the volume of non-accrual loans, troubled debt restructurings and other loan modifications, (ii) changes in the trend of loan charge-offs and recoveries, (iii) changes in the nature, volume or terms of the loan portfolios, (iv) changes in lending policies or procedures, including the Bank’s loan review system, underwriting standards and collection, charge-off and recovery practices, and the degree of oversight by the Board, (v) changes in the experience, ability, and depth of lending management and staff, (vi) changes in national and local economic and business conditions and developments, including the condition of various industry and market segments, (vii) the existence and effect of any

concentrations of credit and changes in the level of such concentrations, and (viii) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the portfolios. The amount of the additions to the allowance charged to operating expense for any period is a reflection of various factors analyzed by management, including the amount of loan growth in the period as well as the type of loan growth. Additionally, the amount of charge-offs and recoveries in a given year will impact the amount of provision expense. The allowance for loan losses is evaluated on a regular basis by management and is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans classified as impaired, for which an allowance is established when the discounted cash flows or collateral value or observable market price of the impaired loan is lower than the carrying value of the loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors, as outlined above.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the original contractual terms of the loan agreement. Impaired loans with payments past due 90 days or greater are generally maintained on a non-accrual basis. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan-by-loan basis for commercial loans and commercial real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. The Company periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (TDR). All TDRs are initially classified as impaired.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank generally does not separately identify individual consumer and residential loans for impairment disclosures. At September 30, 2010, impaired loans totaled $24.8 million with a corresponding specific reserve allowance of $1.5 million. This specific reserve is part of the overall loan loss reserve.

While the Bank believes that it has established adequate allocated and general allowances for losses on loans, adjustments to the allowance may be necessary if future conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, the Bank’s regulators periodically review the allowance for loan losses. These regulatory agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of their examination, thereby negatively affecting the Bank’s financial condition and earnings. The following table sets forth activity in the Bank’s allowance for loan losses for the periods indicated:

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

~~Mortgage~~This ~~Servicing~~discussion ~~Rights:~~has ~~The~~highlighted ~~Company~~those ~~had~~accounting ~~$575,000~~policies ofthat ~~mortgage~~management ~~servicing~~considers ~~rights~~to ~~on its~~be ~~balance~~critical; ~~sheet~~however asall ofaccounting ~~September 30,~~policies ~~2010~~are asimportant. ~~compared~~See tothe ~~$514,000~~discussion atof ~~December 31,~~each ~~2009.~~of ~~The Company~~the ~~recorded~~policies ~~servicing~~included ~~fee~~in ~~income~~Note of1 ~~$31,000~~to ~~and~~the ~~$95,000~~consolidated ~~for~~financial ~~the~~statements ~~three~~in ~~and~~the ~~nine~~most ~~month~~recent ~~periods ended~~Annual ~~September 30,~~Report ~~2010,~~on ~~respectively.~~Form ~~The~~10-K ~~amount~~filed ofwith ~~mortgages~~the ~~serviced~~Securities byand ~~the~~Exchange ~~Company~~Commission ~~for~~to ~~others~~gain a better ~~amounted~~understanding toof ~~approximately~~how ~~$87.5 million~~our asfinancial ofperformance ~~September 30,~~is ~~2010~~measured and reported.

~~Deposits:~~Comparison ~~The~~of ~~following~~Financial ~~table~~Condition ~~sets~~at ~~forth~~March 31, ~~the~~2011 ~~Bank’s~~and ~~deposit~~December 31, ~~accounts (excluding escrow deposits)~~2010 ~~at the dates indicated:~~

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

Overview: Total assets have decreased $11.3 million, or 1.2%, from $916.9 million at December 31, 2010 to $905.6 million at March 31, 2011. Within the overall balance sheet, investment securities increased while net loans decreased. On the liability side, the Company had an overall decrease in deposits of $8.5 million, as well as smaller decreases in repurchase agreements and other accrued liabilities, as discussed below.

~~Deposits~~Investment Activities: Cash and short-term investments increased by $43535,000, or 2.0%, from $27.1 million at December 31, 2010 to $27.6 million orat March 31, 2011. Available for sale securities increased $6.72 million, or 3.3%, from $~~651~~185.47 million at December 31, ~~2009~~2010 to $~~695~~191.0 9 million, or 21.2% of total assets, at ~~September~~March 3031, ~~2010~~2011. The ~~Company~~portfolio ~~had~~consists ~~increases~~primarily inof ~~all~~debt ~~deposit~~obligations issued ~~types~~by certain government-sponsored agencies, including municipalities. Additionally, the portfolio includes mortgage-backed securities with a fair value of $45.8 million, all of which are issued or backed by the ~~largest~~Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage ~~increase~~Association in(FNMA), ~~relationship~~Government ~~savings~~National ~~and~~Mortgage ~~money~~Association ~~market~~(GNMA) or ~~deposits~~other ~~which~~government-sponsored agencies. ~~increased~~Restricted equity securities and other investments totaled $16.69 million at March 31, 2011 orand 13consisted primarily of stock in the Federal Home Loan Bank of Boston (FHLBB) totaling $10.3%9 million, which must be held as a condition of membership in the Federal Home Loan Bank System and as a condition to Legacy Banks’ borrowing under the FHLBB advance program. Other investments also include interests in certain commercial real estate investment partnerships of $84.1 million. At orMarch 31, 122011 the Company had potential additional capital calls of approximately $3.9%, million related ~~respectively~~to these partnership investments. AtThe ~~September~~remaining $1.8 30million consisted of investments in Savings Bank Life Insurance of Massachusetts, ~~2010~~the Community Investment Fund, ~~CDs~~Depositors ~~represented~~Insurance Fund 42and other investments.5% ofThe ~~total deposits,~~following ~~slightly~~table ~~less~~sets ~~than~~forth at ~~December 31,~~the ~~2009~~dates indicated information regarding the amortized cost and fair values of the Company’s investment securities.

Borrowings: Advances from the Federal Home Loan Bank of Boston and securities sold under agreements to repurchase have decreased $17.5 million, or 10.5%, to $149.3 million at September 30, 2010. The increase in overall deposits has allowed the Bank to pay off high rate FHLBB borrowings as they matured during the year.


