<PAGE>
RULE NO. 424(b)(3)
REGISTRATION NO. 333-12646
[LETTERHEAD]
November 7, 1996
Dear Shareholder:
On behalf of the Board of Directors, you are cordially invited to attend a
Special Meeting of Shareholders of New Hampshire Thrift Bancshares, Inc.
("NHTB") to be held on Thursday, December 19, 1996, at the Lake Sunapee Bank
Building, 1868 Room, 9 Main Street, Newport, New Hampshire at 10:00 a.m.
At the Special Meeting, you will be asked to consider and vote upon the
approval and adoption of an Agreement and Plan of Reorganization, dated as of
July 26, 1996, by and among NHTB, Lake Sunapee Bank, fsb (the "Bank") and
Landmark Bank ("Landmark") and an Agreement and Plan of Merger, dated as of
July 26, 1996, by and between Landmark and the Bank and joined in by NHTB,
(together, the "Agreements"), and the transactions contemplated thereby,
including the issuance of up to 364,210 shares of NHTB common stock.
The Agreements provide for the acquisition of Landmark by merger with and
into the Bank, a wholly owned subsidiary of NHTB, with the Bank as the
surviving institution (the "Merger"). Upon consummation of the Merger, each
share of Landmark common stock, except for any dissenting shares, will be
converted into and exchangeable for, at the election of each Landmark
shareholder, a number of shares of NHTB common stock determined pursuant to an
Exchange Ratio, as defined in the Agreements, or a Cash Election Price of
$12.00 per share, subject to certain election and allocation procedures. Cash
will be paid in lieu of fractional shares of NHTB common stock.
The Agreements have been approved by the Boards of Directors of NHTB and
Landmark. YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF NHTB AND ITS SHAREHOLDERS AND RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY. HAS
Associates, Inc., NHTB's financial advisor, has advised your Board of
Directors, that, in its opinion, as of November 7, 1996, the consideration to
be paid by NHTB to Landmark shareholders pursuant to the Agreements is fair
from a financial point of view to NHTB shareholders. The written opinion of
HAS Associates, Inc. is reproduced in full in Appendix B to the accompanying
Joint Proxy Statement-Prospectus. I urge you to read the opinion carefully.
Approval by the NHTB shareholders of the Agreements is a condition to the
consummation of the Merger. Consummation of the Merger is also subject to
certain other conditions, including the approval of the Agreements by
Landmark's shareholders and the approval of the Merger by various regulatory
agencies. The shareholders of Landmark will consider and vote upon a proposal
to approve the Agreements at a special meeting to be held in West Lebanon, New
Hampshire on December 19, 1996.
The enclosed Notice of Special Meeting of Shareholders and Joint Proxy
Statement-Prospectus describe the Merger and provide information concerning
the Special Meeting. Please read these materials carefully.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE NHTB SPECIAL MEETING, I URGE YOU TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE TO ENSURE
THAT YOUR SHARES WILL BE REPRESENTED AT THE NHTB SPECIAL MEETING.
The Merger is an important step for NHTB and its shareholders. On behalf of
the Board of Directors, I urge you to vote FOR the proposal.
If you have any questions, please call (603) 526-2116.
Sincerely,
/s/ John J. Kiernan
John J. Kiernan
Chairman of the Board
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
THE CARRIAGE HOUSE, P.O. BOX 37
NEW LONDON, NEW HAMPSHIRE 03257
TELEPHONE: (603) 526-2116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 19, 1996
Notice is Hereby Given that a Special Meeting of Shareholders (the "NHTB
Special Meeting") of New Hampshire Thrift Bancshares, Inc. ("NHTB") will be
held at the Lake Sunapee Bank Building, 1868 Room, 9 Main Street, Newport, New
Hampshire at 10:00 a.m. on Thursday, December 19, 1996, for the purpose of
considering and voting upon the following matters:
1. The adoption and approval of an Agreement and Plan of Reorganization
dated as of July 26, 1996, by and among NHTB, Lake Sunapee Bank, fsb (the
"Bank") and Landmark Bank ("Landmark") and an Agreement and Plan of Merger,
dated as of July 26, 1996, by and between Landmark and the Bank and joined
in by NHTB and the transactions contemplated thereby. A copy of each of the
Agreements is included as Appendix A to the accompanying Joint Proxy
Statement-Prospectus.
2. A proposal to adjourn the NHTB Special Meeting for any reason.
3. Such other business as may properly come before the NHTB Special
Meeting or any adjournments or postponements thereof.
Pursuant to NHTB's Bylaws, the Board of Directors has fixed November 1, 1996
as the record date for the determination of shareholders entitled to notice of
and to vote at the NHTB Special Meeting and at any adjournments or
postponements thereof. Only holders of common stock of record at the close of
business on that date will be entitled to receive notice of and to vote at the
NHTB Special Meeting and any adjournments or postponements thereof. One-third
of the outstanding shares of NHTB common stock entitled to vote must be
represented at the NHTB Special Meeting, in person or by proxy, to constitute a
quorum for the transaction of business.
By Order of the Board of Directors
/s/ Linda L.Oldham
Linda L. Oldham
Secretary
New London, New Hampshire
November 7, 1996
YOU ARE URGED, EVEN THOUGH YOU MAY PLAN TO ATTEND THE NHTB SPECIAL MEETING,
TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ENSURE THAT YOUR
SHARES WILL BE VOTED AT THE NHTB SPECIAL MEETING. FOR YOUR CONVENIENCE, A
POSTAGE-PAID, ADDRESSED ENVELOPE IS ENCLOSED FOR YOU TO RETURN YOUR PROXY CARD.
YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER
DESCRIBED IN THE ATTACHED JOINT PROXY STATEMENT-PROSPECTUS. ANY SHAREHOLDER
PRESENT AT THE NHTB SPECIAL MEETING, INCLUDING ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH
MATTER BROUGHT BEFORE THE NHTB SPECIAL MEETING.
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
AND
LANDMARK BANK
JOINT PROXY STATEMENT
---------------
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
PROSPECTUS
This Joint Proxy Statement-Prospectus is being furnished to holders of
common stock, par value $0.01 per share ("NHTB Common Stock") of New Hampshire
Thrift Bancshares, Inc. ("NHTB") in connection with the solicitation of
proxies by the NHTB Board of Directors for use at a special meeting of NHTB
shareholders to be held at the Lake Sunapee Bank Building, 1868 Room, 9 Main
Street, Newport, New Hampshire, at 10:00 a.m. on December 19, 1996 and at any
adjournment thereof (the "NHTB Special Meeting").
At the NHTB Special Meeting, the NHTB shareholders will be asked to: (i)
consider and vote upon an Agreement and Plan of Reorganization dated as of
July 26, 1996 (the "Plan of Reorganization"), by and among NHTB, Lake Sunapee
Bank, fsb (the "Bank") and Landmark Bank ("Landmark") and an Agreement and
Plan of Merger dated as of July 26, 1996 by and between Landmark and the Bank
and joined in by NHTB (the "Merger Agreement"), and the transactions
contemplated thereby; and (ii) approve a proposal to adjourn the NHTB Special
Meeting for any reason, including to permit further solicitation of proxies in
the event that there are not sufficient votes at the time of the NHTB Special
Meeting to approve the Plan of Reorganization and the Merger Agreement.
This Joint Proxy Statement-Prospectus is also being furnished to the holders
of common stock, par value $1.00 per share ("Landmark Common Stock") of
Landmark in connection with the solicitation of proxies by the Landmark Board
of Directors for use at a special meeting of Landmark shareholders to be held
at 4:00 p.m. on December 19, 1996 at Landmark's branch banking office at 106
North Main Street, West Lebanon, New Hampshire and at any adjournment thereof
(the "Landmark Special Meeting").
At the Landmark Special Meeting, the Landmark shareholders will be asked to:
(i) consider and vote upon the Plan of Reorganization and the Merger
Agreement, and the transactions contemplated thereby; and (ii) approve a
proposal to adjourn the Landmark Special Meeting for any reason, including to
permit further solicitation of proxies in the event there are not sufficient
votes at the time of the Landmark Special Meeting to approve the Plan of
Reorganization and the Merger Agreement.
Pursuant to the Merger Agreement, Landmark will merge with and into the Bank
in accordance with federal and New Hampshire banking law (the "Merger"). At
the effective time of the Merger, each outstanding share of Landmark Common
Stock, other than shares as to which dissenters' rights have been asserted and
not withdrawn, at the election of each Landmark shareholder, will be converted
into and exchangeable for (i) 1.221 (the "Exchange Ratio") shares of NHTB
Common Stock or (ii) $12.00 in cash (the "Cash Election Price"), subject to
the total consideration paid to Landmark shareholders being comprised of 60%
NHTB Common Stock and 40% cash and subject to the election and allocation
procedures set forth in the Merger Agreement. The Cash Election Price and
Exchange Ratio (together, the "Merger Consideration") are each subject to
adjustment in certain circumstances. See "THE MERGER--Adjustment of Merger
Consideration." No fractional shares of NHTB Common Stock will be issued and
cash will be paid in lieu thereof. See "THE MERGER--Merger Consideration."
Pursuant to the Merger, Landmark will be merged with and into the Bank, with
the Bank as the surviving entity. Upon consummation of the Merger, the
shareholders of Landmark immediately prior to the effective time of the Merger
will no longer hold any interest in Landmark other than as shareholders of
NHTB to the extent that they have received shares of NHTB Common Stock.
The Plan of Reorganization and the Merger Agreement are attached hereto as
Appendix A, and are incorporated herein by reference. This Joint Proxy
Statement-Prospectus and the accompanying proxy cards are first being mailed
to shareholders of NHTB and Landmark on or about November 18, 1996.
NHTB has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with the Securities and Exchange Commission (the "Commission") covering
a maximum of 364,210 shares of NHTB Common Stock, the approximate number of
shares to be issued in connection with the Merger. This Joint Proxy Statement-
Prospectus also constitutes the prospectus of NHTB filed as a part of such
Registration Statement.
This Joint Proxy Statement-Prospectus does not cover any resales of NHTB
Common Stock received by shareholders of Landmark upon consummation of the
Merger, and no person is authorized to make use of this Joint Proxy Statement-
Prospectus in connection with any such resale.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY STATEMENT-
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. SHAREHOLDERS ARE
STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT-
PROSPECTUS IN ITS ENTIRETY.
THE SECURITIES OF NHTB OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF NHTB COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION OR NON-BANK
SUBSIDIARY OF NHTB AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER GOVERNMENT AGENCY.
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS NOVEMBER 7, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 1
INFORMATION RELATING TO NHTB.............................................. 2
SUMMARY................................................................... 3
The Parties............................................................. 3
The Meetings............................................................ 3
The Merger.............................................................. 4
Merger Consideration.................................................... 5
Recommendations of the Boards of Directors and Reasons for the Merger... 6
Opinions of Financial Advisors.......................................... 6
Conditions to the Consummation of the Merger............................ 7
Termination............................................................. 7
Amendment, Extension and Waiver......................................... 8
Interests of Certain Persons in the Merger.............................. 8
Regulatory Approvals.................................................... 9
Material Federal Income Tax Consequences................................ 9
Accounting Treatment.................................................... 10
Management and Operations After the Merger.............................. 10
The Stock Option Agreement.............................................. 10
Appraisal Rights of Dissenting Shareholders............................. 11
Certain Differences in the Rights of Shareholders....................... 11
Selected Historical and Pro Forma Per Share Data........................ 12
Market Prices........................................................... 13
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
SELECTED HISTORICAL FINANCIAL DATA...................................... 14
LANDMARK BANK
SELECTED HISTORICAL FINANCIAL DATA...................................... 15
MEETING INFORMATION....................................................... 16
NHTB Meeting............................................................ 16
Landmark Meeting........................................................ 17
THE MERGER................................................................ 19
General................................................................. 19
Parties to the Merger................................................... 19
Effective Time.......................................................... 20
Management and Operations after the Merger.............................. 20
Merger Consideration.................................................... 20
Background of the Merger................................................ 21
Reasons for the Merger and Recommendation of the Boards of Directors.... 24
Opinions of Financial Advisors.......................................... 27
Adjustment of Merger Consideration...................................... 35
Adjustment of Merger Consideration in the Event of Delayed Effective
Date................................................................... 35
Exchange of Certificates; Election Procedures; Fractional Shares........ 35
Allocations............................................................. 36
Issuance of Stock and Payment of Cash to Exchange Agent................. 38
Conduct of Business Pending the Merger.................................. 38
Conditions to Consummation.............................................. 39
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
No Solicitation......................................................... 41
Regulatory Matters...................................................... 41
Material Federal Income Tax Consequences................................ 42
Accounting Treatment.................................................... 46
Termination............................................................. 46
Amendment, Extension and Waiver......................................... 46
Effect on Employees and Employee Benefits............................... 46
Interests of Certain Persons in the Merger.............................. 47
Beneficial Ownership of NHTB Common Stock............................... 48
Beneficial Ownership of Landmark Common Stock........................... 49
CERTAIN RELATED TRANSACTIONS.............................................. 50
The Stock Option Agreement.............................................. 50
Resale of NHTB Common Stock............................................. 51
Rights of Dissenting Shareholders....................................... 52
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA............................... 53
REGULATION OF THE BANK AND NHTB........................................... 57
INFORMATION ABOUT LANDMARK................................................ 67
Description of Business................................................. 67
Description of Properties............................................... 68
Legal Proceedings....................................................... 68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF LANDMARK BANK.............................................. 69
Six Months Ended June 30, 1996 and 1995................................. 69
General............................................................... 69
Average Balance Sheet................................................. 70
Rate/Volume Analysis.................................................. 71
Results of Operations................................................. 71
Financial Condition................................................... 73
Liquidity and Interest Rate Sensitivity Management.................... 74
Capital............................................................... 75
Three Years Ended December 31, 1995..................................... 76
General............................................................... 76
Average Balance Sheet................................................. 77
Rate/Volume Analysis.................................................. 78
Results of Operations--Year Ended December 31, 1995 as Compared to
Year Ended December 31, 1994......................................... 78
Results of Operations--Year Ended December 31, 1994 as Compared to
Year Ended December 31, 1993......................................... 80
Financial Condition................................................... 81
Liquidity and Interest Rate Sensitivity Management.................... 83
Capital............................................................... 84
Recent Accounting Developments........................................ 84
CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK........ 85
Investment Portfolio.................................................... 85
Loan Portfolio.......................................................... 87
Non-accrual, Past Due, Restructured, and Potential Problem Loans........ 87
Summary of Loan Loss Experience......................................... 88
Allowance For Loan Losses Allocation.................................... 89
</TABLE>
ii
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<TABLE>
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<S> <C>
Deposits................................................................. 90
Short-Term Borrowing..................................................... 91
DESCRIPTION OF NHTB CAPITAL STOCK.......................................... 92
General.................................................................. 92
Common Stock............................................................. 92
Preferred Stock.......................................................... 92
Certain Anti-takeover Provisions......................................... 92
COMPARISON OF RIGHTS OF NHTB AND LANDMARK SHAREHOLDERS..................... 95
Voting Requirements to Remove Directors.................................. 95
Business Combinations With Related Persons............................... 95
Beneficial Ownership Limitation.......................................... 96
Amendments to Certificate of Incorporation............................... 96
Evaluation of Certain Offers............................................. 96
Anti-Greenmail........................................................... 96
Special Meetings of Shareholders......................................... 97
Actions Without a Meeting of Shareholders................................ 97
Qualification of Directors............................................... 97
Amendments to Bylaws..................................................... 97
Cumulative Voting........................................................ 98
TRANSACTIONS WITH CERTAIN RELATED PERSONS.................................. 98
COMPARATIVE STOCK PRICES AND DIVIDENDS..................................... 98
EXPERTS.................................................................... 98
LEGAL MATTERS.............................................................. 99
ADJOURNMENT OF SPECIAL MEETINGS............................................ 99
INDEPENDENT PUBLIC ACCOUNTANTS............................................. 100
SHAREHOLDER PROPOSALS...................................................... 100
APPENDICES................................................................. 101
INDEX TO FINANCIAL STATEMENTS.............................................. 102
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
NHTB is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith,
files, reports, proxy statements and other information with the Commission.
Proxy statements, reports and other information concerning NHTB can be
inspected and copied at the Commission's office at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's Regional
Offices in New York (Seven World Trade Center, Suite 1300, New York, New York
10048), and Chicago (Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661), and copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such information is also
available on the Commission's Electronic Data Gathering Analysis and Retrieval
("EDGAR") System. NHTB Common Stock is traded on the Nasdaq National Market
System. Reports, proxy statements and other information concerning NHTB may
also be inspected at the offices of the National Association of Securities
Dealers, Inc. ("NASD") at 1735 K Street, N.W., Washington, D.C. 20006. NHTB
has filed with the Commission a Registration Statement under the Securities
Act. This Joint Proxy Statement-Prospectus does not contain all the
information set forth in the Registration Statement and exhibits thereto. Such
additional information may be obtained from the Public Reference Section of
the Commission at its principal office at 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of the prescribed fees, and to which reference is
hereby made. Statements contained in this Joint Proxy Statement-Prospectus or
in any document incorporated by reference in this Joint Proxy Statement-
Prospectus as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document, each statement being
qualified in all respects by such reference.
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. NHTB WILL PROVIDE
WITHOUT CHARGE TO ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT-PROSPECTUS IS
DELIVERED, INCLUDING ANY BENEFICIAL OWNER OF LANDMARK COMMON STOCK, UPON
WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE FOREGOING
DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED THEREIN BY REFERENCE).
WRITTEN REQUESTS FOR DOCUMENTS RELATING TO NHTB SHOULD BE DIRECTED TO LINDA L.
OLDHAM, SECRETARY, NEW HAMPSHIRE THRIFT BANCSHARES, INC., THE CARRIAGE HOUSE,
P.O. BOX 37, NEW LONDON, NEW HAMPSHIRE 03257. TELEPHONE REQUESTS MAY BE
DIRECTED TO LINDA L. OLDHAM AT (603) 526-2116. IN ORDER TO ENSURE TIMELY
DELIVERY OF ANY OF THE DOCUMENTS, REQUESTS SHOULD BE MADE BY DECEMBER 12,
1996.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information heretofore filed with the Commission
are incorporated by reference in this Joint Proxy Statement-Prospectus:
Documents filed by NHTB (File No. 0-17859):
(1) NHTB's Annual Report on Form 10-KSB for the year ended December 31,
1995 (the "NHTB Form 10-KSB"); provided, however, that the information
referred to in Item 402(a)(7) of Regulation S-B promulgated by the
Commission shall not be deemed to be specifically incorporated by reference
herein;
(2) NHTB's Quarterly Reports on Form 10-QSB for the quarters ended March
31, 1996 and June 30, 1996;
(3) The description of the NHTB Common Stock contained in the
Registration Statement on Form 8-A, as amended, filed with the Commission,
pursuant to which NHTB registered, among other things, the NHTB Common
Stock pursuant to Section 12(b) of the Exchange Act;
(4) NHTB's Current Report on Form 8-K, dated July 10, 1996; and
(5) NHTB's Current Report on Form 8-K, dated August 7, 1996.
1
<PAGE>
All documents filed by NHTB pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Joint Proxy Statement-Prospectus and
prior to the date of the Landmark Special Meeting shall be deemed to be
incorporated by reference into this Joint Proxy Statement-Prospectus and to be
a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement-Prospectus to the extent that a statement contained herein, or
in any subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Joint Proxy Statement-Prospectus.
INFORMATION RELATING TO NHTB
The NHTB 1995 Annual Report to Shareholders, which includes the NHTB Annual
Report on Form 10-KSB for the year ended December 31, 1995 (without the
exhibits thereto), (the "NHTB Annual Report") and the NHTB Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1996 appear as Appendices E-1 and
E-2, respectively, to this Joint Proxy Statement-Prospectus. The foregoing
documents attached as Appendices hereto are hereby incorporated by reference
into this Joint Proxy Statement-Prospectus. Notwithstanding any statement to
the contrary contained in any of the foregoing documents, no effect shall be
given to any incorporation by reference provided for therein and any such
documents or information so incorporated shall not be deemed a part hereof or
thereof.
ALL INFORMATION IN THIS JOINT PROXY STATEMENT-PROSPECTUS REGARDING NHTB AND
ITS SUBSIDIARIES HAS BEEN PROVIDED BY NHTB AND THE INFORMATION REGARDING
LANDMARK AND ITS SUBSIDIARIES HAS BEEN PROVIDED BY LANDMARK.
No person is authorized to give any information or to make any
representations other than those contained herein and, if given or made, such
information or representation must not be relied upon as having been
authorized. This document does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or
in which the person making such offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Joint Proxy Statement-Prospectus nor any
distribution of the shares of NHTB Common Stock hereunder shall, under any
circumstances, create any implication that there has not been any change in
the affairs of NHTB or Landmark since the date hereof.
MAP
2
<PAGE>
SUMMARY
The following is a brief summary, which is necessarily incomplete, of certain
information contained elsewhere in this Joint Proxy Statement-Prospectus or in
documents incorporated herein by reference. Reference is made to, and this
Summary is qualified in its entirety by, the more detailed information
contained herein, the Appendices hereto and the documents incorporated by
reference herein. Each shareholder is urged to read the Joint Proxy Statement-
Prospectus with care.
THE PARTIES
NHTB. NHTB, a Delaware corporation, is a savings association holding company
headquartered in New London, New Hampshire with total assets of approximately
$258.5 million as of June 30, 1996. NHTB's banking subsidiary, Lake Sunapee
Bank, fsb, is headquartered in Newport, New Hampshire. The Bank is engaged
principally in the business of attracting deposits from the general public and
investing those deposits in residential and commercial real estate loans, in
commercial and consumer loans and in various investment securities. The Bank
operates 10 full service banking offices in New Hampshire. NHTB's principal
executive office is located at The Carriage House, P.O. Box 37, New London, New
Hampshire 03257, and its telephone number is (603) 526-2116.
Landmark. Landmark is a guaranty savings bank chartered by the State of New
Hampshire and headquartered in Lebanon, New Hampshire. As of June 30, 1996, it
had assets of approximately $57.8 million. Landmark's business is principally
commercial and residential mortgage banking, attracting deposits from and
making loans to small- to medium-sized businesses and resident households
primarily in the geographic areas of its offices. Landmark also accepts retail
deposits from the general public and makes personal and consumer loans.
Landmark's principal executive office is located at 106 Hanover Street,
Lebanon, New Hampshire 03766, and its telephone number is (603) 448-0101.
THE MEETINGS
NHTB. The NHTB Special Meeting will be held at the Lake Sunapee Bank
Building, 1868 Room, 9 Main Street, Newport, New Hampshire, at 10:00 a.m. on
Thursday, December 19, 1996. The purpose of the NHTB Special Meeting is to
consider and vote upon a proposal to adopt and approve the Plan of
Reorganization, the Merger Agreement (together, the "Agreements") and the
transactions contemplated thereby, including the issuance of up to 364,210
shares (based upon an Exchange Ratio of 1.221) of NHTB Common Stock (the
"Merger Shares") and such other matters as may properly be brought before the
meeting and any adjournments or postponements thereof. See "MEETING
INFORMATION--NHTB Meeting" and "THE MERGER." Only holders of record of NHTB
Common Stock at the close of business on November 1, 1996 (the "NHTB Record
Date") will be entitled to notice of, and to vote at, the NHTB Special Meeting
and any adjournments and postponements thereof. The affirmative vote of the
holders of a majority of the outstanding shares of NHTB Common Stock is
required to approve the Agreements. As of the NHTB Record Date, 1,704,982
shares of NHTB Common Stock were outstanding and entitled to vote at the NHTB
Special Meeting.
Of the 1,704,982 shares of NHTB Common Stock outstanding and entitled to vote
on the NHTB Record Date, 116,911 shares, or approximately 6.86% were held by
directors and executive officers of NHTB and their respective affiliates.
Assuming that all directors and executive officers of NHTB and their respective
affiliates vote in favor of the Agreements, the affirmative vote of holders of
approximately 735,581 additional shares of NHTB Common Stock, representing
approximately 43.14% of the shares issued and outstanding on the NHTB Record
Date, will be required to approve the Agreements.
The affirmative vote of a majority of shares of NHTB Common Stock present or
represented and entitled to vote and voting at the NHTB Special Meeting is
required to approve an adjournment of the NHTB Special
3
<PAGE>
Meeting, including an adjournment to permit further solicitation of proxies in
the event that there are not sufficient votes at the time of the NHTB Special
Meeting to approve the Agreements.
Landmark. The Landmark Special Meeting will be held at Landmark's branch
banking office at 106 North Main Street, West Lebanon, New Hampshire, at 4:00
p.m. on December 19, 1996. The purpose of the Landmark Special Meeting is to
consider and vote upon a proposal to adopt and approve the Agreements and the
transactions contemplated thereby, and such other matters that may properly
come before the Landmark Special Meeting, or any adjournments or postponements
thereof. See "MEETING INFORMATION--Landmark Meeting" and "THE MERGER." Only the
holders of record of the outstanding shares of Landmark Common Stock on
November 1, 1996 (the "Landmark Record Date") will be entitled to notice of,
and to vote at, the Landmark Special Meeting and any adjournments or
postponements thereof. The affirmative vote of the holders of two-thirds of the
shares of Landmark Common Stock issued and outstanding will be required to
approve the Agreements. As of the Landmark Record Date, 354,138 shares of
Landmark Common Stock were outstanding, 342,803 of which are entitled to vote
at the Landmark Special Meeting. See "MEETING INFORMATION--Landmark--Excess
Shares."
Of the 354,138 shares of Landmark Common Stock outstanding on the Landmark
Record Date, 133,374 shares entitled to vote at the Landmark Special Meeting
(approximately 37.7%) were held by directors and executive officers of Landmark
and their respective affiliates. The affirmative vote of holders of
approximately 102,718 additional shares of Landmark Common Stock not held by
directors, executive officers and their affiliates, representing approximately
29.0% of the shares issued and outstanding on the Landmark Record Date, will be
required to approve the Agreements if all directors, executive officers and
their affiliates vote in favor of the Agreements. Directors and executive
officers of Landmark and their respective affiliates holding an aggregate of
133,374 shares of the outstanding Landmark Common Stock have entered into
Voting Agreements with NHTB to vote their shares in favor of the Agreements. A
copy of the form of Voting Agreement is attached as Exhibit A to the Plan of
Reorganization, which is attached to this Joint Proxy Statement-Prospectus as
Appendix A.
The affirmative vote of a majority of the shares of Landmark Common Stock
present or represented and entitled to vote at the Landmark Special Meeting is
required to approve an adjournment of the Landmark Special Meeting, including
an adjournment to permit further solicitation of proxies in the event that
there are not sufficient votes at the time of the Landmark Special Meeting to
approve the Agreements.
See "MEETING INFORMATION."
THE MERGER
Pursuant to the Merger Agreement, Landmark will be merged with and into the
Bank on the Effective Date with the Bank as the surviving bank. The Merger will
become effective on the date (the "Effective Date") and time (the "Effective
Time") as set forth in the Articles of Combination to be filed with the Office
of Thrift Supervision ("OTS"). The Effective Date will occur as soon as
practicable after the last required approval for the Merger has been obtained
and the last of all required waiting periods under such approvals has expired,
assuming the satisfaction of the conditions set forth in Article 5 of the Plan
of Reorganization. Landmark and NHTB each anticipate that the Merger will be
consummated in the first quarter of 1997. However, the consummation of the
Merger could be delayed as a result of delays in obtaining the necessary
governmental and regulatory approvals. There can be no assurances that such
approvals will be obtained or that the Merger will be completed at any time.
See "THE MERGER--Conditions to Consummation" and "--Regulatory Matters." For
information on how Landmark shareholders will be able to exchange certificates
representing shares of Landmark Common Stock for new certificates representing
shares of NHTB Common Stock to be issued to them and/or cash, see "THE MERGER--
Exchange of Certificates; Election Procedures; Fractional Shares."
4
<PAGE>
MERGER CONSIDERATION
In the Merger each share of Landmark Common Stock outstanding immediately
prior to the Effective Date, other than shares as to which dissenters' rights
have been asserted and not withdrawn, at the election of each Landmark
shareholder, will be converted into and exchangeable for (i) 1.221 shares of
NHTB Common Stock or (ii) $12.00 in cash subject to the total consideration
paid to Landmark shareholders being comprised of 60% NHTB Common Stock and 40%
cash and subject to the election and allocation procedures set forth in the
Merger Agreement. Prior to the Effective Date all outstanding shares of
preferred stock of Landmark ("Landmark Preferred Stock") will be converted into
shares of Landmark Common Stock and the holders of such converted shares will
have the same rights as holders of Landmark Common Stock to elect to receive
either NHTB Common Stock or cash. See "THE MERGER--Exchange of Certificates;
Election Procedures; Fractional Shares" and "--Allocations." The Merger
Consideration is subject to adjustment in certain circumstances. See "THE
MERGER--Adjustment of Merger Consideration." In the Merger, Landmark will be
merged with and into the Bank, with the Bank as the surviving entity, and the
shareholders of Landmark immediately prior to the effective time of the Merger
will no longer hold any interest in Landmark other than as shareholders of NHTB
to the extent they elect to receive shares of NHTB Common Stock.
Because the Merger Agreement provides that the total consideration paid to
Landmark shareholders will be comprised of 60% NHTB Common Stock and 40% cash,
no guarantee can be given that the election of any given shareholder of
Landmark will be honored. Rather, the election by each holder will be subject
to the election and allocation procedures described herein. Thus, holders may
not receive their requested form of consideration or combination thereof. See
"THE MERGER--Exchange of Certificates; Election Procedures; Fractional Shares"
and "--Allocations."
The Merger Consideration was proposed by NHTB and accepted by Landmark
following a due diligence process during which NHTB (with the assistance of its
financial advisor) reviewed information about Landmark and prepared and refined
an analysis of Landmark, the transaction and the appropriate consideration to
be paid to Landmark's shareholders.
No fractional shares of NHTB Common Stock will be issued in the Merger. In
lieu thereof, each holder of Landmark Common Stock who otherwise would have
been entitled to a fractional share of NHTB Common Stock will receive cash in
an amount equal to such fraction multiplied by the bid price of the NHTB Common
Stock as reported on the Nasdaq National Market System on the last business day
preceding the Effective Date.
The number of shares of NHTB Common Stock to be received for each share of
Landmark Common Stock depends on the average bid price of NHTB Common Stock on
the Nasdaq National Market (as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ")) for the thirty
consecutive trading days ending on the business day before the date on which
the last regulatory approval required for consummation of the Merger is
obtained ("NHTB Trading Price"). The following table shows the Exchange Ratio
at various NHTB Trading Prices together with the Per Landmark Share Value in
each case, assuming that the Merger Consideration is not adjusted. See "--
Adjustment of Merger Consideration." The Per Landmark Share Value is calculated
by multiplying the NHTB Trading Price by the applicable Exchange Ratio, and
represents the aggregate value of NHTB Common Stock that would be received in
the Merger for each share of Landmark Common Stock, based on the NHTB Trading
Price. Since the NHTB Trading Price is based on the trading price on the NASDAQ
for the thirty trading days prior to receipt of the last required regulatory
approval necessary for the Merger, the actual Exchange Ratio cannot be
determined until shortly before the Effective Date. The market price of NHTB
Common Stock at the Effective Date could differ from the NHTB Trading Price
used to determine the Exchange Ratio, and the actual value of a share of NHTB
Common Stock issued in the Merger therefore could differ from the Per Landmark
Share Value.
5
<PAGE>
<TABLE>
<CAPTION>
NHTB TRADING PRICE EXCHANGE RATIO PER LANDMARK SHARE CASH ELECTION PRICE
------------------ -------------- ------------------ -------------------
<S> <C> <C> <C>
Greater than $11.75 Fluctuates $14.00 $12.00
$8.25--$11.75 1.221 $10.07--$14.35 $12.00
$6.50--$8.24 Fluctuates $10.00 $12.00
Below $6.50 (1)
</TABLE>
- --------
(1) Landmark may, but need not, seek to terminate the Agreements if the NHTB
Trading Price is below $6.50. See "THE MERGER--Conditions to Consummation."
See "THE MERGER--Merger Consideration," "--Adjustment of Merger
Consideration" "--Exchange of Certificates; Election Procedures; Fractional
Shares," "--Effective Time" and "CERTAIN RELATED TRANSACTIONS--Rights of
Dissenting Shareholders."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
NHTB. THE BOARD OF DIRECTORS OF NHTB HAS UNANIMOUSLY ADOPTED A RESOLUTION
APPROVING THE AGREEMENTS AND UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF
THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY INCLUDING THE ISSUANCE
OF THE MERGER SHARES BY NHTB SHAREHOLDERS. NHTB's Board has adopted that
resolution and makes that recommendation because it believes that the terms of
the Agreements are fair and in the best interests of NHTB and its shareholders
and because the NHTB Board believes in its business judgment that the Merger
Consideration is fair and reasonable to the shareholders of NHTB. The terms of
the Agreements were reached on the basis of arms' length negotiations between
Landmark and NHTB. In the course of reaching its decision to approve the
Agreements, the NHTB Board consulted with its legal advisor Thacher Proffitt &
Wood, regarding the legal terms of the Agreements and the Board of Directors'
obligations in its consideration thereof, and with HAS Associates, Inc.
("HAS"), its financial advisor, regarding the financial terms and fairness,
from a financial point of view, of the Merger Consideration in the proposed
Merger.
See "THE MERGER--Background of the Merger" and "--Reasons for the Merger and
Recommendation of the Boards of Directors."
LANDMARK. THE BOARD OF DIRECTORS OF LANDMARK HAS UNANIMOUSLY ADOPTED A
RESOLUTION APPROVING THE AGREEMENTS AND UNANIMOUSLY RECOMMENDS APPROVAL AND
ADOPTION OF THE AGREEMENTS BY LANDMARK'S SHAREHOLDERS. Landmark's Board has
adopted that resolution and makes that recommendation because it believes that
the terms of the Agreements are fair and in the best interests of Landmark and
its shareholders and because the Landmark Board believes in its business
judgment that the Merger Consideration is fair and reasonable to the
shareholders of Landmark. In the course of reaching its decision to approve the
Agreements, the Board of Directors of Landmark consulted with its legal
advisors, Gallagher, Callahan & Gartrell, P.A., regarding the legal terms of
the Agreements and the Board of Directors' obligations in its consideration
thereof, and with McConnell, Budd & Downes, Inc. ("MB&D"), its financial
advisor, regarding the financial terms and fairness, from a financial point of
view, of the Merger Consideration in the proposed Merger.
See "THE MERGER--Background of the Merger" and "--Reasons for the Merger and
Recommendation of the Boards of Directors."
OPINIONS OF FINANCIAL ADVISORS
NHTB. HAS has served as financial advisor to NHTB in connection with the
Merger and has delivered to the Board of Directors of NHTB its written opinion,
as of the date of this Joint Proxy Statement-Prospectus, that the consideration
to be paid by NHTB to Landmark shareholders pursuant to the Agreements is fair,
from a financial point of view, to NHTB's shareholders. The full text of the
opinion of HAS dated as of the date of this Joint Proxy Statement-Prospectus,
which sets forth assumptions made, matters considered and limits on the
6
<PAGE>
review undertaken by HAS, is attached hereto in Appendix B. Shareholders are
urged to read this opinion in its entirety. HAS's opinion is directed only to
the terms of the Merger and does not constitute a recommendation to any NHTB
shareholder as to how such shareholder should vote at the NHTB Special Meeting.
Landmark. MB&D has served as financial advisor to Landmark in connection with
the Merger and has delivered to the Board of Directors of Landmark its written
opinion, as of the date of this Joint Proxy Statement-Prospectus, that the
Merger Consideration is fair, from a financial point of view, to Landmark's
shareholders. The full text of the opinion of MB&D dated as of the date of this
Joint Proxy Statement-Prospectus, which sets forth assumptions made, matters
considered and limits on the review undertaken by MB&D, is attached hereto in
Appendix B. Shareholders are urged to read this opinion in its entirety. MB&D's
opinion is directed only to the Merger Consideration and does not constitute a
recommendation to any Landmark shareholder as to how such shareholder should
vote at the Landmark Special Meeting.
See "THE MERGER--Background of the Merger," "--Opinions of Financial
Advisors" and Appendix B to this Joint Proxy Statement-Prospectus.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including the
approvals of the shareholders of Landmark and NHTB solicited hereby; the
effectiveness of the Registration Statement of which this Joint Proxy
Statement-Prospectus forms a part; approval by certain federal and New
Hampshire regulatory authorities; receipt by Landmark and NHTB of opinions of
their respective counsels as to the tax-free nature of the Merger for federal
income tax purposes (except for cash received by Landmark shareholders as
Merger Consideration or in lieu of fractional shares); that there shall have
been no material adverse change in the business, operations, results of
operations or condition of Landmark or NHTB since December 31, 1995; that
Landmark's allowance for loan losses on the balance sheet of Landmark as of the
last month immediately preceding the Effective Date shall be at least $600,000
and Landmark's Tier 1 capital ratio (determined in accordance with Generally
Accepted Accounting Principles ("GAAP")) shall be at least 5.8%; the receipt of
a voting agreement from any Landmark shareholder who at the Effective Time
becomes the beneficial owner of more than 3% of the outstanding shares of NHTB
Common Stock whereby such shareholder agrees not to vote any shares
beneficially owned by him in excess of 3% of the outstanding shares of NHTB for
a period of two years after the Effective Date; and other customary closing
conditions. None of the foregoing regulatory approvals has been obtained and
there is no assurance that such approvals will be obtained or as to the timing
of such approvals or the imposition of any material conditions to such
approvals.
See "THE MERGER--Conditions to Consummation" and "--Regulatory Matters."
TERMINATION
The Plan of Reorganization provides that the Merger may be terminated at any
time prior to the Effective Time (whether before or after shareholder
approval), by the mutual consent in writing of NHTB and Landmark. The Merger
also may be terminated by NHTB or Landmark, acting individually, (a) if any
regulatory authority shall have issued a final nonappealable order enjoining,
prohibiting or failing to approve the Merger or the transactions contemplated
thereby; (b) if the Effective Time has not occurred on or before June 30, 1997
unless the failure to close by such date is due to the failure of the party
seeking to terminate the Agreements to perform or observe the covenants and
agreements set forth in the Agreements; (c) if there is a material breach by
the other party of any representation, warranty, covenant or agreement
contained in the Plan of Reorganization or the Merger Agreement which is not
timely cured; or (d) if the vote of the shareholders of NHTB or Landmark
7
<PAGE>
solicited hereby is not obtained. Landmark may terminate the Merger if the NHTB
Trading Price is less than $6.50 upon written notice to NHTB prior to the third
business day immediately preceding the Effective Date and NHTB does not elect
to increase the Exchange Ratio, as agreed to by Landmark. If the Plan of
Reorganization or the Merger Agreement is terminated (other than as a result of
a wilful breach by NHTB or Landmark), each of NHTB and Landmark shall be
responsible for its own costs and expenses. If the Plan of Reorganization or
the Merger Agreement is terminated as a result of a breach of a representation,
warranty or covenant which is caused by the wilful conduct of either party, the
breaching party may be liable for damages to the other, including out-of-pocket
costs and expenses incurred in connection with the Merger.
See "THE MERGER--Termination."
AMENDMENT, EXTENSION AND WAIVER
The Boards of Directors of NHTB and Landmark may, to the extent legally
allowable, (a) amend the Agreements; (b) extend the time for the performance of
any of the obligations or other acts required of the other party contained in
the Agreements; (c) waive any inaccuracies in the representations and
warranties of the other party contained in the Agreements or in any document
delivered pursuant to the Agreements; or (d) waive compliance by the other
party of any of its agreements or conditions contained in the Agreements,
except that after the Agreements have been approved by the shareholders of
Landmark, (i) no amendment shall alter or change the amount or kind of Merger
Consideration, or (ii) adversely affect the tax treatment to Landmark
shareholders as a result of receipt of the Merger Consideration. Except in the
circumstances described in (i) and (ii) above, no amendment to the Agreements
(including, but not limited to, any waiver of conditions, waiver of
inaccuracies in the representations and warranties or extension of time for the
performance of any of the obligations contained in the Agreements) would
require further solicitation of proxies from or approval by the NHTB or
Landmark shareholders.
See "THE MERGER--Amendment, Extension and Waiver."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Landmark's management and the Landmark Board have
interests in the Merger in addition to their interests as shareholders of
Landmark generally.
In connection with the Merger, NHTB has agreed to provide certain benefits to
the employees of Landmark and to appoint two members of Landmark's Board to
serve on NHTB's Board, one to serve for a three-year term and the other to
serve for a two-year term. In connection with the Merger, the Bank has agreed
to appoint three members of Landmark's Board to serve on the Bank's Board, one
to serve for a three-year term, one to serve for a two-year term and one to
serve for a one-year term. See "THE MERGER--Interests of Certain Persons in the
Merger."
NHTB has also agreed to continue the rights to indemnification of officers
and directors of Landmark and to continue in effect for a period of time the
directors' and officers' liability insurance currently maintained by Landmark.
See "THE MERGER--Effect on Employees and Employee Benefits."
Landmark is a party to an employment agreement (the "Employment Agreement")
with Paul P. Tierney pursuant to which Mr. Tierney serves as Landmark's
President and Chief Executive Officer. In connection with the Merger, Landmark
will be merged with and into the Bank, with the Bank as the surviving entity,
and Mr. Tierney will not be elected or serve as President and Chief Executive
Officer of the Bank. Because of this reduction in his responsibilities,
pursuant to the Employment Agreement, NHTB or the Bank will pay Mr. Tierney
$188,400 (equivalent to two years salary and the monetary equivalent of certain
benefits, as provided in the Employment Agreement) and assume the liabilities
of Landmark with respect to certain deferred
8
<PAGE>
compensation arrangements established pursuant to the Employment Agreement. In
exchange, Mr. Tierney will acknowledge such payment and assumption as full
satisfaction of all obligations to him under the Employment Agreement and
execute a release in favor of Landmark, NHTB and the Bank and their affiliates.
In addition, the Agreements provide that all employees of Landmark as of the
Effective Date shall become employees of NHTB, the Bank, or an affiliate
thereof as of the Effective Date. Subsequently, any employee of NHTB, the Bank
or an affiliate thereof who was employed by Landmark on the Effective Date, if
terminated within one year after the Effective Date, in addition to any
severance payment, will receive reimbursement for their direct cost for health
insurance continuation coverage under NHTB's group health plan for the period,
if any, for which NHTB provides severance benefits. In exchange, each employee
receiving such reimbursement will execute a release in favor of Landmark, NHTB
and the Bank and their affiliates.
The Landmark Board was aware of these interests and considered them, among
other matters, in unanimously approving the Agreements and the transactions
contemplated thereby.
The Bank and Landmark have entered into agreements with five current Landmark
employees to provide for bonuses to be funded by Landmark and paid by the Bank
provided the employees remain employed in good standing and continue such
employment with the Bank for 105 days following the Effective Date. The total
amount accrued by Landmark to fund the bonus payments is $53,462.
See "THE MERGER--Interests of Certain Persons in the Merger."
REGULATORY APPROVALS
Consummation of the transactions contemplated by the Merger Agreement is
subject to approval by the OTS and the Commissioner of Banks of New Hampshire
(the "Commissioner of Banks"). Assuming the approval of the OTS, the Merger may
not be consummated for 30 days after the later of such approval (or such
shorter period as the OTS may prescribe with the concurrence of the Attorney
General, but not less than 15 days), during which time the United States
Department of Justice may challenge the Merger on antitrust grounds.
Applications or notices seeking these approvals have been filed as of the date
of this Joint Proxy Statement-Prospectus. The Merger will not proceed until all
regulatory approvals required to consummate the Merger have been obtained, such
approvals are in full force and effect and all statutory waiting periods in
respect thereof have expired. There can be no assurance that the Merger will be
approved by each of the required regulatory agencies. If such approvals are
received, there can be no assurance as to the date of such approvals, the terms
thereof, or the absence of any litigation challenging such approvals. See "THE
MERGER--Regulatory Matters."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned on delivery to each of NHTB and
Landmark opinions of their respective counsels, to the effect that, among other
things, (a) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986 (the "Code"); (b) no gain
or loss will be recognized by Landmark on the transfer of its assets to the
Bank pursuant to the Merger; (c) no gain or loss will be recognized by NHTB or
by the Bank on the issuance of shares of NHTB Common Stock to shareholders of
Landmark pursuant to the Merger; (d) no gain or loss will be recognized by a
shareholder of Landmark who exchanges pursuant to the Merger all of such
shareholder's shares of Landmark stock solely for shares of NHTB Common Stock,
except with respect to cash received by such shareholder in lieu of a
fractional share interest in NHTB Common Stock; (e) the aggregate tax basis of
the shares of NHTB Common Stock received by a shareholder of Landmark who
exchanges pursuant to the Merger all of such shareholder's shares of Landmark
stock solely for shares of NHTB Common Stock will be the same as the tax basis
of the shares of Landmark stock surrendered in exchange therefor (reduced by
any amount allocable to a fractional share interest in NHTB Common Stock for
which cash is received); (f) the aggregate tax basis of the shares of NHTB
Common Stock
9
<PAGE>
received by a shareholder of Landmark who exchanges pursuant to the Merger all
of such shareholder's shares of Landmark stock for shares of NHTB Common Stock
and cash will be the same as such shareholder's aggregate tax basis in the
Landmark shares exchanged therefor (reduced by any amount allocable to a
fractional share interest in NHTB Common Stock for which cash is received),
decreased by the amount of cash received (other than cash received in lieu of a
fractional share interest) and increased by the amount of gain, if any,
recognized by such shareholder in the Merger (including any portion of such
gain that is treated as a dividend) and (g) the holding period of the shares of
NHTB Common Stock to be received by a shareholder of Landmark pursuant to the
Merger will include the period during which such shareholder held the shares of
Landmark stock surrendered in exchange therefor, provided that the shares of
Landmark stock surrendered is held as a capital asset as of the Effective Time.
In the opinion of NHTB and Landmark's respective counsels, the foregoing sets
forth the anticipated material federal income tax consequences of the Merger to
such Landmark shareholders and to Landmark and NHTB. It is a condition of
closing that each such respective counsel will deliver to NHTB and Landmark,
respectively, opinions as to the foregoing tax consequences.
Shareholders should consult their own tax advisors as to the federal tax
consequences of the Merger to their own particular situation and as to the
applicability of any state, local or foreign tax laws.
See "THE MERGER--Material Federal Income Tax Consequences."
ACCOUNTING TREATMENT
NHTB intends to treat the Merger as a purchase for accounting purposes. See
"THE MERGER--Accounting Treatment."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The Merger Agreement provides that prior to or at the Effective Time, the
Board of Directors of NHTB will appoint two of Landmark's current directors to
serve on the NHTB Board of Directors and the Board of Directors of the Bank
will elect three of Landmark's directors to serve on the Board of Directors of
the Bank. NHTB and the Bank will not appoint any other directors or executive
officers as a result of the Merger.
See "THE MERGER--Management and Operations After the Merger."
THE STOCK OPTION AGREEMENT
As a condition to entering into the Agreements, NHTB required Landmark to
enter into the Stock Option Agreement (the "Option Agreement") which allows
NHTB to purchase up to 19.9% of the then-issued and outstanding Landmark Common
Stock under certain conditions, at a price of $9.00 per share, subject to
adjustment as set forth in the Option Agreement. The option is exercisable, in
whole or in part, only upon the occurrence of certain triggering events (none
of which has occurred to the best of NHTB's or Landmark's knowledge as of the
date of the Joint Proxy Statement-Prospectus). A copy of the Option Agreement
is attached to this Joint Proxy Statement-Prospectus as Appendix C.
The Option Agreement is intended to increase the likelihood that the Merger
will be consummated in accordance with the terms of the Agreements. The option
may act to deter competing offers from third parties to acquire Landmark. If a
triggering event occurs, the option could be exercised, thereby increasing the
number of outstanding shares of Landmark's Common Stock and making it more
difficult and costly for a third party to obtain all or a specified percentage
of Landmark's Common Stock.
See "CERTAIN RELATED TRANSACTIONS--The Stock Option Agreement."
10
<PAGE>
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Under regulations of the Commissioner of Banks, holders of Landmark Common
Stock have the right to dissent from the Merger and receive payment in
accordance with regulations of the Comptroller of the Currency, U.S. Department
of the Treasury ("OCC"), applicable to mergers of national banks with federal
savings associations (the "Dissent Regulations"). Each outstanding share of
Landmark Common Stock, the holder of which has perfected his or her right to
dissent and has not effectively withdrawn or lost such right (the "Dissenting
Shares"), shall not be converted into or represent a right to receive shares of
NHTB Common Stock or cash hereunder, and the holder thereof shall be entitled
only to such rights as are granted by applicable law. Under the Dissent
Regulations, the value of the Dissenting Shares will be determined by a
committee of three persons--one selected by the dissenting shareholder(s), one
by the Board of Directors of the Bank and a third selected by these two
persons. Any dissenting shareholder who disagrees with the valuation made by
the committee may appeal the determination to the Commissioner of Banks. The
Commissioner of Banks will review the committee's valuation if the Bank, NHTB
and Landmark agree to reimburse the expenses of the Commissioner of Banks. The
full text of the Dissent Regulations is included as Appendix D to this Joint
Proxy Statement-Prospectus.
Holders of NHTB Common Stock do not have the right to dissent from the
Merger.
See "CERTAIN RELATED TRANSACTIONS--Rights of Dissenting Shareholders."
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of shareholders of Landmark are currently governed by the
provisions of the New Hampshire Revised Statutes applicable to state-chartered
banks and Landmark's Amended Articles of Agreement (the "Landmark Articles")
and Bylaws. Upon consummation of the Merger, Landmark's shareholders who elect
to receive NHTB Common Stock will automatically become shareholders of NHTB,
and their rights will be governed by the provisions of the Delaware General
Corporation Law ("DGCL") and NHTB's Certificate of Incorporation and Bylaws.
The rights of shareholders of NHTB differ from the rights of shareholders of
Landmark with respect to certain important matters, including voting
requirements to remove directors, combinations with related persons, beneficial
ownership limitations, prohibition against greenmail and evaluation of certain
offers.
See "COMPARISON OF RIGHTS OF NHTB AND LANDMARK SHAREHOLDERS."
11
<PAGE>
SELECTED HISTORICAL AND PRO FORMA PER SHARE DATA
The following tables set forth for NHTB Common Stock and Landmark Common
Stock certain historical, unaudited pro forma and unaudited pro forma
equivalent per share information at the end of and for the six months ended
June 30, 1996, and the year ended December 31, 1995 giving effect to the Merger
accounted for as a purchase transaction. The information is derived from the
historical consolidated financial statements of NHTB and the historical
financial statements of Landmark, including the related notes thereto, and the
pro forma combined financial information giving effect to the Merger, including
the related notes thereto, appearing elsewhere herein. Landmark and NHTB
combined pro forma per share information is calculated on the assumption that
all outstanding shares of Landmark Preferred Stock will be converted into
shares of Landmark Common Stock. The unaudited pro forma information presented
in the following tables does not include any expected cost savings resulting
from the Merger. The information herein should be read in conjunction with the
historical and pro forma combined financial information of NHTB and Landmark,
including the notes thereto, appearing elsewhere in this Joint Proxy Statement-
Prospectus. See "UNAUDITED PRO FORMA COMBINED FINANCIAL DATA."
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1996 1995
----------- ---------------
<S> <C> <C>
Earnings (loss) per common share(1):
NHTB......................................... $ 0.49 $ 0.73
Landmark..................................... (0.41) (0.20)
NHTB combined pro forma...................... 0.29 0.54
Landmark equivalent pro forma................ 0.35 0.66
Dividends declared per common share:
NHTB......................................... 0.25 0.50
Landmark..................................... -- --
NHTB combined pro forma...................... 0.25 0.50
Landmark equivalent pro forma(2)............. 0.31 0.61
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1996 1995
----------- ---------------
<S> <C> <C>
Book value per share(3):
NHTB......................................... $11.51 $11.57
Landmark..................................... 7.00 7.90
NHTB combined pro forma...................... 11.21 N/A
Landmark equivalent pro forma................ 13.69 N/A
</TABLE>
- --------
(1) NHTB combined pro forma earnings per common share are calculated by using
aggregate historical income information for NHTB and Landmark divided by
the average pro forma shares outstanding of the combined entity. The
average pro forma shares of the combined entity have been calculated by
combining NHTB historical average shares with the shares of Landmark to be
exchanged for NHTB shares as adjusted by the Exchange Ratio of 1.221. See
"THE MERGER--Merger Consideration." The Landmark equivalent pro forma
earnings per share amounts are computed by multiplying the NHTB combined
pro forma amounts by the Exchange Ratio.
(2) Landmark equivalent pro forma dividends declared per share represent NHTB
pro forma cash dividends per share multiplied by the Exchange Ratio. See
"THE MERGER--Merger Consideration."
(3) NHTB combined pro forma book value per share is based on the aggregate
historical common shareholders' equity of NHTB and Landmark divided by the
total pro forma common shares of the combined entity based on the Exchange
Ratio of 1.221. Landmark equivalent pro forma book value per share at
period end represents NHTB pro forma amounts multiplied by the Exchange
Ratio. See "THE MERGER--Merger Consideration."
12
<PAGE>
MARKET PRICES
The shares of NHTB Common Stock are quoted on the Nasdaq National Market
System. The following table shows the market value per share for each of NHTB
and Landmark and the Landmark equivalent for the date set forth below:
<TABLE>
<CAPTION>
CLOSING SALES PRICE
----------------------
NHTB LANDMARK LANDMARK
COMMON COMMON EQUIVALENT
STOCK STOCK(1) PER SHARE(2)
----------- ---------- ------------
<S> <C> <C> <C>
Market value per common share:
July 25, 1996(3)..................... $ 9.875 -- $12.057
November 1, 1996..................... 11.750 -- 14.347
</TABLE>
- --------
(1) The shares of Landmark Common Stock are not quoted on any national or
regional exchange. In the recent three-year period, trading in Landmark
Common Stock has been minimal with 31,515 shares traded in 1993, 71,575
shares traded in 1994, 97,351 shares traded in 1995, and 23,519 shares
traded through September 15, 1996. Since Landmark's inception in 1991, no
shares of Landmark Common Stock have been issued by Landmark, except for
the conversion of shares of Landmark Preferred Stock into Landmark Common
Stock for purposes of director's qualifying shares. The shares traded
during the referenced periods were exchanged in private transactions;
Landmark does not have available to it reliable information regarding the
prices at which such shares were traded.
(2) Equivalent market value per share of Landmark Common Stock represents the
closing sales price of NHTB Common Stock on the date reported multiplied by
the Exchange Ratio of 1.221. The Cash Election Price is $12.00 per share.
(3) The business day immediately preceding the public announcement of the
proposed Merger.
13
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1995, are derived from the audited financial statements of NHTB. The financial
data for the six month periods ended June 30, 1996 and 1995 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, that NHTB considers
necessary for a fair presentation of the financial position and the results of
operations for these periods. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that may be expected
for the entire year. The data should be read in conjunction with the financial
statements, related notes, and other financial information included in this
Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ ------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend
income................ $ 9,197 $ 8,350 $ 17,466 $ 14,542 $ 14,089 $ 16,189 $ 18,637
Interest expense....... 5,055 4,552 9,598 7,046 6,835 8,902 12,057
-------- -------- -------- -------- -------- -------- --------
Net interest income.... 4,142 3,798 7,868 7,496 7,254 7,287 6,580
Provision for loan
losses, net........... 744 580 1,164 762 1,373 2,165 895
-------- -------- -------- -------- -------- -------- --------
Net interest and
dividend income after
provision for loan
losses................ 3,398 3,218 6,704 6,734 5,881 5,122 5,685
Non-interest income.... 1,087 712 1,436 1,557 1,907 2,232 1,258
Non-interest expense... 3,249 3,263 6,291 5,986 5,527 5,518 5,711
-------- -------- -------- -------- -------- -------- --------
Income before income
tax expense........... 1,236 667 1,849 2,305 2,261 1,836 1,232
Income tax expense..... 408 220 604 723 736 642 397
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 828 $ 447 $ 1,245 $ 1,582 $ 1,525 $ 1,194 $ 835
======== ======== ======== ======== ======== ======== ========
ENDING BALANCE SHEET
DATA:
Assets................. $258,526 $246,683 $258,216 $233,363 $207,105 $208,981 $203,229
Investment securities.. 27,910 23,463 28,415 20,363 17,998 23,680 22,451
Gross loans............ 215,731 206,639 210,676 198,776 176,428 171,146 166,366
Allowance for possible
loan losses........... 1,507 1,473 1,828 2,753 2,374 2,095 2,290
Real estate owned...... 820 1,282 984 1,505 1,854 2,737 4,876
Deposits............... 200,303 196,138 199,971 194,533 176,716 182,404 172,671
Borrowed funds(1)...... 36,614 28,217 36,489 18,809 10,122 6,944 11,484
Shareholders' equity... 19,475 18,874 19,544 18,253 18,387 18,036 17,645
PER SHARE DATA AND OTHER
SELECTED RATIOS:
Earnings per common
share................. $ 0.49 $ 0.26 $ 0.73 $ 0.93 $ 0.88 $ 0.68 $ 0.45
Dividends declared per
share................. $ 0.25 $ 0.25 $ 0.50 $ 0.50 $ 0.375 $ 0.35 $ 0.14
Dividend payout ratio.. 51.02% 96.15% 68.49% 53.76% 42.61% 51.47% 31.11%
Book value per share... $ 11.51 $ 11.29 $ 11.57 $ 10.92 $ 11.01 $ 10.41 $ 9.98
Shareholders' equity to
assets at period end.. 7.53% 7.65% 7.57% 7.82% 8.88% 8.63% 8.68%
Average shareholders'
equity to average
assets................ 7.65% 7.87% 7.72% 8.15% 8.76% 8.69% 8.80%
Return on average
assets(2)............. 0.66% 0.38% 0.54% 0.71% 0.74% 0.58% 0.40%
Return on average
equity(2)............. 8.59% 4.87% 6.95% 8.76% 8.43% 6.56% 4.59%
Net interest margin(2). 3.45% 3.43% 3.42% 3.61% 3.75% 3.79% 3.48%
</TABLE>
- --------
(1) Includes repurchase agreements, federal funds purchased and Federal Home
Loan Bank advances.
(2) Calculated on an annualized basis.
14
<PAGE>
LANDMARK BANK
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1995, are derived from the audited financial statements of Landmark. The
financial data for the six month periods ended June 30, 1996 and 1995 are
derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
that Landmark considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results
for the six months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the entire year. The data should be read in
conjunction with the financial statements, related notes, and other financial
information included in this Joint Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------ -------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest and dividend
income................ $ 2,345 $ 2,478 $ 5,163 $ 3,593 $ 2,594 $ 1,921 $ 560
Interest expense....... 1,458 1,258 2,858 1,392 971 830 334
-------- -------- ------- ------- ------- ------- -------
Net interest income.... 887 1,220 2,305 2,201 1,623 1,091 226
Provision for loan
losses................ 317 48 205 203 145 71 71
-------- -------- ------- ------- ------- ------- -------
Net interest and
dividend income after
provision for loan
losses................ 570 1,172 2,100 1,998 1,478 1,020 155
Non-interest income.... 304 187 411 561 863 335 24
Non-interest expense... 1,106 1,299 2,485 2,192 1,587 1,163 903
-------- -------- ------- ------- ------- ------- -------
Income (loss) before
income tax expense
(benefit) and
cumulative effect of a
change in accounting
principle............. (232) 60 26 367 754 192 (724)
Income tax expense
(benefit)............. (86) 27 5 141 278 30 --
-------- -------- ------- ------- ------- ------- -------
Income (loss) before
cumulative effect of a
change in accounting
principle............. (146) 33 21 226 476 162 (724)
Cumulative effect of a
change in accounting
principle............. -- -- -- -- -- 460 --
-------- -------- ------- ------- ------- ------- -------
Net income (loss)...... (146) 33 21 226 476 622 (724)
Preferred stock
dividends............. -- (50) (93) (106) -- -- --
-------- -------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
stock(1).............. $ (146) $ (17) $ (72) $ 120 $ 476 $ 622 $ (724)
======== ======== ======= ======= ======= ======= =======
ENDING BALANCE SHEET
DATA:
Assets................. $ 57,771 $ 66,403 $60,763 $56,330 $33,711 $27,984 $19,079
Securities............. 7,939 10,669 10,335 10,931 1,788 3,857 8,113
Loans(2)............... 43,165 42,862 43,521 40,930 27,847 21,131 6,890
Allowance for loan
losses................ 858 502 659 465 265 142 71
Deposits............... 53,736 61,935 56,359 51,991 29,345 25,118 16,771
Borrowed funds......... 309 392 304 220 351 29 49
Common stockholders'
equity................ 2,481 2,757 2,797 2,731 2,789 2,365 1,743
PER SHARE DATA AND OTHER
SELECTED RATIOS:
Earnings (loss) per
common and common
equivalent share:
primary............... $ (0.41) $ (.05) $ (.20) $ 0.34 $ 1.15 $ 1.75 $ (2.05)
Book value per common
share................. $ 7.00 $ 7.78 $ 7.90 $ 7.71 $ 7.88 $ 6.68 $ 4.92
Shareholders' equity to
assets at end of
period................ 6.19% 5.78% 6.40% 6.73% 11.11% 8.99% 9.14%
Average shareholders'
equity to average
assets................ 6.35% 6.78% 6.45% 9.18% 10.17% 8.37% 25.99%
Net interest margin(3). 3.16% 4.48% 4.06% 5.52% 5.33% 2.35% 4.21%
</TABLE>
- --------
(1) For purposes of computing earnings per share on common stock, the
inclusion or exclusion of outstanding convertible preferred shares of
stock as common stock equivalents in computing the weighted average number
of shares of common stock outstanding and the inclusion or exclusion of
preferred stock dividends in computing net income depends on whether the
effect of inclusion is dilutive or antidilutive on earnings per share. The
inclusion of outstanding convertible preferred shares was antidilutive for
periods after 1993, so preferred stock dividends were deducted from net
income (loss). The inclusion for 1993 was dilutive, so preferred stock
dividends of $42,000 were not included in computing earnings per share.
(2) Total loans represent gross loans less deferred fees (costs) and deferred
gain on sales of SBA loans.
(3) Calculated on an annualized basis.
15
<PAGE>
MEETING INFORMATION
NHTB MEETING
General. This Joint Proxy Statement-Prospectus is being furnished in
connection with the solicitation of proxies by the Board of Directors of NHTB
for use at the NHTB Special Meeting. The NHTB Special Meeting will be held at
the Lake Sunapee Bank Building, 1868 Room, 9 Main Street, Newport, New
Hampshire, on Thursday, December 19, 1996 at 10:00 a.m.
The NHTB Special Meeting will be held for the purpose of (i) considering and
voting upon a proposal to approve and adopt the Agreements and the
transactions contemplated thereby, including the issuance of the Merger
Shares; (ii) approving a proposal to adjourn the NHTB Special Meeting for any
reason, including to permit further solicitation of proxies as to the
Agreements; and (iii) conducting any other business that may properly come
before the NHTB Special Meeting, or any adjournments or postponements thereof.
Any action may be taken on the foregoing proposals at the NHTB Special Meeting
on the date specified above, or on any date or dates to which, by original or
later adjournment, the NHTB Special Meeting may be adjourned, or to which the
NHTB Special Meeting may be postponed.
THE NHTB BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE NHTB
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE AGREEMENTS AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND FOR THE OTHER MATTERS TO BE CONSIDERED
AT THE NHTB SPECIAL MEETING.
Record Date. The NHTB Board of Directors has fixed the close of business on
November 1, 1996 as the NHTB Record Date. Only the holders of record of the
outstanding shares of NHTB Common Stock on the NHTB Record Date will be
entitled to notice of, and to vote at, the NHTB Special Meeting and any
adjournments or postponements thereof. At the NHTB Record Date, 1,704,982
shares of NHTB Common Stock were outstanding and entitled to vote.
Proxies; Voting and Revocation. The presence, in person or by proxy, of one-
third of the aggregate number of shares of NHTB Common Stock outstanding and
entitled to vote on the NHTB Record Date is necessary to constitute a quorum
at the NHTB Special Meeting. The affirmative vote of (i) the holders of a
majority of the outstanding shares of NHTB Common Stock entitled to vote on
the Merger is required to approve and adopt the Agreements; and (ii) a
majority of the NHTB Common Stock present or represented and entitled to vote
and voting at the NHTB Special Meeting is required to approve an adjournment
of the NHTB Special Meeting. Abstentions will be included in the number of
shares present or represented and voting on each matter and broker non-votes
will not be included in the number of shares present or represented and voting
on each matter. With respect to the proposal to adopt and approve the
Agreements, both an abstention and a non-vote will have the effect of a
negative vote. With respect to the proposal to adjourn the NHTB Special
Meeting, an abstention will have the effect of a negative vote and a non-vote
will have no effect. A non-vote occurs when a nominee holding shares for a
beneficial owner votes on one proposal, but does not vote on another proposal
because, in respect of such other proposal, the nominee does not have
discretionary voting power and has not received instructions from the
beneficial owner. Specifically, under applicable rules and regulations,
brokers who hold shares in street name for customers who are the beneficial
owners of such shares are prohibited from giving a proxy to vote shares held
for such customers on the approval and adoption of the Agreements without
specific instructions from such customers.
At the Record Date, 1,704,982 shares of NHTB Common Stock were outstanding
and entitled to vote. Assuming that directors and executive officers of NHTB
and their respective affiliates holding an aggregate of 116,911 shares (as of
November 1, 1996), or approximately 6.86%, of the outstanding NHTB Common
Stock vote their shares in favor of the Agreements, the affirmative vote of
holders of approximately 735,581 additional shares of NHTB Common Stock,
representing approximately 43.14% of the shares issued and outstanding on the
NHTB Record Date, will be required to approve the Agreements. The approval of
the Agreements by NHTB's shareholders is a condition to the consummation of
the Merger.
16
<PAGE>
Approval of any proposal to adjourn the NHTB Special Meeting for any reason,
including to permit further solicitation of proxies, would require the
affirmative vote of a majority of the votes cast at the NHTB Special Meeting.
SHARES REPRESENTED BY A PROPERLY EXECUTED PROXY RECEIVED PRIOR TO THE VOTE
AT THE NHTB SPECIAL MEETING AND NOT REVOKED WILL BE VOTED AT THE NHTB SPECIAL
MEETING AS DIRECTED IN THE PROXY. IF A PROXY IS SUBMITTED AND NO DIRECTIONS
ARE GIVEN, THE PROXY WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE
AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING ISSUANCE OF
THE MERGER SHARES AND FOR THE PROPOSAL TO ADJOURN THE MEETING.
A NHTB shareholder of record may revoke a proxy by filing an instrument of
revocation with Linda L. Oldham, Secretary of NHTB (The Carriage House, P.O.
Box 37, New London, New Hampshire 03257), by filing a duly executed proxy
bearing a later date, or by appearing at the NHTB Special Meeting in person,
notifying the Secretary, and voting by ballot at the NHTB Special Meeting. Any
NHTB shareholder of record attending the NHTB Special Meeting may vote in
person whether or not a proxy has been previously given, but the mere presence
(without notifying the Secretary) of a shareholder at the NHTB Special Meeting
will not constitute revocation of a previously given proxy.
Solicitation of Proxies. The cost of solicitation of proxies by NHTB will be
borne by NHTB. In addition to the solicitation of proxies by mail, the
directors, officers and employees of NHTB may also solicit proxies personally
or by telephone or facsimile. NHTB will also request persons, firms and
corporations holding shares which are beneficially owned by others to send
proxy materials to and obtain proxies from such beneficial owners. NHTB will
reimburse those holders for their reasonable expenses. NHTB has also retained
Morrow & Company, a proxy soliciting firm, to assist in the solicitation of
proxies at a fee of approximately $4,500 plus reimbursement of certain out-of-
pocket expenses.
LANDMARK MEETING
General. This Joint Proxy Statement-Prospectus is being furnished in
connection with the solicitation of proxies by the Board of Directors of
Landmark for use at the Landmark Special Meeting. The Landmark Special Meeting
will be held at Landmark's branch banking office at 106 North Main Street,
West Lebanon, New Hampshire, at 4:00 p.m. on Thursday, December 19, 1996.
The Landmark Special Meeting will be held for the purpose of (i) considering
and voting upon a proposal to approve and adopt the Agreements and the
transactions contemplated thereby; (ii) approving a proposal to adjourn the
Landmark Special Meeting for any reason, including to permit further
solicitation of proxies as to the Agreements; and (iii) conducting any other
business that may properly come before the Landmark Special Meeting, or any
adjournments or postponements thereof. Any action may be taken on the
foregoing proposals at the Landmark Special Meeting on the date specified
above, or on any date or dates to which, by original or later adjournment, the
Landmark Special Meeting may be adjourned, or to which the Landmark Special
Meeting may be postponed.
THE LANDMARK BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE LANDMARK
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE AGREEMENTS AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND FOR THE PROPOSAL TO ADJOURN THE LANDMARK
SPECIAL MEETING.
Record Date. The Landmark Board of Directors has fixed the close of business
on November 1, 1996 as the Landmark Record Date. Only the holders of record of
the outstanding shares of Landmark Common Stock on the Landmark Record Date
will be entitled to notice of, and to vote at, the Landmark Special Meeting
and any adjournments or postponements thereof. At the Landmark Record Date,
354,138 shares of Landmark Common Stock were outstanding and for the reasons
discussed in the following paragraph, only 342,803 of which are entitled to
vote at the Landmark Special Meeting.
17
<PAGE>
Excess Shares. Article X of the Landmark Articles provides that no "person"
shall directly or indirectly acquire or offer to acquire the beneficial
ownership of more than fifteen percent (15%) of the issued and outstanding
shares of capital stock of Landmark entitled to vote. In the event voting
shares are acquired in violation of this provision, all shares beneficially
owned by such person in excess of the fifteen percent limitation are
considered "excess shares" and are not entitled to be voted or counted as
voting shares in connection with any matters submitted to Landmark's
shareholders for a vote, and are excluded from the determination of whether a
quorum is present at a meeting of shareholders. The Board of Directors of
Landmark have determined that a total of 11,335 shares of Landmark Common
Stock are "excess shares" under the provisions of Article X of the Landmark
Articles and are therefore not entitled to be voted or counted as voting
shares at the Landmark Special Meeting. See "THE MERGER--Beneficial Ownership
of Landmark Common Stock."
Proxies; Voting and Revocation. The presence, in person or by proxy, of a
majority of the aggregate number of shares of Landmark Common Stock
outstanding and entitled to vote on the Landmark Record Date is necessary to
constitute a quorum at the Landmark Special Meeting. The affirmative vote of
(i) the holders of two-thirds of the outstanding shares of Landmark Common
Stock is required to approve and adopt the Agreements; and (ii) a majority of
the shares of Landmark Common Stock present or represented and entitled to
vote at the Landmark Special Meeting is required to approve an adjournment of
the Landmark Special Meeting. Landmark intends to count broker non-votes and
abstentions as present at the meeting for purposes of determining a quorum.
Abstentions will be included in the number of shares present or represented
and voting on each matter and broker non-votes will not be included in the
number of shares present or represented and voting on each matter. With
respect to the proposal to adopt and approve the Agreements, both an
abstention and a non-vote will have the effect of a negative vote. With
respect to the proposal to adjourn the Landmark Special Meeting, an abstention
will have the effect of a negative vote and a non-vote will have no effect. A
non-vote occurs when a nominee holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because, in respect of
such other proposal, the nominee does not have discretionary voting power and
has not received instructions from the beneficial owner. Specifically, under
applicable rules and regulations, brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers on the approval and
adoption of the Agreements without specific instructions from such customers.
At the Record Date, 354,138 shares of Landmark Common Stock were
outstanding, of which directors and executive officers of Landmark and their
respective affiliates held an aggregate of 133,374 shares entitled to vote at
the Landmark Special Meeting, or approximately 37.7%. The affirmative vote of
holders of approximately 102,718 additional shares of Landmark Common Stock
not held by directors, executive officers and their affiliates, representing
approximately 29.0% of the shares issued and outstanding on the Landmark
Record Date, will be required to approve the Agreements if all directors,
executive officers and their affiliates vote in favor of the Merger. Directors
and executive officers of Landmark and their respective affiliates holding an
aggregate of 133,374 shares of the outstanding Landmark Common Stock entitled
to vote have entered into Voting Agreements with NHTB to vote their shares in
favor of the Agreements. The approval of the Agreements by Landmark's
shareholders is a condition to the consummation of the Merger. A copy of the
form of Voting Agreement is attached as Exhibit A to the Plan of
Reorganization, which is attached to this Joint Proxy Statement-Prospectus as
Appendix A.
Approval of any proposal to adjourn the Landmark Special Meeting for any
reason, including to permit the further solicitation of proxies, would require
the affirmative vote of holders of a majority of the votes present or
represented and entitled to vote at the Landmark Special Meeting.
Shares represented by a properly executed proxy received prior to the vote
at the Landmark Special Meeting and not revoked will be voted at the Landmark
Special Meeting as directed in the proxy. IF A PROXY IS SUBMITTED AND NO
DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF
THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY AND FOR THE PROPOSAL
TO ADJOURN THE LANDMARK SPECIAL MEETING.
18
<PAGE>
A Landmark shareholder of record may revoke a proxy by filing an instrument
of revocation with Jack H. Nelson, Secretary of Landmark (106 Hanover Street,
Lebanon, New Hampshire 03766), by filing a duly executed proxy bearing a later
date, or by appearing at the Landmark Special Meeting in person, notifying the
Secretary, and voting by ballot at the Landmark Special Meeting. Any
shareholder of record attending the Landmark Special Meeting may vote in
person whether or not a proxy has been previously given, but the mere presence
(without notifying the Secretary) of a shareholder at the Landmark Special
Meeting will not constitute revocation of a previously given proxy.
Solicitation of Proxies. The cost of solicitation of proxies by Landmark
will be borne by Landmark. ln addition to the solicitation of proxies by mail,
the directors, officers and employees of Landmark may also solicit proxies
personally or by telephone or facsimile. Landmark will also request persons,
firms and corporations holding shares which are beneficially owned by others
to send proxy materials to and obtain proxies from such beneficial owners.
Landmark will reimburse those holders for their reasonable expenses.
THE MERGER
GENERAL
This section of the Joint Proxy Statement-Prospectus describes all material
aspects of the proposed Merger, including the principal provisions of the
Agreements. The discussion of matters contained in the Agreements is qualified
in its entirety by reference to the full text of the Agreements, which are
attached to this Joint Proxy Statement-Prospectus as Appendix A. All
shareholders of NHTB and Landmark are urged to read the Agreements in their
entirety.
The Agreements have been unanimously approved by the Boards of Directors of
NHTB and Landmark. The Board of Directors of NHTB believes that the terms of
the Agreements are fair and in the best interests of NHTB and its shareholders
and recommends that the NHTB shareholders vote to approve and adopt the
Agreements and the transactions contemplated thereby including the issuance of
the Merger Shares. The Board of Directors of Landmark believes that the terms
of the Agreements are fair and in the best interests of Landmark and its
shareholders and recommends that the Landmark shareholders vote to approve and
adopt the Agreements and the transactions contemplated thereby.
THE BOARD OF DIRECTORS OF EACH OF NHTB AND LANDMARK UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER.
PARTIES TO THE MERGER
NHTB. NHTB, a Delaware corporation, is a savings association holding company
headquartered in New London, New Hampshire with total assets of approximately
$258.5 million as of June 30, 1996. NHTB's banking subsidiary, Lake Sunapee
Bank, fsb, is headquartered in Newport, New Hampshire. The Bank is engaged
principally in the business of attracting deposits from the general public and
investing those deposits in residential and commercial real estate loans, in
commercial and consumer loans and in various investment securities. The Bank
operates 10 full service banking offices in New Hampshire. NHTB's principal
executive office is located at The Carriage House, P.O. Box 37, New London,
New Hampshire 03257, and its telephone number is (603) 526-2116.
