UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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|
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
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COMMISSION FILE NUMBER : 000-51525
LEGACY BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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20-3135053
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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99 NORTH STREET
PITTSFIELD, MASSACHUSETTS 01201
(Address of principal executive offices) (Zip Code)
(413) 443-4421
(Registrants telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: Common Stock ($0.01 par value per share)
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12(b)-2 of the Exchange Act.
Large accelerated filer
o
Accelerated Filer
þ
Non-accelerated filer
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Exchange Act).
Yes
o
No
þ
The number of shares of Common Stock outstanding as of November 2, 2007 was
9,457,926
.
LEGACY BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1
PART I FINANCIAL INFORMATION
Item 1: Financial Statements
LEGACY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
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September 30,
|
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December 31,
|
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|
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2007
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|
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2006
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|
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(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash and due from banks
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$
|
11,090
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|
|
$
|
10,442
|
|
Short-term investments
|
|
|
13,023
|
|
|
|
11,202
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|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
24,113
|
|
|
|
21,644
|
|
|
|
|
|
|
|
|
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|
Securities and other investments
|
|
|
159,432
|
|
|
|
176,132
|
|
Loans held for sale
|
|
|
|
|
|
|
|
|
Loans, net of allowance for loan losses of $5,158
in 2007 and $4,677 in 2006
|
|
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630,395
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|
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|
578,802
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|
Premises and equipment, net
|
|
|
17,405
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|
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|
15,416
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|
Accrued interest receivable
|
|
|
3,997
|
|
|
|
3,552
|
|
Goodwill, net
|
|
|
3,085
|
|
|
|
3,085
|
|
Net deferred tax asset
|
|
|
4,564
|
|
|
|
4,474
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|
Bank-owned life insurance
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|
|
14,601
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4,424
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Other assets
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|
828
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|
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|
789
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
858,420
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|
|
$
|
808,318
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND STOCKHOLDERS EQUITY
|
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|
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Deposits
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$
|
540,856
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|
$
|
518,248
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|
Securities sold under agreements to repurchase
|
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3,270
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|
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|
5,575
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|
Federal Home Loan Bank advances
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|
168,574
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|
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|
127,438
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|
Mortgagors escrow accounts
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|
1,116
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|
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|
944
|
|
Accrued expenses and other liabilities
|
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7,318
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6,116
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|
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Total liabilities
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721,134
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658,321
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Commitments and contingencies
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Stockholders Equity
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Preferred Stock ($.01 par value, 10,000,000 shares
authorized, none issued or outstanding)
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Common Stock ($.01 par value, 40,000,000 shares
authorized and 10,308,600 issued at September 30, 2007 and
December 31, 2006; 9,582,826 outstanding at September 30,
2007, and 10,308,600 outstanding at December 31, 2006)
|
|
|
103
|
|
|
|
103
|
|
Additional paid-in-capital
|
|
|
101,653
|
|
|
|
106,094
|
|
Unearned Compensation ESOP
|
|
|
(8,970
|
)
|
|
|
(9,519
|
)
|
Unearned Compensation Equity Incentive Plan
|
|
|
(4,569
|
)
|
|
|
(5,375
|
)
|
Retained earnings
|
|
|
59,481
|
|
|
|
58,863
|
|
Accumulated other comprehensive income (loss)
|
|
|
229
|
|
|
|
(169
|
)
|
Treasury stock, at cost (725,774 shares at September 30, 2007 and no shares at December 31, 2006)
|
|
|
(10,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
137,286
|
|
|
|
149,997
|
|
|
|
|
|
|
|
|
|
|
$
|
858,420
|
|
|
$
|
808,318
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
2
LEGACY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
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|
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|
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Three months ended September 30,
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Nine months ended September 30,
|
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2007
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|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Loans
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|
$
|
10,321
|
|
|
$
|
9,235
|
|
|
$
|
29,861
|
|
|
$
|
26,609
|
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
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|
2,039
|
|
|
|
1,865
|
|
|
|
6,109
|
|
|
|
5,424
|
|
Tax-Exempt
|
|
|
64
|
|
|
|
62
|
|
|
|
196
|
|
|
|
177
|
|
Short-term investments
|
|
|
120
|
|
|
|
85
|
|
|
|
413
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
12,544
|
|
|
|
11,247
|
|
|
|
36,579
|
|
|
|
32,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
4,692
|
|
|
|
3,737
|
|
|
|
13,337
|
|
|
|
9,706
|
|
Federal Home Loan Bank advances
|
|
|
1,863
|
|
|
|
1,629
|
|
|
|
5,253
|
|
|
|
4,812
|
|
Other borrowed funds
|
|
|
30
|
|
|
|
31
|
|
|
|
93
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
6,585
|
|
|
|
5,397
|
|
|
|
18,683
|
|
|
|
14,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
5,959
|
|
|
|
5,850
|
|
|
|
17,896
|
|
|
|
17,889
|
|
Provision for loan losses
|
|
|
160
|
|
|
|
(95
|
)
|
|
|
598
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
5,799
|
|
|
|
5,945
|
|
|
|
17,298
|
|
|
|
17,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer service fees
|
|
|
700
|
|
|
|
686
|
|
|
|
2,348
|
|
|
|
1,994
|
|
Portfolio management fees
|
|
|
293
|
|
|
|
240
|
|
|
|
856
|
|
|
|
739
|
|
Income from bank owned life insurance
|
|
|
192
|
|
|
|
89
|
|
|
|
314
|
|
|
|
142
|
|
Insurance, annuities and mutual fund fees
|
|
|
61
|
|
|
|
58
|
|
|
|
169
|
|
|
|
122
|
|
Gain on sales of securities, net
|
|
|
166
|
|
|
|
(14
|
)
|
|
|
559
|
|
|
|
152
|
|
Gain on sales of loans, net
|
|
|
74
|
|
|
|
58
|
|
|
|
172
|
|
|
|
124
|
|
Miscellaneous
|
|
|
11
|
|
|
|
11
|
|
|
|
31
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
1,497
|
|
|
|
1,128
|
|
|
|
4,449
|
|
|
|
3,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
4,018
|
|
|
|
2,885
|
|
|
|
11,590
|
|
|
|
8,670
|
|
Occupancy and equipment
|
|
|
723
|
|
|
|
613
|
|
|
|
2,137
|
|
|
|
1,886
|
|
Data processing
|
|
|
639
|
|
|
|
501
|
|
|
|
1,673
|
|
|
|
1,471
|
|
Professional fees
|
|
|
230
|
|
|
|
335
|
|
|
|
749
|
|
|
|
1,101
|
|
Advertising
|
|
|
176
|
|
|
|
165
|
|
|
|
620
|
|
|
|
553
|
|
Other general and administrative
|
|
|
720
|
|
|
|
512
|
|
|
|
2,258
|
|
|
|
1,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
6,506
|
|
|
|
5,011
|
|
|
|
19,027
|
|
|
|
15,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
790
|
|
|
|
2,062
|
|
|
|
2,720
|
|
|
|
5,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
270
|
|
|
|
759
|
|
|
|
982
|
|
|
|
1,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
520
|
|
|
$
|
1,303
|
|
|
$
|
1,738
|
|
|
$
|
3,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.14
|
|
|
$
|
0.19
|
|
|
$
|
0.36
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.14
|
|
|
$
|
0.19
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
8,724,814
|
|
|
|
9,566,530
|
|
|
|
9,021,472
|
|
|
|
9,552,888