	At March 31, 2011				At December 31, 2010
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
			(Dollars in thousands)

Securities available for sale:
Government-sponsored enterprises (GSE)	$	144,881	$	143,937	$	132,221	$	131,624
Municipal bonds		1,599		1,615		3,145		3,145
Corporate bonds and other obligations		—		—		401		402
GSE residential mortgage-backed		5,775		6,003		6,370		6,594
U.S. Government guaranteed residential mortgage-backed		39,702		39,832		42,775		42,967

Total debt securities		191,957		191,387		184,912		184,732


Marketable equity securities		365		466		888		956


Total securities available for sale		192,322		191,853		185,800		185,688


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		4,132		4,132		3,815		3,815
Other investments		90		90		90		90


Total restricted equity securities and other investments		16,863		16,863		16,546		16,546


Total securities	$	209,282	$	208,813	$	202,443	$	202,331

~~Stockholders’~~Lending ~~Equity~~Activities: ~~Overall~~Total ~~stockholders’~~net ~~equity~~loans, ~~decreased~~excluding byloans ~~$3.9 million~~held for sale, orat ~~3.2%~~March 31, ~~during~~2011 ~~the~~were ~~first~~$592.7 million, ~~nine~~a ~~months~~decrease of ~~2010~~$14.3 million, ~~Total~~or ~~equity~~2.4%, ~~was~~from ~~impacted~~$607.1 million byat ~~the~~December 31, ~~net~~2010. Residential ~~loss~~mortgages ofdecreased $39.41 million, ~~the declaration~~or ~~of a dividend of $0~~3.054% ~~per~~as ~~share during~~ the ~~each~~majority of the ~~first~~residential ~~three~~mortgage activity ~~quarters~~was ofin ~~2010~~ the 15 and ~~the~~30 year ~~purchase~~fixed ofrate 91categories,~~000~~ ~~shares~~products ofwhich ~~stock~~the atBank angenerally ~~average~~sells in ~~price~~the ofsecondary $8market with servicing retained.68 ~~per~~Commercial ~~share~~real asestate ~~part~~loans ofdecreased ~~the~~$4.1 ~~Stock~~million, ~~Repurchase~~or ~~Program~~1.9%, ~~announced~~during inthe ~~March 2009.~~quarter ~~These~~primarily ~~decreases~~due to ~~equity~~loan ~~were~~payoffs. ~~partially~~This decrease was offset somewhat by ~~the~~a ~~amortization~~$1.5 million, ofor ~~unearned~~5.4% ~~compensation~~increase ~~and~~in another ~~increase~~commercial inloans. ~~the~~Please ~~unrealized~~refer ~~gain~~to onnote 9: ~~available-~~Loans within Item 1 for~~-sale~~ ~~investment~~a ~~securities~~more detailed discussion of the loan balances.

Comparison of Operating Results for the Three Months Ended September 30, 2010 and 2009

Net loss for the three months ended September 30, 2010 was $779,000, as compared to a net loss of $1.7 million for the same period in 2009. The decrease in the loss included a decrease in the charges taken on certain investments deemed to be other-than-temporarily-impaired, offset by an increase in the provision for loan losses, as discussed below.

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, and discounts and premiums that are amortized or accreted to interest income or expense. The Bank does not accrue interest on loans on non-accrual status, however, the balance of these loans is included in the total average balance, which has the effect of lowering average loan yields.

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

Non-performing Assets: The table below sets forth the amounts and categories of our non-performing assets at the dates indicated. If the non-accrual loans had been current, the gross interest income that would have been recorded was approximately $204,000 for the three month period ended March 31, 2011. At March 31, 2011 the Bank had nine loans totaling $3.3 million considered to be troubled debt restructurings (a loan for which a portion of interest or principal has been forgiven or the loan is modified at an interest rate less than current market rates). Of this amount, approximately $2.5 million is included as part of the $12.4 million of non-performing loans as of March 31, 2011. At December 31, 2010 Legacy Banks had fourteen loans totaling $4.5 million considered to be troubled debt restructurings.

(1)	Yields and rates for the three months ended September 30, 2010 and 2009 are annualized.
	At March 31,			At December 31,
(2)	Includes loans held for sale and non-accrual loans.
	2011			2010
(3)	Net interest rate spread represents the difference between the yield on total average interest-earning assets and the cost of total average interest-bearing liabilities for the three months ended September 30, 2010 and 2009.
	(Dollars in thousands)
(4)	Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
Non-accrual loans:
(5)	Net interest margin represents net interest income divided by average total interest-earning assets.
Residential real estate	$	3,524		$	3,445
Land notes		313			422
Home equity		277			120
Commercial real estate		6,485			7,247
Commercial construction		1,589			1,190
Commercial		183			315
Consumer and other		2			5
Total non-accrual loans		12,373			12,744
Loans greater than 90 days delinquent and still accruing:
Residential real estate		—			—
Land notes		—			—
Home equity		—			—
Commercial real estate		—			—
Commercial construction		—			—
Commercial		—			—
Consumer and other		—			—
Total loans 90 days delinquent and still accruing		—			—
Total non-performing loans		12,373			12,744
Other real estate owned		2,365			2,216
Total non-performing assets (NPAs)	$	14,738		$	14,960
Troubled debt restructurings included in NPAs	$	2,492		$	2,451
Troubled debt restructurings not included in NPAs		811			2,098
Total troubled debt restructurings	$	3,303		$	4,549
Ratios:
Non-performing loans to total loans		2.06	%		2.07	%
Non-performing assets to total assets		1.63	%		1.63	%

~~The~~Overall ~~following~~nonperforming ~~table~~loans ~~presents~~(NPLs) ~~the~~were ~~dollar~~$12.4 million ~~amount~~at March 31, 2011, a decrease of ~~changes~~$371,000 as incompared ~~interest~~to ~~income~~December 31, ~~and~~2010. ~~interest expense~~Collateral ~~for~~dependent ~~the~~loans ~~major~~are ~~categories~~adjusted ofto ~~the~~fair ~~Bank’s~~value ~~interest-earning~~less selling ~~assets~~costs ~~and~~by ~~interest~~partial charge-~~bearing liabilities.~~offs ~~Information~~once the loss is ~~provided~~confirmed ~~for~~on ~~each~~a ~~category~~case ofby ~~interest-earning~~case ~~assets~~basis ~~and~~after ~~interest-bearing~~considering ~~liabilities~~factors ~~with~~such ~~respect~~as tothe ~~(i) changes~~borrowers’ ~~attributable~~resources, toexpectation ~~changes~~of inforeclosure ~~volume~~and ~~(i.e.,~~alternative ~~changes~~sources inof ~~average~~recovery. ~~balances~~The ~~multiplied~~Bank bycontinues ~~the~~to ~~prior-period~~monitor ~~average~~all ~~rate)~~loans very closely and ~~(ii) changes~~analyze their ~~attributable~~balance to ~~rate~~the ~~(i.e.,~~value ~~changes~~of inany ~~average~~underlying ~~rate~~collateral, ~~multiplied~~with bythe ~~prior-period~~establishment ~~average~~of ~~balances).~~a specific reserve ~~The~~against ~~changes~~the ~~attributable~~loan toif ~~the~~deemed ~~combined~~necessary. ~~impact~~Loans ofare ~~volume~~generally ~~and~~placed ~~rate~~on ~~have~~non-accrual ~~been~~status ~~allocated~~either when ~~proportionately~~reasonable doubt exists as to the ~~changes~~full ~~due~~timely tocollection ~~volume~~of interest and ~~the~~principal, ~~changes~~or ~~due~~when toa ~~rate~~loan becomes 90 days past due.

