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01.27.2010

Legacy Bancorp, Inc. Reports Results for Quarter Ended December 31, 2009

PITTSFIELD, MASSACHUSETTS (January 27, 2009): Legacy Bancorp, Inc. (the “Company” or “Legacy”) (NASDAQ: LEGC), the holding company for Legacy Banks (the “Bank”), today reported a net loss of $3.8 million, or $0.48 per diluted share for the quarter ended December 31, 2009, as compared to a net loss of $451,000, or $0.06 per diluted share in the fourth quarter of 2008. Year to date, the Company has incurred a net loss of $7.8 million, or $0.98 per diluted share, as compared to net income of $1.4 million, or $0.18 per diluted share for the same period in 2008. The increase in net loss in the fourth quarter was primarily the result of higher net losses taken on the sale or writedown of investments, and an increase in the provision expense for loan losses. The year to date decrease is primarily a result of the charges taken on investments deemed to be other-than-temporarily-impaired (OTTI), increases in the net losses on the sales of securities and the provision expense for loan losses, and an increase in the Federal Deposit Insurance Corporation (FDIC) deposit insurance expense. The total shares outstanding resulted in a book value per share and tangible book value per share of $13.89 and $12.48, respectively, at December 31, 2009.

J. Williar Dunlaevy, Chief Executive Officer, commented “The challenges Legacy experienced in 2009 were directly related to the economic recession and the challenges faced by individuals and businesses throughout the country. Loss of employment is the driving factor for our regional economy, just as it is nationally. Painful as it is, we are objective and prudent in recognizing and valuing non-performing loans. The result is that in 2009 we increased our loan loss provisions substantially, and the overall reserve ratio is now 1.67%, the highest it has been in many quarters. Fortunately, actual loan charge-offs have been relatively low, and we continue to work problem loan situations very diligently.

“We have also responded to the economic environment by simplifying and strengthening our balance sheet. During the fourth quarter we determined that recovery of value in our private-label mortgage backed securities would be very unlikely for an extended period, if ever, and decided to liquidate those holdings. Our fixed income investment portfolio now primarily consists of municipal bonds, Government Agencies and Government Sponsored Enterprise (GSE) securities, including mortgage backed securities. We have also reduced our equity investment program. On the liability side of the balance sheet, we substantially reduced our borrowings, restructured other borrowings, and most importantly, grew our core deposits. We achieved deposit growth in 17 of our 19 offices.

“The increase in FDIC expense, both in regular premiums and the special assessment, was the single largest operating expense increase. Despite operating with two new branch offices for most of the year, we still achieved an overall reduction in salary and benefit expense.

“Legacy begins 2010 with strong capital, evidenced by a 12.8% capital to assets ratio, a strong loan loss reserve ratio, and a strengthened balance sheet. We will continue to work with our customers to successfully resolve their financial challenges. Our financial strengths also enable us to remain focused on seeking strategic growth opportunities.”

The Company’s total assets increased $1.6 million from $944.7 million at December 31, 2008 to $946.3 million at December 31, 2009. Within the overall asset balances, the gross loan portfolio, excluding loans held for sale, decreased by $38.1 million, or 5.4% in 2009. While the overall loan balance decreased, commercial real estate and other commercial loans increased by $14.7 million, or 5.2%, to $295.3 million. This increase was offset by a decrease in residential mortgage loans of $58.6 million, or 17.0%, as the majority of the residential mortgage activity was in the 30-year fixed rate category, a product which the Bank currently sells in the secondary market with servicing retained. Available for sale securities increased by $35.1 million or 26.5%, while cash and cash equivalents increased $6.6 million or 19.5% at December 31, 2009 as compared to the end of 2008.

Deposits have increased by $43.3 million, or 7.1%, to $651.4 million from a balance of $608.1 million at December 31, 2008. In March of 2009, the Bank closed on the acquisition of a single, full-service branch office located in Haydenville, Massachusetts, which resulted in the assumption of approximately $9.8 million of deposit liabilities. Although all deposit types have experienced growth in 2009, deposits increased primarily in certificates of deposit (CDs) which increased $19.5 million, or 7.2%, and in demand deposits which increased $8.7 million, or 13.1%. Advances from the Federal Home Loan Bank of Boston (FHLBB) have decreased by $37.5 million, or 19.0 %, at December 31, 2009 as compared to the end of 2008 as the increase in overall deposits allowed the Bank to pay off high rate FHLBB borrowings as they matured during 2009.