Landmark. Landmark is a guaranty savings bank chartered by the State of New
Hampshire and headquartered in Lebanon, New Hampshire. As of June 30, 1996, it
had assets of approximately $57.8 million. Landmark's business is principally
commercial and residential mortgage banking, attracting deposits from and
making loans to small- to medium-sized businesses and resident households
primarily in the geographic areas of its offices. Landmark also accepts retail
deposits from the general public and makes personal and consumer loans.
19
<PAGE>
Landmark's principal executive office is located at 106 Hanover Street,
Lebanon, New Hampshire 03766, and its telephone number is (603) 448-0101.
EFFECTIVE TIME
Pursuant to the Merger Agreement, Landmark will be merged with and into the
Bank on the Effective Date with the Bank as the surviving bank. The Effective
Date and the Effective Time of the Merger will be the date and time the Merger
becomes effective, as set forth in the Articles of Combination to be filed
with the OTS. The Effective Date will occur as soon as practicable after the
last required approval for the Merger has been obtained and the last of all
required waiting periods under such approvals has expired, assuming the
satisfaction of the conditions set forth in Article 5 of the Plan of
Reorganization. Landmark and NHTB each anticipate that the Merger will be
consummated in the first quarter of 1997. However, the consummation of the
Merger could be delayed as a result of delays in obtaining the necessary
governmental and regulatory approvals. There can be no assurances that such
approvals will be obtained or that the Merger will be completed at any time.
See "--Conditions to Consummation" and "--Regulatory Matters."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Prior to or at the Effective Time, the Board of Directors of NHTB will
appoint two of Landmark's current directors to serve on the NHTB Board of
Directors. Mr. Jack Nelson will be appointed to the NHTB Board of Directors
for a three-year term and Mr. Leonard R. Cashman for a two-year term. Prior to
or at the Effective Time, the Board of Directors of the Bank, NHTB's banking
subsidiary, will elect three of Landmark's directors to serve on the Board of
Directors of the Bank. Mr. Jack H. Nelson, Mr. Leonard R. Cashman and Mr.
Joseph B. Willey will be elected to the Bank's Board of Directors for terms of
three years, two years and one year, respectively. NHTB and the Bank will not
appoint any other directors or executive officers as a result of the Merger.
MERGER CONSIDERATION
In the Merger, each share of Landmark Common Stock outstanding immediately
prior to the Effective Date, other than shares as to which dissenters' rights
have been asserted and not withdrawn, at the election of each Landmark
shareholder, will be converted into and exchangeable for (i) 1.221 shares of
NHTB Common Stock or (ii) $12.00 in cash, subject to the total consideration
to Landmark shareholders being comprised of 60% NHTB Common Stock and 40% cash
and subject to the election and allocation procedures set forth in the Merger
Agreement. Prior to the Effective Date all outstanding shares of Landmark
Preferred Stock will be converted into shares of Landmark Common Stock and the
holders of such converted shares will have the same rights as holders of
Landmark Common Stock to elect to receive either NHTB Common Stock or cash.
See "--Exchange of Certificates; Election Procedures; Fractional Shares" and
"--Allocations." The Merger Consideration may be adjusted under certain
circumstances. See "--Adjustment of Merger Consideration." At the Effective
Time of the Merger, Landmark will be merged with and into the Bank, with the
Bank as the surviving entity of NHTB, and shareholders of Landmark at and
after the Effective Time will no longer hold any interest in Landmark other
than as shareholders of NHTB to the extent that they elect to receive NHTB
Common Stock.
The number of shares of NHTB Common Stock to be received for each share of
Landmark Common Stock depends on the NHTB Trading Price. The following table
shows the Exchange Ratio at various NHTB Trading Prices together with the Per
Landmark Share Value in each case, assuming that the Merger Consideration is
not adjusted. See "--Adjustment of Merger Consideration." The Per Landmark
Share Value is calculated by multiplying the NHTB Trading Price by the
applicable Exchange Ratio, and represents the aggregate value of NHTB Common
Stock that would be received in the Merger for each share of Landmark Common
Stock, based on the NHTB Trading Price. Since the NHTB Trading Price is based
on the trading price on the NASDAQ for the thirty trading days prior to
receipt of the last required regulatory approval necessary for the Merger, the
actual Exchange Ratio cannot be determined until shortly before the Effective
Date. The market price of NHTB Common Stock at the Effective Date could differ
from the NHTB Trading Price used to determine the Exchange Ratio, and the
actual value of a share of NHTB Common Stock issued in the Merger therefore
could differ from the Per Landmark Share Value.
20
<PAGE>
<TABLE>
<CAPTION>
NHTB TRADING PRICE EXCHANGE RATIO PER LANDMARK SHARE CASH ELECTION PRICE
------------------ -------------- ------------------ -------------------
<S> <C> <C> <C>
Greater than $11.75 Fluctuates $14.00 $12.00
$8.25--$11.75 1.221 $10.07--$14.35 $12.00
$6.50--$8.24 Fluctuates $10.00 $12.00
Below $6.50 (1)
</TABLE>
- --------
(1) Landmark may, but need not, seek to terminate the Agreements if the NHTB
Trading Price is below $6.50. See "THE MERGER--Conditions to Consummation."
See "THE MERGER--Adjustment of Merger Consideration" "--Exchange of
Certificates; Election Procedures; Fractional Shares," "--Effective Time" and
"CERTAIN RELATED TRANSACTIONS--Rights of Dissenting Shareholders."
This pricing mechanism is also depicted in the following graph:
[GRAPHIC APPEARS HERE]
BACKGROUND OF THE MERGER
As part of its strategy to provide community banking services in western New
Hampshire, the Board of Directors of NHTB in the late 1980's determined to
pursue opportunities to expand into the Upper Valley region of New Hampshire by
establishing de novo branch locations. The Upper Valley region is located along
the Connecticut River border of western New Hampshire in the counties of
Sullivan and Grafton and includes the commercial and recreational areas
surrounding Lebanon, New Hampshire on the Vermont border and the
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education center of Dartmouth College in Hanover, New Hampshire. NHTB's
branching strategy was focused on geographic expansion into a contiguous
market with significant growth possibilities as well as a desire to diversify
NHTB's asset mix to include a greater relative percentage of commercial loans
and thereby enhance NHTB's core earnings. In the 1990's, NHTB opened two
branch offices in Lebanon and West Lebanon, New Hampshire.
During 1995, NHTB began to explore expansion opportunities to augment its
ongoing branching strategy by initiating several informal discussions with
smaller community banks located in NHTB's market area. In early 1996, NHTB
approached Landmark management and expressed NHTB's interest in acquiring
Landmark. Landmark had been organized as a de novo institution in 1991 for the
purpose of meeting a perceived banking need in the Upper Valley area. In
addition to servicing the residential mortgage and consumer lending needs
within its market area, the Board of Directors of Landmark has attempted to
establish a niche market, using a focused marketing strategy, to serve small
businesses. NHTB believed that Landmark's commercial loans and lending
activities would greatly enhance NHTB's franchise value and earnings
potential.
Landmark experienced strong asset growth in its initial years of operations,
first achieving profitable operations in the second quarter of 1992. Such
sustained growth levels, combined with a significant retained deficit incurred
by Landmark in the formation period before it commenced banking operations,
continually caused Landmark to need additional capital to support its growth.
Shares of Landmark Preferred Stock were sold by Landmark in late 1992 and
early 1993, which enabled Landmark to meet the capital requirements imposed on
new banks by the Federal Deposit Insurance Corporation (the "FDIC") and to
continue its strong rate of growth through 1994.
Strong asset growth in 1993 and 1994 imposed strains on Landmark's
management and regulatory compliance capabilities. In January 1995, Landmark
entered into a Memorandum of Understanding ("MOU") with the FDIC and the New
Hampshire Banking Department in which it agreed, among other things, to (i)
assess its managerial resources and develop a management plan to meet the
needs of a growing banking institution, (ii) revise its loan, asset/liability
and investment policies, (iii) adopt an ethics policy, and (iv) take necessary
action to correct noted deficiencies in its loan operations and compliance
with applicable regulatory requirements.
Landmark's management realized that it needed to reach a critical minimum
asset size to support profitable operations. Staff was added throughout 1994
and early 1995, loan production offices were established, and a branch office
opened in West Lebanon. Nonetheless, Landmark's profit margins continued to
decline due to increasing labor costs, increased rates paid to maintain
appropriate liquidity levels, and strengthened competition in the Upper Valley
area as the New Hampshire banking industry, as well as non-bank institutions,
rebounded from the problems of the early 1990's.
As part of its ongoing strategic planning process, in late 1995, the Board
of Directors of Landmark engaged in a series of budgetary-planning meetings to
attempt to reach a consensus concerning the best means to grow Landmark
consistent with profitable operations and the maximization of shareholder
value in the near- and long-term. This strategic planning initiative explored
mid- and long-term planning alternatives, including the expansion of Landmark,
additional branching, the raising of capital, and possible affiliations with
other banks. The Board of Directors of Landmark called a Special Meeting of
Shareholders in September 1995 at which amendments to Landmark's Articles of
Agreement were approved, providing additional authorized shares of capital
stock which could be sold to raise capital funds to support growth.
Simultaneously, Landmark informally contacted several small banks within the
Upper Valley market area to determine their general willingness to affiliate.
None of these contacts resulted in an affiliation or merger proposal.
The ongoing consolidation of the financial industry, both within the State
of New Hampshire and New England gradually led the Board of Directors of
Landmark to the conclusion that the increasing costs of regulatory compliance
faced by banking institutions required a minimum critical asset size in order
to maintain sustained profitability. Given the then buoyant results obtained
in the capital securities markets, the Board of Directors of Landmark was not
optimistic about its likely ability to raise additional capital in the
marketplace to grow Landmark to such a minimum-critical mass.
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<PAGE>
In February 1996, the Board of Directors retained the firm of MB&D as its
financial advisor to assist in its strategic planning process, and in
particular, to gauge the appetite of the marketplace for a potential
acquisition of Landmark. On February 22, 1996, the Board of Directors of
Landmark authorized MB&D in conjunction with its Capital Committee to solicit
non-binding expressions of interest from likely interested parties and to
return to the Board with the results of their efforts for prior approval of
any recommended action. On February 28, 1996, MB&D contacted several financial
institutions, including NHTB to solicit interest in acquiring Landmark.
On March 14, 1996, NHTB provided Landmark's financial advisor with a letter
indicating its interest in an acquisition in which Landmark would merge into
NHTB's subsidiary bank. NHTB proposed a structure that offered a combination
of cash and stock at a range of exchange ratios, subject to completion of due
diligence. Following review of this correspondence by Landmark's Capital
Committee, NHTB was invited to conduct on-site due diligence at Landmark,
which occurred during the last week of April 1996.
Following the receipt of a more favorable examination report from the FDIC,
and the adoption of a resolution by Landmark's Board of Directors in which
Landmark agreed to take such immediate actions as are necessary to maintain a
"Tier 1 Capital ratio of not less than six percent (6%)," the January 1995 MOU
was terminated in early April 1996.
Following NHTB's due diligence review of Landmark, Landmark continued to
respond to other preliminary indications of interest received either directly
at Landmark or through its financial advisor, including from an out-of-state
thrift institution as well as a group of associated individuals. Discussions
between Landmark and NHTB included, among other things, the value of
Landmark's banking franchise, its strategic and geographical positioning,
whether it could retain its separate operations if the organizations were to
affiliate, and particular issues with respect to the asset quality of its
credit portfolio.
On May 8, 1996, the NHTB Board of Directors considered a report from NHTB
management and outside counsel on NHTB's due diligence and the proposed terms
of the affiliation, including the proposed exchange ratio. The Board
authorized management to continue a dialogue with Landmark at a price range
consistent with the results of the due diligence findings and the anticipated
economies that could be achieved through combined operations.
On May 10, 1996, NHTB presented a revised expression of interest to Landmark
which outlined a 60/40 stock and cash transaction nominally valued at $12.00
per share. The letter also indicated that NHTB would add Landmark
representation to its Board of Directors.
During early June 1996, NHTB and Landmark exchanged correspondence regarding
various proposed terms of the transaction which addressed the liquidity of the
stock component to be received by Landmark and the request by Landmark that
its shareholders have the ability to elect (within limits) to receive stock or
cash in order to offer a tax-free transaction to Landmark's shareholders. On
June 19, 1996, the Board of Directors of NHTB authorized management and
counsel to proceed to negotiate a merger agreement with Landmark. The
following day, Landmark's Board of Directors authorized the Capital Committee
together with MB&D and legal counsel to negotiate a merger agreement with NHTB
in accordance with the NHTB proposal.
During the latter part of June, Landmark conducted due diligence at the
offices of NHTB including obtaining the assistance of a recognized asset
quality review firm. Between June 26th and late July, a series of meetings
were held between Landmark and NHTB and their respective legal counsel to
discuss the terms of a merger agreement.
On July 10, 1996, NHTB's Board of Directors held a meeting with its
financial and legal advisors (HAS Associates and Thacher Proffitt & Wood,
respectively) to review the status of negotiations and drafts of proposed
acquisition documents, as well as the financial terms and other proposed terms
and conditions. As financial advisor, HAS analyzed the financial factors
related to the Agreements in detail and orally rendered its opinion that the
proposed merger consideration was fair, from a financial point of view to the
shareholders of NHTB. The Board thoroughly reviewed the drafts of the
Agreements and the Option Agreement with its advisors.
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<PAGE>
At a meeting of the Landmark Board of Directors on July 11, 1996, counsel
from Gallagher, Callahan & Gartrell, P.A., reviewed the material terms of the
proposed merger agreement and necessary actions related to the merger,
including necessary regulatory approvals, and material conditions to closing
expressed by NHTB. MB&D made a detailed presentation to the Board of Directors
of Landmark. At this meeting, the Board of Directors reached a consensus to
negotiate the final terms of a merger agreement with NHTB. The Board of
Directors of Landmark based its consideration on a number of factors including
the existing capital constraints born by Landmark, the likelihood of increased
liquidity for Landmark shareholders, the stability of NHTB's stock price, the
exchange ratio and comparisons with other recent transactions, economies that
could be achieved through combining operations and the potential for growth in
the value of NHTB's common stock following the consummation of the merger.
During the following two weeks, the parties continue to discuss the
remaining outstanding items of negotiation, including the proposed conditions
to closing proposed by NHTB. By the last week of July, further progress was
made on resolving outstanding issues, including adjustments in the terms of
the closing conditions in the event that Landmark did not, among other things,
meet the required level of capital at closing.
On July 26, 1996, after reviewing with Thacher Proffitt & Wood the final
revisions to the merger documents, NHTB's Board of Directors unanimously
approved the terms of the Agreements with Landmark as being in the best
interest of NHTB and its shareholders. NHTB's Board of Directors also
unanimously recommended the shareholders of NHTB approve the Agreements.
At a July 29, 1996, meeting of the Landmark Board of Directors, counsel for
Landmark reviewed in detail the proposed final terms of the Agreements and the
Option Agreement. The Board also heard a detailed presentation by MB&D
regarding the fairness to the shareholders of Landmark of the financial terms
of the merger. Counsel for Landmark then reviewed the terms of the Voting
Agreements asked of each Director, and the Board also addressed the issue of
NHTB's condition that no Landmark shareholder beneficially vote more than
three percent of the outstanding shares of NHTB for a two-year period
following consummation of the merger. Following the Board of Directors'
discussion of these matters, and its reasonable belief that the closing
conditions could be met, the Board of Directors voted to approve the
Agreements.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE BOARDS OF DIRECTORS
NHTB. The environment for independent community banks in New England in
general, and specifically in the New Hampshire area in which NHTB is currently
concentrated, has become increasingly more competitive. Independent community
institutions focusing on serving the New Hampshire markets have faced rising
cost structures, increasing competition from "super regional" banking
institutions and non-banking and thrift organizations, continued consolidation
in the bank industry, high costs of technology needed to compete with much
larger organizations, general economic concerns affecting the health of major
employers in the market and concentration of credit risks in a relatively
small area. Over the past year NHTB's Board of Directors and management have
concluded that NHTB must grow and diversify in the current environment to
enhance shareholder value.
In reaching its decision to approve the Agreements, the NHTB Board
considered that the Landmark acquisition would enhance and increase the
competitiveness of its community banking franchise and that NHTB shareholders
should realize the benefits of such an acquisition. Such benefits include, but
are not limited to, the future prospects of NHTB combined with Landmark; the
addition of Landmark's small business banking culture which would complement
NHTB's mortgage banking capability, deposit base and community banking
experience to enable NHTB to provide the full range of community banking
services necessary to competitively serve the needs of the small towns and
communities that comprise its markets; the ability to add to NHTB's existing
investment in the Upper Valley market and to achieve a significant market
position in the demographically attractive market; and the cost savings
potential resulting from back office efficiencies possible, among other
reasons, because of in-market economies of scale.
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<PAGE>
In reaching the conclusion to approve the Landmark acquisition, the NHTB
Board consulted with NHTB management, as well as its financial and legal
advisors, and considered the factors described above and the following
additional factors, which together constitute the material factors considered
by the NHTB Board in approving the Agreement:
(i) NHTB's business, operations, financial condition, earnings, and
growth strategy, including the desirability of achieving a significant
market position in the Upper Valley of western New Hampshire;
(ii) the current and prospective economic, regulatory and competitive
climate facing community banking institutions, including without limitation
the consolidation currently underway in the banking industry, competition
from larger institutions and from nonbank providers of financial services;
(iii) the presentations by NHTB management and HAS as to the business,
operations, asset quality, earnings, competitive position and financial
condition of Landmark;
(iv) the anticipated cost savings and revenue enhancements available to
the combined institution from the Landmark merger, which are estimated to
be up to 40% of historical Landmark non-interest expense, resulting from
back office efficiencies;
(v) the common philosophies and cultures of NHTB and Landmark
particularly with respect to customer satisfaction, efficiency and serving
the banking needs of small towns and communities;
(vi) the Merger Consideration in the Merger from a number of valuation
perspectives, as presented by HAS with respect to the Agreements and the
July 10, 1996 opinion of HAS that the Merger Consideration was fair to NHTB
and its shareholders from a financial point of view.
(vii) the terms of the Agreements, including the price protection
mechanism of NHTB, and the Option Agreement; the regulatory and shareholder
approval processes, the conditions to NHTB's obligation to close the
Merger, the treatment of the Merger as a purchase for financial accounting
purposes;
(viii) the resultant capital of the combined institution after the Merger
and the implications of the Merger on NHTB's ongoing business strategy,
including its expansion strategy; and
(ix) the expectation that the transaction will be immediately accretive
to NHTB earnings.
The foregoing discussion of the information and factors considered by the
NHTB Board of Directors is not intended to be exhaustive but includes all
material factors considered by the NHTB Board of Directors. In reaching its
determinations to approve and recommend the Agreements, the NHTB Board of
Directors did not assign relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to
different factors. After deliberating with respect to the Merger and the other
transactions contemplated by the Agreements, considering, among other things
the matters discussed above and the opinions of HAS referred to above, the
Board of Directors, by unanimous vote of all directors, approved the
Agreements as being in the best interest of NHTB and its shareholders and
directed that the Agreements be submitted to the holders of NHTB Common Stock
for approval at the NHTB Special Meeting.
Based on the foregoing, the NHTB Board of Directors concluded that the
proposed Merger would be in the best interest of NHTB's shareholders,
customers and communities served. ACCORDINGLY, THE NHTB BOARD OF DIRECTORS
UNANIMOUSLY VOTED TO RECOMMEND THAT THE NHTB SHAREHOLDERS VOTE FOR APPROVAL
AND ADOPTION OF THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Landmark. In the course of reaching its decision to approve the Agreements
(and the Option Agreement) and the transactions contemplated thereby, the
Board of Directors of Landmark consulted with its legal advisors regarding the
legal terms of the Agreements and the Board of Directors' obligations in its
consideration of the Merger; and, its financial advisors regarding the
financial terms and fairness, from a financial point of view, to the
shareholders of Landmark of the Exchange Ratio of NHTB Common Stock to be
exchanged for outstanding shares of Landmark Common Stock and the Cash
Election Price for outstanding shares of Landmark Common Stock in the proposed
Merger. Without assigning any relative or specific weights to any factor, the
Board of Directors considered the factors outlined below, among others, that
it believed relevant to reaching its determination.
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<PAGE>
The terms of the Agreements were reached on the basis of arms' length
negotiations between Landmark and NHTB. In reaching the conclusion that the
terms of the Agreements are fair, the Landmark Board of Directors considered,
among other things, the market value, book value, liquidity, earnings per
share, and consistent dividends paid to holders of NHTB Common Stock. The
Board considered that the Merger provides an opportunity for the shareholders
of Landmark to receive consideration for their shares having a value in excess
of the book value of the Landmark Common Stock, the likelihood of the payment
of dividends to Landmark shareholders, and that the Exchange Ratio together
with the Cash Election Price represents a premium over the price at which
shares of Landmark Common Stock were sold in its initial capitalization and
the price at which the Board reasonably anticipated the stock could be offered
for sale in the future. The Board believed that the premium to book value was
reasonable under the circumstances in comparison to other recent, comparable
transactions.
In reaching its conclusion, the Landmark Board of Directors took into
consideration and relied in part upon the advice of MB&D, Landmark's financial
advisor, which confirmed the considered judgment of the Board as to the
financial aspects of the Merger. At its July 29, 1996 Landmark Board meeting,
MB&D indicated that, based upon information known as of that date, MB&D
expected to be able to render an opinion as to the fairness from a financial
point of view of the consideration to be received by the Landmark shareholders
from the Merger. That opinion was rendered in writing to the Board of
Directors as of the date of this Proxy Statement-Prospectus and is attached as
Appendix B to this Proxy Statement-Prospectus. Landmark's Board of Directors
considered the analyses presented to it by MB&D relating to selected financial
and stock market data concerning Landmark and NHTB and certain financial
analyses of the terms of the Merger, including comparison to the terms of
other recent acquisitions, which are described below under "--Opinions of
Financial Advisors."
The Landmark Board of Directors considered the strategic alternatives
available to Landmark, including the possibility of remaining independent,
together with the likely need to raise capital in accordance with Landmark's
agreement with the FDIC, and the regulatory and competitive climate facing
small community banking institutions such as Landmark, continuing to solicit
competing proposals, and accepting NHTB's bid, before concluding, for the
reasons discussed in this section, that the Merger represented an opportunity
to enhance Landmark shareholder value at this time and that the Exchange Ratio
together with the Cash Election Price was fair to the shareholders.
The Board of Directors also considered the advantages of becoming part of a
larger financial institution that has considerably greater resources and whose
stock is traded on the NASDAQ National Market System. Landmark's Board of
Directors believed that the proposed affiliation with NHTB would provide
increased liquidity for the shareholders of Landmark and a combination of the
banking entities would lead to competitive advantages through greater
diversity in product offerings, and cost-savings through certain integration
of operations.
The Board of Directors considered the historical stability in NHTB's
earnings per share, dividends and book value. The Board of Directors also
considered the historical lack of dividends paid on the Landmark Common Stock
and the significant increase in dividends that would likely be received by
Landmark shareholders from the Merger. The Board of Directors also considered
the expectation that the Merger will be a tax-free transaction to Landmark and
NHTB, and to Landmark shareholders receiving NHTB Common Stock.
The Board of Directors considered a variety of other factors, including,
without limitation, the social and economic affects of the transaction on
depositors, borrowers and employees of Landmark, and on the communities in
which Landmark operates or serves. The Board of Directors believes that the
Merger will provide Landmark's borrowers and depositors and the communities it
serves with expanded services and banking products, and access to the
resources of a stronger financial institution.
The foregoing discussion of the information and factors considered by the
Landmark Board of Directors is not intended to be exhaustive but includes all
material factors considered by the Landmark Board of Directors. In reaching
its determinations to approve and recommend the Agreements, the Landmark Board
of Directors did
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<PAGE>
not assign relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
After deliberating with respect to the Merger and the transactions
contemplated by the Agreements, considering among other things the matters
discussed above and the opinions of MB&D referred to above, the Board of
Directors, by unanimous vote of all directors, approved the Agreements as
being in the best interests of Landmark and its shareholders and directed that
the Agreements be submitted to the shareholders of Landmark for approval and
adoption at the Landmark Special Meeting.
Based on the foregoing, the Landmark Board of Directors concluded that the
proposed Merger would be in the best interests of Landmark's shareholders,
borrowers and depositors, and the communities it serves. THE LANDMARK BOARD OF
DIRECTORS UNANIMOUSLY VOTED TO RECOMMEND THAT THE LANDMARK SHAREHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
OPINIONS OF FINANCIAL ADVISORS
NHTB. HAS has delivered to the Board of Directors of NHTB its written
opinion, as of the date of this Joint Proxy Statement-Prospectus, that both
the Exchange Ratio of NHTB Common Stock to be exchanged for outstanding shares
of Landmark Common Stock and the Cash Election Price for outstanding shares of
Landmark Common Stock (described in detail in this Joint Proxy Statement-
Prospectus) are fair, from a financial point of view, to NHTB's shareholders.
HAS has acted as financial advisor to NHTB since March 1996 in connection with
NHTB's evaluation of the Landmark acquisition.
HAS advised NHTB during the negotiation process leading up to the execution
of the Agreements and provided NHTB with various analyses as to the range of
financially feasible exchange ratios and cash acquisition prices that might be
offered. A representative of HAS met with the executive management on a number
of occasions in connection with the analysis of Landmark. Each of the Exchange
Ratio and Cash Election Price was arrived at in an arms' length negotiation
between NHTB and Landmark in a process in which HAS advised NHTB.
HAS was retained based on its qualifications and experience in the financial
analysis of banking and thrift institutions, knowledge of the New Hampshire
and New England banking markets, and its experience with merger and
acquisition transactions involving banking institutions. HAS has worked with
NHTB and/or its subsidiaries for over 15 years and has been involved with
numerous New England mergers or acquisitions of financial institutions since
1980.
The full text of the opinion of HAS, which sets forth assumptions made,
matters considered and limits on the review undertaken by HAS, is attached
hereto as part of Appendix B. NHTB's shareholders are urged to read the
opinion in its entirety. HAS' opinion is directed only to the Exchange Ratio
and Cash Election Price and does not constitute a recommendation to any holder
of NHTB Common Stock as to how such holder should vote at the NHTB Shareholder
Meeting. The summary of the opinion of HAS set forth in this Joint Proxy
Statement-Prospectus was provided to NHTB by HAS and is qualified in its
entirety by reference to the full text of the opinion itself. HAS' opinion was
necessarily based upon conditions as they existed and should be evaluated on
the date hereof and the information made available to HAS through the date
hereof.
In arriving at its opinion, HAS (i) reviewed the Agreements and this Joint
Proxy Statement-Prospectus in substantially the form to be sent to NHTB
shareholders; (ii) reviewed publicly available business and financial
information with respect to both NHTB and Landmark and certain internal
financial information and financial projections prepared by the managements of
NHTB and Landmark; (iii) held discussions with members of the senior
management of NHTB concerning the past and current results of operations of
NHTB, its current financial condition and management's opinion of its future
prospects; (iv) reviewed the historical reported price and record of trading
volume for both NHTB and Landmark Common Stock; (v) held discussions with the
senior management of Landmark concerning the current and past results of
operations of Landmark and its current financial condition; (vi) considered
the current state of and future prospects for the economy of New Hampshire
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<PAGE>
generally and the relevant market areas for NHTB and Landmark in particular;
(vii) reviewed acquisition analysis models employed by HAS to evaluate
potential business combinations of banking companies; (viii) reviewed the
reported financial terms of certain recent business combinations in the
banking industry; and (ix) performed such other studies and analyses as HAS
considered appropriate under the circumstances associated with this particular
transaction.
HAS' opinion takes into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuation and its knowledge of the banking
industry generally. For purposes of reaching its opinion, HAS has assumed and
relied upon the accuracy and completeness of the information provided to it by
NHTB and Landmark, and does not assume any responsibility for the independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of either NHTB or Landmark. With respect to
the financial projections reviewed by HAS in the course of rendering its
opinion, HAS has assumed that such projections have been reasonably prepared
to reflect the best currently available estimates and judgements of the
management of each of NHTB and Landmark as to the most likely future
performance of their respective companies.
The following is a summary of material analyses employed by HAS in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of all the matters considered by HAS in
arriving at its opinion. The preparation of a fairness opinion is a
complicated process, involving a determination as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances. Therefore, such an opinion is not readily
susceptible to a summary description. In arriving at its fairness opinion, HAS
did not attribute any particular weight to any one specific analysis or factor
considered by it and made qualitative as well as quantitative judgements as to
the significance of each analysis and factor. Therefore, HAS believes that its
analyses must be considered as a whole and feels that attributing undue weight
to any single analysis or factor considered could create a misleading or
incomplete view of the process leading to the formation of its opinion. In its
analyses, HAS made certain assumptions with respect to banking industry
performance, general business and economic conditions and other factors, many
of which are beyond the control of management of either NHTB or Landmark. Any
estimates which are referred to in HAS' analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may vary significantly from those set forth.
Specific Acquisition Analysis. HAS analyzed the transaction basically from a
number of different models which it employs to evaluate the prospect of future
earnings and the financial condition, and market and trading characteristics
of the proposed transaction. These models provide a variety of variables that
can affect various outcomes which include, but are not limited to, interest
rates, dividends, opportunity costs, acquisition economies of scale and taxes.
The model evaluates various opportunities and measures the impact of various
scenarios on regulatory requirements and expectations of shareholders based on
past financial performance.
The resulting exchange ratio of 1.221 shares for NHTB for each share of
common stock of Landmark or a cash price of $12.00 was believed to be a fair
offer by NHTB to Landmark.
Discounted Cash Flow Analysis. HAS reviewed a discounted cash flow analysis
to permit the conceptual examination of the present discounted values of
potential future results employing selected assumptions and discount rates.
The use of the discounted cash flow analysis assumes various discount rates,
earnings assumptions, terminal values, dividend payout ratios and growth
assumptions. The use of different assumptions can produce different results
and the Board of NHTB was advised of these factors and cautioned that various
assumptions can result in different outcomes. To avoid confusion of values,
the Board was presented with a discounted cash flow approach which was based
on normal growth assumptions.
These assumptions were made based on the past history of NHTB and its
consistency in earnings, dividend payout and conservative operating procedures
and growth. Since the potential earnings of Landmark are difficult
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to measure, a hypothetical return on average assets of 0.6% was assumed based
upon a discounted return on average assets of NHTB for the last three years. A
dividend payout ratio of 10% over a five year period was used and long-term
growth of 10% was also used. A terminal multiple of 15 times earnings was used
as control sale price/earnings ratio at the end of a five year period. Given
the five-year time horizon and a discount rate of 12.0%, these cash flows
resulted in an implied valuation of $11.87, which can be compared to the
nominal value of proposed exchange ratio of approximately $12.00 in stock
and/or cash.
Analysis of Other Comparable Transactions. The process of evaluating the
transaction also took into account other comparable transactions. Although no
true comparable transaction can be found due to the differences of financial
history, longevity of the entity, external factors and differences in
operation, it can be helpful as a point of reference and provide the directors
with an informational approach to assessing the transaction.
The NHTB Board of Directors were made aware of current market conditions as
they relate to various ratios on a national and regional level. The regional
level of New England was the focus of the report. In addition, a separate
analysis of transactions was presented on a national level where the value of
the transaction was less than $10 million.
From these groups a series of selective groups was examined. The first group
comprised of 23 transactions in six northeastern states and the District of
Columbia, which had been announced since July 1995 and the assets of the
acquired institutions were less than $100 million. The 23 transactions were as
follows:
New England Community Bancorp's acquisition of Manchester State Bank
Center Financial Corporation's acquisition of Heritage Bank
Norwich Financial Corporation's acquisition of Second Holding
George Mason Bankshares' acquisition of Palmer National Bancorp
Weetamoe Bancorp's acquisition of Fairbank, Inc.
First Mariner Bancorp's acquisition of Annapolis Bancshares
Sandy Spring Bancorp's acquisition of Annapolis Bancshares
Union National Bancorp's acquisition of Maryland Permanent
FCNB Corporation's acquisition of Harbor Investment
Community Bankshares' acquisition of Centerpoint Bank
Great Falls Bancorp's acquisition of Bergen Commercial Bank
Center Bancorp's acquisition of Lehigh Savings Bank
Trenton Savings Bank's acquisition of Burlington County Bank
Covenant Bank for Savings' acquisition of First Southern State Bank
Sovereign Bancorp's acquisition of West Jersey Bancshares
F&A Financial Company's acquisition of Farmers National Bank
Northwest Savings' acquisition of Bridgeville Savings Bank
Harleysville National Bank's acquisition of Farmers & Merchants
Northwest Savings' acquisition of First FSB of Kane
BT Financial Corporation's acquisition of Armstrong County TC
MLF Bancorp's acquisition of Suburban Federal SB
Northwest Savings' acquisition of First National Bancorp
Community Banks' acquisition of Citizens National Bank--Ashland
The second group were transactions in New England since July 1995 where the
acquiror had assets of less than $1 billion in assets. This group showed ten
transactions. The ten transactions are listed below:
Weetamoe Bancorp's acquisition of Fairbank, Inc.
CFX Corporation's acquisition of Milford Co-op Bank
CFX Corporation's acquisition of Safety Fund Corp.
New England Community Bancorp's acquisition of Manchester State Bank
Community Bankshares' acquisition of Centerpoint Bank
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Norwich Financial Corporation's acquisition of Second Holding
Camden National Bank's acquisition of United Corporation
Co-op Bank of Concord's acquisition of Bank of Braintree
Main Street Community Bank's acquisition of Lexington Savings Bank
New England Community Bancorp's acquisition of Equity Bank
The final selective group was transactions in the Northeast where the
acquired institution had a ROAA in the last twelve months of less than 0.5%.
There were 7 transactions in this group. These were:
Center Bancorp's acquisition of Lehigh Savings Bank
MLF Bancorp's acquisition of Suburban Federal Savings Bank
Center Financial Corporation's acquisition of Heritage Bank
Northwest Savings' acquisition of First FSB of Kane
Investor Group's acquisition of Abigail Adams National Bank
Sovereign Bancorp's acquisition of Colonial State Bank
USA BancShares' acquisition of Peoples Thrift Savings Bank
Three groups were used to examine the variables of size, location and low
earnings of the acquired institution in the transactions. The first group had
a median multiple of tangible book value paid by the acquiror of 170.9%, in a
range of 113.3% to 233.4%. The second group had an average multiple of 148.4%
in a range of 93.4 to 217.3%. The third group had an average price to book
multiple of 152.3% in a range of 85.0% to 233.4%. In this case the second and
third groups compared to the multiple of 153% in the proposed transaction with
NHTB and Landmark.
The price to earnings ratios for the three groups was 20.5 times earnings in
Group 1, 13.9 times earnings in Group 2 and 24.6 times earnings in Group 3.
The statistics cannot be compared to any earnings multiples of Landmark since
it was unprofitable during the last twelve months.
HAS will receive a fee of $18,000 for the rendering of its fairness opinion
and received $10,500 in fees as a financial advisor. NHTB also agreed to
reimburse HAS for its reasonable out-of-pocket expenses. NHTB also has agreed
to indemnify HAS and its directors, officers and employees against certain
losses, claims, damages and liabilities relating to or arising out of HAS'
engagement, including liabilities under the federal securities law.
Landmark. MB&D has delivered to the Board of Directors of Landmark its
written opinion, as of the date of this Joint Proxy Statement-Prospectus, that
both the Exchange Ratio of NHTB Common Stock to be exchanged for outstanding
shares of Landmark Common Stock and the Cash Election Price for outstanding
shares of Landmark Common Stock (described in detail in this Joint Proxy
Statement-Prospectus) are fair, from a financial point of view, to Landmark's
shareholders. MB&D has acted as financial advisor to Landmark since February
1996 in connection with Landmark's evaluation of hypothetical affiliation
opportunities.
MB&D advised Landmark during the negotiation process leading up to the
execution of the Agreements and provided Landmark with various analyses as to
the range of financially feasible exchange ratios and cash acquisition prices
that might be received in a hypothetical transaction. A representative of MB&D
met with the executive management and/or full Board of Directors of Landmark
on more than ten occasions in connection with the analysis of Landmark's
options. The Merger Consideration was arrived at in an arms' length
negotiation between NHTB and Landmark in a process in which MB&D advised
Landmark.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions, knowledge of the New
Hampshire and New England banking markets, and its experience with merger and
acquisition transactions involving banking institutions. Members of the
Corporate Finance Department of MB&D have advised financial institution
clients on more than 50 successfully completed mergers or acquisitions of
financial institutions, many of which involved entities conducting business in
New England marketplaces, including New Hampshire.
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The full text of the opinion of MB&D, which sets forth assumptions made,
matters considered and limits on the review undertaken by MB&D, is attached
hereto as a part of Appendix B. Landmark's shareholders are urged to read the
opinion in its entirety. MB&D's opinion is directed only to the Merger
Consideration and does not constitute a recommendation to any holder of
Landmark Common Stock as to how such holder should vote at the Landmark
Special Meeting. The summary of the opinion of MB&D set forth in this Joint
Proxy Statement-Prospectus was provided to Landmark by MB&D and is qualified
in its entirety by reference to the full text of the opinion itself. MB&D's
opinion is necessarily based upon conditions as of the date hereof and upon
information made available to MB&D through the date hereof.
In arriving at its opinion, MB&D (i) reviewed the Merger Agreement and this
Joint Proxy Statement-Prospectus in substantially the form to be sent to
Landmark shareholders; (ii) reviewed publicly available business and financial
information with respect to both Landmark and NHTB and certain internal
financial information and financial projections prepared by the respective
managements of Landmark and NHTB; (iii) held discussions with members of the
senior management and Board of Landmark concerning the past and current
results of operations of Landmark, its current financial condition and
management's opinion of its future prospects; (iv) reviewed the historical
reported price and record of trading volume for both Landmark and NHTB Common
Stock; (v) held discussions with the senior management of NHTB concerning the
current and past results of operations of NHTB, its current financial
condition and management's opinion of its future prospects; (vi) considered
the current state of and future prospects for the economy of New Hampshire
generally and the relevant market areas for Landmark and NHTB in particular;
(vii) reviewed the specific acquisition analysis models employed by MB&D to
evaluate potential business combinations of financial institutions; (viii)
reviewed the reported financial terms of certain recent business combinations
in the banking industry; and (ix) performed such other studies and analyses as
MB&D considered appropriate under the circumstances associated with this
particular transaction.
MB&D's opinion takes into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuation and its knowledge of the banking
industry generally. For purposes of reaching its opinion, MB&D has assumed and
relied upon the accuracy and completeness of the information provided to it by
Landmark and NHTB, and does not assume any responsibility for the independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of either Landmark or NHTB. With respect to
the financial projections reviewed by MB&D in the course of rendering its
opinion, MB&D has assumed that such projections have been reasonably prepared
to reflect the best currently available estimates and judgment of the
management of each of Landmark and NHTB as to the most likely future
performance of their respective institutions.
The following is a summary of material analyses employed by MB&D in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of all the matters considered by MB&D in
arriving at its opinion. The preparation of a fairness opinion is a
complicated process, involving a determination as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances. Therefore, such an opinion is not readily
susceptible to a summary description. In arriving at its fairness opinion,
MB&D did not attribute any particular weight to any one specific analysis or
factor considered by it and made qualitative as well as quantitative judgments
as to the significance of each analysis and factor. Therefore, MB&D believes
that its analyses must be considered as a whole and feels that attributing
undue weight to any single analysis or factor considered could create a
misleading or incomplete view of the process leading to the formation of its
opinion. In its analyses, MB&D has made certain assumptions with respect to
banking industry performance, general business and economic conditions and
other factors, many of which are beyond the control of management of either
Landmark or NHTB. Any estimates which are referred to in MB&D's analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may vary significantly from those set forth.
Analysis of the Anticipated Proposed Merger and the Exchange Ratio in
Relation to NHTB. The anticipated consideration to be paid in the Merger for
each outstanding share of Landmark Common Stock is the Exchange
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Ratio, 1.221 shares of NHTB Common Stock, or $12.00 in cash, assuming a NHTB
Trading Price between $8.25 and $11.75 during the merger pricing period. When
valued at the closing bid price of NHTB Common Stock, $9.88, on the last day
there were trades in NHTB Common Stock prior to the announcement of the
transaction, Thursday, July 25, 1996, as well as the 30 day average closing
bid price of NHTB Common Stock computed as of the last business day prior to
the announcement of the transaction, Thursday, July 25, 1996, equal to $9.84,
the Merger Consideration represents the following transaction multiples:
. Transaction Value: $12.06 in NHTB Common Stock per share of Landmark
Common Stock based upon the single day closing bid price of NHTB Common
Stock on Thursday, July 25, 1996, or a Cash Election Price of $12.00 per
share. Based upon the 30 day average closing bid price for NHTB Common
Stock for the period ending July 25, 1996, the transaction value would be
$12.02 in NHTB Common Stock or $12.00 per share of Landmark Common Stock
if the Cash Election Price were selected.
. Multiple of Earnings based upon the July 25, 1996 NHTB single day closing
bid price: (i) Landmark reported a net loss of $145,909 for the first six
months of 1996. Therefore, the transaction value cannot be computed as a
multiple of current year earnings; and (ii) Landmark's earnings for
fiscal year 1995 were less than $25,000. Therefore, earnings multiples
computed using either the Common Stock exchange or the Cash Election
Price and 1995 Landmark net income would not be meaningful.
. Multiple of Earnings based upon the 30 day average closing bid price for
NHTB for the period ending July 25, 1996: (i) Landmark had a negative net
income for the first six months of 1996, therefore the transaction value
cannot be computed as a multiple of current year earnings; and (ii)
Landmark's earnings for fiscal year 1995 were less than $25,000,
therefore any earnings multiples computed using either the common stock
exchange or the Cash Election Price transaction value and 1995 Landmark
net income would not be meaningful.
. Multiple of Book Value based upon the July 25, 1996 NHTB single day
closing bid price: As of June 30, 1996, 1.594 times Landmark's book value
per share.
. Multiple of Book Value based upon the 30 day average closing bid price
for NHTB for the period ending July 25, 1996: As of June 30, 1996, 1.591
times Landmark's book value per share.
. Multiple of Market Value based upon the July 25, 1996 NHTB single day
closing bid price: Because there has been no active market for Landmark
Common Stock and very little trading in the Common Stock of Landmark
since Landmark's inception, no reliable or meaningful multiple of market
value can be computed.
. Multiple of Market Value based upon the 30 day average closing bid price
for NHTB for the period ending July 25, 1996: Because there has been no
active market for Landmark Common Stock and very little trading in the
Common Stock of Landmark since Landmark's inception, no reliable or
meaningful multiple of market value can be computed.
Specific Acquisition Analysis. MB&D employs a number of proprietary analysis
models to examine hypothetical transactions involving banking and/or thrift
companies. The models use forecast earnings data, selected current period
balance sheet and income statement data, current market and trading
information and a number of assumptions as to interest rates for borrowed
funds, the opportunity costs of funds, discount rates, dividend streams,
effective tax rates and transaction structures (the alternative or combined
uses of common equity, cash, debt or other securities, to fund a transaction).
The models distinguish between purchase and pooling accounting treatments and
inquire into the likely economic feasibility of a given hypothetical
transaction at a given price level or specified exchange rate while employing
a specified transaction structure. The models also permit an examination of
pro forma capital adequacy.
In this transaction, MB&D evaluated an exchange ratio of 1.221 shares of
NHTB Common Stock for each share of Landmark Common Stock, or a Cash Election
Price of $12.00 per share or a combination thereof (each subject to adjustment
as provided for in the Merger Agreement) in a merger transaction which is to
be accounted for as a purchase transaction.
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Discounted Cash Flow Analysis. MB&D reviewed a discounted cash flow
analysis to permit the conceptual examination of the present discounted
values of potential future results employing selected assumptions and
discount rates.
In the discounted cash flow analysis, MB&D reviewed a cash flow model
with the management and Board of Landmark that employed a projection of
hypothetical earnings for the three twelve month periods subsequent to May
1996 of $150,000, $300,000 and $643,000, respectively, with projected
earnings in two subsequent twelve month periods equal to an ROAA of 1.00%.
A hypothetical dividend pay-out ratio assumption which depicted average
annual pay-outs as a percentage of earnings increasing gradually from a
level of 0% to 33.7% over a five year period was also used. A long-term
growth rate of 5% was also employed. MB&D assumed that the control sale
price/earnings ratio at the end of a five-year period would approximate
12.5 times earnings, and in a separate exercise, a price to tangible book
value ratio of 160%. Given the model time horizon of five years and a
discount rate of 12.5%, these cash flow calculations resulted in a range of
present discounted values of cash flows of $11.58 to $12.28 which can be
compared to the nominal value of the proposed exchange ratio of
approximately $12.06 based upon the trailing thirty day average closing bid
price of NHTB Common Stock, $12.02 based upon the closing bid price of NHTB
Common Stock the day before announcement as described above or $12.00 in
payment of the Cash Election Price.
It is important to note that the discount factors employed embody both
the concept of a riskless time value of money and risk factors that reflect
the uncertainty of the forecasted cash flows and terminal price/earnings
multiples. Use of higher discount rates would result in lower discounted
present values. Conversely, use of lower discount rates would result in
higher discounted present values. MB&D advised the Landmark Board of
Directors that although discounted cash flow analysis is a widely used
valuation methodology, it relies on numerous assumptions, including
discount rates, terminal values, earnings and asset growth, as well as
dividend payout ratios. Any or all of these assumptions may vary from
actual future performance and results.
MB&D also considered the fact that Landmark shareholders electing and
receiving NHTB Common Stock would substantially increase their prospect for
annual dividends based upon current and projected dividend streams of both
Landmark and NHTB. Based upon an annualization of the quarterly dividend
payout by NHTB at the announcement date, Landmark shareholders electing and
receiving NHTB Common Stock would receive an equivalent dividend per share
of Landmark Common Stock exchanged of $0.61 per year using the Exchange
Ratio of 1.221 shares of NHTB Common Stock for each share of Landmark
Common Stock. By comparison, Landmark was not paying a dividend to holders
of shares of Landmark Common Stock or Landmark Preferred Stock at
announcement date.
Analysis of Other Comparable Transactions. MB&D is reluctant to place
excessive emphasis on "comparables analysis" as a valuation methodology due
to what it considers to be inherent limitations of the application of the
results to specific cases. It has observed that such analysis as employed
by some industry observers and financial advisors frequently fails to
adequately take into consideration such factors as material differences in
the underlying capitalization of the comparable institutions which are
being acquired; differences in the historic earnings (or loss) patterns
recorded by the compared institutions which can depict a very different
trend than might be implied by examining only recent financial results;
failure to exclude non-recurring profit or loss items from the last twelve
months' earnings streams of target companies which can distort apparent
earnings multiples; differences in the form or forms of consideration used
to complete the transaction; differences between the planned method of
accounting for the completed transaction; and such less accessible factors
as the relative population, business and economic demographics of the
acquired entities markets as compared or contrasted to such factors for the
markets in which comparables are doing business. Comparables analysis also
rarely seems to take into consideration the degree of facilities overlap
between the acquiror's market and that of the target or the absence of such
overlap and the resulting cost savings differentials between otherwise
apparently comparable transactions. MB&D consequently believes that
comparables analysis has limitations.
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Nevertheless, between February and July of 1996, MB&D reviewed a universe
of 13 publicly announced transactions in the financial institutions
industry in which either a bank or a thrift (or their respective holding
companies) engaged in the acquisition of another financial institution.
These transactions were announced after February 1, 1995 and prior to July
25, 1996. All of the examined transactions involved entities doing business
in New England and all but one involved the acquisition of a community bank
or thrift of less than $300 million in assets. Unlike Landmark, all of the
acquired institutions were profitable at announcement date.
The 13 transactions reviewed by MB&D are as follows: CFX Corporation's
acquisition of Milford Co-op Bank, CFX Corporation's acquisition of Safety
Fund Corporation, Peoples Heritage's acquisition of Bank of New Hampshire
Corp., Chittenden Corp.'s acquisition of Flagship Bank & Trust, Community
Bankshares acquisition of Centerpoint Bank, The Co-operative Bank of
Concord's acquisition of Bank of Braintree; Baybanks, Inc.'s acquisition of
Cornerstone Financial; Peoples Heritage Financial Group's acquisition of
Bankcore, Inc.; Peterborough Savings Bank's acquisition of Horizon Banks;
Chittenden Corp.'s acquisition of Bank of Western Massachusetts; Banknorth
Group's acquisition of North American Bancorp; Compass Bank for Savings
acquisition of Martha's Vineyard National Bank; and, The Co-operative Bank
of Concord's acquisition of Depositors Trust Company. From this universe,
MB&D selected 8 transactions involving the acquisition of community bank
and thrift institutions as being most representative of the NHTB/Landmark
transaction.
The 8 transactions selected as most representative were: CFX
Corporation's acquisition of Milford Co-op Bank; CFX Corporation's
acquisition of Safety Fund Corporation, Peoples Heritage Financial Group's
acquisition of Bank of NH Corp., Chittenden Corp.'s acquisition of Flagship
Bank & Trust, Community Bankshares acquisition of Centerpoint Bank, The Co-
operative Bank of Concord's acquisition of Bank of Braintree; Baybanks,
Inc.'s acquisition of Cornerstone Financial; and, Peoples Heritage
Financial Group's acquisition of Bankcore, Inc.
Within this group of 8 transactions, the median multiple of tangible book
value paid by the acquiror was 196%, the maximum multiple paid was 230% and
the minimum multiple was 125%. These statistics can be compared to
multiples derived using the indicated values on transaction date, which can
be derived for the proposed acquisition of Landmark by NHTB as 153% based
upon the nominal value of the proposed exchange ratio of approximately
$12.02 based upon the trailing thirty day average closing bid price of NHTB
Common Stock pre-announcement and 153% based upon the nominal present value
of the proposed exchange ratio of approximately $12.06 based upon the
closing bid price of NHTB Common Stock the day before announcement as
described above and 152% based upon a Cash Election Price payment of
$12.00.
With respect to trailing 12 months earnings multiples for this same data
sample of twelve transactions, the median price/earnings multiple paid was
13.27 and the maximum multiple was 25.97, while the minimum multiple was
10.00. These statistics cannot be meaningfully compared to any earnings
multiples of Landmark because Landmark was unprofitable during the twelve
month period prior to announcement of the transaction.
Pursuant to a letter agreement with Landmark dated February 16, 1996,
MB&D will receive a fee of $50,000 for services rendered to Landmark in
conjunction with the proposed transaction, if the transaction is
consummated. The fee represents compensation for services rendered in
connection with the analysis of the hypothetical transaction, support of
the negotiations and for the rendering of its opinions. Landmark paid MB&D
$10,000 upon signing the agreement and $20,000 following the execution of
the Agreements. An additional $20,000 will become payable, conditioned on
the closing of the transaction. In addition, Landmark has agreed to
reimburse MB&D for its reasonable out-of-pocket expenses incurred in
connection with the transaction. Landmark also has agreed to indemnify MB&D
and its directors, officers and employees against certain losses, claims,
damages and liabilities relating to or arising out of MB&D's engagement,
including liabilities under the federal securities law.
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ADJUSTMENT OF MERGER CONSIDERATION
In certain circumstances, the Agreements provide for adjustment of the
Merger Consideration as follows:
(a) If the NHTB Trading Price is equal to or greater than $8.25 per share
and no greater than $11.75 per share, in the event that Landmark's Tier 1
capital ratio (determined in accordance with GAAP, including any
adjustments required under SFAS No. 115), for the month immediately prior
to the Effective Date is between 6.00% and 5.90%, the Exchange Ratio shall
be adjusted to 1.208 and the Cash Election Price shall be adjusted to
$11.875 per share.
(b) If the NHTB Trading Price is equal to or greater than $8.25 per share
and no greater than $11.75 per share, in the event that Landmark's Tier 1
capital ratio (determined in accordance with GAAP, including any
adjustments required under SFAS No. 115), for the month immediately prior
to the Effective Date is between 5.89% and 5.80%, the Exchange Ratio shall
be adjusted to 1.195 and the Cash Election Price shall be adjusted to
$11.75 per share.
(c) If the NHTB Trading Price exceeds $11.75 per share, the Exchange
Ratio shall be equal to 14.00 / NHTB Trading Price; however, if Landmark's
Tier 1 capital ratio is between 6.00% and 5.90% or between 5.89% and 5.80%
pursuant to paragraphs (a) and (b), respectively, the Exchange Ratio shall
be equal to 13.875 / NHTB Trading Price or 13.75 / NHTB Trading Price,
respectively, and the Cash Election Price shall be $11.875 per share.
(d) If the NHTB Trading Price is less than $8.25 per share, the Exchange
Ratio shall be equal to 10.00 / NHTB Trading Price; however, if Landmark's
Tier 1 capital ratio is between 6.00% and 5.90% or between 5.89% and 5.80%
pursuant to paragraphs (a) and (b), respectively, the Exchange Ratio shall
be equal to 9.875 / NHTB Trading Price or 9.75 / NHTB Trading Price,
respectively, and the Cash Election Price shall be $11.75 per share.
ADJUSTMENT OF MERGER CONSIDERATION IN THE EVENT OF DELAYED EFFECTIVE DATE
In the event the Effective Date does not occur within one (1) month after
all required regulatory approvals are obtained, including the expiration of
any applicable waiting periods, NHTB shall increase the consideration to be
paid to holders of Landmark Common Stock by (1) accruing interest on the 40%
cash component of the consideration to be paid to holders of Landmark Common
Stock at a rate equal to the then current yield on the Bank's "Treasury
Account" and (2) crediting the 60% stock component of the consideration to be
paid to holders of Landmark Common Stock with any and all dividends declared
on the NHTB Common Stock during such period.
EXCHANGE OF CERTIFICATES; ELECTION PROCEDURES; FRACTIONAL SHARES
Within three business days after the Effective Date, ChaseMellon Shareholder
Services, L.L.C. as exchange agent for the NHTB Common Stock (the "Exchange
Agent") will send to each holder of Landmark Common Stock (or in the case of
nominee record holders, the beneficial owner through proper instructions and
documentation) an election form and other appropriate transmittal materials
(the "Election Forms") permitting such holder to (i) elect to receive NHTB
Common Stock with respect to such holder's Landmark Common Stock (the
"Landmark Stock Election Shares"), (ii) elect to receive cash with respect to
such holder's Landmark Common Stock (the "Landmark Cash Election Shares"), or
(iii) indicate that such holder makes no such election (the "Landmark No-
Election Shares"). In order to elect to receive NHTB Common Stock, the number
of shares of Landmark Common Stock a Landmark stockholder elects to convert
must equal or exceed 100 shares.
Because the Merger Agreement provides that the total consideration paid to
Landmark shareholders will be comprised of 60% NHTB Common Stock and 40% cash,
no guarantee can be given that the election of any given shareholder of
Landmark will be honored. Rather, the election by each holder will be subject
to the election and allocation procedures described herein. Thus, holders may
not receive their requested form of consideration or combination thereof. See
"--Allocations."
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Any election to receive NHTB Common Stock or cash shall have been properly
made only if the Exchange Agent shall have actually received a properly
completed Election Form by the Election Deadline specified on the Election
Forms (the "Election Deadline"). Election Forms will be properly completed
only if accompanied by certificates representing all shares of Landmark Common
Stock converted thereby. The Exchange Agent shall have reasonable discretion
to determine when any election, modification or revocation is received and
whether any such election, modification or revocation has been properly made.
Any shares of Landmark Common Stock with respect to which the holder thereof
shall not, as of the Election Deadline, have made such an election by
submission to the Exchange Agent, of effective, properly completed Election
Forms, shall be deemed to be Landmark No-Election Shares. Any Dissenting
Shares shall be deemed to be Landmark Cash Election Shares, and with respect
to such shares the holders thereof shall in no event be classified as Stock
Designees (as defined herein).
LANDMARK STOCK CERTIFICATES SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY
AND SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL A LANDMARK SHAREHOLDER
HAS RECEIVED THE ELECTION FORMS.
Until the certificates representing Landmark Common Stock are surrendered
for exchange after the Effective Time, holders of such certificates will
accrue but will not be paid dividends or other distributions on the NHTB
Common Stock into which their shares have been converted. When such
certificates are surrendered, any unpaid dividends or other distributions will
be paid, without interest. No interest will be paid or accrued on the cash in
lieu of fractional shares payable to holders of such certificates. For all
other purposes, however, each certificate which represents outstanding shares
of Landmark Common Stock outstanding at the Effective Time other than shares
as to which dissenters' rights have been asserted and not withdrawn will be
deemed, as of the Effective Time, to evidence ownership of the number of
shares of NHTB Common Stock or the right to receive the amount of cash into
which such Landmark Common Stock shall have been converted. After the
Effective Date, there shall be no further transfer on the records of Landmark
of certificates representing Landmark shares and if such certificates are
presented to Landmark for transfer, they shall be cancelled against delivery
of certificates for NHTB Common Stock or cash into which those shares have
been converted pursuant to the Merger.
No fractional shares of NHTB Common Stock will be issued to any Landmark
shareholder upon consummation of the Merger. For each fractional share that
would otherwise be issued, NHTB will pay cash in an amount equal to such
fraction multiplied by the bid price of NHTB Common Stock on the Nasdaq
National Market on the last business day preceding the Effective Date.
Any shares of Landmark Common Stock with respect to which dissenters' rights
have been properly perfected will be purchased in accordance with the
procedures described under "CERTAIN RELATED TRANSACTIONS-Rights of Dissenting
Shareholders" and in Appendix D to this Joint Proxy Statement-Prospectus.
For a description of the differences between the rights of the holders of
Landmark Common Stock and NHTB Common Stock, see "COMPARISON OF RIGHTS OF NHTB
AND LANDMARK SHAREHOLDERS." For a description of the capital stock of NHTB,
see "DESCRIPTION OF NHTB CAPITAL STOCK."
ALLOCATIONS
Within three business days after the Election Deadline, the Exchange Agent
will be required to effect the allocation among holders of Landmark Common
Stock of rights to receive NHTB Common Stock or cash in the Merger in
accordance with the Election Forms as follows:
(i) If the number of Landmark Stock Election Shares is less than a number
(the "Stock Conversion Number") equal to 60.0% of the number of shares of
Landmark Common Stock outstanding on the Effective Date of the Merger
(excluding treasury and certain other shares to be cancelled and retired in
accordance with the Merger Agreement), then:
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(1) all Landmark Stock Election Shares will be converted into the
right to receive NHTB Common Stock,
(2) the Exchange Agent will select first from among the holders of
Landmark No-Election Shares and then (if necessary) from among the
holders of Landmark Cash Election Shares, by random selection (as
described below), a sufficient number of such holders ("Stock
Designees") such that the number of shares of Landmark Common Stock
held by the Stock Designees will, when added to the number of Landmark
Stock Election Shares, equal as closely as practicable the Stock
Conversion Number, and all shares held by the Stock Designees will be
converted into the right to receive NHTB Common Stock, and
(3) the Landmark Cash Election Shares (subject to the provisions of
the Merger Agreement with respect to any Dissenting Shares) and the
Landmark No-Election Shares not held by Stock Designees will be
converted into the right to receive cash; or
(ii) If the number of Landmark Stock Election Shares is greater than the
Stock Conversion Number, then:
(1) all Landmark Cash Election Shares (subject to the provisions of
the Merger Agreement with respect to any Dissenting Shares) will be
converted into the right to receive cash,
(2) the Exchange Agent will select first from among the holders of
Landmark No-Election Shares and then (if necessary) from among the
holders of Landmark Stock Election Shares, by random selection (as
described below), a sufficient number of such holders ("Cash
Designees") such that the number of shares of Landmark Common Stock
held by the Cash Designees will, when added to the number of Landmark
Cash Election Shares (including any Dissenting Shares), equal as
closely as practicable a number (the "Cash Conversion Number") equal to
40.0% of the shares of Landmark Common Stock outstanding on the
Effective Date of the Merger (excluding treasury and certain other
shares which are to be cancelled and retired in accordance with the
Merger Agreement) and all shares held by the Cash Designees will be
converted into the right to receive cash, and
(3) the Landmark Stock Election Shares and Landmark No-Election
Shares not held by Cash Designees will be converted into the right to
receive NHTB Common Stock; or
(iii) If the number of Landmark Stock Election Shares is equal or nearly
equal (as determined by the Exchange Agent) to the Stock Conversion Number,
then subparagraphs (i) and (ii) above and subparagraph (iv) below shall not
apply and all Landmark Stock Election Shares will be converted into the
right to receive NHTB Common Stock and all Landmark Cash Election Shares
(subject to the provisions applicable to Dissenting Shares) and Landmark
No-Election Shares will be converted into the right to receive cash; or
(iv) If the number of Landmark Cash Election Shares is equal or nearly
equal (as determined by the Exchange Agent) to the Cash Conversion Number,
then subparagraphs (i), (ii) and (iii) above shall not apply and all
Landmark Cash Election Shares (subject to the provisions of applicable to
Dissenting Shares) will be converted into the right to receive cash and all
Landmark Stock Election Shares and Landmark No-Election Shares will be
converted into the right to receive NHTB Common Stock.
The random selection process to be used by the Exchange Agent will consist
of such processes as shall be mutually determined by NHTB and Landmark in a
manner designed to select shareholders on a fair and equitable basis, and as
shall be described further in the Election Forms.
Within five business days after the Election Deadline, the Exchange Agent
shall distribute NHTB Common Stock and cash as provided herein.
If a certificate for Landmark Common Stock has been lost, stolen or
destroyed, the Exchange Agent will issue the consideration properly payable in
accordance with the Merger Agreement upon receipt of appropriate evidence as
to such loss, theft or destruction, appropriate evidence as to the ownership
of such certificate by the claimant, and appropriate and customary
indemnification.
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Because the tax consequences of receiving cash or NHTB Common Stock will
differ, shareholders of Landmark are urged to read carefully the information
under the caption "Material Federal Income Tax Consequences."
ISSUANCE OF STOCK AND PAYMENT OF CASH TO EXCHANGE AGENT
On the Effective Date, NHTB shall issue to the Exchange Agent the number of
shares of NHTB Common Stock issuable and the amount of cash payable in the
Merger. Upon completion of the allocation procedures described above, NHTB
will, if necessary, issue to the Exchange Agent additional shares of NHTB
Common Stock in exchange for cash or issue to the Exchange Agent any
additional cash in exchange for NHTB Common Stock, as may be required to
effect the conversion of Landmark Common Stock. The Exchange Agent will not be
entitled to vote or exercise any rights of ownership with respect to the
shares of NHTB Common Stock held by it pursuant to the Merger Agreement,
except that it will receive and hold all dividends or other distributions paid
or distributed with respect to such shares for the account of the persons
entitled thereto.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Plan of Reorganization, prior to the Effective Time, and
except with the written consent of NHTB, Landmark has agreed that it shall
not, among other things:
(1) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as previously conducted;
(2) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock;
(3) issue any shares of its capital stock (except for the issuance of the
Landmark Common Stock that are converted from shares of Landmark Preferred
Stock) or permit any treasury shares to become outstanding other than
pursuant to the Option Agreement;
(4) incur any additional debt obligation or other obligation for borrowed
money other than in the ordinary course of business consistent with past
practice;
(5) issue, grant or authorize any warrants, options, rights and the like
or effect any recapitalization, reclassification, stock dividend, stock
split or like change in capitalization, or redeem, repurchase or otherwise
acquire any shares of its capital stock;
(6) amend the Landmark Articles or Bylaws;
(7) merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge into it
or consolidate with any other corporation, savings association or bank;
acquire control over any other firm, bank, corporation, savings association
or organization or create any subsidiary;
(8) except in the ordinary course of business, waive or release any
material right or cancel or compromise any material debt or claim;
(9) fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of
its business;
(10) enter into any material swap, hedge or other similar off-balance
sheet transaction;
(11) liquidate or sell or dispose of any material assets or acquire any
material assets; make any capital expenditure in excess of $25,000 in any
instance or in the aggregate; or, establish new branches or other similar
facilities or enter into or modify any leases or other contracts relating
thereto that involve annual payments that exceed $10,000 in any instance or
$25,000 in the aggregate;
(12) increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees;
(13) enter into, modify or extend any employment or severance contracts
with any of its present or former directors, officers or employees;
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(14) enter into or substantially modify (except as may be required by
applicable law) any pension, retirement, stock option, stock purchase,
stock appreciation right, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related
thereto, in respect of any of its directors, officers or other employees;
(15) change its lending, investment, asset/liability management or other
material banking policies in any material respect except as may be required
by changes in applicable law;
(16) change its methods of accounting in effect at December 31, 1995,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any
of its methods of reporting income and deductions for federal income tax
purposes from those employed in the preparation of its federal income tax
returns for the year ended December 31, 1995, except as required by law;
(17) solicit or initiate inquiries or proposals with respect to any
acquisition or purchase of all or a substantial portion of the assets of,
or a substantial equity interest in, Landmark or any business combination
with Landmark other than as contemplated by the Plan of Reorganization; or
authorize or permit any officer, director, agent or affiliate of it to do
any of the above; or fail to notify NHTB as soon as practicable if any such
inquiries or proposals are received by Landmark, or if Landmark or any
officer, director, agent or affiliate thereof is requested to or does
furnish any confidential information relating to, or participates in any
negotiations or discussions concerning, any transaction of a type described
in this paragraph; or
(18) agree to do any of the foregoing.
NHTB, the Bank and Landmark each have also agreed, subject to the terms and
conditions of the Plan of Reorganization, to use their best efforts in good
faith, and NHTB has agreed to cause its subsidiaries to use their best efforts
in good faith to (a) furnish such information as may be required in connection
with the preparation of the Registration Statement of which this Joint Proxy
Statement-Prospectus is a part and all regulatory applications, and (b) take
or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (i) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that Landmark shall not agree to make any
payments or modifications to agreements in connection therewith without the
prior written consent of NHTB, and (ii) requesting the delivery of appropriate
opinions, consents and letters from its counsel and independent auditors.
CONDITIONS TO CONSUMMATION
Each party's obligation to effect the Merger is subject to various
conditions, which include, in addition to other customary closing conditions,
the following:
(a) all corporate action necessary to authorize the execution, delivery
and performance of the Agreements and consummation of the transactions
contemplated hereby (including the approvals of shareholders of each of
NHTB and Landmark solicited hereby) and thereby shall have been duly and
validly taken;
(b) the parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by the Agreements, all notice periods and waiting periods
required after the granting of any such approvals shall have passed and all
conditions contained in any such approval required to have been satisfied
prior to consummation of such transactions shall have been satisfied,
provided, however, that no such approval shall have imposed any condition
or requirement which, in the reasonable good faith opinion of the Board of
Directors of NHTB materially and adversely affects the anticipated economic
and business benefits to NHTB of the transactions contemplated by the Plan
of Reorganization to render consummation of such transactions inadvisable;
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(c) the Registration Statement (including any post-effective amendment
thereto) of which this Joint Proxy Statement-Prospectus is a part shall
have been filed with the Commission and shall be effective under the
Securities Act and no proceeding shall be pending or to the knowledge of
NHTB threatened by the Commission to suspend the effectiveness of such
Registration Statement;
(d) NHTB shall have received all state securities or "Blue Sky" permits
or other authorizations, or confirmations as to the availability of an
exemption from registration requirements as may be necessary;
(e) to the extent that any lease, license, loan, financing agreement or
other contract or agreement to which Landmark is a party requires the
consent of or waiver from the other party thereto as a result of the
transactions contemplated by the Plan of Reorganization, such consent or
waiver shall have been obtained, unless the failure to obtain such consents
or waivers, individually or in the aggregate, would not have a material
adverse effect on Landmark;
(f) none of the parties hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the transactions contemplated by the
Agreements;
(g) the shares of NHTB Common Stock that may be issued in the Merger
shall have been approved for listing on the NASDAQ, subject to official
notice of issuance;
(h) the receipt of tax opinions described herein (see "--Material Federal
Income Tax Consequences");
(i) the representations and warranties of each party set forth in the
Plan of Reorganization shall be true and correct in all material respects
as of the date of the Plan of Reorganization and as of the Effective Date
as though made on and as of the Closing Date (or on the date when made in
the case of any representation and warranty which specifically relates to
an earlier date), except as otherwise contemplated by the Plan of
Reorganization or consented to in writing by the other; provided, however,
that the condition contained in this paragraph shall be deemed to be
satisfied unless the failure of such representations and warranties to be
so true and correct constitute, individually or in the aggregate, a
material adverse effect on such party;
(j) each party shall have in all material respects performed all
obligations and complied with all covenants required by the Agreements
prior to the Effective Time;
(k) each of NHTB and Landmark shall have received from the other's
accountants a "comfort letter" dated not more than five days prior to (i)
the effective date of the Registration Statement, and (ii) the Effective
Date, with respect to certain financial information regarding the other, in
form and substance which is customary in transactions of the nature of the
Merger;
(l) each of NHTB and Landmark shall have received an opinion of the
other's counsel, dated the Effective Date, as to such matters as they may
reasonably request with respect to the Merger; and
(m) each of NHTB and Landmark shall have received a letter from its
financial consultants, dated as of a date not more than five (5) days prior
to the date this Joint Proxy Statement-Prospectus is mailed to
shareholders, containing its opinion that the consideration to be paid to
holders of Landmark Common Stock in connection with the Merger is fair to
such shareholders from a financial point of view in the case of Landmark,
and in the case of NHTB that the Merger is fair to NHTB shareholders from a
financial point of view.
In addition, NHTB's obligation to effect the Merger is subject to the
following conditions:
(1) Landmark's allowance for loan losses on the balance sheet of Landmark
as of the last month immediately preceding the Effective Date shall be at
least $600,000 and Landmark's Tier 1 capital ratio (determined in
accordance with GAAP, including any adjustments required under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities") shall be at least 6%, provided, however,
that if such capital ratio is between 6% and 5.8%, NHTB shall be obligated
to consummate the Merger only upon the adjustments to the Merger
Consideration provided in the Plan of Merger. See "--Adjustment of Merger
Consideration."
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(2) Any Landmark shareholder who after the Effective Date would become
beneficial owner of more than 3% of the outstanding shares of NHTB Common
Stock has entered into an agreement that such shareholder, for a period of 2
years after the Effective Date, will not vote any shares beneficially owned by
him in excess of 3% of the outstanding shares of NHTB.
NO SOLICITATION
Landmark has agreed in the Plan of Reorganization that Landmark shall not
solicit or initiate inquiries or proposals with respect to any acquisition or
purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, Landmark or any business combination with Landmark other
than as contemplated by the Plan of Reorganization; or authorize or permit any
officer, director, agent or affiliate of it to do any of the above; or fail to
notify NHTB as soon as practicable if any such inquiries or proposals are
received by Landmark, or if Landmark or any officer, director, agent or
affiliate thereof is requested to or does furnish any confidential information
relating to, or participates in any negotiations or discussions concerning,
any transaction of a type described in this paragraph.
REGULATORY MATTERS
Office of Thrift Supervision. The merger of Landmark with and into the Bank
requires the approval of the OTS. The OTS is required to take into
consideration, among other things, the financial and managerial resources and
future prospects of the institutions involved, the insurance risk to the Bank
Insurance Fund (the "BIF") or the Savings Association Insurance Fund (the
"SAIF") of the FDIC and the convenience and needs of the community to be
served. In addition, the OTS may not approve any proposed acquisition (i)
which would result in a monopoly or which would be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the
savings and loan business in any part of the United States or (ii) which in
any section of the country may have the effect of substantially lessening
competition or tending to create a monopoly or which in any other manner would
be in restraint of trade, unless the OTS finds that the anti-competitive
effects of the proposed acquisition are clearly outweighed in the public
interest by the probable effect of the acquisition in meeting the convenience
and needs of the community to be served. Under the Community Reinvestment Act
of 1977 (the "CRA"), the OTS must take into account the record of performance
of the existing institutions in meeting the credit needs of the entire
community including low- and moderate-income neighborhoods. The OTS also
considers, among other things, the fairness and disclosure of the Merger
(including compensation to officers, directors and controlling persons of the
disappearing association by the surviving association), the justification,
need for and compensation to be paid to any advisory board, fees paid to each
person or firm rendering legal or other professional services in connection
with a merger and the accounting treatment of any goodwill in connection with
a merger. Each of the Bank and Landmark was rated "Satisfactory" in its most
recent CRA examination.
The Merger may not be consummated until 30 days after OTS approval (or such
shorter period as the OTS may prescribe with the concurrence of the Attorney
General, but not less than 15 days), during which time the Department of
Justice may challenge the Merger on antitrust grounds. The commencement of an
antitrust action by the Department of Justice would stay the effectiveness of
OTS approval unless a court specifically orders otherwise. In reviewing the
Merger, the Department of Justice could analyze the Merger's effect on
competition differently than the OTS, and thus it is possible that the
Department of Justice could reach a different conclusion than the OTS
regarding the Merger's competitive effects. Failure of the Department of
Justice to object to the Merger does not prevent the filing of antitrust
actions by private persons.
Commissioner of Banks of New Hampshire. Under regulations of the
Commissioner of Banks, Landmark must follow the application and notice
requirements applicable to national banks merging with and into federal
savings associations that are set forth in the regulations of the OCC.
Applying the OCC regulations to the Merger, Landmark is required to file a
notice with the Commissioner of Banks advising the Commissioner of Banks of
the Merger. In addition, Landmark is required to publish notice of the time,
place and purpose of the Landmark Special Meeting in a newspaper of general
circulation where Landmark's principal office is located,
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at least once a week for four consecutive weeks prior to the Landmark Special
Meeting. Landmark also is required to send a duplicate of this notice to each
Landmark common shareholder of record by registered or certified mail at least
10 days prior to the Landmark Special Meeting, unless waived by such
shareholders. After the Landmark Special Meeting, Landmark must file a
certification with the Commissioner of Banks stating that: (i) the Agreements
were approved by Landmark's Board of Trustees or Directors; (ii) the public
notice requirements were met; (iii) Landmark's shareholders approved the
Agreements by an affirmative vote of two-thirds of the shares of Landmark
Common Stock outstanding; (iv) shareholders were advised of their rights to
dissent from the Merger; (v) the OTS approved the Merger; and (vi) all reports
of the Commissioner of Banks were destroyed for which the Commissioner of
Banks requested destruction. Under the OCC regulations, Landmark's charter
will be terminated automatically on the Effective Date upon compliance with
these procedures.
The Merger will not proceed until all regulatory approvals required to
consummate the Merger have been obtained, such approvals are in full force and
effect and all statutory waiting periods in respect thereof have expired.
Applications or notices seeking these approvals have been filed as of the date
of this Joint Proxy Statement-Prospectus. There can be no assurance that the
Merger will be approved by the OTS or the Commissioner of Banks. If such
approvals are received, there can be no assurance as to the date of such
approvals, the terms thereof or the absence of any litigation challenging such
approvals. NHTB and Landmark are not aware of any other governmental approvals
or actions that are required prior to the parties' consummation of the Merger.
It is currently contemplated that if any such additional governmental
approvals or actions are required, such approvals or actions will be sought.
There can be no assurance, however, that any such additional approvals or
actions will be obtained.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Thacher Proffitt & Wood, counsel to NHTB, and Gallagher,
Callahan & Gartrell, P.A. counsel to Landmark, the following summary sets
forth the anticipated material federal income tax consequences of the Merger
to Landmark shareholders and to Landmark and NHTB. The tax treatment of each
Landmark shareholder will depend in part upon such shareholder's particular
situation and the election of such shareholder as to the form of consideration
to be received. Special tax consequences not described below may be applicable
to particular classes of taxpayers, including, without limitation, foreign
corporations and tax-exempt entities. Landmark shareholders should consult
their own tax advisors as to the effect of their own particular situation on
the federal tax consequences of the Merger to them and as to the applicability
of any state, local or other tax laws. This summary is based on the provisions
of the Code, the Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as in effect as of
the date hereof. Such laws, regulations or interpretations may differ at the
Effective Time, and relevant facts also may differ.
Exchange of Landmark Shares Solely for NHTB Common Stock. The federal income
tax treatment of a Landmark shareholder who receives solely NHTB Common Stock
for such shareholder's shares of Landmark (other than cash received in lieu of
a fractional share interest in NHTB Common Stock) is described in the opinions
to be received by NHTB and Landmark from their respective counsel, as
discussed below.