Allowance for Loan Losses: While the Bank believes that it has established adequate allocated and general allowances for losses on loans, adjustments to the allowance may be necessary if future conditions differ substantially from the information used in making the evaluations. In addition, as an integral part of their examination process, the Bank’s regulators periodically review the allowance for loan losses. These regulatory agencies may require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of their examination, thereby negatively affecting the Bank’s financial condition and earnings. Please refer to note 9: Loans within Item 1 for a more detailed discussion of the allowance for loan losses. The following table sets forth summary activity in the Bank’s allowance for loan losses for the periods indicated:

	Three Months Ended September 30,
	At or for the three months
	2010 vs. 2009
	ended March 31,
	Increase						Total
	2011			2010
	(Decrease) Due to						Increase
	(Dollars in thousands)
	Volume			Rate			(Decrease)
Balance at beginning of period	$	9,010		$	11,089
	(Dollars in thousands)
Total charge-offs		(436	)		(5,430	)
Interest-earning assets:
Total recoveries		79			19
Loans — net	$	(264	)	$	(373	)	$	(637	)
Net recoveries (charge-offs)		(357	)		(5,411	)
Investment securities		304			(834	)		(530	)
Provision for loan losses		41			2,421
Short-term investments		—			1			1
Balance at end of period	$	8,694		$	8,099
Total interest-earning assets		40			(1,206	)		(1,166	)
Ratios:
Interest-bearing liabilities:
Net recoveries (charge-offs) to average loans outstanding — 12 month rolling average		(1.16	%)		(0.88	%)
Savings deposits		2			(12	)		(10	)
Allowance for loan losses to non-performing loans at end of period		70.27	%		66.56	%
Relationship savings		69			(181	)		(112	)
Allowance for loan losses to total loans at end of period		1.45	%		1.25	%
Money market		(5	)		(55	)		(60	)
NOW accounts		2			(9	)		(7	)
Certificates of deposit		97			(371	)		(274	)
Total deposits		165			(628	)		(463	)
Borrowed funds		(244	)		(117	)		(361	)
Total interest-bearing liabilities		(79	)		(745	)		(824	)
Change in net interest income	$	119		$	(461	)	$	(342	)

~~Net~~Mortgage ~~interest~~Servicing ~~income~~Rights: ~~for~~The ~~the~~Company ~~three~~had ~~months~~$776,000 ~~ended~~of ~~September 30,~~mortgage ~~2010~~servicing ~~was~~rights ~~$6.6~~on its balance sheet as of March ~~million~~31, a2011 ~~decrease of~~as compared to $~~342~~737,000, orat ~~4.9%~~December 31, ~~over~~2010. ~~the~~The ~~same~~Company recorded ~~period~~servicing offee ~~2009.~~income ~~This~~of ~~decrease~~$39,000 ~~was~~for athe ~~result~~three ofmonth ~~both~~period ~~the difference~~ended inMarch 31, ~~net~~2011. ~~interest~~The amount ~~margin~~of inmortgages ~~each~~serviced ~~period~~by asthe ~~well~~Company asfor aothers ~~decrease~~amounted into ~~the~~approximately ~~net~~$112.5 million ~~loan~~as of ~~portfolio~~March 31, as ~~outlined below~~2011.

~~Interest~~Deposits: ~~income~~The ~~for~~following ~~the~~table ~~three~~sets ~~months~~forth ~~ended September 30, 2010 decreased $1.2 million, or 10.3%, to $10.2 million as compared to $11.4 million in~~ the ~~same period of 2009. This decrease was driven by both an overall decrease in the Company~~Bank’s ~~yield~~deposit onaccounts ~~interest-earning~~(excluding ~~assets~~escrow ~~as well as a decrease in~~deposits) ~~the~~at ~~net loan portfolio. The yield on interest-earning assets was 4.68% for~~ the ~~quarter,~~dates aindicated: decrease of 53 basis points from a yield of 5.21% in the third quarter of 2009, resulting in a decrease in interest income of $1.2 million. Average outstanding net loans decreased $18.7 million, or 2.8%, primarily due to commercial loan payoffs and charge-offs, as well as the volume of refinancing of fixed-rate residential mortgages, which the Bank sells into the secondary market. Some of the cash flow from the refinancing and sale of these mortgages was reinvested into investment securities, resulting in an increase of $27.1 million, or 14.4% in their average balance for the quarter as compared to the same period in 2009. This overall change in volume of earning assets resulted in an increase in interest income of $40,000.

Interest expense decreased $824,000, or 18.6%, to $3.6 million for the three months ended September 30, 2010 as compared to $4.4 million during the same period in 2009. Although average interest-bearing liabilities in the third quarter of 2010 increased $8.6 million, or 1.2%, as compared to the same quarter of 2009, the liability mix changed as higher cost borrowings were replaced with lower costing deposits, thus lowering interest expense by $79,000. The average cost of funds decreased to 1.91% for the three month period ended September 30, 2010, a decrease of 47 basis points from a cost of funds of 2.38% for the same period in 2009, resulting in a decrease in interest expense of $745,000.


	At March 31, 2011					At December 31, 2010
	Balance		Percent			Balance		Percent
			(Dollars in thousands)

Deposit type:
Demand	$	78,115		11.54	%	$	75,116		10.96	%
Regular savings		54,610		8.07			53,504		7.81
Relationship savings		144,431		21.34			142,110		20.74
Money market deposits		62,701		9.26			68,611		10.01
NOW deposits		47,243		6.98			48,197		7.03

Total transaction accounts		387,100		57.20			387,538		56.55

Term certificates less than $100,000		156,416		23.11			162,408		23.70
Term certificates $100,000 or more		133,279		19.69			135,299		19.75

Total certificate accounts		289,695		42.80			297,707		43.45

Total deposits	$	676,795		100.00	%	$	685,245		100.00	%

~~Provision for~~Deposits ~~loan~~decreased ~~losses increased~~ $28.15 million, toor $1.2%, from $685.2 million ~~for~~at ~~the three months ended September~~December 3031, 2010 ~~as compared~~ to ~~a provision expense of~~ $~~101,000~~676.8 million ~~for~~at ~~the three months ended September~~March 3031, ~~2009~~2011. ~~This~~Deposits ~~increase~~decreased ~~reflected~~primarily ~~both the difference~~ in ~~the~~money ~~amount~~market ofaccounts and ~~mix~~ certificate of ~~the~~deposits ~~net~~(CD’S) ~~change~~which indecreased ~~loan~~$5.9 million, ~~balances~~or ~~in each period as well as higher specific reserves established against certain loans in 2010~~8. ~~Additionally~~6%, ~~as part of a continuous review~~ and ~~analysis~~$8.0 million, ofor ~~current market and economic conditions by management~~2.7%, ~~the Company adjusted the reserve ratio applied to certain loan categories~~respectively. inThese ~~2010.~~decreases ~~The~~were ~~charge-offs~~partially ofoffset ~~specific~~by ~~non-performing~~increases ~~loans also resulted~~ in ~~the~~demand ~~reduction~~accounts, inrelationship ~~the~~savings and ~~ratio~~regular ofsavings ~~the allowance for loan losses to total loans to 1~~accounts.~~44%~~ atAt ~~September~~March 3031, ~~2010~~2011, asCDs ~~compared to~~represented 142.678% atof ~~December 31,~~total ~~2009 and 1~~deposits.~~33% at September 30, 2009.~~