Overall stockholders equity has decreased by $2.8 million, or 2.2%, in 2009. The decreases in equity due to the net loss of $7.8 million, the declaration of a dividend of $0.05 per share during each quarter of 2009, and the repurchase of 67,250 shares of common stock as part of the Stock Repurchase Plan announced in March 2009 were offset by the amortization of unearned compensation and a decrease in the unrealized loss on available-for-sale investment securities.

Overall nonperforming loans were $19.6 million at December 31, 2009, an increase of $12.0 million as compared to the prior year end, with $3.6 million of this increase being in residential mortgages and $8.2 million in commercial real estate loans. Nonperforming assets as a ratio to total assets was 2.20% at December 31, 2009 as compared to 0.80% at December 31, 2008. Legacy is, and always has been, diligent in evaluating its loan portfolio, especially given current economic conditions. In 2009 the loan loss provision expense was $4.9 million which represents an increase of $3.4 million as compared to the same period in 2008. This increase in 2009 was a reflection of both the difference in the amount of and mix of loan growth for the period, a continuous review and analysis of current market and economic conditions by management, as well as higher specific reserves established against certain loans in 2009. The allowance for loan losses to total loans was 1.67% at December 31, 2009, as compared to 0.95% at December 31, 2008.

The Company’s net interest income decreased by $624,000, or 8.6%, in the fourth quarter, and by $392,000, or 1.4% year to date as compared to the same periods in 2008. The net interest margin (NIM) was 3.05% for the three months ended December 31, 2009, a decrease of 34 basis points from the fourth quarter of 2008, and a decrease of 14 basis points from the third quarter of 2009. For 2009 the NIM was 3.13%, a decrease of 14 basis points from 2008 as interest rate changes and the increase in non-performing assets have each contributed to margin compression.

Non-interest income for the fourth quarter totaled a net charge of $2.3 million, a decrease of $1.6 million from the same period of 2008. Year to date, non-interest income totaled a net charge of $4.6 million, as compared to income of $2.4 million in 2008. The primary cause of the decrease in both periods was an increase in the amount of losses on the sale or writedown of certain investments. The Bank incurred $571,000 of OTTI charges through earnings in the fourth quarter, and $7.2 million year to date on certain bonds, equities and limited partnership investments as compared to OTTI charges of $2.3 million and $3.6 million in the same periods in 2008. Additionally, in the fourth quarter in 2009 the Bank incurred a net loss on the sale of securities in the amount of $3.3 million, with most of this loss coming from the disposal of the Bank’s remaining portfolio of private-label mortgage backed securities. In 2009, the Bank also had decreases in fees from customers and insurance and investment products, offset by an increase on the gain on sale of mortgages.

Operating expenses increased by $796,000 or 12.6%, for the fourth quarter of 2009 as compared to the same period of 2008 and by $2.2 million, or 8.5%, year to date. New full-service denovo branches opened in July 2008 in Albany, New York and in January 2009 in Latham, New York, as well as the Haydenville branch office acquired in the first quarter of 2009 contributed to increases in occupancy and equipment, data processing, advertising and other general and administrative expenses. Additionally, changes in the deposit insurance assessment formula by the FDIC resulted in an expense of $301,000 in the fourth quarter and $1.5 million for all of 2009 as compared to an expense of $112,000 and $193,000, respectively in the same periods of 2008. The 2009 expense includes the special assessment of $423,000 expensed during the second quarter.

The Company’s 2009 effective income tax benefit associated with the net operating loss was partially offset in the fourth quarter by an increase of $1.4 million to the deferred tax asset valuation reserve associated with the Company’s charitable contribution and capital loss carryforwards. As a result of the increase in operating expenses, the Company’s core efficiency ratio (reported efficiency ratio net of the effect of non-core adjustments) for the quarter has increased to 85.0% from 70.1% in the fourth quarter of 2009. Year to date, the core efficiency ratio increased to 83.7% in 2009 from 77.5% in 2008.

CONFERENCE CALL

J. Williar Dunlaevy, Chairman and Chief Executive Officer, and Paul H. Bruce, Chief Financial Officer, will host a conference call at 3:00 p.m. (Eastern Time) on Thursday January 28, 2010. Persons wishing to access the conference call may do so by dialing 877-407-0778. Replays of the conference call will be available beginning January 28, 2010 at 6:00 p.m. (Eastern Time) through February 4, 2010 at 11:59 p.m. (Eastern Time) by dialing 877-660-6853 and using Account #286 and Conference ID #341357 (both numbers are needed to access the replay).

Click Here to Listen to the Fourth Quarter 2009 Conference Call Thursday, January 28, 2010 at 3:00 p.m. Eastern Standard Time.