Exchange of Landmark Shares Solely for Cash. A Landmark shareholder who
receives solely cash in exchange for such shareholder's Landmark shares may be
treated as having sold such shares to NHTB or as having had such Landmark
shares redeemed. In the event of sale treatment, such shareholder would
recognize gain or loss in an amount equal to the difference between the amount
of cash received and the shareholder's aggregate adjusted federal income tax
basis for such Landmark shares. Such gain or loss will be capital gain or loss
if the Landmark shares exchanged were held as capital assets at the Effective
Time. In the event of redemption treatment, such deemed redemption would be
subject to Section 302 of the Code, with the result that such shareholder
would recognize capital gain or loss in a like amount if (i) the Landmark
shares exchanged were held as capital assets at the Effective Time and (ii)
the deemed redemption is "substantially disproportionate" with respect to such
shareholder or is "not essentially equivalent to a dividend." Landmark
shareholders should consult their own tax advisors as to the possibility that
all or a portion of any cash received in exchange for their Landmark shares
will be treated as a dividend. Capital gain realized on the exchange of
Landmark shares for cash will be long-term capital gain if the Landmark shares
were held for more than one year.
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Exchange of Landmark Shares for NHTB Common Stock and Cash. A Landmark
shareholder who receives both NHTB Common Stock and cash (other than cash
received in lieu of a fractional share interest in NHTB Common Stock) will
recognize gain to the extent of the lesser of:
(i) the excess of (A) the sum of the aggregate fair market value of the
NHTB Common Stock received (including the fair market value of any
fractional share interest in NHTB Common Stock for which cash is received)
and the amount of cash received (other than cash received in lieu of such
fractional share interest) over (B) the shareholder's aggregate adjusted
federal income tax basis for the shares of Landmark stock exchanged; or
(ii) the amount of cash received by such shareholder (other than cash
received in lieu of such fractional share interest).
If the shares of Landmark exchanged in the Merger were held as capital
assets at the Effective Time, any such gain recognized by a Landmark
shareholder who receives both NHTB Common Stock and cash will be treated as
capital gain (which will be long-term capital gain if the Landmark shares
exchanged were held for more than one year), unless the receipt of cash (other
than cash received in lieu of a fractional share interest) has the effect of a
distribution of a dividend within the meaning of Section 356(a)(2) of the
Code, in which case such gain will be treated as a dividend to the extent of
such shareholder's ratable share of the undistributed accumulated earnings and
profits of Landmark. Following is a brief discussion of such potential tax
treatment; however, Landmark shareholders should consult their own tax
advisors as to the possibility that all or a portion of any cash received in
exchange for their Landmark shares will be treated as a dividend.
The stock redemption provisions of Section 302 of the Code apply in
determining whether cash received by a Landmark shareholder pursuant to the
Merger has the effect of a distribution of a dividend under Section 356(a)(2)
of the Code (the "Hypothetical Redemption Analysis"). Under the Hypothetical
Redemption Analysis, a Landmark shareholder will be treated as if the portion
of the Landmark shares exchanged for cash in the Merger had been instead
exchanged for shares of NHTB Common Stock (the "Hypothetical Shares"),
followed immediately by a redemption of the Hypothetical Shares by NHTB for
cash. Under the principles of Section 302 of the Code, a Landmark shareholder
will recognize capital gain rather than dividend income with respect to the
cash received if the hypothetical redemption is "not essentially equivalent to
a dividend" or is "substantially disproportionate" with respect to such
Landmark shareholder. In applying the principles of Section 302, the
constructive ownership rules of Section 318 of the Code will apply in
comparing a Landmark shareholder's ownership interest in NHTB both immediately
after the Merger (but before the hypothetical redemption) and after the
hypothetical redemption.
Whether the hypothetical redemption by NHTB of the Hypothetical Shares for
cash is "not essentially equivalent to a dividend" with respect to a Landmark
shareholder will depend upon such shareholder's particular circumstances;
however, the hypothetical redemption must, in any event, result in a
"meaningful reduction" in such Landmark shareholder's percentage ownership of
NHTB stock. In determining whether the hypothetical redemption by NHTB results
in a meaningful reduction in a Landmark shareholder's percentage ownership of
NHTB stock, a Landmark shareholder should compare his or her share interest in
NHTB (including interests owned actually, hypothetically and constructively)
immediately after the Merger (but before the hypothetical redemption) to his
or her share interest after the hypothetical redemption. The Internal Revenue
Service (the "Service") has indicated, in Revenue Ruling 76-385, that a
shareholder in a publicly-held corporation whose relative stock interest in
the corporation is minimal and who exercises no "control" over corporate
affairs is generally treated as having had a meaningful reduction in his or
her stockholders after a redemption transaction if his or her percentage stock
ownership in the corporation has been reduced to any extent, taking into
account the shareholder's actual and constructive ownership before and after
the redemption. In Revenue Ruling 76-385, a reduction from .0001118 percent to
.0001081 percent was found to be a meaningful reduction in stockholdings.
The hypothetical redemption transaction would be "substantially
disproportionate" with respect to a Landmark shareholder who owns less than
50% of the voting power of the outstanding NHTB stock if (i) the percentage of
NHTB Common Stock actually and constructively owned by such shareholder
immediately after
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the hypothetical redemption is less than 80 percent of (ii) the percentage of
NHTB Common Stock actually, hypothetically and constructively owned by the
Landmark shareholder immediately before the hypothetical redemption.
In determining how many shares of NHTB Common Stock a Landmark shareholder
owns constructively before the hypothetical redemption for purposes of making
the "not essentially equivalent to a dividend" or "substantially
disproportionate" determination, a Landmark shareholder must take into account
any Hypothetical Shares owned by the persons or entities whose stock he or she
is deemed to own constructively under Section 318 of the Code.
Tax Basis of NHTB Common Stock. A Landmark shareholder's aggregate tax basis
in the NHTB Common Stock received pursuant to the Merger will equal such
shareholder's aggregate tax basis in the Landmark shares exchanged therefor,
decreased by the amount of cash received (other than cash received in lieu of
a fractional share interest) and increased by the amount of gain, if any,
recognized by such shareholder in the Merger (including any portion of such
gain that is treated as a dividend). Landmark shareholders should consult
their own tax advisors concerning the determination of their basis and holding
period in any particular share of NHTB Common Stock since several methods of
determination may be available. The holding period of NHTB Common Stock
received will include the holding period of the Landmark shares exchanged
therefor, provided that such Landmark shares were held as a capital asset as
of the Effective Date.
Tax Opinions. The obligations of NHTB and Landmark to effect the Merger are
conditioned upon their receipt of an opinion of their respective counsels, as
set forth below. Thacher Proffitt & Wood, counsel to NHTB, will deliver to
NHTB and Gallagher, Callahan & Gartrell, P.A., counsel to Landmark, will
deliver to Landmark, an opinion letter, dated the Effective Date, as to
certain tax consequences of the Merger to NHTB, Landmark and Landmark
shareholders who receives solely NHTB Common Stock for their shares of
Landmark (other than cash received in lieu of a fractional share interest in
NHTB Common Stock). The tax opinions will not be binding on the Service, and
there can be no assurance that the Service will not contest the conclusions
expressed in such opinion letters.
The opinion letters to be delivered by Thacher Proffitt & Wood and
Gallagher, Callahan & Gartrell, P.A., respectively, are based upon certain
representations made to such counsels by Landmark, NHTB, the Bank and certain
Landmark shareholders and upon certain factual assumptions. If any of the
representations or assumptions were not correct, then each holder of Landmark
Common Stock could recognize gain or loss with respect to each share of
Landmark Common Stock surrendered equal to the difference between (i) such
shareholder's basis in the share and (ii) the fair market value of the NHTB
Common Stock received in exchange for the share. In such event, the
shareholder's aggregate basis in the shares of NHTB Common Stock received in
the exchange would equal the fair market value of such shares, and the
shareholder's holding period for such shares of NHTB Common Stock would not
include the period during which the shareholder held the Landmark shares
exchanged therefor.
Landmark shareholders should note that dispositions of NHTB Common Stock
received by Landmark shareholders in the Merger may cause the Merger to become
retroactively taxable to each Landmark shareholder, even those who do not make
such dispositions. In particular, Landmark shareholders must not, pursuant to
a plan or intent existing prior to the Effective Time, dispose of an amount of
NHTB Common Stock to be received in the Merger (including, under certain
circumstances, pre-merger dispositions of Landmark Common Stock) such that the
Landmark shareholders do not retain a meaningful continuing equity ownership
in NHTB. Generally, so long as the Landmark shareholders have no plan or
intention to dispose of NHTB Common Stock to be received in the Merger that
would result in their retention, in the aggregate, of a continuing interest
through stock ownership in NHTB that is equal in value, as of the Effective
Time, to less than 50 percent of the value of all of the formerly outstanding
Landmark Common Stock as of the same time, this requirement will be satisfied.
44
<PAGE>
The opinion letters to be delivered to NHTB and Landmark by Thacher Proffitt
& Wood and by Gallagher, Callahan & Gartrell, P.A. will state that they are of
the opinion, as of the date of the opinion and under existing law, for United
States federal income tax purposes, that:
(1) The Merger will constitute a reorganization within the meaning of
section 368(a) of the Code;
(2) No gain or loss will be recognized by Landmark on the transfer of its
assets to the Bank pursuant to the Merger;
(3) No gain or loss will be recognized by NHTB or by the Bank on the
issuance of shares of NHTB Common Stock to shareholders of Landmark
pursuant to the Merger;
(4) No gain or loss will be recognized by a shareholder of Landmark who
exchanges pursuant to the Merger all of such shareholder's shares of
Landmark stock solely for shares of NHTB Common Stock, except with respect
to cash received in lieu of a fractional share interest in NHTB Common
Stock;
(5) The aggregate tax basis of the shares of NHTB Common Stock received
by a shareholder of Landmark who exchanges pursuant to the Merger all of
such shareholder's shares of Landmark stock solely for shares of NHTB
Common Stock will be the same as the aggregate tax basis of the shares of
Landmark stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest in NHTB Common Stock for which
cash is received);
(6) The aggregate tax basis of the shares of NHTB Common Stock received
by a shareholder of Landmark who exchanges pursuant to the Merger all of
such shareholder's shares of Landmark stock for shares of NHTB Common Stock
and cash will be the same as the aggregate tax basis of the shares of
Landmark stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest in NHTB Common Stock for which
cash is received), decreased by the amount of cash received (other than
cash received in lieu of a fractional share interest) and increased by the
amount of gain, if any, recognized by such shareholder in the Merger
(including any portion of such gain that is treated as a dividend); and
(7) The holding period of the shares of NHTB Common Stock to be received
by a shareholder of Landmark pursuant to the Merger will include the period
during which such shareholder held the shares of Landmark stock surrendered
in exchange therefor, provided that the shares of Landmark stock
surrendered is held as a capital asset as of the Effective Time.
Fractional Shares of NHTB Common Stock. No fractional shares of NHTB Common
Stock will be issued in the Merger. A Landmark shareholder who receives cash
in lieu of a fractional share will be treated as having received such
fractional share pursuant to the Merger and then as having exchanged such
fractional share for cash in a redemption by NHTB subject to Section 302(a) of
the Code, provided that such deemed redemption is "substantially
disproportionate" with respect to such shareholder or is "not essentially
equivalent to a dividend." If the NHTB Common Stock represents a capital asset
in the hands of the shareholder, the shareholder will generally recognize
capital gain or loss on such a deemed redemption of the fractional share in an
amount determined by the excess of the amount of cash received therefor and
the shareholder's tax basis in the fractional share. Any such capital gain
will be long-term if the Landmark stock exchanged was held for more than one
year.
Backup Withholding. Unless an exemption applies under applicable law and
regulations, the Exchange Agent will be required to withhold 31 percent of any
cash payments to which a shareholder or other payee is entitled pursuant to
the Merger unless the shareholder or other payee provides its taxpayer
identification number (social security number, employer identification number
or individual taxpayer identification number) and certifies that such number
is correct. Each shareholder and, if applicable, each other payee should
complete and sign the substitute Form W-9 included with the Election Forms, so
as to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is established in a
manner satisfactory to NHTB and the Exchange Agent.
45
<PAGE>
ACCOUNTING TREATMENT
NHTB intends to treat the Merger as a purchase for accounting purposes.
The pro forma financial information presented in this Joint Proxy Statement-
Prospectus has been prepared using the purchase method of accounting to
account for the Merger. See "UNAUDITED PRO FORMA COMBINED FINANCIAL DATA."
TERMINATION
The Plan of Reorganization provides that the Merger may be terminated at any
time prior to the Effective Time (whether before or after shareholder
approval) by the mutual consent in writing of NHTB and Landmark. The Merger
also may be terminated by NHTB or Landmark, acting individually, (a) if any
regulatory authority shall have issued a final nonappealable order enjoining,
prohibiting or failing to approve the Merger or the transactions contemplated
thereby; (b) if the Effective Time has not occurred on or before June 30, 1997
unless the failure to close by such date is due to the failure of the party
seeking to terminate the Agreements to perform or observe the covenants and
agreements set forth with the Agreements; (c) if there is a material breach by
the other party of any representation, warranty, covenant or agreement
contained in the Plan of Reorganization or the Merger Agreement which is not
timely cured; or (d) if the vote of the shareholders of NHTB or Landmark
required to approve the Plan of Reorganization and the Merger Agreement is not
obtained. Landmark may terminate the Merger if the NHTB Trading Price is less
than $6.50 upon written notice to NHTB prior to the third business day
immediately preceding the Effective Date. If the Plan of Reorganization and
the Merger Agreement is terminated (other than as a result of a wilful breach
by NHTB or Landmark), each of NHTB and Landmark shall be responsible for its
own costs and expenses. If the Plan of Reorganization and the Merger Agreement
is terminated as a result of a breach of a representation, warranty or
covenant which is caused by the wilful conduct of either party, the breaching
party may be liable for damages to the other, including out-of-pocket costs
and expenses incurred in connection with the Merger.
AMENDMENT, EXTENSION AND WAIVER
The Board of Directors of NHTB and Landmark may, to the extent legally
allowable, (a) amend the Plan of Reorganization or the Merger Agreement; (b)
extend the time for the performance of any of the obligations or other acts
required of the other party contained in the Plan of Reorganization or the
Merger Agreement; (c) waive any inaccuracies in the representations and
warranties of the other party contained in the Plan of Reorganization or the
Merger Agreement or in any document delivered pursuant to the Plan of
Reorganization; or (d) waive compliance by the other party of any of its
agreements or conditions contained in the Plan of Reorganization or the Merger
Agreement, except that after the Agreements have been approved by the
shareholders of Landmark, (i) no amendment shall reduce the amount or kind of
Merger Consideration or (ii) adversely affect the tax treatment to Landmark
shareholders as a result of receipt of the Merger Consideration. Except in the
circumstances described in (i) and (ii) above, no amendment to the Plan of
Reorganization or the Merger Agreement (including, but not limited to, any
waiver of conditions, waiver of inaccuracies in the representations and
warranties or extension of time for the performance of any of the obligations
contained in the Plan of Reorganization or the Merger Agreement) would require
further solicitation of proxies from or approval by the NHTB or Landmark
shareholders.
EFFECT ON EMPLOYEES AND EMPLOYEE BENEFITS
The Plan of Reorganization provides that, after the Merger, NHTB will
provide Landmark employees who were employees of Landmark immediately prior to
the Merger with employee benefits no less favorable than those available to
employees of NHTB, subject to the terms and conditions under which those
employee benefits are made available to employees of NHTB. For purposes of
determining eligibility for and vesting of such employee benefits plan,
service with Landmark by persons who were employees of Landmark at the
Effective Time shall be treated as service with an "employer" to the same
extent as if such persons had been employees of NHTB during the period such
persons were employed by Landmark. The Agreements provide that all
46
<PAGE>
employees of Landmark as of the Effective Date shall become employees of NHTB,
the Bank, or an affiliate thereof as of the Effective Date. In the event any
employee of NHTB who was employed by Landmark at the Effective Time is
terminated from NHTB within one year after the Effective Time, in addition to
any severance payment, each such employee shall be reimbursed for the costs
they incur, if any, for COBRA coverage during such employee's severance
period, provided that such employee execute a general release discharging NHTB
from liability in connection with such employee's employment.
The Bank and Landmark have entered into agreements with five current
Landmark employees to provide for bonuses to be funded by Landmark and paid by
the Bank provided the employees remain employed in good standing and continue
such employment with the Bank for 105 days following the Effective Date. The
total amount accrued by Landmark to fund the bonus payments is $53,462.
NHTB has also agreed that all rights to indemnification existing in favor of
the Directors and Officers of Landmark as provided in the Landmark Articles
and Landmark's Bylaws as in effect on July 26, 1996, will survive the Merger
and continue in full force and effect with respect to claims or liabilities
arising from facts or events existing or occurring prior to the Effective
Time. All rights to indemnification in respect of any claim asserted or made
within such period shall continue until the final disposition of such claim.
NHTB has also agreed to maintain in effect for three years after the
Effective Time, if available, the directors' and officers' liability insurance
policy currently maintained by Landmark or to substitute policies having at
least the same coverage containing terms and conditions which are not less
advantageous than the present policies of Landmark. NHTB will not, however, be
required to expend more than 150 percent per annum of the amount expended by
Landmark to maintain or procure such insurance coverage.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the Merger, NHTB has agreed to provide certain benefits
to the employees of Landmark. See "--Effect on Employees and Employee
Benefits."
NHTB has also agreed to continue the rights to indemnification of officers
and directors of Landmark and to continue in effect for a period of time the
directors' and officers' liability insurance currently maintained by Landmark.
See "--Effect on Employees and Employee Benefits."
Prior to or at the Effective Time, the Board of Directors of NHTB will elect
two of Landmark's current Directors to serve on the Board of Directors of
NHTB, who will be designated prior to the Effective Time as follows: one of
the nominees will be Mr. Jack H. Nelson for a three-year term and the other
will be Mr. Leonard R. Cashman for a two-year term. Prior to or at the
Effective Time, the Board of Directors of the Bank, NHTB's banking subsidiary,
will elect Mr. Nelson, Mr. Cashman and Mr. Willey to serve on the Board of
Directors of the Bank. As new Directors of NHTB and the Bank, Messrs. Nelson,
Cashman and Willey will each be entitled to an annual retainer of $11,000,
plus $100 for attendance at meetings of any committees to which they are
appointed. Messrs. Nelson, Cashman and Willey shall also be entitled to such
other benefits as are generally available to outside directors.
Landmark is a party to an Employment Agreement with Paul P. Tierney pursuant
to which Mr. Tierney serves as Landmark's President and Chief Executive
Officer. In connection with the Merger, Landmark will be merged with and into
the Bank, with the Bank as the surviving entity, and Mr. Tierney will not be
elected or serve as President and Chief Executive Officer of the Bank. Because
of this reduction in his responsibilities, pursuant to the Employment
Agreement, NHTB or the Bank will pay Mr. Tierney $188,400 (equivalent to two-
years salary as provided in the Employment Agreement) and assume the
liabilities of Landmark with respect to certain deferred compensation
arrangements established pursuant to the Employment Agreement. In exchange,
Mr. Tierney will acknowledge such payment and assumption as full satisfaction
of all obligation to him under the Employment Agreement and execute a release
in favor Landmark, NHTB and the Bank and their affiliates.
47
<PAGE>
BENEFICIAL OWNERSHIP OF NHTB COMMON STOCK
The following table sets forth certain information as of September 3, 1996
regarding each director individually and all directors and executive officers
of NHTB as a group. Except as otherwise noted in the footnotes to the table,
the beneficial owners have sole voting and investment power as to all shares
of NHTB Common Stock beneficially owned by them. All of the individuals named
below are Directors of NHTB.
<TABLE>
<CAPTION>
EQUIVALENT SHARES
OF NHTB COMMON
STOCK ASSUMING
CONSUMMATION OF
THE MERGER
AMOUNT AND -----------------
NATURE OF PERCENTAGE PERCENTAGE OF
NAME BENEFICIAL OWNERSHIP OF CLASS(1) CLASS(1)
---- -------------------- ----------- -------------
<S> <C> <C> <C>
Stephen W. Ensign........... 51,123(2) 3.01% 2.50%
Ralph B. Fifield, Jr........ 6,997 * *
John A. Kelley, Jr.......... 8,040(3) * *
John J. Kiernan............. 29,171(4) 1.72 1.43
Dennis A. Morrow............ 13,398(5) * *
Priscilla W. Ohler.......... 8,768 * *
Perry R. Smith, Jr.......... 3,216(6) * *
Stephen R. Theroux.......... 23,896(7) 1.41 1.17
Kenneth D. Weed............. 14,956(8) * *
All Directors and Executive
Officers as a group (9
persons)................... 159,565 9.40% 7.81%
</TABLE>
- --------
* Less than 1%.
(1) Based upon 1,698,136 shares of NHTB Common Stock outstanding as of
September 3, 1996. The number of equivalent shares of NHTB Common Stock is
based upon 2,045,001 shares, the maximum number of shares that could be
outstanding assuming consummation of the Merger.
(2) Includes 21,456 shares held by Mr. Ensign and his wife with shared voting
and investment power, 200 shares held by Mr. Ensign as custodian for his
minor child under the Uniform Gift to Minors Act for which he has sole
voting and investment power, and 26,022 shares subject to outstanding
options which are exercisable within 60 days from September 3, 1996.
(3) All 8,040 shares are held jointly by Mr. Kelley and his wife with shared
voting and investment power.
(4) Includes 25,300 shares held jointly by Mr. Kiernan and his wife with
shared voting and investment power, and 1,937 shares held in a spousal IRA
for which his wife has sole voting and investment power and to which Mr.
Kiernan disclaims beneficial ownership.
(5) Includes 8,700 shares held jointly by Mr. Morrow and his wife with shared
voting and investment power.
(6) All 3,216 shares are held jointly by Mr. Smith and his wife with shared
voting and investment power.
(7) Includes 5,216 shares held jointly by Mr. Theroux and his wife with shared
voting and investment power, and 16,632 shares which are subject to
outstanding options which are exercisable within 60 days from September 3,
1996.
(8) Includes 7,478 shares held in trust by Mr. Weed's wife.
48
<PAGE>
BENEFICIAL OWNERSHIP OF LANDMARK COMMON STOCK
To the best knowledge of Landmark, the following table sets forth certain
information as of September 3, 1996 regarding holders of more than 5% of
Landmark's Common Stock, each director of Landmark and all Directors and
Officers of Landmark as a group. Except as otherwise noted in the footnotes to
the table, the beneficial owners have sole voting and investment power as to
all shares beneficially owned by them.
<TABLE>
<CAPTION>
EQUIVALENT SHARES
OF NHTB
COMMON STOCK
SHARES OF COMMON SHARES OF PREFERRED ASSUMING
STOCK OWNED STOCK OWNED CONSUMMATION
BENEFICIALLY(1)(2)(3) BENEFICIALLY(1)(5)(6) OF THE MERGER(4)
------------------------- ------------------------- --------------------
NAME OF PERCENT OF PERCENT OF NUMBER OF PERCENT OF
BENEFICIAL OWNER TOTAL CLASS TOTAL CLASS SHARES CLASS
---------------- ----------- ------------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Harry H. Holland: P.O.
Box 51
Bethel, Vermont 05032.. 64,455 18.20% 3,625 6.08% 87,552 4.28%
Paul P. Tierney......... 38,198 10.79 -- -- 46,640 2.28
Leonard R. Cashman...... 11,076 3.13 -- -- 13,524 *
Richard S. Daniels...... 26,580 7.51 -- -- 32,454 1.59
Lorin P. Dore........... 100 * -- -- 122 --
William N. Josler....... 19,298 5.45 -- -- 23,563 1.15
Ellen E. Knights........ 100 * 2,992 5.01 7,429 *
Richard B. Logan........ 200 * -- -- 244 *
Jack H. Nelson.......... 6,667 1.88 2,500 4.19 14,245 *
Joseph B. Willey........ 31,155 8.80 9,075 15.21 60,201 2.94
Thomas J. Bascetta: 9
Laurel Road
Etna, New Hampshire
03750.................. 19,994 5.65 2,500 4.19 30,517 1.50
All Directors and
Officers as a group
(12 persons)........... 133,374 37.66% 14,567 24.41% 198,422 9.69%
</TABLE>
- --------
* Less than 1%.
(1) Shares beneficially owned means shares over which a person exercises sole
or shared voting or investment power, or shares which a person has the
right to acquire beneficial ownership of within 60 days of September 3,
1996. Shares of capital stock of the Bank may be beneficially owned by
more than one person.
(2) Calculation of percentages is based upon a total of 354,138 shares of
Common Stock outstanding as of September 3, 1996. Individual percentages
have been rounded. No account is made for shares of Common Stock that may
be issued and/or acquired upon conversion of outstanding shares of
Landmark Preferred Stock. No account is made for the impact of the Excess
Share voting limitation contained in the Landmark Articles, the effect of
which is to reduce the number of shares of Landmark Common Stock entitled
to vote to 342,803 shares.
(3) The individuals noted above have sole voting and investment power with
respect to shares of Common Stock beneficially owned, except that voting
and investment power is shared as follows: Mr. Holland, 35,676 shares; Mr.
Cashman, 5,500 shares; Mr. Daniels, 11,000 shares; Mr. Josler, 5,798
shares; Ms. Knights, 100 shares; Mr. Tierney, 33,989 shares; Mr. Willey,
9,566 shares; and Mr. Bascetta, 19,994 shares.
(4) Based upon 2,045,001 shares of NHTB Common Stock, the maximum number of
such Shares that could be outstanding assuming consummation of the Merger.
Equivalent shares of NHTB Common Stock are based on an assumed Exchange
Ratio of 1.221 and on the assumption that all of the named parties' shares
of Landmark Common Stock and Preferred Stock are exchanged solely for
shares of NHTB Common Stock. A share of Landmark Preferred Stock is
convertible into two (2) shares of Landmark Common Stock.
(5) Calculation of percentages is based upon a total of 59,667 shares of
Preferred Stock outstanding as of September 3, 1996. Individual
percentages have been rounded.
(6) The individuals noted above have sole voting and investment power with
respect to shares of Preferred Stock beneficially owned, except that
voting and investment power is shared as follows: Mr. Holland, 625 shares;
Ms. Knights, 2,892 shares; Mr. Willey, 9,075 shares; and Mr. Bascetta,
2,500 shares.
49
<PAGE>
CERTAIN RELATED TRANSACTIONS
THE STOCK OPTION AGREEMENT
As a condition to entering into the Agreements, NHTB required Landmark to
enter into the Option Agreement which allows NHTB to purchase up to 19.9% of
the then-issued and outstanding shares of Landmark Common Stock, under certain
conditions, at a price of $9.00 per share, subject to adjustment as set forth
in the Option Agreement. The Option is exercisable, in whole or in part, only
upon the occurrence of certain triggering events which are described below
(none of which has occurred to the best of NHTB's or Landmark's knowledge as
of the date of this Joint Proxy Statement-Prospectus).
Effect of Stock Option Agreement. The Option Agreement is intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms of the Agreements. Consequently, certain aspects of the Option
Agreement may have the effect of discouraging persons who might now or prior
to the Effective Time be interested in acquiring all of, or a significant
interest in, Landmark, from considering or proposing such an acquisition, even
if such persons were prepared to pay a higher price per share for Landmark
Common Stock than either the per share Merger Consideration or the then-
current market price of such shares. The acquisition of, or an interest in,
Landmark, or an agreement to do either, could cause the Option to become
exercisable. The existence of the Option Agreement could significantly
increase the cost to a potential acquiror of acquiring Landmark compared to
its cost had the Option Agreement not been entered into. Such increased cost
might discourage a potential acquiror from considering or proposing an
acquisition or might result in a potential acquiror proposing to pay a lower
per share price to acquire Landmark than it might otherwise have proposed to
pay.
Terms of Stock Option Agreement. The following is a summary of the material
provisions of the Option Agreement. The following summary is qualified in its
entirety by reference to the Option Agreement, which is annexed hereto as
Appendix C. The Option is exercisable only upon the occurrence of one of the
following events (each a "Purchase Event"):
(a) any person (other than NHTB or its subsidiaries) shall have acquired
beneficial ownership of 25% or more of then outstanding Landmark Common
Stock; or
(b) Landmark or any of its subsidiaries without having received NHTB's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person other than NHTB
or any of its subsidiaries or the Board of Directors shall have recommended
that the shareholders of Landmark approve or accept any Acquisition
Transaction with any person other than NHTB or any of its subsidiaries.
"Acquisition Transaction" means (i) a merger or consolidation, or any
similar transaction, involving Landmark or any of Landmark's subsidiaries,
(ii) a purchase, lease or other acquisition of all or substantially all of
the assets of Landmark or any subsidiary or (iii) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 25% or more of the voting power of
Landmark or any subsidiary; provided that the term "Acquisition
Transaction" does not include any internal merger or consolidation
involving only Landmark and/or its subsidiaries; or
(c) after a bona fide proposal is made by a third party to Landmark or
its shareholders to engage in an Acquisition Transaction and after such
proposal any of the following events occurs: (i) Landmark shall willfully
have breached any covenant or obligation contained in the Plan of
Reorganization and such breach would entitle NHTB to terminate the Plan of
Reorganization; (ii) the shareholders of Landmark shall not have approved
the Agreements at the Landmark Special Meeting; (iii) the Landmark Special
Meeting shall not have been held or shall have been canceled prior to
termination of the Agreements; or (iv) the Landmark Board of Directors
shall have withdrawn or modified, in a manner adverse to NHTB, the
recommendation of the Landmark Board with respect to the Agreements.
The Option terminates upon the earliest to occur of (i) the time immediately
prior to the Effective Time, (ii) 12 months after the first occurrence of a
Purchase Event, (iii) 18 months after the termination of the Agreements
following the occurrence of a Preliminary Purchase Event (as defined therein),
(iv) termination of
50
<PAGE>
the Plan of Reorganization in accordance with the terms thereof prior to the
occurrence of a Purchase Event or a Preliminary Purchase Event (other than a
termination resulting from a material breach of Landmark's covenants,
representations or warranties under the Plan of Reorganization), or (v) 18
months after the termination of the Plan of Reorganization if such termination
results from a material breach of Landmark's covenants, representations or
warranties under the Plan of Reorganization (each of (i), (ii), (iii), (iv)
and (v) herein referred to as an Exercise Termination Event).
The number and type of securities subject to the Option and the purchase
price of shares will be adjusted for any change in the Landmark Common Stock
by reason of a stock dividend, stock split, recapitalization, combination,
exchange of shares or similar transaction, such that NHTB will receive (upon
exercise of the Option) the same number and type of securities as if the
Option had been exercised immediately prior to the occurrence of such event
(or the record date therefor). The number of shares of Landmark Common Stock
subject to such Option will also be adjusted in the event Landmark issues
additional shares of Landmark Common Stock such that the number of shares of
Landmark Common Stock subject to the Option, together with shares previously
purchased pursuant thereto, represents 19.9% of Landmark's Common Stock then
issued and outstanding, without giving effect to shares subject to or issued
pursuant to the Option.
If, prior to an Exercise Termination Event, Landmark were to take certain
action to consolidate with or sell substantial assets to another entity, as
described in detail in the Option, then the Option shall be converted into, or
exchanged for, an option (the "Substitute Option"), at the election of NHTB of
either (x) the acquiring corporation or (y) any person that controls the
acquiring corporation, which shall have substantially the same terms as the
Option, with adjustments in the exercise price as set forth in the Option
Agreement.
Landmark has granted NHTB certain registration rights with respect to shares
of common stock acquired by NHTB upon exercise of the Option, in certain
circumstances. These rights include that Landmark will promptly prepare and
file a registration statement under the Securities Act or offering circular
under the rules and regulations of the FDIC if requested by NHTB.
RESALE OF NHTB COMMON STOCK
The NHTB Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any
Landmark shareholder who may be deemed to be an affiliate (an "Affiliate") of
Landmark for purposes of Rule 145 under the Securities Act. Generally,
Affiliates of Landmark are defined as persons (generally executive officers
and directors) who control, are controlled by, or are under common control
with Landmark at the time of the Landmark Special Meeting.
Rules 144 and 145 promulgated by the Commission under the Securities Act
impose certain restrictions on the public sale of NHTB Common Stock received
in the Merger by Affiliates and certain of their family members and related
interests. Generally speaking, during the two years following the Effective
Time, Affiliates of Landmark, provided they are not Affiliates of NHTB, may
publicly resell the NHTB Common Stock received by them in the Merger, subject
to certain limitations as to the amount of NHTB Common Stock sold by them in
any three-month period and as to the manner of sale. After the two-year
period, such Affiliates of Landmark who are not Affiliates of NHTB may resell
their shares without such restrictions so long as there is adequate current
public information with respect to NHTB as required by Rule 144. Persons who
become Affiliates of NHTB prior to, at or after the Effective Time may
publicly resell the NHTB Common Stock received by them in the Merger subject
to similar limitations and subject to certain filing requirements specified in
Rule 144. The ability of Affiliates to resell shares of NHTB Common Stock
received in the Merger under Rule 144 or 145 as summarized herein generally
will be subject to NHTB's having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. Affiliates also
would be permitted to resell NHTB Common Stock received in the Merger pursuant
to an effective Registration Statement under the Securities Act or another
available exemption from the Securities Act registration requirements.
This Joint Proxy Statement-Prospectus does not cover any resales of NHTB
Common Stock received by persons who may be deemed to be Affiliates of
Landmark.
51
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
Landmark. Under regulations of the Commissioner of Banks at Part BAN 523,
any Landmark shareholder has the right to assert dissenters' rights with
respect to the Merger and to receive payment for his or her shares of Landmark
Common Stock in accordance with regulations of the OCC applicable to mergers
of national banks with and into federal savings associations, a copy of which
is set forth as Appendix D to this Joint Proxy Statement-Prospectus. Each
outstanding share of Landmark Common Stock, the holder of which has perfected
his or her right to dissent and has not effectively withdrawn or lost such
right as of the Effective Date, shall not be converted into or represent a
right to receive shares of NHTB Common Stock or cash hereunder, and the holder
thereof shall be entitled only to such rights as are granted by applicable
law.
A shareholder may not dissent as to less than all of the shares that he or
she beneficially owns. A shareholder who votes against the Merger or who has
given notice in writing to Landmark at or prior to the Landmark Special
Meeting that he or she dissents from the Merger, shall be entitled to receive
in cash the value of the shares he or she holds, if the Merger is consummated.
To receive cash for Dissenting Shares, a dissenting shareholder must send a
written request to the Bank within thirty days after the dissenting
shareholder receives notice of the Effective Date of the Merger, accompanied
by his or her stock certificates.
The value of such shares shall be determined as of the date of the Landmark
Special Meeting by a committee of three persons, one to be selected by
majority vote of the dissenting shareholders entitled to receive the value of
their shares, one by the Directors of the Bank, and the third by the two so
chosen. The valuation agreed upon by any two of the three appraisers thus
chosen shall govern.
If the value so fixed is not satisfactory to any dissenting shareholder who
has requested payment in the manner provided in the Dissent Regulations, such
shareholder may within five days after being notified of the appraised value
of his or her shares appeal to the Commissioner of Banks. The Commissioner of
Banks may cause a reappraisal to be made if the parties agree that such
reappraisal shall be final and binding on all parties as to the value of the
shares of the dissenting shareholder and also agree on how the full expenses
of the Commissioner of Banks, in making the reappraisal, shall be divided
among the parties and paid to the Commissioner of Banks.
If, within ninety days from the Effective Date of the Merger, for any reason
one or more of the appraisers is not selected in the manner provided in the
Dissent Regulations, or the appraisers fail to determine the value of
Dissenting Shares, the Commissioner of Banks may, upon written request of any
interested party, cause an appraisal to be made, provided that the parties
agree that such appraisal shall be final and binding on all parties as to the
value of the shares of the dissenting shareholder(s) and also agree on how the
full expenses of the Commissioner of Banks in making the appraisal shall be
divided among the parties and paid to the Commissioner of Banks.
The foregoing summary of the applicable provisions of the Dissent
Regulations is not intended to be a complete statement of such provisions, and
is qualified in its entirety by reference to such sections, which are attached
hereto as Appendix D.
For a discussion of certain tax consequences in connection with dissenting
shareholders, see "Material Federal Income Tax Consequences" above.
NHTB. NHTB shareholders do not have dissenters' rights with respect to the
Merger.
52
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined condensed financial statements
have been prepared to reflect the Merger as a purchase transaction. See "THE
MERGER--Accounting Treatment." The following pro forma financial statements
reflect the exchange of Landmark Common Stock for NHTB Common Stock in
connection with the Merger at the Exchange Ratio of 1.221. This unaudited pro
forma combined financial data should be read in conjunction with the
consolidated historical financial statements of Landmark and NHTB, including
the respective notes thereto, which are included in this Joint Proxy
Statement-Prospectus. See the NHTB Consolidated Financial Statements and the
Landmark Financial Statements beginning at page F-1.
The unaudited pro forma information presented in the following schedules
does not include any expected cost savings as a result of the Merger. The June
30, 1996 unaudited pro forma information presented in the following schedules
includes Merger transaction costs incurred through June 30, 1996, which
amounted to $15,509. Also included in the following schedules are the
remaining Merger transaction costs currently estimated at approximately
$315,000. These costs represent legal, accounting, financial advisory,
printing, registration, severance and other expenses.
The unaudited pro forma combined financial data is not necessarily
indicative of the financial position and results of future operations of the
combined entity or the actual financial position and results of operations
that would have been achieved had the Merger been consummated at the dates
indicated. Moreover, the pro forma combined condensed balance sheet reflects
preliminary pro forma adjustments made to combine Landmark with NHTB utilizing
purchase accounting treatment. The actual adjustments to the surviving
corporation's accounts will be made as of the Effective Time of the Merger and
may differ from those reflected in the pro forma financial statements.
53
<PAGE>
NHTB--LANDMARK
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
JUNE 30, 1996
<TABLE>
<CAPTION>
LANDMARK NHTB
----------------------------------- ------------------------
NHTB PRO FORMA PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA ADJUSTMENTS COMBINED
------------ ------------ ----------- --------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks. $ 7,660 $ 1,572 $ $ 1,572 $(2,273)(b) $ 6,959
Federal funds sold...... -- 1,240 1,240 1,240
Securities available-
for-sale............... 25,234 7,111 7,111 32,345
Securities held-to-
maturity............... 368 828 828 1,196
Other investments....... 2,308 -- 2,308
Loans held-for-sale..... 1,001 -- 1,001
Loans receivable, net... 211,439 42,307 42,307 253,746
Bank premises and
equipment, net......... 5,794 2,644 2,644 8,438
Real estate owned and
property acquired in
settlement of loans.... 820 -- 820
Non-earning assets...... 1,444 -- 1,444
Accrued interest
receivable............. 1,551 281 281 1,832
Goodwill................ -- -- 2,411 (b) 2,411
Deferred income taxes... -- 305 305 305
Other assets............ 907 1,483 1,483 (16)(b) 2,374
---------- -------- ---------- ------- ------- ----------
Total assets.......... $ 258,526 $ 57,771 $ $57,771 $ 122 $ 316,419
========== ======== ========== ======= ======= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
LIABILITIES:
Deposits................ $ 200,303 $ 53,736 $ $53,736 $ $ 254,039
Repurchase Agreements... 4,201 309 309 4,510
Borrowed funds.......... 32,413 -- 32,413
Other liabilities....... 2,134 151 151 315 (b) 2,600
---------- -------- ---------- ------- ------- ----------
Total liabilities..... 239,051 54,196 54,196 315 293,562
---------- -------- ---------- ------- ------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock......... -- 1,094 (1,094)(a)
Common stock............ 21 354 119 (a) 473 (473)(e)
3 (c) 24
Additional paid-in
capital................ 13,168 2,826 975 (a) 3,801 (3,801)(d)
3,379 (c) 16,547
Retained earnings
(deficit).............. 9,079 (478) (478) 478 (d) 9,079
Unrealized net loss on
securities available-
for-sale............... (394) (221) (221) 221 (d) (394)
---------- -------- ---------- ------- ------- ----------
21,874 3,575 3,575 (193) 25,256
Treasury stock.......... (2,399) -- (2,399)
---------- -------- ---------- ------- ------- ----------
Total shareholders'
equity............... 19,475 3,575 3,575 (193) 22,857
---------- -------- ---------- ------- ------- ----------
Total liabilities and
shareholders' equity... $ 258,526 $ 57,771 $ $57,771 $ 122 $ 316,419
========== ======== ========== ======= ======= ==========
Number of common shares
outstanding............ 1,691,803 354,138 473,472 2,038,668
========== ======== ======= ==========
Common shareholders'
equity per share....... $ 11.51 $ 7.00 $ 7.55 $ 11.21
========== ======== ======= ==========
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Statements.
54
<PAGE>
NHTB--LANDMARK
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
NHTB LANDMARK PRO FORMA NHTB
(HISTORICAL) (HISTORICAL) ADJUSTMENTS PRO FORMA
------------ ------------ ----------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans........... $ 8,244 $ 1,993 $ $ 10,237
Interest and dividends on
securities and federal
funds sold................. 953 352 1,305
--------- ------- ----- ----------
Total interest and
dividend income.......... 9,197 2,345 11,542
--------- ------- ----- ----------
Interest expense:
Interest on deposits........ 4,199 1,454 5,653
Interest on borrowed funds.. 856 4 860
--------- ------- ----- ----------
Total interest expense.... 5,055 1,458 6,513
--------- ------- ----- ----------
Net interest and dividend
income................... 4,142 887 5,029
Provision for loan losses,
net.......................... 744 317 1,061
--------- ------- ----- ----------
Net interest and dividend
income after provision for
loan losses................ 3,398 570 3,968
Non-interest income........... 1,087 304 1,391
Non-interest expense.......... 3,249 1,106 80(e) 4,435
--------- ------- ----- ----------
Income (loss) before income
taxes........................ 1,236 (232) (80) 924
Income tax expense (benefit).. 408 (86) 322
--------- ------- ----- ----------
Net income (loss)........... $ 828 $ (146) $ (80) $ 602
========= ======= ===== ==========
Weighted average number of
common shares outstanding.... 1,695,931 354,138 (g) 2,042,796
========= ======= ===== ==========
Earnings (loss) per common
share........................ $ 0.49 $ (0.41) $ 0.29
========= ======= ===== ==========
FOR THE YEAR ENDED DECEMBER 31, 1995
Interest and dividend income:
Interest on loans........... $ 15,846 $ 4,269 $ $ 20,115
Interest and dividends on
securities and federal
funds sold................. 1,620 894 2,514
--------- ------- ----- ----------
Total interest and
dividend income.......... 17,466 5,163 22,629
--------- ------- ----- ----------
Interest expense:
Interest on deposits........ 8,097 2,848 10,945
Interest on borrowed funds.. 1,501 10 1,511
--------- ------- ----- ----------
Total interest expense.... 9,598 2,858 12,456
--------- ------- ----- ----------
Net interest and dividend
income................... 7,868 2,305 10,173
Provision for loan losses,
net.......................... 1,164 205 1,369
--------- ------- ----- ----------
Net interest and dividend
income after provision
for loan losses.......... 6,704 2,100 8,804
Non-interest income........... 1,436 411 1,847
Non-interest expense.......... 6,291 2,485 161(e) 8,937
--------- ------- ----- ----------
Income before income tax...... 1,849 26 (161) 1,714
Income tax expense............ 604 5 609
--------- ------- ----- ----------
Net income.................. $ 1,245 $ 21 $(161) $ 1,105
========= ======= ===== ==========
Weighted average number of
common shares outstanding.... 1,699,536 354,138 (h) 2,046,401
========= ======= ==========
Earnings per common share..... $ 0.73 $ (0.20) $ 0.54
========= ======= ==========
</TABLE>
Landmark and NHTB combined pro forma per share information is calculated on
the assumption that all shares of Landmark Preferred Stock will be converted
into shares of Landmark Common Stock.
See notes to Pro Forma Combined Condensed Financial Statements.
55
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS:
PRO FORMA ADJUSTMENTS:
<TABLE>
<S> <C>
a. Conversion of all shares of Landmark preferred stock to Landmark
common stock, $1 par value:
Common stock shares, 119,334 at $1 par value, in thousands......... $ 119
Preferred stock balance, in thousands.............................. 1,094
---------
Difference is paid-in capital, in thousands........................ $ 975
b. Computation of goodwill:
Cost to NHTB to purchase Landmark common shares:
Number of shares of Landmark common outstanding before pro forma. 354,138
Add number of Landmark common shares to be issued for all
preferred stock:
59,667 preferred converted to common shares.................... 119,334
---------
Pro forma number of shares of Landmark common outstanding........ 473,472
Pro forma number of shares of Landmark common stock to be issued
the right to receive NHTB common stock 60%...................... 284,083
Pro forma number of shares of NHTB common shares to be issued:
284,083 times 1.221............................................ 346,865
At fair value of $9.75 per share, in thousands................... $ 3,382
Pro forma number of shares of Landmark common stock to be issued
the right to receive cash 40%................................... 189,389
Cash to be paid at $12 per share, in thousands................... $ 2,273
Direct acquisition costs, in thousands........................... $ 331
Total cost of purchase, in thousands............................. $ 5,986
Pro forma book value net worth of Landmark after fair value
adjustments, if any, in thousands............................... 3,575
---------
Difference is goodwill, in thousands............................. $ 2,411
=========
c. NHTB pro forma combined stockholders' equity:
Common stock, 346,865 shares issued to Landmark common stockholders
at $.01 par value, in thousands................................... $ 3
Net fair value of NHTB common stock issued......................... 3,382
---------
Difference is paid-in capital...................................... $ 3,379
=========
d. Elimination of Landmark's stockholders' equity accounts
e. Reflects the amortization of goodwill over a fifteen-year period
f. Reflects the tax effect of the above adjustments, except goodwill,
at 40%
g. Weighted average number of shares of NHTB Common Stock outstanding
January 1, 1996 to June 30, 1996.................................. 1,695,931
Add number of shares of NHTB Common Stock to be issued to Landmark
shareholders...................................................... 346,865
---------
Pro forma weighted average number of shares of NHTB Common Stock
outstanding January 1, 1996 to June 30, 1996...................... 2,042,796
=========
h. Weighted average number of shares of NHTB Common Stock outstanding
in 1995........................................................... 1,699,536
Add number of shares of NHTB Common Stock to be issued to Landmark
shareholders...................................................... 346,865
---------
Pro forma weighted average number of shares of NHTB Common Stock
outstanding in 1995............................................... 2,046,401
=========
</TABLE>
56
<PAGE>
REGULATION OF THE BANK AND NHTB
GENERAL
The Bank is subject to extensive regulation, examination, and supervision by
the OTS, as its chartering agency, and the FDIC, as its deposit insurer. The
Bank's deposits are insured up to applicable limits by the SAIF administered
by the FDIC, and the Bank is a member of the Federal Home Loan Bank of Boston
("FHLB of Boston"). The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition, and it must obtain
regulatory approvals prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions. The OTS and
the FDIC conduct periodic examinations to assess the Bank's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which a savings association can
engage and is intended primarily for the protection of the insurance fund and
depositors. NHTB, as a savings association holding company, is required to
file certain reports with, and otherwise comply with, the rules and
regulations of the OTS and of the Commission under the federal securities
laws.
The OTS and the FDIC have significant discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on NHTB, the Bank and the operations of both.
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations and their holding
companies, and it does not purport to be a comprehensive description of all
such statutes and regulations.
REGULATION OF FEDERAL SAVINGS ASSOCIATIONS
Business Activities. The Bank derives its lending and investment powers from
the Home Owners' Loan Act, as amended (the "HOLA"), and the regulations of the
OTS thereunder. Under these laws and regulations, the Bank may invest in
mortgage loans secured by residential and commercial real estate, commercial
and consumer loans, certain types of debt securities, and certain other
assets. The Bank may also establish service corporations that may engage in
activities not otherwise permissible for the Bank, including certain real
estate equity investments and securities and insurance brokerage. These
investment powers are subject to various limitations, including (a) a
prohibition against the acquisition of any corporate debt security that is not
rated in one of the four highest rating categories; (b) a limit of 400% of an
association's capital on the aggregate amount of loans secured by non-
residential real estate property; (c) a limit of 20% of an association's
assets on the aggregate amount of commercial loans; (d) a limit of 35% of an
association's assets on the aggregate amount of consumer loans and
acquisitions of certain debt securities; (e) a limit of 5% of assets on non-
conforming loans (loans in excess of the specific limitations of the HOLA);
and (f) a limit of the greater of 5% of assets or an association's capital on
certain construction loans made for the purpose of financing what is or is
expected to become residential property.
Loans to One Borrower. Under the HOLA, savings associations are generally
subject to the same limits on loans to one borrower as are imposed on national
banks. Generally, under these limits, a savings association may not make a
loan or extend credit to a single or related group of borrowers in excess of
15% of the association's unimpaired capital and surplus. Additional amounts
may be lent, not in excess of 10% of unimpaired capital and surplus, if such
loans or extensions of credit are fully secured by readily-marketable
collateral. Such collateral is defined to include certain debt and equity
securities and bullion but generally does not include real estate. At June 30,
1996, the Bank's regulatory limit on loans to one borrower was $2.7 million.
At June 30, 1996, the Bank's largest aggregate amount of loans to one borrower
was $2.6 million, and the second largest borrower had an aggregate balance of
$1.8 million. The Bank is in compliance with all applicable limitations on
loans to one borrower.
57
<PAGE>
QTL Test. The HOLA requires a savings association to meet a qualified thrift
lender, or "QTL" test. Under the QTL test, a savings association is required
to maintain at least 65% of its "portfolio assets" in certain "qualified
thrift investments" in at least nine months of the most recent 12-month
period. "Portfolio assets" means, in general, an association's total assets
less the sum of (a) specified liquid assets up to 20% of total assets, (b)
certain intangibles, including goodwill and credit card and purchased mortgage
servicing rights, and (c) the value of property used to conduct the
association's business. Qualified thrift investments includes various types of
loans made for residential and housing purposes, investments related to such
purposes, including certain mortgage-backed and related securities, and
consumer loans up to 10% of the association's portfolio assets. At June 30,
1996, the Bank maintained in excess of 88% of its portfolio assets in
qualified thrift investments. The Bank had also met the QTL test in each of
the prior 12 months and was, therefore, a qualified thrift lender.
A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The
initial restrictions include prohibitions against (a) engaging in any new
activity not permissible for a national bank, (b) paying dividends not
permissible under national bank regulations, (c) obtaining new advances from
any Federal Home Loan Bank and (d) establishing any new branch office in a
location not permissible for a national bank in the association's home state.
In addition, within one year of the date that a savings association ceases to
meet the QTL test, any company controlling the association would have to
register under, and become subject to the requirements of, the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). If the savings association
does not requalify under the QTL test within the three-year period after it
failed the QTL test, it would be required to terminate any activity and to
dispose of any investment not permissible for a national bank and would have
to repay as promptly as possible any outstanding advances from a Federal Home
Loan Bank. A savings association that has failed the QTL test may requalify
under the QTL test and be free of such limitations, but it may do so only
once.
Capital Requirements. The OTS regulations require savings associations to
meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets, and a risk-
based capital ratio requirement of 8% of core and supplementary capital to
total risk-weighted assets. In determining compliance with the risk-based
capital requirement, a savings association must compute its risk-weighted
assets by multiplying its assets and certain off-balance sheet items by risk-
weights, which range from 0% for cash and obligations issued by the United
States Government or its agencies to 100% for consumer and commercial loans,
as assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset.
Tangible capital is defined, generally, as common stockholders' equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related earnings and minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles (other than certain purchased
mortgage servicing rights) and investments in and loans to subsidiaries
engaged in activities not permissible for a national bank. Core capital is
defined similarly to tangible capital, but core capital also includes certain
qualifying supervisory goodwill and certain purchased credit card
relationships. Supplementary capital currently includes cumulative and other
perpetual preferred stock, mandatory convertible securities, subordinated
debt, and intermediate preferred stock, and the allowance for loan and lease
losses. The allowance for loan and lease losses includable in supplementary
capital is limited to a maximum of 1.25% of risk-weighted assets, and the
amount of supplementary capital that may be included as total capital cannot
exceed the amount of core capital.
The OTS has promulgated a regulation that requires a savings association
with "above normal" interest rate risk, when determining compliance with its
risk-based capital requirements, to hold additional capital to account for its
"above normal" interest rate risk. Pending resolution of related regulatory
issues, the OTS has deferred enforcement of this regulation. A savings
association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) resulting from a hypothetical 2% increase or decrease in market
rates of interest, divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. At the times when the 3-month Treasury bond equivalent yield falls
below 4%, an association may compute its interest rate risk on the basis of a
decrease equal to one-half of
58
<PAGE>
that Treasury rate rather than on the basis of 2%. A savings association whose
measured interest rate risk exposure exceeds 2% would be considered to have
"above normal" risk. The interest rate risk component is an amount equal to
one-half of the difference between the association's measured interest rate
risk and 2%, multiplied by the estimated economic value of the association's
assets. That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Any required
deduction for interest rate risk becomes effective on the last day of the
third quarter following the reporting date of the association's financial data
on which the interest rate risk was computed.
At June 30, 1996, the Bank met each of its capital requirements.
The table below presents the Bank's regulatory capital as compared to the
OTS regulatory capital requirements at June 30, 1996.
<TABLE>
<CAPTION>
BANK CAPITAL REQUIREMENTS EXCESS
--------------- ---------------------- ---------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ----------- ---------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital........ $18,060 6.98% $ 3,882 1.50% $14,178 5.48%
Core capital............ 18,060 6.98 7,764 3.00 10,296 3.98
Total Risk-based
capital................ 17,791 11.88 11,324 8.00 6,467 3.88
</TABLE>
A reconciliation between regulatory capital and GAAP capital at June 30,
1996 is presented below.
<TABLE>
<CAPTION>
TOTAL RISK-
TANGIBLE CAPITAL CORE CAPITAL BASED CAPITAL
---------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
GAAP capital....................... $17,801 $17,801 $17,801
Unrealized loss on certain
securities available-for-sale..... 259 259 259
Assets required to be deducted..... -- -- 1,791
Includable portion of allowance for
loan loss......................... -- -- 1,522
------- ------- -------
Regulatory capital................. $18,060 $18,060 $17,791
======= ======= =======
</TABLE>
Limitation on Capital Distributions. OTS regulations currently impose
limitations upon capital distributions by savings associations, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other
distributions charged against capital. At least 30-days written notice must be
given to the OTS of a proposed capital distribution by a savings association,
and capital distributions in excess of specified earnings or by certain
institutions are subject to approval by the OTS. An association that has
capital in excess of all fully phased-in regulatory capital requirements
before and after a proposed capital distribution and that is not otherwise
restricted in making capital distributions, may, after prior notice but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of (a) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year, or (b) 75% of its net
earnings for the previous four quarters. Any additional capital distributions
would require prior OTS approval. In addition, the OTS can prohibit a proposed
capital distribution, otherwise permissible under the regulation, if the OTS
has determined that the association is in need of more than normal supervision
or if it determines that a proposed distribution by an association would
constitute an unsafe or unsound practice. Furthermore, under the OTS prompt
corrective action regulations, the Bank would be prohibited from making any
capital distribution if, after the distribution, the Bank failed to meet its
minimum capital requirements, as described above. See "--Prompt Corrective
Regulatory Action."
The OTS has proposed regulations that would simplify the existing procedures
governing capital distributions by savings associations. Under the proposed
regulations, the approval of the OTS would be required only for capital
distributions by an association that is deemed to be in troubled condition or
that is
59
<PAGE>
undercapitalized or would be undercapitalized after the capital distribution.
A savings association would be able to make a capital distribution without
notice to or approval of the OTS if it is not held by a savings association
holding company, is not deemed to be in troubled condition, has received
either of the two highest composite supervisory ratings, and would continue to
be adequately capitalized after such distribution. Notice would have to be
given to the OTS by any association that is held by a savings association
holding company or that had received a composite supervisory rating below the
highest two composite supervisory ratings. An association's capital rating
would be determined under the prompt corrective action regulations. See "--
Prompt Corrective Regulatory Action."
Liquidity. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial
paper) equal to a monthly average of not less than a specified percentage of
its net withdrawable deposit accounts plus short-term borrowings. This
liquidity requirement may be changed from time to time by the OTS to any
amount within the range of 4% to 10% depending upon economic conditions and
the savings flows of member institutions, and is currently 5%. OTS regulations
also require each savings association to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's average long-term liquidity ratio for the month ended
June 30, 1996 was 10.49%, which exceeded the applicable requirements. The Bank
has never been subject to monetary penalties for failure to meet its liquidity
requirements.
Assessments. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported
in the association's latest quarterly Thrift Financial Report. During July
1996, the Bank paid the semiannual assessment of $34,785.
Branching. Subject to certain limitations, the HOLA and the OTS regulations
permit federally chartered savings associations to establish branches in any
state of the United States. The authority to establish such branches is
available (a) in states that expressly authorize branches of savings
associations located in another state or (b) to an association that qualifies
as a "qualified thrift lender" under the HOLA or meets similar requirements
for treatment as a "domestic building and loan association" under the Code.
See "--QTL Test." The authority for a federal savings association to establish
an interstate branch network would facilitate a geographic diversification of
the association's activities. This authority under the HOLA and the OTS
regulations preempts any state law purporting to regulate branching by federal
savings associations. The Bank does not presently maintain a branch office in
any state other than New Hampshire.
Community Reinvestment. Under the CRA, as implemented by OTS regulations, a
savings association has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires the OTS, in connection with its
examination of a savings association, to assess the association's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such association. The CRA also
requires all institutions to make public disclosure of their CRA ratings. The
Bank received a "Satisfactory" CRA rating in its most recent examination.
The CRA regulations use an evaluation system that rates an institution based
on its actual performance in meeting community needs. In particular, the
system focuses on three tests: (a) a lending test, to evaluate the
institution's record of making loans in its assessment areas; (b) an
investment test, to evaluate the institution's record of investing in
community development projects, affordable housing, and programs benefiting
low or moderate income individuals and businesses; and (c) a service test, to
evaluate the institution's delivery of
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services through its branches, ATMs, and other offices. An institution's CRA
performance is considered in the application process for approval of the
Merger.
Transactions with Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act (the "FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other
company that is controlled by a company that controls the Bank, excluding the
Bank's subsidiaries other than those that are insured depository institutions.
The OTS regulations prohibit a savings association (a) from lending to any of
its affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the BHC Act and (b) from purchasing
the securities of any affiliate other than a subsidiary. Section 23A limits
the aggregate amount of transactions with any individual affiliate to 10% of
the capital and surplus of the savings association and also limits the
aggregate amount of transactions with all affiliates to 20% of the savings
association's capital and surplus. Extensions of credit to affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A, and the purchase of low quality assets from affiliates is
generally prohibited. Section 23B provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or
at least as favorable to the association as those prevailing at the time for
comparable transactions with nonaffiliated companies. In the absence of
comparable transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be offered
to or would apply to nonaffiliated companies.
The Bank's authority to extend credit to its directors, executive officers,
and 10% shareholders, as well as to entities controlled by such persons, is
currently governed by the requirements of Sections 22(g) and 22(h) of the FRA
and Regulation O of the Board of Governors of the Federal Reserve System (the
"FRB") thereunder. Among other things, these provisions require that
extensions of credit to insiders (a) be made on terms that are substantially
the same as, and follow credit underwriting procedures that are not less
stringent than, those prevailing for comparable transactions with unaffiliated
persons and that do not involve more than the normal risk of repayment or
present other unfavorable features and (b) not exceed certain limitations on
the amount of credit extended to such persons, individually and in the
aggregate, which limits are based, in part, on the amount of the association's
capital. In addition, extensions of credit in excess of certain limits must be
approved by the association's board of directors.
Enforcement. Under the Federal Deposit Insurance Act (the "FDI Act"), the
OTS has primary enforcement responsibility over savings associations and has
the authority to bring enforcement action against all "institution-affiliated
parties," including any controlling stockholder or any stockholder, attorney,
appraiser or accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or
certain other wrongful actions that causes or is likely to cause more than a
minimal loss or other significant adverse effect on an insured savings
association. Civil penalties cover a wide range of violations and actions and
range from $5,000 for each day during which violations of law, regulations,
orders, and certain written agreements and conditions continue, up to $1
million per day for such violations if the person obtained a substantial
pecuniary gain as a result of such violation or knowingly or recklessly caused
a substantial loss to the institution. Criminal penalties for certain
financial institution crimes include fines of up to $1 million and
imprisonment for up to 30 years. In addition, regulators have substantial
discretion to take enforcement action against an institution that fails to
comply with its regulatory requirements, particularly with respect to its
capital requirements. Possible enforcement actions range from the imposition
of a capital plan and capital directive to receivership, conservatorship, or
the termination of deposit insurance. Under the FDI Act, the FDIC has the
authority to recommend to the Director of OTS that enforcement action be taken
with respect to a particular savings association. If action is not taken by
the Director of the OTS, the FDIC has authority to take such action under
certain circumstances.
Standards for Safety and Soundness. The FDI Act, as amended by the Federal
Deposit Insurance Corporation Improvement Act of 1991 (the "FDICIA") and the
Riegle Community Development and
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Regulatory Improvement Act of 1994 (the "Community Development Act"), requires
the OTS, together with the other federal bank regulatory agencies, to
prescribe standards, by regulations or guidelines, relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth, asset quality,
earnings, stock valuation, and compensation, fees, and benefits, and such
other operational and managerial standards as the agencies deem appropriate.
The OTS and the federal bank regulatory agencies have adopted a set of
guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal
stockholder. The OTS and the other agencies determined that stock valuation
standards were not appropriate. In addition, the OTS adopted regulations that
authorize, but do not require, the OTS to order an institution that has been
given notice by the OTS that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the OTS must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association
is subject under the "prompt corrective action" provisions of FDICIA. If an
institution fails to comply with such an order, the OTS may seek to enforce
such order in judicial proceedings and to impose civil money penalties. The
OTS and the federal bank regulatory agencies also adopted guidelines,
effective October 1, 1996, requiring appropriate systems for identifying and
maintaining asset quality and earnings.
Real Estate Lending Standards. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of
financing the construction of improvements on real estate. The OTS regulations
require each savings association to establish and maintain written internal
real estate lending standards that are consistent with safe and sound banking
practices and appropriate to the size of the association and the nature and
scope of its real estate lending activities. The standards also must be
consistent with accompanying OTS guidelines, which include loan-to-value
ratios for the different types of real estate loans. Associations are also
permitted to make a limited amount of loans that do not conform to the
proposed loan-to-value limitations so long as such exceptions are reviewed and
justified appropriately. The guidelines also list a number of lending
situations in which exceptions to the loan-to-value standards are justified.
Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain, and is authorized to take
other, supervisory actions against undercapitalized savings associations. For
this purpose, a savings association would be placed in one of five categories
based on the association's capital. Generally, a savings association is
treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10.0%, its ratio of core capital to risk-weighted assets is
at least 6.0%, its ratio of core capital to total assets is at least 5.0%, and
it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings association will be treated as "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8.0%, its ratio of core capital to risk-weighted assets is at least 4.0%, and
its ratio of core capital to total assets is at least 4.0% (3.0% if the
association receives the highest rating on the CAMEL financial institutions
rating system). A savings association that has a total risk-based capital of
less than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than
4.0% (3.0% leverage ratio if the association receives the highest rating on
the CAMEL financial institutions rating system) is considered to be
"undercapitalized." A savings association that has a total risk-based capital
of less than 6.0% or a Tier 1 risk-based capital ratio or a leverage ratio of
less than 3.0% is considered to be "significantly undercapitalized." A savings
association that has a tangible capital to assets ratio equal to or less than
2% is deemed to be "critically undercapitalized." The elements of an
association's capital for purposes of the prompt corrective action regulations
are defined generally as they are under the regulations for minimum capital
requirements. See "--Capital Requirements."
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The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as an association's capital
deteriorates within the three undercapitalized categories. All associations
are prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution, the
association would be undercapitalized. An undercapitalized association is
required to file a capital restoration plan within 45 days of the date the
association receives notice that it is within any of the three
undercapitalized categories. The OTS is required to monitor closely the
condition of an undercapitalized association and to restrict the asset growth,
acquisitions, branching, and new lines of business of such an association.
Significantly undercapitalized associations are subject to restrictions on
compensation of senior executive officers; such an association may not,
without OTS consent, pay any bonus or provide compensation to any senior
executive officer at a rate exceeding the officer's average rate of
compensation (excluding bonuses, stock options and profit-sharing) during the
12 months preceding the month when the association became undercapitalized. A
significantly undercapitalized association may also be subject, among other
things, to forced changes in the composition of its board of directors or
senior management, additional restrictions on transactions with affiliates,
restrictions on acceptance of deposits from correspondent associations,
further restrictions on asset growth, restrictions on rates paid on deposits,
forced termination or reduction of activities deemed risky, and any further
operational restrictions deemed necessary by the OTS.
If one or more grounds exist for appointing a conservator or receiver for an
association, the OTS may require the association to issue additional debt or
stock, sell assets, be acquired by a depository association holding company or
combine with another depository association. The OTS and the FDIC have a broad
range of grounds under which they may appoint a receiver or conservator for an
insured depositary association. Under FDICIA, the OTS is required to appoint a
receiver (or with the concurrence of the FDIC, a conservator) for a critically
undercapitalized association within 90 days after the association becomes
critically undercapitalized or, with the concurrence of the FDIC, to take such
other action that would better achieve the purposes of the prompt corrective
action provisions. Such alternative action can be renewed for successive 90-
day periods. However, if the association continues to be critically
undercapitalized on average during the quarter that begins 270 days after it
first became critically undercapitalized, a receiver must be appointed, unless
the OTS makes certain findings with which the FDIC concurs and the Director of
the OTS and the Chairman of the FDIC certify that the association is viable.
In addition, an association that is critically undercapitalized is subject to
more severe restrictions on its activities, and is prohibited, without prior
approval of the FDIC from, among other things, entering into certain material
transactions or paying interest on new or renewed liabilities at a rate that
would significantly increase the association's weighted average cost of funds.
When appropriate, the OTS can require corrective action by a savings
association holding company under the "prompt corrective action" provisions of
FDICIA.
Insurance of Deposit Accounts. The Bank is a member of the SAIF, and the
Bank pays its deposit insurance assessments to the SAIF. The FDIC also
maintains another insurance fund, the BIF, which primarily insures the
deposits of banks and state chartered savings banks.
Pursuant to FDICIA, the FDIC established a new risk-based assessment system
for determining the deposit insurance assessments to be paid by insured
depositary institutions. Under the new assessment system, which began in 1993,
the FDIC assigns an institution to one of three capital categories based on
the institution's financial information as of the reporting period ending
seven months before the assessment period. The three capital categories
consist of (a) well capitalized, (b) adequately capitalized or (c)
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subcategories within each capital group. The supervisory subgroup
to which an institution is assigned is based on a supervisory evaluation
provided to the FDIC by the institution's primary federal regulator and
information that the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. Under the regulation, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Beginning in 1993, the assessment rates for both the BIF and the SAIF had
ranged
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from 0.23% of deposits for an institution in the highest category (i.e., well-
capitalized and financially sound, with no more than a few minor weaknesses)
to 0.31% of deposits for an institution in the lowest category (i.e.,
undercapitalized and substantial supervisory concern).
The FDI Act requires that the BIF and the SAIF funds each be recapitalized
until reserves are at least 1.25% of the deposits insured by that fund. After
a fund reached the 1.25% reserve ratio, the assessment rates for that fund
could be reduced. During 1995, the BIF reached the required reserve ratio, and
the FDIC reduced the BIF assessment rates. Effective January 1, 1996, the BIF
assessment rate for "well capitalized" institutions without any significant
supervisory concerns was set at the statutory minimum of $2,000 annually, and
the rates for other BIF-insured institutions ranged from 0.03% to 0.27% of
deposits. The SAIF remained undercapitalized, and it was not expected to be
recapitalized until 2001. SAIF reserves had not grown as quickly as the BIF
reserves due to a number of factors, including the fact that a significant
portion of SAIF assessments had been used to make payments on bonds (the "FICO
bonds") issued in the late 1980s by the Financing Corporation to recapitalize
the now defunct Federal Savings and Loan Insurance Corporation. Accordingly,
SAIF-insured institutions continued to pay assessments at rates that ranged
from 0.23% of deposits to 0.31% of deposits. The Bank's assessment rate for
the first three quarters of 1996 was 0.23% of deposits.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "1996
Act") was enacted into law, and it amended the FDI Act in several ways to
recapitalize the SAIF and reduce the disparity in the assessment rates for the
BIF and the SAIF. The 1996 Act authorized the FDIC to impose a special
assessment on all institutions with SAIF-assessable deposits in the amount
necessary to recapitalize the SAIF. As implemented by the FDIC, the special
assessment has been fixed, subject to adjustment, at 65.7 basis points of an
institution's SAIF-assessable deposits, and the special assessment will be
paid on November 27, 1996. The special assessment is based on the amount of
SAIF-assessable deposits held on March 31, 1995. Based on the foregoing, the
special SAIF assessment to be paid by the Bank on November 27, 1996 will be
approximately $955,000.
In view of the recapitalization of the SAIF by the special assessment, on
October 8, 1996, the FDIC proposed a reduction in the assessment rate for
SAIF-assessable deposits for periods beginning on October 1, 1996. As would be
effective for the SAIF-assessable deposits of savings associations, such as
the Bank, the proposed assessment rates would range from 18 to 27 basis points
for the last quarter of 1996 and would range from 0 to 27 basis points for the
following assessment periods.
In addition, the 1996 Act expanded the assessment base for the payments on
the FICO bonds to include, beginning January 1, 1997, the deposits of both
BIF- and SAIF-insured institutions. Until December 31, 1999, or such earlier
date on which the last savings association ceases to exist, the rate of
assessment for BIF-assessable deposits shall be one-fifth of the rate imposed
on SAIF-assessable deposits. It has been estimated that the rate of
assessments for the payment of interest on the FICO bonds will be
approximately 1.3 basis points for BIF assessable deposits and approximately
6.4 basis points for SAIF-assessable deposits beginning on January 1, 1997.
The 1996 Act also provides that the FDIC cannot assess regular insurance
assessments for an insurance fund unless required to maintain or to achieve
the designated reserve ratio of 1.25%, except on those of its member
institutions that are not classified as "well capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational
or compliance weaknesses. The Bank has not been so classified by the FDIC or
the OTS. Accordingly, assuming that the designated reserve ratio is maintained
by the BIF and by the SAIF after the collection of the special SAIF assessment
and the Bank maintains its regulatory status, the Bank will have to pay
substantially lower regular assessments on its deposits compared to those paid
in recent years.
The 1996 Act also provides for the merger of the BIF and SAIF on January 1,
1999, with such merger being conditioned upon the prior elimination of the
thrift charter. The Secretary of the Treasury is required to conduct a study
of relevant factors with respect to the development of a common charter for
all insured
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depository institutions and abolition of separate charters for banks and
thrifts and to report the Secretary's conclusions and findings to the Congress
on or before March 31, 1997.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or
the OTS. The management of the Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
Federal Home Loan Bank System. The Bank is a member of the FHLB of Boston,
which is one of the regional Federal Home Loan Banks composing the Federal
Home Loan Bank System. Each Federal Home Loan Bank provides a central credit
facility primarily for its member institutions. The Bank, as a member of the
FHLB of Boston, is required to acquire and hold shares of capital stock in the
FHLB of Boston in an amount at least equal to the greater of 1% of the
aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year or 1/20 of its advances
(borrowings) from the FHLB of Boston. The Bank was in compliance with this
requirement with an investment in the capital stock of the FHLB of Boston at
June 30, 1996, of $1.9 million. Any advance from a Federal Home Loan Bank must
be secured by specified types of collateral, and all long-term advances may be
obtained only for the purpose of providing funds for residential housing
finance.
The Federal Home Loan Banks are required to provide funds for the resolution
of insolvent thrifts and to contribute funds for affordable housing programs.
These requirements could reduce the amount of earnings that the Federal Home
Loan Banks can pay as dividends to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on advances to
their members. The Bank earned dividends on the FHLB of Boston capital stock
in amounts equal to $150,058, $101,600 and $88,061 during the years ended
December 31, 1995, 1994 and 1993, respectively. If dividends were reduced, or
interest on future Federal Home Loan Bank advances increased, the Bank's net
interest income would likely also be reduced.
Federal Reserve System. The Bank is subject to provisions of the FRA and the
FRB's regulations pursuant to which depositary institutions may be required to
maintain non-interest-earning reserves against their deposit accounts and
certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained in the amount of 3%
of the aggregate of transaction accounts up to $52.0 million. The amount of
aggregate transaction accounts in excess of $52.0 million are currently
subject to a reserve ratio of 10%, which ratio the FRB may adjust between 8%
and 12%. The FRB regulations currently exempt $4.3 million of otherwise
reservable balances from the reserve requirements, which exemption is adjusted
by the FRB at the end of each year. The Bank is in compliance with the
foregoing reserve requirements. Because required reserves must be maintained
in the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank, or a pass-through account as defined by the FRB, the effect of
this reserve requirement is to reduce the Bank's interest-earning assets. The
balances maintained to meet the reserve requirements imposed by the FRB may be
used to satisfy liquidity requirements imposed by the OTS. Federal Home Loan
Bank System members are also authorized to borrow from the Federal Reserve
"discount window," but FRB regulations require such institutions to exhaust
all Federal Home Loan Bank sources before borrowing from a Federal Reserve
Bank.
REGULATION OF SAVINGS ASSOCIATION HOLDING COMPANIES
NHTB is a non-diversified unitary savings association holding company within
the meaning of the HOLA. As such, NHTB is required to register with the OTS
and is subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over NHTB and its
non-savings association subsidiaries, if any. Among other things, this
authority permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the financial safety, soundness, or
stability of a subsidiary savings association.
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The HOLA prohibits a savings association holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another
savings association or holding company thereof, without prior written approval
of the OTS; acquiring or retaining, with certain exceptions, more than 5% of a
non-subsidiary savings association, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of a depository institution that is
not insured by the FDIC. In evaluating an application by a holding company to
acquire a savings association, the OTS must consider the financial and
managerial resources and future prospects of the company and savings
association involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community and competitive
factors.
As a unitary savings association holding company, NHTB is not restricted
under existing laws as to the types of business activities in which it may
engage, provided that the Bank continues to satisfy the QTL test. See "--
Regulation of Federal Savings Associations--QTL Test" for a discussion of the
QTL requirements. Upon any non-supervisory acquisition by NHTB of another
savings association or savings bank that meets the QTL test and is deemed to
be a savings association by the OTS and that will be held as a separate
subsidiary, NHTB would become a multiple savings association holding company
and would be subject to limitations on the types of business activities in
which it could engage. The HOLA limits the activities of a multiple savings
association holding company and its non-insured association subsidiaries
primarily to activities permissible for bank holding companies under Section
4(c)(8) of the BHC Act, subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings association holding company controlling savings associations
in more than one state, subject to two exceptions: an acquisition of a savings
association in another state (a) in a supervisory transaction or (b) pursuant
to authority under the laws of the state of the association to be acquired
that specifically permit such acquisitions. The conditions imposed upon
interstate acquisitions by those states that have enacted authorizing
legislation vary. Some states impose conditions of reciprocity, which have the
effect of requiring that the laws of both the state in which the acquiring
holding company is located (as determined by the location of its subsidiary
savings association) and the state in which the association to be acquired is
located, have each enacted legislation allowing its savings associations to be
acquired by out-of-state holding companies on the condition that the laws of
the other state authorize such transactions on terms no more restrictive than
those imposed on the acquiror by the state of the target association. Some of
these states also impose regional limitations, which restrict such
acquisitions to states within a defined geographic region. Other states allow
full nationwide banking without any condition of reciprocity. Some states do
not authorize interstate acquisitions of savings associations.