~~Non-interest~~Borrowings: ~~income~~Advances ~~for~~from the ~~third~~Federal ~~quarter~~Home ofLoan 2010 was $2.0 million, an increase of $4.2 million as compared to a net charge of $2.2 million in 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 as well as an increase in the net gain on the sale of investment securities. The Bank ~~incurred $14,000~~ of ~~OTTI~~Boston ~~losses on certain limited partnership~~ and ~~equity~~securities ~~investments~~sold ~~during~~under ~~the third~~agreements ~~quarter of 2010 as compared~~ to arepurchase ~~charge~~have ofdecreased $31.7 million ~~on certain bonds~~, ~~equities~~or ~~and limited partnership investments in the same quarter of 2009~~1. ~~Portfolio management fees increased $362~~5%,~~000 in~~ ~~the third quarter of 2010 as compared~~ to ~~the same period of 2009 primarily as a result of the Bank’s acquisition of the Renaissance Investment Group in April 2010~~$109.1 million Inat ~~2010~~March 31, ~~the Bank also had increases in net gains on the sale of securities~~2011.

Stockholders’ Equity: Overall stockholders’ equity increased by $255,000, or 0.2%, during the first quarter of 2011. Total equity was impacted by net income of $723,000 and the amortization of unearned compensation. These increases to equity were partially offset by an increase in the unrealized loss on available-for-sale investment securities as well as the declaration of a dividend of $0.05 per share during the first quarter of 2011.

Comparison of Operating Results for the Three Months Ended March 31, 2011 and 2010

Net income for the three months ended March 31, 2011 was $723,000, as compared to a net loss of $1.2 million for the same period in 2010. The improvement to net income included a decrease in the provision for loan losses charges, improved non-interest income and lower operating expenses, offset somewhat by a decrease in net interest income, as discussed below.

Non-interest expense increased $665,000, or 9.5%, to $7.6 million for the three months ended September 30, 2010 as compared to the same period of 2009. The Company incurred severance and other management restructuring expenses of $124,000 in the three month period ending September 30, 2010. Other increases in occupancy, data processing and professional fees were partially offset by a decrease in FDIC insurance and advertising expense. The increase in other general and administration expenses was primarily due to higher expenses related to other real estate owned (OREO) as the Company incurred $84,000 in OREO charges in the three months ending September 30, 2010 as compared to $17,000 in the same period of 2009. 2010 other general and administrative expenses also include $40,000 in amortization of intangibles acquired as part of the Company’s acquisition of substantially all of the assets of the Renaissance Investment Group in April 2010.

Income tax benefit decreased $187,000 to $446,000 in the third quarter of 2010 from a benefit of $633,000 in the third quarter of 2009 as a result of the decrease in net loss before taxes, partially offset by an increase in the tax benefit rate from 27.2% to 36.4%.

Comparison of Operating Results for the Nine Months Ended September 30, 2010 and 2009

Net loss for the nine months ended September 30, 2010 was $3.4 million, as compared to a net loss of $4.0 million for the same period in 2009. The decrease in the loss includes a decrease in charges on investments deemed to be other-than-temporarily impaired (OTTI), offset by an increase in the provision for loan losses and a decrease in net interest margin, as discussed below.

Analysis of Net Interest Income


	Three Months Ended March 31, 2011							Three Months Ended March 31, 2010
	Average							Average
	Outstanding							Outstanding
	Balance		Interest		Yield/ Rate⁽¹⁾			Balance		Interest		Yield/ Rate⁽¹⁾
					(Dollars in thousands)

Interest-earning assets:
Loans — net (2)	$	601,640	$	8,018		5.33	%	$	647,710	$	9,296		5.74	%
Investment securities		205,265		890		1.73	%		190,406		1,352		2.84	%
Short-term investments		9,722		4		0.16	%		15,743		6		0.15	%

Total interest-earning assets		816,627		8,912		4.37	%		853,859		10,654		4.99	%
Non-interest-earning assets		82,124							78,336

Total assets	$	898,751						$	932,195

Interest-bearing liabilities:
Savings deposits	$	52,035		27		0.21	%	$	50,232		33		0.26	%
Relationship savings		141,340		181		0.51	%		128,198		324		1.01	%
Money market		63,938		68		0.43	%		64,336		131		0.81	%
NOW accounts		46,054		26		0.23	%		44,208		34		0.31	%
Certificates of deposit		294,141		1,542		2.10	%		289,174		1,917		2.65	%

Total interest-bearing deposits		597,508		1,844		1.23	%		576,148		2,439		1.69	%
Borrowed funds		110,720		1,021		3.69	%		160,469		1,459		3.64	%

Total interest-bearing liabilities		708,228		2,865		1.62	%		736,617		3,898		2.12	%
Non-interest-bearing liabilities		77,985							71,916

Total liabilities		786,213							808,533
Equity		112,538							123,662

Total liabilities and equity	$	898,751						$	932,195


Net interest income			$	6,047						$	6,756


Net interest rate spread (3)						2.75	%						2.87	%
Net interest-earning assets (4)	$	108,399						$	117,242


Net interest margin (5)						2.96	%						3.16	%
Average interest-earning assets to interest-bearing liabilities						115.31	%						115.92	%


(1)		Yields and rates are annualized.

(2)		Includes loans held for sale and non-accrual loans.

(3)		Net interest rate spread represents the difference between the yield on total average interest-earning assets and the cost of total average interest-bearing liabilities.

(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.

The following table presents the dollar amount of changes in interest income and interest expense for the major categories of the Bank’s interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