|
|
Diluted
|
|
|
8,741,902
|
|
|
|
9,566,530
|
|
|
|
9,043,883
|
|
|
|
9,552,888
|
|
See accompanying notes to unaudited consolidated financial statements
3
LEGACY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Dollars in thousands)
(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, 2005
|
|
|
10,308,600
|
|
|
$
|
103
|
|
|
$
|
100,202
|
|
|
$
|
(10,252
|
)
|
|
$
|
|
|
|
$
|
57,202
|
|
|
$
|
(1,089
|
)
|
|
$
|
|
|
|
$
|
146,166
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,397
|
|
|
|
|
|
|
|
|
|
|
|
3,397
|
|
Net unrealized gain on securities
available for sale, net of reclassification
adjustment and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
273
|
|
|
|
|
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.09 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(859
|
)
|
|
|
|
|
|
|
|
|
|
|
(859
|
)
|
Common stock held by ESOP committed
to be released (41,235 shares)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
|
10,308,600
|
|
|
$
|
103
|
|
|
$
|
100,269
|
|
|
$
|
(9,702
|
)
|
|
$
|
|
|
|
$
|
59,740
|
|
|
$
|
(816
|
)
|
|
$
|
|
|
|
$
|
149,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
10,308,600
|
|
|
$
|
103
|
|
|
$
|
106,094
|
|
|
$
|
(9,519
|
)
|
|
$
|
(5,375
|
)
|
|
$
|
58,863
|
|
|
$
|
(169
|
)
|
|
$
|
|
|
|
$
|
149,997
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,738
|
|
|
|
|
|
|
|
|
|
|
|
1,738
|
|
Net unrealized gain on securities
available for sale, net of reclassification
adjustment and tax effects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.12 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,120
|
)
|
Common stock repurchased Restricted stock
portion of 2006 Equity Incentive Plan (412,344 shares)
|
|
|
(65,844
|
)
|
|
|
|
|
|
|
(5,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,080
|
)
|
|
|
(6,659
|
)
|
Common stock repurchased 5% Stock Repurchase
Program announced April 2007
|
|
|
(515,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,534
|
)
|
|
|
(7,534
|
)
|
Common stock repurchased 5% Stock Repurchase
Program announced August 2007
|
|
|
(144,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,027
|
)
|
|
|
(2,027
|
)
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
1,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,071
|
|
Restricted stock expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
806
|
|
Common stock held by ESOP committed
to be released (41,235 shares)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
9,582,826
|
|
|
$
|
103
|
|
|
$
|
101,653
|
|
|
$
|
(8,970
|
)
|
|
$
|
(4,569
|
)
|
|
$
|
59,481
|
|
|
$
|
229
|
|
|
$
|
(10,641
|
)
|
|
$
|
137,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
4
LEGACY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,738
|
|
|
$
|
3,397
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
598
|
|
|
|
245
|
|
Net accretion of securities
|
|
|
(702
|
)
|
|
|
(854
|
)
|
Depreciation and amortization expense
|
|
|
871
|
|
|
|
757
|
|
Gain on sales of securities, net
|
|
|
(559
|
)
|
|
|
(152
|
)
|
Gain on sales of loans, net
|
|
|
(172
|
)
|
|
|
(124
|
)
|
Loans originated for sale
|
|
|
(11,781
|
)
|
|
|
(7,480
|
)
|
Proceeds from sale of loans
|
|
|
11,953
|
|
|
|
7,282
|
|
Share-based compensation expense
|
|
|
1,877
|
|
|
|
|
|
Deferred tax provision
|
|
|
(335
|
)
|
|
|
(164
|
)
|
Employee Stock Ownership Plan expense
|
|
|
616
|
|
|
|
617
|
|
Net change in:
|
|
|
|
|
|
|
|
|
Bank-owned life insurance
|
|
|
(363
|
)
|
|
|
(190
|
)
|
Accrued interest receivable
|
|
|
(445
|
)
|
|
|
(473
|
)
|
Other assets
|
|
|
(39
|
)
|
|
|
101
|
|
Accrued expenses and other liabilities
|
|
|
1,202
|
|
|
|
152
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,459
|
|
|
|
3,114
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Activity in available-for-sale securities:
|
|
|
|
|
|
|
|
|
Sales
|
|
|
6,645
|
|
|
|
1,593
|
|
Maturities, prepayments and calls
|
|
|
66,774
|
|
|
|
72,180
|
|
Purchases
|
|
|
(53,632
|
)
|
|
|
(69,841
|
)
|
Purchase of Federal Home Loan Bank stock
|
|
|
(320
|
)
|
|
|
|
|
Purchase of other investments
|
|
|
(903
|
)
|
|
|
(1,063
|
)
|
Maturities, prepayments and call of other investments
|
|
|
40
|
|
|
|
42
|
|
Loan originations and purchases, net of principal payments
|
|
|
(52,191
|
)
|
|
|
(27,808
|
)
|
Purchases of bank-owned life insurance
|
|
|
(9,814
|
)
|
|
|
|
|
Additions to premises and equipment
|
|
|
(2,860
|
)
|
|
|
(893
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(46,261
|
)
|
|
|
(25,790
|
)
|
|
|
|
|
|
|
|
(continued)
See accompanying notes to unaudited consolidated financial statements.
5
LEGACY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
22,608
|
|
|
|
32,682
|
|
Net decrease in securities sold under
agreements to repurchase
|
|
|
(2,305
|
)
|
|
|
(1,467
|
)
|
Repayment of Federal Home Loan Bank advances
|
|
|
(157,656
|
)
|
|
|
(139,285
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
|
198,792
|
|
|
|
131,239
|
|
Net increase in mortgagors escrow accounts
|
|
|
172
|
|
|
|
338
|
|
Repurchase of common stock
|
|
|
(16,220
|
)
|
|
|
|
|
Payment of dividends on common stock
|
|
|
(1,120
|
)
|
|
|
(859
|
)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
44,271
|
|
|
|
22,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
2,469
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
21,644
|
|
|
|
19,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
24,113
|
|
|
$
|
19,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid on deposits
|
|
$
|
13,260
|
|
|
$
|
10,201
|
|
Interest paid on Federal Home Loan Bank advances
|
|
|
5,151
|
|
|
|
5,832
|
|
Interest paid on other borrowed funds
|
|
|
93
|
|
|
|
99
|
|
Income taxes paid
|
|
|
1,480
|
|
|
|
2,025
|
|
See accompanying notes to unaudited consolidated financial statements.
6
LEGACY BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of
Legacy Bancorp, Inc. (the 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. The results shown for interim
periods ended September 30, 2007 and 2006 are not necessarily indicative of the results to be
obtained for a full year. These consolidated interim financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto included in the
Companys most recent Securities and Exchange Commission Form 10-K filed by the Company for the
year ended December 31, 2006.
2. Recent Accounting Pronouncements
In March 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting
Standards (FAS) No. 156,
Accounting for Servicing of Financial Assets
, which amends FAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
,
with respect to the accounting for servicing of financial assets. This Statement requires that all
separately recognized servicing rights be initially measured at fair value, if practicable. For
each class of separately recognized servicing and liabilities, this Statement permits an entity to
choose either of the following subsequent measurement methods: (1) amortize servicing assets or
liabilities in proportion to and over the period of estimated net servicing income or net servicing
loss; or (2) report servicing assets or liabilities at fair value at each reporting date and report
changes in fair value in earnings in the period in which the changes occur. This Statement also
requires additional disclosures for all separately recognized servicing rights and is effective for
new transactions occurring and for subsequent measurement at the beginning of the entitys first
fiscal year that begins after September 15, 2006. The Company adopted the provisions of FAS No.
156 on January 1, 2007, electing to amortize servicing assets or liabilities in proportion to and
over the period of estimated net servicing income or net servicing loss. Accordingly, adoption of
this Statement did not have material impact on the Companys consolidated financial statements.
In July 2006, the FASB issued Financial Accounting Standards Interpretation No. 48,
Accounting for
Uncertainty in Income Taxes
, (FIN 48). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in a Companys financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosures and transitions. FIN 48 was adopted by
the Company on January 1, 2007 and did not have a material impact on the Companys consolidated
financial statements.
In September 2006, the FASB issued Financial Accounting Standards No. 157,
Fair Value
Measurement
, which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands the disclosures about fair value measurement.
This Statement was developed to provide guidance for consistency and comparability in fair value
measurements and disclosures and applies under other accounting pronouncements that require or
permit fair value measurements. This Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.
In September 2006, the FASB ratified the Emerging Task Force (EITF) consensus on Issue No. 06-4,
Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements
(EITF 06-4). This issue addresses accounting for
split-dollar life insurance arrangements whereby the employer purchases a policy to insure the life
of an employee, and separately enters into an agreement to split the policy benefits between the
employer and the employee. This EITF states that an obligation arises as a result of a substantive
agreement with an employee to provide future postretirement benefits. Under EITF 06-4, the
obligation is not settled upon entering into an insurance arrangement. Since the obligation is not
settled, a liability should be recognized in accordance with applicable authoritative guidance.
EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company is in the
process of evaluating the potential impacts of adopting EITF 06-4 on its consolidated financial
statements.