Transactions between the Bank and NHTB and its other subsidiaries would be
subject to various conditions and limitations. See "--Regulation of Federal
Savings Associations--Transactions with Related Parties." The Bank would have
to give 30-days written notice to the OTS prior to any declaration of the
payment of any dividends or other capital distributions to NHTB. See "--
Regulation of Federal Savings Associations--Limitation on Capital
Distributions."
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INFORMATION ABOUT LANDMARK
DESCRIPTION OF BUSINESS
Landmark was formed in 1989 as a New Hampshire-chartered guaranty savings
bank; banking operations commenced in March 1991. Landmark is insured to the
full extent authorized by law by the FDIC.
Landmark is engaged in the business of attracting deposits from the general
public, making commercial, residential and consumer loans and making
investments in securities. Landmark's earnings primarily depend on the spread
between the income it receives from its loan and investment securities
portfolios and the interest cost it pays for money in the form of deposits.
Landmark conducts its business from its main office located at 106 Hanover
Street in Lebanon, New Hampshire, and its branch banking office located at 106
North Main Street in West Lebanon, New Hampshire. As of September 1, 1996,
Landmark had 26 full-time and 2 part-time employees. None of Landmark's
employees is subject to a collective bargaining agreement.
Landmark has a primary market focus of establishing total banking
relationships with small-to-medium sized businesses and professionals.
Services offered include a wide range of commercial credit and deposit
products, together with residential mortgage products. Landmark's primary
geographic territory extends through the greater Upper Valley area.
Approximately 40% of Landmark's loan portfolio is comprised of commercial or
commercial real estate loans made to support borrowers' working capital,
equipment, and/or building requirements. This proportion of commercial loans,
which is consistent with Landmark's focus on commercial lending, is
significantly higher than the proportion of commercial loans that would be
typical for a savings bank. Landmark also offers a wide range of consumer loan
products, including, but not limited to, automobile loans, home equity and
credit card loans. Landmark also offers residential mortgage loans to
homeowners, residential construction loans (primarily to developers and
secured by pre-sold residential units) and land development loans secured
primarily by land and improvements in approved subdivisions. Landmark's loan
portfolio is predominantly of a variable rate nature.
Landmark's primary focus on commercial and commercial real estate lending
may expose it to greater risks than those presented by consumer and
residential mortgage lending. Landmark's loans typically involve larger loan
balances to single borrowers or groups of related borrowers than typical loan
balances on consumer and residential mortgage loans. In addition, payment on
commercial loans is typically dependent on the successful operation of the
borrowers' businesses or properties and, therefore, may be more influenced by
adverse changes or cycles in the economy. General economic trends in the
market area of Landmark during the past few years have been positive. The
Upper Valley area has experienced consistent growth in population and jobs and
declining unemployment since the end of a recessionary trend experienced in
the early 1990's. Commercial real estate values in the same areas have
stabilized in the last few years, following a period of substantial declines
in values, and residential real estate values have moderately increased in the
same areas following a period of more moderate declines.
Significant asset growth in 1993 and 1994 imposed strains on Landmark's
management and regulatory compliance capabilities. In January 1995, Landmark
entered into a Memorandum of Understanding ("MOU") with the FDIC and the New
Hampshire Banking Department in which it agreed, among other things, to (i)
assess its managerial resources and develop a management plan to meet the
needs of a growing banking institution, (ii) revise its loan, asset/liability
and investment policies, (iii) adopt an ethics policy, and (iv) take necessary
action to correct noted deficiencies in its loan operations and compliance
with applicable regulatory requirements. Following the receipt of a more
favorable examination report from the FDIC, and the adoption of a resolution
by Landmark's Board of Directors in which Landmark agreed to take such
immediate actions as are necessary to maintain a "Tier 1 Capital ratio of not
less than six percent (6%)", the January 1995 MOU was terminated in early
April 1996.
Landmark is subject to extensive competition from other commercial banks and
from savings banks, as well as from cooperative banks and credit unions, in
both attracting and retaining deposits. Additionally, significant
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competition for deposits comes from money market mutual funds and government
securities. Including Landmark, there are approximately 28 banking offices of
9 federally-insured depository institutions (excluding non-bank financial
service providers) within Landmark's principal market area.
Competition for commercial loans is experienced principally from other
banks. Consumer loan competition is principally from commercial banks, finance
companies and credit unions.
The principal methods used by competing institutions to attract deposits
include the offering of a variety of services and premiums, convenience of
office location and offering of attractive interest rates. The primary factors
in competing for loans are quality of service to the borrower, interest rates,
and loan fee charges. Landmark's staff is actively involved in community
organizations and service groups, which results in customer relationships.
Deposits maintained with Landmark are insured by the BIF of the FDIC up to
FDIC limits (generally $100,000 per depositor). As a New Hampshire-chartered
savings bank, Landmark is subject to regulation, examination and supervision
by the New Hampshire Banking Department and the FDIC.
DESCRIPTION OF PROPERTIES
Landmark's main office has been located at 106 Hanover Street in Lebanon,
New Hampshire since the commencement of FDIC insured banking operations in
1991. Landmarkbanc Realty Holdings Corp., a wholly-owned subsidiary of
Landmark, purchased this building from LM Realty Corp., then an affiliate of
the Bank, in August 1995. There is one other commercial tenant within this
building.
Landmark opened a branch office located at 106 North Main Street in West
Lebanon, New Hampshire in September 1995. The West Lebanon branch is located
within a free standing building consisting of approximately 6,700 square feet.
The lease is for a term of ten (10) years, with renewal options and a limited
option to purchase.
LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to its business, to which Landmark is a party or of
which any of its property is the subject.
68
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF LANDMARK BANK
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
GENERAL
The following is a discussion and analysis of Landmark's results of
operations and financial condition for the six month period ended June 30,
1996 and 1995. In order to understand this section in context, it should be
read in conjunction with the Landmark Financial Statements and Notes presented
elsewhere in this Joint Proxy Statement-Prospectus and with the tables
appearing throughout the discussion and analysis.
The operating results of Landmark depend primarily on its net interest
income, which is the difference between (i) interest income on earning assets,
primarily loans and securities, and (ii) interest expense on interest bearing
liabilities, which consist of deposits and borrowings. Landmark's results of
operations are also affected by the provision for loan losses resulting from
Landmark's assessment of the adequacy of the allowance for loan losses; the
level of its other operating income, including gains and losses on the sale of
securities, and loan and other fees; operating expenses; and income tax
expenses or benefits.
Landmark had a net loss of $146,000, or $(0.41) per share of Landmark Common
Stock, for the six months ended June 30, 1996 as compared to net income of
$33,000, or $.09 per share of Landmark Common Stock, in the comparable period
in 1995. The net loss and net income and earnings (loss) per share from
operations were computed without deducting any preferred stock dividends paid.
At June 30, 1996, Landmark had total assets of $57,771,000, a decrease of
$2,992,000, or 4.92%, from $60,763,000 at December 31, 1995. Total deposits
decreased from $56,359,000 at December 31, 1995 to $53,736,000 at June 30,
1996, a decrease of $2,623,000 or 4.65%. Securities available-for-sale
decreased from $9,523,000 at December 31, 1995 to $7,111,000 at June 30, 1996,
a decrease of $2,412,000 or 25.33%.
At June 30, 1996, Landmark's equity to assets ratio was 6.19%, its Tier 1
leverage ratio was 9.16% and its total risk-based capital ratio was 10.42%,
all of which exceeded published regulatory minimums. The capital ratios for
December 31, 1995 were 6.40%, 9.69% and 10.95%, respectively. At June 30,
1996, Landmark remained subject to an agreement with the FDIC that it would
maintain a Tier 1 capital ratio in excess of 6%. See "INFORMATION ABOUT
LANDMARK--Description of Business."
69
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to Landmark's
consolidated balance sheet at June 30, 1996, and consolidated balance sheet
and the consolidated statements of operations for the six months ended June
30, 1996 and 1995, and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from average
daily balances. The yields and costs include fees which are considered
adjustments to yields.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------
AT JUNE 30, 1996 1996 1995
----------------- ------------------------- -------------------------
WEIGHTED AVERAGE AVERAGE
AVERAGE AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE BALANCE INTEREST COST(1) BALANCE INTEREST COST(1)
------- -------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Loans(2).............. $43,165 8.96% $43,547 $1,993 9.15% $41,460 $2,077 10.02%
Securities(3)......... 7,939 5.98 9,510 270 5.68 10,782 343 6.36
Federal funds sold.... 1,240 4.75 3,121 82 5.25 2,243 58 5.17
------- ------- ------ ------- ------
Total interest-
earning assets..... 52,344 56,178 $2,345 8.35 54,485 $2,478 9.10
------ ------
Non-interest-earning
assets:
Cash and due from
banks................ 1,572 1,595 1,390
Premises and
equipment, net....... 2,644 2,656 569
Other assets.......... 2,069 1,324 1,011
Less allowance for loan
losses................. (858) (615) (427)
------- ------- -------
Total assets........ $57,771 $61,138 $57,028
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing
liabilities:
NOW accounts.......... $ 3,814 2.00 $ 3,585 $ 36 2.01 $ 3,343 $ 32 1.91
Money market accounts. 1,334 3.22 1,580 26 3.29 2,772 44 3.17
Regular savings and
other................ 12,243 4.16 11,911 252 4.23 13,758 285 4.14
Time certificates of
deposit.............. 33,222 5.90 35,955 1,139 6.34 29,799 892 5.99
Repurchase agreements. 309 3.31 269 5 3.72 216 4 3.70
Lease obligations..... -- -- -- -- -- 19 1 10.53
------- ------- ------ ------- ------
Total interest-
bearing
liabilities........ 50,922 53,300 $1,458 5.47% 49,907 $1,258 5.05%
------ ------
Non-interest-bearing
liabilities:
Demand deposits....... 3,123 3,455 3,023
Other liabilities..... 151 502 232
------- ------- -------
Total liabilities... 54,196 57,257 53,162
Shareholders' equity... 3,575 3,881 3,866
------- ------- -------
Total liabilities
and shareholders'
equity............. $57,771 $61,138 $57,028
======= ======= =======
Net interest
income/interest rate
spread(4)............. $ 887 2.88% $1,220 4.05%
====== ==== ====== =====
Net interest margin(5). 3.16% 4.48%
==== =====
Ratio of interest-
earning assets to
interest-bearing
liabilities........... 1.03 1.05 1.09
==== ======= =======
</TABLE>
- -------
(1) Calculated on an annualized basis.
(2) Includes non-accrual loans.
(3) Securities are shown at average amortized cost.
(4) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for total interest-bearing liabilities.
(5) Net interest margin equals net interest income for the period (annualized)
divided by average interest-earning assets.
70
<PAGE>
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
changing the volume or amount of these assets and liabilities. The following
table represents the extent to which changes in interest rates and changes in
the volume of interest-earning assets and interest-bearing liabilities have
affected Landmark's interest income and interest expense during the periods
indicated. Information is provided in each category with respect to (i)
changes attributable to changes in volume (change in volume multiplied by
prior rate), (ii) changes attributable to rate (changes in rate multiplied by
prior volume), and (iii) the net change. Changes attributable to the combined
impact of volume and rate have been allocated proportionately to the changes
due to the volume and the changes due to rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995
-------------------------------
INCREASE/(DECREASE) DUE TO
-------------------------------
VOLUME RATE NET
---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest-earning assets:
Loans....................................... $ 105 $ (189) $ (84)
Securities.................................. (40) (33) (73)
Federal Funds Sold.......................... 23 1 24
-------- --------- ---------
Total interest-earning assets............. 88 (221) (133)
-------- --------- ---------
Interest-bearing liabilities:
Deposits.................................... 129 71 200
Borrowed Funds.............................. (1) 1 --
-------- --------- ---------
Total interest-bearing liabilities........ 128 72 200
-------- --------- ---------
Net change in net interest income............. $ (40) $ (293) $ (333)
======== ========= =========
</TABLE>
RESULTS OF OPERATIONS
Net Income (Loss). Landmark recorded a net loss of $146,000, or $(0.41) per
share of Landmark Common Stock, for the six months ended June 30, 1996, as
compared to net income of $33,000, or $0.09 per share of Landmark Common
Stock, in the comparable period in 1995. The net loss and net income from
operations and earnings (loss) per share were computed without deducting any
preferred stock dividends paid. For the six months ended June 30, 1996,
Landmark recorded net interest income of $887,000, resulting in a net interest
margin on average earning assets of 3.16%, compared to $1,220,000 and 4.48%,
respectively, for the six months ended June 30, 1995. Average interest-earning
assets for the six months ended June 30, 1996 were $56,178,000 with an average
yield of 8.35%, compared to $54,485,000 and 9.10%, respectively, for the
comparable period in 1995. Average interest-bearing liabilities for the six
months ended June 30, 1996 were $53,300,000 with an average cost of funds of
5.47%, compared to $49,907,000 and 5.05%, respectively, for the comparable
period in 1995.
Net interest income. For the six months ended June 30, 1996, interest and
fees on loans decreased by $84,000, or 4.04%, from amounts for the comparable
period in 1995. Loan interest and fee income decreased due to a decrease in
average interest rates earned on loans, partially offset by an increase in the
growth in the average balance of loans outstanding. The average balance of
loans outstanding increased by $2,087,000, or 5.03%, for the six months ended
June 30, 1996 over the comparable period in 1995, resulting in an increase of
interest and fee income on loans due to volume of $105,000. The average
interest rates earned on loans decreased to 9.15% for the six months ended
June 30, 1996, compared to 10.02% for the six months ended June 30, 1995,
resulting in a decrease of interest and fee income on loans due to rates of
$189,000.
71
<PAGE>
For the six months ended June 30, 1996, interest income on securities
decreased by $73,000, or 21.28%, from amounts earned for the comparable period
in 1995. The decrease in securities interest income was due to the combined
effects of a decrease in the average balance of securities and a decrease in
interest rates. The average balance of securities for the six months ended
June 30, 1996 decreased by $1,272,000, or 11.80%, over the comparable period
in 1995. The average interest rates earned on securities decreased to 5.68%
for the six months ended June 30, 1996 from 6.36% for the six months ended
June 30, 1995. Interest income on federal funds sold increased by $24,000, or
41.38%, for the six months ended June 30, 1996 from the comparable period in
1995. The net increase in interest income on federal funds was the result of
an increase in rates earned and an increase in average balances.
Interest expense on deposits increased by $200,000, or 15.96%, for the six
months ended June 30, 1996 as compared to the same period in 1995. The
increase was due to a combination of growth in the average balance of
interest-bearing deposits and increases in the interest rates paid on such
deposits. The average balance of interest-bearing deposits outstanding
increased by $3,359,000, or 6.76%, during the six months ended June 30, 1996
over the comparable period in 1995, resulting in an increase in interest
expense on interest-bearing deposits due to volume of $129,000. The average
rate paid on interest-bearing deposits increased to 5.47% for the six months
ended June 30, 1996 compared to average rates of 5.05% for the six months
ended June 30, 1995 resulting in an increase in interest expense on deposits
due to rates of $71,000.
The above factors contributed to a decrease of net interest income of
$333,000, or 27.29%, for the six months ended June 30, 1996 as compared to the
six months ended June 30, 1995.
Future net interest income levels will be dependent on, among other factors,
Landmark's ability to control levels of non-performing assets and earn
sufficient returns on earning assets by achieving a proper mix of loans and
short- and long-term securities. Future net interest income levels will also
be dependent on future interest rate levels.
Provision for Loan Losses. In determining an appropriate provision for
possible loan losses for any period, management evaluates the adequacy of its
allowance for loan losses. Management's periodic evaluation of the adequacy of
the allowance is based on Landmark's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates
(including the amounts and timing of future cash flows expected to be received
on impaired loans) that may be susceptible to significant change.
Loan loss provisions for the six months ended June 30, 1996 were $317,000,
as compared to $48,000 for the six months ended June 30, 1995. Charge-offs
were $120,000 and $11,000 for the six months ended June 30, 1996 and June 30,
1995, respectively. The increase in the provision was a result of additional
provisions for impaired loans. During the six months ended June 30, 1996,
Landmark realized recoveries of previously charged-off amounts totaling
$2,000. At June 30, 1996, the allowance for loan losses was $858,000, or 1.99%
of total loans, compared to $659,000, or 1.51%, at December 31, 1995. See
Notes 1 and 5 of Notes to the Landmark Financial Statements.
Other Income and Expenses. Customer service fees decreased slightly to
$43,000 for the six months ended June 30, 1996, as compared to $48,000 for the
comparable period in 1995. The small net decrease, despite increases in total
deposit balances, results from decreases in fees on transaction accounts.
Other expenses decreased by $193,000, or 14.86%, for the six months ended
June 30, 1996 as compared to the six months ended June 30, 1995.
Income Taxes. Landmark's income tax benefit for the six months ended June
30, 1996 was $86,000, or 37.07% of pretax earnings, as compared to income tax
expense of $27,000, or 44.26%, for the comparable period in 1995. For 1995,
the effective tax rate differed from the federal statutory rate of 34%
primarily due to additional accruals for state income taxes.
72
<PAGE>
FINANCIAL CONDITION
Loans. Net loans were $42,307,000, or 73.23% of total assets at June 30,
1996, compared with $42,862,000, or 70.54% of total assets at December 31,
1995. During the 1996 period, Landmark's commercial real estate loans
decreased by $6,000 to $10,566,000 at June 30, 1996 from $10,572,000 at
December 31, 1995. Commercial loans decreased by $782,000, or 11.40%, and
totaled $6,078,000 at June 30, 1996, compared to $6,860,000 at December 31,
1995. Residential construction loans decreased by $1,205,000, or 42.27%, and
totaled $1,646,000 at June 30, 1996, compared to $2,851,000 at December 31,
1995. Installment loans increased by $342,000, or 8.84%, and totaled
$4,210,000 at June 30, 1995, compared to $3,868,000 at December 31, 1995. See
"CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK--Loan
Portfolio" and Note 4 of Notes to the Landmark Financial Statements.
Asset Quality. The aggregate amount of non-accrual loans and other loans
past due 90 days and still accruing totaled $1,200,000 at June 30, 1996,
compared to $572,000 at December 31, 1995. During the period from December 31,
1995 to June 30, 1996, management placed a commercial real estate loan with a
balance of $640,000 on non-accrual and provided an allowance for loan losses
of $290,000 for that loan based on management's belief that the collectibility
of principal and/or interest on this loan is questionable. This commercial
real estate loan is secured by a first priority mortgage on a 176 acre parcel
of land located on Greensboro Road in Hanover, New Hampshire. In addition
there is a related allowance for loan losses on the other aggregate non-
accrual balances of $360,000 totalling $128,000, or 35.55% as of June 30,
1996. Landmark had no "other real estate owned" as of June 30, 1996 or
December 31, 1995. Non-performing assets as a percent of net loans increased
to 2.84% at June 30, 1996 from 1.33% at December 31, 1995.
It is Landmark management's policy to discontinue the accrual of interest on
a loan when there is reasonable doubt as to its collectibility. The accrual of
income on some loans, however, may continue even though they are more than 90
days past due if the loans are both well secured and in the process of
collection and if management deems it appropriate.
While Landmark considers the allowance for loan losses to be adequate at
June 30, 1996, it is not able to predict the future of the local economy.
Given this uncertainty, any declines in the local economy could result in
additional provisions for loan losses, additional charge-offs, changes in the
level of the allowance for loan losses, and increases in the level of non-
performing assets.
See "CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK--
Non-accrual, Past Due, Restructured, and Potential Problem Loans," "--Summary
of Loan Loss Experience" and "--Allowance for Loan Losses Allocation" and
Notes 1, 4 and 5 of Notes to the Landmark Financial Statements.
Securities. Securities totaled $7,939,000 and $10,335,000 at June 30, 1996
and December 31, 1995, respectively. The portfolio is comprised primarily of
mortgage-backed and U.S. Treasury securities. The total securities portfolio
had an expected average life of approximately three and one fourth years at
June 30, 1996.
At June 30, 1996, securities available-for-sale and held-to-maturity totaled
$7,111,000 and $828,000 respectively, which represented 89.57% and 10.43%,
respectively, of total securities. Unrealized net losses on securities
available-for-sale, net of applicable taxes, amounted to $87,000 at June 30,
1996.
See "CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK--
Investment Portfolio" and Note 3 of Notes to the Landmark Financial
Statements.
Deposits. Interest-bearing deposit balances at June 30, 1996 totaled
$50,613,000, compared to $52,492,000 at year-end 1995, a decrease of
$1,879,000, or 3.58%. Regular savings balances totaled $12,243,000 at June 30,
1996 compared to $10,619,000 at December 31, 1995, an increase of $1,624,000,
or 15.29%. Time certificates of deposit totaled $33,222,000 at June 30, 1996,
compared to $36,780,000 at December 31, 1995, a decrease of $3,558,000, or
9.67%. Demand deposits totaled $3,123,000 at June 30, 1996, compared to
73
<PAGE>
$3,867,000 at December 31, 1995, a decrease of $744,000, or 19.24%. Due to
normal fluctuations in demand deposit balances, consistent with the cash flow
needs of commercial customers, average volumes more accurately reflect growth
in demand deposits than do period-end balances. The average balance of demand
deposits totaled $3,455,000 for the six months ended June 30, 1996, compared
to $3,187,000 for the year ended December 31, 1995, an increase of $268,000,
or 8.41%. See "CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO
LANDMARK--Deposits" and Note 7 of Notes to the Landmark Financial Statements.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Landmark maintains numerous sources of liquidity in the form of marketable
assets and borrowing capacity. Sources of liquidity include interest-bearing
deposits with other banks, federal funds sold, available-for-sale securities,
and regular cash flows from loan and securities portfolios. The investment
portfolio is predominantly made up of securities which can be readily utilized
for the repurchase agreement market.
Landmark evaluates its sensitivity to changes in interest rates by
monitoring the timing of repricing of interest-sensitive assets compared to
interest-sensitive liabilities. This is commonly known as an interest rate
sensitivity analysis. The interest rate sensitivity gap is the difference
between rate sensitive assets and rate sensitive liabilities. A positive gap
exists when rate sensitive assets exceed rate sensitive liabilities and
indicates that a greater volume of assets than liabilities will be impacted by
changes in interest rates during the stated period. With a positive gap,
earnings will generally increase when rates rise and decrease when rates
decline within the period. Conversely, when rate sensitive liabilities exceed
rate sensitive assets, the gap is referred to as negative and indicates that a
greater volume of liabilities than assets will be impacted by changes in
interest rates during the period. With a negative gap, earnings will generally
decrease when rates rise and increase when rates decline within the period.
Landmark seeks to insulate itself from interest rate risk. Toward that end,
Landmark monitors the relative volume, maturity and yields of interest-earning
assets and interest-bearing liabilities over various time horizons, with
particular emphasis on the immediate one year time horizon.
The following table illustrates the excess (or deficiency) of interest-
earning assets over interest-bearing liabilities at June 30, 1996. Due to
Landmark's positive gap, increases in interest rates would generally enhance
earnings and decreases in rates would generally inhibit earnings.
<TABLE>
<CAPTION>
1 1-3 3-6 6-12 OVER 1
MONTH MONTHS MONTHS MONTHS YEAR TOTAL
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans and Mortgages Held
for Resale............. $16,206 $ 5,259 $ 6,752 $11,289 $ 3,659 $43,165
Securities.............. 48 81 119 409 7,282 7,939
Federal Funds........... 1,240 -- -- -- -- 1,240
------- ------- ------- ------- ------- -------
Total................. $17,494 $ 5,340 $ 6,871 $11,698 $10,941 $52,344
======= ======= ======= ======= ======= =======
INTEREST-BEARING LIABILI-
TIES
NOW and MMDA............ $ 172 $ 343 $ 515 $ 1,030 $ 3,089 $ 5,149
Savings................. 408 816 1,224 2,448 7,346 12,242
Time Deposits Including
IRA.................... 1,588 3,156 6,838 15,764 5,876 33,222
Borrowings (Repurchase
Agreement)............. 309 -- -- -- -- 309
------- ------- ------- ------- ------- -------
Total................. $ 2,477 $ 4,315 $ 8,577 $19,242 $16,311 $50,922
======= ======= ======= ======= ======= =======
Period Sensitivity Gap.... $15,017 $ 1,025 $(1,706) $(7,544) $(5,370) $ 1,422
======= ======= ======= ======= ======= =======
Cumulative Sensitivity
Gap...................... $15,017 $16,042 $14,336 $ 6,792 $ 1,422
======= ======= ======= ======= =======
Cumulative
Excess/(Deficiency) as a
Percent of Total Rate
Sensitive Assets......... 28.69% 30.65% 27.39% 12.98% 2.72%
</TABLE>
74
<PAGE>
Loan Maturity and Repricing. The following table shows the maturity or
period to repricing of Landmark's loan portfolio at June 30, 1996. Loans that
have adjustable rates are shown as being due in the period during which the
interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on Landmark's loan portfolio totaled $9,786,000 for the
six months ended June 30, 1996.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
----------------------------------
MORTGAGE LOANS
-------------------
MULTI-
ONE- FAMILY
TO AND OTHER
FOUR- REAL ESTATE OTHER TOTAL
FAMILY LOANS LOANS LOANS
------- ----------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AMOUNT DUE:
One year or less........................... $20,125 $11,416 $7,965 $39,506
------- ------- ------ -------
AFTER ONE YEAR:
One to three years......................... 1,352 986 473 2,811
More than three years to five years........ 134 -- 283 417
More than five years to ten years.......... -- -- -- --
More than ten years........................ 245 186 -- 431
------- ------- ------ -------
TOTAL DUE OR REPRICING AFTER ONE YEAR........ 1,731 1,172 756 3,659
------- ------- ------ -------
TOTAL AMOUNTS DUE OR REPRICING, GROSS........ $21,856 $12,588 $8,721 $43,165
======= ======= ====== =======
</TABLE>
The following table sets forth the dollar amounts in each loan category at
June 30, 1996 that are due after June 30, 1997, and whether such loans have
fixed or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER JUNE 30, 1997
------------------------
FIXED ADJUSTABLE TOTAL
------ ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS:
One- to four-family.............................. $ 461 $1,270 $1,731
Multi-family and other Real Estate Loans......... 287 885 1,172
OTHER LOANS........................................ 756 -- 756
------ ------ ------
Total loans.................................... $1,504 $2,155 $3,659
====== ====== ======
</TABLE>
CAPITAL
At June 30, 1996 and December 31, 1995, the FDIC required minimum total and
Tier 1 risk-based capital ratios for "well-capitalized" banks of 10% and 6%,
respectively. Landmark's total risk-based capital ratios at June 30, 1996 and
December 31, 1995 were 10.42% and 10.95%, respectively, and its Tier 1 risk-
based capital ratios were 9.16% and 9.69%, respectively. At June 30, 1996,
Landmark remained subject to an agreement with the FDIC that it would maintain
a Tier 1 capital ratio in excess of 6%. See "--Description of Business."
To complement risk-based capital guidelines, the FDIC adopted a Tier 1
leverage capital of 3% for the most highly rated banks and up to 5% for other
banks. The leverage ratios are used in tandem with the risk-based capital
requirements as the minimum capital standards for banks. Landmark's Tier 1
leverage capital ratios were 6.19% and 6.40% at June 30, 1996 and December 31,
1995, respectively.
See Notes 15 and 18 of Notes to the Landmark Financial Statements.
75
<PAGE>
THREE YEARS ENDED DECEMBER 31, 1995
GENERAL
Landmark had net income from operations of $21,000, or $0.06 per share of
Landmark Common Stock, for the year ended December 31, 1995. Net income from
operations for the year ended December 31, 1994 was $226,000, or $0.64 per
share of Landmark Common Stock. Net income from operations for the year ended
December 31, 1993 was $476,000, or $1.15 per fully diluted share of Landmark
Common Stock. Net income from operations and earnings per share for the three
years was computed without deducting any preferred stock dividends paid.
At December 31, 1995, Landmark had total assets of $60,763,000, an increase
of $4,433,000, or 7.87%, from $56,330,000 at December 31, 1994. Loans
(primarily commercial and commercial real estate) provided $2,591,000 of the
asset growth for the year ended December 31, 1995. In addition, Landmark
purchased the building housing its main office and operations center in
August, 1995 for $2,000,000.
At December 31, 1995, Landmark's equity to assets ratio was 6.40%, its Tier
1 leverage ratio was 9.69%, and its total risk-based capital ratio was 10.95%,
all of which exceeded published regulatory minimums. The comparable capital
ratios for December 31, 1994 were 6.73%, 10.42% and 11.67%, respectively.
76
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to Landmark's
average balance sheet, including interest-earning assets, interest-bearing
liabilities and net interest income for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Loans(1)............... $42,320 $4,269 10.09% $33,629 $3,197 9.51% $25,976 $2,417 9.30%
Securities(2).......... 10,596 676 6.38 4,878 343 7.03 3,133 142 4.53
Federal funds sold..... 3,895 218 5.60 1,384 53 3.83 1,337 35 2.62
------- ------ ------- ------ ------- ------
Total interest-earning
assets................ 56,811 $5,163 9.09 39,891 $3,593 9.01 30,446 $2,594 8.52
------ ------ ------
Non-interest-earning
assets:
Cash and due from
banks.................. 1,444 1,314 887
Premises and equipment,
net.................... 1,339 536 493
Other assets........... 1,105 694 586
Less allowance for loan
losses................. (473) (309) (165)
------- ------- -------
Total assets.......... $60,226 $42,126 $32,247
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing
liabilities:
NOW.................... $ 3,443 $ 65 1.89 $ 3,553 $ 77 2.17 $ 2,812 $ 66 2.35
Money market accounts.. 2,368 77 3.25 3,668 112 3.05 3,143 97 3.09
Regular savings and
other.................. 12,560 532 4.24 11,188 480 4.29 4,046 118 2.92
Time certificates of
deposit................ 34,236 2,174 6.35 16,551 704 4.25 16,157 660 4.08
Repurchase agreements.. 259 9 3.47 164 5 3.05 259 8 3.09
Lease obligations...... 10 1 10.00 80 14 17.50 157 22 14.01
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities........... 52,876 $2,858 5.41 35,204 $1,392 3.95 26,574 $ 971 3.65
------ ------ ------
Non-interest-bearing
liabilities:
Demand deposits........ 3,187 2,908 2,270
Other liabilities...... 278 148 124
------- ------- -------
Total liabilities..... 56,341 38,260 28,968
Shareholders' equity... 3,885 3,866 3,279
------- ------- -------
Total liabilities and
shareholders' equity.. $60,226 $42,126 $32,247
======= ======= =======
Net interest
income/interest rate
spread(3)............... $2,305 3.68 $2,201 5.06 $1,623 4.87
====== ===== ====== ===== ====== =====
Net interest margin(4).. 4.06% 5.52% 5.33%
===== ===== =====
Ratio of interest-
earning assets to
interest-bearing
liabilities............. 1.07 1.13 1.15
======= ======= =======
</TABLE>
- ----
(1) Includes non-accrual loans.
(2) Securities are shown at average amortized cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for total interest-bearing liabilities.
(4) Net interest margin equals net interest income for the period divided by
average interest-earning assets.
77
<PAGE>
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities,
and changing the volume or amount of these assets and liabilities. The
following table represents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Landmark's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (change in volume
multiplied by prior rate), (ii) changes attributable to rate (changes in rate
multiplied by prior volume), and (iii) the net change. Changes attributable to
the combined impact of volume and rate have been allocated proportionately to
the changes due to the volume and the changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------ ----------------------------
INCREASE/(DECREASE) DUE TO INCREASE/(DECREASE) DUE TO
------------------------------ ----------------------------
VOLUME RATE NET VOLUME RATE NET
---------- -------- --------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans................. $ 826 $ 246 $ 1,072 $ 712 $ 68 $ 780
Securities............ 403 (70) 333 79 122 201
Federal Funds Sold.... 96 69 165 1 17 18
--------- -------- --------- -------- -------- --------
Total interest-earn-
ing assets......... 1,325 245 1,570 792 207 999
--------- -------- --------- -------- -------- --------
Interest-bearing liabil-
ities:
Deposits.............. 769 706 1,475 258 174 432
Borrowed Funds........ (9) -- (9) (14) 3 (11)
--------- -------- --------- -------- -------- --------
Total interest-bear-
ing liabilities.... 760 (706) 1,466 244 177 421
--------- -------- --------- -------- -------- --------
Net change in net inter-
est income............. $ 565 $ (461) $ 104 $ 548 $ 30 $ 578
========= ======== ========= ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED
DECEMBER 31, 1994
Net Income. Landmark had net income from operations of $21,000, or $0.06 per
share of Landmark Common Stock, for the year ended December 31, 1995, as
compared to $226,000, or $0.64 per share of Landmark Common Stock, for the
year ended December 31, 1994. Net income from operations and earnings per
share was computed without deducting any preferred stock dividends paid. For
the year ended December 31, 1995, Landmark recorded net interest income of
$2,305,000, resulting in a net interest margin on average earning assets of
4.06%, compared to $2,201,000 and 5.52%, respectively, for the year ended
December 31, 1994. Average interest-earning assets for the year ended December
31, 1995 were $56,811,000 with an average yield of 9.09%, compared to
$39,891,000 and 9.01%, respectively, for the year ended December 31, 1994.
Average interest-bearing liabilities for the year ended December 31, 1995 were
$52,876,000 with an average cost of funds of 5.41%, compared to $35,204,000
and 3.95%, respectively, for the year ended December 31, 1994.
Net Interest Income. During 1995, interest income and fees on loans
increased by $1,072,000, or 33.54%, over amounts earned in 1994. Loan interest
and fee income increased due to growth in the average balance of loans
outstanding combined with an increase in average interest rates earned on such
loans. The average balance of loans outstanding increased by $8,691,000, or
25.84% in 1995 over 1994, resulting in an increase of interest and fee income
on loans due to volume of $826,000. The average interest rates earned on loans
increased from 9.51% in 1994 to 10.09% in 1995, resulting in an increase of
interest and fee income on loans due to rates of $246,000.
During 1995, interest income on securities increased by $333,000, or 97.08%,
from amounts earned in 1994. The increase in securities interest income was
due to the growth in the average balance of securities outstanding
78
<PAGE>
partially offset by a slight decrease in rates. The 1995 average balance of
securities increased by $5,718,000, or 117.22% from the 1994 average balance
resulting in an increase in income due to volume increases of $403,000. The
average interest rates earned on securities decreased from 7.03% in 1994 to
6.38% in 1995 resulting in a decrease of income due to average rate decreases
of $70,000. Interest income on federal funds sold increased by $165,000, or
311.32%, in 1995 over 1994. The increase in interest income on federal funds
as a result of increases in interest rates was $69,000. The average balance
invested in federal funds sold increased $2,511,000 from $1,384,000 in 1994 to
$3,895,000 in 1995. The increase in federal funds income due to increased
average volume was $96,000.
Interest expense on deposits increased by $1,475,000, or 107.43%, in 1995 as
compared to 1994. The increase was due to growth in the average balance of
interest-bearing deposits to $52,607,000 during 1995 from $34,960,000 during
1994, an increase of $17,647,000 or 50.48%. The total average yield on
interest-bearing deposits increased to 5.41% in 1995 from 3.93% in 1994, an
increase of 1.48% or 37.66%. These increases are primarily due to an increase
in the average balances of time certificates of deposit from an average of
$16,551,000 bearing interest at an average rate of 4.25% in 1994 to average
balances of $34,236,000 bearing interest at an average rate of 6.35% in 1995.
Interest expense on borrowed funds, consisting of repurchase agreements and
capitalized lease obligations, decreased by $9,000, or 47.37%, in 1995 from
1994. The average balance on borrowings outstanding increased by $25,000, or
10.25%, in 1995 over 1994, resulting in a decrease of interest expense on
borrowings due to volume of $9,000. The average interest rates paid on
borrowings in 1995 was 3.72% compared to 7.79% in 1994, resulting in an
decrease of interest expense on borrowings due to rates of $0.
The above factors contributed to an overall increase of net interest income
of $104,000, or 4.73%, for 1995 as compared to 1994.
Future net interest income levels will be dependent on, among other factors,
Landmark's ability to control levels of non-performing assets and earn
sufficient returns on earning assets by achieving a proper mix of loans and
short- and long-term securities. Future net interest income levels will also
be dependent on future interest rate levels.
Provision For Loan Losses. In determining an appropriate provision for
possible loan losses for any period, management evaluates the adequacy of its
allowance for loan losses. Management's periodic evaluation of the adequacy of
the allowance is based on Landmark's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates
(including the amounts and timing of future cash flows expected to be received
on impaired loans) that may be susceptible to significant change. The
allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable loan losses.
Loan loss provisions during 1995 were $205,000, as compared to $203,000 for
1994. Charge-offs were $11,000 and $3,000 in 1995 and 1994, respectively. The
increase in the provision was primarily a result of the decision by the Board
of Directors to increase the general allowance on commercial loans from 1.00%
to 1.50%. See Notes 1 and 5 of Notes to the Landmark Financial Statements.
There were no realized recoveries of previously charged-off loans in 1995 or
1994. At year end 1995, the allowance for loan losses was $659,000, or 1.51%
of total loans, compared to $465,000, or 1.14% at year-end 1994. Landmark had
no "other real estate owned" as of December 31, 1995 or 1994.
Other Income and Expenses. During the years ended December 31, 1995 and
1994, securities available-for-sale were sold with a fair value at the date of
sale of $0 and $120,000, respectively. The gross realized gains on such sales
in 1995 and 1994 were $0 and $1,000, respectively, and there were no gross
realized losses. These securities were sold in order to manage Landmark's
asset-liability and liquidity positions.
79
<PAGE>
Customer service fees were $90,000 in 1995, as compared to $86,000 in 1994,
representing an increase of $4,000 or 4.65%. These fee increases resulted from
more uniform collection of service charges.
Other expenses increased by $293,000, or 13.38% in 1995, as compared to
1994. The increase was primarily the result of additional personnel expense
and the costs of additional internal controls and planning efforts.
Income Taxes. Landmark's income tax expense for 1995 was $5,000, or 19.23%
of pretax earnings. The effective tax rate differed from the federal statutory
rate of 15.0%. Income tax expense for 1994 was $141,000 or 38.42% of pretax
earnings. See Note 9 of Notes to the Landmark Financial Statements.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1994 AS COMPARED TO YEAR ENDED
DECEMBER 31, 1993
Net Income. Landmark had net income from operations of $226,000, or $0.64
per share of Landmark Common Stock, for the year ended December 31, 1994, as
compared to $476,000, or $1.15 per fully diluted share of Landmark Common
Stock, for the year ended December 31, 1993. Net income from operations and
earnings per share was computed without deducting any preferred stock
dividends paid. For the year ended December 31, 1994, Landmark recorded net
interest income of $2,201,000, resulting in a net interest margin on average
earning assets of 5.52%, compared to $1,623,000 and 5.33%, respectively, for
the year ended December 31, 1993. Average interest-earning assets for the year
ended December 31, 1994 were $39,891,000 with an average yield of 9.01%,
compared to $30,446,000 and 8.52%, respectively, for the year ended
December 31, 1993. Average interest-bearing liabilities for the year ended
December 31, 1994 were $35,204,000 with an average cost of funds of 3.95%,
compared to $26,574,000 and 3.65%, respectively, for the year ended December
31, 1993.
Net Interest Income. During 1994, interest and fees on loans increased by
$780,000, or 32.27%, over amounts earned in 1993. The increase in loan
interest and fee income was due to the growth in the average balance of loans
outstanding and a slight increase in the average rates earned on such loans.
The average balance of loans outstanding increased by $7,653,000, or 29.46%,
in 1994 over 1993, resulting in an increase of interest and fee income on
loans due to volume of $712,000. The average interest rates earned on loans
increased from 9.30% in 1993 to 9.51% in 1994, resulting in an increase in
interest and fee income on loans due to rates of $68,000.
During 1994, interest income on securities increased by $201,000, or 141.55%
from amounts earned in 1993. The increase was due both to increased average
balances and to higher average interest rates in 1994 compared to 1993.
Average balances increased to $4,878,000 in 1994 from $3,133,000 in 1993, an
increase in average balances of $1,745,000 or 55.70%. The average earnings
rate on securities was 7.03% in 1994 up from an average rate of 4.53% earned
on securities in 1993.
Interest expense on deposits increased by $432,000, or 45.91% in 1994, as
compared to 1993. The average balance of interest-bearing deposits increased
by $8,802,000, or 33.64% in 1994 in comparison to 1993, which resulted in
increased interest expense due to volume of $258,000. The average cost of
interest rates paid on interest-bearing deposits increased to 3.93% in 1994 as
compared to 3.60% in 1993, which resulted in an increase in interest expense
due to rates of $174,000. The average balance on savings accounts increased
$7,142,000 from an average balance in 1993 of $4,046,000 bearing interest at
an average rate of 2.92% to an average balance of $11,188,000 bearing interest
at an average rate of 4.29%.
Interest expense on borrowed funds decreased by $11,000, or 36.66% in 1994
from 1993. The decrease was due to a decrease in the average balances of
borrowed funds partially offset by an increase in the average rate paid on
those funds.
The above factors contributed to an overall increase in net interest income
of $578,000, or 35.61% for 1994 as compared with 1993.
Provision for Loan Losses. The provision for loan losses during 1994 was
$203,000, compared to $145,000 during 1993. The increase in the provision was
a result of growth in the loan portfolio. Loans of $3,000
80
<PAGE>
and $22,000 were charged to the allowance for loan losses during 1994 and
1993, respectively. There were no recoveries in 1994 or 1993. At year end
1994, the allowance for loan losses was $465,000, or 1.14% of total loans,
compared to $265,000, or 0.95% at year end 1993. See Notes 1 and 5 of Notes to
the Landmark Financial Statements.
Other Income and Expenses. Gross gains from securities transactions in 1994
were $1,000 on sales of $120,000, as compared to gross gains in 1993 of $5,000
on sales of $556,000. Gross losses from securities transactions in 1994 were
$0, as compared to gross losses in 1993 of $1,000 on gross sales of $755,000.
In 1993, $570,000 of gross sales had no gain or loss. These securities matured
in accordance with their terms.
Gains on sales of the guaranteed portions of Small Business Administration
("SBA") loans amounted to $163,000 in 1994, in comparison to $421,000 in 1993.
Fees on origination of loans for the secondary mortgage market totaled
$137,000 in 1994, in comparison to $255,000 in 1993.
Customer service fees were $86,000 in 1994, as compared to $71,000 in 1993.
The $15,000, or 21.12%, increase was primarily due to increases in transaction
volumes resulting from balance sheet growth.
Other expenses increased by $605,000, or 38.12% in 1994 as compared to 1993.
The increase was primarily attributable to the combined effects of higher
transaction volumes due to balance sheet growth and increased staffing costs.
Income Taxes. Income tax expense amounted to $141,000, or 38.42% on pretax
income of $367,000 in 1994, in comparison to $278,000, or 36.87% on pretax
income of $754,000 in 1993. Income tax expense differs from that computed at
the statutory rate of 34% primarily because of expenses deductible for
financial reporting purposes that are not deductible for income tax reporting
purposes. See Notes to the Landmark Financial Statements.
FINANCIAL CONDITION
Loans. Loan growth was moderate in 1995 as net loans increased to
$42,862,000, or 70.54% of total assets at December 31, 1995 from $40,465,000,
or 71.84% of total assets at December 31, 1994, an increase of $2,397,000 or
5.92%. The majority of the asset growth in 1994 was in the loan portfolio. Net
loans were $40,465,000, or 71.84% of total assets at December 31, 1994,
compared with $27,582,000, or 81.82% of total assets at December 31, 1993.
During 1995, Landmark experienced loan growth in commercial and commercial
real estate and residential loans. Commercial real estate loans increased by
$483,000, or 4.78%, and totaled $10,572,000 at December 31, 1995, compared to
$10,089,000 at December 31, 1994. Commercial loans increased by $1,021,000, or
17.49%, and totaled $6,860,000 at December 31, 1995, compared to $5,839,000 at
December 31, 1994. Additionally, Landmark's single-family residential real
estate and single-family residential construction loans increased by
$1,649,000, or 8.17%, and totaled $21,839,000 at December 31, 1995, compared
to $20,190,000 at December 31, 1994. These increases can be attributed to
management's referral network and providing additional services to businesses
and professionals with whom Landmark has existing relationships. See "CERTAIN
STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK--Loan Portfolio"
and Note 4 of Notes to the Landmark Financial Statements.
Asset Quality. The aggregate amount of non-accrual loans and other loans
past due 90 days and still accruing totaled $572,000 at the end of 1995
compared to $4,000 at the end of 1994. Landmark had no "other real estate
owned" as of December 31, 1995, 1994 or 1993. Non-performing assets as a
percent of net loans increased to 1.33% at December 31, 1995 from 0.01% at
December 31, 1994. During the same period, the aggregate amount of non-accrual
loans and other loans past due 90 days and still accruing, increased as
follows: (1) real estate--from $3,000 to $365,000; (2) commercial--from $0 to
$201,000; and (3) consumer--from $1,000 to $6,000.
81
<PAGE>
It is management's policy to discontinue the accrual of interest on a loan
when there is reasonable doubt as to its collectibility. The accrual of some
loans, however, may continue even though they are more than 90 days past due
if the loans are both well secured and in the process of collection and if
management deems it appropriate.
While Landmark considers the allowance for loan losses to be adequate at
December 31, 1995, it is not able to predict the future direction of the local
economy. Given this uncertainty, any declines in the local economy could
result in additional provisions for loan losses, additional charge-offs,
changes in the level of the allowance for loan losses, and increases in the
level of non-performing assets.
See "CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK--
Non-accrual, Past Due, Restructured, and Potential Problem Loans," "--Summary
of Loan Loss Experience" and "--Allowance for Loan Losses Allocation" and
Notes 1, 4 and 5 of Notes to the Landmark Financial Statements.
Securities. Securities totaled $10,335,000 and $10,931,000 at December 31,
1995 and 1994, respectively. The other major increase in assets during 1994
was securities. Total securities increased to $10,931,000 at December 31, 1994
from $1,788,000 at December 31, 1993, an increase of $9,143,000 or 511.35%.
The average balance invested in securities increased to an average balance of
$4,878,000 in 1994 from an average balance of $3,133,000 in 1993, an increase
in average balances of $1,745,000, or 55.70%. The portfolio is comprised
primarily of mortgage-backed and U.S. Treasury securities. The total
securities portfolio had an expected average life of approximately three and
one fourth years at December 31, 1995.
Effective December 31, 1993, Landmark adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." In accordance with the
Statement, management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are classified as held-to-maturity when
Landmark has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are carried at amortized historical
cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses, net of taxes, on available-for-sale securities are reported as a
separate component of shareholders' equity. Landmark does not have a trading
account and has no derivative financial instruments.
Prior to December 31, 1993, Landmark's securities were held-for-investment
and carried at amortized cost.
At December 31, 1995, securities available-for-sale and held-to-maturity
totaled $9,523,000 and $812,000, respectively, which represented 92.14% and
7.86%, respectively, of total securities. Unrealized net gains on securities
available-for-sale, net of applicable taxes, amounted to $92,000 at December
31, 1995.
See "CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK--
Investment Portfolio" and Note 3 of Notes to the Landmark Financial
Statements.
Deposits. Interest-bearing deposit balances at December 31, 1995 totaled
$52,492,000 compared to $47,902,000 at year-end 1994, an increase of
$4,590,000, or 9.58%. Demand deposits decreased by $223,000 in 1995 from the
1994 year-end balance of $4,090,000 to $3,867,000 at December 31, 1995.
Regular savings decreased by $6,173,000, or 36.76%, from the 1994 year-end
balance of $16,792,000 to $10,619,000 at December 31, 1995. This decline can
be attributed to customers transferring funds from relatively low rate savings
accounts to relatively higher rate certificates of deposit. Time certificates
of deposit increased by $13,328,000, or 56.83% to $36,780,000 at December 31,
1995 from the 1994 year-end balance of $23,452,000. This increase can be
primarily attributed to a certificate of deposit promotion utilized to
generate funds to replace out of area certificates. See "CERTAIN STATISTICAL
AND OTHER INFORMATION WITH RESPECT TO LANDMARK--Deposits" and Note 7 of Notes
to the Landmark Financial Statements.
82
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Liquidity management involves Landmark's ability to meet the cash flow
requirements of customers who may be either depositors wanting to withdraw
funds or borrowers needing assurance that sufficient funds will be available
to meet their credit needs. Interest rate sensitivity management seeks to
avoid fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates.
Landmark's most important liquidity source is liability liquidity, the
ability to raise new funds and to renew maturing liabilities in a variety of
markets. The most important factor in assuring liability liquidity is
maintaining the confidence of Landmark depositors. Out of area deposits have
been used when they are a low cost and controllable funding source. Funds are
primarily generated locally and regionally. Other types of assets, such as
federal funds sold, repurchase agreements and maturing loans, are supplemental
sources of liquidity.
Landmark evaluates its sensitivity to changes in interest rates by
monitoring the timing of repricing of interest-sensitive assets compared to
interest-sensitive liabilities. This is commonly known as an interest rate
sensitivity analysis. The interest rate sensitivity gap is the difference
between rate sensitive assets and rate sensitive liabilities. A positive gap
exists when rate sensitive assets exceed rate sensitive liabilities and
indicates that a greater volume of assets than liabilities will be impacted by
changes in interest rates during the stated period. With a positive gap,
earnings will generally increase when rates rise and decrease when rates
decline within the period. Conversely, when rate sensitive liabilities exceed
rate sensitive assets, the gap is referred to as negative and indicates that a
greater volume of liabilities than assets will be impacted by changes in
interest rates during the period. With a negative gap, earnings will generally
decrease when rates rise and increase when rates decline within the period.
Landmark seeks to insulate itself from interest rate risk over the near term.
Toward that end, Landmark monitors the relative volume, maturity and yields of
interest-earning assets and interest-bearing liabilities over various time
horizons, with particular emphasis on the immediate one year time horizon.
The following table illustrates the excess (or deficiency) of interest-
earning assets over interest-bearing liabilities at December 31, 1995.
<TABLE>
<CAPTION>
1 1-3 3-6 6-12 OVER 1
MONTH MONTHS MONTHS MONTHS YEAR TOTAL
------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans and Mortgages Held
for Resale.............. $2,486 $18,409 $ 7,043 $11,948 $ 3,635 $43,521
Securities............... 306 586 816 2,375 6,252 10,335
Federal Funds............ 1,980 -- -- -- -- 1,980
------ ------- ------- ------- ------- -------
Total.................. $4,772 $18,995 $ 7,859 $14,323 $ 9,887 $55,836
====== ======= ======= ======= ======= =======
INTEREST-BEARING LIABILI-
TIES:
NOW and MMDA............. $ 170 $ 340 $ 509 $ 1,019 $ 3,055 $ 5,093
Savings.................. 350 701 1,052 2,103 6,413 10,619
Time Deposits Including
IRA..................... 3,171 4,726 13,732 8,215 6,936 36,780
Borrowings (Repurchase
Agreement).............. 304 -- -- -- -- 304
------ ------- ------- ------- ------- -------
Total.................. $3,995 $ 5,767 $15,293 $11,337 $16,404 $52,796
====== ======= ======= ======= ======= =======
Period Sensitivity Gap..... $ 777 $13,228 $(7,434) $ 2,986 $(6,517) $ 3,040
====== ======= ======= ======= ======= =======
Cumulative Sensitivity Gap. $ 777 $14,005 $ 6,571 $ 9,557 $ 3,040
====== ======= ======= ======= =======
Cumulative
Excess/(Deficiency) as a
Percent of Total Rate
Sensitive Assets.......... 1.39% 25.08% 11.77% 17.12% 5.45%
</TABLE>
83
<PAGE>
CAPITAL
Landmark is subject to regulation by the FDIC, which has adopted certain
risk-based capital guidelines. The guidelines, which establish a risk-adjusted
ratio relating capital to different categories of balance sheet assets and
off-balance sheet obligations, require Landmark to maintain a minimum risk-
based capital ratio.
The guidelines define two categories of capital: Tier 1 or core capital
(primarily, common shareholders' equity and a limited amount of perpetual
preferred stock, less intangible assets) and Tier 2 or supplementary capital
(primarily, a limited amount of loan loss reserves, perpetual preferred stock
in excess of the amounts included in Tier 1 capital and certain "hybrid
instruments," including mandatory convertible debt). Qualifying (or total)
capital is the sum of Tier 1 and Tier 2 capital. According to the guidelines,
Tier 1 capital must represent at least 50% of qualifying total capital. Risk-
based capital ratio guidelines assign both balance sheet assets and off-
balance sheet obligations to one of four risk categories. At December 31, 1995
and 1994, the minimum total and Tier 1 risk-based capital ratios required for
"well-capitalized" banks were 10% and 6%, respectively. Landmark Preferred
Stock qualifies for both risk based capital calculations. Landmark's total
risk-based capital ratios at December 31, 1995 and 1994 were 10.95% and
11.67%, respectively, and its Tier 1 risk-based capital ratios were 9.69% and
10.42% respectively. To complement risk-based guidelines, the FDIC adopted a
Tier 1 leverage capital ratio of 3% for the most highly rated banks and up to
5% for other banks which would represent the minimum capital to total assets
standard for banks. The leverage ratios are used in tandem with the risk-based
capital requirements as the minimum capital standards for banks. Landmark's
Tier 1 leverage capital ratios were 6.40% and 6.73% at December 31, 1995 and
1994, respectively.
See Notes 15 and 18 of Notes to the Landmark Financial Statements.
RECENT ACCOUNTING DEVELOPMENTS
On January 1, 1995, Landmark adopted SFAS No. 114 "Accounting by Creditors
for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan--Income Recognition and Disclosure." These statements
generally require all creditors to account for impaired loans, except those
loans accounted for at fair value or at the lower of cost or fair value, at
the present value of the expected future cash flows discounted at the loan's
effective interest rate or, alternatively, at the fair value of the loan's
collateral. In addition, criteria for classification of a loan as in-substance
foreclosure has been modified so that such classification need be made only
when the lender is in possession of the collateral.
These statements also require troubled debt restructuring to be measured for
impairment using the pre-modification rate of interest as a discount rate.
Adoption of these statements had no material impact on Landmark's financial
position or results of operations.
84
<PAGE>
CERTAIN STATISTICAL AND OTHER INFORMATION WITH RESPECT TO LANDMARK
Set forth below is certain statistical and other information relating to
Landmark. This information should be used in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
LANDMARK" and the Landmark Financial Statements.
INVESTMENT PORTFOLIO
The following table sets forth the amortized cost and fair value of
Landmark's securities, by accounting classification and by type of security,
at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
AT JUNE 30, 1996 1995 1994 1993
---------------- ----------------- ----------------- ----------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE COST VALUE
--------- ------ --------- ------- --------- ------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Government
treasury and agency
obligations........... $ 828 $ 756 $ 812 $ 824 $ 808 $ 715 $ -- $ --
Mortgage-backed
securities............ -- -- -- -- 7,725 7,381 -- --
------ ------ ------- ------- ------- ------- ------ ------
Total held-to-
maturity............ 828 756 812 824 8,533 8,096 -- --
------ ------ ------- ------- ------- ------- ------ ------
AVAILABLE-FOR-SALE:
U.S. Government
treasury and agency
obligations........... 1,495 1,482 1,999 2,004 1,986 1,948 1,093 1,062
Mortgage-backed
securities............ 302 306 7,348 7,490 421 415 520 540
Collateralized mortgage
obligations........... 5,452 5,323 29 29 36 35 185 186
------ ------ ------- ------- ------- ------- ------ ------
Total available-for-
sale................ 7,249 7,111 9,376 9,523 2,443 2,398 1,798 1,788
------ ------ ------- ------- ------- ------- ------ ------
Total securities, net... $8,077 $7,867 $10,188 $10,347 $10,976 $10,494 $1,798 $1,788
====== ====== ======= ======= ======= ======= ====== ======
</TABLE>
85
<PAGE>
The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of Landmark's debt securities at
June 30, 1996, by remaining period to contractual maturity. With respect to
mortgage-backed securities, the entire amount is reflected in the maturity
period that includes the final security payment date and, accordingly, no
effect has been given to periodic repayments or possible prepayments.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------------ -------------------------
WEIGHTED WEIGHTED
AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
COST VALUE YIELD COST VALUE YIELD
--------- ----- -------- --------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
Due within 1 year......... $ -- $ -- -- % $ 57 $ 58 8.38%
Due after 1 year but
within 5 years........... -- -- -- 146 148 8.35
Due after 5 years but
within 10 years.......... -- -- -- 41 42 8.42
Due after 10 years........ -- -- -- 58 58 7.75
----- ----- ------ ------
Total................... $ -- $ -- -- % $ 302 $ 306 8.25%
===== ===== ====== ======
Collateralized Mortgage Ob-
ligations:
Due within 1 year......... $ -- $ -- -- % $ 612 $ 600 6.46%
Due after 1 year but
within 5 years........... -- -- -- 3,903 3,813 6.42
Due after 5 years but
within 10 years.......... -- -- -- 937 910 6.38
Due after 10 years........ -- -- -- -- -- 6.69
----- ----- ------ ------
Total................... $ -- $ -- -- % $5,452 $5,323 6.42%
===== ===== ====== ======
U.S. Treasury and Agency:
Due within 1 year......... $ -- $ -- -- % $ -- $ -- -- %
Due after 1 year but
within 5 years........... 500 438 4.37 1,495 1,482 5.58
Due after 5 years but
within 10 years.......... -- -- -- -- -- --
Due after 10 years........ 328 318 3.41 -- -- --
----- ----- ------ ------
Total................... $ 828 $ 756 3.99% $1,495 $1,482 5.58%
===== ===== ====== ======
Total:
Due within 1 year......... $ -- $ -- -- % $ 669 $ 658 6.62%
Due after 1 year but
within 5 years........... 500 438 4.37 5,544 5,443 6.24
Due after 5 years but
within 10 years.......... -- -- -- 978 952 6.47
Due after 10 years........ 328 318 3.41 58 58 7.75
----- ----- ------ ------
Total................... $ 828 $ 756 3.99% $7,249 $7,111 6.32%
===== ===== ====== ======
</TABLE>
At June 30, 1996, all of Landmark's mortgage-backed securities ("MBSs") and
collateralized mortgage-backed securities ("CMOs") were guaranteed by Federal
Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA") or Government National Mortgage Association ("GNMA"). All
of Landmark's MBSs and CMOs bear a fixed interest rate. The market values of
MBSs and CMOs change with market and economic conditions. The most significant
factors affecting market value are prepayments of the underlying loans and
interest rates. As interest rates increase, prepayments generally decline,
causing an extension of the expected maturity and a decline in market value.
The converse is generally true when interest rates decrease. The market value
of fixed-rate MBSs and CMOs are generally more sensitive to market interest
rate changes than variable or adjustable rate MBSs and CMOs. MBSs and CMOs are
expected to have shorter average lives than their contractual maturities
because borrowers may repay obligations without prepayment penalties.
Landmark's investment portfolio is managed by Landmark in accordance with the
investment policy established by the Investment Committee of Landmark's Board
of Directors and with the advice of professional investment advisors. The
objectives of Landmark's investment policy are to provide liquidity,
diversification of assets and earnings.
86
<PAGE>
LOAN PORTFOLIO
The following table sets forth the composition of Landmark's loan portfolio
in dollar amounts and percentages at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
--------------------------------- ---------------------------------
1996 1995 1995 1994
---------------- ---------------- ---------------- ----------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL.............. $ 6,078 14.08% $ 7,389 17.24% $ 6,860 15.76% $ 5,839 14.27%
------- ------- ------- -------
MORTGAGE LOANS:
One-to four-family.... 20,289 47.00 17,873 41.70 18,988 43.63 17,547 42.87
Multi-family.......... 376 0.87 387 0.90 382 0.88 540 1.32
Commercial............ 10,566 24.48 11,002 25.67 10,572 24.29 10,089 24.65
Construction.......... 1,646 3.81 2,233 5.21 2,851 6.55 2,643 6.46
------- ------- ------- -------
Total mortgage 32,877 31,495 32,793 30,819
loans.............. ------- ------- ------- -------
OTHER LOANS:
Consumer installment.. 2,005 4.65 1,409 3.29 1,390 3.19 1,676 4.09
Home equity loans..... 1,567 3.63 1,989 4.64 1,821 4.19 2,037 4.98
Credit card loans..... 606 1.41 579 1.35 647 1.49 552 1.35
All other consumer
loans................ 32 0.07 1 -- 10 0.02 7 0.01
Total other loans... 4,210 3,978 3,868 4,272
------- ------- ------- -------
Gross loans....... 43,165 100.00% 42,862 100.00% 43,521 100.00% 40,930 100.00%
====== ====== ====== ======
LESS:
Allowance for
loan losses.......... 858 502 659 465
------- ------- ------- -------
Loans, net........ $42,307 $42,360 $42,862 $40,465
======= ======= ======= =======
</TABLE>
NON-ACCRUAL, PAST DUE, RESTRUCTURED, AND POTENTIAL PROBLEM LOANS
The following table sets forth information regarding Landmark's non-
performing assets at the dates indicated. During the periods shown in the
table below there were no non-performing assets other than non-performing
loans and there were no troubled debt restructurings.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
------------- ----------------
1996 1995 1995 1994
------ ----- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Non-performing loans:
Non-accrual loans:
One- to four-family.......................... $ 122 $ -- $ -- $ 3
Multi-family and commercial real estate...... 810 -- 365 --
Commercial loans............................. 68 185 201 --
Consumer and other loans..................... -- 3 -- 1
Loans 90 days or more past due................. 200 1 6 --
------ ----- ------- -------
Total...................................... $1,200 $ 189 $ 572 $ 4
====== ===== ======= =======
Total non-performing loans to loans, net....... 2.84% 0.45% 1.33% 0.01%
====== ===== ======= =======
Total non-performing loans to total assets..... 2.08% 0.28% 0.94% 0.01%
====== ===== ======= =======
</TABLE>
Generally, a loan is classified as non-accrual and the accrual of interest
on such loan is discontinued when the contractual payment of principal or
interest has become 90 days past due or management has serious doubts about
further collectibility of principal or interest, even though the loan
currently is performing. A loan may remain on accrual status if it is in the
process of collection and is either guaranteed or well secured. When a loan
87
<PAGE>
is placed on non-accrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Interest received on non-accrual loans
generally is either applied against principal or reported as interest income,
according to management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt. For a discussion of
Landmark's non-accrual and past due loans at June 30, 1996, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Six
Months Ended June 30, 1996 and 1995--Financial Condition--Asset Quality."
During the regular quarterly loan loss review in September, 1996, management
identified one consumer loan of $7,000, one commercial loan of $153,000 and
two residential mortgage loans of $225,000 with loss potential and provided
allowances of $7,000, $15,000 and $31,000, respectively, for the potential
losses. Management is not aware of any other loans not included in the table
or discussed above where known information about the possible credit problems
of borrowers caused management to have doubts as to the abilities of the
borrowers to comply with present loan repayment terms and which may result in
disclosure of such loans in the future.
SUMMARY OF LOAN LOSS EXPERIENCE
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable loan losses. Management's periodic
evaluation of the adequacy of the allowance is based on Landmark's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay (including the timing of
future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective as it requires
material estimates, including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to
significant change.
The following table sets forth activity in Landmark's allowance for loan
losses at or for the dates indicated.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED AT OR FOR THE YEAR
JUNE 30, ENDED DECEMBER 31,
------------------ ----------------------------
1996 1995 1995 1994 1993
-------- -------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total loans outstanding at
end of period(1)........... $ 43,165 $ 42,862 $43,521 $ 40,930 $ 27,847
======== ======== ======= ========= ========
Average total loans
outstanding(1)............. $ 43,547 $ 41,460 $42,320 $ 33,629 $ 25,976
======== ======== ======= ========= ========
Balance at beginning of
period..................... $ 659 $ 465 $ 465 $ 265 $ 142
-------- -------- ------- --------- --------
Provision for loan losses... 317 48 205 203 145
-------- -------- ------- --------- --------
Charge-offs:
Commercial................. 106 -- -- 1 2
Real Estate................ -- -- -- -- --
Installment and Other...... 14 11 11 2 20
-------- -------- ------- --------- --------
Total charge-offs.......... 120 11 11 3 22
-------- -------- ------- --------- --------
Recoveries:
Commercial................. -- -- -- -- --
Real Estate................ 2 -- -- -- --
Installment and other...... -- -- -- -- --
-------- -------- ------- --------- --------
Total recoveries........... 2 -- -- -- --
-------- -------- ------- --------- --------
Net charge-offs............ 118 11 11 3 22
-------- -------- ------- --------- --------
Balance of allowance at end
of period.................. $ 858 $ 502 $ 659 $ 465 $ 265
======== ======== ======= ========= ========
Ratio of net charge-offs to
average loans outstanding.. 0.27% 0.03% 0.03% 0.01% 0.08%
======== ======== ======= ========= ========
Allowance for loan losses to
total loans at end of
period..................... 1.99% 1.17% 1.51% 1.14% 0.95%
======== ======== ======= ========= ========
Allowance for loan losses to
total non-performing loans
at end of period........... 85.80% 267.02% 116.43% 11,625.00% 1,558.82%
======== ======== ======= ========= ========
</TABLE>
- --------
(1) Total loans represent gross loans less deferred fees (costs) and deferred
gain on sales of SBA loans.
88
<PAGE>
ALLOWANCE FOR LOAN LOSSES ALLOCATION
The following table sets forth the breakdown of the allowance for loan
losses by loan type and the percentage of loans in each type at the dates
indicated. The allocation of the allowance to each loan type is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any type.
<TABLE>
<CAPTION>
AT JUNE 30, 1996 AT JUNE 30, 1995 AT DECEMBER 31, 1995 AT DECEMBER 31, 1994
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL.............. $533 14.08% $192 17.24% $342 15.76% $150 14.27%
MORTGAGE LOANS:
Residential............ 121 47.00 93 41.70 103 43.63 94 42.87
Commercial............. 157 25.35 172 26.57 163 25.17 164 25.97
Construction........... 2 3.81 2 5.21 1 6.55 3 6.46
OTHER LOANS:
Consumer & home equity. 26 8.35 29 7.93 30 7.40 34 9.08
Credit card loans...... 12 1.41 11 1.35 13 1.49 19 1.35
Unallocated............ 7 -- 3 -- 7 -- 1 --
---- ------ ---- ------ ---- ------ ---- ------
Total.................. $858 100.00% $502 100.00% $659 100.00% $465 100.00%
==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
89
<PAGE>
DEPOSITS
The following table sets forth the distribution of Landmark's daily average
deposit accounts and the related weighted average interest rates at the dates
indicated.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
FOR THE SIX MONTHS ENDED --------------------------------------------------------------------------
JUNE 30, 1996 1995 1994 1993
------------------------ ------------------------ ------------------------ ------------------------
PERCENT PERCENT PERCENT PERCENT
AVERAGE OF TOTAL AVERAGE AVERAGE OF TOTAL AVERAGE AVERAGE OF TOTAL AVERAGE AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------- -------- ------- ------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts... $ 3,455 6.11% -- % $ 3,187 5.71% -- % $ 2,908 7.68% -- % $ 2,270 7.99% -- %
NOW accounts...... 3,585 6.35 2.01 3,443 6.17 1.89 3,553 9.38 2.17 2,812 9.89 2.35
Money market ac-
counts............ 1,580 2.80 3.29 2,368 4.25 3.25 3,668 9.69 3.05 3,143 11.06 3.09
Savings & Other... 11,911 21.09 4.23 12,560 22.51 4.24 11,188 29.54 4.29 4,046 14.23 2.92
Certificate ac-
counts............ 35,955 63.65 6.34 34,236 61.36 6.35 16,551 43.71 4.25 16,157 56.83 4.08
------- ------ ------- ------ ------- ------ ------- ------
Totals.......... $56,486 100.00% 5.15% $55,794 100.00% 5.04% $37,868 100.00% 3.63% $28,428 100.00% 3.31%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
90
<PAGE>
The average interest rates paid on total deposits, excluding non-interest
bearing deposits, at June 30, 1996 and December 31, 1995 and 1994, were 5.11%,
5.71%, and 4.98%, respectively.
At June 30, 1996, Landmark had $7,045,000 in Jumbo certificates of deposits
(accounts in amounts over $100,000) maturing as follows:
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------
WEIGHTED
AMOUNT AVERAGE RATE
------- ------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
MATURITY PERIOD:
Within three months..................................... $ 842 5.70%
After three but within six months....................... 828 5.75
After six but within 12 months.......................... 3,354 6.47
After 12 months......................................... 2,021 6.78
-------
Total................................................. $ 7,045 6.38%
=======
</TABLE>
SHORT-TERM BORROWING
The following table outlines Landmark's short-term borrowing and the
weighted average interest rate for the indicated periods. Also provided are
the maximum amount of the borrowing and the average amount outstanding as well
as weighted average interest rate.
<TABLE>
<CAPTION>
SECURITIES
SOLD UNDER
AGREEMENT
TO REPURCHASE
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Balance at June 30, 1996.............................. $ 309
Weighted average interest rate at period end........ 3.31%
Maximum amount outstanding during the period........ $ 359
Average amount outstanding during the period........ 269
Weighted average interest rate during the period.... 2.97%
Balance at December 31, 1995.......................... $ 304
Weighted average interest rate at year end.......... 3.10%
Maximum amount outstanding during the year.......... $ 392
Average amount outstanding during the year.......... 259
Weighted average interest rate during the year...... 3.09%
Balance at December 31, 1994.......................... $ 220
Weighted average interest rate at year end.......... 3.10%
Maximum amount outstanding during the year.......... $ 994
Average amount outstanding during the year.......... 164
Weighted average interest rate during the year...... 3.05%
Balance at December 31, 1993.......................... $ 351
Weighted average interest rate at year end.......... 3.05%
Maximum amount outstanding during the year.......... $1,109
Average amount outstanding during the year.......... 259
Weighted average interest rate during the year...... 3.09%
</TABLE>
91
<PAGE>
DESCRIPTION OF NHTB CAPITAL STOCK
GENERAL
NHTB is authorized to issue 5,000,000 shares of Common Stock, par value $.01
per share, and 2,500,000 shares of Preferred Stock (the "Preferred Stock"),
par value $.01 per share. No shares of Preferred Stock have been issued.
COMMON STOCK
Each holder of NHTB Common Stock is entitled to one vote per share for all
purposes and does not have the right to cumulate his votes in the election of
directors. Subject to preferences that may be applicable to any outstanding
Preferred Stock, each holder of NHTB Common Stock is entitled to receive such
dividends as may be declared by the Board of Directors in its discretion from
funds legally available therefor. In the event of a liquidation, dissolution
or winding up of NHTB, each holder of NHTB Common Stock will be entitled to
share in the assets of NHTB pro rata in accordance with his holdings, after
payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. The NHTB Common Stock has no preemptive rights. Except as
otherwise determined by the Board of Directors or by applicable law, all
voting rights are vested exclusively in the holders of the NHTB Common Stock.
PREFERRED STOCK
The NHTB Board of Directors is authorized to issue 2,500,000 shares of
Preferred Stock in one or more series and to fix the voting powers,
designations, preferences or other rights of the shares of each such series
and the qualifications, limitations and restrictions thereon.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the NHTB Certificate of Incorporation and Bylaws may
be deemed to have an "anti-takeover" effect. A discussion of these provisions
follows.
Classified Board of Directors. Pursuant to the NHTB Certificate of
Incorporation and Bylaws, the NHTB Board is divided into three classes with
staggered terms, each class comprising approximately one third of the members
of the Board. The classification of directors will have the effect of making
it more difficult for shareholders to change the composition of the Board in a
relatively short period of time. At least two annual meetings of shareholders,
instead of one, will generally be required to effect a change in a majority of
the Board. This delay will provide the Board with additional time to evaluate
proposed takeover efforts and other extraordinary corporate transactions, to
consider appropriate alternatives to such proposals and to act in what it
believes to be the best interests of the shareholders. The classification of
directors could have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of NHTB.
Special Meetings. Moreover, special meetings of shareholders of NHTB may be
called only by the Chairman of the Board or the President of NHTB, or a
majority of the Board of Directors of NHTB.
Authorized Shares. The Certificate of Incorporation authorizes the issuance
of 5,000,000 shares of Common Stock and 2,500,000 shares of Preferred Stock.
The shares of Common Stock and Preferred Stock were authorized in an amount
greater than intended to be issued to provide NHTB's Board of Directors with
as much flexibility as possible to effect, among other transactions,
financings, acquisitions, stock dividends, stock splits and employee stock
options. However, these additional authorized shares may also be used by the
Board of Directors consistent with its fiduciary duty to deter future attempts
to gain control of NHTB. The Board of Directors also has sole authority to
determine the terms of any one or more series of Preferred Stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of Preferred Stock, the Board
has the power, to the extent consistent with its fiduciary duty, to issue a
series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its
position.
92
<PAGE>
Shareholder Vote Required to Approve Business Combinations with Principal
Shareholders. The Certificate of Incorporation requires the affirmative vote
of at least 75% of the holders of NHTB's outstanding shares of voting stock,
not beneficially owned by an Interested Shareholder (as defined below) to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business
Combinations, including mergers, consolidations and sales of all or
substantially all of the assets of a corporation must, subject to certain
exceptions, be approved by the vote of the holders of only a majority of the
outstanding shares of NHTB Common Stock and any other affected class of stock.
Under the Certificate of Incorporation, the affirmative vote of at least 75%
approval of shareholders entitled to vote generally for the election of
directors (the "Voting Stock") is required in connection with any transaction
involving an Interested Shareholder except (i) in cases where the proposed
transaction has been approved in advance by a majority of those members of
NHTB Board of Directors who are unaffiliated with the Interested Shareholder
and were directors prior to the time when the Interested Shareholder became an
Interested Shareholder or (ii) if the proposed transaction meets certain
conditions set forth therein which are designed to afford the shareholders a
fair price in consideration for their shares in which case, if a shareholder
vote is required, approval of only a majority of the outstanding shares of
voting stock would be sufficient. The term "Interested Shareholder" is defined
to include any individual, firm, corporation, or other entity (other than NHTB
or subsidiary thereof) who or which is (a) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding Voting
Stock; (b) an affiliate of NHTB at any time within the two-year period
immediately prior to the date in question was the beneficial owner of 10% or
more of voting power of the then outstanding Voting Stock or (c) is an
assignee of or has otherwise succeeded to any shares of Voting Stock which
were at any time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Shareholder, if such assignment
or succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act, as amended.
The Certificate of Incorporation further provides that Article 8 thereof,
entitled "Certain Business Combinations," may not be amended unless such
amendment is first proposed by the NHTB Board of Directors and thereafter
approved by the shareholders by no less than 75% of the total votes eligible
to be cast at a legal meeting.
Evaluation of Offers. The Certificate of Incorporation of NHTB further
provides that the NHTB Board of Directors, when evaluating any offer to NHTB
from another party to (i) make a tender or exchange offer for the NHTB Common
Stock, (ii) merge or consolidate NHTB with another corporation or entity or
(iii) purchase or otherwise acquire all or substantially all of the properties
and assets of NHTB, may, in connection with the exercise of its judgment in
determining what is in the best interest of NHTB and its shareholders, give
due consideration to the extent permitted by law to all relevant factors,
including, without limitation, the possible effects on the business of NHTB
and its subsidiaries and on the depositors, borrowers, employees, its
financial institution subsidiary, and the effects on the communities in which
NHTB's and its subsidiaries' facilities are located. By having these standards
in the Certificate of Incorporation of the NHTB, the Board of Directors may be
in a stronger position to oppose such a transaction if the Board concludes
that the transaction would not be in the best interest of NHTB, even if the
price offered is significantly greater than the then market price of the NHTB
Common Stock.
Excess Shares not voted. The NHTB Certificate of Incorporation generally
provides any person who acquires more than 10% of the stock of NHTB without
approval of the NHTB Board of Directors and the applicable regulatory agency
is not entitled to vote such shares in excess of the 10% limit.