	Nine Months Ended September 30, 2010									Nine Months Ended September 30, 2009
	Three Months Ended March 31,
	Average									Average Outstanding
	2011 vs. 2010
	Outstanding Balance			Interest			Yield/ Rate(1)			Balance		Interest		Yield/ Rate(1)
	Increase						Total
							(Dollars in thousands)
	(Decrease) Due to						Increase
Interest-earning assets:
	Volume			Rate			(Decrease)
Loans — net (2)	$	645,188		$	27,328			5.65	%	$	681,577	$	29,478		5.77	%
	(Dollars in thousands)
Investment securities		203,984			3,943			2.58	%		176,507		5,399		4.08	%
Interest-earning assets:
Short-term investments		14,136			17			0.16	%		19,865		10		0.07	%
Loans — net	$	(638	)	$	(640	)	$	(1,278	)
Total interest-earning assets		863,308			31,288			4.83	%		877,949		34,887		5.30	%
Investment securities		115			(577	)		(462	)
Non-interest-earning assets		79,098									73,324
Short-term investments		(2	)		—			(2	)
Total assets	$	942,406								$	951,273
Total interest-earning assets		(525	)		(1,217	)		(1,742	)
Interest-bearing liabilities:
Savings deposits	$	~~51,873~~1			98(7	)		~~0.25~~(6	%)	$	~~50,741~~		~~133~~		~~0.35~~	%
Relationship savings		~~136,512~~37			~~894~~(180	)		~~0.87~~(143	%)		~~122,703~~		~~1,240~~		~~1.35~~	%
Money market		~~66,283~~(1	)		~~346~~(62	)		~~0.70~~(63	%)		~~66,205~~		~~545~~		~~1.10~~	%
NOW accounts		~~45,099~~1			98(9	)		~~0.29~~(8	%)		~~43,335~~		~~134~~		~~0.41~~	%
Certificates of deposit		~~289,925~~34			~~5,474~~(409	)		~~2.52~~(375	%)		~~280,384~~		~~6,408~~		~~3.05~~	%
Total interest-bearing deposits		589,692			6,910			1.56	%		563,368		8,460		2.00	%
Total deposits		72			(667	)		(595	)
Borrowed funds		~~155,665~~(458	)		~~4,272~~20			~~3.66~~(438	%)		~~188,650~~		~~5,613~~		~~3.97~~	%
Total interest-bearing liabilities		~~745,357~~(386	)		~~11,182~~(647	)		~~2.00~~(1,033	%)		~~752,018~~		~~14,073~~		~~2.50~~	%
Non-interest-bearing liabilities		74,497									73,344
Change in net interest income	$	(139	)	$	(570	)	$	(709	)
Total liabilities		819,854									825,362
Equity		122,552									125,911
Total liabilities and equity	$	942,406								$	951,273
Net interest income				$	20,106							$	20,814
Net interest rate spread (3)								2.83	%						2.80	%
Net interest-earning assets (4)	$	117,951								$	125,931
Net interest margin (5)								3.11	%						3.16	%
Average interest-earning assets to interest-bearing liabilities								115.82	%						116.75	%

(1)		Yields and rates for the nine months ended September 30, 2010 and 2009 are annualized.
(2)		Includes loans held for sale and non-accrual loans.
(3)		Net interest rate spread represents the difference between the yield on total average interest-earning assets and the cost of total average interest-bearing liabilities for the nine months ended September 30, 2010 and 2009.
(4)		Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(5)		Net interest margin represents net interest income divided by average total interest-earning assets.

Net interest income for the three months ended March 31, 2011 was $6.0 million, a decrease of $709,000, or 10.5%, over the same period of 2010. This decrease was a result of both the difference in net interest margin in each period as well as a decrease in the net loan portfolio, as outlined below.

~~The~~Interest ~~following~~income ~~table~~for ~~presents~~ the ~~dollar~~three ~~amount~~months ofended ~~changes~~March 31, in2011 ~~interest~~decreased ~~income~~$1.7 million, ~~and~~or ~~interest~~16.4%, to $8.9 ~~expense~~million ~~for~~as compared to $10.7 million in the ~~major~~same ~~categories~~period of 2010. This decrease was driven by both an overall decrease in the ~~Bank~~Company’s yield on interest-earning assets ~~and~~as ~~interest-bearing liabilities.~~well ~~Information~~as isa ~~provided~~decrease ~~for~~in ~~each~~the net ~~category~~loan ofportfolio. The yield on interest-earning assets ~~and~~was 4.37% for the quarter, a decrease of ~~interest-bearing~~62 ~~liabilities~~basis ~~with~~points ~~respect~~from toa ~~(i) changes~~yield ~~attributable~~of to4.99% ~~changes~~in the first quarter of 2010, resulting in ~~volume~~a (idecrease in interest income of $1.e2 million. Average outstanding net loans decreased $46.1 million, or 7.1%, ~~changes~~primarily indue ~~average~~to ~~balances~~commercial ~~multiplied~~loan bysales, ~~the~~payoffs ~~prior~~and charge-~~period~~offs, ~~average~~as ~~rate)~~well ~~and~~as ~~(ii) changes~~the volume of ~~attributable~~refinancing toof fixed-rate ~~(i.e.~~residential mortgages, ~~changes~~which inthe ~~average~~Bank ~~rate~~sells ~~multiplied~~into bythe ~~prior-period~~secondary ~~average balances)~~market. ~~The~~Some ~~changes~~of ~~attributable~~the tocash flow from the ~~combined~~refinancing ~~impact~~and sale of ~~volume~~these ~~and~~mortgages ~~rate~~was ~~have~~reinvested ~~been~~into investment ~~allocated~~securities, resulting in an increase of $14.9 million, or 7.8% in their average balance ~~proportionately~~for the quarter as compared to the ~~changes~~same ~~due~~period toin 2010. This overall change in volume ~~and~~of ~~the~~earning assets ~~changes~~resulted ~~due~~in toa ~~rate~~decrease in interest income of $525,000.

Interest expense decreased $1.0 million, or 26.5%, to $2.9 million for the three months ended March 31, 2011 as compared to $3.9 million during the same period in 2010. Average interest-bearing liabilities decreased $28.4 million, or 3.9%, in the first quarter of 2010 as compared to the same quarter of 2010, resulting in a decrease in interest expense of $386,000. The average cost of funds decreased to 1.62% for the three month period ended March 31, 2011, a decrease of 50 basis points from a cost of funds of 2.12% for the same period in 2010, resulting in a decrease in interest expense of $647,000.

Provision for loan losses decreased $2.4 million to $41,000 for the three months ended March 31, 2011 as compared to a provision expense of $2.4 million for the three months ended March 31, 2010, primarily reflecting management’s analysis, workout and charge-off of potential problem credits during the prior year. These actions, coupled with generally stable credit conditions during the first quarter of 2011 allowed for this significant reduction in the loan loss provision. The allowance for loan losses to total loans was 1.45% at March 31, 2011, as compared to 1.47% at December 31, 2010 and 1.25% at March 31, 2010.

Non-interest income for the first quarter of 2011 was $1.6 million, an increase of $553,000 as compared to $1.0 million in the same period of 2010, primarily due to higher portfolio management fees as well as a decrease in the amount of writedowns taken on investments deemed to be OTTI. Portfolio management fees increased $263,000, or 93.9%, in the first quarter of 2011 as compared to the same period of 2010 as a result of the Bank’s acquisition of substantially all of the assets of the Renaissance Investment Group in April 2010. The Bank incurred $36,000 of OTTI losses on certain limited partnership investments during the first quarter of 2011 as compared to a charge of $299,000 on the same investments in the first quarter of 2010. In 2011, the Bank also had increases in gains on the sale of mortgages.

Non-interest expense decreased $660,000, or 9.2%, to $6.5 million for the three months ended March 31, 2011 as compared to the same period of 2010. Salaries and benefits decreased $649,000, or 18.7% primarily as a result of the termination of certain employee benefits,

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

including the employee stock ownership plan (ESOP) and retiree post-retirement benefits. Decreases in advertising and professional fees were partially offset by increases in occupancy, deposit insurance and expenses related to other real estate owned (OREO), which is included in other general and administrative expenses.