7
In February 2007, the FASB issued Statement of financial Accounting Standards No. 159,
The Fair
Value Option for Financial Assets and Financial Liabilities
(SFAS 159). This Statement provides
companies with an option to report selected financial assets and liabilities at fair value. The
Standards objective is to reduce both the complexity in accounting for financial instruments and
the volatility in earnings caused by measuring related assets and liabilities differently. SFAS
159 also establishes presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types of assets and
liabilities. This Statement is effective as of the beginning of an entitys first fiscal year
beginning after November 15, 2007. Early adoption is permitted if the Company makes the choice in
the first 120 days of that fiscal year and also elects to apply the provisions of SFAS 157. The
Company did not elect early adoption of SFAS 159 nor does it expect SFAS 159 to have a material
impact on the Companys consolidated financial statements.
3. Earnings Per Share
Basic earnings per share is determined by dividing net income by the weighted-average number of net
outstanding common shares for the period. The net outstanding common shares equals the gross
number of common shares issued less unallocated shares of the Legacy Banks Employee Stock Ownership
Plan (ESOP), the average number of treasury shares and the 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 common share have been computed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net income applicable to common stock (000s)
|
|
$
|
520
|
|
|
$
|
1,303
|
|
|
$
|
1,738
|
|
|
$
|
3,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of shares issued
|
|
|
10,308,600
|
|
|
|
10,308,600
|
|
|
|
10,308,600
|
|
|
|
10,308,600
|
|
Less: average unallocated ESOP shares
|
|
|
(687,091
|
)
|
|
|
(742,070
|
)
|
|
|
(700,733
|
)
|
|
|
(755,712
|
)
|
Less: average treasury shares
|
|
|
(550,195
|
)
|
|
|
|
|
|
|
(239,895
|
)
|
|
|
|
|
Less: unvested restricted stock awards
|
|
|
(346,500
|
)
|
|
|
|
|
|
|
(346,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of basic shares outstanding
|
|
|
8,724,814
|
|
|
|
9,566,530
|
|
|
|
9,021,472
|
|
|
|
9,552,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: dilutive unvested restricted stock awards
|
|
|
17,088
|
|
|
|
|
|
|
|
22,411
|
|
|
|
|
|
Plus: diluted stock option shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of diluted shares outstanding
|
|
|
8,741,902
|
|
|
|
9,566,530
|
|
|
|
9,043,883
|
|
|
|
9,552,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.06
|
|
|
$
|
0.14
|
|
|
$
|
0.19
|
|
|
$
|
0.36
|
|
Diluted earnings per share
|
|
$
|
0.06
|
|
|
$
|
0.14
|
|
|
$
|
0.19
|
|
|
$
|
0.36
|
|
4. Dividends
On September 5, 2007, the Company declared a cash dividend of $0.04 per common share which was paid
on October 1, 2007 to shareholders of record as of the close of business on September 20, 2007.
5. Loan Commitments and other Contingencies
Outstanding loan commitments and other contingencies totaled $146.8 million at September 30, 2007,
compared to $129.0 million as of December 31, 2006. 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.
Item 2: Managements 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 Managements Discussion and Analysis section included in the
Companys most recent Securities and Exchange Commission Form 10-K filed by the Company for the
year ended December 31, 2006.
8
Forward-Looking Statements
Certain statements herein constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on the beliefs and
expectations of management, as well as the assumptions
made using information currently available to management. Since these statements reflect the views
of management concerning future events, these statements involve risks, uncertainties and
assumptions. As a result, actual results may differ from those contemplated by these statements.
Forward-looking statements can be identified by the fact that they do not relate strictly to
historical or current facts. They often include words like believe, expect, anticipate,
estimate, and intend or future or conditional verbs such as will, would, should, could,
or may. Certain factors that could cause actual results to differ materially from expected
results include changes in the interest rate environment, changes in general economic conditions,
legislative and regulatory changes that adversely affect the businesses in which the Company is
engaged and changes in the securities market. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this report. The Company
disclaims any intent or obligation to update any forward-looking statements, whether in response to
new information, future events or otherwise.
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 due to the high degree of judgment involved, the subjectivity of the underlying
assumptions used, and the potential for changes in the economic environment that could result in
material changes in the amount of the allowance for loan losses considered necessary. The allowance
is evaluated on a regular basis by management and is based on a periodic review of the
collectibility of the loans in light of historical experience, the nature and size of the loan
portfolio, adverse situations that may affect borrowers ability to repay, the estimated value of
any underlying collateral and prevailing economic conditions.
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 managements judgment, it is more likely than not that all or a portion of
such deferred tax assets will not be realized.
This discussion has highlighted those accounting policies that management considers to be critical;
however all accounting policies are important, and therefore you are encouraged to review each of
the policies included in Note 1 to the consolidated financial statements in the most recent
Securities and Exchange Commission Form 10-K of Legacy Bancorp, Inc., to gain a better
understanding of how our financial performance is measured and reported.
Comparison of Financial Condition at September 30, 2007 and December 31, 2006
Overview:
Total assets increased by $50.1 million, or 6.2%, from $808.3 million at December 31,
2006 to $858.4 million at September 30, 2007. This increase was due primarily to growth in the net
loan portfolio, excluding loans held for sale, of $51.6 million, or 8.9% to $630.4 million at
September 30, 2007. Additionally the Banks investment in bank-owned life insurance increased to
$14.6 million as of September 30, 2007 from $4.4 million at December 31, 2006. Offsetting these
increases was a decrease in securities and other investments of $16.7 million, or 9.5%, as
discussed further below.
Investment Activities
: Cash and short term investments increased by $2.5 million, or 11.4%, from
$21.6 million at December 31, 2006 to $24.1 million at September 30, 2007. Securities and other
investments decreased $16.7 million, or 9.5%, from $176.1 million at December 31, 2006 to $159.4
million at September 30, 2007 as cash flow was utilized to partially fund loan growth, the $9.8
million purchase of bank-owned life insurance, and the repurchase of the Companys common shares as
outlined in
Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds
. The
decreases in securities occurred primarily in government-sponsored enterprises and mortgage-backed
securities. At September 30, 2007, the Companys available-for-sale portfolio amounted to $144.3
million, or 16.8% of total assets. The following table sets forth at the dates indicated
information regarding the amortized cost and fair values of the Companys investment securities.
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2007
|
|
|
At December 31, 2006
|
|
|
|
Amortized
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Dollars in Thousands)
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises
|
|
$
|
74,032
|
|
|
$
|
74,200
|
|
|
$
|
91,181
|
|
|
$
|
90,906
|
|
Municipal bonds
|
|
|
7,912
|
|
|
|
7,869
|
|
|
|
7,199
|
|
|
|
7,174
|
|
Corporate bonds and other obligations
|
|
|
1,500
|
|
|
|
1,505
|
|
|
|
2,971
|
|
|
|
2,977
|
|
Mortgage-backed securities
|
|
|
52,680
|
|
|
|
52,490
|
|
|
|
54,165
|
|
|
|
53,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
136,124
|
|
|
|
136,064
|
|
|
|
155,516
|
|
|
|
154,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
6,878
|
|
|
|
8,266
|
|
|
|
6,013
|
|
|
|
7,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
|
143,002
|
|
|
|
144,330
|
|
|
|
161,529
|
|
|
|
162,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
9,319
|
|
|
|
9,319
|
|
|
|
8,999
|
|
|
|
8,999
|
|
Savings Bank Life Insurance
|
|
|
1,709
|
|
|
|
1,709
|
|
|
|
1,709
|
|
|
|
1,709
|
|
Other investments
|
|
|
3,977
|
|
|
|
3,977
|
|
|
|
3,114
|
|
|
|
3,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted equity securities
and other investments
|
|
|
15,005
|
|
|
|
15,005
|
|
|
|
13,822
|
|
|
|
13,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
|
|
$
|
158,104
|
|
|
$
|
159,432
|
|
|
$
|
175,448
|
|
|
$
|
176,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending Activities:
Total net loans, excluding loans held for sale, at September 30, 2007 were
$630.4 million, an increase of $51.6 million or 8.9%, from $578.8 million at December 31, 2006.