Anti-Greenmail. The Certificate of Incorporation provides that any direct or
indirect purchase or other acquisition by NHTB of any Voting Stock from the
beneficial owner of more than 5% of NHTB Common Stock who has been the
beneficial owner of such common stock for less than two years shall require
the vote of at least a majority of the total number of the outstanding shares
of Voting Stock (excluding shares held by such beneficial owner), except with
respect to a purchase or other acquisition of Voting Stock made as part of a
tender or exchange offer on the same terms from all holders of the same class
of Voting Stock and complying with the
93
<PAGE>
applicable requirements of the Exchange Act, as amended, and the rules and
regulations thereunder or with respect to any purchase of Voting Stock
determined by the NHTB Board of Directors to not exceed the fair market value
of the Voting Stock.
Certain Bylaw Provisions. The NHTB Bylaws also require a shareholder who
intends to nominate a candidate for election to the Board of Directors, or to
raise new business at a shareholder meeting, to give 30 to 90 days advance
notice to the Secretary of the Company. The notice provision requires a
shareholder who desires to raise new business to provide certain information
to the Company concerning the nature of the new business, the shareholder and
the shareholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Company with certain information concerning the nominee and the proposing
shareholder.
94
<PAGE>
COMPARISON OF RIGHTS OF NHTB
AND LANDMARK SHAREHOLDERS
The rights of holders of Landmark Common Stock are currently governed by the
Landmark Articles, the Landmark Bylaws, RSA 384 (General Provisions as to
Savings Banks, Trust Companies and Depositories), RSA 386 (Savings Banks) and
RSA 392 (Incorporation and Management of Trust Companies). These rights differ
in certain respects from the rights that shareholders of Landmark Common Stock
would have as shareholders of NHTB Common Stock. The rights of shareholders of
NHTB Common Stock are governed by the NHTB Certificate of Incorporation, NHTB
Bylaws, and the Delaware General Corporation Law ("DGCL"). This summary
contains a list of the material differences of the rights of NHTB and Landmark
shareholders, but is not intended to be relied upon as an exhaustive list or a
detailed description of the provisions discussed and is qualified in its
entirety by reference to the NHTB Certificate of Incorporation and Bylaws, the
Landmark Articles and Bylaws, the DGCL and RSA 384, 386 and 392.
VOTING REQUIREMENTS TO REMOVE DIRECTORS
NHTB. The NHTB Bylaws permits removal of a director only for cause and then
upon an affirmative vote of a majority of the total votes eligible to be cast
at a meeting of shareholders, held upon 30 days notice, expressly for such
purpose.
Landmark. The Landmark Bylaws provide that a director may be removed from
office with or without cause upon the affirmative vote therefor of the holders
of two-thirds of the shares entitled to vote at an annual meeting held inter
alia, for the purpose of electing directors, or for cause by a majority of the
Directors then in office, after reasonable notice and opportunity to be heard
before a meeting duly called for such purpose.
BUSINESS COMBINATIONS WITH RELATED PERSONS
NHTB. The NHTB Certificate of Incorporation provides that in addition to any
vote required by law or the Certificate of Incorporation, the approval or
authorization of any business combination of the corporation with any
Interested Shareholder (as defined above) requires the affirmative vote of the
holders of outstanding shares of stock of NHTB representing not less than 75%
of the votes entitled to be cast generally in the election of directors, all
such shares voting together as a single class for this purpose (not including
the votes held by the Interested Shareholder); provided, however, that this
requirement is not applicable if the Continuing Directors have approved the
business combination or if the transaction meets certain Fair Price Provisions
set forth in the NHTB Certificate of Incorporation. For these purposes, the
term "business combination" generally includes, without limitation, any (i)
merger or consolidation of the corporation with an Interested Shareholder or
affiliate thereof; (ii) any sale, lease, exchange mortgage or other
disposition to or with any Interested Share or Affiliate thereof of any assets
of NHTB of any subsidiary thereof having an aggregate fair market value of
$1,000,000 or more; (iii) the issuance or transfer by NHTB or any subsidiary
thereof of any securities of NHTB or any subsidiary thereof to any Interested
Shareholder or any affiliate of any Interested Shareholder in exchange for
cash, securities or other property for a combination thereof having an
aggregate Fair Market Value of $1,000,000 or more; (iv) the adoption of any
plan or proposal for the liquidation or dissolution of NHTB proposed by or on
behalf of an Interested Shareholder or any Affiliate thereof; or (v) any
reclassification of securities (including any reverse stock split), or
recapitalization of NHTB, or any merger or consolidation of NHTB with any of
its subsidiaries or any other transaction (whether or not with or into or
otherwise involving an Interested Shareholder) which has the effect, directly
or indirectly, or increasing the proportionate share of the outstanding shares
of any class of equity or convertible securities of NHTB or any subsidiary
thereof which is directly or indirectly owned by any Interested Shareholder or
any Affiliate thereof. The term "Continuing Director" generally means any NHTB
Board member who is unaffiliated with the Interested Shareholders and was a
member of the NHTB Board of Directors prior to the time when Interested
Shareholder became an Interested Shareholder, and any successor of a
Continuing Directors recommended for such succession by a majority of
Continuing Directors then on the NHTB Board of Directors.
95
<PAGE>
Landmark. There is no analogous provision in the Landmark Articles. A
"business combination" such as the ones described above would generally
require the affirmative vote of a majority of the directors and, in some
cases, a majority of the shareholders present at a meeting. In other cases,
dependent primarily on the nature of the charter of the banking entity with
which Landmark seeks to merge, such a merger or consolidation would require
the vote of two-thirds of the outstanding shares. A merger, consolidation,
issuance of capital stock and dissolution would also require the approval of
certain regulators, particularly the New Hampshire Bank Commissioner.
BENEFICIAL OWNERSHIP LIMITATION
NHTB. NHTB's Certificate of Incorporation does not restrict beneficial
ownership. The NHTB Certificate of Incorporation, however, provides generally
any person who acquires more than 10% of the stock of NHTB without approval of
the NHTB Board of Directors and the applicable regulatory agency is not
entitled to vote such shares in excess of the 10% limit.
Landmark. For a period of five years from January 22, 1996, the Landmark
Articles restricts any person from directly or indirectly offering to acquire
or acquiring beneficial ownership in excess of 15% of the issued and
outstanding capital stock of Landmark entitled to vote on a matter for which a
meeting of shareholders is called. In the event shares are acquired or held in
violation of such restriction, all shares beneficially owned by any person in
excess of 15% shall be considered "excess shares" and shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matter submitted to the shareholders for
a vote.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
NHTB. The NHTB Certificate of Incorporation provides that, except as
otherwise required by law, amendments alterations, change or repeal of the
NHTB Certificate of Incorporation must be first proposed by the NHTB Board of
Directors and thereafter approved by a vote of a majority of shareholders,
except for the provision described above in "Business Combinations With
Related Persons," which requires the affirmative vote of 75% of shareholders.
Landmark. Any amendments to the Landmark Articles must be approved by a
majority of shares entitled to vote except for the provisions applicable to
amendments to the Landmark Articles and Bylaws, the classified Board of
Directors and the Beneficial Ownership Limitation, described above, which
require a two-thirds shareholder vote.
EVALUATION OF CERTAIN OFFERS
NHTB. The Certificate of Incorporation of NHTB further provides that the
NHTB Board of Directors, when evaluating any offer to NHTB from another party
to engage in certain business combinations, the NHTB may give due
consideration to the extent permitted by law to all relevant factors,
including, without limitation, the possible effects on the business of NHTB
and its subsidiaries and on the depositors, borrowers, employees, its
financial institution subsidiary, and the effects on the communities in which
NHTB's and its subsidiaries' facilities are located. By having these standards
in the Certificate of Incorporation of the NHTB, the Board of Directors may be
in a stronger position to oppose such a transaction if the Board concludes
that the transaction would not be in the best interest of NHTB, even if the
price offered is significantly greater than the then market price of the NHTB
Common Stock.
Landmark. There is no analogous provision in the Landmark Articles.
ANTI-GREENMAIL
NHTB. The Certificate of Incorporation provides that any direct or indirect
purchase or other acquisition by NHTB of any Voting Stock from the beneficial
owner of more than 5% of NHTB Common Stock who has
96
<PAGE>
been the beneficial owner of such common stock for less than two years shall
require the vote of at least a majority of the total number of the outstanding
shares of Voting Stock (excluding shares held by such beneficial owner),
except with respect to a purchase or other acquisition of Voting Stock made as
part of a tender or exchange offer on the same terms from all holders of the
same class of Voting Stock and complying with the applicable requirements of
the Exchange Act, as amended, and the rules and regulations thereunder or with
respect to any purchase of Voting Stock determined by the NHTB Board of
Directors to not exceed the fair market value of the Voting Stock.
Landmark. There is no analogous provision in the Landmark Articles.
SPECIAL MEETINGS OF SHAREHOLDERS
NHTB. The NHTB Certificate of Incorporation provides that special meetings
of shareholders may be called by the Chairman of the Board, the President or a
majority of the Board of Directors.
Landmark. The Landmark Bylaws provide that a special meeting of shareholders
may be called at any time by the President, Chairman of the Board of
Directors, by a majority of the Board of Directors or by holders of not less
than 10% of all outstanding shares entitled to vote at the proposed meeting.
ACTIONS WITHOUT A MEETING OF SHAREHOLDERS
NHTB. Section 228 of the DGCL generally provides that NHTB shareholders may
take any action without a meeting if it is evidenced by one or more written
consents signed by shareholders representing the number of votes required to
approve such action.
Landmark. The Landmark Bylaws provide that any action which may be taken at
a meeting of the shareholders may be taken without a meeting (and without
notice), if a consent or consents in writing, setting forth the action so
taken, are signed by the holders of record of all of the outstanding shares
entitled to vote on such matter.
QUALIFICATION OF DIRECTORS
NHTB. The NHTB Bylaws provide that each Director shall hold at least 100
shares of the capital stock of NHTB.
Landmark. The Landmark Bylaws provide that each Director shall at all times
be a shareholder of Landmark, owning in his or her own right or on a jointly
held basis as husband and wife, unencumbered shares of Landmark Common Stock
having an aggregate fair market value at time of acquisition of not less than
$10,000; provided however, that the Board, by affirmative vote of a majority
of the full Board, may waive such requirement in the case of a finding of
hardship to an individual Director. New Hampshire banking laws, however,
require each director to own in his or her own right or on a jointly held
basis, not less than $1,000 in aggregate fair market value of Landmark Common
Stock valued at the time of acquisition.
AMENDMENTS TO BYLAWS
NHTB. The NHTB Bylaws provides that the Bylaws may be amended at any time by
the affirmative vote of two-thirds of the full Board of Directors then in
office or by vote of the holders of two-thirds of the shares entitled to vote
in the election of directors at a meeting expressly called for that purpose.
Landmark. The Landmark Bylaws provide that the Bylaws may be amended by a
majority of the full Board of Directors subject to repeal, or change by the
vote of the holders of two-thirds of the shares entitled to vote at a meeting
expressly held for that purpose.
97
<PAGE>
CUMULATIVE VOTING
NHTB. Delaware statutory law applicable to NHTB provides that shareholders
do not have a right to cumulate their votes for directors unless the
Certificate of Incorporation so provides. The NHTB Certificate of
Incorporation does not provide for cumulative voting.
Landmark. There is no analogous statutory law applicable to Landmark. The
Landmark Articles expressly provide that there shall be no cumulative voting
rights in the election of Directors or in respect to any other matter.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
In the ordinary course of business, the Bank makes loans to its and NHTB's
Directors and Officers and parties related to them. Such transactions are on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons,
and do not involve more than normal risk of collectibility or present other
unfavorable features.
COMPARATIVE STOCK PRICES AND DIVIDENDS
The shares of NHTB Common Stock are quoted on the Nasdaq National Market
System. The shares of Landmark Common Stock are not listed on any exchange and
has traded sporadically in private sales at prices that are not reported. The
table below sets forth high and low sales prices for NHTB Common Stock as
quoted on the Nasdaq National Market System, respectively, and the cash
dividends declared, for the periods indicated:
<TABLE>
<CAPTION>
NHTB
------------------------
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ------- ------ ---------
<S> <C> <C> <C>
1994
March 31, 1994....................................... $ 9.500 $8.750 $.125
June 30, 1994........................................ 10.750 8.875 .125
September 30, 1994................................... 10.500 9.500 .125
December 31, 1994.................................... 10.250 8.500 .125
1995
March 31, 1995....................................... 10.000 8.875 .125
June 30, 1995........................................ 10.250 8.750 .125
September 30, 1995................................... 11.000 9.500 .125
December 31, 1995.................................... 11.000 9.750 .125
1996
March 31, 1996....................................... 10.500 9.250 .125
June 30, 1996........................................ 10.437 9.500 .125
</TABLE>
On July 25, 1996, the business day immediately preceding the public
announcement of the proposed Merger, the high and low sales prices for NHTB
Common Stock as quoted on the Nasdaq National Market System were $10.125 and
$9.875 per share, respectively. Shares of Landmark Common Stock were offered
and sold at a price of $10.00 per share in Landmark's initial capitalization
offering in March 1991. Since that date, shares of Landmark Common Stock have
been exchanged only in private transactions. Landmark does not have available
to it reliable information regarding the prices at which such shares were
traded.
EXPERTS
NHTB. The consolidated financial statements of NHTB as of December 31, 1995
and the year ended December 31, 1995 have been included in this Joint Proxy
Statement-Prospectus in reliance upon the report of
98
<PAGE>
Berry, Dunn, McNeil & Parker, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The consolidated financial statements of NHTB as of
December 31, 1994 and for each of the years ended December 31, 1994 and 1993
have been included in this Joint Proxy Statement-Prospectus in reliance upon
the report of Smith, Batchelder & Rugg, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
Landmark. The financial statements of Landmark at December 31, 1995 and
1994, and for each of the years in the three year period ended December 31,
1995, included in this Joint Proxy Statement-Prospectus, have been audited by
A.M. Peisch & Company, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of NHTB Common Stock to be issued to the Landmark
shareholders pursuant to the Merger, will be passed upon by Thacher Proffitt &
Wood, Washington, D.C. Certain tax consequences to NHTB and the Landmark
shareholders of the Merger, and certain legal matters in connection with the
Merger, will be passed upon by Thacher Proffitt & Wood, New York, New York and
Gallagher, Callahan & Gartrell, P.A., Concord, New Hampshire.
ADJOURNMENT OF SPECIAL MEETINGS
The proxies solicited hereby requests approval of the proposals to adjourn
each Special Meeting. NHTB or Landmark may seek an adjournment of their
respective Special Meetings for not more than 29 days in order to solicit
additional votes in favor of the proposal to approve and adopt the Agreements
in the event that such proposal has not received the requisite affirmative
vote of shareholders at the Special Meeting. If either NHTB or Landmark
desires to adjourn its Special Meeting, it will request a motion that the
meeting be adjourned for up to 29 days, and no vote will be taken on the
proposal to approve and adopt the Agreements at the originally scheduled
Special Meeting. An adjournment for 29 days or less would not require either
the setting of a new record date or notice of the new meeting date, so long as
the time and place of the new meeting is announced at such Special Meeting.
The proxy solicited by each of NHTB and Landmark hereby, if properly signed
and returned to NHTB or Landmark, as the case may be, on or before December
19, 1996 and not revoked prior to its use, will be voted on any motion for
adjournment in accordance with the instructions contained therein. If no
contrary instructions are given, each proxy received will be voted for any
motion to adjourn the applicable Special Meeting. Unless revoked prior to its
use, a proxy solicited for a Special Meeting will continue to be valid for any
adjourned meeting, and will be voted in accordance with the instructions
contained therein and, if no contrary instructions are given, for the proposal
to approve and adopt the Agreements.
Any adjournment will permit NHTB and Landmark to solicit additional proxies
and will permit a greater expression of the views of their shareholders with
respect to the Merger. Such an adjournment would be disadvantageous to
shareholders who are against the proposal to approve and adopt the Agreements
because an adjournment will give NHTB and Landmark additional time to solicit
favorable votes and increase the chances of approving such proposal. NHTB and
Landmark have no reason to believe that an adjournment of a Special Meeting
will be necessary at this time.
If a quorum is not present at either Special Meeting, no proposal will be
acted upon and the Board of Directors will adjourn such Special Meeting to an
alternate date in order to solicit additional proxies on each of the proposals
being submitted to shareholders.
BECAUSE THE BOARD OF DIRECTORS OF NHTB AND LANDMARK EACH RECOMMEND THAT
SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE
99
<PAGE>
AGREEMENTS, EACH OF THE BOARD OF DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE
FOR THE ADJOURNMENT PROPOSAL. THE HOLDERS OF A MAJORITY OF THE SHARES VOTING
IN PERSON OR BY PROXY AT THE SPECIAL MEETING WILL BE REQUIRED TO APPROVE THE
ADJOURNMENT PROPOSAL.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Shatswell, MacLeod & Company, P.C. independent public
accountants, is expected to be present at the NHTB Special Meeting, will have
an opportunity to make a statement if he or she desires to do so and will be
available to respond to questions raised at the NHTB Special Meeting.
A representative of A.M. Peisch & Company, certified public accountants, is
expected to be present at the Landmark Special Meeting, will have an
opportunity to make a statement if he or she desires to do so and will be
available to respond to questions raised at the Landmark Special Meeting.
SHAREHOLDER PROPOSALS
In the event the Merger is not consummated, any shareholder who wishes to
have a proposal considered for inclusion in NHTB's proxy statement for its
1997 Annual Meeting of Shareholders must have delivered such proposal in
writing to the main office of NHTB no later than November 8, 1996 (or
depending on the date of such meeting, such later date as determined pursuant
to Rule 14a-8 under the Securities Act).
The Board of Directors of each of NHTB and Landmark are not aware of any
other matters to be presented at their respective Special Meeting. If any
additional matters are properly presented, the persons named in the proxy will
have discretion to vote in accordance with their own judgment on such matters.
100
<PAGE>
APPENDICES
APPENDIX A
THE PLAN OF REORGANIZATION
EXHIBIT A--VOTING AGREEMENTS BETWEEN LANDMARK AND NHTB
THE MERGER AGREEMENT
APPENDIX B
OPINION OF HAS ASSOCIATES, INC.
OPINION OF MCCONNELL, BUDD & DOWNES, INC.
APPENDIX C
STOCK OPTION AGREEMENT
APPENDIX D
DISSENTERS' RIGHTS--REGULATIONS OF THE U.S. COMPTROLLER OF THE CURRENCY
APPENDIX E
(1) NHTB 1995 ANNUAL REPORT TO SHAREHOLDERS AND ANNUAL REPORT ON FORM 10-
KSB FOR THE YEAR ENDED DECEMBER 31, 1995
(2) NHTB QUARTERLY REPORT ON FORM 10-QSB FOR QUARTER ENDED JUNE 30, 1996
101
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
Audited Financial Statements for NHTB are included in the Annual Report to
Shareholders annexed hereto as Appendix E. Unaudited financial statements for
the six months ended June 30, 1996 and 1995 are included in the Quarterly
Report on Form 10-QSB for the quarter ended June 30, 1996, annexed hereto as
Appendix E.
LANDMARK BANK
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets as of June 30, 1996 and 1995....... F-1
Consolidated statements of income for the six months ended June
30, 1996 and 1995............................................. F-2
Consolidated statements of changes in stockholders' equity for
the six months ended June 30, 1996, December 31, 1995 and June
30, 1995...................................................... F-3
Consolidated statements of cash flows for the six months ended
June 30, 1996 and 1995........................................ F-4
Notes to unaudited consolidated financial statements........... F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent auditor's report................................... F-6
Consolidated balance sheets as of December 31, 1995 and 1994... F-7
Consolidated statements of income for the years ended December
31, 1995, 1994 and 1993....................................... F-8
Consolidated statements of changes in stockholders' equity for
the years ended December 31, 1995, 1994 and 1993.............. F-9
Consolidated statements of cash flows for the years ended
December 31, 1995, 1994 and 1993.............................. F-10 and F-11
Notes to consolidated financial statements..................... F-12--F-24
</TABLE>
102
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
------
Cash and due from banks............................................ $ 1,571,608 $ 1,384,504
Federal funds sold................................................. 1,240,000 10,280,000
Securities available-for-sale, at fair value....................... 7,111,206 2,418,986
Securities held-to-maturity........................................ 827,696 8,250,149
Loans, net......................................................... 42,307,270 42,360,058
Premises and equipment, net........................................ 2,644,303 576,173
Accrued interest receivable........................................ 281,034 315,795
Deferred income taxes.............................................. 304,535 253,218
Investment in real estate.......................................... 115,671 163,387
Cash surrender value of life insurance............................. 265,000 -0-
Accounts receivable--SBA........................................... 512,191 -0-
Other assets....................................................... 590,179 400,586
----------- -----------
$57,770,693 $66,402,856
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits:
Demand........................................................... $ 3,123,629 $ 3,342,521
NOW accounts..................................................... 3,814,685 3,804,806
Savings.......................................................... 13,576,258 14,162,568
Time, $100,000 and over.......................................... 7,044,843 3,431,841
Other time....................................................... 26,176,671 37,192,840
----------- -----------
53,736,086 61,934,576
Securities sold under repurchase agreements........................ 308,944 392,200
Capital lease obligations.......................................... -0- 4,639
Accrued interest and other liabilities............................. 151,095 233,791
----------- -----------
54,196,125 62,565,206
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A convertible, noncumulative, perpetual preferred stock, $1
par value, $20 stated value; 600,000 shares authorized, 59,667 and
59,015 issued and outstanding in 1996 and 1995, respectively...... 1,094,064 1,080,964
Common stock, $1 par value; 354,138 shares authorized, 354,138
issued and outstanding............................................ 354,138 354,138
Additional paid-in capital......................................... 2,826,281 2,826,281
Accumulated deficit................................................ (478,119) (276,731)
Unrealized gain (loss) on securities available-for-sale, net....... (86,882) 4,390
Unrealized loss on securities held-to-maturity, net................ (134,914) (151,392)
----------- -----------
3,574,568 3,837,650
----------- -----------
$57,770,693 $66,402,856
=========== ===========
</TABLE>
F-1
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans........................... $1,993,203 $2,077,263
Interest on investment securities:
U.S. Treasury...................................... 54,811 89,489
U.S. government agencies and mortgage-backed
securities........................................ 215,130 253,402
Interest on federal funds sold....................... 81,619 57,869
---------- ----------
2,344,763 2,478,023
---------- ----------
Interest expense:
Interest on deposits................................. 1,453,198 1,253,525
Other interest expense............................... 4,341 4,751
---------- ----------
1,457,539 1,258,276
---------- ----------
Net interest income.............................. 887,224 1,219,747
Provision for possible loan losses..................... 317,000 47,930
---------- ----------
Net interest income after provision for possible
loan losses..................................... 570,224 1,171,817
---------- ----------
Other income:
Service fees......................................... 43,137 48,411
Net gains on sales of securities available-for-sale.. 135,330 -0-
Gains on sales of loans.............................. -0- 21,516
Gain on sale of bank owned real estate............... 14,789 -0-
Secondary market loan fees........................... 41,006 39,829
Other................................................ 69,962 77,714
---------- ----------
304,224 187,470
---------- ----------
Other expenses:
Salaries and employee benefits....................... 570,189 567,964
Advertising and promotion............................ 70,708 80,578
Occupancy expenses................................... 65,014 142,591
Equipment rentals, depreciation and maintenance...... 139,966 117,268
Other operating expenses............................. 260,180 390,198
---------- ----------
1,106,057 1,298,599
---------- ----------
Income (loss) before income taxes................ (231,609) 60,688
Income tax expense..................................... (85,700) 27,314
---------- ----------
Net income (loss)................................ $ (145,909) $ 33,374
========== ==========
Earnings (loss) per share on weighted average number of
common and common equivalent shares................... $ (.41) $ (.05)
========== ==========
Weighted average number of common and common equivalent
shares................................................ 354,138 354,138
========== ==========
</TABLE>
F-2
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996, DECEMBER 31, 1995 AND JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED LOSS
ON SECURITIES
----------------------
ADDITIONAL AVAILABLE- HELD-TO-
PREFERRED COMMON PAID-IN ACCUMULATED FOR-SALE MATURITY
STOCK STOCK CAPITAL DEFICIT NET OF TAX NET OF TAX TOTALS
---------- -------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1994................... $1,059,824 $354,138 $2,826,281 $(260,584) $ (28,581) $(159,630) $3,791,448
Net income.............. -0- -0- -0- 33,374 -0- -0- 33,374
Preferred stock
dividends declared..... -0- -0- -0- (49,521) -0- -0- (49,521)
Reinvested preferred
stock dividends........ 21,140 -0- -0- -0- -0- -0- 21,140
Unrealized gain on
securities available-
for-sale, net of tax... -0- -0- -0- -0- 32,971 -0- 32,971
Amortization of
unrealized loss on
securities held-to-
maturity............... -0- -0- -0- -0- -0- 8,238 8,238
---------- -------- ---------- --------- --------- --------- ----------
Balances, June 30, 1995. 1,080,964 354,138 2,826,281 (276,731) 4,390 (151,392) 3,837,650
Net income (loss)....... -0- -0- -0- (12,391) -0- -0- (12,391)
Preferred stock
dividends declared..... -0- -0- -0- (43,088) -0- -0- (43,088)
Reinvested preferred
stock dividends........ 13,040 -0- -0- -0- -0- -0- 13,040
Unrealized gain on
securities available-
for-sale, net of tax... -0- -0- -0- -0- 87,509 -0- 87,509
Amortization of
unrealized loss on
securities held-to-
maturity............... -0- -0- -0- -0- -0- 8,239 8,239
---------- -------- ---------- --------- --------- --------- ----------
Balances, December 31,
1995................... 1,094,004 354,138 2,826,281 (332,210) 91,899 (143,153) 3,890,959
Net income (loss)....... -0- -0- -0- (145,909) -0- -0- (145,909)
Issuance of preferred
stock.................. 60 -0- -0- -0- -0- -0- 60
Unrealized loss on
securities available-
for-sale, net of tax... -0- -0- -0- -0- (178,781) -0- (178,781)
Amortization of
unrealized loss on
securities held-to-
maturity............... -0- -0- -0- -0- -0- 8,239 8,239
---------- -------- ---------- --------- --------- --------- ----------
Balances, June 30, 1996. $1,094,064 $354,138 $2,826,281 $(478,119) $ (86,882) $(134,914) $3,574,568
========== ======== ========== ========= ========= ========= ==========
</TABLE>
F-3
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income (loss)................................... $ (145,909) $ 33,374
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization..................... 85,372 74,573
Provision for loan losses......................... 317,000 47,930
Securities gains, net............................. (135,330) -0-
Gains on sales of loans........................... -0- (21,516)
Net amortization (accretion)...................... 17,018 (62,040)
Provision for deferred income taxes............... (2,157) 44,782
Decrease in deferred loan fees.................... (15,947) (10,291)
Decrease (increase) in accrued interest
receivable....................................... 60,761 (10,043)
Increase in other assets and receivables.......... (880,483) (108,652)
Decrease in accrued interest and other
liabilities...................................... (58,042) (54,854)
Gain on sale of real estate....................... (14,789) -0-
----------- -----------
Net cash used in operating activities........... (772,506) (66,737)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in federal funds sold........... 740,000 (8,950,000)
Purchases of securities available-for-sale.......... (6,973,462) -0-
Proceeds from sales and maturities of securities
available-for-sale................................. 9,218,890 40,722
Proceeds from maturities of securities held-to-
maturity........................................... -0- 305,206
Net decrease (increase) in loans.................... 251,535 (1,911,521)
Purchases of premises and equipment................. (76,437) (92,635)
Recoveries of loans charged off..................... 1,744 20
Proceeds from sale of bank-owned real estate........ 56,226 -0-
Purchase of real estate held for investment......... -0- (7,240)
----------- -----------
Net cash provided by (used in) investing
activities..................................... 3,218,496 (10,615,448)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
accounts and savings deposits...................... 935,440 (7,228,654)
Net (decrease) increase in time deposits............ (3,558,349) 17,172,327
Net increase in repurchase agreements............... 4,991 171,998
Decrease in capital lease obligations............... -0- (34,271)
Proceeds from sale of preferred stock............... 60 -0-
Dividends paid, net of reinvestment................. -0- (28,381)
----------- -----------
Net cash (used in) provided by financing
activities..................................... (2,617,858) 10,053,019
----------- -----------
Net decrease in cash and cash equivalents....... (171,868) (629,166)
Cash and cash equivalents:
Beginning......................................... 1,743,476 2,013,670
----------- -----------
Ending............................................ $ 1,571,608 $ 1,384,504
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest.......................................... $ 1,464,224 $ 1,294,933
=========== ===========
Income taxes...................................... $ 25,000 $ 128,480
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Increase in unrealized gain (loss) on securities
available-for-sale................................. $ (284,947) $ 52,753
=========== ===========
</TABLE>
F-4
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and accordingly do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the management of
Landmark Bank, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
NOTE 2. ACCOUNTING POLICIES
The accounting principles followed by Landmark Bank and Subsidiaries and the
methods of applying these principles which materially affect the determination
of financial position, results of operations and cash flows are consistent
throughout.
F-5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Landmark Bank
Lebanon, New Hampshire
We have audited the accompanying consolidated balance sheets of Landmark
Bank and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1995, 1994 and 1993. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Landmark
Bank and Subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for the years ended December 31, 1995,
1994 and 1993 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
adopted a new method of accounting for investment securities effective
December 31, 1993.
/s/ A.M. Peisch & Company
February 2, 1996
White River Junction, Vermont
F-6
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
------
Cash and due from banks (Note 2)..................... $ 1,743,476 $ 2,013,670
Federal funds sold................................... 1,980,000 1,330,000
Securities available-for-sale, at fair value (Note
3).................................................. 9,523,269 2,397,668
Securities, held-to-maturity (approximate fair value
1995 $823,916; 1994 $8,095,604) (Note 3)............ 812,357 8,533,151
Loans, net (Notes 4 and 5)........................... 42,861,602 40,464,680
Premises and equipment, net (Note 6)................. 2,652,038 556,886
Accrued interest receivable.......................... 341,795 305,752
Deferred income taxes (Note 9)....................... 203,312 278,995
Investment in real estate............................ 158,308 157,372
Other assets......................................... 486,887 291,934
----------- -----------
$60,763,044 $56,330,108
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits:
Demand............................................. $ 3,867,185 $ 4,089,808
NOW accounts....................................... 3,616,980 4,007,414
Savings............................................ 12,094,967 20,441,327
Time, $100,000 and over (Note 7)................... 7,986,106 4,626,522
Other time (Note 7)................................ 28,793,757 18,825,832
----------- -----------
56,358,995 51,990,903
Securities sold under repurchase agreements (Note
11)................................................. 303,953 220,202
Capital lease obligations (Note 12).................. -0- 38,910
Accrued interest and other liabilities............... 209,137 288,645
----------- -----------
56,872,085 52,538,660
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 12, 13 and 14)
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value, $20 stated value
(Note 15)........................................... 1,094,004 1,059,824
Common stock, $1 par value; 865,658 shares
authorized; 354,138 shares issued and outstanding
(Note 16)........................................... 354,138 354,138
Additional paid-in capital.......................... 2,826,281 2,826,281
Accumulated deficit................................. (332,210) (260,584)
Unrealized gain (loss) on securities available-for-
sale, net........................................... 91,899 (28,581)
Unrealized loss on securities held-to-maturity, net. (143,153) (159,630)
----------- -----------
3,890,959 3,791,448
----------- -----------
$60,763,044 $56,330,108
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-7
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................. $4,268,442 $3,196,571 $2,417,396
Interest on investment securities:
U.S. Treasury............................ 145,979 58,346 2,333
U.S. government agencies and mortgage-
backed securities....................... 530,277 285,109 125,452
Other.................................... -0- -0- 14,089
Interest on federal funds sold............. 217,962 52,910 34,970
---------- ---------- ----------
5,162,660 3,592,936 2,594,240
---------- ---------- ----------
Interest expense:
Interest on deposits....................... 2,847,901 1,373,080 940,778
Other interest expense..................... 9,662 18,478 29,963
---------- ---------- ----------
2,857,563 1,391,558 970,741
---------- ---------- ----------
Net interest income.................... 2,305,097 2,201,378 1,623,499
Provision for possible loan losses (Note 5).. 205,483 203,013 145,500
---------- ---------- ----------
Net interest income after provision for
possible loan losses.................. 2,099,614 1,998,365 1,477,999
---------- ---------- ----------
Other income:
Service fees............................... 89,707 85,877 70,834
Net gains on sales of securities available-
for-sale (Note 3)......................... -0- 841 3,735
Gains on sales of loans.................... 63,989 162,550 421,534
Secondary market loan fees................. 111,408 137,265 255,231
Other...................................... 146,713 174,663 111,249
---------- ---------- ----------
411,817 561,196 862,583
---------- ---------- ----------
Other expenses:
Salaries and employee benefits............. 1,165,997 1,056,710 738,145
Advertising and promotion.................. 135,297 138,503 91,216
Occupancy expenses......................... 243,049 214,875 131,484
Equipment rentals, depreciation and
maintenance............................... 250,553 193,791 168,577
Other operating expenses................... 690,237 588,696 457,535
---------- ---------- ----------
2,485,133 2,192,575 1,586,957
---------- ---------- ----------
Income before income taxes............. 26,298 366,986 753,625
Income tax expense (Note 9).................. 5,315 140,632 277,751
---------- ---------- ----------
Net income............................. $ 20,983 $ 226,354 $ 475,874
========== ========== ==========
Earnings per share on weighted average number
of common and common equivalent shares...... $ (.20) $ .34 $ 1.15
========== ========== ==========
Weighted average number of common and common
equivalent shares........................... $ 354,138 $ 354,138 $ 414,127
========== ========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-8
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED GAIN (LOSS)
ON SECURITIES
-------------------------
ADDITIONAL AVAILABLE- HELD-TO-
PREFERRED COMMON PAID-IN ACCUMULATED FOR-SALE MATURITY,
STOCK STOCK CAPITAL DEFICIT NET NET TOTALS
---------- -------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1992................... $ 150,000 $354,038 $2,825,381 $(814,297) $ -0- $ -0- $2,515,122
Net income, as restated
(Note 19).............. -0- -0- -0- 475,874 -0- -0- 475,874
Issuance of preferred
stock.................. 900,000 -0- -0- -0- -0- -0- 900,000
Conversion of 50 shares
of preferred stock to
100 shares of common
stock.................. (1,000) 100 900 -0- -0- -0- -0-
Preferred stock offering
costs (Note 15)........ (99,276) -0- -0- -0- -0- -0- (99,276)
Preferred stock
dividends declared..... -0- -0- -0- (42,178) -0- -0- (42,178)
Reinvested preferred
stock dividends
(Note 15).............. 7,140 -0- -0- -0- -0- -0- 7,140
Unrealized loss on
securities
available-for-sale, net
of tax................. -0- -0- -0- -0- (9,841) -0- (9,841)
---------- -------- ---------- --------- ----------- ----------- ----------
Balances, December 31,
1993................... 956,864 354,138 2,826,281 (380,601) (9,841) -0- 3,746,841
Net income.............. -0- -0- -0- 226,354 -0- -0- 226,354
Issuance of preferred
stock.................. 60,000 -0- -0- -0- -0- -0- 60,000
Preferred stock
dividends declared..... -0- -0- -0- (106,337) -0- -0- (106,337)
Reinvested preferred
stock dividends
(Note 15).............. 42,960 -0- -0- -0- -0- -0- 42,960
Unrealized loss on
securities
available-for-sale,
net.................... -0- -0- -0- -0- (182,490) -0- (182,490)
Transfer of securities
available-for-sale to
held-to-maturity, (Note
3)..................... -0- -0- -0- -0- 163,750 (163,750) -0-
Amortization of
unrealized loss on
securities held-to-
maturity............... -0- -0- -0- -0- -0- 4,120 4,120
---------- -------- ---------- --------- ----------- ----------- ----------
Balances, December 31,
1994................... 1,059,824 354,138 2,826,281 (260,584) (28,581) (159,630) 3,791,448
Net income.............. -0- -0- -0- 20,983 -0- -0- 20,983
Preferred stock
dividends declared..... -0- -0- -0- (92,609) -0- -0- (92,609)
Reinvested preferred
stock dividends
(Note 15).............. 34,180 -0- -0- -0- -0- -0- 34,180
Unrealized gain on
securities
available-for-sale,
net.................... -0- -0- -0- -0- 120,480 -0- 120,480
Amortization of
unrealized loss on
securities held-to-
maturity............... -0- -0- -0- -0- -0- 16,477 16,477
---------- -------- ---------- --------- ----------- ----------- ----------
Balances, December 31,
1995................... $1,094,004 $354,138 $2,826,281 $(332,210) $ 91,899 $ (143,153) $3,890,959
========== ======== ========== ========= =========== =========== ==========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-9
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................ $ 20,983 $ 226,354 $ 475,874
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 178,485 133,179 107,387
Provision for loan losses........... 205,483 203,013 145,500
Securities gains, net............... -0- (841) (3,735)
Gains on sales of loans............. (63,989) (162,550) (421,534)
Decrease in loans held for sale..... -0- 174,898 438,918
Accretion, net of amortization...... (94,615) (43,426) 65,805
Provision for deferred income taxes. (10,615) 23,548 248,481
Increase in accrued interest
receivable and other assets........ (243,097) (190,080) (59,074)
(Increase) decrease in deferred loan
costs.............................. (33,357) (27,908) 16,962
(Decrease) increase in accrued
interest and other liabilities..... (97,451) 140,785 13,872
----------- ------------ -----------
Net cash (used in) provided by
operating activities............. (138,173) 476,972 1,028,456
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in federal funds
sold................................. (650,000) 529,000 (974,000)
Purchases of securities available-for-
sale................................. (499,766) (1,977,929) -0-
Proceeds from sales and maturities of
securities available-for-sale........ 581,443 241,921 -0-
Purchases of securities held-to-
maturity............................. -0- (7,807,934) -0-
Proceeds from maturities of securities
held-to-maturity..................... 827,263 146,229 -0-
Purchases of investment securities.... -0- -0- (1,452,505)
Proceeds from sales and maturities of
investment securities................ -0- -0- 3,449,492
Net increase in loans................. (2,505,059) (13,070,481) (6,772,215)
Purchase of premises and equipment.... (2,257,413) (129,159) (140,557)
Purchase of real estate held for
investment........................... (936) (157,383) -0-
----------- ------------ -----------
Net cash used in investing
activities....................... (4,504,468) (22,225,736) (5,889,785)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand
deposits,
NOW accounts and savings accounts..... (8,959,417) 15,157,463 1,100,146
Net increase in time deposits......... 13,327,509 7,488,351 3,127,133
Net increase (decrease) in repurchase
agreements........................... 83,751 (130,695) 321,564
Decrease in capital lease obligations. (38,910) (81,876) (66,815)
Proceeds from sales of preferred
stock................................ -0- 60,000 900,000
Stock issuance costs.................. -0- -0- (25,903)
Dividends paid, net of reinvestment... (40,486) (63,377) (35,038)
----------- ------------ -----------
Net cash provided by financing
activities....................... 4,372,447 22,429,866 5,321,087
----------- ------------ -----------
Net (decrease) increase in cash
and cash equivalents............. (270,194) 681,102 459,758
Cash and cash equivalents:
Beginning........................... 2,013,670 1,332,568 872,810
----------- ------------ -----------
Ending.............................. $ 1,743,476 $ 2,013,670 $ 1,332,568
=========== ============ ===========
</TABLE>
(Continued)
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-10
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest.................................... $2,859,592 $1,288,156 $969,697
---------- ---------- --------
Income taxes................................ 183,980 78,969 -0-
---------- ---------- --------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Increase in unrealized gain (loss) on
securities available-for-sale................ $ 192,769 $ (35,888) $ (9,841)
========== ========== ========
Transfer of securities available-for-sale to
securities held-to-maturity (fair value)..... $ -0- $ 838,000 $ -0-
========== ========== ========
Conversion of 50 shares of preferred stock to
100 shares of common stock................... $ -0- $ -0- $ 1,000
========== ========== ========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-11
<PAGE>
LANDMARK BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Landmark Bank and Subsidiaries (the Bank) are in
conformity with generally accepted accounting principles and general practices
within the banking industry. The following is a description of the more
significant policies.
Basis of consolidation
The consolidated financial statements include the accounts of Landmark Bank
and its wholly owned subsidiaries, Landmarkbanc Realty Holdings Corp. and
Landmark Bank Mortgage Corporation. These subsidiaries were established in
1995 for the purposes of holding the bank building and opening a loan
production office in Vermont. All significant intercompany accounts and
transactions have been eliminated.
Nature of operations
The Bank provides a variety of financial services through its two branch
locations to individuals and corporate customers in the City of Lebanon and
the surrounding towns of Hanover, Enfield, and Plainfield, New Hampshire, as
well as the Vermont towns of Norwich and Hartford. The Bank's primary deposit
products are checking and savings accounts and certificates-of-deposit. Its
primary lending products are commercial, real estate and consumer loans.
Concentration of risk
The Bank's operations are affected by various risk factors, including
interest rate risk, credit risk and risk from geographic concentration of
lending activities. Management attempts to manage interest rate risk through
various asset/liability management techniques designed to match maturities of
assets and liabilities. The Bank is a community bank and, as such, is mandated
by the Community Reinvestment Act and other regulations to conduct most of its
lending activities within the geographic area where it is located. Although
the Bank has a diversified loan portfolio and economic conditions are stable,
a substantial portion of the loans are secured by real estate. As a result,
the Bank and its borrowers may be especially vulnerable to changes in the
local economy. Loan policies and administration are designed to provide
assurance that loans will only be granted to credit worthy borrowers, although
credit losses are expected to occur because of factors beyond the control of
the Bank.
Earnings per share
Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding during the year.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A material estimate that is particularly susceptible to significant change
relates to the determination of the allowance for losses on loans. In
connection with the determination of the allowances for losses on loans,
management obtains independent appraisals for significant properties.
Accordingly, the ultimate collectibility of a substantial portion of the
Bank's loan portfolio are susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in local
economic conditions. In addition, regulatory agencies, as
F-12
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
an integral part of their examination process, periodically review the Bank's
allowance for losses on loans. Such agencies may require the Bank to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination.
Presentation of cash flows
For purposes of reporting cash flows, cash and cash equivalents includes
cash on hand, cash items in the process of clearing, and amounts due from
banks. The statements of cash flows for the years ended December 31, 1994 and
1993 have been restated using the indirect method to conform with the December
31, 1995 presentation.
Investment securities
In April, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 established new
standards of accounting and reporting for debt securities held as assets and
for equity securities having readily determinable fair values. SFAS Statement
No. 115 is effective for fiscal years beginning after December 15, 1993, with
early adoption permitted. The Bank elected to adopt SFAS 115 as of December
31, 1993. Retroactive restatement of prior years' statements was not
permitted.
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost, adjusted for
amortization of premium and accretion of discounts using methods approximating
the interest method. Other marketable securities are classified as available-
for-sale and are carried at fair value. Unrealized gains and losses on
securities available-for-sale are recognized as direct increases or decreases
in stockholders' equity, net of tax. Cost of securities sold is recognized
using the specific identification method.
Loans held for sale
Loans originated and intended for sale are carried at the lower of cost or
estimated market value in the aggregate. Net unrealized losses are recognized
through a valuation allowance by charges to income.
Loans
The Bank adopted Statement of Financial Accounting Standards No. 114 (as
amended by SFAS No. 118), Accounting by Creditors for Impairment of a Loan,
effective January 1, 1995. This statement is considered the primary source of
authoritative guidance for determining allowances relating to specific loans.
The effect of adoption of this statement was immaterial to the Bank's
financial statements.
Loans are stated at the amount of unpaid principal, increased by deferred
costs and reduced by an allowance for possible loan losses and deferred gains
on loan sales.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of the
related loan's yield. The Bank is generally amortizing these amounts over the
contractual life.
The Bank periodically sells certain interests (for example, the guaranteed
portions) in U.S. Small Business Administration loans. At the time the portion
of the loan is sold, the Bank allocates its recorded investment in the loan
between the portion of the loan sold and the portion retained, including any
excess servicing, based on their relative fair values. This allocation is used
to determine the gain or loss on the portion of the loan sold and the carrying
amount of the portion retained.
F-13
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The excess servicing receivables and deferred loan gains resulting from such
sales are amortized over the estimated life using a method approximating the
interest method.
Loan interest income is accrued daily on the outstanding balances. Accrual
of interest is discontinued when a loan is specifically determined to be
impaired or management believes, after considering collection efforts and
other factors, that the borrower's financial condition is such that collection
of interest is doubtful.
Any unpaid interest previously accrued on those loans is reversed from
income. Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received on
such loans are applied as a reduction of the loan principal balance. Interest
income on other nonaccrual loans is recognized only to the extent of interest
payments received.
Allowance for possible loan losses
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historical loss experience,
specific impaired loans, and economic conditions. Allowances for impaired
loans are generally determined based on collateral values or the present value
of estimated cash flows. The allowance is increased by a provision for loan
losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation. The
provision for depreciation is computed over the estimated useful life of the
related asset, principally by the straight-line method. Improvements to leased
property are amortized over the lesser of the term of the lease or the life of
the improvements. The cost of assets sold or otherwise disposed of and the
related allowance for depreciation are eliminated from the accounts and the
resulting gains or losses are reflected in the income statement. Maintenance
and repairs are charged to current expenses as incurred and the cost of major
renewals and betterments are capitalized.
Investment in real estate
Investment in real estate consists of two residential properties adjacent to
the Bank's main office. The properties are carried at the lower of cost or net
realizable value and are currently for sale by the Bank.
Pension costs
Pension costs relating to the Bank's 401(k) plan are charged to employee
benefits expense and are funded as accrued.
Advertising costs
The Bank expenses advertising costs as incurred.
Income taxes
The Bank recognizes income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are established for the
temporary differences between the accounting basis and the tax basis of the
Bank's assets and liabilities at enacted tax rates expected to be in effect
when the amounts related to such temporary
F-14
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
differences are realized or settled. Adjustments to the Bank's deferred tax
assets are recognized as deferred income tax expense or benefit based on
management's judgments relating to the realizability of such asset.
Off-balance-sheet financial instruments
In the ordinary course of business the Bank has executed off-balance-sheet
financial instruments consisting of commitments to extend credit, commercial
letters of credit, and standby letters of credit. Such financial instruments
are recorded in the financial statements when they become payable.
Fair values of financial instruments
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. SFAS No. 107 is effective for the Bank beginning in 1995.
In cases where quoted market prices are not available, fair values are based
on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instruments. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Bank.
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD: The carrying amounts
reported in the balance sheet for cash and due from banks and federal funds
sold approximate those assets' fair values.
INVESTMENT SECURITIES: Fair values for securities available-for-sale and
held-to-maturity are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments. The carrying amount of accrued
interest receivable approximates its fair value.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and rental property mortgage loans and commercial
and industrial loans) are estimated using discounted cash flow analysis,
based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates
include judgments regarding future expected loss experience and risk
characteristics. The carrying amount of accrued interest receivable
approximates its fair value.
DEPOSITS: The fair values disclosed for demand deposits (for example,
checking and savings accounts) are, by definition, equal to the amount
payable on demand at the reporting date (that is, their carrying amounts).
The fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual
maturities on such time deposits. The carrying amount of accrued interest
payable approximates fair value.
REPURCHASE AGREEMENTS: The carrying amount reported in the balance sheet
for repurchase agreements approximates those liabilities' fair values.
OTHER LIABILITIES: Commitments to extend credit were evaluated and fair
value was estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
F-15
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the current year presentation. The composition of
net loans for 1995 and 1994 in Note 4 has been reclassified to conform with
regulatory call reporting requirements.
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances in cash with the Federal
Reserve Bank. The total of those reserve balances was approximately $98,000
and $50,000 at December 31, 1995 and 1994.
NOTE 3. INVESTMENT SECURITIES
Securities available-for-sale (AFS) and held-to-maturity (HTM) consist of
the following at December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AFS:
December 31, 1995:
U.S. Treasury.................... $1,999,279 $ 5,321 $ -0- $2,004,600
Mortgage-backed securities....... 7,348,236 143,454 1,895 7,489,795
Collateralized mortgage
obligations..................... 28,714 160 -0- 28,874
---------- -------- -------- ----------
$9,376,229 $148,935 $ 1,895 $9,523,269
========== ======== ======== ==========
December 31, 1994:
U.S. Treasury.................... $1,985,883 $ -0- $ 38,461 $1,947,422
Mortgage-backed securities....... 421,297 2,706 9,123 414,880
Collateralized mortgage
obligations..................... 36,217 -0- 851 35,366
---------- -------- -------- ----------
$2,443,397 $ 2,706 $ 48,435 $2,397,668
========== ======== ======== ==========
SECURITIES HTM:
December 31, 1995:
U.S. Gov't. agencies............. $ 812,357 $ 11,559 $ -0- $ 823,916
========== ======== ======== ==========
December 31, 1994:
U.S. Gov't. agencies............. $ 808,093 $ -0- $ 92,996 $ 715,097
Mortgage-backed securities....... 7,725,058 -0- 344,551 7,380,507
---------- -------- -------- ----------
$8,533,151 $ -0- $437,547 $8,095,604
========== ======== ======== ==========
</TABLE>
U.S. Gov't. agencies at December 31, 1995 and 1994 consist of two Federal
Home Loan Bank notes. The interest rates on these investments, which are
considered structured notes, fluctuate based on changes in the LIBOR rate.
These notes were transferred from the available-for-sale category to the held-
to-maturity category at fair value in 1994. The unrealized loss of $163,750
(net of tax) at the time of the transfer is being amortized using a method
approximating the interest method.
F-16
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Financial Accounting Standards Board issued an implementation guide to
SFAS No. 115 on Accounting for Certain Investments in Debt and Equity
Securities. This guide allows the one time transfer of securities in the held-
to-maturity classification to the available-for-sale classification between
the period November 15, 1995 and December 31, 1995. In December, 1995 the Bank
transferred mortgage-backed securities with an approximate amortized cost and
fair value of $7,033,500 and $7,173,500, respectively from the held-to-
maturity classification to the available-for-sale classification. Under the
implementation guide, this one time transfer does not call into question the
intent of the Bank to hold other debt securities to maturity in the future.
Proceeds from the sale of securities available-for-sale during 1995 and 1994
were $-0- and $119,776, respectively. Gross realized gains on sales of
securities available-for-sale were $-0- and $841 for the years ended December
31, 1995 and 1994, respectively.
Proceeds from the sale of investment securities during 1993 (prior to the
adoption of SFAS No. 115) were $1,883,983. Gross realized gains and losses on
sales of securities during 1993 (prior to adoption of SFAS 115) were:
<TABLE>
<S> <C>
Gross realized gains................ $ 5,198
Gross realized losses............... (1,463)
-------
Net realized gains................ $ 3,735
=======
</TABLE>
The maturities of investment securities at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
SECURITIES AFS:
Due in one year or less............................. $ 999,513 $1,001,350
Due from one to five years.......................... 6,674,164 6,779,311
Due from five to ten years.......................... 1,474,632 1,509,854
Due after ten years................................. 227,920 232,754
---------- ----------
$9,376,229 $9,523,269
========== ==========
SECURITIES HTM:
Due from one to five years.......................... $ 445,805 $ 455,000
Due after ten years................................. 366,552 368,916
---------- ----------
$ 812,357 $ 823,916
========== ==========
</TABLE>
Expected maturities will differ from contractual maturities on mortgage-
backed securities and collateralized mortgage obligations because borrowers
may have the right to call or prepay obligations without call or prepayment
penalties. The expected average lives of such securities are substantially
less than the contractual lives of the underlying mortgage products.
Investment securities with an amortized cost of $7,070,335 and $7,638,287
and a fair value of $7,200,120 and $7,247,873 at December 31, 1995 and 1994,
respectively, were pledged as collateral on public deposits and for other
purposes as required or permitted by law.
F-17
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. LOANS
The composition of net loans (rounded to the nearest thousand) is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Commercial and commercial real estate.............. $17,844,000 $16,500,000
Real estate........................................ 18,953,000 17,546,000
Construction loans................................. 2,851,000 2,643,000
Consumer........................................... 3,868,000 4,272,000
----------- -----------
43,516,000 40,961,000
Allowance for loan losses.......................... (659,000) (465,000)
Net deferred loan costs............................ 35,000 1,000
Deferred gains on loan sales....................... (30,000) (32,000)
----------- -----------
Loans, net....................................... $42,862,000 $40,465,000
=========== ===========
</TABLE>
The Bank had loans amounting to $302,393 (which approximates the average
balance of the loans) that were specifically classified as impaired at
December 31, 1995. These loans were subject to allowances for loan losses of
$167,635, which represented the total allowance for loan losses related to
impaired loans at December 31, 1995. There were no cash receipts on impaired
loans during 1995.
In addition, the Bank had other nonaccrual loans of approximately $143,600
for which impairment had not been recognized. If interest on these loans had
been recognized at the original interest rates, interest income would have
increased approximately $5,793 for the year ended December 31, 1995.
The Bank has no commitments to loan additional funds to borrowers with
impaired or nonaccrual loans.
NOTE 5. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning............................. $465,000 $264,971 $141,656
Provision charged to operating expense......... 205,483 203,013 145,500
Recoveries of amounts charged off.............. 20 -0- -0-
-------- -------- --------
670,503 467,984 287,156
Amounts charged off............................ (11,076) (2,984) (22,185)
-------- -------- --------
Balance, ending................................ $659,427 $465,000 $264,971
======== ======== ========
</TABLE>
F-18
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
---------- --------
<S> <C> <C>
Buildings............................................... $1,999,965 $ -0-
Building improvements................................... 235,925 209,394
Furniture and equipment................................. 945,494 715,019
---------- --------
3,181,384 924,413
Less accumulated depreciation........................... 529,346 367,527
---------- --------
$2,652,038 $556,886
========== ========
</TABLE>
Depreciation included in occupancy and equipment expense amounted to
$162,261, $115,572 and $87,314 for the years ended December 31, 1995, 1994 and
1993 respectively, of which $152,969, $109,931 and $83,099, respectively,
represented equipment depreciation.
Included in furniture and equipment at December 31, 1994 are assets held
under capital leases of $338,075 (Note 12). Amortization of assets held under
capital leases is included in depreciation expense for 1994 and 1993;
accumulated amortization for these assets amounted to $201,290 and $156,453 as
of December 31, 1994 and 1993, respectively.
NOTE 7. DEPOSITS
The following is a maturity distribution of time certificates of deposit:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Maturing in one year or less.............................. $29,844,020
Maturing from one to five years........................... 6,881,930
Maturing from five to ten years........................... 53,913
-----------
$36,779,863
===========
</TABLE>
Included in time deposits on the balance sheets at December 31, 1995 and
1994 are out-of-area certificates of deposit (brokered deposits) of $2,179,420
and $14,506,440, respectively, which are considered volatile liabilities.
Interest rates on these deposits, typically one-half percent higher than those
offered in the normal course of business, range from 5.5% to 6.6%. These
certificates mature in one year or less.
NOTE 8. DEFINED CONTRIBUTION PLAN
The Bank has established a 401(k) profit sharing plan which covers all
employees who are at least 21 years of age and who have completed three months
of service. Eligible employees may contribute a percentage of their annual
compensation to the plan each year. The Bank matches a certain portion of
employee contributions. For the years ended December 31, 1995, 1994 and 1993,
the Bank matched $5,948, $6,277 and 3,106, respectively, of employee
contributions under this plan.
The Bank may also make additional discretionary contributions to the plan on
behalf of employees who meet the eligibility requirements. These contributions
are allocated based on the annual salary of the participants and amounted to
$-0-, $-0- and $8,300 in 1995, 1994 and 1993, respectively.
All plan members become fully vested after five years of service.
F-19
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INCOME TAXES
The Bank prepares its federal income tax return on a consolidated basis
(Note 1). Federal income taxes are allocated to members of the consolidated
group based on taxable income. State income tax returns are filed individually
by each member of the consolidated group.
Income taxes for the years ended December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Currently payable:
Federal......................................... $ 15,930 $103,932 $ -0-
State........................................... -0- 13,152 29,270
Deferred........................................ (10,615) 23,548 248,481
-------- -------- --------
$ 5,315 $140,632 $277,751
======== ======== ========
</TABLE>
Income tax expense included in the statements of income differs from that
computed at the statutory rate of 34% primarily because of expenses deductible
for financial reporting purposes that are not deductible for tax purposes and
the effect of the surtax exemption.
Temporary differences giving rise to deferred taxes consist primarily of
start-up costs capitalized for tax purposes but expensed for financial
reporting purposes and nondeductible provisions for loan losses.
At December 31, 1995 and 1994 gross deferred tax assets and gross deferred
tax liabilities were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Gross deferred tax assets................................. $288,650 $298,147
Less: Valuation allowance................................. -0- -0-
-------- --------
288,650 298,147
Gross deferred tax liabilities............................ 85,338 19,152
-------- --------
Net deferred tax asset.................................. $203,312 $278,995
======== ========
</TABLE>
There was no change in the deferred tax asset valuation allowance during
1995 and 1994.
NOTE 10. RELATED PARTY TRANSACTIONS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been, in the opinion of management, on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others.
Aggregate loan transactions with related parties were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Balance, beginning................................... $1,114,272 $ 392,497
New loans............................................ 665,716 808,647
Repayments........................................... (601,691) (86,872)
---------- ----------
Balance, ending...................................... $1,178,297 $1,114,272
========== ==========
</TABLE>
F-20
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deposit accounts with related parties approximated $316,000 at December 31,
1995.
The Bank formerly leased its offices from an affiliated corporation, of
which most of its stockholders were directors of the Bank (Note 12). In
August, 1995, the Bank's wholly owned subsidiary, Landmarkbanc Realty Holdings
Corp., purchased the building from the affiliated corporation for $1,999,965,
including closing costs.
NOTE 11. REPURCHASE AGREEMENTS
Repurchase agreements generally mature within one to four days from the
transaction date and are secured by securities in the Bank's investment
portfolio.
The maximum amount of repurchase agreements outstanding at any month-end
during 1995 was $392,200; the monthly average amount of repurchase agreements
outstanding during 1995 was $259,111.
All securities collateralizing repurchase agreements are held in the Bank's
name.
NOTE 12. LEASES
The Bank was the lessee of certain computer equipment under capital leases
which expired in 1995. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The Bank purchased the computer equipment upon
expiration of the leases.
The Bank leased its main office space from a related party (Note 10) under
an operating lease until August, 1995. Subsequent to that date, the Bank
leases its main office space from Landmarkbanc Realty Holdings Corp., a
wholly-owned subsidiary. The lease has a term of fifteen years. All costs and
expenses relating to the leased property, including taxes, insurance, and
repairs and maintenance are paid by the Bank.
The Bank also leases branch office facilities in West Lebanon, New
Hampshire. The lease has an initial term of ten years which commenced on
October 1, 1995, with two five year renewal periods. The Bank is responsible
for the payment of utilities and taxes relating to the leased property.
Approximate minimum future lease payments as of December 31, 1995, assuming
no renewal options are exercised, for each of the next ten years and in the
aggregate are:
<TABLE>
<S> <C>
1996................................ $ 47,400
1997................................ 47,400
1998................................ 47,400
1999................................ 47,400
2000................................ 47,400
Subsequent to 2000.................. 225,150
--------
$462,150
========
</TABLE>
Rent expense paid in connection with these leases for the years ended
December 31, 1995, 1994 and 1993 amounted to $119,357, $123,185 and 81,989,
respectively.
NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit
and financial guarantees,
F-21
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and interest rate caps and floors written on adjustable rate loans. Such
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet. The contract or
notional amounts of those instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit and financial guarantees is represented by the
contractual amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for on-
balance-sheet instruments. For interest rate caps and floors written on
adjustable rate loans, the contractual amounts or notional amounts do not
represent exposure to credit loss. The Bank controls the risk of interest rate
cap agreements through credit approvals, limits and monitoring procedures.
Contractual or notional amounts of off-balance-sheet financial instruments
as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Financial instruments whose contract amounts repre-
sent credit risk:
Commitments to extend credit...................... $8,529,323 $6,360,597
========== ==========
Standby letters of credit and commercial letters
of credit........................................ $ 152,741 $ 24,237
========== ==========
</TABLE>
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.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee.
Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a case-
by-case basis. The amount of collateral obtained, if deemed necessary by the
Bank upon extension of credit, is based on management's credit evaluation of
the counter-party. Collateral held varies but may include accounts receivable,
inventory, property and equipment, residential real estate and income-
producing commercial properties.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support private
borrowing arrangements. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loans to customers.
The Bank enters into a variety of interest rate contracts, including
interest rate caps and floors written on adjustable rate loans in managing its
interest rate exposure. Interest rate caps and floors on loans written by the
Bank enables customers to transfer, modify, or reduce their interest rate
risk.
NOTE 14. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management, after consulting with the Bank's
legal counsel, any liability resulting from such proceedings would not have a
material adverse effect on the Bank's financial statements.
The Bank has executed an agreement allowing it to obtain credit from the
Federal Reserve Bank. Should the Bank utilize this credit, certain portions of
the investment and loan portfolios would be pledged as collateral against the
borrowings.
F-22
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. PREFERRED STOCK
During the period October, 1992 to January, 1994, the Bank offered for sale
100,000 shares of Series A $20 convertible, noncumulative, perpetual preferred
stock, par value $1.00 per share, stated value $20 per share, in which a total
of 55,500 shares were issued. Offering costs of $99,276 were charged to the
preferred stock account in connection with the offerings.
At their option, holders of Series A preferred stock have the right to
convert any share of preferred stock into two fully-paid shares of common
stock. Noncumulative dividends may be paid quarterly on this preferred stock,
subject to declaration of the Board of Directors of the Bank. Any dividends
declared may be automatically reinvested at the option of the holders of the
preferred stock.
A total of 600,000 shares of preferred stock are authorized, with 100,000
shares reserved for the dividend reinvestment plan. The total number of shares
of preferred stock outstanding at December 31, 1995 and 1994, including shares
issued pursuant to the dividend reinvestment plan, was 59,664 and 57,955,
respectively.
In the event of the liquidation, dissolution or winding up of the Bank, the
liquidation preference of the preferred stock shareholders, if any, would be
fixed by the Board of Directors in accordance with applicable law and the
terms of the resolution which established the Series A preferred stock.
NOTE 16. WARRANTS
The Bank has issued and delivered warrants to purchase shares of common
stock to certain of its organizers and to the underwriter of its initial
public offering.
Transferable warrants to purchase an aggregate of 59,000 shares of common
stock at a purchase price of $10.00 per share were issued on July 31, 1992 to
certain organizers of the Bank, pursuant to a Warrant Resolution adopted by
the Board of Directors on June 13, 1991. Further, pursuant to the terms of a
Warrant Agreement dated March 28, 1991 among the Bank and the underwriter, the
Bank is obligated to issue and deliver, upon payment of consideration of $100,
transferable warrants to purchase an aggregate of 2,620 shares of common stock
at a purchase price of $12.00 per share. The warrants expire in 1996.
NOTE 17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments at December
31, 1995, are as follows:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks............................... $ 1,743,476 $ 1,743,476
Federal funds sold.................................... 1,980,000 1,980,000
Securities available-for-sale......................... 9,523,269 9,523,269
Securities held-to-maturity........................... 812,357 823,916
Loans, net............................................ 42,861,602 42,630,482
Accrued interest receivable........................... 341,795 341,795
Financial liabilities:
Deposits.............................................. 56,358,995 56,751,657
Securities sold under repurchase agreements........... 303,953 303,953
Accrued interest payable.............................. 25,125 25,125
</TABLE>
F-23
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair values of commitments to extend credit and letters of
credit were immaterial at December 31, 1995.
The carrying amounts in the preceding table are included in the balance
sheet under the applicable captions.
NOTE 18. REGULATORY MATTERS
In conjunction with the FDIC's approval of the Bank's application for
federal deposit insurance, the Bank agreed to maintain a total equity capital
and reserves to total assets ratio, as determined in accordance with
applicable FDIC policy and regulations, of at least 10 percent during the
first three years of its operations. After March 28, 1994, the Bank became
subject to the FDIC's risk-based capital standards. These standards require
the Bank to meet specific capital adequacy guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital classification is also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. According to
these guidelines, the Bank is considered well-capitalized at December 31,
1995.
New Hampshire law places restrictions on the Bank's ability to pay
dividends. The Board of Directors may declare and pay dividends only to the
extent that there is no impairment of the Bank's guaranty fund. The Bank must
maintain a guaranty fund equal to 3 percent of the amount of all deposits in
excess of $1,000,000. The guaranty fund consists of all capital stock in
excess of $100,000 plus such additional amounts, transferred from net
earnings, as may be necessary to make up the required amount.
NOTE 19. PRIOR PERIOD ADJUSTMENTS
The accompanying financial statements for 1993 have been restated to correct
errors in accounting for sales of loans and income recognition on a structured
note. The effect of the restatement was to decrease net income for 1993 by
$17,986, net of income tax of $6,519.
NOTE 20. SUBSEQUENT EVENTS
In January, 1996, the Bank sold the mortgage-backed securities in its
investment portfolio. The realized gain (before income taxes) on the sale
amounted to $135,306. The Bank purchased collateralized mortgage obligations
with the proceeds from the sale.
F-24
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JULY 26, 1996
BY AND AMONG
LANDMARK BANK,
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
AND
LAKE SUNAPEE BANK, fsb
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TABLE OF CONTENTS Page
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ARTICLE 1.
CERTAIN DEFINITIONS
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF LANDMARK
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2.1. Capital Structure of Landmark................................................... A-3
2.2. Organization, Standing and Authority of Landmark................................ A-4
2.3. Ownership of Landmark Subsidiaries; Capital Structure of Landmark Subsidiaries.. A-4
2.4. Organization, Standing and Authority of Landmark Subsidiaries................... A-4
2.5. Authorized and Effective Agreement.............................................. A-5
2.6. Regulatory Filings.............................................................. A-6
2.7. Financial Statements; Books and Records; Minute Books........................... A-6
2.8. Material Adverse Change......................................................... A-6
2.9. Absence of Undisclosed Liabilities.............................................. A-6
2.10. Properties...................................................................... A-6
2.11. Loans; Allowance for Loan Losses................................................ A-7
2.12. Tax Matters..................................................................... A-7
2.13. Employee Benefit Plans.......................................................... A-8
2.14. Certain Contracts............................................................... A-9
2.15. Legal Proceedings............................................................... A-9
2.16. Compliance with Laws............................................................ A-10
2.17. Labor Matters................................................................... A-10
2.18. Brokers and Finders............................................................. A-10
2.19. Insurance....................................................................... A-10
2.20. Environmental Liability......................................................... A-11
2.21. Administration of Trust Accounts................................................ A-11
2.22. Intellectual Property........................................................... A-11
2.23. Certain Information............................................................. A-11
2.24. Takeover Provisions............................................................. A-12
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ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF
NHTB AND BANK
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3.1. Capital Structure of NHTB....................................................... A-12
3.2. Organization, Standing and Authority of NHTB.................................... A-13
3.3. Ownership of NHTB Subsidiaries; Capital Structure of NHTB Subsidiaries.......... A-13
3.4. Organization, Standing and Authority of NHTB Subsidiaries....................... A-13
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3.5. Authorized and Effective Agreement.............................................. A-13
3.6. SEC Documents; Regulatory Filings............................................... A-14
3.7. Financial Statements............................................................ A-15
3.8. Material Adverse Change......................................................... A-15
3.9. Absence of Undisclosed Liabilities.............................................. A-15
3.10. Brokers and Finders............................................................. A-15
3.11. Certain Information............................................................. A-15
3.12. Legal Proceedings.............................................................. A-16
3.13. Compliance with Laws; Regulatory Examinations................................... A-16
3.14. Environmental Issues............................................................ A-16
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ARTICLE 4.
COVENANTS
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4.1. Shareholders' Meeting........................................................... A-17
4.2. Proxy Statement; Registration Statement......................................... A-17
4.3. Applications.................................................................... A-17
4.4. Best Efforts; Certain Notices and Information................................... A-18
4.5. Investigation and Confidentiality............................................... A-19
4.6. Press Releases.................................................................. A-19
4.7. Covenants of Landmark........................................................... A-19
4.8. Closing; Articles of............................................................ A-21
4.9. Affiliates...................................................................... A-22
4.10. Landmark Employees; Directors and Management; Indemnification................... A-22
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ARTICLE 5.
CONDITIONS PRECEDENT
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5.1. Conditions Precedent to the Obligations of NHTB, Bank and Landmark............. A-23
5.2. Conditions Precedent to the Obligations of Landmark............................ A-25
5.3. Conditions Precedent to the Obligations of NHTB and Bank....................... A-26
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ARTICLE 6.
TERMINATION, WAIVER AND AMENDMENT
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6.1. Termination...................................................................... A-27
6.2. Effect of Termination............................................................ A-28
6.3. Non-Survival of Representations, Warranties and Covenants........................ A-28
6.4. Waiver........................................................................... A-28
6.5. Amendment or Supplement.......................................................... A-28
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ARTICLE 7.
MISCELLANEOUS
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7.1. Expenses......................................................................... A-29
7.2. Entire Agreement................................................................. A-29
7.3. No Assignment.................................................................... A-29
7.4. Notices.......................................................................... A-29
7.5. Captions......................................................................... A-30
7.6. Counterparts..................................................................... A-30
7.7. Governing Law.................................................................... A-30
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement" or
"Agreement") dated as of July 26, 1996, by and among LANDMARK BANK ("Landmark"),
a New Hampshire state chartered bank, New Hampshire Thrift Bancshares, Inc.
("NHTB"), a Delaware corporation and Lake Sunapee Bank, fsb, a federally
chartered savings bank ("Bank").
WITNESSETH
WHEREAS, the parties hereto desire that Landmark shall be merged with and
into Bank ("Merger") pursuant to an Agreement and Plan of Merger in the form
attached hereto as Annex A ("Plan of Merger"); and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE 1.
CERTAIN DEFINITIONS
1.1. "NHTB Financial Statements" shall mean (i) the consolidated balance
sheets of NHTB as of March 31, 1996 and as of December 31, 1995 and 1994 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the three months
ended March 31, 1996 and each of the three years ended December 31, 1995, 1994
and 1993 as filed by NHTB in SEC Documents and (ii) the consolidated balance
sheets of NHTB and related consolidated statements of income, cash flows and
changes in shareholders' equity (including related notes, if any) as filed by
NHTB in SEC Documents with respect to periods ended subsequent to March 31,
1996.
1.2. "Closing Date" shall mean the date specified pursuant to Section 4.8
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.3. "Code" shall mean the Internal Revenue Code of 1986.
1.4. "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.5. "Effective Date" shall mean the date specified pursuant to Section 4.8
hereof as the effective date of the Merger.
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1.6. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.7. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.8. "FDIA" shall mean the Federal Deposit Insurance Act.
1.9. "FDIC" shall mean the Federal Deposit Insurance Corporation.
1.10. "Intellectual Property" means domestic and foreign letters patent,
patents, patent applications, patent licenses, software licensed or owned, know-
how licenses, trade names, common law and other trademarks, service marks,
licenses of trademarks, trade names and/or service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications.
1.11. "Investment Company Act" means the Investment Company Act of 1940, as
amended.
1.12. "Material Adverse Effect" shall mean, with respect to Landmark or
NHTB, as the case may be, a material adverse effect on the business, results of
operations or financial condition of such party and, in the case of NHTB, its
subsidiaries taken as a whole; provided, however, that the following shall not
constitute or contribute to a Material Adverse Effect: (i) changes in the
financial condition, business, or results of operations of a party resulting
directly or indirectly from (1) changes in interest rates (provided that each
party is in compliance with its asset/liability management policy as disclosed
to the other party prior to the date of this Agreement, as Landmark's asset
liability management policy may be revised thereafter with NHTB's concurrence),
(2) changes in state and federal regulations or legislation affecting New
Hampshire banks or federally chartered savings banks or (3) assessments which
may be imposed on financial institutions whose deposits are insured by the
Savings Association Insurance Fund; (ii) or matters related to changes in
federal, state or local tax laws or changes in federal, state or local tax
status, characteristics, or attributes or the ability to use such attributes.
1.13. "Landmark Financial Statements" shall mean (i) the balance sheets of
Landmark as of March 31, 1996 and as of December 31, 1995, 1994 and 1993 and the
related statements of income, cash flows and changes in shareholders' equity
(including related notes, if any) for the three months ended March 31, 1996 and
each of the three years ended December 31, 1995, 1994 and 1993 and (ii) the
balance sheets of Landmark and related statements of income, cash flows and
changes in shareholders' equity (including related notes, if any) with respect
to quarterly periods ended subsequent to March 31, 1996.
1.14. "OTS" shall mean the Office of Thrift Supervision of the Department
of the Treasury.
1.15. "Previously Disclosed" shall mean disclosed prior to the execution
hereof in (i) an SEC Document filed with the SEC subsequent to January 1, 1995
and prior to the date hereof or (ii) a letter dated of even date herewith from
the party making such disclosure and delivered to the other party prior to the
execution hereof.
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1.16. "Proxy Statement" shall mean the proxy statement/prospectus (or
similar documents) together with any supplements thereto sent to the
shareholders of NHTB or Landmark to solicit their votes in connection with this
Agreement and the Plan of Merger.
1.17. "Registration Statement" shall mean the registration statement with
respect to the NHTB Common Stock to be issued in connection with the Merger as
declared effective by the Commission under the Securities Act.
1.18. "Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock, and stock appreciation rights, performance
units and other similar stock-based rights whether they obligate the issuer
thereof to issue stock or other securities or to pay cash.
1.19. "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
1.20. "Securities Act" shall mean the Securities Act of 1933, as amended.
1.21. "Securities Laws" shall mean the Securities Act; the Exchange Act;
the Investment Company Act; the Investment Advisers Act of 1940, as amended; the
Trust Indenture Act of 1939, as amended; and the rules and regulations of the
Commission promulgated thereunder.
1.22. "Stock Option Agreement" shall mean the Stock Option Agreement dated
as of even date herewith by and between Landmark and NHTB pursuant to which
Landmark will grant NHTB the right to purchase certain shares of Landmark Common
Stock (as defined below).
1.23. "Tier 1 capital" shall mean the sum of (i) the par value of
outstanding Landmark Common Stock, (ii) surplus, (iii) the par value of
outstanding Landmark Preferred Stock, (iv) less cumulative dividends paid on
Landmark Preferred Stock, (v) plus or minus any gains/loss on held to maturity
and available for sale investments net of applicable tax adjustments, (vi) plus
or minus any retained earnings/deficit, determined in accordance with Generally
Accepted Accounting Principles.
Other terms used herein are defined in the preamble and the recitals to
this Reorganization Agreement and in Articles 2, 3 and 4 hereof.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF LANDMARK
Landmark hereby represents and warrants to NHTB and Bank as follows:
2.1. CAPITAL STRUCTURE OF LANDMARK
As of the date hereof, (i) the authorized capital stock of Landmark
consists of 865,658 shares of common stock, par value $1.00 per share ("Landmark
Common Stock"), of which not more than 354,138 shares are issued and outstanding
and 600,000 shares of preferred stock, par
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value $1.00 per share ("Landmark Preferred Stock") of which not more than 59,667
shares are issued and outstanding and which upon conversion pursuant to Section
4.7(d) hereof will be converted into 119,334 shares of Landmark Common Stock.
No shares of Landmark Common Stock or Landmark Preferred Stock are held in its
treasury. No shares of Landmark Common Stock are reserved for issuance except
as Previously Disclosed and except for 94,221 shares of Landmark Common Stock
reserved for issuance under the Stock Option Agreement (as such number of shares
may be adjusted pursuant to the terms of the Stock Option Agreement). All
outstanding shares of Landmark Common Stock have been duly issued and are
validly outstanding, fully paid and nonassessable. Except as Previously
Disclosed and except for options to acquire shares of Landmark Common Stock
pursuant to the Stock Option Agreement, Landmark does not have and is not bound
by any Rights which are authorized, issued or outstanding with respect to the
capital stock of Landmark. None of the shares of Landmark's capital stock has
been issued in violation of the preemptive rights of any person.
2.2. ORGANIZATION, STANDING AND AUTHORITY OF LANDMARK
Landmark is a duly organized bank, validly existing and in good standing
under the laws of New Hampshire with full power and authority to own, lease and
operate its properties and to carry on its business as now conducted and is duly
licensed or qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Landmark.