~~Net~~Income ~~interest~~tax ~~income~~expense ~~for~~was $372,000 in the ~~nine~~first ~~months~~quarter ~~ended~~of ~~September 30,~~2011 ~~2010~~as ~~was~~compared ~~$20.1 million,~~to a ~~decrease of~~tax benefit of $~~708~~545,000, orin ~~3.4%, over~~ the same period ofin ~~2009~~2010. ~~This~~The ~~decrease~~Company ~~was~~had aan ~~result~~effective tax rate of ~~both~~34.0% ~~the~~in 2011 as ~~difference~~compared into ~~net~~30.5% ~~interest~~a ~~margin~~year inearlier. ~~each~~The ~~period~~increase asin ~~well~~the aseffective arate ~~decrease~~is inprimarily due to the Company’s ~~net~~reduction ~~loan~~of ~~portfolio, as~~tax-exempt ~~outlined~~municipal ~~below~~investments within the past 12 months.

~~Interest~~Minimum ~~income~~Regulatory ~~for~~Capital ~~the~~Requirements: ~~nine~~As ~~months~~of ~~ended September~~March 3031, ~~2010~~2011, ~~decreased~~the ~~$3.6 million,~~most orrecent ~~10.3%,~~notification tofrom ~~$31.3 million~~the asFDIC ~~compared~~categorized tothe ~~$34.9 million~~Bank inas ~~the~~well ~~same~~capitalized ~~period~~under ofthe ~~2009.~~regulatory ~~This~~framework ~~decrease~~for ~~was mostly~~prompt ~~rate~~corrective ~~driven~~action. asTo ~~the~~be ~~yield~~categorized onas ~~interest-earning~~well ~~assets~~capitalized, ~~was~~an ~~4.83%~~institution ~~for~~must ~~the~~maintain ~~first nine~~minimum ~~months~~total ~~of 2010~~risk-based, aTier ~~decrease~~1 ofrisk-based, 47and ~~basis~~Tier ~~points~~1 ~~from~~leverage aratios ~~yield~~as ofset ~~5.30%~~forth in the ~~first nine months of~~following ~~2009, resulting in a decrease in interest income of $3~~table.~~1 million.~~ ~~Average~~There ~~outstanding~~are ~~net~~no ~~loans decreased~~conditions ~~$36.4 million,~~ or ~~5.3%,~~events ~~primarily~~since ~~due~~that tonotification ~~commercial~~that ~~loan~~management ~~payoffs~~believes ~~and charge-offs, as well~~have aschanged the ~~volume of refinancing of fixed-rate residential mortgages, which the~~ Bank’s ~~sells into the secondary market~~category. ~~Much~~The ofBank’s ~~the~~capital ~~cash~~amounts ~~flow from the refinancing~~ and ~~sale~~ratios as of ~~these mortgages was reinvested into investment securities~~March 31, ~~resulting~~2011 ~~in an increase of~~and ~~$27.5~~December ~~million~~31, ~~or 15.6%, in their average balance for the first nine months of~~ 2010 asare ~~compared~~presented toin the ~~same period in 2009~~table. ~~This~~ ~~overall change in volume of earning assets resulted in a decrease in interest income of $481,000.~~

Interest expense decreased $2.9 million, or 20.5%, to $11.2 million for the nine months ended September 30, 2010 as compared to $14.1 million during the same period in 2009. Average interest-bearing liabilities in the first nine months of 2010 decreased $6.7 million, or 0.9%, as compared to the same period of 2009, accounting for a decrease to interest expense of $531,000. The average cost of funds decreased to 2.00% for the nine month period ended September 30, 2010, a decrease of 50 basis points from a cost of funds of 2.50% for the same period in 2009, resulting in a decrease in interest expense of $2.4 million.


											Minimum To Be Well
						Minimum					Capitalized Under
						Capital					Prompt Corrective
	Actual					Requirement					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars in thousands)
March 31, 2011:
Total capital to risk weighted assets	$	74,344		12.6	%	$	47,384		8.0	%	$	59,230		10.0	%
Tier 1 capital to risk weighted assets:		66,880		11.3			23,692		4.0			35,538		6.0
Tier 1 capital to average assets:		66,880		7.8			34,463		4.0			43,079		5.0

December 31, 2010:
Total capital to risk weighted assets:	$	72,341		12.0	%	$	48,249		8.0	%	$	60,311		10.0	%
Tier 1 capital to risk weighted assets:		64,754		10.7			24,124		4.0			36,187		6.0
Tier 1 capital to average assets:		64,754		7.2			36,155		4.0			45,194		5.0

~~Provision for~~Contractual ~~loan losses increased $6~~Obligations.~~0 million~~ toAdditional ~~$8.4 million~~information ~~for~~relating ~~the nine months ended September 30, 2010 as compared~~ to apayments ~~provision~~due ~~expense~~under ~~of $2.3 million for the nine months ended~~contractual ~~September 30,~~obligations ~~2009.~~is ~~This~~presented ~~increase reflected both the difference~~ in the ~~amount~~Annual ofReport ~~and~~on ~~mix~~Form of10-K ~~the~~filed net change in loan balances in each period as well as higher specific reserves established against certain loans in 2010. Additionally, as part of a continuous review and analysis of current market and economic conditions by ~~management,~~ the Company ~~adjusted~~with the ~~reserve~~Securities and ~~ratio~~Exchange ~~applied~~Commission tofor ~~certain loan~~the ~~categories~~year inended December 31, 2010. The ~~charge-offs~~following oftable ~~specific~~presents information ~~non-performing~~indicating ~~loans~~various ~~also~~contractual ~~resulted~~obligations inand ~~the reduction~~commitments ~~in the ratio~~ of the ~~allowance~~Company ~~for loan losses to total loans to 1.44% at September 30, 2010,~~ as ~~compared~~of ~~to 1.67% at December~~ March 31, ~~2009~~2011 and ~~1.33%~~the atrespective ~~September 30,~~maturity ~~2009.~~dates:

Non-interest income was $5.7 million in the first nine months of 2010, an increase of $8.0 million as compared to 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 as well as an increase in the net gain on the sale of investment securities. The Bank incurred $379,000 of OTTI credit losses on certain limited partnership and equity investments during the first nine months of 2010 as compared to a charge of $6.7 million on certain bonds, equities and limited partnership investments in the same period of 2009. Portfolio management fees increased $632,000, or 87.4% in 2010 as compared to the same period of 2009 primarily as a result of the Bank’s acquisition of the Renaissance Investment Group in April 2010. In 2010, the Bank also had increases in customer fees, insurance and other fees, offset by a decrease on the gain on sale of mortgages.