The following table sets forth the composition of the Banks loan portfolio (not including loans
held for sale) in dollar amounts and as a percentage of the respective portfolio at the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2007
|
|
|
At December 31, 2006
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Mortgage loans on real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
347,409
|
|
|
|
54.77
|
%
|
|
$
|
325,407
|
|
|
|
55.85
|
%
|
Commercial
|
|
|
194,708
|
|
|
|
30.70
|
|
|
|
170,971
|
|
|
|
29.35
|
|
Home equity
|
|
|
56,932
|
|
|
|
8.97
|
|
|
|
56,856
|
|
|
|
9.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599,049
|
|
|
|
94.44
|
|
|
|
553,234
|
|
|
|
94.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
24,654
|
|
|
|
3.89
|
|
|
|
22,903
|
|
|
|
3.93
|
|
Consumer and other
|
|
|
10,581
|
|
|
|
1.67
|
|
|
|
6,451
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,235
|
|
|
|
5.56
|
|
|
|
29,354
|
|
|
|
5.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
634,284
|
|
|
|
100.00
|
%
|
|
|
582,588
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred loan costs
|
|
|
1,269
|
|
|
|
|
|
|
|
891
|
|
|
|
|
|
Unamortized premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(5,158
|
)
|
|
|
|
|
|
|
(4,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans, net
|
|
$
|
630,395
|
|
|
|
|
|
|
$
|
578,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Residential mortgages increased $22.0 million, or 6.8% from $325.4 million at December 31, 2006 to
$347.4 million at September 30, 2007, while commercial real estate and commercial other loans
increased $25.5 million, or 13.1% from $193.9 million at December 31, 2006 to $219.4 million at
September 30, 2007. The Company has been very encouraged by the activity in its loan production
office which opened in September 2006 in the Albany-Troy-Schenectady, New York market and
contributed to the growth in the first nine months of 2007.
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, 2007 while they were on non-accrual status.
If the non-accrual loans had been current, the gross interest income that would have been recorded
is equal to approximately $21,000 and $62,000 for the three and nine month period ended September
30, 2007. The Bank had no troubled debt restructurings (loans for which a portion of interest or
principal has been forgiven or the loans have been modified at an interest rate less than current market
rates) at September 30, 2007 and five troubled debt restructurings, all to one borrower, totaling
approximately $943,000 December 31, 2006. The interest income recorded from these loans amounted
to approximately $16,000 and $60,000 for the three and nine month periods ended September 30, 2007,
respectively.
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in Thousands)
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
Residential mortgage
|
|
$
|
383
|
|
|
$
|
483
|
|
Commercial mortgage
|
|
|
348
|
|
|
|
179
|
|
Commercial
|
|
|
303
|
|
|
|
132
|
|
Home equity, consumer and other
|
|
|
65
|
|
|
|
85
|
|
|
|
|
|
|
|
|
Total non-accrual loans
|
|
|
1,099
|
|
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 assets
|
|
$
|
1,099
|
|
|
$
|
879
|
|
|
|
|
|
|
|
|
Troubled debt restructurings
|
|
$
|
|
|
|
$
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
|
|
0.17
|
%
|
|
|
0.15
|
%
|
Non-performing assets to total assets
|
|
|
0.13
|
%
|
|
|
0.11
|
%
|
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 managements best estimate of the probable
known and inherent credit losses in the loan portfolio as of the date of the financial statements.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
managements periodic review of the collectibility of the loans in light of historical experience,
portfolio volume and mix, geographic and large borrower concentrations, estimated credit losses
based on internal and independent external portfolio reviews, adverse situations that may affect
the borrowers ability to repay, estimated value of any underlying collateral and prevailing
economic conditions. This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
11
The allowance consists of allocated, general and unallocated components. The allocated component
relates to loans that are classified as either doubtful, substandard or special mention and are
also classified as impaired. For such loans, 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. An unallocated component is
maintained to cover uncertainties that could affect managements 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 losses in the
portfolio.
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. Factors considered by
management in determining impairment include payment status, collateral value, and the probability
of collecting scheduled principal and interest payments when due. Impaired loans are generally
maintained on a non-accrual basis. 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 loans effective interest rate or the fair value of the collateral if the loan is
collateral dependent. 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, 2007, impaired loans totaled
$2.6 million with a corresponding specific reserve allowance of $357,000.
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 Banks 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 Banks financial condition and earnings. The
following table sets forth activity in the Banks allowance for loan losses for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or for the Three Months
|
|
|
At or for the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in Thousands)
|
|
Balance at beginning of period
|
|
$
|
5,043
|
|
|
$
|
4,693
|
|
|
$
|
4,677
|
|
|
$
|
4,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate:
|
|
|
|
|
|
|
|
|
|
|
(31
|
)
|
|
|
(50
|
)
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(28
|
)
|
|
|
(2
|
)
|
|
|
(46
|
)
|
|
|
(7
|
)
|
Consumer and other
|
|
|
(29
|
)
|
|
|
(23
|
)
|
|
|
(89
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other loans
|
|
|
(57
|
)
|
|
|
(25
|
)
|
|
|
(135
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(57
|
)
|
|
|
(25
|
)
|
|
|
(166
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate
|
|
|
|
|
|
|
3
|
|
|
|
11
|
|
|
|
3
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
104
|
|
|
|
3
|
|
|
|
306
|
|
Consumer and other
|
|
|
12
|
|
|
|
11
|
|
|
|
35
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other loans
|
|
|
12
|
|
|
|
115
|
|
|
|
38
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
12
|
|
|
|
118
|
|
|
|
49
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries
|
|
|
(45
|
)
|
|
|
93
|
|
|
|
(117
|
)
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
160
|
|
|
|
(95
|
)
|
|
|
598
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
5,158
|
|
|
$
|
4,691
|
|
|
$
|
5,158
|
|
|
$
|
4,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (charge-offs) recoveries to average loans outstanding annualized
|
|
|
(0.03
|
%)
|
|
|
0.06
|
%
|
|
|
(0.03
|
%)
|
|
|
0.05
|
%
|
Allowance for loan losses to non-performing loans at end of period
|
|
|
469.34
|
%
|
|
|
749.36
|
%
|
|
|
469.34
|
%
|
|
|
749.36
|
%
|
Allowance for loan losses to total loans at end of period
|
|
|
0.81
|
%
|
|
|
0.81
|
%
|
|
|
0.81
|
%
|
|
|
0.81
|
%
|
12
Deposits
: The following table sets forth the Banks deposit accounts (excluding escrow deposits)
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2007
|
|
|
At December 31, 2006
|
|
|
|
Balance
|
|
|
Percent
|
|
|
Balance
|
|
|
Percent
|
|
|
|
(Dollars in Thousands)
|
|
|
(Dollars in Thousands)
|
|
Deposit type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
51,332
|
|
|
|
9.49
|
%
|
|
$
|
50,753
|
|
|
|
9.79
|
%
|
Regular savings
|
|
|
44,368
|
|
|
|
8.20
|
|
|
|
50,939
|
|
|
|
9.83
|
|
Relationship Savings
|
|
|
102,463
|
|
|
|
18.95
|
|
|
|
93,017
|
|
|
|
17.95
|
|
Money market deposits
|
|
|
65,524
|
|
|
|
12.11
|
|
|
|
58,097
|
|
|
|
11.21
|
|
NOW deposits
|
|
|
33,786
|
|
|
|
6.25
|
|
|
|
37,553
|
|
|
|
7.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transaction accounts
|
|
|
297,473
|
|
|
|
55.00
|
|
|
|
290,359
|
|
|
|
56.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
243,383
|
|
|
|
45.00
|
|
|
|
227,889
|
|
|
|
43.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
540,856
|
|
|
|
100.00
|
%
|
|
$
|
518,248
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits increased $22.6 million or 4.4% from $518.2 million at December 31, 2006 to $540.9 million
at September 30, 2007 driven by certificate of deposit (CDs) specials and new customer
relationships related to the new branch openings in Great Barrington and North Adams,
Massachusetts. As a result, total CDs increased $15.6 million, or 6.8% from $227.9 million at
December 31, 2006 to $243.4 million at September 20, 2007. Other increases in Relationship Savings
and certain money market accounts were offset somewhat by a decrease in regular savings and NOW
accounts.
Borrowings
include borrowings from the Federal Home Loan Bank of Boston (FHLBB) as well as
securities sold under agreements to repurchase, and have increased $38.8 million, or 29.2%, to
$171.8 million at September 30, 2007. This increase has been due to the Bank taking advantage of
some lower cost FHLBB specials, as well as the borrowing of very short term funds to partially fund
loan growth. These shorter term borrowings have a maturity schedule established in anticipation of
the inflow of deposits as a result of the pending acquisition of five branches in New York State
from First Niagara Bank, expected to close on December 7, 2007.