Except as Previously Disclosed, Landmark does not own, directly or indirectly,
five percent or more of the outstanding capital stock or other voting securities
of any corporation, bank or other organization.
2.3. OWNERSHIP OF LANDMARK SUBSIDIARIES; CAPITAL STRUCTURE OF LANDMARK
SUBSIDIARIES
Landmark does not own, directly or indirectly, 25 percent or more of the
outstanding capital stock or other voting securities of any corporation, bank or
other organization except as Previously Disclosed (collectively the "Landmark
Subsidiaries" and individually a "Landmark Subsidiary"). The outstanding shares
of capital stock or other equity interests of the Landmark Subsidiaries are
validly issued and outstanding, fully paid and nonassessable and all such shares
or interests are directly or indirectly owned by Landmark free and clear of all
liens, claims and encumbrances. No Landmark Subsidiary has or is bound by any
Rights which are authorized, issued or outstanding with respect to the capital
stock or other equity interests of any Landmark Subsidiary, and there are no
agreements, understandings or commitments relating to the right of Landmark to
vote or to dispose of said shares or interests. None of the shares of capital
stock or other equity interests of any Landmark Subsidiary has been issued in
violation of the preemptive rights of any person.
2.4. ORGANIZATION, STANDING AND AUTHORITY OF LANDMARK SUBSIDIARIES
Each Landmark Subsidiary is a duly organized corporation or banking
association, validly existing and in good standing under applicable laws. Each
Landmark Subsidiary (i) has full power and authority to carry on its business as
now conducted, and (ii) is duly licensed or qualified to do business in the
states of the United States and foreign jurisdictions where its
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ownership or leasing of property or the conduct of its business requires such
licensing or qualification and where failure to be licensed or qualified would
have a Material Adverse Effect on Landmark. Each Landmark Subsidiary has all
federal, state, local and foreign governmental authorizations necessary for it
to own or lease its properties and assets and to carry on its business as it is
now being conducted, except where the failure to be so authorized would not have
a Material Adverse Effect on Landmark.
2.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Landmark has all requisite corporate power and authority to enter into
and perform all its obligations under this Reorganization Agreement, the Plan of
Merger and the Stock Option Agreement. The execution and delivery of this
Reorganization Agreement, the Plan of Merger and the Stock Option Agreement and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action in respect thereof
on the part of Landmark, including without limitation the approval of a majority
of the disinterested directors of Landmark, except that the affirmative vote of
the holders of at least a majority of the shares of Landmark Common Stock is the
only shareholder vote required to approve the Plan of Merger pursuant to Chapter
393 of the New Hampshire Revised Statutes Annotated and Landmark's Amended
Articles of Agreement and Bylaws. The Board of Directors of Landmark has
directed that this Agreement and the Plan of Merger be submitted to Landmark's
stockholders for approval at an annual or special meeting to be held as soon as
practicable.
(b) Assuming the accuracy of the representation contained in Section 3.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of Landmark, enforceable against it in accordance
with their respective terms, subject as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
(c) Neither the execution and delivery of this Reorganization Agreement,
the Plan of Merger or the Stock Option Agreement nor consummation of the
transactions contemplated hereby or thereby, nor compliance by Landmark with any
of the provisions hereof or thereof shall (i) conflict with or result in a
breach of any provision of the Amended Articles of Agreement or Bylaws of
Landmark, (ii) constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, pledge, security interest, charge or encumbrance upon any
property or asset of Landmark pursuant to, any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Landmark, except for such violations, rights, conflicts, breaches, creations or
defaults which, either individually or in the aggregate, will not have a
Material Adverse Effect on Landmark.
(d) Other than as contemplated by Sections 4.1 and 4.3 hereof and as
expressly referred to in this Reorganization Agreement, no consent, approval or
authorization of, or declaration, notice, filing or registration with, any
governmental or regulatory authority, or any other person, is required to be
made or obtained by Landmark on or prior to the Closing Date in connection with
the execution, delivery and performance of this Agreement and the Plan of
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Merger or the consummation of the transactions contemplated hereby or thereby
other than the filing of a certificate or articles of merger or similar document
with the appropriate New Hampshire state authorities.
2.6. REGULATORY FILINGS
Landmark has filed all reports required by statute or regulation to be
filed with any federal or state bank regulatory agency, and such reports were
prepared in all material respects in accordance with the applicable statutes,
regulations and instructions in existence as of the date of filing of such
reports.
2.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The Landmark Financial Statements fairly present the financial position of
Landmark as of the dates indicated and the results of operations, changes in
shareholders' equity and cash flows of Landmark for the periods then ended in
conformity with generally accepted accounting principles applicable to financial
institutions applied on a consistent basis except as disclosed therein. The
books and records of Landmark fairly reflect in all material respects the
transactions to which it is a party or by which its properties are subject or
bound. Such books and records have been properly kept and maintained and are in
compliance in all material respects with all applicable legal and accounting
requirements. The minute books of Landmark contain records which are accurate in
all material respects of all corporate actions of its shareholders and Board of
Directors (including committees of its Board of Directors).
2.8. MATERIAL ADVERSE CHANGE
Except as Previously Disclosed, Landmark has not suffered any material
adverse change that would have a Material Adverse Effect on its financial
condition, results of operations or business since December 31, 1995.
2.9. ABSENCE OF UNDISCLOSED LIABILITIES
Landmark has no liability (contingent or otherwise), excluding
contractually assumed contingencies, that is material to Landmark, or that, when
combined with all similar liabilities, would be material to Landmark, except as
Previously Disclosed or as disclosed in the Landmark Financial Statements issued
prior to the date hereof and except for liabilities incurred in the ordinary
course of business consistent with past practice subsequent to December 31,
1995.
2.10. PROPERTIES
Landmark has good and marketable title free and clear of all liens,
encumbrances, charges, defaults or equitable interests to all of the properties
and assets, real and personal, which, individually or in the aggregate, are
material to the business of Landmark and which are reflected on the Landmark
Financial Statements as of December 31, 1995 or acquired after such date, except
(i) liens for taxes not yet due and payable, (ii) pledges to secure deposits and
other liens incurred in the ordinary course of banking business, (iii) such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent and
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(iv) dispositions and encumbrances for adequate consideration in the ordinary
course of business. All leases pursuant to which Landmark, as lessee, leases
real and personal property which, individually or in the aggregate, are material
to the business of Landmark are valid and enforceable in accordance with their
respective terms and Landmark is not in default or in violation of any such
lease.
2.11. LOANS; ALLOWANCE FOR LOAN LOSSES
(a) Except as Previously Disclosed, each loan reflected as an asset in the
Landmark Financial Statements (i) for all loans with an original principal
amount in excess of $50,000 represents a first lien position with respect to the
collateral securing the loan, (ii) is in all material respects evidenced by
notes, agreements or other evidences of indebtedness which are true, genuine and
what they purport to be, (iii) to the extent secured, has been secured by valid
liens and security interests which have been perfected, and (iv) is not subject
to any known material defenses, set-off or counterclaims except as may be
provided under bankruptcy, insolvency, fraudulent conveyance and other laws of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
(b) Except as Previously Disclosed, as of June 30, 1996, Landmark was not a
party to any loan, including any loan guaranty, with any director, executive
officer or 5% shareholder of Landmark or any person, corporation or enterprise
controlling, controlled by or under common control with any of the foregoing.
All loans and extensions of credit that have been made by Landmark and that are
subject to Section 22(h) of the Federal Reserve Act, as amended, comply
therewith.
(c) In Landmark's reasonable judgement, the allowance for possible losses
reflected in the Landmark's audited statement of condition at December 31, 1995
was, and the allowance for possible losses shown on the balance sheets for
periods ending after December 31, 1995 have been and will be, adequate, as of
the dates thereof, under generally accepted accounting principles consistently
applied.
2.12. TAX MATTERS
(a) All references to Landmark in this Section 2.12 shall include Landmark
and each Landmark Subsidiary, either individually or collectively, as the
context may require.
(b) Landmark has timely filed federal income tax returns for each year
through December 31, 1995 and has timely filed all other federal, state, local
and foreign tax returns (including, without limitation, estimated tax returns,
returns required under Sections 1441-1446 and 6031-6060 of the Code and the
regulations thereunder and any comparable state, foreign and local laws, any
other information returns, withholding tax returns, FICA and FUTA returns and
back-up withholding returns required under Section 3406 of the Code and any
comparable state, foreign and local laws) required to be filed with respect to
Landmark. All taxes due in respect of the periods covered by such tax returns
have been paid or adequate reserves have been established for the payment of
such taxes in accordance with generally accepted accounting principles. As of
the Closing Date, all taxes due in respect of any subsequent periods ending on
or prior to the Closing Date (or that portion of any period that is prior to the
Closing Date)
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will have been paid or adequate reserves will have been established for the
payment thereof in accordance with generally accepted accounting principles.
Except as Previously Disclosed, no (i) audit examination, (ii) deficiency or
(iii) refund litigation with respect to any tax is pending. Landmark will not
have any material liability for any taxes in excess of amounts paid or reserves
or accruals established.
(c) All federal, state and local (and, if applicable, foreign) tax returns
filed by Landmark are complete and accurate in all material respects. Landmark
is not delinquent in the payment of any tax, assessment or governmental charge,
and has not requested any extension of time within which to file any tax returns
in respect of any fiscal year or portion thereof which have not since been
filed. No deficiencies for any tax, assessment or governmental charge have been
proposed, asserted or assessed (tentatively or otherwise) against Landmark which
have not been settled and paid. There are currently no agreements in effect with
respect to Landmark to extend the period of limitations for the assessment or
collection of any tax.
(d) Neither the transactions contemplated hereby nor the termination of the
employment of any employees of Landmark prior to or following consummation of
the transactions contemplated hereby could result in Landmark making or being
required to make any "excess parachute payment" as that term is defined in
Section 280G of the Code.
2.13. EMPLOYEE BENEFIT PLANS
(a) Prior to the Closing Date, Landmark will make available to NHTB true
and complete copies of (i) all qualified pension or profit-sharing plans, any
deferred compensation, consulting, bonus or group insurance contract or any
other incentive, welfare or employee benefit plan or agreement maintained for
the benefit of employees or former employees of Landmark, (ii) the most recent
actuarial and financial reports prepared with respect to any qualified plans,
(iii) the most recent annual reports filed with any government agency, and (iv)
all rulings and determination letters and any open requests for rulings or
letters that pertain to any qualified plan.
(b) Neither Landmark nor any pension plan maintained by Landmark has
incurred or reasonably expects to incur any material liability to the Pension
Benefit Guaranty Corporation or to the Internal Revenue Service with respect to
any pension plan qualified under Section 401 of the Code except liabilities to
the Pension Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all
of which have been fully paid. No reportable event under Section 4043(b) of
ERISA has occurred with respect to any such pension plan.
(c) Landmark does not participate in, and has not incurred any liability
under Section 4201 of ERISA for a complete or partial withdrawal from, a
multiemployer plan as such term is defined in ERISA.
(d) Except as Previously Disclosed, a favorable determination letter has
been issued by the Internal Revenue Service with respect to each "employee
pension plan" (as defined in Section 3(2) of ERISA) of Landmark which is
intended to be a qualified plan to the effect that such plan is qualified under
Section 401 of the Code and tax exempt under Section 501 of the Code. No such
letter has been revoked or threatened to be revoked and Landmark knows of no
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reasonable ground on which such revocation may be based. Such plans have been
operated in all material respects in accordance with their terms and applicable
law.
(e) No prohibited transaction (which shall mean any transaction prohibited
by Section 406 of ERISA and not exempt under Section 408 of ERISA) has occurred
with respect to any "employee benefit plan" (as defined in Section 3(3) of
ERISA) maintained by Landmark which would result in the imposition, directly or
indirectly, of an excise tax under Section 4975 of the Code that would have,
individually or in the aggregate, a Material Adverse Effect on Landmark.
(f) The actuarial present value of accrued benefit obligations, whether or
not vested, under each "employee pension plan" maintained by Landmark did not
exceed as of the most recent actuarial valuation date the then current fair
market value of the assets of such plan and no material adverse change has
occurred with respect to the funded status of any such plan since such date.
2.14. CERTAIN CONTRACTS
(a) Except as Previously Disclosed, Landmark is not a party to, or bound
by, (i) any material contract, arrangement or commitment whether or not made in
the ordinary course of business (other than loans or loan commitments and
funding transactions in the ordinary course of Landmark's banking business) or
any agreement restricting the nature or geographic scope of its business
activities in any material respect, (ii) any agreement, indenture or other
instrument relating to the borrowing of money by Landmark or the guarantee by
Landmark of any such obligation, other than instruments relating to transactions
entered into in the customary course of business, (iii) any written or oral
agreement, arrangement or commitment relating to the employment of a consultant
or the employment, election, retention in office or severance of any present or
former director or officer, or (iv) any contract, agreement or understanding
with a labor union.
(b) Landmark is not in default in any material respect under any material
agreement, commitment, arrangement, lease, insurance policy or other instrument
whether entered into in the ordinary course of business or otherwise, and there
has not occurred any event that, with the lapse of time or giving of notice or
both, would constitute such a default.
2.15. LEGAL PROCEEDINGS
There are no actions, suits or proceedings instituted, pending or, to the
knowledge of Landmark, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against Landmark or against any asset, interest or right
of Landmark that, if determined adversely to Landmark, would, individually or in
the aggregate, have a Material Adverse Effect on Landmark. To the knowledge of
Landmark, there are no actual or threatened actions, suits or proceedings which
present a claim to restrain or prohibit the transactions contemplated herein or
to impose any material liability in connection therewith. There are no actions,
suits or proceedings instituted, pending or, to the knowledge of Landmark,
threatened (or unasserted but considered probable of assertion and which if
asserted would be reasonably expected to have an unfavorable outcome) against
any present or former director or officer of Landmark, that might give rise to a
claim
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for indemnification and that, in the event of an unfavorable outcome, would,
individually or in the aggregate, have a Material Adverse Effect on Landmark
and, to the knowledge of Landmark, there is no reasonable basis for any such
action, suit or proceeding.
2.16. COMPLIANCE WITH LAWS
Except as Previously Disclosed, Landmark is in compliance in all material
respects with all statutes and regulations applicable to the conduct of its
business except for violations which, individually or in the aggregate, would
not have a Material Adverse Effect on Landmark, and Landmark has not received
notification from any agency or department of federal, state or local government
(i) asserting a material violation of any such statute or regulation, (ii)
threatening to revoke any license, franchise, permit or government authorization
or (iii) restricting or in any way limiting its operations. Landmark is not
subject to any regulatory or supervisory cease and desist order, agreement,
directive, memorandum of understanding or commitment, and has not received any
communication requesting that it enter into any of the foregoing.
2.17. LABOR MATTERS
With respect to its employees, Landmark is not a party to any labor
agreement with any labor organization, group or association and has not engaged
in any unfair labor practice as defined under applicable federal law. Since
January 1, 1996, Landmark has not experienced any attempt by organized labor or
its representatives to make Landmark conform to demands of organized labor
relating to their employees or to enter into a binding agreement with organized
labor that would cover the employees of Landmark. There is no unfair labor
practice charge or other complaint by any employee or former employee of
Landmark against it pending before any governmental agency arising out of
Landmark's activities; there is no labor strike or labor disturbance pending or,
to the knowledge of Landmark, threatened against it; and Landmark has not
experienced a work stoppage or other labor difficulty. Landmark is in
compliance with applicable laws regarding employment of employees and retention
of independent contractors, and is in compliance with applicable employment tax
laws.
2.18. BROKERS AND FINDERS
Neither Landmark nor any of its officers, directors or employees, has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions in connection with the transactions contemplated herein
or the Plan of Merger, except that Landmark has engaged and will pay a fee to
McConnell, Budd & Downes, Inc. as Previously Disclosed.
2.19. INSURANCE
Landmark currently maintains insurance in amounts reasonably necessary for
its operations. Landmark has not received any notice of a premium increase or
cancellation with respect to any of its insurance policies or bonds, and within
the last three years, Landmark has not been refused any insurance coverage
sought or applied for, and Landmark has no reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions as favorable as those presently in effect, other than
possible increases
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in premiums or unavailability in coverage that have not resulted from any
extraordinary loss experience of Landmark. The deposits of Landmark are insured
by the Bank Insurance Fund of the FDIC in accordance with the FDIA, and Landmark
has paid all assessments and filed all reports required by the FDIA.
2.20. ENVIRONMENTAL LIABILITY
Landmark has not received any written notice of any legal, administrative,
arbitral or other proceeding, claim or action and, to the knowledge of Landmark,
there is no governmental investigation of any nature ongoing, in each case that
could reasonably be expected to result in the imposition, on Landmark of any
liability arising under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
which liability would have a Material Adverse Effect on Landmark; there are no
facts or circumstances which could reasonably be expected to form the basis for
any such proceeding, claim, action or governmental investigation that would
impose any such liability; and Landmark is not subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
2.21. ADMINISTRATION OF TRUST ACCOUNTS
Except as Previously Disclosed, Landmark does not currently and has not
previously administered any accounts for which it acts as a fiduciary or agent,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor.
2.22. INTELLECTUAL PROPERTY
Landmark owns the entire right, title and interest in and to, or has valid
licenses with respect to, all the Intellectual Property necessary in all
material respects to conduct the business and operations of Landmark as
presently conducted, except where the failure to do so would not, individually
or in the aggregate, have a Material Adverse Effect on Landmark. None of such
Intellectual Property is subject to any outstanding order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment, which order,
decree, judgment, stipulation, settlement, lien, charge, encumbrance or
attachment would have a Material Adverse Effect on Landmark.
2.23. CERTAIN INFORMATION
At all times subsequent to the effectiveness of the Registration Statement
or any post-effective amendment thereto and up to and including the time of the
Landmark shareholders' meeting to vote upon the Merger, and at all times
subsequent to the mailing of any Proxy Statement or any amendment thereto and up
to and including the time of the Landmark shareholders' meeting to vote upon the
Merger, such Registration Statement or Proxy Statement and all amendments or
supplements thereto, with respect to all information set forth therein furnished
by Landmark relating to Landmark shall (i) comply in all material respects with
the applicable provisions of the Securities Laws, and (ii) not contain any
untrue statement of a
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material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading.
2.24. TAKEOVER PROVISIONS
The transactions contemplated by this Reorganization Agreement are exempt
from any applicable state takeover law.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF
NHTB AND BANK
NHTB and Bank hereby jointly and severally represent and warrant to
Landmark as follows:
3.1. CAPITAL STRUCTURE OF NHTB
(a) As of the date hereof, (i) the authorized capital stock of NHTB
consists solely of 5,000,000 shares of common stock ("NHTB Common Stock") and
2,500,000 shares of preferred stock ("NHTB Preferred Stock"), (ii) there are not
more than 1,689,503 shares of NHTB Common Stock issued and outstanding, 457,779
shares of NHTB Common Stock held in its treasury, and no shares of NHTB
Preferred Stock issued and outstanding, and (iii) 112,490 shares of NHTB Common
Stock are reserved for issuance under employee stock option plans ("NHTB Stock
Option Plans").
(b) As of the date hereof, except for shares of NHTB Common Stock subject
to options under the NHTB Stock Option Plans, NHTB is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the transfer, purchase or issuance of, or
representing the right to purchase, subscribe for or otherwise receive, any
shares of its capital stock or any securities convertible into or representing
the right to receive, purchase or subscribe for any such shares of NHTB. There
are no agreements or understandings to which NHTB is a party with respect to the
voting of any shares of NHTB Common Stock or which restrict the transfer of such
shares.
(c) All outstanding shares of NHTB Common Stock have been duly issued and
are validly outstanding, fully paid and nonassessable. None of the shares of
NHTB's capital stock has been issued in violation of the preemptive rights of
any person. The shares of NHTB Common Stock to be issued in connection with the
Merger have been duly authorized and, when issued in accordance with the terms
of this Reorganization Agreement and the Plan of Merger, will be validly issued,
fully paid, nonassessable and free and clear of any preemptive rights.
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3.2. ORGANIZATION, STANDING AND AUTHORITY OF NHTB
NHTB is a duly organized corporation, validly existing and in good standing
under the laws of Delaware, with full corporate power and authority to carry on
its business as now conducted and is duly licensed or qualified to do business
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on NHTB. NHTB is registered as a savings and loan
holding company under the Savings and Loan Holding Company Act, as amended.
3.3. OWNERSHIP OF NHTB SUBSIDIARIES; CAPITAL STRUCTURE OF NHTB SUBSIDIARIES
NHTB does not own, directly or indirectly, 25 percent or more of the
outstanding capital stock or other voting securities of any corporation, bank or
other organization except as Previously Disclosed (collectively the "NHTB
Subsidiaries" and individually a "NHTB Subsidiary"). The outstanding shares of
capital stock or other equity interests of the NHTB Subsidiaries are validly
issued and outstanding, fully paid and nonassessable and all such shares or
interests are directly or indirectly owned by NHTB free and clear of all liens,
claims and encumbrances. No NHTB Subsidiary has or is bound by any Rights which
are authorized, issued or outstanding with respect to the capital stock or other
equity interests of any NHTB Subsidiary, and there are no agreements,
understandings or commitments relating to the right of NHTB to vote or to
dispose of said shares or interests. None of the shares of capital stock or
other equity interests of any NHTB Subsidiary has been issued in violation of
the preemptive rights of any person.
3.4. ORGANIZATION, STANDING AND AUTHORITY OF NHTB SUBSIDIARIES
Each NHTB Subsidiary is a duly organized corporation or banking
association, validly existing and in good standing under applicable laws. Each
NHTB Subsidiary (i) has full power and authority to carry on its business as now
conducted, and (ii) is duly licensed or qualified to do business in the states
of the United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires such licensing or qualification
and where failure to be licensed or qualified would have a Material Adverse
Effect on NHTB. Each NHTB Subsidiary has all federal, state, local and foreign
governmental authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now being conducted, except where
the failure to be so authorized would not have a Material Adverse Effect on
NHTB.
3.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Each of NHTB and Bank has all requisite corporate power and authority
to enter into and perform all of its obligations under this Reorganization
Agreement, the Plan of Merger and the Stock Option Agreement. The execution and
delivery of this Reorganization Agreement; the Plan of Merger and the Stock
Option Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action in respect thereof on the part of NHTB and Bank, other than the
affirmative vote of the holders of a majority of the votes cast by the holders
of NHTB Common Stock
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eligible to vote thereon, which is required to authorize the issuance of NHTB
Common Stock pursuant to this Reorganization Agreement and the Plan of Merger in
accordance with National Association of Securities Dealers Automated Quotation
("NASDAQ") policy. The Board of Directors of NHTB has directed that this
Agreement and the Plan of Merger be submitted to NHTB's stockholders for
approval at an annual or special meeting to be held as soon as practicable.
(b) Assuming the accuracy of the representation contained in Section 2.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of NHTB and Bank, in each case enforceable against
it in accordance with their respective terms subject, as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity.
(c) Neither the execution and delivery of this Reorganization Agreement,
the Plan of Merger or the Stock Option Agreement nor consummation of the
transactions contemplated hereby or thereby, nor compliance by NHTB or Bank with
any of the provisions hereof or thereof shall (i) conflict with or result in a
breach of any provision of the articles or certificate of incorporation or
association, charter or bylaws of NHTB or any NHTB Subsidiary, (ii) constitute
or result in a breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon any property or asset of NHTB or any NHTB Subsidiary pursuant
to, any note, bond, mortgage, indenture, license, agreement or other instrument
or obligation, or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to NHTB or any NHTB Subsidiary, except for such
violations, rights, conflicts, breaches, creations or defaults which, either
individually or in the aggregate, will not have a Material Adverse Effect on
NHTB.
(d) Except for approvals specified in Sections 4.1 and 4.3 hereof, and
except as expressly referred to in this Reorganization Agreement, no consent,
approval or authorization of, or declaration, notice, filing or registration
with, any governmental or regulatory authority, or any other person, is required
to be made or obtained by NHTB or Bank on or prior to the Closing Date in
connection with the execution, delivery and performance of this Agreement and
the Plan of Merger or the consummation of the transactions contemplated hereby
or thereby.
3.6. SEC DOCUMENTS; REGULATORY FILINGS
NHTB has filed all SEC Documents required by the Securities Laws and such
SEC Documents complied, as of their respective dates, in all material respects
with the Securities Laws. NHTB and each of the NHTB Subsidiaries has filed all
reports required by statute or regulation to be filed with any federal or state
bank regulatory agency, and such reports were prepared in accordance with the
applicable statutes, regulations and instructions in existence as of the date of
filing of such reports in all material respects.
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3.7. FINANCIAL STATEMENTS
The NHTB Financial Statements fairly present the consolidated financial
position of NHTB and the consolidated NHTB Subsidiaries as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity and cash flows of NHTB and the consolidated NHTB Subsidiaries for the
periods then ended in conformity with generally accepted accounting principles
applicable to financial institutions applied on a consistent basis except as
disclosed therein.
3.8. MATERIAL ADVERSE CHANGE
NHTB has not, on a consolidated basis, suffered any material adverse change
that would have a Material Adverse Effect on its financial condition, results of
operations or business since December 31, 1995.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES
Neither NHTB nor any NHTB Subsidiary has any liability (contingent or
otherwise), excluding contractually assumed contingencies, that is material to
NHTB on a consolidated basis, or that, when combined with all similar
liabilities, would be material to NHTB on a consolidated basis, except as
Previously Disclosed, as disclosed in the NHTB Financial Statements filed with
the SEC prior to the date hereof and except for liabilities incurred in the
ordinary course of business subsequent to December 31, 1995.
3.10. BROKERS AND FINDERS
Neither NHTB nor any NHTB Subsidiary, nor any of their respective officers,
directors or employees, has employed any broker, finder or financial advisor or
incurred any liability for any fees or commissions in connection with the
transactions contemplated herein or the Plan of Merger, except that NHTB has
engaged and will pay a fee to HAS Associates, Inc.
3.11. CERTAIN INFORMATION
At all times subsequent to the effectiveness of the Registration Statement
or any post-effective amendment thereto and up to and including the time of the
NHTB shareholders' meeting to vote upon the Merger, and at all times subsequent
to the mailing of any Proxy Statement or any amendment thereto and up to and
including the time of the NHTB shareholders' meeting to vote upon the Merger,
such Registration Statement or Proxy Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished by NHTB
relating to NHTB and the NHTB Subsidiaries shall (i) comply in all material
respects with the applicable provisions of the Securities Laws, and (ii) not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading.
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3.12. LEGAL PROCEEDINGS
Except for matters which, individually or in the aggregate, would not have
a Material Adverse Effect on NHTB and the NHTB Subsidiaries, taken as a whole,
neither NHTB nor any of the NHTB Subsidiaries is a party to any, and there are
no pending or, to the best of NHTB's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature by or against NHTB or any of the NHTB Subsidiaries;
and neither NHTB nor any of the NHTB Subsidiaries is a party to or subject to
any order, judgment or decree.
3.13. COMPLIANCE WITH LAWS; REGULATORY EXAMINATIONS
(a) NHTB and each of the NHTB Subsidiaries holds, and has at all times
held, all licenses, franchises, permits, approvals, consents, qualifications and
authorizations material for the lawful conduct of its business under and
pursuant to, and has complied with, and is not in default under, any applicable
law, statute, order, rule, regulation, policy, ordinance, reporting or filing
requirement and/or guideline of any federal, state or local governmental
authority relating to NHTB or any of the NHTB Subsidiaries, except for
violations which, either individually or in the aggregate, do not or would not
have a Material Adverse Effect on NHTB and the NHTB Subsidiaries taken as a
whole, and neither NHTB or any of the NHTB Subsidiaries has knowledge of any
violation of any of the above.
(b) Except for normal examinations conducted by a regulatory agency in the
regular course of the business of NHTB and the NHTB Subsidiaries, no regulatory
agency has initiated any proceeding or, to the best knowledge of NHTB,
investigation into the business or operations of NHTB or any of the NHTB
Subsidiaries since December 31, 1995. NHTB has not received any objection from
any regulatory agency to NHTB's response to any violation, criticism or
exception with respect to any report or statement relating to any examinations
of NHTB or any of the NHTB Subsidiaries.
3.14. ENVIRONMENTAL ISSUES
Except where such violation, liability or noncompliance would not have a
Material Adverse Effect on NHTB and the NHTB Subsidiaries, taken as a whole: (i)
neither NHTB nor any of the NHTB Subsidiaries has violated during the last five
years or is in violation of any federal, state or local environmental law; (ii)
none of the properties owned or leased by NHTB or any NHTB Subsidiary
(including, without limitation, soils and surface and ground waters) are
contaminated with any hazardous substance; (iii) neither NHTB nor any of the
NHTB Subsidiaries is liable for any off-site contamination; (iv) neither NHTB
nor any of the NHTB Subsidiaries is liable under any federal, state or local
environmental law; and (v) NHTB and each of the NHTB Subsidiaries is, and has
during the last five years been, in compliance with, all of their respective
permits, licenses and other authorizations referred to under any environmental
laws. For purposes of the foregoing, all references to "properties" include,
without limitation, any owned real property or leased real property.
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ARTICLE 4.
COVENANTS
4.1. SHAREHOLDERS' MEETING
NHTB and Landmark shall submit this Reorganization Agreement and the
Plan of Merger and, in the case of NHTB, the issuance of NHTB Common Stock
thereunder, to their respective shareholders for approval at annual or special
meetings to be held as soon as practicable. Subject to the fiduciary duties of
the respective boards of directors of Landmark and NHTB as determined by each
after consultation with such board's counsel, the boards of directors of NHTB
and Landmark shall recommend at the respective shareholders' meetings that the
shareholders vote in favor of such approval. The Boards of Directors of NHTB
and Landmark in discharging their respective fiduciary duties, may request and
take into consideration a letter from each of their respective financial
consultants to the effect that in such financial consultant's opinion, the
consideration to be received by holders of Landmark Common Stock in connection
with the Merger is fair to their respective shareholders from a financial point
of view.
4.2. PROXY STATEMENT; REGISTRATION STATEMENT
As promptly as practicable after the date hereof, NHTB and Landmark
shall cooperate in the preparation of a Proxy Statement to be mailed to the
shareholders of Landmark and NHTB in connection with the Merger and the
transactions contemplated thereby and to be filed by NHTB as part of the
Registration Statement. It is anticipated that NHTB and Landmark will present
the Merger to their respective shareholders pursuant to the Proxy Statement.
NHTB will advise Landmark, promptly after it receives notice thereof, of the
time when the Registration Statement or any post-effective amendment thereto has
become effective or any supplement or amendment has been filed, of the issuance
of any stop order, of the suspension of qualification of the NHTB Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or the initiation or threat of any proceeding for any such purpose, or of any
request by the SEC for the amendment or supplement of the Registration Statement
or for additional information. NHTB shall take all actions necessary to register
or qualify the shares of NHTB Common Stock to be issued in the Merger pursuant
to all applicable state "blue sky" or securities laws and shall maintain such
registrations or qualifications in effect for all purposes hereof. NHTB shall
apply for approval to list the shares of NHTB Common Stock to be issued in the
Merger on the NASDAQ, subject to official notice of issuance, prior to the
Effective Date.
4.3. APPLICATIONS
As promptly as practicable after the date hereof, NHTB shall submit
any requisite applications or petitions for prior approval of the transactions
contemplated herein and in the Plan of Merger (i) to the OTS pursuant to the
Bank Merger Act and 12 C.F.R. (S) 563.22, and (ii) to the New Hampshire Bank
Commissioner pursuant to Chapter 393 or other applicable section of the New
Hampshire Revised Statutes Annotated, and the regulations promulgated
thereunder. Each of the parties hereto shall, and they shall cause their
respective subsidiaries to, submit any applications, notices or other filings to
any other state or federal government agency, department or body the approval of
which is required for consummation of the Merger.
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Landmark and NHTB each represents and warrants to the other that all information
concerning it and its directors, officers, shareholders and subsidiaries
included (or submitted for inclusion) in any such application and furnished by
it shall be true, correct and complete in all material respects.
4.4. BEST EFFORTS; CERTAIN NOTICES AND INFORMATION
(a) NHTB, Bank, and Landmark shall each use its best efforts in good
faith, and NHTB shall cause its subsidiaries to use their best efforts in good
faith, to (a) furnish such information as may be required in connection with the
preparation of the documents referred to in Sections 4.2 and 4.3 above, and (b)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (i) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that Landmark shall not agree to make any payments
or modifications to agreements in connection therewith without the prior written
consent of NHTB, and (ii) requesting the delivery of appropriate opinions,
consents and letters from its counsel and independent auditors. No party hereto
shall take or fail to take, or cause or permit its subsidiaries to take or fail
to take, or to the best of its ability permit to be taken or omitted to be taken
by any third persons, any action that would substantially impair the prospects
of completing the Merger pursuant to this Reorganization Agreement and the Plan
of Merger. In the event that any party has taken any action, whether before, on
or after the date hereof, that would adversely affect such qualification, each
party shall take such action as the other party may reasonably request to cure
such effect to the extent curable without a Material Adverse Effect on any of
the parties.
(b) Landmark shall give prompt notice to NHTB, and NHTB shall give
prompt notice to Landmark, in each case within five (5) business days of (i) the
occurrence, or failure to occur, of any event which occurrence or failure would
be likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect at any time from the date hereof
to the Closing Date, and (ii) any material failure of Landmark, NHTB or the
Bank, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, and each party shall
use all reasonable efforts to remedy such failure.
(c) Landmark shall provide and shall request its auditors to provide
NHTB with such historical financial information regarding it (and related audit
reports and consents) as NHTB may reasonably request for securities disclosure
purposes.
(d) During the period from the date of this Agreement until the
earlier to occur of the Effective Date or the termination of this Agreement
pursuant to Section 6.1 hereof, NHTB shall, from time to time when deemed
appropriate by NHTB or when requested by Landmark, cause one or more of its
representatives to confer with representatives of Landmark and report any
relevant information relating to any material transactions outside of NHTB's
ordinary course of business.
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4.5. INVESTIGATION AND CONFIDENTIALITY
Landmark and NHTB each will keep the other advised of all material
developments relevant to its business and to consummation of the transactions
contemplated herein and in the Plan of Merger. NHTB and Landmark each may make
or cause to be made such investigation of the financial and legal condition of
the other as such party reasonably deems necessary or advisable in connection
with the transactions contemplated herein and in the Plan of Merger; provided,
however, that such investigation shall be reasonably related to such
transactions and shall not interfere unnecessarily with normal operations. NHTB
and Landmark agree to furnish the other and the other's advisors with such
financial data and other information with respect to its business and properties
as such other party shall from time to time reasonably request. No investigation
pursuant to this Section 4.5 shall affect or be deemed to modify any
representation or warranty made by, or the conditions to the obligations to
consummate the Merger of, any party hereto. Each party hereto shall hold all
information furnished by the other party or any of such party's subsidiaries or
representatives pursuant to Section 4.5 in confidence to the extent required by,
and in accordance with, the provisions of the confidentiality agreement dated
February 15, 1996 by and between Landmark and NHTB (the "Confidentiality
Agreement").
4.6. PRESS RELEASES
Landmark and NHTB shall agree with each other as to the form and
substance of any press release related to this Reorganization Agreement, the
Plan of Merger, the Stock Option Agreement or the transactions contemplated
hereby or thereby, and shall consult each other as to the form and substance of
other public disclosures related thereto; provided, however, that nothing
contained herein shall prohibit any party, following notification to the other
parties, from making any disclosure which its counsel deems necessary.
4.7. COVENANTS OF LANDMARK
(a) Prior to the Closing Date, and except as otherwise provided for by
this Reorganization Agreement, the Plan of Merger, the Stock Option Agreement or
consented to or approved by NHTB, Landmark shall use its best efforts to
preserve its properties, business and relationships with customers, employees
and other persons.
(b) Except with the prior written consent of NHTB or except as
Previously Disclosed or except as expressly contemplated or permitted by this
Reorganization Agreement, the Plan of Merger, or the Stock Option Agreement
Landmark shall not:
(1) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(2) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock;
(3) issue any shares of its capital stock (except for the issuance of
the Landmark Common Stock pursuant to Section 4.7(d) hereof) or permit any
treasury shares to become outstanding other than pursuant to the Stock Option
Agreement;
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(4) incur any additional debt obligation or other obligation for
borrowed money other than in the ordinary course of business consistent with
past practice;
(5) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like change
in capitalization, or redeem, repurchase or otherwise acquire any shares of its
capital stock;
(6) amend its Articles of Agreement or bylaws;
(7) merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge into it or
consolidate with any other corporation, savings association or bank; acquire
control over any other firm, bank, corporation, savings association or
organization or create any subsidiary;
(8) except in the ordinary course of business, waive or release any
material right or cancel or compromise any material debt or claim;
(9) fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of its
business;
(10) enter into any material swap, hedge or other similar off-balance
sheet transaction;
(11) liquidate or sell or dispose of any material assets or acquire
any material assets; make any capital expenditure in excess of $25,000 in any
instance or in the aggregate; or, except as Previously Disclosed, establish new
branches or other similar facilities or enter into or modify any leases or other
contracts relating thereto that involve annual payments that exceed $10,000 in
any instance or $25,000 in the aggregate;
(12) increase the rate of compensation of, pay or agree to pay any
bonus to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees;
(13) enter into, modify or extend any employment or severance
contracts with any of its present or former directors, officers or employees;
(14) enter into or substantially modify (except as may be required by
applicable law) any pension, retirement, stock option, stock purchase, stock
appreciation right, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees;
(15) change its lending, investment, asset/liability management or
other material banking policies in any material respect except as may be
required by changes in applicable law;
(16) change its methods of accounting in effect at December 31, 1995,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any of
its methods of reporting income and deductions
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for federal income tax purposes from those employed in the preparation of its
federal income tax returns for the year ended December 31, 1995, except as
required by law;
(17) solicit or initiate inquiries or proposals with respect to any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, Landmark or any business combination with
Landmark other than as contemplated by this Reorganization Agreement; or
authorize or permit any officer, director, agent or affiliate of it to do any of
the above; or fail to notify NHTB as soon as practicable if any such inquiries
or proposals are received by Landmark, or if Landmark or any officer, director,
agent or affiliate thereof is requested to or does furnish any confidential
information relating to, or participates in any negotiations or discussions
concerning, any transaction of a type described in this paragraph; or
(18) agree to do any of the foregoing.
(c) Landmark agrees to approve, execute and deliver any amendment to
this Reorganization Agreement and the Plan of Merger and any additional plans
and agreements requested by NHTB to modify the structure of, or to substitute
parties to, the transactions contemplated hereby; provided, however, that no
such change shall (i) alter or change the amount or kind of consideration to be
delivered to the shareholders of Landmark in connection with the Merger, (ii)
adversely affect the tax treatment to the shareholders of Landmark as a result
of receiving such merger consideration, or (iii) materially impede or delay
receipt of any approval referred to in Section 4.3 hereof or the consummation of
the transactions contemplated by this Reorganization Agreement and the Plan of
Merger.
(d) Prior to the Effective Date, Landmark agrees to take any and all
action necessary to cause all outstanding shares of Landmark Preferred Stock to
be converted into shares of Landmark Common Stock pursuant to the provisions of
the Statement of Designation adopted by the Board of Directors of Landmark on
October 14, 1992.
(e) Contemporaneous with the signing of this Agreement, the directors
of Landmark will enter into an agreement in the form attached hereto as Exhibit
A, whereby they will vote all shares of Landmark Common Stock held by them for
the approval of the Merger.
4.8. CLOSING; ARTICLES OF COMBINATION
The transactions contemplated by this Reorganization Agreement and the
Plan of Merger shall be consummated at a closing ("Closing") to be held at the
offices of New Hampshire Thrift Bancshares, 9 Main Street, Newport, New
Hampshire, at 10:00 a.m. on the first business day that is at least 10 calendar
days after the date on which the last of all required approvals for the Merger
has been obtained and the last of all required waiting periods under such
approvals has expired, or at such other place, date or time as NHTB and Landmark
may mutually agree upon, with the Merger to be consummated after such
intermediate steps as NHTB may specify. The Merger shall be effective at the
time and on the date specified in the articles of combination to be filed with
the Secretary of the Office of Thrift Supervision (the "Effective Date").
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4.9. AFFILIATES
Landmark and NHTB shall cooperate and use their best efforts to
identify those persons who may be deemed to be "affiliates" of Landmark within
the meaning of Rule 145 promulgated by the Commission under the Securities Act.
Landmark shall use its best efforts to cause each person so identified to
deliver to NHTB, no later than 30 days prior to the Effective Date, a written
agreement providing that such person will not dispose of any NHTB Common Stock
received in the Merger except in compliance with the Securities Act, the rules
and regulations promulgated thereunder.
4.10. LANDMARK EMPLOYEES; DIRECTORS AND MANAGEMENT; INDEMNIFICATION
(a) All employees of Landmark as of the Effective Date shall become
employees of NHTB or a NHTB Subsidiary as of the Effective Date. Nothing in this
Agreement shall give any employee of Landmark a right to continuing employment
with NHTB after the Effective Date. As soon as practicable after the Effective
Date, NHTB shall provide or cause to be provided to all employees of Landmark
who remain employed by NHTB or any NHTB Subsidiary after the Effective Date with
employee benefits which, in the aggregate, are no less favorable than those
generally afforded to other employees of NHTB or NHTB's Subsidiaries holding
similar positions, including without limitation employee benefits provided in
accordance with NHTB's severance policy, subject to the terms and conditions
under which those employee benefits are made available to such employees;
provided that, for purposes of determining eligibility for and vesting of such
employee benefits only (and not for pension benefit accrual purposes), service
with Landmark (including service with a predecessor corporation) prior to the
Effective Date shall be treated as service with an "employer" to the same extent
as if such persons had been employees of NHTB, and provided further that this
Section 4.10(a) shall not be construed to limit the ability of NHTB and its
affiliates to terminate the employment of any employee or to review employee
benefits programs from time to time and to make such changes as they deem
appropriate.
(1) In the event any employee of NHTB who was employed by Landmark at
the Effective Date is terminated from NHTB within one year after the Effective
Date, in addition to any severance payment, each such employee shall be
reimbursed for the costs they incur for COBRA coverage during such employee's
severance period (for purposes hereof, the term severance period shall mean that
period of time for which severance pay is paid), provided, however, that on or
prior to any payment by NHTB pursuant to this provision, each such employee
executes a release of claim in favor of NHTB in the form attached hereto as
Exhibit B.
(2) NHTB or Bank agrees to make a payment, in the amount Previously
Disclosed to Landmark, on the Effective Date to an employee of Landmark who is a
party to an employment agreement with Landmark. Such payment shall be made in
complete satisfaction of all liabilities and obligations of Landmark, NHTB and
Bank under such employment agreement; provided, however, that there shall have
been delivered to NHTB, at or prior to the Effective Date, a written
acknowledgment signed by such person that the payment to be made to him is in
full and complete satisfaction of all liabilities and obligations of Landmark,
NHTB and Bank, and each of their affiliates, officers, directors and agents
under such employment
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agreement and a release signed by such person of all such parties from further
liability in connection with the employment agreement and provided further, that
such payment shall not be in violation of 12 C.F.R. (S) 359.
(b) As Previously Disclosed, NHTB's Board of Directors shall take all
requisite action to appoint as directors of NHTB, effective as of the Effective
Date, one director for a three year term and a second director to a two year
term, and Bank's Board of Directors shall take all requisite action to elect as
directors of Bank, effective as of the Effective Date, one director for a three
year term, a second director for a two year term and a third director for a one
year term. Both NHTB's Board of Directors and Bank's Board of Directors shall,
prior to the expiration of each such person's initial appointed term, use their
respective reasonable efforts consistent with their fiduciary duties to nominate
such persons and seek such person's election to their respective Boards of
Directors for an additional term after each person's original term expires.
(c) From and after the Effective Date, Bank shall indemnify persons
who served as directors and officers of Landmark on or before the Effective Date
in accordance with and subject to the provisions of Landmark's Amended Articles
of Agreement and Bylaws as delivered to NHTB prior to the execution of this
reorganization Agreement. From and after the Effective Date, NHTB will cause
the persons who served as directors or officers of Landmark on or before the
Effective Date to be covered by Landmark's existing directors' and officers'
liability insurance policy (or policies of at least the same coverage and
amounts and containing terms and conditions which are not less advantageous than
such policy); provided that no such person shall be entitled to insurance
coverage more favorable than that provided to the person in such capacity at the
date hereof with respect to acts or omissions resulting from the person's
service as such on or prior to the Effective Date, and provided further that
NHTB shall not be required to expend in any year more than 150 percent of the
current per annum amount expended by Landmark to maintain or procure insurance
coverage pursuant hereto. Such insurance coverage shall commence on the
Effective Date and will be provided for a period of no less than 3 years after
the Effective Date.
ARTICLE 5.
CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF NHTB, BANK AND LANDMARK
The respective obligations of the parties to effect the Merger shall
be subject to satisfaction or waiver of the following conditions at or prior to
the Closing Date:
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Reorganization Agreement and the Plan of Merger
and consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken;
(b) The parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by this Reorganization Agreement and the Plan of Merger, all notice
periods and waiting periods required after the granting of any such approvals
shall have passed and all conditions contained
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in any such approval required to have been satisfied prior to consummation of
such transactions shall have been satisfied, provided, however, that no such
approval shall have imposed any condition or requirement which, in the
reasonable good faith opinion of the Board of Directors of NHTB materially and
adversely affects the anticipated economic and business benefits to NHTB of the
transactions contemplated by this Agreement as to render consummation of such
transactions inadvisable;
(c) A Registration Statement (including any post-effective amendment
thereto) shall have been filed with the Commission and shall be effective under
the Securities Act, and no proceeding shall be pending or to the knowledge of
NHTB threatened by the Commission to suspend the effectiveness of such
Registration Statement;
(d) NHTB shall have received all state securities or "Blue Sky"
permits or other authorizations, or confirmations as to the availability of an
exemption from registration requirements as may be necessary;
(e) To the extent that any lease, license, loan, financing agreement
or other contract or agreement to which Landmark is a party requires the consent
of or waiver from the other party thereto as a result of the transactions
contemplated by this Agreement, such consent or waiver shall have been obtained,
unless the failure to obtain such consents or waivers, individually or in the
aggregate, would not have a Material Adverse Effect on Landmark;
(f) None of the parties hereto shall be subject to any order, decree
or injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the transactions contemplated by this
Reorganization Agreement and the Plan of Merger;
(g) The shares of NHTB Common Stock that may be issued in the Merger
shall have been approved for listing on the NASDAQ, subject to official notice
of issuance; and
(h) Landmark and NHTB shall have received opinions of their respective
counsels substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinions which are consistent
with the state of facts existing on the Effective Date, for federal income tax
purposes:
(1) The Merger will constitute a reorganization within the meaning
of section 368(a) of the Code;
(2) No gain or loss will be recognized by Landmark on the transfer of
its assets to Bank pursuant to the Merger;
(3) No gain or loss will be recognized by NHTB or by Bank on the
issuance of shares of NHTB Common Stock to shareholders of Landmark pursuant to
the Merger;
(4) No gain or loss will be recognized by a shareholder of Landmark
who exchanges shares of Landmark stock for shares of NHTB Common Stock (except
with respect to cash received in lieu of a fractional share interest in NHTB
Common Stock);
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(5) The tax basis of the shares of NHTB Common Stock received by a
shareholder of Landmark who exchanges pursuant to the Merger shares of Landmark
stock for shares of NHTB Common Stock will be the same as the tax basis of the
shares of Landmark stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received); and
(6) The holding period of the shares of NHTB Common Stock to be
received by a shareholder of Landmark pursuant to the Merger will include the
period during which such shareholder held the shares of Landmark stock
surrendered in exchange therefor, provided that the shares of Landmark stock
surrendered is held as a capital asset as of the Effective Date.
5.2. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF LANDMARK
The obligations of Landmark to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by Landmark pursuant to Section 6.4 hereof:
(a) The representations and warranties of NHTB and Bank set forth in
Article 3 hereof shall be true and correct in all material respects as of the
date of this Reorganization Agreement and as of the Closing Date as though made
on and as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by Landmark; provided, however, that the condition contained in
this paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on NHTB;
(b) NHTB and Bank shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger prior to the Effective Date;
(c) NHTB and Bank each shall have delivered to Landmark a certificate,
dated the Closing Date and signed by its President or Chief Financial Officer to
the effect that the conditions set forth in paragraphs (a) and (b) of this
section have been satisfied;
(d) Landmark shall have received from Shatswell, MacLeod & Company a
"comfort letter" dated not more than five days prior to (i) the effective date
of the Registration Statement, if any, and, otherwise, the mailing date of the
Proxy Statement, and (ii) the Closing Date, with respect to certain financial
information regarding NHTB, in form and substance which is customary in
transactions of the nature contemplated by this Agreement; and
(e) Landmark shall have received an opinion of Thacher Proffitt &
Wood, counsel to NHTB, dated the Closing Date, as to such matters as Landmark
may reasonably request with respect to the transactions contemplated hereby.
(f) Landmark shall have received a letter from its financial
consultants, dated as of a date not more than five (5) days prior to the date
the Proxy Statement contemplated by Section
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<PAGE>
4.2 is mailed to stockholders, containing its opinion that the consideration to
be paid to holders of Landmark Common Stock in connection with the Merger is
fair to such shareholders from a financial point of view.
5.3. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF NHTB AND BANK
The respective obligations of NHTB and Bank to effect the Merger shall
be subject to satisfaction of the following additional conditions at or prior to
the Closing Date unless waived by NHTB pursuant to Section 6.4 hereof:
(a) The representations and warranties of Landmark set forth in
Article 2 hereof shall be true and correct in all material respects as of the
date of this Reorganization Agreement and as of the Closing Date as though made
on and as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by NHTB; provided, however, that the condition contained in this
paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on Landmark;
(b) Landmark shall have, in all material respects, performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger;
(c) Landmark shall have delivered to NHTB and Bank a certificate,
dated the Closing Date and signed by its President and Chief Executive Officer
to the effect that the conditions set forth in paragraphs (a), (b) and (f) of
this section have been satisfied;
(d) NHTB shall have received from A.M. Peisch & Company a "comfort
letter" dated not more than five days prior to (i) the effective date of the
Registration Statement, if any, and, otherwise, the mailing date of the Proxy
Statement, and (ii) the Closing Date, with respect to certain financial
information regarding Landmark, in form and substance which is customary in
transactions of the nature contemplated by this Agreement; and
(e) NHTB and Bank shall have received an opinion of Gallagher,
Callahan & Gartrell, counsel to Landmark, dated the Closing Date, as to such
matters as NHTB and Bank may reasonably request with respect to the transactions
contemplated hereby.
(f) Landmark's allowance for loan losses on the balance sheet of
Landmark as of the last month immediately preceding the Effective Date shall be
at least $600,000 and Landmark's Tier 1 capital ratio (determined in accordance
with Generally Accepted Accounting Principles, including any adjustments
required under Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities") shall be at least 6%,
provided, however, that if such capital ratio is between 6% and 5.8%, NHTB shall
be obligated to consummate the Merger only upon the adjustments to the Exchange
Ratio and the Cash Election Price provided in Section 5.1(f) of the Plan of
Merger.
(g) Any Landmark shareholder who after the Closing Date would become
beneficial owner of more than 3% of the outstanding shares of NHTB Common Stock
has entered into an
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agreement in the form of Exhibit C hereto that such stockholder, for a period of
2 years after the Closing Date, will not vote any shares beneficially owned by
him in excess of 3% of the outstanding shares of NHTB.
(h) NHTB shall have received a letter from its financial consultants,
dated as of a date not more than five (5) days prior to the date the Proxy
Statement contemplated by Section 4.2 is mailed to stockholders, confirming its
oral opinion delivered prior to the date of this Agreement, that the Merger is
fair to NHTB's shareholders from a financial point of view.
ARTICLE 6.
TERMINATION, WAIVER AND AMENDMENT
6.1. TERMINATION
This Reorganization Agreement and the Plan of Merger may be
terminated, either before or after approval by the shareholders of NHTB and
Landmark:
(a) At any time on or prior to the Effective Date, by the mutual
consent in writing of the parties hereto.
(b) At any time on or prior to the Closing Date, by NHTB in writing,
if Landmark has, or by Landmark in writing, if NHTB or Bank has, in any material
respect, breached (i) any covenant or agreement contained herein or in the Plan
of Merger, or (ii) any representation or warranty contained herein, and in
either case if such breach has not been cured by the earlier of 30 days after
the date on which written notice of such breach is given to the party committing
such breach or the Closing Date.
(c) At any time, by any party hereto in writing, if the applications
for prior approval or consents referred to in Section 4.3 hereof have been
denied, and the time period for appeals and requests for reconsideration has
run, or if any governmental entity of competent jurisdiction shall have issued a
final non-appealable order enjoining or otherwise prohibiting the Merger.
(d) At any time, by any party hereto in writing, if the shareholders
of NHTB or Landmark do not approve the transactions contemplated herein at the
annual or special meetings duly called for that purpose.
(e) By any party hereto in writing, if the Closing Date has not
occurred by the close of business on June 30, 1997, unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
set forth herein.
(f) By Landmark, if the NHTB price (as that term is defined in the
Plan of Merger) is less than $6.50 and Landmark provides written notice to NHTB
prior to the third business day immediately preceding the Closing Date of its
intent to terminate this Agreement pursuant to this Section 6.1(f) and NHTB does
not elect to increase the Exchange Ratio (as that term is defined in the Plan of
Merger), as agreed to by Landmark.
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6.2. EFFECT OF TERMINATION
In the event this Reorganization Agreement or the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Agreement and the Plan of Merger
shall become void and have no effect, except that (i) the provisions relating to
confidentiality, press releases and expenses set forth in Sections 4.5, 4.6, 7.1
and 7.7 hereof, respectively, shall survive any such termination and (ii) a
termination pursuant to Section 6.1(b)(i) shall not relieve the breaching party
from liability for an uncured willful breach of such covenant or agreement
giving rise to such termination.
6.3. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant hereto
or thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date, provided that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive
NHTB, Bank or Landmark (or any director, officer or controlling person thereof)
of any defense in law or equity which otherwise would be available against the
claims of any person, including, without limitation, any shareholder or former
shareholder of either NHTB or Landmark, the aforesaid representations,
warranties and covenants being material inducements to the consummation by NHTB,
Bank and Landmark of the transactions contemplated herein.
6.4. WAIVER
Except with respect to any required shareholder or regulatory
approval, NHTB and Landmark, respectively, by written instrument signed by an
executive officer of such party, may at any time (whether before or after
approval of this Reorganization Agreement and the Plan of Merger by the
shareholders of NHTB and Landmark) extend the time for the performance of any of
the obligations or other acts of Landmark, on the one hand, or NHTB or Bank, on
the other hand, and may waive (i) any inaccuracies of such parties in the
representations or warranties contained in this Agreement, the Plan of Merger or
any document delivered pursuant hereto or thereto, (ii) compliance with any of
the covenants, undertakings or agreements of such parties, or satisfaction of
any of the conditions precedent to its obligations, contained herein or in the
Plan of Merger, or (iii) the performance by such parties of any of its
obligations set out herein or therein; provided, however, that, after any such
approval by the shareholders of Landmark, no such modification shall (i) alter
or change the amount or kind of Merger consideration to be received by holders
of Landmark Common Stock as provided in the Plan of Merger, or (ii) adversely
affect the tax treatment to Landmark shareholders as a result of the receipt of
such Merger consideration.
6.5. AMENDMENT OR SUPPLEMENT
This Reorganization Agreement and the Plan of Merger may be amended or
supplemented at any time by mutual agreement of the parties hereto or thereto.
Any such amendment or supplement must be in writing and approved by their
respective boards of directors and/or officers authorized thereby and shall be
subject to the proviso in Section 6.4 hereof.
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ARTICLE 7.
MISCELLANEOUS
7.1. EXPENSES
Each party hereto shall bear and pay all costs and expenses incurred
by it in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel, except that NHTB and Landmark each shall bear and pay
50 percent of all printing and mailing costs and filing fees associated with the
Registration Statement and the Proxy Statement.
7.2. ENTIRE AGREEMENT
This Reorganization Agreement and the Plan of Merger contain the
entire agreement between the parties with respect to the transactions
contemplated hereunder and thereunder and supersede all prior arrangements or
understandings with respect thereto, written or oral, other than documents
referred to herein or therein and the Confidentiality Agreement. The terms and
conditions of this Reorganization Agreement and the Plan of Merger shall inure
to the benefit of and be binding upon the parties hereto and thereto and their
respective successors. Except as specifically set forth herein, or in the Plan
of Merger, nothing in this Reorganization Agreement or the Plan of Merger,
expressed or implied, is intended to confer upon any party, other than the
parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities.
7.3. NO ASSIGNMENT
No party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other person.
7.4. NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
facsimile transmission or overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to Landmark:
Landmark Bank
106 Hanover Street
Lebanon, New Hampshire 03766-1006
Attention: Paul P. Tierney
Facsimile No.: 603-448-8956
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With a copy to:
Gallagher, Callahan & Gartrell, P.A.
214 North Main Street
Concord, New Hampshire 03301
Attention: Denis Maloney, Esquire
Facsimile No.: 603-224-7588
If to NHTB or Bank:
New Hampshire Thrift Bancshares, Inc.
9 Main Street
Newport, New Hampshire 03773
Attention: Stephen W. Ensign
Facsimile No.: 603-863-5025
With a copy to:
Thacher Proffitt & Wood
1500 K Street, N.W.
Suite 200
Washington, D.C. 20005
Attention: Richard A. Schaberg, Esquire
Facsimile No.: (202) 347-5862 or (202) 347-6238
7.5. CAPTIONS
The captions contained in this Reorganization Agreement are for
reference purposes only and are not part of this Reorganization Agreement.
7.6. COUNTERPARTS
This Reorganization Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
7.7. GOVERNING LAW
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of New Hampshire applicable to agreements
made and entirely to be performed within such jurisdiction without regard to
conflicts of laws principles, except to the extent Delaware or federal law may
be applicable.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed in counterparts
by their duly authorized officers and their corporate seal to be hereunto
affixed and attested by their officers thereunto duly authorized, all as of the
day and year first above written.
LANDMARK BANK
By:
/s/ Paul P. Tierney
-------------------------------------------
Paul P. Tierney
President and Chief Executive Officer
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
By:
/s/ Stephen W. Ensign
-------------------------------------------
Stephen W. Ensign,
President and Chief Executive Officer
LAKE SUNAPEE BANK, fsb
By:
/s/ Stephen W. Ensign
-------------------------------------------
Stephen W. Ensign,
President and Chief Executive Officer
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<PAGE>
July 26, 1996
New Hampshire Thrift Bancshares, Inc.
9 Main Street
P. O. Box 29
Newport, NH 03773-0029
Dear Sirs:
The undersigned is a director of Landmark Bank ("Landmark") and is the
beneficial holder of shares of common stock of Landmark ("Landmark Common
Stock").
Landmark, New Hampshire Thrift Bancshares, Inc. ("NHTB") and Lake Sunapee
Bank, fsb ("Bank") are considering the execution of an Agreement and Plan of
Merger ("Merger Agreement") and an Agreement and Plan of Reorganization
("Reorganization Agreement") contemplating the merger of Landmark with and into
Bank ("Merger"), such execution being subject in the case of NHTB to the
execution and delivery of this letter agreement ("Agreement"). In consideration
of the substantial expenses that NHTB and the Bank will incur in connection with
the transactions contemplated by the Merger Agreement and the Reorganization
Agreement and in order to induce NHTB and Bank to execute the Merger Agreement
and the Reorganization Agreement and to proceed to incur such expenses, the
undersigned agrees and undertakes, in his/her capacity as a shareholder of
Landmark and not in his capacity as a director of Landmark, as follows:
1. The undersigned will vote or cause to be voted for approval of the
Merger Agreement and the Reorganization Agreement all of the shares of Landmark
Common Stock the undersigned is entitled to vote with respect thereto.
2. Except as NHTB may otherwise agree in its sole discretion, the
undersigned will not effect any transfer or other disposition of any of the
undersigned's shares of Landmark Common Stock until Landmark's shareholders have
voted to approve the Merger Agreement and the Reorganization Agreement or until
such agreements have been terminated pursuant to the terms thereof. In the case
of any transfer by operation of law or otherwise, this Agreement shall be
binding upon and inure to the benefit of the transferee. An transfer or other
disposition in violation of the terms of this paragraph 2 shall be null and
void.
3. The undersigned will not vote any of his or her shares of Landmark
Common Stock in favor of any other merger, sale of all or substantially all the
equity interests or assets of Landmark to any person other than NHTB or its
affiliates, or similar transaction until the earliest to occur of the Merger,
the termination of the Reorganization Agreement and the Merger Agreement, or the
abandonment of the Merger by mutual agreement of Landmark and NHTB.
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New Hampshire Thrift Bancshares, Inc.
Jul 26, 1996
Page 2.
4. The undersigned acknowledges and agrees that any remedy at law for
breach of the foregoing provisions shall be inadequate and that, in addition to
any other relief which may be available, NHTB shall be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damages.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
Very truly yours,
________________________________
Accepted and agreed to as of
the date first above written:
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
By: ____________________________________________
Stephen W. Ensign
President and Chief Executive Officer
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of July 26, 1996,
by and between LANDMARK BANK ("Landmark"), a New Hampshire state chartered bank,
and LAKE SUNAPEE BANK, fsb ("Bank"), a federally chartered savings bank, and
joined in by New Hampshire Thrift Bancshares, Inc. ("NHTB"), a Delaware
corporation.
WITNESSETH
WHEREAS, the respective Boards of Directors of Landmark, NHTB and Bank deem
the merger of Landmark with and into Bank, under and pursuant to the terms and
conditions herein set forth or referred to, desirable and in the best interests
of the respective corporations and their respective shareholders, and the
respective Boards of Directors of Landmark, NHTB and Bank have adopted
resolutions approving this Plan of Merger and an Agreement and Plan of
Reorganization dated of even date herewith ("Reorganization Agreement").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree as follows:
ARTICLE 1.
MERGER
Subject to the terms and conditions of this Plan of Merger, on the
Effective Date (as defined in Article 1. of the Reorganization Agreement),
Landmark shall be merged with and into Bank, pursuant to the provisions of, and
with the effect provided in, Title 35 of the New Hampshire Revised Statutes
Annotated (the "Merger") and the regulations of the Office of Thrift
Supervision. On the Effective Date, the separate existence of Landmark shall
cease and Bank, as the surviving entity, shall continue unaffected and
unimpaired by the Merger. (Bank, as existing on and after the Effective Date,
being hereinafter sometimes referred to as the "Surviving Bank.") The home and
other offices of the Surviving Bank shall be as listed in Exhibit A to this Plan
of Merger.
ARTICLE 2.
CHARTER AND BY-LAWS
The Amended Charter and the By-Laws of Bank in effect immediately prior to
the Effective Date shall be the Charter and the By-Laws of the Surviving Bank,
in each case until amended in accordance with applicable law.
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<PAGE>
ARTICLE 3.
BOARD OF DIRECTORS
On the Effective Date, the Board of Directors of the Surviving Bank shall
consist of those persons serving as directors of Bank immediately prior to the
Effective Date together with three directors to be designated by Landmark
subject to the Bank's approval. The Directors of the Surviving Bank shall be
those persons listed in Exhibit B to this Plan of Merger. On the Effective
Date, the Board of Directors of NHTB shall consist of those persons serving as
directors of NHTB immediately prior to the Effective Date together with two
directors to be designated by Landmark subject to NHTB's approval and who are
listed in Exhibit C to this Plan of Merger.
ARTICLE 4.
CAPITAL
The shares of capital stock of the Surviving Bank issued and
outstanding immediately prior to the Effective Date shall, on the Effective
Date, continue to be issued and outstanding.
ARTICLE 5.
CONVERSION AND EXCHANGE OF LANDMARK SHARES;
FRACTIONAL SHARE INTERESTS
5.1. (a) On the Effective Date, each share of the common stock of
Landmark, par value $1.00 per share ("Landmark Common Stock"), outstanding
immediately prior to the Effective Date (except as provided in Paragraph 5.1(d)
of this Article) shall, by virtue of the Merger, be converted into an amount of
common stock, par value $0.01 per share, of NHTB ("NHTB Common Stock") or cash,
as set forth below.
(b) Subject to Section 5.1(f) hereof, each outstanding share of
Landmark Common Stock which under the terms of Article 5.2 is to be converted
into the right to receive NHTB Common Stock shall be converted into an amount of
NHTB Common Stock equal to one share multiplied by the Exchange Ratio.
For purposes of this Plan of Merger, the Exchange Ratio shall be:
(1) 1.221, if the NHTB Price is equal to or greater than $8.25 and is
no greater than $11.75;
(2) 14.00 / NHTB Price, if the NHTB Price is greater than $11.75; or
(3) 10.00 / NHTB Price, if the NHTB Price is less than $8.25.
As used herein, the term "NHTB Price" means the average bid price of
NHTB Common Stock on the NASDAQ (as reported by the National Association of
Securities Dealers Automatic Quotation System) for the thirty consecutive
trading days ending on the business day before the
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<PAGE>
date on which the last regulatory approval required to consummate the
transactions contemplated by this Plan of Merger and the Reorganization
Agreement is obtained.
(c) Subject to Section 5.1(f) hereof, each outstanding share of
Landmark Common Stock which under the terms of Article 5.2 is to be converted
into the right to receive cash shall be converted into the right to receive
$12.00 in cash (the "Cash Election Price").
-------------------
(d) On the Effective Date, all shares of Landmark Common Stock held
in the treasury of Landmark or owned beneficially by any subsidiary of Landmark
other than in a fiduciary capacity or in connection with a debt previously
contracted shall be canceled and no cash, stock or other property shall be
delivered in exchange therefor.
(e) Each outstanding share of Landmark Common Stock the holder of
which has perfected his right to dissent under applicable law and has not
effectively withdrawn or lost such right as of the Effective Date (the
"Dissenting Shares") shall not be converted into or represent a right to receive
shares of NHTB Common Stock or cash hereunder, and the holder thereof shall be
entitled only to such rights as are granted by applicable law. Landmark shall
give NHTB prompt notice upon receipt by Landmark of any such written demands for
payment of the fair value of such shares of Landmark Common Stock and of
withdrawals of such notice and any other instruments provided pursuant to
applicable law (any shareholder duly making such demand being hereinafter called
a "Dissenting Shareholder"). Any payments made in respect of Dissenting Shares
shall be made by NHTB.
(f) As referenced in Section 5.3(f) of the Reorganization Agreement,
in the event that Landmark's Tier 1 capital ratio (determined in accordance with
Generally Accepted Accounting Principles, including any adjustments required
under Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities") for the month immediately
prior to the Closing Date is (1) between 6.00% and 5.90%, the Exchange Ratio
provided in Section 5.1(b)(1) shall be adjusted to 1.208, the Exchange Ratio
provided in Section 5.1(b)(2) shall be determined by the quotient of 13.875
divided by NHTB Price and the Exchange Ratio provided in Section 5.1(b)(3) shall
be determined by the quotient of 9.875 divided by NHTB Price, and the Cash
Election Price provided in Section 5.1(c) shall be adjusted to $11.875 or (2)
between 5.89% and 5.80%, the Exchange Ratio provided in Section 5.1(b)(1) shall
be adjusted to 1.195, the Exchange Ratio provided in Section 5.1(b)(2) shall be
determined by the quotient of 13.75 divided by NHTB Price and the Exchange Ratio
provided in Section 5.1(b)(3) shall be determined by the quotient of 9.75
divided by NHTB Price, and the Cash Election Price provided in Section 5.1(c)
shall be adjusted to $11.75.
5.2(a). An election form and other appropriate transmittal materials
("Election Form") will be sent within 3 business days after the Effective Date
to each holder of record of Landmark Common Stock as of the Effective Date
permitting such holder (or in the case of nominee record holders, the beneficial
owner through proper instructions and documentation) (i) to elect to receive
NHTB Common Stock with respect to such holder's Landmark Common Stock as
hereinabove provided (the "Landmark Stock Election Shares"), (ii) to elect to
receive cash with respect to such holder's Landmark Common Stock as hereinabove
provided (the "Landmark Cash Election Shares"), or (iii) to indicate that such
holder makes no such election (the
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<PAGE>
"Landmark No-Election Shares"). Notwithstanding the foregoing, in order to
elect to receive NHTB Common Stock, the number of shares of Landmark Common
Stock a Landmark stockholder elects to convert must equal or exceed 100 shares.
Any shares of Landmark Common Stock with respect to which the holder thereof
shall not, as of the Election Deadline, have made such an election by submission
to an exchange agent appointed by NHTB (the "Exchange Agent"), of an effective,
properly completed Election Form shall be deemed to be Landmark No-Election
Shares. Any Dissenting Shares shall be deemed to be Landmark Cash Election
Shares, and with respect to such shares the holders thereof shall in no event be
classified as Stock Designees (as hereinafter defined).
The term "Election Deadline," as used herein, shall mean 5:00 p.m.,
Eastern Standard Time, on the 20th business day following but not including the
date of mailing of the Election Form or such other date as Landmark and NHTB
shall mutually agree upon.
Any election to receive NHTB Common Stock or cash shall have been
properly made only if the Exchange Agent shall have actually received a properly
completed Election Form by the Election Deadline. An Election Form will be
properly completed only if accompanied by certificates representing all shares
of Landmark Common Stock converted thereby. The Exchange Agent shall have
reasonable discretion to determine when any election, modification or revocation
is received and whether any such election, modification or revocation has been
properly made.
Within three business days after the Election Deadline, the Exchange
Agent shall effectuate the allocation among holders of Landmark Common Stock of
rights to receive NHTB Common Stock or cash in the Merger in accordance with the
Election Forms as follows:
(i) If the number of Landmark Stock Election Shares is less than
a number (the "Stock Conversion Number") equal to 60% of the number of
shares of Landmark Common Stock outstanding on the Effective Date of
the Merger (excluding such shares which are to be cancelled and
retired in accordance with Section 5.1(d)), then:
(1) all Landmark stock Election Shares will be converted
into the right to receive NHTB Common Stock,
(2) the Exchange Agent will select first from among the
holders of Landmark No-Election Shares and then (if necessary)
from among the holders of Landmark Cash Election Shares, by
random selection (as described below), a sufficient number of
such holders ("Stock Designees") such that the number of shares
of Landmark Common Stock held by the Stock Designees will, when
added to the number of Landmark Stock Election Shares, equal as
closely as practicable the Stock Conversion Number, and all
shares held by the Stock Designees will be converted into the
right to receive NHTB Common Stock, and
(3) the Landmark Cash Election Shares (subject to the
provisions of Section 5.1(e) with respect to any Dissenting
Shares) and the
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<PAGE>
Landmark No-Election Shares not held by Stock Designees will be
converted into the right to receive cash; or
(ii) If the number of Landmark Stock Election Shares is greater
than the Stock Conversion Number, then:
(1) all Landmark Cash Election Shares (subject to the
provisions of Section 5.1(e) with respect to any Dissenting
Shares) will be converted into the right to receive cash,
(2) the Exchange Agent will select first from among the
holders of Landmark No-Election Shares and then (if necessary)
from among the holders of Landmark Stock Election Shares, by
random selection (as described below), a sufficient number of
such holders ("Cash Designees") such that the number of shares of
Landmark Common Stock held by the Cash Designees will, when added
to the number of Landmark Cash Election Shares (including any
Dissenting Shares), equal as closely as practicable a number (the
"Cash Conversion Number") equal to 40.0% of the shares of
Landmark Common Stock outstanding on the Effective Date of the
Merger (excluding such shares which are to be cancelled and
retired in accordance with Section 5.1(d)) and all shares held by
the Cash Designees will be converted into the right to receive
cash, and
(3) the Landmark Stock Election Shares and Landmark No-
Election Shares not held by Cash Designees will be converted into
the right to receive NHTB Common Stock; or
(iii) If the number of Landmark Stock Election Shares is equal
or nearly equal (as determined by the Exchange Agent) to the Stock
Conversion Number, then subparagraphs (i) and (ii) above and
subparagraph (iv) below shall not apply and all Landmark Stock
Election Shares will be converted into the right to receive NHTB
Common Stock and all Landmark Cash Election Shares (subject to the
provisions of Section 5.1(e)) and Landmark No-Election Shares will be
converted into the right to receive cash; or
(iv) If the number of Landmark Cash Election Shares is equal or
nearly equal (as determined by the Exchange Agent) to the Cash
Conversion Number, then subparagraphs (i), (ii) and (iii) above shall
not apply and all Landmark Cash Election Shares (subject to the
provisions of Section 5.1(e)) will be converted into the right to
receive cash and all Landmark Stock Election Shares and Landmark No-
Election Shares will be converted into the right to receive NHTB
Common Stock.
5.2(b). In the event the Closing Date does not occur within one (1) month
after all required regulatory approvals are obtained, including the expiration
of any applicable waiting periods, NHTB shall increase the consideration to be
paid to holders of Landmark Common Stock by (1) accruing interest on the 40%
cash component of the consideration to be paid to
A-38
<PAGE>
holders of Landmark Common Stock at a rate equal to the then current yield on
the Bank Treasury Account and (2) crediting the 60% stock component of the
consideration to be paid to holders of Landmark Common Stock with any and all
dividends declared on the NHTB Common Stock during such period.
5.3. The selection process to be used by the Exchange Agent shall consist
of such processes as shall be mutually determined by Landmark and NHTB, in a
manner designed to select shareholders on a fair and equitable basis, and as
shall be further described in the Election Form. On the Effective Date of the
Merger, NHTB shall issue to the Exchange Agent the number of shares of NHTB
Common Stock issuable and the amount of cash payable in the Merger. Upon
completion of the allocation procedure described above, NHTB shall, if
necessary, issue to the Exchange Agent any additional shares of NHTB Common
Stock in exchange for cash or issue to the Exchange Agent any additional cash in
exchange for NHTB Common Stock, as may be required to effect the conversion of
Landmark Common Stock as contemplated hereby and by Section 5.6. Within five
business days after the Election Deadline, the Exchange Agent shall distribute
NHTB Common Stock and cash as provided herein. The Exchange Agent shall not be
entitled to vote or exercise any rights of ownership with respect to the shares
of NHTB Common Stock held by it from time to time hereunder, except that it
shall receive and hold all dividends or other distributions paid or distributed
with respect to such shares for the account of the persons entitled thereto.
5.4. After the completion of the foregoing allocation, each holder of an
outstanding certificate or certificates which prior thereto represented shares
of Landmark Common Stock who surrender such certificates or certificates to the
Exchange agent will, upon acceptance thereof by the Exchange Agent, be entitled
to a certificate or certificates representing the number of full shares of NHTB
Common Stock or the amount of cash into which the aggregate number of shares of
Landmark Common Stock previously represented by such certificate or certificates
surrendered shall have been converted pursuant to this Agreement and, if such
holder's shares of Landmark Common Stock have been converted into NHTB Common
Stock, any other distribution theretofore paid with respect to the NHTB Common
Stock issuable in the Merger, in each case without interest. The Exchange Agent
shall accept such certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. Each outstanding
certificate which prior to the Effective Date of the Merger represented Landmark
Common Stock and which is not surrendered to the Exchange Agent in accordance
with the procedures provided for herein shall, except as otherwise herein
provided, until duly surrendered to the Exchange Agent be deemed to evidence
ownership of the number of shares of NHTB Common Stock or the right to receive
the amount of cash into which such Landmark Common Stock shall have been
converted. After the Effective Date of the Merger, there shall be no further
transfer on the records of Landmark of certificates representing Landmark shares
and if such certificates are presented to Landmark for transfer, they shall be
cancelled against delivery of certificates for NHTB Common Stock or cash as
hereinabove provided. No dividends which have been declared will be remitted to
any person entitled to receive shares of NHTB Common Stock under Section 5.2
until such person surrenders the certificate or certificates representing
Landmark Common Stock, at which time such dividends shall be remitted to such
persons, without interest.