	March 31, 2011
					More than		More than
					One Year		Three Years
			One Year		through		through		Over Five
	Total		or Less		Three Years		Five Years		Years
			(Dollars in thousands)

Federal Home Loan Bank of Boston advances	$	105,385	$	2,000	$	43,000	$	22,200	$	38,185
Securities sold under agreements to repurchase		3,671		3,671		—		—		—


Total contractual obligations	$	109,056	$	5,671	$	43,000	$	22,200	$	38,185

Off-Balance Sheet Arrangements: Other than loan commitments and other contingencies shown below, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally have fixed expiration dates or other termination clauses. The following table presents certain information about the Bank’s loan commitments and other contingencies outstanding as of March 31, 2011:

Non-interest expense increased $876,000, or 4.0%, to $22.6 million for the first nine months ended September 30, 2010 as compared to the same period of 2009. The Company incurred severance and other management restructuring expenses of $429,000 in the nine month period ending September 30, 2010. Other increases in data processing and professional fees were partially offset by a decrease in FDIC insurance and advertising expense. The increase in other general and administration expenses was primarily due to higher expenses related to other real estate owned (OREO) as the Company incurred $444,000 in OREO charges in the nine months ending September 30, 2010 as compared to $20,000 in the same period of 2009. 2010 other general and administrative expenses also include $67,000 in amortization of intangibles acquired as part of the Company’s acquisition of substantially all of the assets of the Renaissance Investment Group in April 2010.


	March 31, 2011
					More than		More than
					One Year		Years Three
			One Year		through		Through		Over Five
	Total		or Less		Three Years		Five Years		years
	(Dollars in thousands)

Commitments to grant loans ⁽¹⁾	$	10,581	$	10,581	$	—	$	—	$	—
Commercial loan lines-of-credit		21,254		21,254		—		—		—
Unused portion of home equity loans ⁽²⁾		67,560		2,977		10,297		15,393		38,893
Unused portion of construction loans ⁽³⁾		1,448		1,448		—		—		—
Unused portion of overdraft lines-of-credit⁽⁴⁾		4,333		—		—		—		4,333
Unused portion of personal lines-of-credit⁽⁵⁾		689		—		—		—		689
Standby letters of credit⁽⁶⁾		2,871		2,871		—		—		—
Other commitments and contingencies⁽⁷⁾		3,934		—		3,934		—		—

Total loan and other commitments	$	112,670	$	39,131	$	14,231	$	15,393	$	43,915

Income tax benefit increased $223,000 to $1.8 million in the first nine months of 2010 from a benefit of $1.5 million in the same period of 2009 as the Company’s combined federal and state effective tax rate for the first nine months of 2010 was 34.1% as compared to 27.8% in the same period of 2009.

Minimum Regulatory Capital Requirements: As of September 30, 2010, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s capital amounts and ratios as of September 30, 2010 and December 31, 2009 are presented in the table.

											Minimum To Be Well
						Minimum					Capitalized Under
						Capital					Prompt Corrective
	Actual					Requirement					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
September 30, 2010:
Total capital to risk weighted assets	$	71,780		11.1	%	$	51,632		8.0	%	$	64,540		10.0	%
Tier 1 capital to risk weighted assets:		63,693		9.9			25,816		4.0			38,724		6.0
Tier 1 capital to average assets:		63,693		7.0			36,310		4.0			45,387		5.0
December 31, 2009:
Total capital to risk weighted assets:	$	81,484		12.3	%	$	52,824		8.0	%	$	66,030		10.0	%
Tier 1 capital to risk weighted assets:		72,811		11.0			26,412		4.0			39,618		6.0
Tier 1 capital to average assets:		72,811		8.0			36,232		4.0			45,290		5.0

Contractual Obligations. Additional information relating to payments due under contractual obligations is presented in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission for the year ended December 31, 2009. The following table presents information indicating certain contractual obligations and commitments of the Company as of September 30, 2010 and the respective maturity dates:

	September 30, 2010
					More than		Three Years
					One Year		through Five
	Total		One Year or Less		through Three Years		Years		Over Five Years
	(Dollars in thousands)
Federal Home Loan Bank of Boston advances	$	145,092	$	10,000	$	47,000	$	49,900	$	38,192
Securities sold under agreements to repurchase		4,169		4,169		—		—		—
Total contractual obligations	$	149,261	$	14,169	$	47,000	$	49,900	$	38,192

Off-Balance Sheet Arrangements: Other than loan commitments and other contingencies shown below, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract and generally have fixed expiration dates or other termination clauses. The following table presents certain information about the Bank’s loan commitments and other contingencies outstanding as of September 30, 2010:

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


(1)		Commitments for loans are extended to customers for up to 60 days after which they expire.

(2)		Unused portions of home equity loans are available to the borrower for up to 10 years.

(3)		Unused portions of residential construction loans are available to the borrower for up to one year. Commercial construction loans maturities may be longer than one year.

(4)		Unused portion of checking overdraft lines-of-credit are available to customers in “good standing” indefinitely.

(5)		Unused portion of personal lines-of-credit are available to customers in “good standing” indefinitely.

(6)		Standby letters of credit are generally available for less than one year.

(7)		Other commitments relate primarily to potential additional capital calls the Company is committed to contribute as part of its investment in certain real estate limited partnerships.

Item 3: Quantitative and Qualitative Disclosures about Market Risks

There has been no material change in the Company’s market risk during the ~~nine~~three months ended March ~~September 30~~31, ~~2010~~2011. See the discussion and analysis of quantitative and qualitative disclosures about market risk provided in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009~~2010 for a general discussion of the qualitative aspects of market risk and discussion of the ~~simulation~~ simulation model used by the Bank to measure its interest rate risk.

Item 4: Controls and Procedures

Disclosure Controls and Procedures: The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, ~~the~~ the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of end of the period covered by this report, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Internal Control Over Financial Reporting: There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2827

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the financial condition and results of operations of the Company.

Item 1A. Risk Factors

InThere ~~addition~~have tobeen ~~the~~no ~~other~~material ~~information~~changes ~~contained~~in ~~this~~the ~~Quarterly~~Company’s ~~Report~~risk onfactors ~~Form~~during ~~10-Q,~~ the ~~following~~three months ended ~~risk~~March 31, ~~factors~~2011. ~~represent~~See ~~material~~the ~~updates~~discussion and ~~additions~~analysis toof ~~the~~ risk factors ~~previously~~provided ~~disclosed~~ in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009, filed with the Securities and Exchange Commission on March 15,~~ 2010. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial ~~condition~~ condition or results of operations. ~~Further, to the extent that any of the information contained in this~~ Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

Financial reform legislation recently enacted by Congress will, among other things, eliminate the Office of Thrift Supervision, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our costs of operations.

Congress recently enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

Certain provisions of the Dodd-Frank Act are expected to have a near term impact on the Company. For example, the new law provides that the Office of Thrift Supervision, which currently is the primary federal regulator for the Company, will cease to exist one year from the date of the new law’s enactment. The Board of Governors of the Federal Reserve System will supervise and regulate all savings and loan holding companies that were formerly regulated by the Office of Thrift Supervision, including the Company. Also effective one year after the date of enactment is a provision of the Dodd-Frank Act that eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on the Company’s interest expense.