Stockholders Equity
decreased by $12.7 million, or 8.5% during the first three quarters of 2007
primarily due to the repurchase of stock. During the first quarter of 2007, the Company purchased
412,344 shares of Company stock at an average price of $16.15 per share in order to fund the
restricted stock portion of the 2006 Equity Incentive Plan. Additionally the Company purchased
515,430 shares at an average price of $14.62 during the second and third quarters of 2007 as part
of a stock repurchase program announced in April and completed in August 2007. More recently the
Company purchased 144,500 shares at an average price of $14.03 during the third quarter of 2007 as
part of a stock repurchase program announced in August 2007. Total equity was positively impacted
by a contribution of $1.7 million from net income and the amortization of unearned compensation.
These increases to equity were offset somewhat by the declaration of a dividend of $0.04 per share
during each of the first three quarters of 2007, which had the effect of decreasing stockholders
equity by $1.1 million.
Comparison of Operating Results for the Three Months Ended September 30, 2007 and 2006
Net income for the three months ended September 30, 2007 was $520,000, a decrease of $783,000, or
60.1% from $1.3 million for the same period in 2006. This decrease was primarily due to an increase
in non interest expenses of $1.5 million as compared to the three months ended September 30, 2006
as well as an increase in the loan loss provision of $255,000, offset somewhat by an increase in
non-interest income of $369,000 as well as a decrease in tax provision of $489,000. All of these
changes are 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.
13
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, 2007
|
|
|
Three Months Ended September 30, 2006
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
(1)
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
(1)
|
|
|
|
(Dollars in thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Net (2)
|
|
$
|
622,526
|
|
|
$
|
10,321
|
|
|
|
6.63
|
%
|
|
$
|
572,365
|
|
|
$
|
9,235
|
|
|
|
6.45
|
%
|
Investment securities
|
|
|
161,879
|
|
|
|
2,103
|
|
|
|
5.20
|
%
|
|
|
174,439
|
|
|
|
1,927
|
|
|
|
4.42
|
%
|
Short-term investments
|
|
|
9,649
|
|
|
|
120
|
|
|
|
4.97
|
%
|
|
|
6,455
|
|
|
|
85
|
|
|
|
5.27
|
%
|
|
|
|
|
|
Total interest-earning assets
|
|
|
794,054
|
|
|
|
12,544
|
|
|
|
6.32
|
%
|
|
|
753,259
|
|
|
|
11,247
|
|
|
|
5.97
|
%
|
Non-interest-earning assets
|
|
|
52,734
|
|
|
|
|
|
|
|
|
|
|
|
41,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
846,788
|
|
|
|
|
|
|
|
|
|
|
$
|
794,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
45,564
|
|
|
|
51
|
|
|
|
0.45
|
%
|
|
$
|
56,515
|
|
|
|
62
|
|
|
|
0.44
|
%
|
Relationship Savings
|
|
|
105,654
|
|
|
|
1,028
|
|
|
|
3.89
|
%
|
|
|
80,499
|
|
|
|
856
|
|
|
|
4.25
|
%
|
Money market
|
|
|
58,307
|
|
|
|
571
|
|
|
|
3.92
|
%
|
|
|
52,133
|
|
|
|
421
|
|
|
|
3.23
|
%
|
NOW accounts
|
|
|
35,082
|
|
|
|
58
|
|
|
|
0.66
|
%
|
|
|
37,220
|
|
|
|
36
|
|
|
|
0.39
|
%
|
Certificates of deposits
|
|
|
245,401
|
|
|
|
2,984
|
|
|
|
4.86
|
%
|
|
|
219,435
|
|
|
|
2,362
|
|
|
|
4.31
|
%
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
490,008
|
|
|
|
4,692
|
|
|
|
3.83
|
%
|
|
|
445,802
|
|
|
|
3,737
|
|
|
|
3.35
|
%
|
Borrowed Funds
|
|
|
159,315
|
|
|
|
1,893
|
|
|
|
4.75
|
%
|
|
|
145,218
|
|
|
|
1,660
|
|
|
|
4.57
|
%
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
649,323
|
|
|
|
6,585
|
|
|
|
4.06
|
%
|
|
|
591,020
|
|
|
|
5,397
|
|
|
|
3.65
|
%
|
Non-interest-bearing liabilities
|
|
|
57,376
|
|
|
|
|
|
|
|
|
|
|
|
57,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
706,699
|
|
|
|
|
|
|
|
|
|
|
|
648,282
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
140,089
|
|
|
|
|
|
|
|
|
|
|
|
146,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
846,788
|
|
|
|
|
|
|
|
|
|
|
$
|
794,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
5,959
|
|
|
|
|
|
|
|
|
|
|
$
|
5,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (3)
|
|
|
|
|
|
|
|
|
|
|
2.26
|
%
|
|
|
|
|
|
|
|
|
|
|
2.32
|
%
|
Net interest-earning assets (4)
|
|
$
|
144,731
|
|
|
|
|
|
|
|
|
|
|
$
|
162,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (5)
|
|
|
|
|
|
|
|
|
|
|
3.00
|
%
|
|
|
|
|
|
|
|
|
|
|
3.11
|
%
|
Average interest-earning assets to interest-bearing liabilities
|
|
|
|
|
|
|
|
|
122.29
|
%
|
|
|
|
|
|
|
|
|
|
|
127.45
|
%
|
|
|
|
(1)
|
|
Yields and rates for the three months ended September 30, 2007 and 2006 are annualized.
|
|
(2)
|
|
Includes loans held for sale.
|
|
(3)
|
|
Net interest rate spread represents the difference between the yield on total average
interest-earning assets and the cost of total average
interest-bearing liabilities for the three months ended September 30, 2007 and 2006.
|
|
(4)
|
|
Net interest-earning assets represents total interest-earning assets less total
interest-bearing liabilities.
|
|
(5)
|
|
Net interest margin represents net interest income divided by average total interest-earning
assets.
|
The following table presents the dollar amount of changes in interest income and interest expense
for the major categories of the Banks 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.
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2007 vs. 2006
|
|
|
Increase
|
|
Total
|
|
|
(Decrease) Due to
|
|
Increase
|
|
|
Volume
|
|
Rate
|
|
(Decrease)
|
|
|
(Dollars in thousands)
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Net
|
|
$
|
823
|
|
|
$
|
263
|
|
|
$
|
1,086
|
|
Investment securities
|
|
|
(122
|
)
|
|
|
298
|
|
|
|
176
|
|
Short-term investments
|
|
|
40
|
|
|
|
(5
|
)
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
741
|
|
|
|
556
|
|
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
|
(12
|
)
|
|
|
1
|
|
|
|
(11
|
)
|
Relationship Savings
|
|
|
236
|
|
|
|
(64
|
)
|
|
|
172
|
|
Money market
|
|
|
54
|
|
|
|
96
|
|
|
|
150
|
|
NOW accounts
|
|
|
(2
|
)
|
|
|
24
|
|
|
|
22
|
|
Certificates of deposits
|
|
|
299
|
|
|
|
323
|
|
|
|
622
|
|
|
|
|
Total deposits
|
|
|
575
|
|
|
|
380
|
|
|
|
955
|
|
Borrowed Funds
|
|
|
166
|
|
|
|
67
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
741
|
|
|
|
447
|
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
|
|
|
$
|
109
|
|
|
$
|
109
|
|
|
|
|
Net interest income
for the three months ended September 30, 2007 was $6.0 million, an increase of
$109,000, or 1.9% over the same period of 2006 as the yield on a higher volume of interest-bearing
assets increased at a slightly faster rate than the costs on interest-bearing liabilities, as
outlined below.
Interest income
for the three months ended September 30, 2007 increased $1.3 million, or 11.5%, to
$12.5 million as compared to $11.2 million in the same period of 2006. This increase was due both
to an increase in average interest-earning assets of $40.8 million, or 5.4%, and an increase in the
average yield on these assets. Average outstanding net loans increased $50.2 million, or 8.8%
primarily as a result of the growth in mortgage and commercial loan portfolios as previously
discussed. The average balance of investment securities decreased $12.6 million, or 7.2%, from the
three month period ended September 30, 2006 as investment cash flow was used to partially fund loan
growth, an increase in the Banks investment in bank owned life insurance, and the purchase of
shares of Company stock. The overall increase in average earning assets provided additional
interest income of $741,000. The average yield on interest-earning assets increased 35 basis
points to 6.32% for the three months ended September 30, 2007, compared to 5.97% for the same
period in 2006, accounting for additional interest income of $556,000.