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<PAGE>
5.5. Certificates surrendered for exchange by any person who is an
"affiliate" of Landmark for purposes of Rule 145(c) under the Securities Act of
1933, as amended, shall not be exchanged for certificates representing shares of
NHTB Common Stock until NHTB has received the written agreement of such person
contemplated by Section 4.9 of the Reorganization Agreement. If any certificate
for shares of Landmark Common Stock is to be issued in a name other than that in
which a certificate surrendered for exchange is issued, the certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and the person requesting such exchange shall affix any requisite stock transfer
tax stamps to the certificate surrendered or provide funds for their purchase or
establish to the reasonable satisfaction of NHTB or its agent that such taxes
are not payable.
5.6. Notwithstanding any other provision hereof, each holder of shares who
would otherwise have been entitled to receive a fraction of a share of NHTB
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive (by check from the Exchange Agent, mailed to the
shareholder with the certificate(s) for NHTB Common Stock for which such holder
is to receive pursuant to the Merger), in lieu thereof, cash in an amount equal
to such fractional part of a share of NHTB Common Stock multiplied by the
"market value" of such Common Stock. The "market value" of one share of NHTB
Common Stock shall be the bid price of NHTB Common Stock on the National
Association of Securities Dealers Automated Quotation System (as reported by the
National Association of Securities Dealers Automatic Quotation System) on the
last business day preceding the Effective Date. No such holder shall be entitled
to dividends, voting rights or any other shareholder right in respect of any
fractional share.
5.7 Neither the Exchange Agent nor any party to this Agreement shall be
liable to any holder of stock represented by any Certificate for any
consideration paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. NHTB and the Exchange Agent shall be
entitled to rely upon the stock transfer books of Landmark to establish the
identity of those persons entitled to receive consideration specified in this
Agreement, which books shall be conclusive with respect thereto. In the event
of a dispute with respect to ownership of stock represented by any Certificate,
NHTB and the Exchange Agent shall be entitled to deposit any consideration
represented thereby in escrow with an independent third party and thereafter be
relieved with respect to any claims thereto.
ARTICLE 6.
EFFECTIVE DATE OF THE MERGER
Articles of combination evidencing the transactions contemplated herein
shall be delivered in accordance with applicable law. The Merger shall be
effective at the time and on the date specified in such articles of combination
(such date and time being herein referred to as the "Effective Date").
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<PAGE>
ARTICLE 7.
FURTHER ASSURANCES
If at any time the Surviving Bank shall consider or be advised that
any further assignments, conveyances or assurances are necessary or desirable to
vest, perfect or confirm in the Surviving Bank title to any property or rights
of Landmark, or otherwise carry out the provisions hereof, the proper officers
and directors of Landmark, as of the Effective Date, and thereafter the officers
of the Surviving Bank acting on behalf of Landmark, shall execute and deliver
any and all proper assignments, conveyances and assurances, and do all things
necessary or desirable to vest, perfect or confirm title to such property or
rights in the Surviving Bank and otherwise carry out the provisions hereof.
ARTICLE 8.
CONDITIONS PRECEDENT
The obligations of Bank, NHTB and Landmark to effect the Merger as
herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Reorganization Agreement.
ARTICLE 9.
TERMINATION
Anything contained in the Plan of Merger to the contrary
notwithstanding, and notwithstanding adoption hereof by the shareholders of
Landmark, this Plan of Merger may be terminated and the Merger abandoned as
provided in the Reorganization Agreement.
ARTICLE 10.
MISCELLANEOUS
10.1. This Plan of Merger may be amended or supplemented at any time
prior to its Effective Date by mutual agreement of NHTB, Bank and Landmark. Any
such amendment or supplement must be in writing and approved by their respective
Boards of Directors and/or by officers authorized thereby and shall be subject
to the proviso in Section 4.7(c) of the Reorganization Agreement.
10.2. Any notice or other communication required or permitted under
this Plan of Merger shall be given, and shall be effective, in accordance with
the provisions of the Reorganization Agreement.
10.3. The headings of the several Articles herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Plan of Merger.
A-41
<PAGE>
10.4. This Plan of Merger shall be governed by and construed in
accordance with the laws of New Hampshire applicable to the internal affairs of
Landmark, NHTB and the Bank.
A-42
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement and Plan of Merger to be executed in
counterparts by their duly authorized officers and their corporate seals to be
hereunto affixed and attested by their officers thereunto duly authorized, all
as of the day and year first above written.
LANDMARK BANK
By: /s/ Paul P. Tierney
------------------------------------------
Paul P. Tierney
President and Chief Executive Officer
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
By: /s/ Stephen W. Ensign
------------------------------------------
Stephen W. Ensign,
President and Chief Executive Officer
LAKE SUNAPEE BANK, fsb
By: /s/ Stephen W. Ensign
------------------------------------------
Stephen W. Ensign,
President and Chief Executive Officer
A-43
<PAGE>
Appendix B
----------
================================================================================
HAS ASSOCIATES, INC. [Letter Head]
November 7, 1996
Board of Directors
New Hampshire Thrift Bancshares, Inc.
Newport Road
New London, NH 03257
Attn: Stephen W. Ensign, President
Members of the Board:
You have requested our opinion as to the fairness to the stockholders of
New Hampshire Thrift Bancshares, Inc., New London, New Hampshire ("NHTB"), from
a financial point of view, of the terms of the Plan of Reorganization and the
Merger Agreement ("Agreements") dated July 26, 1996 which will ultimately
provide for the merger of Lake Sunapee Bank, fsb ("the Bank"), a subsidiary of
NHTB, and Landmark Bank, Lebanon, New Hampshire ("Landmark"). Stockholders of
Landmark are expected to receive consideration subject to certain adjustments as
provided in the Agreements.
In connection with its opinion, HAS Associates, Inc. ("HAS") reviewed,
analyzed and relied upon material relating to the financial and operating
conditions of NHTB and Landmark including, among other things, the following:
(i) the Agreements; (ii) the Joint Proxy Statement to NHTB and Landmark
Shareholders in draft form; (iii) Annual Reports to Landmark Stockholders for
the years ended December 31, 1994 and 1995, and years ended December 1993, 1994
and 1995 for NHTB; (iv) certain interim reports to NHTB and Landmark
stockholders and certain other communications from Landmark to its stockholders;
(v) other financial information concerning the business and operations of
Landmark furnished to HAS by Landmark for purposes of its analysis, including
certain internal financial analyses and forecasts for Landmark prepared by its
financial advisors; (vi) certain publicly available information concerning the
trading of, and the trading market for, the Common Stock of Landmark and NHTB;
(vii) corporate minutes of Landmark for three years; (viii) audit reports
certified by the independent accountants of Landmark and NHTB for three years;
(ix) regulatory filings of Landmark for three years; (x) all policies and
procedures of Landmark, certain loan files, and its investment portfolio; (xi)
certain required regulatory filings and records required to be made publicly
available by Landmark; and, (xii) certain publicly available information with
respect to banking companies and the nature and terms of certain other
transactions that HAS considered
<PAGE>
relevant to its inquiry. In addition, HAS reviewed certain market information
concerning Landmark, analyzed data concerning private and publicly owned banks
in New England, reviewed stock market data of other banks generally deemed
comparable whose securities are publicly traded, publicly available information
concerning certain recent business combinations, and such additional financial
and other information as HAS deemed necessary. Furthermore, HAS reviewed the
same type of public financial information available concerning NHTB. HAS also
held discussions with senior management of Landmark concerning their past and
current operations, financial condition and prospects, as well as the results of
regulatory examinations.
In conducting its review and arriving at its opinion, HAS relied upon and
assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and HAS did not attempt to
verify such information independently or undertake an independent appraisal of
the assets and liabilities of NHTB or Landmark. HAS relied upon the accuracy and
opinion of the audit reports prepared by Berry, Dunn, McNeil & Parker, NHTB's
independent accountants for 1995, and Smith, Batchelder & Rugg, NHTB's
independent accountants for 1994 and 1993, and A. M. Peisch & Company, the
Landmark's independent accountants. HAS assumes no responsibility for the
accuracy and completeness of the financial and other information relied upon.
In reliance upon and subject to the foregoing, it is our opinion that, as
of the date hereof, the financial terms of the Agreements are fair, from a
financial point of view, to the current stockholders of NHTB.
This letter is furnished to you in connection with the Agreements.
Sincerely,
/s/ HAS Associates, Inc.
HAS Associates, Inc.
<PAGE>
APPENDIX B
[McConnell, Budd & Downes, Inc. Letterhead]
November 7, 1996
The Board of Directors
Landmark Bank
106 Hanover Street
Lebanon, NH 03766
The Board of Directors:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Landmark Bank ("Landmark") of the consideration
to be paid to the shareholders of Landmark in connection with the proposed
acquisition of Landmark by New Hampshire Thrift Bancshares, Inc., ("NHTB")
pursuant to the Agreement and Plan of Merger (the "Merger Agreement') dated July
29, 1996 by and between Landmark, Lake Sunapee Bank, fsb ("Bank") and joined in
by NHTB. Pursuant to the Merger Agreement, Landmark will merge into Bank, and
Bank will be the surviving bank (the "Merger").
As is more specifically set forth in the Merger Agreement, upon consummation
of the Merger, each outstanding share of the common stock (either currently
outstanding or converted from outstanding preferred stock) of Landmark, par
value $1.00 per share ("Landmark Common Stock"), except for any dissenting
shares and except for shares held by NHTB and its subsidiaries or by Landmark
(in both cases, other than shares held in a fiduciary capacity or as a result of
debts previously contracted), will be converted into and exchangeable for either
1.221 shares of the common stock, par value $0.01 per share of NHTB ("NHTB
Common Stock") or $12.00 in cash, or some combination thereof, in each case
subject to adjustment as provided in the Merger Agreement, (such consideration,
collectively, the "Merger Consideration").
The reader is urged to carefully read all the terms of the Merger Agreement
which is reproduced in its entirety elsewhere in the Joint Proxy
Statement-Prospectus as well as the Joint Proxy Statement-Prospectus itself.
McConnell, Budd & Downes, Inc., as part of its investment banking business,
is regularly engaged in the valuation of bank holding companies and banks,
thrift holding companies and thrifts and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements,
competitive bidding processes, market making as a NASD market maker, secondary
distributions of listed securities and valuations for corporate, estate and
other purposes. Our experience arid familiarity with Landmark includes having
worked as a financial advisor to Landmark since February of 1996 on a
contractual basis and specifically includes our participation in the process and
negotiations leading up to the proposed Merger with NHTB. In the course of
our role as financial advisor to Landmark in connection with the Merger, we
have received fees for our services and will receive additional fees contingent
on the occurrence of certain defined events, including the consumation of the
Transaction.
In arriving at our opinion, we have reviewed the Merger Agreement and Joint
Proxy Statement-Prospectus in substantially the form to be mailed to Landmark
and NHTB shareholders. We have also reviewed publicly available business,
financial and shareholder information relating to Landmark and its subsidiaries,
certain publicly available financial information relating to NHTB and certain
financial information relating to NHTB and its subsidiaries provided to Landmark
by NHTB management. In addition, we have reviewed certain other information,
including internal reports and documents of Landmark and NHTB and certain
management prepared financial information provided to us by Landmark and NHTB.
We have also met with and had discussions with members of the senior management
of Landmark and NHTB to discuss their past and current business operations,
current financial condition and future prospects. In connection with the
foregoing, we have reviewed the annual reports to shareholders and annual report
of NHTB for the calendar years ended December 31, 1993, 1994 and 1995 and
subsequent publicly released, and certain subsequent internal, financial
information. We have similarly reviewed the annual
<PAGE>
reports of Landmark for the calendar years ended December 31, 1993, 1994 and
1995 and subsequent publicly released, and certain subsequent internal,
financial information. We have reviewed and studied the historical stock prices
and trading volumes of the common stock of Landmark and NHTB as well as the
terms and conditions of 8 recent transactions, selected from a larger universe
of 13 mergers involving publicly traded New England banking institutions which
can be compared to the proposed acquisition of Landmark by NHTB. We also
considered the current state of and future prospects for the economy of New
Hampshire generally and the relevant market areas for NHTB and Landmark in
particular. We have also conducted such other studies, analyses and
investigations as we deemed appropriate under the circumstances surrounding this
proposed Merger.
In the course of our review and analysis we considered, among other things,
such topics as relative capitalization, capital adequacy, profitability,
availability of non-interest income, relative asset quality, adequacy of the
reserve for loan losses and the composition of the loan portfolio of each of
Landmark and NHTB. We also considered management's estimates of cost savings
and revenue enhancements which might result from a consolidation of Landmark and
NHTB. In the conduct of our review and analysis we have relied upon and assumed,
without independent verification, the accuracy and completeness of the financial
information provided to us by Landmark and NHTB and or otherwise publicly
obtainable. In reaching our opinion we have not assumed any responsibility for
the independent verification of such information or any independent valuation or
appraisal of any of the assets or the liabilities of either Landmark or NHTB nor
have we obtained from any other source, any current appraisals of the assets or
liabilities of either Landmark or NHTB. We have also relied on the management of
Landmark as to the reasonableness of various financial and operating forecasts
and of the assumptions on which they are based, which were provided to us for
use in our analyses.
In the course of rendering this opinion, which is being rendered prior to
the receipt of certain required regulatory approvals necessary before
consummation of the Merger, we have assumed that no conditions will be imposed
by any regulatory agency in connection with its approval of the Merger that will
have a material adverse effect on the results of operations, the financial
Condition or the prospects of NHTB following consummation of the Merger.
Based upon and subject to the foregoing, it is our opinion, that as of the
date of this letter, the Merger Consideration is fair to the shareholders of
Landmark from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
By: /s/ David A. Budd
---------------------
David A. Budd
Managing Director
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APPENDIX C
THE TRANSFER OF THE OPTION GRANTED BY THIS AGREEMENT IS
SUBJECT TO RESALE RESTRICTIONS ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE RULES AND REGULATIONS OF
THE OFFICE OF THRIFT SUPERVISION.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the 26th day of July, 1996 (this
"Agreement"), between NEW HAMPSHIRE THRIFT BANCSHARES, INC., a Delaware
corporation ("Grantee"), and LANDMARK BANK, a New Hampshire state chartered
guarantee savings bank ("Issuer").
Grantee and Issuer have entered into an Agreement and Plan of
Reorganization, dated as of the 26th day of July, 1996 (the "Plan"), which was
executed by the parties hereto prior to the execution of this Agreement.
As a condition and inducement to Grantee's entering into the Plan and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below).
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Plan, the parties hereto agree as
follows:
1. GRANT OF OPTION. Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 19.9% of the fully paid and nonassessable shares of common
stock, par value $1.00 per share (the "Common Stock"), of Issuer at an exercise
price of $9.00 per share (the "Initial Price"); provided, however, that in the
event Issuer issues or agrees to issue (other than pursuant to options or other
agreements to issue Common Stock in effect as of the date hereof) any shares of
Common Stock at a price less than the Initial Price (as adjusted pursuant to
Section 5(b)), the Initial Price shall be deemed to be equal to the lowest price
at which any other shares are issued or agreed to be issued (such price, as
adjusted as hereinafter provided, the "Option Price"). The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
2. EXERCISE OF OPTION; TERM. (a) Grantee may exercise the Option, in
whole or part, at any time and from time to time following the occurrence of a
Purchase Event (as defined below); provided that the Option shall terminate and
be of no further force and effect upon the earliest to occur of:
(i) the time immediately prior to the Effective Time (as defined
in the Plan),
(ii) 12 months after the first occurrence of a Purchase Event,
(iii) 18 months after the termination of the Plan following the
occurrence of a Preliminary Purchase Event (as defined below),
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(iv) termination of the Plan in accordance with the terms thereof
prior to the occurrence of a Purchase Event or a Preliminary Purchase Event
(other than a termination of the Plan by Grantee pursuant to Section
6.1(b)(ii) thereof), or
(v) 18 months after the termination of the Plan by Grantee
pursuant to Section 6.1(b)(ii) thereof.
The events described in clauses (i) - (v) in the preceding sentence are
hereinafter collectively referred to as an "Exercise Termination Event."
(b) The term "Preliminary Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its subsidiaries (each an "Issuer
Subsidiary") without having received Grantee's prior written consent, shall
have entered into an agreement to engage in an Acquisition Transaction (as
defined below) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), and the rules and regulations thereunder) other
than Grantee or any of its subsidiaries (each a "Grantee Subsidiary") or
the Board of Directors of Issuer shall have recommended that the
shareholders of Issuer approve or accept any Acquisition Transaction with
any person other than Grantee or any Grantee Subsidiary. For purposes of
this Agreement, "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any Issuer
Subsidiary, (y) a purchase, lease or other acquisition of all or
substantially all of the assets of Issuer or any Issuer Subsidiary or (z) a
purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 10% or more of the
voting power of Issuer or any Issuer Subsidiary; provided that the term
"Acquisition Transaction" does not include any internal merger or
consolidation involving only Issuer and/or Issuer Subsidiaries;
(ii) Any person (other than Grantee or any Grantee Subsidiary)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the
term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Securities Exchange Act,
and the rules and regulations thereunder);
(iii) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its shareholders, by
public announcement or written communication that is or becomes the subject
of public disclosure, to engage in an Acquisition Transaction (including,
without limitation, any situation in which any person other than Grantee or
any subsidiary of Grantee (x) shall have commenced (as such term is defined
in Rule 14d-2 under the Securities Exchange Act), or (y) shall have filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with the Securities and Exchange Commission, with respect
to, a tender offer or exchange offer to purchase any shares of Common Stock
such that, upon consummation of such offer, such person would own or
control 10% or more of the then outstanding shares of Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange Offer",
respectively)); or
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(iv) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board") or
any other federal or state governmental authority or regulatory or
administrative agency or commission (each, a "Governmental Authority") for
approval to engage in an Acquisition Transaction.
Notwithstanding the foregoing, the beneficial ownership by any current
stockholders of Issuer of greater than 10% of voting stock of Issuer as of the
date of this Agreement shall not constitute a Preliminary Purchase Event.
(c) The term "Purchase Event" shall mean either of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person other than Grantee or any
Grantee Subsidiary of beneficial ownership of 25% or more of the then
outstanding Common Stock; or
(ii) The occurrence of a Preliminary Purchase Event described in
Section 2(b)(i) except that the percentage referred to in clause (z)
thereof shall be 25%; or
(iii) After a proposal is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction and after such
proposal any of the following events occurs:
(w) Issuer shall willfully have breached any covenant or
obligation contained in the Plan and such breach would
entitle Grantee to terminate the Plan;
(x) the holders of Common Stock shall not have approved the
Plan at the meeting of such shareholders held for the
purpose of voting on the Plan;
(y) the meeting of the shareholders held for the purpose of
voting on the Plan shall not have been held or shall
have been canceled prior to termination of the Plan; or
(z) Issuer's Board of Directors shall have withdrawn or
modified, in a manner adverse to Grantee, the
recommendation of Issuer's Board of Directors with
respect to the Plan.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Preliminary Purchase Event or Purchase Event; provided, however, that the
giving of such notice by Issuer to Grantee shall not be a condition to the right
of Grantee to exercise the Option.
(e) In the event that Grantee is entitled to and wishes to exercise
the Option, it shall send to Issuer a written notice (the "Option Notice" and
the date of which being
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hereinafter referred to as the "Notice Date") specifying (i) the total number of
shares of Common Stock it will purchase pursuant to such exercise and (ii) a
period of time (that shall not be less than three business days nor more than
thirty business days) running from the Notice Date (the "Closing Date") and a
place at which the closing of such purchase shall take place; provided, that, if
prior notification to or approval of the Federal Reserve Board or any other
Governmental Authority is required in connection with such purchase (each, a
"Notification" or an "Approval," as the case may be), (a) Grantee shall promptly
file the required notice or application for approval ("Notice/Application"), (b)
Grantee shall expeditiously process the Notice/Application and (c) for the
purpose of determining the Closing Date pursuant to clause (ii) of this
sentence, the period of time that otherwise would run from the Notice Date shall
instead run from the later of (x) in connection with any Notification, the date
on which any required notification periods have expired or been terminated and
(y) in connection with any Approval, the date on which such approval has been
obtained and any requisite waiting period or periods shall have expired. For
purposes of Section 2(a), any exercise of the Option shall be deemed to occur on
the Notice Date relating thereto. On or prior to the Closing Date, Grantee shall
have the right to revoke its exercise of the Option if the transaction
constituting a Purchase Event that gives rise to such right to exercise shall
not have been consummated.
(f) At the closing referred to in Section 2(e), Grantee shall pay to
Issuer the aggregate exercise price for the shares of Common Stock specified in
the Option Notice in immediately available funds by wire transfer to a bank
account designated by Issuer; provided, however, that failure or refusal of
Issuer to designate such a bank account shall not preclude Grantee from
exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), Issuer shall deliver to Grantee a
certificate or certificates representing the number of shares of Common Stock
specified in the Option Notice and, if the Option should be exercised in part
only, a new Option evidencing the rights of Grantee thereof to purchase the
balance of the shares of Common Stock purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder
shall be endorsed with a restrictive legend substantially as follows:
The transfer of the shares represented by this certificate is subject
to resale restrictions arising under the Securities Act of 1933, as
amended, and to certain provisions of an agreement between New
Hampshire Thrift Bancshares, Inc. and Landmark Bank ("Issuer") dated
as of the ___th day of July, 1996. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the Securities and Exchange
Commission (the "SEC") or an opinion of counsel, in form and substance
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been
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sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by Grantee to Issuer of an Option Notice and the
tender of the applicable purchase price in immediately available funds on the
Closing Date, Grantee shall be deemed to be the holder of record of the number
of shares of Common Stock specified in the Option Notice, notwithstanding that
the stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then actually be delivered to
Grantee. Issuer shall pay all expenses and any and all federal, state and local
taxes and other charges that may be payable in connection with the preparation,
issue and delivery of stock certificates under this Section 2 in the name of
Grantee.
3. CONDITIONS TO EXERCISE OF OPTION. Issuer agrees: (i) that it
shall at all times until the termination of this Agreement have reserved for
issuance upon the exercise of the Option that number of authorized and unissued
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, all of which shares will,
upon issuance pursuant hereto, be duly authorized, validly issued, fully paid,
nonassessable, and delivered free and clear of all claims, liens, encumbrances
and security interests and not subject to any preemptive rights; (ii) that it
will not, by amendment of its Amended Article of Agreement or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) promptly to take all action as may from time to time
be required (including (x) complying with all premerger notification, reporting
and waiting period requirements specified in the Federal Deposit Insurance Act,
the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and
regulations promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended ("BHC Act"), or the Change in Bank Control Act
of 1978, as amended, or any state banking law, prior approval of or notice to
the Federal Reserve Board or to any other Governmental Authority is necessary
before the Option may be exercised, cooperating with Grantee in preparing such
applications or notices and providing such information to each such Governmental
Authority as it may require) in order to permit Grantee to exercise the Option
and Issuer to issue shares of Common Stock duly and effectively pursuant hereto;
and (iv) to take all action provided herein to protect the rights of Grantee
against dilution.
4. AGREEMENT AND OPTION EXCHANGEABLE. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option"
as used herein include any agreements and related options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
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constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The number of shares
of Common Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as follows:
(a) If any change shall occur in the Common Stock by reason of stock
dividends, stock splits, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type and number of shares of
Common Stock purchasable upon exercise hereof shall be appropriately adjusted
and proper provision shall be made so that, if any additional shares of Common
Stock are to be issued or otherwise to become outstanding as a result of any
such change (other than pursuant to an exercise of the Option), the number of
shares of Common Stock that remain subject to the Option shall be increased so
that, after such issuance and together with shares of Common Stock previously
issued pursuant to the exercise of the Option (as adjusted on account of any of
the foregoing changes in the Common Stock), it equals 19.9% of the number of
shares of Common Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
6. REGISTRATION OF SHARES. (a) Upon the occurrence of a Purchase
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee (whether on its own behalf or on behalf of any subsequent
holder or holders of the Option (or parts thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare and file a registration
statement under the Securities Act or offering circular under the rules and
regulations of the Federal Deposit Insurance Corporation ("FDIC"), as
applicable, covering any shares issued and issuable pursuant to the Option and
shall use its best efforts to cause such registration statement or offering
circular to become effective, and to remain current and effective for a period
not in excess of 180 days from the day such registration statement or offering
circular first becomes effective, in order to permit the sale or other
disposition of any shares of Common Stock issued upon total or partial exercise
of the Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee; provided, however, that Issuer may postpone filing a
registration statement or offering circular relating to a registration request
by Grantee under this Section 6 for a period of time (not in excess of 30 days)
if in its judgment such filing would require the disclosure of material
information that Issuer has a bona fide business purpose for preserving as
confidential. Grantee shall have the right to demand [one] such registration.
The foregoing notwithstanding, if, at the time of any request by Grantee for
registration of Option Shares as provided above, Issuer is in the process of
registration with respect to an underwritten public offering of shares of Common
Stock, and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the offering or inclusion of the Option Shares would interfere
materially with the successful marketing of the shares of Common Stock offered
by Issuer, the number of Option Shares otherwise to be covered in the
registration statement or offering circular contemplated hereby may be reduced;
provided, however, that after any such required reduction, the number of Option
Shares to be included in such offering for the account
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of Grantee shall constitute at least 33 1/3% of the total number of shares
covered in such registration statement; provided further, however, that if such
reduction occurs, then Issuer shall file a registration statement or offering
circular for the balance as promptly as practicable thereafter as to which no
reduction pursuant to this Section 6(a) shall be permitted or occur and the
Grantee shall thereafter be entitled to one additional registration statement or
offering circular. Grantee shall provide all information reasonably requested
by Issuer for inclusion in any registration statement or offering circular to be
filed hereunder. In connection with any such registration, Issuer and Grantee
shall provide each other with representations, warranties, indemnities and other
agreements customarily given in connection with such registrations. If requested
by Grantee in connection with such registration, Issuer and Grantee shall become
a party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating themselves in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements. Notwithstanding the foregoing, if Grantee revokes any
exercise notice or fails to exercise any Option with respect to any exercise
notice pursuant to Section 2(e), Issuer shall not be obligated to continue any
registration process with respect to the sale of Option Shares issuable upon the
exercise of such Option and Grantee shall not be deemed to have demanded
registration of Option Shares.
(b) If at any time, and from time to time, the Issuer proposes to
prepare a registration statement or offering circular, the Issuer will give
prompt written notice to the Grantee of its intention to do so. Upon the
written request of the Grantee made within thirty (30) days after the receipt of
any such notice, the Issuer will include in the registration statement or
offering circular relating to such offering all securities that the Issuer has
been requested to include by the Grantee; provided, that if at any time after
giving written notice under this paragraph the Issuer shall determine for any
reason not to proceed with the proposed offering, the Issuer may, at its
election, give written notice of such determination to the Grantee and thereupon
shall be relieved of its obligations to the Grantee with respect to such
proposed offering under this paragraph (but not from its obligation to pay the
registration expenses in connection therewith). The Grantee shall be entitled
to withdraw its request for the inclusion of securities in an offering and
withdraw from the offering at any time before the time that the registration
statement is declared effective and the offering has commenced. The Grantee
shall have the right to request that its securities be included in the Issuer's
registration statement on four occasions.
(c) If Grantee requests Issuer to file a registration statement or
offering circular following the failure to obtain any approval required to
exercise the Option as described in Section 9, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to such
registration statement or offering circular shall occur substantially
simultaneously with the exercise of the Option.
7. MERGER, CONSOLIDATION, ETC. (a) In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate or merge with any person, other than Grantee or a Grantee
Subsidiary, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or a
Grantee Subsidiary, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding shares and share equivalents of the merged company,
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or (iii) to sell or otherwise transfer all or substantially all of its or any
Issuer Subsidiary's assets to any person, other than Grantee or a Grantee
Subsidiary, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (x) the Acquiring Corporation
(as defined below) or (y) any person that controls the Acquiring Corporation
(the Acquiring Corporation and any such controlling person being hereinafter
referred to as the "Substitute Option Issuer").
(b) The Substitute Option shall be exercisable for such number of
shares of the Substitute Common Stock (as is hereinafter defined) as is equal to
the Market/Offer Price (as defined below) multiplied by the number of shares of
the Issuer Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as is hereinafter defined). The exercise price of
the Substitute Option per share of the Substitute Common Stock (the "Substitute
Purchase Price") shall then be equal to the Option Price multiplied by a
fraction in which the numerator is the number of shares of the Issuer Common
Stock for which the Option was theretofore exercisable and the denominator is
the number of shares for which the Substitute Option is exercisable.
(c) The Substitute Option shall otherwise have the same terms as the
Option, provided that if the terms of the Substitute Option cannot, in the
written opinion of counsel for Substitute Option Issuer which shall be
reasonably acceptable to the Grantee, be the same as the Option, such terms
shall be as similar as possible and in no event less advantageous to Grantee.
(d) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of any consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or any substantial part
of the Issuer's assets (or the assets of a material Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued
by the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Average Price" shall mean the average daily closing price
of a share of the Substitute Common Stock for the one year period
immediately preceding the consolidation, merger or sale in question, but in
no event higher than the closing price of the shares of the Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the Average
Price shall be computed by reference to a share of common stock issued by
Issuer, the person merging into Issuer or by any company which controls or
is controlled by such merging person, as Grantee may elect.
(iv) "Market/Offer Price" shall mean the highest of (i) the
price per share of Common Stock at which a tender offer or exchange offer
therefor has been made after the date hereof, (ii) the price per share of
Common Stock paid or to be paid by any third party pursuant to an agreement
with Issuer (whether by way of a merger, consolidation or otherwise), (iii)
the highest last sale price for shares of Common Stock
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within the 360 day period ending on the date on which a tender offer or
exchange offer has been made, as the case may be, (iv) in the event of a
sale of all or substantially all of Issuer's assets, the sum of the price
paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
independent investment banking firm selected by Grantee or the Owner, as
the case may be, divided by the number of shares of Common Stock of Issuer
outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be the value
determined by a nationally recognized independent investment banking firm
selected by Grantee or the Owner, as the case may be, whose determination
shall be conclusive and binding on all parties.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding immediately prior to the
issuance of the Substitute Option. In the event that the Substitute Option would
be exercisable for more than 19.9% of the aggregate of the shares of Substitute
Common Stock but for this clause (e), the Substitute Option Issuer shall make a
cash payment to Grantee equal to the excess of (i) the value of the Substitute
Option without giving effect to the limitation in this clause (e) over (ii) the
value of the Substitute Option after giving effect to the limitation in the
clause (e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by Grantee and reasonably acceptable
to the Substitute Option Issuer.
8. EXTENSION OF EXERCISE PERIOD. Notwithstanding Sections 2 and 6,
if Grantee has given the notice referred to in one or more of such Sections, the
exercise of the rights specified in any such Section shall be extended (a) if
the exercise of such rights requires obtaining regulatory approvals (including
any required waiting periods) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and (b) to the extent necessary to
avoid any liability under Section 16(b) of the Securities Exchange Act by reason
of such exercise; provided that in no event shall any Closing Date occur more
than 2 months after the related Notice Date, and, if a Closing Date shall not
have occurred within such period due to the failure to obtain any required
approval by the Federal Reserve Board or any other Governmental Authority
despite the best efforts of Issuer or the Substitute Option Issuer, as the case
may be, to obtain such approvals, the exercise of the Option shall be deemed to
have been rescinded as of the related Notice Date. In the event (a) Grantee
receives official notice that an approval of the Federal Reserve Board or any
other Governmental Authority required for the purchase and sale of the Option
Shares will not be issued or granted or (b) a Closing Date has not occurred
within 12 months after the related Notice Date due to the failure to obtain any
such required approval, Grantee shall be entitled to exercise the Option in
connection with the resale of the Option Shares pursuant to a registration
statement as provided in Section 6. Nothing contained in this Agreement shall
restrict Grantee from specifying alternative means of exercising rights pursuant
to Sections 2 and 6 hereof in the event that the exercising of any such rights
shall not have occurred due to the failure to obtain any required approval
referred to in this Section 8.
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9. REPRESENTATIONS AND WARRANTIES. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has the requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the Board of
Directors of Issuer and no other corporate proceedings on the part of Issuer are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, Issuer, enforceable against
Issuer in accordance with its terms.
(b) Issuer has sufficient authorized but unissued shares available for
the exercise of the Option provided for herein and taken all necessary corporate
action to authorize, reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in accordance with its
terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued, fully
paid, non-assessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
10. ASSIGNMENT. (a) Neither of the parties hereto may assign any of
its rights or delegate any of its obligations under this Agreement or the Option
created hereunder to any other person without the express written consent of the
other party, except that Grantee may assign this Agreement to a wholly owned
subsidiary of Grantee and Grantee may assign its rights hereunder in whole or in
part after the occurrence of a Preliminary Purchase Event set forth in Section
2(b)(i) or a Purchase Event; provided, however, that until the date 30 days
following the date at which the Federal Reserve Board or other Governmental
Authority have approved an application by Grantee under the BHC Act or other
applicable law, to acquire the shares of Common Stock subject to the Option,
Grantee may not assign its rights under the Option except in (i) a widely
dispersed public distribution, (ii) a private placement in which no one party
acquires the right to purchase in excess of 2% of the voting shares of Issuer,
(iii) an assignment to a single party (e.g., a broker or investment banker) for
----
the purpose of conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Reserve Board or other
Governmental Authority. The term "Grantee" as used in this Agreement shall also
be deemed to refer to Grantee's assigns as permitted by this Section 10.
(b) Any assignment of rights of Grantee to any permitted assignee of
Grantee hereunder shall bear the restrictive legend at the beginning thereof
substantially as follows:
The transfer of the option represented by this assignment and the
related option agreement is subject to resale restrictions arising
under the Securities Act of 1933, as amended, or the rules and
regulations of the OTS, as applicable, and to certain provisions of an
agreement between New Hampshire Thrift Bancshares, Inc. and Landmark
Bank ("Issuer"), dated as of the 26th day of July, 1996. A copy of
such agreement is on file at the principal office of
C-10
<PAGE>
Issuer and will be provided to any permitted assignee of the Option
without charge upon receipt by Issuer of a written request therefor.
It is understood and agreed that (i) the reference to the resale restrictions of
the Securities Act in the above legend shall be removed by delivery of
substitute assignments without such reference if Grantee shall have delivered to
Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel,
in form and substance satisfactory to Issuer, to the effect that such legend is
not required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute assignments without such reference if the Option has been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such assignments shall
bear any other legend as may be required by law.
11. REASONABLE EFFORTS. Each of Grantee and Issuer will use its
reasonable efforts to make all filings with, and to obtain consents of, all
third parties and Governmental Authorities necessary to the consummation of the
transactions contemplated by this Agreement, including, without limitation,
making application, if necessary, for listing of the shares of Common Stock
issuable hereunder on the Nasdaq Stock Market and applying to the Federal
Reserve Board under the BHC Act or other Governmental Authority and to state
banking authorities for approval to acquire the shares issuable hereunder.
12. SPECIFIC PERFORMANCE. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement by either
party hereto and that the obligations of the parties hereto shall be enforceable
by either party hereto through injunctive or other equitable relief. Both
parties further agree to waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such equitable relief and that
this provision is without prejudice to any other rights that the parties hereto
may have for any failure to perform this Agreement.
13. VALIDITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that Grantee is not permitted to acquire, the full number of
shares of Common Stock provided in Section 1(a) (as adjusted pursuant hereto),
it is the express intention of Issuer to allow Grantee to acquire or to require
Issuer to repurchase such lesser number of shares as may be permissible, without
any amendment or modification hereof.
14. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, facsimile or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Plan.
15. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Hampshire without regard to
conflicts of laws principles.
C-11
<PAGE>
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement and shall be effective at the time
of execution.
17. EXPENSES. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
18. ENTIRE AGREEMENT. Except as otherwise expressly provided herein
or in the Plan, this Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
19. CAPITALIZED TERMS. Capitalized terms used in this Agreement and
not defined herein but defined in the Plan shall have the meanings assigned
thereto in the Plan.
20. DESCRIPTIVE HEADINGS. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
21. NO BREACH OF PLAN. Nothing contained in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Plan.
22. SELECTION BY GRANTEE OR OWNER. In the event that any selection
or determination is to be made by Grantee or the Owner hereunder and at the time
of such selection or determination there is more than one Grantee or Owner, such
selection shall be made by a majority in interest of such Grantees or Owners.
23. FURTHER ASSURANCES. In the event of any exercise of the option
by Grantee, Issuer and such Grantee shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.
24. NO SHAREHOLDER RIGHTS. Except to the extent Grantee exercises
the Option, Grantee shall have no rights to vote or receive dividends or have
any other rights as a shareholder with respect to shares of Common Stock covered
hereby.
C-12
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
By: /s/ Stephen W. Ensign
---------------------
Stephen W. Ensign
President and Chief Executive Officer
LANDMARK BANK
By: /s/ Paul P. Tierney
-------------------
Paul P. Tierney
President and Chief Executive Officer
C-13
<PAGE>
APPENDIX D
APPENDIX D
REGULATIONS OF THE COMPTROLLER OF THE CURRENCY
U.S. DEPARTMENT OF THE TREASURY
12 C.F.R. (S) 5.33(h)(3)(ii) (1996)
(h) Merger or consolidation of a national bank into a state-chartered
bank as defined in 12 U.S.C. 214(a) or into a Federal savings association--
* * *
(3) Special procedures for merger of consolidation with a Federal
savings association.
* * *
(ii) Rights of dissenting stockholders. A shareholder of a national
banking association who votes against the merger or consolidation, or who has
given notice in writing to the bank at or prior to such meeting that he or she
dissents from the plan, shall be entitled to receive in cash the value of the
shares he or she holds, if and when the merger or consolidation is consummated,
upon written request made to the resulting Federal savings association at any
time before thirty days after the date of consummation of such merger or
consolidation, accompanied by the surrender of his or her stock certificates.
The value of such shares shall be determined as of the date on which the
shareholders' meeting was held authorizing the merger or consolidation, by a
committee or three persons, one to be selected by majority vote of the
dissenting shareholders entitled to receive the value of their shares, one by
the directors of the resulting Federal savings association, and the third by the
two so chosen. The valuation agreed upon by any two of three appraisers thus
chosen shall govern; but, if the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment as provided herein, such
shareholder may within five days after being notified of the appraised value of
his or her shares appeal to the Office, which shall cause a reappraisal to be
made if the parties agree that such reappraisal shall be final and binding on
all parties as to the value of the shares of the appellant and also agree on how
the full expenses of the Office in making the reappraisal shall be divided among
the parties and paid to the Office. If, within ninety days from the date of
consummation of the merger or consolidation, for any reason one or more of the
appraisers is not selected as herein provided, or the appraisers fail to
determine the value of such shares, the Office shall upon written request of any
interested party, cause an appraisal to be made provided that the parties agree
that such appraisal shall be final and binding on all parties as to the value of
the shares of the appellant and also agree on how the full expenses of the
Office in making the appraisal shall be divided among the parties and paid to
the Office. The plan of merger or consolidation shall provide, consistent with
the requirements of the Office of Thrift Supervision, the manner of disposing of
the shares of the resulting Federal savings association not taken by the
dissenting shareholders of the national banking association.
D-1
<PAGE>
Appendix E
[ART]
ANNUAL REPORT 1995
=====================================
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
<PAGE>
New Hampshire Thrift Bancshares, Inc.
is the parent company for Lake Sunapee Bank,
fsb, a federal stock savings bank providing
financial services throughout central and
western New Hampshire.
The Bank encourages and supports the
personal and professional development of its
employees, dedicates itself to consistent
service of the highest level for all
customers, and recognizes its responsibility
to be an active participant in, and advocate
for, community growth and prosperity.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Selected Financial Highlights......... 3
Report to Shareholders................ 4
Management's Discussion and Analysis.. 7
Report of Independent Accountants..... 23
Financial Statements.................. 24
Notes to Financial Statements......... 28
Form 10-K............................. 47
Officers and Managers................. 60
Board of Directors.................... 60
Information on Common Stock........... 61
Shareholder Information............... 61
</TABLE>
2
<PAGE>
=============================
Selected Financial Highlights
<TABLE>
<CAPTION>
For the Periods Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C>
Net Income $ 1,245 $ 1,582 $ 1,525
Earnings Per Share (1) $ .73 $ .93 $ .88
Dividends Declared $ .50 $ .50 $ .375
Dividend Payout Ratio 68.49% 53.76% 42.61%
Return on Average Assets .54% .71% .74%
Return on Average Equity 6.95% 8.76% 8.43%
<CAPTION>
As of December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C>
Total Assets $ 258,216 $ 233,363 $ 207,105
Total Deposits $ 199,971 $ 194,533 $ 176,716
Total Securities $ 28,415 $ 20,363 $ 17,998
Net Loans $ 208,169 $ 193,810 $ 172,834
Federal Home Loan Bank Advances $ 26,936 $ 15,211 $ 5,441
Shareholders' Equity (2) $ 19,544 $ 18,253 $ 18,387
Book Value of Shares Outstanding $ 11.57 $ 10.92 $ 11.01
Average Equity to Average Assets 7.72% 8.15% 8.76%
Shares Outstanding 1,689,503 1,670,986 1,669,303
Number of Branch Locations 10 10 8
</TABLE>
(1) See Note 1 to Consolidated Financial Statements regarding earnings per
share.
(2) See Note 14 to Consolidated Financial Statements regarding the issuance of
common stock.
3
<PAGE>
REPORT TO SHAREHOLDERS
The underlying
- --------------------
culture of the Bank
- --------------------
has been, and
- --------------------
continues to be,
- --------------------
deeply rooted in the
- --------------------
ongoing development
- --------------------
of our employees.
- --------------------
Nineteen ninety-five represented a year of strategic implementation as
we moved to fully support our geographically enhanced banking franchise and to
expand upon the early successes of the developing loan origination network.
Continuing to identify areas of opportunity for future growth, we have remained
committed to developing a long-term plan that will provide for an even greater
level of customer satisfaction through the nurturing of relationship banking.
Consolidated net income at year-end 1995 was $1,244,823, or $0.73 per
share. This compares to $1,582,250, or $0.93 per share, for the most previous
year-end. This change in earnings reflects both the transfer of more than one
million dollars to the loan loss provision and the anticipated impact associated
with the opening of two new offices at the end of 1994. Net interest income
continued to rise, increasing by nearly $400,000 over the prior twelve-month
period. As detailed within the Management Discussion and Analysis section
following this report, positive changes were experienced in a number of areas.
Total assets on December 31, 1995 stood at $258,216,077, up more than
10.00% over the 1994 year-end of $233,362,786. Shareholders' equity stood at
$19,544,055, or 7.57% of total assets, resulting in a year-end book value of
$11.57 per share. In all cases, the Company continues to be considered well
capitalized by any applicable standard.
During 1995, the Company built and sold the last of 11 units at the
Highland Ridge condominium development that was taken over from the original
developer in 1990. Additionally, a continuing effort was made to liquidate other
properties from our real estate owned portfolio, ending the year with total non-
performing assets of just over $2,400,000, down more than $800,000 over year-end
1994.
With our name change behind us, two new offices fully operational and
four loan originators on-the-road, your Company entered 1995 ready to begin the
next step of building upon both new and existing customer relationships. The
underlying culture of the Bank has been, and continues to be, deeply rooted in
the ongoing development of our employees. While the myriad of products and
services available from banks can become almost mind-boggling, it is the
individuals working in the Bank that bring 'added-value' to a customer
relationship and help to distinguish one financial institution from another.
This, then, is the basis for a strategic planning process that will see us move
firmly into the next century. Customers must be able to identify with the bank
and its personnel and respond positively to a level of personal service that
will not only complement, but
4
<PAGE>
expand upon, the technological efficiencies of the future.
Commitment continues for the support and development of our Total
Quality Banking program which is now integrated into the daily activities of the
Bank. This past year, each department within the Bank has worked to develop
their own 'mission statement', which is now being followed by an internal
'service guarantee' program to ensure that the principles behind quality service
become second-nature to our already dedicated staff. Further to this, numerous
educational seminars and self-development programs were planned and conducted
throughout the year that included such topics as business writing, financial
statement analysis, time management and computer training for Windows, Word and
Excel. When coupled with the opening of a new Education Center located in the
Main Office in Newport, these efforts have proven to be both well attended and
well received. As individuals recognize that teamwork is the essence of working
together towards a common goal, then increases in efficiency and profitability
will be the natural by-product.
A lingering issue, still yet to be resolved at this writing, is the
anticipated special deposit insurance assessment by the Federal Deposit
Insurance Corporation to fully re-capitalize the Savings Association Insurance
Fund. While it was hoped by all involved that this assessment of up to 85 basis
points on deposits would have been imposed during the last quarter of 1995, it
was made part of the passage of the federal budget and, as such, has been
delayed. This will be handled as a direct charge to earnings in 1996, but the
corresponding decrease in annual deposit insurance premiums will clearly enhance
earnings on a prospective basis.
As in previous years, asset quality remains of utmost concern to the
Company. The weekly monitoring of both existing credits, as well as the new
loans coming into the portfolio, has proven to be a valuable tool in the
management of risk and resulted, once again, in an acknowledgment of these
efforts by the Office of Thrift Supervision during their most recent annual
examination. During 1995, both a Safety & Soundness and a Compliance Examination
were conducted and we are pleased to report to you that the Bank continues to
receive its high-quality rating.
With an eye to the future, a technology committee now meets regularly to
assess not only the strengths and weaknesses of our existing in-house, on-line
data processing system, but more importantly to initiate the development of a
longer-term planning process that will lead us to the integration of the much
wider variety of products and services now being talked and written about in
almost every media source. We feel that the more traditional branching structure
It is the individuals
- ---------------------
working in the Bank
- ---------------------
that bring 'added-
- ---------------------
value' to a customer
- ---------------------
relationship.
- ---------------------
5
<PAGE>
We will remain open
- ----------------------
to seeking out those
- ----------------------
opportunities and
- ----------------------
avenues that will
- ----------------------
provide greater
- ----------------------
returns over time
- ----------------------
and reflect positively
- ----------------------
in your return on
- ----------------------
investment and
- ----------------------
increase in
- ----------------------
shareholder value.
- ----------------------
need not be at odds with the looming wave of technological advances. Our
current branch network, ten offices in all, serves as a valuable link in the
development and maintenance of complete customer relationships and the offering
of personalized services. It is clear that many day-to-day transactions can be
more quickly and efficiently managed within the impersonal world of the
computer, ATM machines and so-called 'Smart-Cards', but it is also realized
that, as part of a comprehensive delivery system for products and services, our
branching network will continue to be the backbone of a profitable and
successful franchise.
The strategic planning process focuses on the elements of the inter-
relationship between customers, employees, products, delivery systems, equipment
and capital. To weave these threads together within the framework of our own
corporate culture requires the full commitment of both the Board and Management.
As we continue our efforts to build upon our strengths, we also want to
recognize you, the shareholder, as an important part of the process and pledge
to you that we will remain open to seeking out those opportunities and avenues
that will provide greater returns over time and reflect positively in your
return on investment and increase in shareholder value.
We wish to acknowledge the hard work and commitment of both our
employees and directors and to express our sincere appreciation for the support
and confidence shown by both our customers and shareholders.
John J. Kiernan
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
Stephen W. Ensign
President and
Chief Executive Officer
Stephen R. Theroux
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
6
<PAGE>
======================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
The Company's profitability is derived from its only subsidiary, Lake
Sunapee Bank, fsb (the "Bank"). The Bank's earnings in turn are generated from
the difference between the yield on its loan and investment portfolios and the
cost of its deposit accounts and borrowings. These core earnings are
supplemented by loan origination fees, retail banking service fees, and gains on
security transactions.
In 1995, the Company earned $1,244,823, or $.73 per share, compared to
$1,582,250, or $.93 per share in 1994. Earnings declined because the Bank added
to the allowance for loan losses in an effort to rebuild the allowance in the
wake of several unexpected loan write-offs. As a result, the Bank needed to add
$1,170,395 to the allowance for loan losses. The Bank also took on in excess of
$300,000 in new overhead in order to cover the expansion program implemented
during the fourth quarter of 1994. The Bank opened two branches and expanded its
outside loan origination team. The Bank expects the growth in assets experienced
during 1995 to generate the earnings needed to cover the increased expenditures.
During January 1996, the Bank entered into a purchase and sale agreement
to sell a piece of land adjacent to the New London branch. Although the sale is
subject to the town of New London's Planning Board's approval for a sub-division
and certain other contingencies, the Bank is confident the sale will be
completed during the second quarter of 1996. The Bank expects to realize an
after-tax gain of approximately $200,000.
As mentioned on page five in the "Report to Shareholders," the United
States Congress is currently debating the Federal budget for 1996. This has
delayed passage of the resolution of the Savings Association Insurance Fund.
When passed, the Bank expects to incur a one-time after-tax expense in the range
of $800,000 to $1,100,000.
FINANCIAL CONDITION
Total assets increased by $24,853,291, or 10.65% from $233,362,786 to
$258,216,077. This increase was fueled by an increase of $11,900,293, or 5.99%
in total loans from $198,776,032 to $210,676,325. The table on page 54
illustrates the maturities of the loan portfolio at December 31, 1995. Real
estate loans increased by $10,109,807, or 6.09% from $166,043,664 to
$176,153,471. The Bank also increased the level of loans sold into the secondary
market by approximately $18,000,000 due to the increased origination of fixed
rate mortgage loans. At December 31, 1995, the Bank had $43,433,158 in its
servicing portfolio. As a result of the sale of fixed rate loans, the percentage
of loans to assets dropped to 81.59% from 85.18%. The Bank expects to continue
to sell fixed rate loans into the secondary market under the current favorable
interest rate environment.
Investments increased by $6,799,146, or 31.67% to $28,266,003 from
$21,466,857 (at amortized cost). The Bank's U.S. Treasury Bond portfolio
accounted for 73.14% of the increase. U.S. Treasuries amounted to $11,994,795 at
December 31, 1995 compared to $7,022,116 at December 31, 1994. The Bank's net
unrealized gain of $148,596 at December 31, 1995, compares to last year's net
unrealized loss of $1,104,067, and reflects the year-long drop in interest rates
and the resultant rise in bond values.
Real estate owned and property acquired in settlement of loans decreased
by $520,695, or 34.60% to $984,185. This total includes $765,408, which
represents the value for the remaining eight lots at Blye Hill Landing in
Newbury, NH. During 1995, seven properties totaling $1,065,166, were sold. This
includes the last unit at Highland Ridge, a real-estate development in New
London, NH.
Deposits increased by $5,437,855, or 2.80% to $199,970,921 from
$194,533,066. Customers continued to place funds in Certificates of Deposit with
46.6% of total CD versus 40.2% last year. Repurchase agreements increased
$5,954,918 to $9,552,825, as commercial customers utilized the Bank's sweep
account in an effort to maximize their return on overnight deposits. Competition
continues to be intense from mutual funds as a record number of funds flowed
into the mutual fund market.
Advances from the Federal Home Loan Bank (FHLB) increased by $11,725,374,
or 77.09% to $26,936,168 from $15,210,794. The Bank utilized the FHLB's lower
costing Community Investment Program to fund approximately $15,000,000 of
qualifying loans.
7
<PAGE>
======================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
These funds were applied retroactively to loans made from January 1, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain a 5% ratio of liquid assets to net
withdrawable funds. At year-end 1995, the Bank's ratio of 11.92% exceeded
regulatory requirements for long-term liquidity.
The Bank's source of funds comes primarily from net deposit inflows, loan
amortizations, principal pay downs from loans, sold loan proceeds, and advances
from the FHLB. At December 31, 1995, the Bank had approximately $51,000,000 in
additional borrowing capacity from the FHLB.
At December 31, 1995, the Company's shareholders' equity totaled
$19,544,005, or 7.57% of total assets, compared to $18,252,874 or 7.82% of total
assets at year-end 1994. The increase of $1,291,131 reflects net income of
$1,244,823, the payment of $839,413 in common stock dividends, the repurchase of
14,968 shares of stock at a cost of $144,015, the exercise of 33,485 of stock
options in the amount of $146,497, a gain of $56,978 on the sale of treasury
stock, and the recording of $97,594 in net unrealized gains on securities
classified as available for sale. As interest rates moved downward throughout
1995, the Bank's bond portfolio increased in value. Although the Bank normally
intends to hold these bonds to maturity, past practice has been to sell bonds
under certain circumstances. Accordingly, the bonds are classified as available
for sale. These bonds are "marked-to-market" causing the unrealized gain to be
recorded, net of the effect of income taxes, in shareholders' equity.
On January 24, 1996, the Bank received authorization from the Office of
Thrift Supervision to dividend $1,000,000 to the Company. As a result of this
transaction, approximately $17.5 million in capital remains at the Bank level,
and $2.1 million at the Company. During 1995, $1,000,000 was paid from the Bank
to the Company.
Net cash provided by operating activities was $1,243,025 in 1995 versus
$2,650,704 in 1994. This change is attributable to a receivable of approximately
$1.2 million from the disposition of available for sale securities as of
December 31, 1995. Proceeds were received January 2, 1996.
Net cash flows from investing activities amounted to negative $20,810,142
in 1996 compared to negative $26,903,386 in 1994. The majority of the change was
due to a change of $6,154,999 in loans made to customers.
In 1995, net cash provided by financing activities was $22,306,826
compared to $25,676,716 in 1994. As mentioned above, the Bank utilized the
FHLB's advance program and an increase in customer deposits to finance the
Bank's investing activities.
The Bank expects to be able to fund loan demand and other investing
activities during 1996 by continuing to use the FHLB's advance program, as well
as funds provided from customer deposits. Management is not aware of any trends,
events, or uncertainties that will have or that are reasonably likely to have a
material effect in the Company's liquidity, capital resources or results of
operations.
As part of the Financial Institution Reform, Recovery, and Enforcement Act
of 1989 (FIRREA), banks are required to maintain core capital, leverage ratio,
and total risk based capital of 4.00%, 4.00%, and 8.00%, respectively. As of
December 31, 1995, the Bank's ratios were 7.08%, 7.08%, and 11.88%,
respectively, well in excess of the regulators' requirements.
Book value per share was $11.57 at December 31, 1995 versus $10.92 per
share at December 31, 1994. The recognition of the unrealized gain on the Bank's
bond portfolio accounted for $.49 of the increase.
IMPACT OF INFLATION
The financial statements and related data are prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars and
current market value, for certain loans and investments, without considering
changes in the relative purchasing power of money over time due to inflation.
Unlike other companies, virtually all of the assets and liabilities of a
bank are monetary in nature. As a result, interest rates have a far more
significant impact on a bank's performance than the effects of the general level
of inflation. Interest rates do not necessarily move in the same direction or
with the same magnitude as the price of goods and services, since such prices
are affected by inflation. In the
8
<PAGE>
======================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
current interest rate environment, liquidity and the maturity structure of the
Bank's assets and liabilities are important to the maintenance of acceptable
performance levels.
INTEREST RATE SENSITIVITY
Management has continued to utilize asset/liability management as a
strategy in monitoring the interest rate risk. The strategy of matching
rate-sensitive assets with similar liabilities stabilizes profitability during
periods of interest rate fluctuations.
The Bank's one-year Gap at December 31, 1995 was -6.69%, compared to the
December 31, 1994 Gap position of -7.57%. The Bank continues to offer adjustable
rate mortgages which reprice at one, three, and five year intervals. In
addition, from time to time, the Bank sells fixed-rate mortgages into the
secondary market in order to minimize interest rate risk.
The Bank's Gap, of approximately negative seven percent at December 31,
1995, means net interest income would increase if interest rates trended
downward. The opposite would occur if interest rates were to rise. Management
feels that maintaining the Gap within ten points of the parity line provides
adequate protection against severe interest rate swings. In an effort to
maintain the Gap within ten points of parity, the Bank utilizes the Federal Home
Loan Bank advance program to control the repricing of a segment of liabilities.
At December 31, 1995, the Bank's interest earning assets scheduled to
reprice within one year or less totaled $128.8 million, or 53.55% of earning
assets compared to $109.9 million, or 50.03% of earning assets at December 31,
1994. At December 31, 1995, interest bearing liabilities, which were scheduled
to reprice within one year, amounted to $144.9 million, or 64.25% of interest
bearing liabilities as compared to $126.5 million, or 61.66% of interest bearing
liabilities as of December 31, 1994.
NET INTEREST INCOME
Net interest income for the year ended December 31, 1995 increased by
$371,956, or 4.96%, to $7,867,986. The increase can be attributed to the
increased volume of the Bank's loan portfolio. Total interest income increased
by $2,923,897, or 20.11%, with 56.29% attributed to the increase in volume, and
43.71% related to the change in interest rates.
Total interest expense increased $2,551,941, or 36.22%, with 52.66.%
attributed to the increased volume of both deposits and FHLB advances, and
47.34% related to interest rates. Despite the drop in interest rates, the Bank's
cost of funds increased to 4.50% during 1995 from 3.67% in 1994, because of the
Bank's lag in increasing rates paid on deposit accounts during 1994. As a
result, the Bank's spread decreased to 3.08% at December 31, 1995 compared to
3.33% at December 31, 1994. The Bank does not anticipate further erosion of its
spread.
The following table sets forth the average yield on loans and investments, the
average interest rate paid on deposits and borrowings, the net interest rate
margin, and the net yield on interest earning assets for the periods indicated:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yield on loans 7.71% 7.10% 7.49% 8.68% 10.15%
Yield on investment securities 6.53% 6.14% 5.68% 6.65% 7.46%
Combined yield on loans and
investments 7.58% 7.00% 7.28% 8.42% 9.85%
Cost of deposits 4.27% 3.63% 3.81% 4.76% 6.53%
Cost of borrowings 6.42% 4.29% 4.55% 8.00% 8.08%
Combined cost of deposits and
borrowings 4.50% 3.67% 3.83% 4.88% 6.64%
Interest rate spread 3.08% 3.33% 3.45% 3.54% 3.21%
Net interest margin 3.42% 3.61% 3.75% 3.79% 3.48%
</TABLE>
9
<PAGE>
======================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following table shows the Bank's interest rate sensitivity table at December
31, 1995:
<TABLE>
<CAPTION>
0-3 3-6 6 MONTHS- 1-3 BEYOND
MONTHS MONTHS 1 YEAR YEARS 3 YEARS TOTAL
--------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning
assets:
Loans $ 32,449 $ 20,811 $ 60,267 $ 51,157 $ 44,169 $ 208,846
Investments 9,559 2,168 3,560 9,977 6,450 31,714
--------------------------------------------------------------------
Total $ 42,008 $ 22,979 $ 63,827 $ 61,134 $ 50,619 $ 240,560
--------------------------------------------------------------------
Interest bearing
liabilities:
Deposits $ 69,828 $ 22,696 $ 31,033 $ 34,907 $ 30,572 $ 189,036
Repurchase
agreements 9,553 - - - - 9,553
Borrowings 4,400 7,400 - 14,706 430 26,936
--------------------------------------------------------------------
Total $ 83,781 $ 30,096 $ 31,033 $ 49,613 $ 31,002 $ 225,525
--------------------------------------------------------------------
Period sensitivity
gap $ (41,773) $ (7,117) $ 32,794 $ 11,521 $ 19,617 $ 15,035
Cumulative
sensitivity $ (41,773) $ (48,890) $ (16,096) $ (4,575) $ 15,035 $ 15,035
Cumulative
sensitivity
gap as a percent of
earning assets -17.36% -20.32% -6.69% -1.90% 6.25% 6.25%
</TABLE>
Note: The Bank has used industry decay formulae in establishing repricing
periods for savings and NOW accounts.
10
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following table presents, for the periods indicated, the total dollar amount
of interest income from earning assets and the resultant yields as well as the
interest paid on interest bearing liabilities, and the resultant costs:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993
------------------------------------------------------------------------
AVERAGE (1) YIELD/ AVERAGE (1) YIELD/ AVERAGE (1) YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning
assets:
Loans (2) $205,548 $ 15,846 7.71% $186,651 $ 13,251 7.10% $171,739 $ 12,855 7.49%
Investment
securities and
other (3) 24,790 1,620 6.53% 21,033 1,292 6.14% 21,729 1,234 5.68%
----------------- ------------------ ------------------
Total interest
earning
assets 230,338 17,466 7.58% 207,684 14,543 7.00% 193,468 14,089 7.28%
----------------- ------------------ ------------------
Non-interest
earning assets:
Cash 5,976 5,782 4,972
Other
non-interest earning
assets (4) 8,285 7,512 7,801
-------- -------- --------
Total
non-interest earning
assets 14,261 13,294 12,773
-------- -------- --------
Total $244,599 $220,978 $206,241
======== ======== ========
Liabilities and
Shareholders'
Equity:
Interest bearing
liabilities:
Savings deposits $ 96,698 $ 2,855 2.95% $107,592 $ 2,996 2.78% $102,397 $ 2,964 2.89%
Time deposits 88,310 5,065 5.74% 68,250 3,344 4.90% 67,804 3,526 5.20%
Repurchase 4,702 177 3.76% 2,218 115 5.18% 2,882 96 3.33%
agreements
Other borrowed
funds 23,388 1,501 6.42% 13,815 592 4.29% 5,498 250 4.55%
----------------- ------------------ ------------------
Total interest
bearing
liabilities 213,098 9,598 4.50% 191,875 7,047 3.67% 178,581 6,836 3.83%
----------------- ------------------ ------------------
Non-interest bearing
liabilities:
Demand deposits 7,050 7,005 5,865
Other 5,570 4,028 3,724
-------- -------- --------
12,620 11,033 9,589
Shareholders' Equity 18,881 18,070 18,071
-------- -------- --------
Total $244,599 $220,978 $206,241
======== ======== ========
Net interest
income/interest
rate spread $ 7,868 3.08% $ 7,496 3.33% $ 7,253 3.45%
================ ================ ================
Net earning
balance/net yield
on earning
assets $ 17,240 3.42% $ 15,809 3.61% $ 14,887 3.75%
======================== ========================== ==========================
</TABLE>
(1) Monthly average balances have been used for all periods. Management does not
believe that the use of month-end balances instead of daily average balances
caused any material difference in the information presented.
(2) Loans include 90 day delinquent loans which have been placed on a
non-accruing status. Management does not believe that including the 90 day
delinquent loans in loans caused any material difference in the information
presented.
(3) Investment securities and other includes tax -exempt investment securities.
Management does not believe that including tax exempt investment securities in
investments securities and other caused any material difference in the
information presented.
(4) Other non-interest earning assets includes non-earning assets and real
estate owned.
11
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following table sets forth, for the periods indicated, a summary of the
changes in interest earned and interest paid resulting from changes in volume
and rates. The net change attributable to changes in both volume and rate, which
cannot be segregated, has been allocated proportionately to the change due to
volume and the change due to the rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 VS. 1994
INCREASE (DECREASE)
DUE TO
VOLUME RATE TOTAL
---------------------------
($ in thousands)
<S> <C> <C> <C>
Interest income on loans $ 1,404 $ 1,192 $ 2,596
Interest income on investments 242 86 328
-------------------------------
Total interest income 1,646 1,278 2,924
-------------------------------
Interest expense on savings deposits (356) 215 (141)
Interest expense on time deposits 1,087 634 1,721
Interest expense on repurchase agreements 83 (20) 63
Interest expense on borrowings 530 379 909
-------------------------------
Total interest expense 1,344 1,208 2,552
-------------------------------
Net interest income $ 302 $ 70 $ 372
===============================
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 VS. 1993
INCREASE (DECREASE)
DUE TO
VOLUME RATE TOTAL
----------------------------
($ in thousands)
<S> <C> <C> <C>
Interest income on loans $ 990 $ (594) $ 396
Interest income on investments (39) 97 58
-------------------------------
Total interest income 951 (497) 454
-------------------------------
Interest expense on savings deposits 130 (98) 32
Interest expense on time deposits 23 (205) (182)
Interest expense on repurchase agreements (13) 32 19
Interest expense on borrowings 355 (13) 342
-------------------------------
Total interest expense 495 (284) 211
-------------------------------
Net interest income $ 456 $ (213) $ 243
===============================
</TABLE>
12
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
PROVISION FOR LOAN LOSSES
The Bank considers many factors in determining the allowance for loan
losses. These include the risk and size characteristics of loans, the prior
years' loss experience, the levels of delinquencies, the prevailing economic
conditions, the number of foreclosures, unemployment rates, interest rates, and
the value of collateral securing the loans. No changes were made to the Bank's
procedures with respect to maintaining the loan loss allowances as a result of
any regulatory examinations. Additionally, the Bank's commercial loan officers
review the financial condition of commercial loan customers on a monthly basis
and perform visual inspections of facilities and inventories. The Bank also has
an internal audit and compliance program. Results of the audit and compliance
programs are reported directly to the Audit Committee of the Bank's Board of
Directors.
The allowance for loan loss at December 31, 1995 was $1,828,060, compared
to $2,752,885 at year-end 1994. The allowance in 1995 includes $628,060 in
specific reserves for loans classified as loss, and $1,200,000 in general
reserves as compared to $1,045,301 and $1,707,584 in 1994, respectively. As a
result of charge-offs in 1995, the Bank expensed to the provision for loan
losses $1,163,710 in 1995, compared to $761,555 in 1994. Included in the 1995
charge-offs were three loans, amounting to approximately $1 million which were
not previously reserved for. The allowance represented 0.87% of total loans at
year-end 1995 versus 1.38% at year-end 1994. The allowance for loan losses as a
percentage of non-performing assets was 75.36% at December 31, 1995 compared to
85.46% at December 31, 1994. The allowance for loan losses as a percentage of
non-performing assets (less real estate owned) and troubled debt restructured
was 96.88% at December 31, 1995 compared to 67.91% at December 31, 1994. Please
refer to Note 4 "Loans receivable", in the Consolidated Financial Statements for
information regarding SFAS 114 and 118.
Loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention do not result from trends or uncertainties which the Bank
reasonably expects will materially impact future operating results, liquidity,
or capital resources.
As of December 31, 1995, there were no other loans not included in the
table or discussed above where known information about the possible credit
problems of borrowers caused management to have doubts as to the ability of the
borrower to comply with present loan repayment terms and which may result in
disclosure of such loans in the future.
Total classified loans, excluding special mention, as of December 31, 1995
and 1994 were $6,049,066 and $9,183,751 respectively. Of this amount, $2,425,650
and $3,221,313 are included in non-performing assets for the respective years.
Loans classified as 90 day delinquent increased to $1,144,293, which includes
$1,132,475 of conventional real estate loans, at December 31, 1995 compared to
$23,825 at December 31, 1994. Since the bulk of delinquents are comprised of
well-secured loans, the Bank does not anticipate material losses in the event
these loans were to result in foreclosure. Further, given the fact that loans
classified as special mention decreased by 34% and total non-performers
decreased by 25%, the Bank's loan loss reserves are considered adequate despite
the decrease in the reserve total. The local economy has remained stable and
there are no known trends or uncertainties which would negatively impact the
local region. However, the Bank intends to maintain a conservative posture in
funding reserves and expects to expense approximately $825,000, to the provision
for loan losses during 1996.
13
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following table sets forth the breakdown of non-performing loans:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
90 Day delinquent loans (1) $ 1,144,293 $ 23,825 $ 288,663 $ 152,692 $ 1,205,120
Non-earning assets (2) 297,172 1,692,608 501,408 1,388,864 1,380,392
Real estate owned 984,185 1,504,880 1,854,047 2,736,845 4,875,540
------------------------------------------------------------
Total non-performing assets $ 2,425,650 $3,221,313 $2,644,118 $4,278,401 $ 7,461,052
============================================================
Troubled debt restructured $ 445,417 $2,337,058 $3,466,820 $4,391,549 $ 4,023,903
============================================================
</TABLE>
(1) All loans 90 days or more delinquent are placed on a non-accruing status.
(2) Loans considered to be uncollectible, pending foreclosure, or in bankruptcy
proceeding, are placed on a non-earning status.
The following table sets forth 90 day delinquent loans by category:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans -
Conventional $ 1,132,475 $ - $ 288,663 $ 152,692 $ 839,159
Construction - 23,825 - - 241,323
Consumer loans 3,983 - - - -
Commercial and municipal loans 7,835 - - - 124,638
Other loans - - - - -
-------------------------------------------------------------
Total $ 1,144,293 $ 23,825 $ 288,663 $ 152,692 $1,205,120
=============================================================
</TABLE>
The following table sets forth the allocation of the loan loss valuation
allowance and the percentage of loans in each category to total loans as of
December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
loans -
Conventional $ 687,547 83% $ 726,959 81% $ 853,710 79% $ 1,258,635 79% $ 699,678 80%
Construction 201,257 1,598,266 2% 1,245,382 2% 670,378 1% 1,316,247 1%
Collateral and
consumer
loans 8,067 12% 5,464 12% 22,907 14% 10,684 15% 50,141 16%
Commercial and
municipal
loans 276,526 4% 422,196 4% 252,002 5% 155,234 4% 223,457 2%
Impaired loans 654,663 1% N/A N/A N/A N/A
Other - - 1% - - 1% - 1%
----------------------------------------------------------------------------------------
Valuation
allowance $1,828,060 100% $2,752,885 100% $ 2,374,001 100% $ 2,094,931 100% $2,289,523 100%
========================================================================================
Valuation
allowance
as a percentage
of total
loans .87% 1.38% 1.35% 1.22% 1.38%
========================================================================================
</TABLE>
14
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
OTHER INCOME AND EXPENSE
Total non-interest income decreased by $121,676, or 7.81% to $1,435,556.
Customer service fees increased by $202,541, or 23.65% to $1,058,868. Loan
origination fees decreased by $205,541 due to the effect of a one-time
adjustment to loan fees made in 1994 as a result of a computer conversion.
Total non-interest expense increased $304,552, or 5.09% to $6,291,009. The
Bank's opening of two branches and the expansion of its loan origination network
during the second half of 1994 created a full year of expenditures for these
items and resulted in the increase.
FAS 109-ACCOUNTING FOR INCOME TAXES
Effective December 31, 1993, the Bank adopted FAS No. 109, "Accounting for
Income Taxes," which requires that deferred tax assets and liabilities be
measured based on the enacted tax rates. Statement No. 109 also requires that
deferred tax assets be reduced by a valuation allowance if it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. As a result of adopting FAS 109, there is no effect on the
consolidated financial statements as of December 31, 1993, and no allowance is
required against the deferred tax debit. The provision for income taxes for the
years ended December 31, 1995, 1994 and 1993 includes net deferred income tax
expense of $324,909, $75,000, and $64,391, respectively. These amounts were
determined by the deferred method in accordance with generally accepted
accounting principles for each year.
The Bank has provided deferred income taxes on the difference between the
provision for loan losses permitted for income tax purposes and the provision
recorded for financial reporting purposes.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
NET INTEREST INCOME
Net interest income for the year ended December 31, 1994 was $7,496,030,
compared to $7,254,098 for 1993, an increase of $241,932, or 3.34%. The increase
was the result of increased volume of the Bank's loan portfolio.
Total interest income increased $453,044, or 3.22%, with over 200% of the
increase attributed to the change in volume.
Interest expense increased $211,112, or 3.09%, with over 230% attributed
to increased balances on customer deposits and FHLB advances.
PROVISION FOR LOAN LOSSES
The allowance for loan losses was $2,752,885 for the year ended December
31, 1994, compared to $2,374,001 at year-end 1993. Charge-offs were $396,116 for
1994, and $1,119,720 for 1993. The allowance as a percentage of total loans was
1.38% at year-end 1994 versus 1.35% from 1993. Non-performing assets increased
to $3,221,313, or 1.38% of total assets for 1994 compared to $2,644,118, or
1.28% of total assets for year-end 1993.
OTHER INCOME AND EXPENSE
Total non-interest income decreased by $349,835, or 18.34% to $1,557,232.
Most significant was the decrease of $463,359 in the net gain on the sale of
investment securities. As interest rates fell during 1993, the value of the
Bank's bond portfolio grew, creating opportunities for capital gains.
Total operating expenses increased $458,946 to $5,986,457, reflecting the
Bank's opening of two branches and expansion of the loan origination team.
15
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
CONSOLIDATED QUARTERLY AVERAGE BALANCES (1) AND INTEREST RATES
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE COST BALANCE COST BALANCE COST
-------------- -------------- -------------- ----------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning
assets:
Loans (2) $205,548 8.05% $201,858 8.17% $197,074 7.91% $ 191,928 7.69%
Investment
securities and
other (3) 24,790 7.83% 22,548 6.59% 22,382 7.25% 21,418 6.67%
-------- -------- -------- ---------
Total interest
earning
assets 230,338 8.03% 224,406 8.01% 219,456 7.85% 213,346 7.58%
-------- -------- -------- ---------
Non-interest
earning assets:
Cash 5,976 5,994 5,744 5,795
Other non-
interest earning
assets (4) 8,285 8,271 7,970 7,792
-------- -------- -------- ---------
Total non-
interest earning
assets 14,261 14,265 13,714 13,587
======== ======== ======== =========
Total $244,599 $238,671 $233,170 $ 226,933
======== ======== ======== =========
Liabilities and
Shareholders'
Equity:
Interest bearing
liabilities:
Savings deposits $ 96,698 2.89% $ 99,712 2.78% $104,243 2.74% $ 106,558 1.65%
Time deposits 88,310 6.26% 83,762 6.27% 78,496 6.38% 73,114 4.88%
Repurchase
agreements 4,702 5.28% 3,815 6.32% 2,521 4.69% 2,149 .05%
Other borrowed
funds 23,388 7.34% 20,931 7.01% 18,295 9.12% 16,068 7.14%
-------- -------- -------- ---------
Total interest
bearing
liabilities 213,098 4.83% 208,220 4.68% 203,555 4.74% 197,889 4.40%
-------- -------- -------- ---------
Non-interest bearing
liabilities:
Demand deposits 7,050 6,846 6,913 6,892
Other 5,570 5,016 4,364 4,010
-------- -------- -------- ---------
12,620 11,862 11,277 10,902
Shareholders' Equity 18,881 18,589 18,338 18,142
======== ======== ======== =========
Total $244,599 $238,671 $233,170 $ 226,933
======== ======== ======== =========
Net interest
income/interest
rate spread 3.20% 3.33% 3.11% 3.18%
===== ===== ===== =====
Net earning
balance/net yield
on earning
assets $ 17,240 3.56% $ 16,186 3.67% $ 15,901 3.45% $ 15,457 3.51%
================ =============== ============== =================
</TABLE>
(1) Monthly average balances have been used for all periods. Management does not
believe that the use of month-end balances instead of daily average balances
caused any material difference in the information presented.
(2) Loans include 90 day delinquent loans which have been placed on a
non-accruing status. Management does not believe that including the 90 day
delinquent loans in loans caused any material difference in the information
presented.
(3) Investment securities and other includes tax -exempt investment securities.
Management does not believe that including tax exempt investment securities in
investments securities and other caused any material difference in the
information presented.
(4) Other non-interest earning assets includes non-earning assets and real
estate owned.
16
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
CONSOLIDATED QUARTERLY AVERAGE BALANCES (1) AND INTEREST RATES
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------------
4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE COST BALANCE COST BALANCE COST
---------------- ------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning
assets:
Loans (2) $186,651 7.64% $181,722 7.46% $177,058 7.29% $173,946 7.06%
Investment
securities and
other (3) 21,033 6.94% 20,582 6.98% 20,397 6.84% 20,302 5.33%
-------- -------- -------- --------
Total interest
earning
assets 207,684 7.57% 202,304 7.41% 197,455 7.14% 194,248 6.88%
-------- -------- -------- --------
Non-interest
earning assets:
Cash 5,782 5,662 5,743 5,321
Other non-interest
earning assets (4) 7,512 7,328 7,380 7,381
-------- -------- -------- --------
Total non-interest
earning assets 13,294 12,990 13,123 12,712
-------- -------- -------- --------
Total $220,978 $215,294 $210,578 $206,950
======== ======== ======== ========
Liabilities and
Shareholders'
Equity:
Interest bearing
liabilities:
Savings deposits $107,592 2.95% $107,027 3.12% $104,702 2.71% $103,914 2.52%
Time deposits 68,250 5.53% 65,324 5.11% 64,118 5.00% 64,740 4.71%
Repurchase
agreements 2,218 5.39% 2,604 4.06% 3,029 2.66% 2,905 3.18%
Other borrowed
funds 13,815 5.51% 11,679 4.17% 10,051 7.22% 7,145 5.40%
-------- -------- -------- --------
Total interest
bearing
liabilities 191,875 4.08% 186,634 3.90% 181,900 3.77% 178,704 3.44%
-------- -------- -------- --------
Non-interest bearing
liabilities:
Demand deposits 7,005 6,817 6,587 6,169
Other 4,028 3,759 3,996 3,942
-------- -------- -------- --------
11,033 10,576 10,583 10,111
Shareholders'
Equity 18,070 18,084 18,095 18,135
-------- -------- -------- --------
Total $220,978 $215,294 $210,578 $206,950
======== ======== ======== ========
Net interest
income/interest
rate spread 3.49% 3.51% 3.37% 3.43%
====== ====== ====== ======
Net earning
balance/net yield
on earning
assets $ 15,809 3.80% $ 15,670 3.82% $ 15,555 3.67% $ 15,544 3.71%
=============== =============== =============== ===============
</TABLE>
(1) Monthly average balances have been used for all periods. Management does not
believe that the use of month-end balances instead of daily average balances
caused any material difference in the information presented.