The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2013.

The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Savings institutions such as Legacy Banks with $10 billion or less in assets will continued to be examined for compliance with the consumer laws by their primary bank regulators.

It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs and could increase our interest expense.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sales of Equity Securities — Not applicable (b) Use of Proceeds — Not applicable (c) Repurchase of Our Equity Securities — In March 2009 the Company announced that its Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”) for the purchase of up to 439,095 shares of the Company’s common stockNone

or approximately 5% of its outstanding common stock. Purchases under this Stock Repurchase Program in the third quarter of 2010 were as follows:

							(d) Maximum Number
							or Approximate
					(c) Total Number of		Dollar Value of
					Shares Purchased as		Shares that May Yet
					Part of Publicly		Be Purchased Under
	(a) Total Number of		(b) Average Price		announced Plans or		the Plans or
Period	Shares Purchased		Paid per Share		Programs		Programs
July 1 — 31		9,700	$	8.46		9,700		319,145
August 1 — 31		30,400	$	8.05		30,400		288,745
September 1 — 30		7,900	$	8.00		7,900		280,845

In the period from October 1, 2010 to November 3, 2010, the Company purchased an additional 12,600 shares under the repurchase program at an average price of $7.85 per share. Any further repurchases under the Stock Repurchase Program will be made through open market purchase transactions from time to time. The amount and exact timing of any repurchases will depend on market conditions and other factors, at the discretion of management of the Company. There is no assurance that the Company will repurchase shares during any period.

Item 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved)

Item 5 Other Information

None

3028

Item 6: Exhibits

3.1		Certificate of Incorporation of Legacy Bancorp, Inc.(1)
3.2		Bylaws of Legacy Bancorp, Inc. (as amended) (1)
10.1		Legacy Banks ESOP Trust Agreement(2)
10.2		ESOP Plan Document (2)
10.3		ESOP Loan Documents (2)
10.4.1		Employment Agreement between Legacy Banks and J. Williar Dunlaevy (2)
10.4.2		Employment Agreement between Legacy Banks and Michael A. Christopher (2)
10.4.3		Employment Agreement between Legacy Banks and Steven F. Pierce (2)
10.4.4		Employment Agreement between Legacy Banks and Stephen M. Conley (2)
10.4.5		Employment Agreement between Legacy Banks and Richard M. Sullivan (2)
10.5.1		Employment Agreement between Legacy Bancorp, Inc. and J. Williar Dunlaevy (2)
10.5.2		Employment Agreement between Legacy Bancorp, Inc. and Michael A. Christopher (2)
10.5.3		Employment Agreement between Legacy Bancorp, Inc. and Steven F. Pierce (2)
10.5.4		Employment Agreement between Legacy Bancorp, Inc. and Stephen M. Conley (2)
10.5.5		Employment Agreement between Legacy Bancorp, Inc. and Richard M. Sullivan (2)
10.5.6		Separation Agreement and General Release dated as of November 5, 2007 between Legacy Bancorp, Inc., Legacy Banks and Michael A. Christopher (4)
10.5.7		Separation Agreement and General Release dated as of December 21, 2007 between Legacy Bancorp, Inc., Legacy Banks and Stephen M. Conley (5)
10.5.8		Consulting Agreement dated as of November 5, 2007 between Legacy Bancorp, Inc., Legacy Banks and Michael A. Christopher (4)
10.5.9		Purchase Agreement by and between First Niagara Bank and Legacy Banks dated as of July 25, 2007 (6)
10.5.10		Change In Control Agreement between Legacy Bancorp, Inc. and Paul H. Bruce (7)
10.5.11		Change In Control Agreement between Legacy Bancorp, Inc. and Kimberly A. Mathews (7)
10.5.12		Purchase Agreement by and between The Bank of Western Massachusetts and Legacy Banks dated as of December 15, 2008 (8)
10.5.13		Amended and Restated Employment Agreement effective as of November 20, 2008 by and between Legacy Bancorp, Inc., Legacy Banks and J. Williar Dunlaevy (9)
10.5.14		Amended and Restated Employment Agreement effective as of November 20, 2008 by and between Legacy Bancorp, Inc., Legacy Banks and Steven F. Pierce (9)
10.5.15		Amended and Restated Employment Agreement effective as of November 20, 2008 by and between Legacy Bancorp, Inc., Legacy Banks and Richard M. Sullivan (9)
10.5.16		Amended and Restated Supplemental Executive Retirement Agreement effective as of November 20, 2008 by and between Legacy Bancorp, Inc., Legacy Banks and J. Williar Dunlaevy (9)
10.5.17		Employment Agreement effective as of April, 2010 by and between Legacy Bancorp, Inc., Legacy Banks and Patrick J. Sullivan (10)
10.5.18		Separation Agreement and General Release dated as of May 11, 2010 between Legacy Bancorp, Inc., Legacy Banks and Steven F. Pierce (11)
10.5.19		Change In Control Agreement between Legacy Bancorp, Inc. and Richard M. Sullivan (12)
10.11		2006 Equity Incentive Plan (3)
10.5.20		Definitive Merger Agreement between Legacy Bancorp, Inc. and Berkshire Hills Bancorp (13)
10.11		Amended and Restated 2006 Equity Incentive Plan (13)
11.0		Statement re: Computation of Per Share Earnings is incorporated herein by reference to Notes to Consolidated Financial Statements within Part I, “Financial Statements”
31.1		Certification pursuant to Rule 13a-14(a)/15d-14(a) of J. Williar Dunlaevy
31.2		Certification pursuant to Rule 13a-14(a)/15d-14(a) of Paul H. Bruce
32		Certification pursuant to 18 U.S.C. Section 1350

(1)		Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2005 filed October 27, 2005.
(2)		Incorporated by reference from the Registration Statement on Form S-1 (No. 333-126481) filed July 8, 2005, as amended.
(3)		Incorporated by reference from the Registrant’s Definitive Proxy Statement on Form DEF 14A filed September 28, 2006
(4)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed November 5, 2007.
(5)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed December 21, 2007.
(6)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed July 25, 2007.
(7)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed October 30, 2008.
(8)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed December 16, 2008.
(9)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed November 25, 2008.
(10)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed March 4, 2010.
(11)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed May 11, 2010.
(12)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed November 1, 2010.
(13)		Incorporated by reference from the Registrant’s Current Report on Form 8-K filed December 22, 2010.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LEGACY BANCORP, INC.
Date: November 5, 2010	/s/ J. Williar Dunlaevy
Date: May 10, 2011	/s/ J. Williar Dunlaevy
	J. Williar Dunlaevy
	Chief Executive Officer and Chairman of the Board
Date: November 5, 2010	/s/ Paul H. Bruce
Date: May 10, 2011	/s/ Paul H. Bruce
	Paul H. Bruce
	Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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