Interest expense
increased $1.2 million, or 22.0%, to $6.6 million for the three months ended
September 30, 2007 as compared to $5.4 million during the same period in 2006. Average
interest-bearing liabilities in the third quarter of 2007 increased $58.3 million, or 9.9%,
accounting for $741,000 of additional interest expense. The average cost of funds
increased to 4.06% for the three month period ended September 30, 2007, an increase of 41 basis
points from a cost of funds of 3.65% for the same period in 2006, resulting in an increase in
interest expense of $447,000.
Provision for loan loss expense
increased $255,000 to $160,000 for the three months ended September
30, 2007, compared to a provision credit of $95,000 for the three months ended September 30, 2006.
This increase was a reflection of both the difference in the amount of and the mix of loan growth,
an analysis of the composition of the loan portfolios for the respective periods, and the
difference in net charge-offs in 2007 as compared to net recoveries in the same period of 2006. At
September 30, 2007, our total allowance for loan losses was $5.2 million, or 0.81% of total loans,
compared to $4.7 million, or 0.80% of total loans at December 31, 2006 and $4.7 million, or 0.81%
of total loans at September 30, 2006.
15
Non-interest income
totaled $1.5 million for the three months ended September 30, 2007, an increase
of $369,000, or 32.7% from the same period a year ago. Driving this were increases in income from
banked owned life insurance, which increased $103,000, or 115.7% as the bank increased its
investment in this category by $9.9 million, as well as net gains on the sales of securities, which
totaled $166,000 for the 2007 third quarter as compared to a net loss of $14,000 in the same period
in 2006.
Non-interest expense
increased $1.5 million or 29.8%, to $6.5 million for the three months ended
September 30, 2007. Most of this increase was in salaries and employee benefits which increased by
$1.1 million or 39.3% due to new branch and lending personnel, as well as amortization expense of
$626,000 related to the Equity Incentive Plan approved by shareholders in November 2006. The
increase in occupancy expenses of $110,000, or 17.9% was also the result of the opening of a
replacement branch in North Adams, Massachusetts and a new branch in Great Barrington,
Massachusetts. These new branches will serve to increase operating expenses in the near-term.
Other increases in advertising, data processing and other expenses were partially offset by a
decrease in professional fees.
Income tax expense
decreased $489,000, or 64.4% to $270,000 for the three months ended September
30, 2007. The Companys combined federal and state effective tax rate was 34.2%, a decrease from
36.8% for the same period in 2006 due primarily to an increase in tax-exempt income from both
municipal investments and bank-owned life insurance.
Comparison of Operating Results for the Nine Months Ended September 30, 2007 and 2006
Net income for the nine months ended September 30, 2007 was $1.7 million, a decrease of $1.7
million, or 48.8% from $3.4 million for the same period in 2006. This decrease was primarily due
to an increase in non-interest expenses of $3.5 million or 22.3% as compared to the nine months
ended September 30, 2006 as well as an increase in the provision for loan losses of $353,000.
These decreases were offset by an increase in non-interest income of $1.1 million as well as a
decrease in tax provision of $1.0 million. All of these changes are 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.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2007
|
|
|
Nine Months Ended September 30, 2006
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
(1)
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/ Rate
(1)
|
|
|
|
(Dollars in thousands)
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Net (2)
|
|
$
|
604,706
|
|
|
$
|
29,861
|
|
|
|
6.58
|
%
|
|
$
|
561,975
|
|
|
$
|
26,609
|
|
|
|
6.31
|
%
|
Investment securities
|
|
|
165,529
|
|
|
|
6,305
|
|
|
|
5.08
|
%
|
|
|
175,121
|
|
|
|
5,601
|
|
|
|
4.26
|
%
|
Short-term investments
|
|
|
11,120
|
|
|
|
413
|
|
|
|
4.95
|
%
|
|
|
8,199
|
|
|
|
296
|
|
|
|
4.81
|
%
|
|
|
|
|
|
Total interest-earning assets
|
|
|
781,355
|
|
|
|
36,579
|
|
|
|
6.24
|
%
|
|
|
745,295
|
|
|
|
32,506
|
|
|
|
5.82
|
%
|
Non-interest-earning assets
|
|
|
48,303
|
|
|
|
|
|
|
|
|
|
|
|
41,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
829,658
|
|
|
|
|
|
|
|
|
|
|
$
|
786,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
47,401
|
|
|
|
155
|
|
|
|
0.44
|
%
|
|
$
|
58,341
|
|
|
|
191
|
|
|
|
0.44
|
%
|
Relationship Savings
|
|
|
100,466
|
|
|
|
3,020
|
|
|
|
4.01
|
%
|
|
|
74,426
|
|
|
|
2,032
|
|
|
|
3.64
|
%
|
Money market
|
|
|
54,395
|
|
|
|
1,492
|
|
|
|
3.66
|
%
|
|
|
52,865
|
|
|
|
1,109
|
|
|
|
2.80
|
%
|
NOW accounts
|
|
|
35,546
|
|
|
|
171
|
|
|
|
0.64
|
%
|
|
|
38,159
|
|
|
|
80
|
|
|
|
0.28
|
%
|
Certificates of deposits
|
|
|
238,669
|
|
|
|
8,499
|
|
|
|
4.75
|
%
|
|
|
210,957
|
|
|
|
6,294
|
|
|
|
3.98
|
%
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
476,477
|
|
|
|
13,337
|
|
|
|
3.73
|
%
|
|
|
434,748
|
|
|
|
9,706
|
|
|
|
2.98
|
%
|
Borrowed Funds
|
|
|
152,396
|
|
|
|
5,346
|
|
|
|
4.68
|
%
|
|
|
149,577
|
|
|
|
4,911
|
|
|
|
4.38
|
%
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
628,873
|
|
|
|
18,683
|
|
|
|
3.96
|
%
|
|
|
584,325
|
|
|
|
14,617
|
|
|
|
3.34
|
%
|
Non-interest-bearing liabilities
|
|
|
56,529
|
|
|
|
|
|
|
|
|
|
|
|
56,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
685,402
|
|
|
|
|
|
|
|
|
|
|
|
640,411
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
144,256
|
|
|
|
|
|
|
|
|
|
|
|
145,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
829,658
|
|
|
|
|
|
|
|
|
|
|
$
|
786,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
17,896
|
|
|
|
|
|
|
|
|
|
|
$
|
17,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (3)
|
|
|
|
|
|
|
|
|
|
|
2.28
|
%
|
|
|
|
|
|
|
|
|
|
|
2.48
|
%
|
Net interest-earning assets (4)
|
|
$
|
152,482
|
|
|
|
|
|
|
|
|
|
|
$
|
160,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (5)
|
|
|
|
|
|
|
|
|
|
|
3.05
|
%
|
|
|
|
|
|
|
|
|
|
|
3.20
|
%
|
Average interest-earning assets
to interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
124.25
|
%
|
|
|
|
|
|
|
|
|
|
|
127.55
|
%
|
|
|
|
(1)
|
|
Yields and rates for the nine months ended September 30, 2007 and 2006 are annualized.
|
|
(2)
|
|
Includes loans held for sale.
|
|
(3)
|
|
Net interest rate spread represents the difference between the yield on total average
interest-earning assets and the cost of total average
interest-bearing liabilities for the nine months ended September 30, 2007 and 2006.
|
|
(4)
|
|
Net interest-earning assets represents total interest-earning assets less total
interest-bearing liabilities.
|
|
(5)
|
|
Net interest margin represents net interest income divided by average total interest-earning
assets.
|
The following table presents the dollar amount of changes in interest income and interest expense
for the major categories of the Banks 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.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
2007 vs. 2006
|
|
|
|
|
|
|
Increase
|
|
Total
|
|
|
|
|
|
|
(Decrease) Due to
|
|
Increase
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
(Decrease)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Net
|
|
$
|
2,081
|
|
|
$
|
1,171
|
|
|
$
|
3,252
|
|
|
|
|
|
Investment securities
|
|
|
(279
|
)
|
|
|
983
|
|
|
|
704
|
|
|
|
|
|
Short-term investments
|
|
|
108
|
|
|
|
9
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
1,910
|
|
|
|
2,163
|
|
|
|
4,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
|
(36
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
Relationship Savings
|
|
|
765
|
|
|
|
223
|
|
|
|
988
|
|
|
|
|
|
Money market
|
|
|
33
|
|
|
|
350
|
|
|
|
383
|
|
|
|
|
|
NOW accounts
|
|
|
(5
|
)
|
|
|
96
|
|
|
|
91
|
|
|
|
|
|
Certificates of deposits
|
|
|
892
|
|
|
|
1,313
|
|
|
|
2,205
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
1,649
|
|
|
|
1,982
|
|
|
|
3,631
|
|
|
|
|
|
Borrowed Funds
|
|
|
94
|
|
|
|
341
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,743
|
|
|
|
2,323
|
|
|
|
4,066
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
167
|
|
|
$
|
(160
|
)
|
|
$
|
7
|
|
|
|
|
|
|
|
|
Net interest income
for the nine months ended September 30, 2007 was $17.9 million, an increase of
$7,000 over the same period of 2006 as the Bank was able to offset decreases due to changes in the
yield curve through asset growth, as outlined below.
Interest income
for the nine months ended September 30, 2007 increased $4.1 million, or 12.5%, to
$36.6 million as compared to $32.5 million in the same period of 2006. This increase was due both
to an increase in average interest-earning assets of $36.1 million, or 4.8% and an increase in the
average yield on these assets. Average outstanding net loans increased $42.7 million, or 7.6%
primarily as a result of the growth in mortgage and commercial loan portfolios as previously
discussed. The average balance of investment securities decreased $9.6 million, or 5.5%, from the
nine month period ended September 30, 2006 as investment cash flow was used to partially fund loan
growth, an increase in the Banks investment in bank owned life insurance, and the purchase of
shares of Company stock. The overall increase in average earning assets provided additional
interest income of $1.9 million. The average yield on interest-earning assets increased 42 basis
points to 6.24% for the nine months ended September 30, 2007, compared to 5.82% for the same period
in 2006, accounting for additional interest income of $2.2 million.
Interest expense
increased $4.1 million, or 27.8%, to $18.7 million for the nine months ended
September 30, 2007 as compared to $14.6 million during the same period in 2006. Average
interest-bearing liabilities in the first nine months of 2007 increased $41.7 million, or 9.6%,
accounting for $1.7 million of additional interest expense. The average cost of funds increased to
3.96% for the nine month period ended September 30, 2007, an increase of 62 basis points from a
cost of funds of 3.34% for the same period in 2006, resulting in an increase in interest expense of
$2.3 million.
Provision for loan loss expense
increased $353,000 or 144.1% to $598,000 for the nine months ended
September 30, 2007, compared to a provision expense of $245,000 for the nine months ended September
30, 2006. This increase was a reflection of both the difference in the amount of and the mix of
loan growth, an analysis of the composition of the loan portfolios for the respective periods, and
the difference in net charge-offs in 2007 as compared to net recoveries in the same period of 2006.
At September 30, 2007, our total allowance for loan losses was $5.2 million, or 0.81% of total
loans, compared to $4.7 million, or 0.80% of total loans at December 31, 2006 and $4.7 million, or
0.81% of total loans at September 30, 2006.
18
Non-interest income
totaled $4.4 million for the nine months ended September 30, 2007, an increase
of $1.1 million, or 34.67% from the same period a year ago. Driving this were increases in
customer services fees of $354,000, or 17.8% due primarily to prepayment fees received on certain
commercial loans, and net gains on the sale of securities of $407,000, or 267.8%. Additionally,
income from banked owned life insurance increased $172,000, or 121.1% as the bank increased its
investment in this category by $9.9 million.
Non-interest expense
increased $3.5 million or 22.3%, to $19.0 million for the nine months ended
September 30, 2007. Most of this increase was in salaries and employee benefits which increased by
$2.9 million or 33.7% due to new branch and lending personnel, as well as amortization expense of
$1.9 million related to the Equity Incentive Plan approved by shareholders in November 2006. The
increase in occupancy expenses of $251,000, or 13.3% was also the result of the opening of a
replacement branch in North Adams, Massachusetts and a new branch in Great Barrington,
Massachusetts. These branches will serve to increase operating expenses in the near-term. Other
increases in advertising, data processing and other expenses were somewhat offset by a decrease in
professional fees.
Income tax expense
decreased $1.0 million, or 50.9% to $982,000 for the nine months ended September
30, 2007. The Companys combined federal and state effective tax rate was 36.1%, a slight decrease
from 37.0% for the same period in 2006 due to an increase in tax-exempt income from both municipal
investments and bank-owned life insurance.
Minimum Regulatory Capital Requirements:
As of September 30, 2007, the most recent notification
from the Federal Deposit Insurance Corporation 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 Banks category. The Banks capital amounts and ratios
as of September 30, 2007 (unaudited) and December 31, 2006 (unaudited) 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
|
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
99,162
|
|
|
|
16.5
|
%
|
|
$
|
48,011
|
|
|
|
8.0
|
%
|
|
$
|
60,014
|
|
|
|
10.0
|
%
|
Tier 1 capital to risk weighted assets:
|
|
|
93,166
|
|
|
|
15.5
|
|
|
|
24,006
|
|
|
|
4.0
|
|
|
|
36,008
|
|
|
|
6.0
|
|
Tier 1 capital to average assets:
|
|
|
93,166
|
|
|
|
11.5
|
|
|
|
24,357
|
|
|
|
3.0
|
|
|
|
40,594
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets:
|
|
$
|
101,280
|
|
|
|
18.9
|
%
|
|
$
|
42,808
|
|
|
|
8.0
|
%
|
|
$
|
53,510
|
|
|
|
10.0
|
%
|
Tier 1 capital to risk weighted assets:
|
|
|
95,825
|
|
|
|
17.9
|
|
|
|
21,404
|
|
|
|
4.0
|
|
|
|
32,106
|
|
|
|
6.0
|
|
Tier 1 capital to average assets:
|
|
|
95,825
|
|
|
|
12.5
|
|
|
|
22,906
|
|
|
|
3.0
|
|
|
|
38,177
|
|
|
|
5.0
|
|
Contractual Obligations
. Additional information relating to payments due under contractual
obligations is presented in the Securities and Exchange Commission Form 10-K filed by the Company
for the year ended December 31, 2006. The following tables present information indicating various
contractual obligations and commitments of the Company as of September 30, 2007 and the respective
maturity dates:
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
Three Years
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
through Three
|
|
through Five
|
|
Over Five
|
|
|
|
|
|
|
Total
|
|
or Less
|
|
Years
|
|
Years
|
|
Years
|
|
|
|
|
|
|
(Dollars in thousands)
|
Federal Home Loan Bank of Boston advances
|
|
$
|
168,574
|
|
|
$
|
61,700
|
|
|
$
|
69,641
|
|
|
$
|
16,000
|
|
|
$
|
21,233
|
|
|
|
|
|
Securities sold under agreements to repurchase
|
|
|
3,270
|
|
|
|
3,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FHLBB advances and repurchase agreements
|
|
$
|
171,844
|
|
|
$
|
64,970
|
|
|
$
|
69,641
|
|
|
$
|
16,000
|
|
|
$
|
21,233
|
|
|
|
|
|
|
|
|
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 Banks loan commitments and other
contingencies outstanding as of September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
More than
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
|
|
|
|
|
|
|
|
One Year or
|
|
|
through
|
|
|
Through
|
|
|
Over Five
|
|
|
|
Total
|
|
|
Less
|
|
|
Three Years
|
|
|
Five Years
|
|
|
years
|
|
|
|
(Dollars in thousands)
|
Commitments to grant loans
(1)
|
|
$
|
40,507
|
|
|
$
|
40,507
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commercial loan lines-of-credit
|
|
|
16,578
|
|
|
|
16,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused portion of home equity loans
(2)
|
|
|
69,186
|
|
|
|
549
|
|
|
|
2,114
|
|
|
|
8,502
|
|
|
|
58,021
|
|
Unused portion of construction loans
(3)
|
|
|
3,736
|
|
|
|
3,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused portion of overdraft lines-of-credit
(4)
|
|
|
3,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,578
|
|
Unused portion of personal lines-of-credit
(5)
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
402
|
|
Standby letters of credit
(6)
|
|
|
586
|
|
|
|
586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments and contingencies
(7)
|
|
|
12,232
|
|
|
|
12,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan & other commitments
|
|
$
|
146,805
|
|
|
$
|
74,188
|
|
|
$
|
2,114
|
|
|
$
|
8,502
|
|
|
$
|
62,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Commitments for loans are extended to customers for up to 60 days after which they expire.
|
|
(2)
|
|
Unused portions of home equity loans are available to the borrower for up to 10 years.
|
|
(3)
|
|
Unused portions of construction loans are available to the borrower for up to one year.
|
|
(4)
|
|
Unused portion of checking overdraft lines-of-credit are available to customers in good
standing indefinitely.
|
|
(5)
|
|
Unused portion of personal lines-of-credit are available to customers in good standing
indefinitely.
|
|
(6)
|
|
Standby letters of credit are generally available for less than one year.
|
|
(7)
|
|
Other commitments relate primarily to potential additional capital calls the Company is
committed to contribute as part of its investment
in certain limited partnerships.
|
Item 3: Quantitative and Qualitative Disclosures about Market Risks
There has been no material change in the Companys market risk during the nine months ended
September 30, 2007. See the
discussion and analysis of quantitative and qualitative disclosures about market risk provided in
the Companys Annual Report on Form 10-K for the year ended December 31, 2006 for a general
discussion of the qualitative aspects of market risk and discussion of the simulation model used by
the Bank to measure its interest rate risk.
20
Item 4: Controls and Procedures
Disclosure Controls and Procedures
. The Companys management, under the supervision and
with the participation of the Companys Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Companys 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 Companys Chief Executive Officer and Chief Financial Officer concluded that as of
end of the period covered by this report, the Companys 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 Companys 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 Companys internal control over financial reporting.
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
There have been no material changes in the Companys risk factors during the nine months ended
September 30, 2007. See the discussion and analysis of risk factors provided in the Companys
Annual Report on Form 10-K for the year ended December 31, 2006.
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 April 2007 the Company announced that its
Board of Directors authorized a stock repurchase program (the Stock Repurchase Program)
for the purchase of up to 515,430 shares of the Companys common stock or approximately 5%
of its outstanding common stock. This program was completed in August 2007. On August 22,
2007 the Company announced that its Board of Directors authorized a second stock repurchase
program for the purchase of up to 486,366 shares of the Companys common stock or
approximately 5% of its outstanding common stock. Purchases under the two Stock Repurchase
Programs in the third quarter of 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Maximum Number or
|
|
|
(a) Total
|
|
|
|
|
|
(c) Total Number of
|
|
Approximate Dollar Value
|
|
|
Number of
|
|
(b) Average
|
|
Shares Purchased as Part
|
|
of Shares that May Yet Be
|
|
|
Shares
|
|
Price
|
|
of Publicly announced
|
|
Purchased Under the Plans
|
Period
|
|
Purchased
|
|
Paid per Share
|
|
Plans or Programs
|
|
or Programs
|
July 1 30
|
|
|
238,500
|
|
|
$
|
14.42
|
|
|
|
469,900
|
|
|
|
45,530
|
|
August 1 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Plan announced April 2007
|
|
|
45,530
|
|
|
$
|
13.53
|
|
|
|
515,430
|
|
|
|
- 0
|
|
5% Plan announced August 2007
|
|
|
17,300
|
|
|
$
|
14.08
|
|
|
|
17,300
|
|
|
|
469,066
|
|
September 1 - 30
|
|
|
127,200
|
|
|
$
|
14.02
|
|
|
|
144,500
|
|
|
|
341,866
|
|
|
|
|
In the period from October 1, 2007 to November 2, 2007, the Company repurchased an
additional 124,900 shares under the repurchase program announced in August 2007, at an
average price of $14.43 per share.
|
21
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
On July 25, 2007 the Company announced that the Bank had entered into a Purchase Agreement with
First Niagara Bank (First Niagara) to acquire certain assets and assume certain liabilities of
five (5) full-service branches of First Niagara located in the eastern New York communities of
Windham, Greenville, Middleburgh, Oakhill (East Durham), and Whitehall (collectively the
Branches). As of June 30, 2007, aggregate deposit liabilities related to the Branches to be
assumed by the Bank totaled approximately $83.5 million. The Bank has agreed to pay a weighted
average premium of 12.75% of the deposits. No customer loans are being transferred in connection
with the transaction. The proposed acquisition of the Branches is subject to customary closing
conditions, and has received state and federal regulatory approvals. The Bank intends to consummate
the transaction on December 7, 2007.
On
November 6, 2007, the Company announced that Michael A.
Christopher, President and Chief Operating Officer and a Director of
the Company and Legacy Banks (the Bank) intends to retire
from those positions, and as a Director of The Legacy Banks
Foundation, effective January 1, 2008. On November 5, 2007,
the Company and the Bank entered into a Separation and General
Release Agreement and a Consulting Agreement with Mr. Christopher, as
further described in the Companys Form 8-K filed on
November 6, 2007. The Company estimates that fourth quarter
expenses related to the Separation Agreement and the Consulting
Agreement will result in an after-tax charge of approximately
$513,000.
22
Item 6
:
Exhibits
2.1
|
|
Amended and Restated Plan of Conversion*
|
|
3.1
|
|
Certificate of Incorporation of Legacy Bancorp, Inc.*
|
|
3.2
|
|
Bylaws of Legacy Bancorp, Inc. (as amended)*
|
|
10.1
|
|
Legacy Banks ESOP Trust Agreement**
|
|
10.2
|
|
ESOP Plan Document**
|
|
10.3
|
|
ESOP Loan Documents**
|
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10.4.1
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Employment Agreement between Legacy Banks and J. Williar Dunlaevy**
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10.4.2
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|
Employment Agreement between Legacy Banks and Michael A. Christopher**
|
|
10.4.3
|
|
Employment Agreement between Legacy Banks and Steven F. Pierce**
|
|
10.4.4
|
|
Employment Agreement between Legacy Banks and Stephen M. Conley**
|
|
10.4.5
|
|
Employment Agreement between Legacy Banks and Richard M. Sullivan**
|
|
10.5.1
|
|
Employment Agreement between Legacy Bancorp, Inc. and J. Williar Dunlaevy**
|
|
10.5.2
|
|
Employment Agreement between Legacy Bancorp, Inc. and Michael A. Christopher**
|
|
10.5.3
|
|
Employment Agreement between Legacy Bancorp, Inc. and Steven F. Pierce**
|
|
10.5.4
|
|
Employment Agreement between Legacy Bancorp, Inc. and Stephen M. Conley**
|
|
10.5.5
|
|
Employment Agreement between Legacy Bancorp, Inc. and Richard M. Sullivan**
|
|
10.8
|
|
Legacy Banks Employee Severance Compensation Plan**
|
|
10.9.1
|
|
Legacy Banks Supplemental Executive Retirement Plan with J. Williar Dunlaevy**
|
|
10.9.2
|
|
Legacy Banks Supplemental Executive Retirement Plan with Michael A. Christopher**
|
|
10.10
|
|
Director Fee Continuation Plan**
|
|
10.11
|
|
2006 Equity Incentive Plan***
|
|
11.0
|
|
Statement re: Computation of per share earnings is incorporated herein by
reference to
Notes to Consolidated Financial Statements
within Part I, Item 1,
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 Stephen M. Conley
|
|
32
|
|
Certification pursuant to 18 U.S.C. Section 1350
|
|
|
|
*
|
|
Incorporated by reference from the Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2005 filed October 27, 2005.
|
|
**
|
|
Incorporated by reference from the Registration Statement on Form S-1 (No. 333-126481) filed
July 8, 2005, as amended.
|
|
***
|
|
Incorporated by reference from the Registrants Proxy Statement on Form DEF 14A filed
September 28, 2006.
|
23
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.
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LEGACY BANCORP, INC.
|
|
|
|
|
|
|
|
Date: November 6, 2007
|
|
/s/ J. Williar Dunlaevy
|
|
|
|
|
|
|
|
|
|
J. Williar Dunlaevy
|
|
|
|
|
Chief Executive Officer and Chairman of the Board
|
|
|
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|
Date: November 6, 2007
|
|
/s/ Stephen M. Conley
|
|
|
|
|
|
|
|
|
|
Stephen M. Conley
|
|
|
|
|
Senior Vice President, Chief Financial Officer and
|
|
|
|
|
Treasurer (Principal Accounting Officer)
|
|
|
24
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