(2) Loans include 90 day delinquent loans which have been placed on a
non-accruing status. Management does not believe that including the 90 day
delinquent loans in loans caused any material difference in the information
presented.
(3) Investment securities and other includes tax -exempt investment securities.
Management does not believe that including tax exempt investment securities in
investments securities and other caused any material difference in the
information presented.
(4) Other non-interest earning assets includes non-earning assets and real
estate owned.
17
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
CONSOLIDATED QUARTERLY AVERAGE BALANCES (1) AND INTEREST RATES
<TABLE>
<CAPTION>
1993
---------------------------------------------------------------
4TH QUARTER 3RD QUARTER 2ND QUARTER 1ST QUARTER
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE COST BALANCE COST BALANCE COST
-------------- -------------- -------------- --------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning
assets:
Loans (2) $171,739 7.23% $170,310 7.37% $169,853 7.75% $168,842 7.86%
Investment
securities and
other (3) 21,729 5.22% 23,282 5.23% 24,088 4.83% 24,616 5.77%
-------- -------- -------- --------
Total interest
earning
assets 193,468 7.01% 193,592 7.12% 193,941 7.39% 193,458 7.60%
-------- -------- -------- --------
Non-interest
earning assets:
Cash 4,972 4,706 4,313 4,093
Other
non-interest earning
assets (4) 7,801 8,588 9,277 9,999
-------- -------- -------- --------
Total
non-interest earning
assets 12,773 13,294 13,590 14,092
-------- -------- -------- --------
Total $206,241 $206,886 $207,531 $207,550
======== ======== ======== ========
Liabilities and
Shareholders'
Equity:
Interest bearing
liabilities:
Savings deposits $102,397 2.70% $100,844 3.01% $ 98,812 3.05% $ 96,895 3.15%
Time deposits 67,804 4.62% 71,017 4.50% 74,300 4.95% 76,397 5.39%
Repurchase
agreements 2,882 5.11% 2,627 4.01% 2,443 1.95% 2,249 3.61%
Other borrowed
funds 5,498 5.47% 5,104 5.12% 5,216 2.66% 6,071 4.74%
-------- -------- -------- --------
Total interest
bearing
liabilities 178,581 3.55% 179,592 3.67% 180,771 3.81% 181,612 4.15%
-------- -------- -------- --------
Non-interest bearing
liabilities:
Demand deposits 5,865 5,624 5,380 5,151
Other 3,724 3,642 3,379 2,819
-------- -------- -------- --------
9,589 9,266 8,759 7,970
Shareholders' Equity 18,071 18,028 18,001 17,968
-------- -------- -------- --------
Total $206,241 $206,886 $207,531 $207,550
======== ======== ======== ========
Net interest
income/interest
rate spread 3.46% 3.45% 3.58% 3.45%
====== ====== ====== ======
Net earning
balance/net yield
on earning
assets $14,887 3.73% $ 14,000 3.71% $ 13,170 3.84% $ 11,846 3.70%
=============== =============== =============== ===============
</TABLE>
(1) Monthly average balances have been used for all periods. Management does not
believe that the use of month-end balances instead of daily average balances
caused any material difference in the information presented.
(2) Loans include 90 day delinquent loans which have been placed on a
non-accruing status. Management does not believe that including the 90 day
delinquent loans in loans caused any material difference in the information
presented.
(3) Investment securities and other includes tax -exempt investment securities.
Management does not believe that including tax exempt investment securities in
investments securities and other caused any material difference in the
information presented.
(4) Other non-interest earning assets includes non-earning assets and real
estate owned.
18
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
AS OF DECEMBER 31, 1995 1994 1993 1992 1991
-----------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $ 258,216 $ 233,363 $ 207,105 $ 208,981 $ 203,229
Net loans 208,169 193,810 172,834 166,967 162,053
Total securities 28,415 20,363 17,998 23,680 22,450
Deposits 199,971 194,533 176,716 182,404 172,671
Advances from Federal Home
Loan Bank 26,936 15,211 5,441 3,000 8,000
Shareholders' equity 19,544 18,253 18,387 18,036 17,645
<CAPTION>
OPERATING DATA:
YEAR ENDED DECEMBER 31, 1995 1994 1993 1992 1991
------------------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest on loans $ 15,846 $ 13,251 $ 12,855 $ 14,530 $ 17,060
Interest on
investments 1,620 1,291 1,234 1,659 1,577
-------------------------------------------------------------
Total interest
income 17,466 14,542 14,089 16,189 18,637
Interest expense: 9,598 7,046 6,835 8,902 12,057
-------------------------------------------------------------
Net interest
income 7,868 7,496 7,254 7,287 6,580
Provision for loan losses,
net 1,164 762 1,373 2,165 895
Other income:
Gain (loss) on sale of
investments (89) 36 499 960 150
Other income 1,525 1,521 1,408 1,272 1,108
-------------------------------------------------------------
Total other income 1,436 1,557 1,907 2,232 1,258
Other expense:
Salaries and benefits 2,917 2,861 2,404 2,334 2,529
Occupancy expense 1,196 1,101 1,083 1,180 963
Other expenses 2,178 2,024 2,040 2,004 2,219
-------------------------------------------------------------
Total other
expense 6,291 5,986 5,527 5,518 5,711
-------------------------------------------------------------
Income before income taxes 1,849 2,305 2,261 1,836 1,232
Applicable income taxes 604 723 736 642 397
-------------------------------------------------------------
Net income $ 1,245 $ 1,582 $ 1,525 $ 1,194 $ 835
=============================================================
PER SHARE DATA:
Earnings per common
share $ .73 $ .93 $ .88 $ .68 $ .45
Cash dividends
declared on
common stock $ .50 $ .50 $ .375 $ .35 $ .14
Weighted average
number of
common shares
outstanding 1,699,536 1,693,259 1,731,185 1,762,966 1,836,154
FINANCIAL RATIOS:
Return on average
assets .54% .71% .74% .58% .40%
Return on average
shareholders'
equity 6.95% 8.76% 8.43% 6.56% 4.59%
Dividend payout ratio 68.49% 53.76% 42.61% 51.47% 31.11%
Average equity to
average assets 7.72% 8.15% 8.76% 8.69% 8.80%
</TABLE>
19
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
1995 QUARTERLY DATA
<TABLE>
<CAPTION>
-------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 4,137 $ 4,122 $ 3,899 $ 3,688
Interest and dividends on
investments 486 371 406 357
-------------------------------------------------
Total interest income 4,623 4,493 4,305 4,045
Interest expense:
Interest on deposits 2,160 2,084 1,990 1,863
Interest on borrowed
funds 432 370 416 283
-------------------------------------------------
Total interest
expense 2,592 2,454 2,406 2,146
-------------------------------------------------
Net interest income 2,031 2,039 1,899 1,899
Provision for loan losses, net 336 248 280 300
-------------------------------------------------
Net interest income
after provision
for loan losses 1,695 1,791 1,619 1,599
Other income:
Net gain (loss) on sale of
investments (57) (53) 15 6
Other income 496 338 314 377
-------------------------------------------------
Total other income 439 285 329 383
Other expense 1,506 1,522 1,565 1,698
-------------------------------------------------
Income before income taxes 628 554 383 284
Provision for income taxes 201 183 126 94
-------------------------------------------------
Net income $ 427 $ 371 $ 257 $ 190
=================================================
Earnings per common share (1) $ .25 $ .22 $ .15 $ .11
Annualized returns (2)
Return on average assets .54% .49% .38% .33%
Return on average
shareholders'
equity 6.95% 6.35% 4.87% 4.17%
</TABLE>
(1) Earnings per common share are calculated by dividing net earnings by the
average common shares outstanding for each quarter. Therefore, the sum of
earnings per common share may not equal total earnings per share for the year.
(2) Returns are based on annualized net earnings.
20
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
1994 QUARTERLY DATA
<TABLE>
<CAPTION>
-------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 3,564 $ 3,389 $ 3,228 $ 3,069
Interest and dividends on
investments 365 359 298 270
-------------------------------------------------
Total interest income 3,929 3,748 3,526 3,339
Interest expense:
Interest on deposits 1,780 1,709 1,528 1,437
Interest on borrowed
funds 192 123 181 96
-------------------------------------------------
Total interest
expense 1,972 1,832 1,709 1,533
-------------------------------------------------
Net interest income 1,957 1,916 1,817 1,806
Provision for loan losses, net 149 373 166 74
-------------------------------------------------
Net interest income
after provision
for loan losses 1,808 1,543 1,651 1,732
Other income:
Net gain (loss) on sale of
investments 2 68 6 (40)
Other income 336 517 343 325
-------------------------------------------------
Total other income 338 585 349 285
Other expense 1,616 1,534 1,427 1,409
-------------------------------------------------
Income before income taxes 530 594 573 608
Provision for income taxes 137 196 189 201
-------------------------------------------------
Net income $ 393 $ 398 $ 384 $ 407
=================================================
Earnings per common share (1) $ .23 $ .23 $ .23 $ .24
Annualized returns (2)
Return on average assets .71% .73% .75% .79%
Return on average
shareholders' equity 8.76% 8.77% 8.75% 9.00%
</TABLE>
(1) Earnings per common share are calculated by dividing net earnings by the
average common shares outstanding for each quarter. Therefore, the sum of
earnings per common share may not equal total earnings per share for the year.
(2) Returns are based on annualized net earnings.
21
<PAGE>
========================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
1993 QUARTERLY DATA
<TABLE>
<CAPTION>
-------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 3,106 $ 3,139 $ 3,291 $ 3,319
Interest and dividends on
investments 283 305 291 355
-------------------------------------------------
Total interest income 3,389 3,444 3,582 3,674
Interest expense:
Interest on deposits 1,522 1,597 1,679 1,787
Interest on borrowed
funds 76 66 37 71
-------------------------------------------------
Total interest
expense 1,598 1,663 1,716 1,858
-------------------------------------------------
Net interest income 1,791 1,781 1,866 1,816
Provision for loan losses, net 68 404 421 480
-------------------------------------------------
Net interest income
after provision
for loan losses 1,723 1,377 1,445 1,336
Other income:
Net gain (loss) on sale of
investments (43) 148 106 288
Other income 326 344 420 318
-------------------------------------------------
Total other income 283 492 526 606
Other expense 1,429 1,287 1,394 1,418
-------------------------------------------------
Income before income taxes 577 582 577 524
Provision for income taxes 163 181 214 178
=================================================
Net income $ 414 $ 401 $ 363 $ 346
=================================================
Earnings per common share (1) $ .24 $ .23 $ .21 $ .20
Annualized returns (2)
Return on average assets .74% .74% .68% .66%
Return on average
shareholders'
equity 8.43% 8.46% 7.88% 7.68%
</TABLE>
(1) Earnings per common share are calculated by dividing net earnings by the
average common shares outstanding for each quarter. Therefore, the sum of
earnings per common share may not equal total earnings per share for the year.
(2) Returns are based on annualized net earnings.
22
<PAGE>
[LETTERHEAD OF BERRY, DUNN, MCNEIL & PARKER]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New Hampshire Thrift Bancshares, Inc. and subsidiaries
We have audited the accompanying consolidated statement of financial condition
of New Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31,
1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the year ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated statement of financial
condition of New Hampshire Thrift Bancshares, Inc. and subsidiaries as of
December 31, 1994 and the consolidated statements of income, changes in
stockholders' equity, and cash flows for the two years then ended were audited
by Smith, Batchelder & Rugg whose report, dated January 24, 1995, expressed an
unqualified opinion on those statements. Included in Notes 3 and 4 to the
financial statements is information included in New Hampshire Thrift Bancshares,
Inc. and subsidiaries financial statements as of December 31, 1993, 1992 and
1991, upon which Smith, Batchelder & Rugg issued their unqualified opinions
dated January 21, 1994 and January 22, 1993.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31, 1995, and
the results of their operations and their cash flows for the year ended December
31, 1995, in conformity with generally accepted accounting principles.
/s/ Berry, Dunn, McNeil & Parker
Lebanon, New Hampshire
January 19, 1996
23
<PAGE>
[LETTERHEAD OF SMITH, BATCHELDER & RUGG]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
New Hampshire Thrift Bancshares, Inc. and subsidiaries:
We have audited the accompanying consolidated statements of financial condition
of New Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1994, 1993
and 1992. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for the years
ended December 31, 1994, 1993 and 1992, in conformity with generally accepted
accounting principles.
/s/ Smith, Batchelder & Rugg
Lebanon, New Hampshire
January 24, 1995
24
<PAGE>
==================================================
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,544,297 $ 7,197,588
Federal funds sold 3,449,000 1,056,000
Securities available for sale 25,718,260 18,518,562
Securities held to maturity 393,054 445,832
Other investments 2,303,285 1,398,396
Loans held for sale 3,095,971 3,753,657
Loans receivable, net 205,073,080 190,056,444
Accrued interest receivable 1,433,882 1,058,442
Bank premises and equipment, net 5,955,394 5,944,349
Real estate owned and property acquired in
settlement of loans 984,185 1,504,880
Non-earning assets 297,172 1,692,608
Other assets 1,968,497 736,028
-----------------------------------
Total assets $ 258,216,077 $ 233,362,786
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 199,970,921 $ 194,533,066
Repurchase agreements 9,552,825 3,597,907
Advances from Federal Home Loan Bank 26,936,168 15,210,794
Accrued expense and other liabilities 2,212,158 1,768,145
-----------------------------------
Total liabilities 238,672,072 215,109,912
-----------------------------------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - -
Common stock, $.01 par value, 1,689,503 shares
outstanding as of December 31, 1995 and 1,670,986
as of December 31, 1994 21,473 21,473
Paid-in capital 13,160,382 13,103,404
Retained earnings 8,673,504 8,268,094
Unrealized gain (loss) on securities available for
sale, net of $51,000 of deferred taxes in 1995,
and $375,400 of deferred tax benefit in 1994 97,594 (728,667)
-----------------------------------
21,952,953 20,664,304
Treasury stock, at cost, 457,779 shares as of
December 31, 1995 and 476,296 shares as of
December 31, 1994 (2,408,948) (2,411,430)
-----------------------------------
Total shareholders' equity 19,544,005 18,252,874
-----------------------------------
Total liabilities and shareholders' equity $ 258,216,077 $ 233,362,786
===================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
25
<PAGE>
=====================================
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans $ 15,846,308 $ 13,250,592 $ 12,855,492
Interest and dividends on investments 1,620,025 1,291,844 1,233,900
-------------------------------------------
Total interest income 17,466,333 14,542,436 14,089,392
-------------------------------------------
INTEREST EXPENSE
Interest on deposits 8,096,851 6,454,599 6,585,255
Interest on advances and other borrowed
money 1,501,496 591,807 250,039
-------------------------------------------
Total interest expense 9,598,347 7,046,406 6,835,294
-------------------------------------------
Net interest income 7,867,986 7,496,030 7,254,098
PROVISION FOR LOAN LOSSES, net 1,163,710 761,555 1,372,674
-------------------------------------------
Net interest income after
provision for loan losses 6,704,276 6,734,475 5,881,424
-------------------------------------------
OTHER INCOME
Loan origination fees 89,632 295,173 279,030
Customer service fees 1,058,868 856,327 729,042
Net gain (loss) on sale of securities
and bank property (88,827) 35,706 499,065
Rental income 227,885 220,460 207,661
Brokerage service income 110,705 149,566 174,452
Other income 37,293 - 17,817
-------------------------------------------
Total other income 1,435,556 1,557,232 1,907,067
-------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 2,917,180 2,861,435 2,403,985
Occupancy expenses 1,195,834 1,101,198 1,082,501
Advertising and promotion 162,745 154,382 169,189
Depositors' insurance 440,439 406,630 409,687
Outside services 333,361 350,812 403,858
Other expenses 1,241,450 1,112,000 1,058,291
-------------------------------------------
Total other expenses 6,291,009 5,986,457 5,527,511
-------------------------------------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 1,848,823 2,305,250 2,260,980
PROVISION FOR INCOME TAXES 604,000 723,000 736,000
-------------------------------------------
NET INCOME $ 1,244,823 $ 1,582,250 $ 1,524,980
===========================================
Earnings per common share $ .73 $ .93 $ .88
===========================================
Dividends declared per common share $ .50 $ .50 $ .375
===========================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
26
<PAGE>
==============================================================
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance, beginning and end of year $ 21,473 $ 21,473 $ 21,473
========================================
PAID-IN CAPITAL
Balance, beginning of year $ 13,103,404 $ 13,069,785 $ 13,010,657
Gain on sale of treasury stock, at cost 56,978 33,619 59,128
----------------------------------------
Balance, end of year $ 13,160,382 $ 13,103,404 $ 13,069,785
=======================================
RETAINED EARNINGS
Balance, beginning of year $ 8,268,094 $ 7,516,147 $ 6,621,200
Net income 1,244,823 1,582,250 1,524,980
Cash dividends paid (839,413) (830,303) (630,033)
---------------------------------------
Balance, end of year $ 8,673,504 $ 8,268,094 $ 7,516,147
=======================================
UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE FOR SALE
Balance, beginning of year $ (728,667)$ 95,857 $ 131,136
Adjustment to fair value 1,252,661 (1,199,924) (35,279)
Effect of change in deferred taxes (426,400) 375,400 -
---------------------------------------
Balance, end of year $ 97,594 $ (728,667)$ 95,857
=======================================
TREASURY STOCK
Balance, beginning of year $ (2,411,430)$ (2,316,293)$ (1,607,383)
Shares repurchased, (14,968 shares in 1995,
20,900 shares in 1994, and 103,366
shares in 1993) (144,015) (193,938) (884,712)
Exercise of stock options, (33,485 shares in
1995 and 22,583 shares in 1994, and
40,269 shares in 1993) 146,497 98,801 175,802
---------------------------------------
Balance, end of year $ (2,408,948)$ (2,411,430)$ (2,316,293)
=======================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
27
<PAGE>
=========================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,244,823 $ 1,582,250 $ 1,524,980
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 435,467 435,124 476,166
Loans originated for sale (18,911,177) (7,431,617) (21,482,025)
Proceeds from sale of loans 18,874,886 7,355,527 21,502,025
(Gain) loss from sale of loans 36,291 76,090 (20,000)
(Gain) loss from sale of premises and
equipment 14,603 (2,955) (58,840)
(Gain) loss from sale of debt securities
available for sale 3,957 (1,760) (310,275)
(Gain) loss from sale of equity securities
available for sale 33,975 (65,499) (33,948)
Gain from sale of other real estate owned - (41,581) (76,001)
Provision for loan losses 1,163,710 761,555 1,372,674
Provision for deferred taxes 324,909 75,000 64,391
(Increase) decrease in accrued interest and
other assets (1,718,404) 96,149 873,737
Increase (decrease) in deferred loan fees (138,396) (198,762) 24,217
Increase (decrease) in accrued expenses and
other liabilities (121,619) 11,183 353,693
-----------------------------------------
Net cash provided by operating
activities 1,243,025 2,650,704 4,210,794
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of premises and
equipment 84,400 31,119 193,408
Capital expenditures (545,515) (952,379) (421,562)
Proceeds from sale of debt securities
available for sale 3,723,564 999,609 15,092,502
Proceeds from sale of equity securities
available for sale 794,170 713,223 232,603
Principal reduction on securities held to
maturity 52,778 51,389 50,000
Purchase of securities available for sale (13,211,517) (9,006,732) (12,552,286)
Purchase of other investments (385,289) - -
(Purchase) sale of Federal Home Loan Bank
stock (519,600) (124,900) 110,300
Maturities of securities available for sale 2,665,000 3,725,000 3,200,000
Net increase in loans to customers (15,384,264) (21,539,263) (7,262,640)
(Increase) decrease in non-earning assets 1,395,436 (1,191,200) 887,456
Decrease in real estate owned 520,695 390,748 957,953
-----------------------------------------
Net cash provided by (used in)
investing activities (20,810,142) (26,903,386) 487,734
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits and
repurchase agreements 11,392,773 16,829,556 (4,920,536)
Increase in advances from Federal Home
Loan Bank 11,725,374 9,770,015 2,440,779
Net change in other borrowed money (31,368) (31,034) (29,773)
Payments to acquire treasury stock (144,015) (193,938) (884,712)
Dividends paid (839,413) (830,303) (630,033)
Proceeds from exercise of stock options 203,475 132,420 234,930
-----------------------------------------
Net cash provided by (used in)
financing activities 22,306,826 25,676,716 (3,789,345)
-----------------------------------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,739,709 1,424,034 909,183
-----------------------------------------
CASH AND CASH EQUIVALENTS, beginning
of year 8,253,588 6,829,554 5,920,371
-----------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 10,993,297 $ 8,253,588 $ 6,829,554
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION Cash paid during the period for:
Interest on deposit accounts $ 8,677,030 $ 6,343,205 $ 6,726,349
Interest on advances and other borrowed
money 1,418,043 553,577 239,772
-----------------------------------------
Total interest paid $ 10,095,073 $ 6,896,782 $ 6,966,121
=========================================
Income taxes $ 363,879 $ 701,986 $ 232,860
=========================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Transfers from loans to real estate acquired
through foreclosure $ 320,000 $ 305,717 $ 620,532
=========================================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
28
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS - The Bank operates ten branches primarily in
Grafton, Sullivan, and Merrimack Counties in west central New Hampshire.
Although the Bank has a diversified portfolio, a substantial portion of its
debtors' abilities to honor their contracts is dependent on the economic health
of the region. Its primary source of revenue is providing loans to customers who
are predominately small and middle-market businesses and middle-income
individuals.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of New Hampshire Thrift Bancshares, Inc. (NHTB, a unitary
holding company), Lake Sunapee Bank, fsb (LSB, a federal stock savings bank),
Lake Sunapee Group, Inc. (LSGI), and Lake Sunapee Financial Services Corp.
(LSFSC). LSB is owned by the holding company and the other entities are
wholly-owned subsidiaries of LSB. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Bank considers federal funds sold and due from banks to be cash equivalents.
SECURITIES HELD TO MATURITY - Bonds, notes, and debentures which the
Bank has the positive intent and ability to hold to maturity are reported at
cost, adjusted for premiums and discounts recognized in interest income using
the interest method over the period to maturity. Declines that are other than
temporary in the fair value of individual held to maturity securities below
their cost result in write-downs of the individual securities to their fair
value. No write-downs have occurred for securities held to maturity.
SECURITIES AVAILABLE FOR SALE - Available for sale securities consist
of bonds, notes, debentures, and certain equity securities. Unrealized holding
gains and losses, net of tax, on available for sale securities are reported as a
net amount in a separate component of shareholders' equity until realized. Gains
and losses on the sale of available for sale securities are determined using the
specific-identification method. Declines that are other than temporary in the
fair value of individual available for sale securities below their cost have
resulted in write-downs of the individual securities to their fair value. The
related write-downs of $76,590 have been included in earnings as realized losses
for the year ended 1995. There were no related write-downs for the years 1994
and 1993.
OTHER INVESTMENTS - Other investments are investments which do not have
readily determinable fair values. These types of investments are reported at
cost and are evaluated for other than a temporary decline in value. Other than
temporary declines in value result in write-downs of the individual security. No
write-downs have occurred for securities which are classified as other
investments.
LOANS RECEIVABLE - Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment to the yield of the related loan. The accrual of
interest on impaired loans is discontinued when a loan becomes more than 90 days
delinquent. When the interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received. The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is an estimate based on the
Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic conditions.
This material estimate and the estimate of real estate acquired in connection
with foreclosures are particularly susceptible to significant change in the near
term. In connection with the determination of the allowance for loan losses and
the carrying value of real estate owned, management obtains independent
appraisals for significant properties to arrive at its evaluation. For
impairment recognized in accordance with Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," the entire change in present value of
expected cash flows is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported.
29
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
LOANS HELD FOR SALE - Mortgage loans originated and intended for sale
in the secondary market are carried at the lower of cost or estimated market
value in the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income. No losses have been recorded.
REAL ESTATE OWNED AND PROPERTY ACQUIRED IN SETTLEMENT OF LOANS - At the
time of foreclosure, the Bank records the repossessed property at the lower of
fair value minus estimated costs to sell or the outstanding balance of the loan.
All properties are periodically reviewed and declines in the value of the
property are charged against income.
BANK PREMISES AND EQUIPMENT - Bank premises and equipment are stated at
cost, less accumulated depreciation. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets. Expenditures for replacements or major improvements are capitalized;
expenditures for normal maintenance and repairs are charged to expense as
incurred. Upon the sale or retirement of bank premises and equipment, the cost
and accumulated depreciation are removed from the respective accounts and any
gain or loss is included in income.
EARNINGS PER SHARE - Earnings per share are calculated using the
weighted average number of shares outstanding at the end of the year plus common
stock equivalents, as appropriate, resulting from the granting of incentive
stock options (Notes 10 and 14). Common stock equivalents are determined using
the treasury method. Common stock equivalents are not included in the
computation of earnings per share if they have an antidilutive effect. The
number of shares used in computing earnings per share was 1,699,536, 1,693,259,
and 1,731,185 for the years ended December 31, 1995, 1994 and 1993,
respectively.
INCOME TAXES - Deferred income taxes are provided in amounts sufficient
to give effect to temporary differences between financial and tax reporting for
deferred loan origination fees, unrealized loss on securities available for
sale, provision for loan losses and depreciation.
APPLE COMPUTER PROGRAM - During 1988, the Bank offered depositors an
Apple computer as an inducement to open a certificate of deposit. The cost of
acquiring these computers has been treated as a prepayment of interest and is
being amortized over the period to maturity of the deposit accounts. In the
event of early withdrawal, the prorated value of the prepayment will be deducted
from unpaid interest and principal at the time of withdrawal. As of December 31,
1995 and 1994, other assets include $115,431 and $169,237, respectively, of
unamortized computer costs.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and
assumptions were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
Cash and short-term instruments - The carrying amounts of cash and
short-term instruments approximate their fair value.
Available for sale and held to maturity securities - Fair values for
available for sale securities, are based on quoted market prices. The
carrying values of held to maturity and other investments approximate
fair values.
Loans receivable - For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for all other loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using discounted
cash flow analyses or underlying collateral values, where applicable.
Deposit liabilities - The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The carrying amounts
of variable-rate, fixed term money-market accounts and certificates of
deposits (CD's) approximate their fair values at the reporting date.
Fair values for fixed-rate CD's are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on
time deposits.
Borrowings - The carrying amounts of federal funds purchased, and other
borrowings maturing within 90 days approximate their fair values. Fair
values of other borrowings are estimated using discounted cash flow
analyses based on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
Accrued interest - The carrying amounts of accrued interest approximate
their fair values.
Off-balance sheet instruments - Fair values for loan commitments have
not been presented as the future revenue derived from such financial
instruments is not significant.
30
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain amounts in the 1994 and 1993 consolidated
financial statements have been reclassified to conform to the current year's
presentation.
NOTE 2. DEFERRED LOAN ORIGINATION FEES:
The Bank follows the provisions of Statement of Financial Accounting
Standards (FAS) No. 91, "Accounting for Non-refundable Fees and Costs Associated
with Originating or Acquiring Loans and Initial Direct Costs of Leases." As of
December 31, 1995 and 1994, the Bank has deferred net loan fees of $382,042 and
$520,438, respectively, which will be recognized as an adjustment to yield over
the life of the related loans.
31
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SECURITIES:
The amortized cost and approximate market value of securities are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------
GROSS GROSS
FAIR UNREALIZED UNREALIZED AMORTIZED
VALUE GAIN LOSS COST
--------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
Bonds and notes -
Municipal bonds $ 393,054 $ - $ $ 393,054
--------------------------------------------------------
Total held to maturity 393,054 - - 393,054
--------------------------------------------------------
Available for sale:
Bonds and notes -
U. S. Treasury Notes 12,139,529 147,900 3,166 11,994,795
U. S. Government, including
agencies 2,724,130 33,249 40 2,690,921
Other bonds and debentures 9,352,476 104,119 38,416 9,286,773
--------------------------------------------------------
24,216,135 285,268 41,622 23,972,489
Equity securities 1,502,125 11,750 106,800 1,597,175
--------------------------------------------------------
Total available for sale 25,718,260 297,018 148,422 25,569,664
--------------------------------------------------------
Other investments:
Federal Home Loan Bank
stock 1,861,000 - - 1,861,000
Other securities 442,285 - - 442,285
--------------------------------------------------------
Total other investments 2,303,285 - - 2,303,285
--------------------------------------------------------
Total securities $ 28,414,599 $ 297,018 $ 148,422 $ 28,266,003
========================================================
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------------
GROSS GROSS
FAIR UNREALIZED UNREALIZED AMORTIZED
VALUE GAIN LOSS COST
--------------------------------------------------------
<S>
Held to maturity:
Bonds and notes -
Municipal bonds $ 445,832 $ - $ - $ 445,832
--------------------------------------------------------
Total held to maturity 445,832 - - 445,832
--------------------------------------------------------
Available for sale:
Bonds and notes -
U. S. Treasury Notes 6,687,185 - 334,931 7,022,116
U. S. Government, including
agencies 1,127,404 - 39,893 1,167,297
Other bonds and debentures 8,725,898 3,573 379,355 9,101,680
--------------------------------------------------------
16,540,487 3,573 754,179 17,291,093
Equity securities 1,978,075 5,425 358,886 2,331,536
--------------------------------------------------------
Total available for sale 18,518,562 8,998 1,113,065 19,622,629
--------------------------------------------------------
Other investments:
Federal Home Loan Bank
stock 1,341,400 - - 1,341,400
Other securities 56,996 - - 56,996
--------------------------------------------------------
Total other investments 1,398,396 - - 1,398,396
--------------------------------------------------------
Total securities $ 20,362,790 $ 8,998 $ 1,113,065 $ 21,466,857
========================================================
</TABLE>
32
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SECURITIES (continued):
<TABLE>
<CAPTION>
DECEMBER 31, 1993
--------------------------------------------------------
GROSS GROSS
FAIR UNREALIZED UNREALIZED AMORTIZED
VALUE GAIN LOSS COST
--------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
Bonds and notes -
Municipal bonds $ 497,221 $ - $ - $ 497,221
--------------------------------------------------------
Total held to maturity 497,221 - - 497,221
--------------------------------------------------------
Available for sale:
Bonds and notes -
U. S. Treasury Notes 7,234,374 77,997 - 7,156,377
U. S. Government, including
agencies 259,468 - 3,687 263,155
Other bonds and debentures 6,333,221 74,367 39,460 6,298,314
--------------------------------------------------------
13,827,063 152,364 43,147 13,717,846
Equity securities 2,399,750 53,120 66,480 2,413,110
--------------------------------------------------------
Total available for sale 16,226,813 205,484 109,627 16,130,956
--------------------------------------------------------
Other investments:
Federal Home Loan Bank
stock 1,216,500 - - 1,216,500
Other securities 56,996 - - 56,996
--------------------------------------------------------
Total other investments 1,273,496 - - 1,273,496
--------------------------------------------------------
Total securities $ 17,997,530 $ 205,484 $ 109,627 $ 17,901,673
========================================================
</TABLE>
Gross gains of $3,425, $3,536, and $320,714, and gross losses of $7,382, $1,776,
and $10,439 were realized during 1995, 1994, and 1993, respectively, on debt
securities.
Included in other assets is approximately $1,220,000 of a receivable from the
disposition of available for sale securities as of December 31, 1995.
Maturities of debt securities are as follows as of December 31, 1995:
<TABLE>
<CAPTION>
WEIGHTED
AMORTIZED FAIR AVERAGE
AVAILABLE FOR SALE: bonds and notes - COST VALUE YIELD
------------------------------------------
<S> <C> <C> <C>
U. S. Treasury Notes 1,992,034 1,996,249 5.85%
U. S. Government, including agencies 1,627,068 1,633,866 6.56%
Other bonds and debentures 3,666,928 3,662,598 6.40%
----------------------------
Total due in one year or less 7,286,030 7,292,713 6.29%
----------------------------
U. S. Treasury Notes 10,002,761 10,143,280 5.79%
U. S. Government, including agencies 563,853 581,358 6.48%
Other bonds and debentures 5,277,884 5,346,362 6.39%
----------------------------
Total due after one year through five years 15,844,498 16,071,000 6.01%
----------------------------
U. S. Government, including agencies 500,000 508,906 6.80%
Other bonds and debentures 251,961 253,516 7.46%
----------------------------
Total due after five years through ten years 751,961 762,422 7.02%
----------------------------
Other bonds and debentures 90,000 90,000 5.84%
----------------------------
Total due after ten years 90,000 90,000 5.84%
----------------------------
$ 23,972,489 $ 24,216,135 6.30%
============================
</TABLE>
A security which has a call date earlier than the maturity date is considered to
mature at the call date.
HELD TO MATURITY: Included in the caption bonds and notes are two municipal
bonds classified as held to maturity. The securities are New Hampshire Higher
Educational and Health Facilities bonds purchased by the Bank with coupon rates
and maturity dates of 7.35%, 12/16/2003 and 6.48%, 6/1/2000. There is no
established trading market for these securities and accordingly, the carrying
amount of these securities has also been reflected as their fair value. The Bank
anticipates no losses on these securities and expects to hold them until their
maturity.
33
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS RECEIVABLE:
Loans receivable consisted of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans -
Conventional $175,130,966 $161,091,563 $139,580,597 $ 135,252,277 $133,549,080
Construction 2,456,763 7,793,601 4,301,243 3,478,459 3,388,459
-------------------------------------------------------------------
177,587,729 168,885,164 143,881,840 138,730,736 136,937,539
Less - Unadvanced
portion 1,434,258 2,841,500 1,222,932 955,860 924,241
-------------------------------------------------------------------
176,153,471 166,043,664 142,658,908 137,774,876 136,013,298
Collateral loans 19,524,706 18,776,523 19,584,411 19,768,631 21,172,074
Consumer loans 5,025,818 5,264,449 5,158,271 5,796,200 6,035,546
Commercial and municipal
loans 9,301,028 8,066,390 8,049,016 7,132,313 2,565,744
Other loans 671,302 625,006 977,633 673,793 579,498
-------------------------------------------------------------------
Total loans 210,676,325 198,776,032 176,428,239 171,145,813 166,366,160
Less - Reserve for loan
losses 1,828,060 2,752,885 2,374,001 2,094,931 2,289,523
- Deferred loan
origination fees 382,042 520,438 719,200 694,983 642,917
- Non-earning assets 297,172 1,692,608 501,408 1,388,864 1,380,392
-------------------------------------------------------------------
Net loans $208,169,051 $193,810,101 $172,833,630 $ 166,967,035 $162,053,328
===================================================================
</TABLE>
When, in the opinion of management, a loan becomes delinquent and/or
uncollectible, it is reclassified as a non-earning asset on which interest is
not accrued. These loans are categorized as possible foreclosures. In addition
to non-earning assets, $1,144,293 and $23,825 of delinquent loans were
classified as non-accrual loans as of December 31, 1995 and 1994, respectively.
The following is a summary of activity in the reserve for loan loss account for
the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, beginning of
year $ 2,752,885 $ 2,374,001 $2,094,931 $ 2,289,523 $ 2,000,000
---------------------------------------------------------------
Loans charged-off:
Real estate loans -
Conventional 141,541 252,258 723,131 475,096 387,592
Construction 1,014,670 2,871 333,581 1,666,932 124,042
Collateral and consumer
loans 25,568 612 5,289 5,869 15,644
Commercial and municipal
loans 913,441 140,375 57,719 291,695 88,199
---------------------------------------------------------------
Total charged-off loans 2,095,220 396,116 1,119,720 2,439,592 615,477
---------------------------------------------------------------
Recoveries on loans:
Real estate loans -
Conventional 3,300 11,666 24,532 63,045 10,338
Collateral and consumer
loans 2,099 1,779 1,584 969 -
Commercial and municipal
loans 1,286 - - 15,551 -
---------------------------------------------------------------
Total recoveries 6,685 13,445 26,116 79,565 10,338
---------------------------------------------------------------
Net charged-off loans: 2,088,535 382,671 1,093,604 2,360,027 605,139
---------------------------------------------------------------
Provision for loan losses
charged to income: 1,163,710 761,555 1,372,674 2,165,435 894,662
---------------------------------------------------------------
BALANCE, end of year $ 1,828,060 $ 2,752,885 $2,374,001 $ 2,094,931 $ 2,289,523
===============================================================
Ratios of net charged-off
loans during the period
to average loans outstanding
during the period 1.02% .20% .64% 1.41% .36%
===============================================================
</TABLE>
34
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS RECEIVABLE (continued):
Non-earning assets as of December 31, 1995 and 1994 were $297,172 and
$1,692,608, respectively. The Company's interest income for the years 1995 and
1994 could have increased by $55,864 and $131,903, respectively, if all
non-earning assets held during the respective periods had continued earning
interest at the interest rates in effect prior to the change in accrual status.
The amount of interest income on non-earning assets as of December 31, 1995 and
1994 that was included in net income was $13,553 in 1995 and $18,613 in 1994.
The company had no extensions of credit to related parties in excess of
5% of shareholders' equity at any time during the year ended December 31, 1995
and 1994.
The Company had troubled debt restructured of $445,417 as of December
31, 1995. Since all restructured loans had an interest rate at or above
prevailing market rates during the twelve months ended December 31, 1995, these
loans had no adverse impact on earnings for the years ended December 31, 1995 or
1994.
During 1995 and 1994, LSB sold properties out of real estate owned.
According to FAS No. 66, "Accounting for Sales of Real Estate," a minimum down
payment must be made by the buyer in order for a sale and a new loan to be
recorded. Until the down payment requirement is met, the loan remains classified
as real estate owned and interest income is not recorded. The effect of FAS No.
66 would be to reclassify $370,672 and $550,500 from loans to real estate owned
and reduce interest income by $23,063 and $30,500 for the years ended December
31, 1995 and 1994, respectively.
Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". The FAS as amended SFAS No.
118 requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral, if the loan is collateral dependent. The adoption of
the new accounting standard did not have a material effect on the Company's
financial position or results of operation.
Interest income on impaired loans is recognized on an accrual basis
when the impaired loan is less than 90 days past due and has not been
reclassified to non-accrual status. Interest income on impaired loans over 90
days past due, and on loans placed on non-accrual status, is recognized using a
cash basis accounting method. Cash receipts on impaired loans are recorded as
both interest income and a reduction in the impaired loan balance consistent
with the terms of the underlying contractual agreements.
The balance of impaired loans is determined by aggregating the fair
value or present value of expected cash flows on individual loans identified as
impaired. Homogeneous groups of loans such as consumer installment loans and
residential mortgage loans are not considered impaired.
A loan becomes impaired when it appears probable the Company will be
unable to collect all amounts due, including principal and interest, under the
contractual terms of the loan agreement. A loan is placed on non-accrual status
when it appears likely interest income will not be received. Non-accrual loans
are reviewed for possible impairment.
Impaired loans are written-down or charged-off when it has been
determined the asset has such little value that it no longer warrants remaining
on the books. The decision to charge-off is made on a case-by-case basis.
<TABLE>
<CAPTION>
IMPAIRED LOANS AS OF DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C>
Average recorded investment in impaired loans $ 934,829
Recorded investment in impaired loans at December 31 $ 1,452,049
Portion of valuation allowance allocated to impaired loans $ 654,663
Net balance of impaired loans $ 797,386
Interest income recognized on impaired loans $ 102,449
Interest income on impaired loans on cash basis $ 97,401
</TABLE>
There are no impaired loans which do not have a valuation allowance assigned to
them.
35
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. LOANS RECEIVABLE (continued) :
In addition to total loans previously shown, the Company services loans
for other financial institutions. Participation loans are loans originated by
the Company for a group of banks. Sold loans are loans originated by the Company
and sold to the secondary market. The Company services these loans and remits
the payments received to the buyer. The Company specifically originates
long-term, fixed-rate loans to sell.
The amount of loans sold and participated out which are serviced by the Company
are as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Sold loans $ 43,433,158 $ 27,180,332
=============================
Participation loans $ 2,763,715 $ 2,251,414
=============================
</TABLE>
The Company has issued letters of credit and has approved line of
credit loans to specific individuals and companies.
The unused portions as of December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Letters of credit $ 448,150 $ 562,314
=============================
Lines of credit $ 11,139,725 $ 12,311,669
=============================
</TABLE>
NOTE 5. BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are shown on the consolidated statements of
financial condition at cost, net of accumulated depreciation, as follows as of
December 31:
<TABLE>
<CAPTION>
1995 1994
----------------------------
<S> <C> <C>
Land $ 899,722 $ 894,613
Buildings and premises 5,641,700 5,355,837
Furniture, fixtures and equipment 3,464,598 3,322,334
----------------------------
10,006,020 9,572,784
Less - Accumulated depreciation 4,050,626 3,628,435
----------------------------
$ 5,955,394 $ 5,944,349
============================
</TABLE>
The ranges of estimated useful lives used for depreciation purposes are:
Years
------------
Buildings and premises 5 - 40
Furniture, fixtures and equipment 3 - 33
Depreciation expense was $435,467, $421,374, and $443,162 for the years
ended December 31, 1995, 1994 and 1993, respectively.
36
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. REAL ESTATE OWNED AND PROPERTY ACQUIRED:
As of December 31, 1995 and 1994, the Bank owned property acquired by
foreclosure. The balances consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------------------------
<S> <C> <C>
Residential real estate $ 34,970 $ 97,970
Commercial real estate 949,215 1,406,910
===========================
$ 984,185 $1,504,880
===========================
</TABLE>
As of December 31, 1995 and 1994, real estate owned includes $831,215
and $1,406,910, respectively, for two real estate development projects. The
properties have been developed and are ready for individual lots to be sold.
Four lots were sold during 1995.
It is the policy of the Bank and/or its subsidiaries, upon the
acquisition of real estate by foreclosure, to evaluate the condition of the
property, make any appropriate or necessary structural and/or cosmetic
improvements and place the property as an open listing with all area real estate
agents. Bank employees are also encouraged to participate in the selling of
these properties.
For 1995, 1994 and 1993, $112,544, $17,629 and $4,662, respectively, of
net cost of other real estate is included in net income.
NOTE 7. DEPOSITS:
Deposits consisted of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------
<S> <C> <C> <C> <C>
Checking accounts (non-interest-bearing) $ 10,934,512 5.5% $ 11,194,290 5.8%
NOW accounts 26,014,007 13.0% 24,390,457 12.5%
Ever-Ready Money Market 13,971,617 7.0% 19,684,667 10.1%
Regular savings accounts 11,363,366 5.7% 15,668,317 8.1%
Treasury savings accounts 44,388,408 22.2% 45,344,151 23.3%
Club deposits 87,779 - 86,048 -
-------------------------------------------------
106,759,689 53.4% 116,367,930 59.8%
-------------------------------------------------
Time deposits -
2.00% - 2.99% 251,318 .1% 352,143 .2%
3.00% - 3.99% - - 4,374,368 2.2%
4.00% - 4.99% 6,140,501 3.1% 20,925,037 10.8%
5.00% - 5.99% 41,959,447 21.0% 32,719,302 16.8%
6.00% - 6.99% 31,152,885 15.6% 10,425,862 5.4%
7.00% - 7.99% 10,889,340 5.4% 6,243,723 3.2%
8.00% - 8.99% 2,817,741 1.4% 3,124,701 1.6%
-------------------------------------------------
93,211,232 46.6% 78,165,136 40.2%
=================================================
$ 199,970,921 100.0% $ 194,533,066 100.0%
=================================================
</TABLE>
37
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. DEPOSITS (continued):
The following is a summary of maturities of time deposits as of December 31,
1995:
1996 $ 61,528,121
1997 9,261,760
1998 11,042,716
Thereafter 11,378,635
---------------
$ 93,211,232
===============
As of December 31, 1995, time deposits include $11,924,585 of certificates of
deposit with a minimum balance of $100,000. Maturities of these certificates are
as follows:
Less than 3 months $ 3,656,593
Over 3 months and less than 6 months 2,569,525
Over 6 months and less than 12 months 3,631,156
Over 12 months 2,067,311
---------------
$ 11,924,585
===============
REPURCHASE AGREEMENTS - As of December 31, 1995, sixteen repurchase
agreements were outstanding. The repurchase agreements are secured by U.S.
Treasury Notes with a fair value of $12,139,529 held by a third party in
safekeeping. The maturity dates of the repurchase agreements are from January
27, 1996 to December 29, 1996 on the anniversary date of the repurchase
agreement.
NOTE 8. ADVANCES FROM FEDERAL HOME LOAN BANK:
Advances from the Federal Home Loan Bank consisted of loans, at various interest
rates ranging from 4.33% to 7.37%, maturing as follows:
1995 1994
--------------------------
1995 (4.33% - 6.39%) $ - $ 7,242,001
1996 (4.87% - 6.78%) 6,762,143 5,254,411
1997 (4.87% - 7.32%) 7,927,707 268,064
1998 (4.87% - 7.37%) 7,166,033 2,166,033
1999 and after (5.74% - 5.80%) 5,080,285 280,285
--------------------------
$ 26,936,168 $ 15,210,794
==========================
These advances are secured by Federal Home Loan Bank stock (Note 3) and
unspecified first mortgage loans. The Bank is able to borrow up to an additional
$51,000,000 of Federal Home Loan Bank advances.
In addition to the above advances, the Bank has credit available up to
$4,672,000 under a revolving loan agreement with the Federal Home Loan Bank. No
amounts were borrowed against the line of credit as of December 31, 1995 and
1994. Interest is payable monthly as funds are borrowed.
38
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES:
The holding company, LSB and its wholly-owned subsidiaries file a
consolidated federal income tax return. Applicable income taxes amounted to
$604,000 in 1995, $723,000 in 1994 and $736,000 in 1993. These amounts differ
from the amounts computed by applying the statutory tax rates to income before
provision for income taxes.
The reasons for these differences are as follows:
<TABLE>
<CAPTION> 1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Tax on income at statutory tax rates $ 628,600 $ 783,785 $ 773,833
Tax effect of dividends received deduction (35,714) (39,270) (20,959)
Tax effect of tax exempt interest, net (19,289) (22,246) (35,539)
Tax effect of unallowable amortization - 3,292 7,903
Other, net 30,403 (2,561) 10,762
----------------------------------------
Tax at effective rate $ 604,000 $ 723,000 $ 736,000
========================================
<CAPTION>
Income tax expense is made up of the following components:
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Current tax expense $ 279,091 $ 648,000 $ 671,609
Deferred tax expense 324,909 75,000 64,391
----------------------------------------
$ 604,000 $ 723,000 $ 736,000
========================================
</TABLE>
Deferred taxes result from temporary differences in the recognition of revenue
and expense for tax and financial statement purposes. The source of these
differences were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Difference between book and tax depreciation $ 11,533 $ 23,391
Deferred loan origination fees included in taxable income 47,055 67,579
Bad debts deducted for taxable income not for book income 174,852 39,711
Unrealized gain (loss) on securities available for sale 426,400 (375,400)
Other, net 91,469 (55,681)
---------------------------
$ 751,309 $ (300,400)
===========================
<CAPTION>
The components of the deferred taxes on the consolidated balance sheet are as
follows as of December 31:
1995 1994
---------------------------
<S> <C> <C>
Deferred tax liability $ 728,422 $ 398,021
Deferred tax asset (131,422) (552,330)
---------------------------
$ 597,000 $ (154,309)
===========================
</TABLE>
39
<PAGE>
==================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK OPTIONS:
Prior to the conversion discussed in Note 14, LSB's Board of
Directors adopted an Incentive Stock Option Plan (the 1986 plan). This plan was
approved by the shareholders. Under the terms of the 1986 plan, options were
granted for 106,753 shares to a group of eligible employees. All options were
granted at $11.50 per share, the initial offering price of LSB's common stock.
The number of stock options was adjusted to 213,506 shares to reflect the 2 for
1 stock split in the form of a dividend paid on June 19, 1987. On August 12,
1994, NHTB initiated a stock option redemption program whereby holders of 1986
plan options could elect to relinquish one-sixth of outstanding options. On
January 3, 1995, 30,000 options were granted from previously forfeited shares of
the 1986 plan at an exercise price of $9.00 per share, the fair market value on
that date. As of December 31, 1995, 57,880 of previously forfeited shares
remained available for grant and options to purchase 30,000 shares were
available for exercise.
At the Annual Meeting on April 15, 1987, the shareholders
approved the adoption of the "1987 Stock Option Plan" (the 1987 plan). On
November 12, 1987, 106,753 options were authorized to be granted. At that time,
options for 69,897 shares were granted with an exercise price of $7.50, the fair
market value on that date. As of December 31, 1995, 27,666 of previously
forfeited shares remained available for grant and options to purchase 32,590
shares were available for exercise. On January 2, 1996, 49,900 options were
granted and made available from previously ungranted and forfeited shares of the
1987 plan at an exercise price of $10.125 per share, the fair market value on
that date.
The following is a summary of options outstanding as of December 31, 1995:
OPTION OPTIONS
PRICE OUTSTANDING
----------------------------
1986 Stock Option Plan $ 5.75 -
1986 Stock Option Plan $ 9.00 30,000
1987 Stock Option Plan $ 7.50 32,590
1987 Stock Option Plan $ 10.125 49,900
---------------
112,490
===============
NOTE 11. EMPLOYEE BENEFIT PLANS:
DEFINED BENEFIT PENSION PLAN - NHTB and its subsidiaries have a defined
benefit pension plan covering substantially all full-time employees who have
attained age 21 and have completed one year of service. Annual contributions to
the plan are based on actuarial estimates.
Net pension cost for the Bank's defined benefit pension plan consisted of the
following components as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Service cost $ 88,168 $ 77,370 $ 74,726
Interest cost on projected benefit obligation 104,325 100,515 87,680
Actual return on plan assets (143,671) 55,611 (74,471)
Net amortization and deferral 85,790 (125,230) 12,001
---------------------------------------------
$ 134,612 $ 108,266 $ 99,936
=============================================
</TABLE>
40
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. EMPLOYEE BENEFIT PLANS (continued):
The following table sets forth the plan's funded status and amounts recognized
in the accompanying consolidated balance sheets as of December 31:
<TABLE>
<CAPTION>
1995 1994
------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,250,767 $ 1,165,997
==============================
Accumulated benefit obligation $ 1,273,735 $ 1,240,939
==============================
Projected benefit obligation $ 1,477,750 $ 1,402,188
Plan assets at fair value 1,395,207 1,191,905
------------------------------
Projected benefit obligation in excess of plan assets (82,543) (210,283)
Unrecognized net loss 374,051 460,904
Unrecognized prior service cost (35,351) (38,044)
------------------------------
Amount included in other assets $ 256,157 $ 212,577
=============================
</TABLE>
Assumptions used by the Bank in the determination of pension plan information
consisted of the following as of December 31:
1995 1994
-------------------
Discount rate 7.00% 7.00%
Rate of increase in compensation levels 3.00% 3.00%
Expected long-term rate of return on plan assets 7.00% 7.00%
PROFIT SHARING - STOCK OWNERSHIP PLAN - Lake Sunapee Bank, fsb, adopted
a Profit Sharing - Stock Ownership Plan which became effective January 1, 1987.
The purpose of the Plan is to reward eligible employees for long and loyal
service by providing them with retirement benefits. The Plan is a qualified
defined contribution plan designed to meet the requirements of ERISA and to
conform to Section 401(k) of the Internal Revenue Code. All employees of Lake
Sunapee Bank, fsb, and its subsidiaries who have attained age 21 and have
completed one year of service are eligible to participate in the Plan.
Participation is not required. Eligible employees electing to participate may
contribute between 2% and 15% of their salary to the Plan up to $9,240 for 1995.
Participants will not be subject to federal income taxation on such
contributions which constitute salary reductions at the time such contributions
are made. Lake Sunapee Bank, fsb may elect, but is not required, to make
discretionary and/or matching contributions to the Plan.
Discretionary and matching contributions to the Plan will be invested
primarily in company stock. Benefits under the Profit Sharing - Stock Ownership
Plan will be payable upon retirement, death or other separation from service.
The assets of the Profit Sharing - Stock Ownership Plan are held
pursuant to an Investment Management Agreement with Charter Trust Company as
Agent. The assets are invested as directed by participating employees and the
Bank.
For 1995, 1994 and 1993, participating employees' contributions totaled
$96,452, $88,682 and $84,305, respectively. The Bank made a matching
contribution of $9,500 for 1995. No matching contributions were made for 1994
and 1993. A participant's retirement benefit will depend on the amount of the
contributions to the Plan together with the gains or losses on the investments.
41
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES:
In the normal course of business, the Bank has outstanding various
commitments and contingent liabilities, such as legal claims, which are not
reflected in the consolidated financial statements. Management does not
anticipate any material loss as a result of these transactions. As of December
31, 1995, the Bank had entered into commitments to fund loans totaling
$4,409,993. The majority of these loans will have adjustable rates.
The following is a schedule, by interest rate, of loan commitments outstanding
as of December 31:
1995 1994
-----------------------------
5.00% - 5.99% $ - $ 279,000
6.00% - 6.99% 594,250 1,064,350
7.00% - 7.99% 3,070,875 1,705,650
8.00% - 8.99% 445,118 203,682
9.00% - 9.99% 264,750 360,000
10.00% - 10.99% 35,000 -
-----------------------------
$ 4,409,993 $ 3,612,682
=============================
There are two employment agreements in effect for executive officers.
NOTE 13. INTEREST ON DEPOSITS:
The Bank records interest on depositors' accounts monthly. Interest is added to
the account balance. The following is a schedule of interest expense by deposit
account type for the year ended December 31:
1995 1994 1993
----------------------------------------
NOW accounts $ 126,403 $ 141,120 $ 280,543
Ever-Ready Money Market 551,302 844,831 1,144,493
Savings and Clubs 2,354,563 2,116,729 1,634,513
Time deposits 5,064,583 3,351,919 3,525,706
----------------------------------------
$ 8,096,851 $ 6,454,599 $ 6,585,255
========================================
NOTE 14. SHAREHOLDERS' EQUITY:
LIQUIDATION ACCOUNT - On May 22, 1986, Lake Sunapee Bank, fsb received
approval from the Federal Home Loan Bank Board and converted from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank. At the time of conversion, the Bank established a liquidation account in
an amount of $4,292,510 (equal to the Bank's net worth as of the date of the
latest financial statement included in the final offering circular used in
connection with the conversion). The liquidation account will be maintained for
the benefit of eligible account holders who maintain their deposit accounts in
the Bank after conversion. In the event of a complete liquidation of the Bank
subsequent to conversion (and only in such event), each eligible account holder
will be entitled to receive a liquidation distribution from the liquidation
account before any liquidation distribution may be made with respect to capital
stock. The amount of the liquidation account is reduced to the extent that the
balances of eligible deposit accounts are reduced on any year-end closing date
subsequent to the conversion.
42
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SHAREHOLDERS' EQUITY (continued):
DIVIDENDS - The Bank may not declare or pay a cash dividend on or
purchase any of its stock if the effect would be to reduce the net worth of the
Bank below either the amount of the liquidation account or the net worth
requirements of the banking regulators. The Board of Directors, at their January
1996 meeting, declared a cash dividend of $.125 per share payable January 29,
1996.
Since the formation of the holding company in 1989, the Bank has paid
dividends to the holding company totaling $7,170,500. The dividends paid to the
holding company have been used to pay cash dividends to shareholders and to
repurchase NHTB stock to hold as treasury stock. The unexpended balance of the
dividends has been advanced to LSB.
TREASURY STOCK - On April 3, 1990, NHTB announced a Stock Repurchase
Program to buy back, on the open market, up to a total of 5% of its outstanding
common stock or 107,364 shares. On July 11, 1990, NHTB completed its Stock
Repurchase Program whereby 107,364 shares were repurchased at an average price
of $4.37 per share. On August 9, 1990, NHTB announced a second buy back program
to buy back, on the open market, up to 10% or 203,992 shares of its total
outstanding common stock. On June 11, 1991, a third buy back program was
announced to cover an additional 10% of the then outstanding stock or 183,592
shares. On July 15, 1993, NHTB announced another buy back program whereby the
Company intends to repurchase, on the open market, 10% of its currently
outstanding common stock. As of December 31, 1995, NHTB had repurchased a total
of 539,148 shares at an average price of $4.98 for all programs while 121,033
shares remained to be purchased from the 1993 buy back program.
Treasury stock is recorded at cost, as purchased. Treasury stock sold
is accounted for on a first-in, first-out basis.
SPECIAL BAD DEBTS DEDUCTION - The Bank has been allowed a special bad
debts deduction for tax purposes limited generally to 8% of otherwise taxable
income and subject to certain limitations based on aggregate loans and savings
account balances at the end of the year. If the amounts that qualify as
deductions for federal income tax purposes are later used for purposes other
than for bad debt losses, the portion that was deducted for tax purposes after
1987 will be subject to federal income tax at the then current rate. Retained
earnings as of December 31, 1995, 1994 and 1993 include approximately $2,044,958
for which federal income tax has not been provided, almost all of which is from
years prior to 1988.
REGULATORY CAPITAL - As part of the Financial Institutions' Reform,
Recovery and Enforcement Act of 1989 (FIRREA), banks are required to maintain
total risk-based capital of 8.00% of total risk-adjusted assets effective as of
December 31, 1992. As of December 31, 1995, the Bank's total risk-based capital
was 11.88%, well above the requirement of 8.00%.
43
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SHAREHOLDERS' EQUITY (continued):
The following is a reconciliation of shareholders' equity and net income as
reported in the accompanying consolidated financial statements and as reflected
in reports filed with the Office of Thrift Supervision (OTS):
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY NET INCOME (LOSS)
1995 1994 1995 1994 1993
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance reported to OTS $ 18,456,000 $17,372,000 $ 1,258,000 $ 1,605,000 $1,578,000
Parent company -
Net loss (12,830) (20,960) (12,830) (20,960) (54,207)
- -
Dividends from LSB to
NHTB 1,000,000 500,000 - - -
Stock options
exercised 570,825 367,350 - - -
Cash dividends paid to
shareholders of NHTB (839,413) (830,303) - - -
Retained earnings 3,199,564 3,550,827 - - -
Treasury stock
purchased (2,830,048) (2,686,033) - - -
Other, net (93) (7) (347) (1,790) 1,187
-----------------------------------------------------------------
Balance per consolidated
financial statements $ 19,544,005 $18,252,874 $ 1,244,823 $ 1,582,250 $1,524,980
=================================================================
</TABLE>
AUTHORIZED SHARES OF STOCK - The authorized, issued and outstanding stock was as
follows as of December 31:
1995 1994
---------------------
Preferred stock -
Authorized shares 2,500,000 2,500,000
Issued shares - -
Outstanding shares - -
Common stock -
Authorized shares 5,000,000 5,000,000
Issued shares 2,147,282 2,147,282
Outstanding shares 1,689,503 1,670,986
44
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments were
as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 10,993,297 $ 10,993,297 $ 8,253,588 $ 8,253,588
Securities available for
sale 25,569,664 25,718,260 19,622,629 18,518,562
Securities held to maturity 393,054 393,054 445,832 445,832
Other investments 2,303,285 2,303,285 1,398,396 1,398,396
Loans 210,676,324 211,342,000 198,776,032 196,857,000
Impaired loans 1,452,049 797,386 - -
Accrued interest receivable 1,433,882 1,433,882 1,058,442 1,058,442
Financial liabilities:
Regular savings, NOW, demand
and money market deposits 106,759,689 106,759,689 116,367,930 116,367,930
Time deposits 93,211,231 93,677,261 78,165,136 77,273,920
Repurchase agreements 9,552,825 9,552,825 3,597,907 3,597,907
Advances from Federal
Home Loan Bank 26,936,168 27,016,696 15,210,794 15,069,177
</TABLE>
45
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. HOLDING COMPANY OPERATIONS:
The following are condensed statements of financial condition, income, retained
earnings and cash flows for NHTB for the years ended December 31:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
1995 1994
-----------------------------
ASSETS
Investment in subsidiary $ 18,358,314 $ 18,100,661
Advances to affiliates (LSB) 1,088,097 880,880
-----------------------------
Total assets $ 19,446,411 $ 18,981,541
=============================
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Common stock $ 21,473 $ 21,473
Paid-in capital 13,160,382 13,103,404
Retained earnings 8,673,504 8,268,094
Treasury stock (2,408,948) (2,411,430)
-----------------------------
$ 19,446,411 $ 18,981,541
=============================
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
Operating expenses $ 12,830 $ 20,960 $ 54,207
--------------------------------------
Loss before equity in earnings of subsidiary (12,830) (20,960) (54,207)
Equity in earnings of subsidiary 1,257,653 1,603,210 1,579,187
--------------------------------------
Net income $ 1,244,823 $ 1,582,250 $1,524,980
======================================
Retained earnings, beginning of year $ 8,268,094 $ 7,516,147 $ 6,621,200
Net income 1,244,823 1,582,250 1,524,980
Dividends paid (839,413) (830,303) (630,033)
--------------------------------------
Retained earnings, end of year $ 8,673,504 $ 8,268,094 $ 7,516,147
======================================
</TABLE>
46
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. HOLDING COMPANY OPERATIONS (continued):
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,244,823 $ 1,582,250 $ 1,524,980
Adjustments to reconcile net income
to net cash provided by operating
activities -
Equity in earnings of subsidiary (LSB) (1,257,653) (1,603,210) (1,579,187)
Amortization - 13,752 33,005
Increase (decrease) in dividends payable - - (121,268)
----------------------------------------
Net cash provided by (used in)
operating activities (12,830) (7,208) (142,470)
----------------------------------------
Cash flows from investing activities:
Dividends received from subsidiary (LSB) 1,000,000 500,000 500,000
Advances from subsidiary (207,217) 399,029 922,285
----------------------------------------
Net cash provided by investing
activities 792,783 899,029 1,422,285
----------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 203,475 132,420 234,930
Dividends paid (839,413) (830,303) (630,033)
Acquisition of treasury stock (144,015) (193,938) (884,712)
----------------------------------------
Net cash used in financing activities (779,953) (891,821) (1,279,815)
----------------------------------------
Net increase in cash - - -
Cash, beginning of year - - -
----------------------------------------
Cash, end of year $ - $ $ -
========================================
</TABLE>
NOTE 17. SUBSEQUENT EVENTS:
Statement of Financial Accounting Standards number 121, 122, and 123,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, Accounting for Mortgage Servicing Rights and Accounting for
Stock-Based Compensation," respectively, will be adopted. FAS 121 and 122 will
be adopted with financial statements beginning January 1, 1996. FAS 123 will be
adopted for transactions entered into after December 15, 1995. There were no
such transactions in 1995. Management believes the adoption of these standards
will not have a material impact on the financial statements. Management has
decided to continue to apply APB 25 for its accounting of stock-based employee
compensation arrangements and thereby only make disclosure of such arrangements.
As of December 31, 1995, there is Federal legislation pending which, if
enacted, will impact Bank operations in 1996. One of the pending items is a
one-time deposit insurance assessment. If the legislation is passed as written,
the Bank will record a charge in the range of $800,000 to $1,100,000 after
income tax effect. The other pending item is a charge for taxes not previously
assessed. The affect of this other legislation has been accounted for in
deferred taxes.
47
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
SEC Commission Number 17859
For the fiscal year ended:
DECEMBER 31, 1995
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 02-0430695
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
THE CARRIAGE HOUSE
NEW LONDON, NEW HAMPSHIRE 03257
(ADDRESS) (ZIP CODE)
Registrant's telephone number, including area code: (603) 526-2116
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Title of Class
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 X No _____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of the
registrant is between $13,611,298 and $13,489,164 based on a $10.253 average bid
and a $10.161 average asked price, respectively, as of December 31, 1995.
Number of shares of Common Stock Outstanding as of February 12, 1996: 1,689,503
48
<PAGE>
-------------------------------------
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Item 1. Business............................................................................. 49
Item 2. Properties........................................................................... 55
Item 3. Legal Proceedings.................................................................... 55
Item 4. Submission of Matters to a Vote of Security Holders.................................. 56
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............. 56
Item 6. Selected Financial Data.............................................................. 56
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 56
Item 8. Financial Statements and Supplementary Information
Report of Independent Accountants.................................................... 56
Consolidated Statements of Financial Condition....................................... 56
Consolidated Statements of Income.................................................... 56
Consolidated Statements of Changes in Shareholders' Equity........................... 56
Consolidated Statements of Cash Flows................................................ 56
Notes to Consolidated Financial Statements........................................... 56
Item 9. Disagreements on Accounting and Financial Disclosure................................. 57
PART III
Item 10. Directors and Executive Officers of the Registrant................................... 57
Item 11. Executive Compensation............................................................... 57
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 57
Item 13. Certain Relationships and Related Transactions....................................... 57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements................................................................. 58
Supplementary Financial Statements................................................... 58
Listing of Exhibits.................................................................. 58
Reports on Form 8-K.................................................................. 58
Exhibits............................................................................. 58
Financial Statement Schedules........................................................ 58
Signatures........................................................................... 58
</TABLE>
49
<PAGE>
PART I.
ITEM 1. BUSINESS
GENERAL
ORGANIZATION
New Hampshire Thrift Bancshares, Inc. (NHTB), a Delaware holding
company organized on July 5, 1989, is the parent company of Lake Sunapee Bank,
fsb (LSB), a federally chartered savings bank. The Bank was originally
chartered by the State of New Hampshire in 1868 as the Newport Savings Bank.
The Bank became a member of the Federal Deposit Insurance Corporation (FDIC) in
1959 and a member of the Federal Home Loan Bank of Boston in 1978. On December
1, 1980, the Bank was the first bank in the United States to convert from a
state-chartered mutual savings bank to a federally-chartered mutual savings bank
and its deposits became insured by the Federal Savings and Loan Insurance
Corporation (FSLIC). In 1981, the Bank changed its name to "Lake Sunapee
Savings Bank, fsb" and in 1994, refined its name to "Lake Sunapee Bank, fsb."
In 1989, as a result of the Financial Institution Reform, Recovery, and
Enforcement Act (FIRREA), the Bank's deposits were insured by the Savings
Association Insurance Fund (SAIF). During 1994, the Bank opened two new
branches. A "mini-branch" was opened in Cricenti's Market in Hillsboro and a
branch opened in West Lebanon. The Bank's operations are conducted from its home
office located in Newport, New Hampshire and its branch offices located in
Sunapee, New London, Bradford, Grantham, Guild, Lebanon, West Lebanon,
Hillsboro, and Andover, New Hampshire. The Bank, with assets of approximately
$258 million as of December 31, 1995, has never been involved in any mergers or
acquisitions.
Lake Sunapee Bank, fsb is a thrift institution established for the
purposes of providing the public with a convenient and safe place to invest
funds, for the financing of housing, consumer-oriented products and commercial
loans, and for providing a variety of other consumer-oriented financial
services. The Bank is a full-service community institution promoting the ideals
of thrift, security, home ownership and financial independence for its
customers.
Through its subsidiary, Lake Sunapee Financial Services Corporation
(LSFSC), the Bank offers brokerage services to its customers.
The Bank offers trust and investment management services to its
customers through its affiliate, Charter Trust Company, of which the Bank is a
one-sixth owner. Charter Trust Company was formed in 1984 and services thirteen
community banks. As of December 31, 1995, Charter Trust Company had
approximately $650 million under investment and custodial management. The Bank
accounts for its investment in Charter Trust Company at cost.
MARKET AREA
The Bank's market area consists of west-central New Hampshire in the
counties of Merrimack, Sullivan, Hillsboro, and Grafton. This area is best
known for its recreational facilities and its resort/retirement environment.
Within the market area are two major ski areas, several lakes, retirement
communities, a four-season recreational development center designed to support
3,500 families, Colby Sawyer, New England, and Dartmouth Colleges and several
industrial manufacturing employers.
In addition to the year-round regional population, the Upper Valley-
Kearsarge-Lake Sunapee area has a sizable number of seasonal residents. In
1990, a total of over 3,600 seasonal dwellings were listed by the Census Bureau.
Based on an occupancy rate of five persons per seasonal unit, the regional
seasonal population can be estimated to be over 18,000 persons.
LENDING ACTIVITIES
The Bank's loan portfolio totaled $210,676,325, including $3,095,971
of loans held for sale at December 31, 1995, representing approximately 82% of
total assets. As of December 31, 1995, approximately 80% of the mortgage loan
portfolio had adjustable rates. As of December 31, 1995, the Bank had sold
$43,433,158 in fixed rate mortgage loans in an effort to meet customer demands
for fixed rate loans, minimize interest rate risk, and build a servicing
portfolio.
RESIDENTIAL LOANS. The Bank's loan origination team solicits
residential mortgage loans in the local real estate marketplace. Residential
borrowers are frequently referred to the Bank by its existing customers or real
estate agents. Generally, the Bank makes conventional mortgage loans (loans of
80% of value or less that are neither insured nor partially
50
<PAGE>
guaranteed by government agencies) on one- to four-family owner occupied
dwellings. The Bank also makes residential loans up to 95% of the appraised
value if the top 20% of the loan is covered by private mortgage insurance.
Residential mortgage loans typically have terms up to 30 years and are amortized
on a monthly basis with principal and interest due each month. Currently, the
Bank offers one-year, three-year and five-year adjustable-rate mortgage loans
and long-term fixed rate loans. Borrowers may prepay loans at their option or
refinance their loans on terms agreeable to the Bank. The Bank's management
believes that due to prepayments in connection with refinancings and sales of
property, the average length of the Bank's long-term residential loans is
approximately nine years.
Since the middle of the 1960's, the terms of conventional residential
mortgage loans granted by the Bank have contained a "due-on-sale" clause which
permits the Bank to accelerate the indebtedness of a loan upon the sale or other
disposition of the mortgaged property. Due-on-sale clauses are an important
means of increasing the turnover of mortgage loans in the Bank's portfolio.
CONSUMER LOANS. The Bank makes various types of secured and unsecured
consumer loans, including home improvement loans. The Bank offers loans secured
by automobiles, boats and other recreational vehicles. The Bank believes that
the shorter terms and the normally higher interest rates available on various
types of consumer loans is helpful in maintaining a more profitable spread
between the Bank's average loan yield and its cost of funds.
COMMERCIAL LOANS. The Bank's commercial loans are made at rates of
interest indexed to the Bank of Boston Prime Rate and are most commonly adjusted
on a quarterly basis. While various forms of collateral are acceptable on
commercial loans, a majority of the Bank's commercial loans are secured by real
estate located within its primary lending area in New Hampshire.
Generally, the interest rates charged to commercial customers by the
Bank are a reflection of both the prevailing market conditions and the
assessment of risk associated with each individual borrower. Terms of repayment
may vary from loan to loan in relationship to the needs of the borrower. Since
1991, the Bank has increased its commercial lending division by hiring two
seasoned commercial lenders. The Bank expects its commercial loan portfolio to
trend toward the regulatory maximum amount of ten per cent of assets or $24
million from its current base of approximately $9 million.
MUNICIPAL LOANS. The Bank's activity in the municipal lending market
is limited to those towns and school districts located within our primary
lending area and such loans are extended for the purposes of either tax
anticipation, building improvements or other capital spending requirements.
Municipal lending is considered to be an area of accommodation and part of the
Bank's continuing involvement with the communities it serves.
HOME EQUITY LOANS. The Bank provides Home Equity Loans secured by
liens on residential real estate located within the Bank's market area. These
include loans with regularly scheduled principal and interest payments as well
as revolving credit agreements. The interest rate on these loans is adjusted
quarterly and tied to the movement of the Prime Rate.
ORIGINATION, PURCHASE AND SALE OF LOANS
The primary lending activity of the Bank is the origination of
conventional loans (i.e., loans that are neither insured nor guaranteed in whole
or in part by governmental agencies) secured by first mortgage liens on
residential properties, principally single-family residences, substantially all
of which are located in the west-central area of New Hampshire.
The Bank appraises the security for each new loan made. Appraisals
are made for the Bank by qualified sub-contracted appraisers. The appraisal of
the real property upon which the Bank makes a mortgage loan is of particular
significance to the Bank in the event that the loan is foreclosed, since an
improper appraisal may contribute to a loss by or other financial detriment to
the Bank in the disposition of the loan.
Detailed applications for mortgage loans are verified through the use
of credit reports, financial statements and confirmations. Depending upon the
size of the loan involved, a varying number of senior officers of the Bank must
approve the application before the loan can be granted. At times, the Executive
Committee of the Bank is called together to review particularly large loans.
The Bank requires title certification on all first mortgage loans and
the borrower is required to maintain hazard insurance on the security property.
51
<PAGE>
SERVICE CORPORATIONS
The Bank has an expanded service corporation authority because of its
conversion from a state-chartered mutual savings bank to a federal institution
in 1980. This authority, grandfathered in that conversion, permits the Bank to
invest 15% of its deposits, plus an amount of approximately $825,000, in service
corporation activities permitted by New Hampshire law. However, the first 3% of
these activities is subject to federal regulation and the remainder is subject
to state law. This permits a 3% investment in activities not permitted by state
law.
The Bank currently has two service corporations, the Lake Sunapee
Group, Inc., and the Lake Sunapee Financial Services Corporation. The Lake
Sunapee Group owns and maintains the Bank's buildings and investment properties.
COMPETITION
The Bank faces strong competition in the attraction of deposits. Its
most direct competition for deposits comes from the other thrifts and commercial
banks located in its primary market area. The Bank faces additional significant
competition for investors' funds from mutual funds and other corporate and
government securities.
The Bank competes for deposits principally by offering depositors a
wide variety of savings programs, a market rate of return, tax-deferred
retirement programs and other related services. The Bank does not rely upon any
individual, group or entity for a material portion of its deposits.
The Bank's competition for real estate loans comes from mortgage
banking companies, other thrift institutions and commercial banks. The Bank
competes for loan originations primarily through the interest rates and loan
fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers and builders. The Bank's competition for loans
varies from time to time depending upon the general availability of lendable
funds and credit, general and local economic conditions, current interest rate
levels, volatility in the mortgage markets and other factors which are not
readily predictable. During 1994, the Bank increased its outside origination
staff to four loan officers. These officers call on real estate agents, follow
leads, and are available seven days a week to service the mortgage loan market.
REGULATION
INSURANCE OF ACCOUNTS
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) to a maximum of $100,000 for each qualifying depositor of the
Bank. The insurance of deposits obtained from the FDIC requires the Bank to pay
the FDIC premiums, and subjects the Bank to extensive supervision and regulation
by the Office of Thrift Supervision (OTS). In addition, the Bank is audited
annually by an independent certified public accountant.
Insurance of accounts may be terminated by the FDIC after notice and
hearing, upon a finding by the FDIC that the Bank has violated its duty as an
insured institution or is engaging or has engaged in an unsafe or unsound
practice, or is in an unsafe or unsound condition to continue operating, or has
violated any applicable law, rule, regulation or order of or condition imposed
by the FDIC. In the event of termination, funds then on deposit would continue
to be insured for two years, and due notice of termination would be provided to
the depositors. Termination of insurance, however, has been extremely rare. The
FDIC has, and more often uses, alternative methods to secure compliance with
sound practice and with duly issued regulatory requirements. The Bank knows of
no practice, condition, or violation that might lead to termination of its
deposit insurance.
The Bank pays the FDIC annual premium charges for insurance of
accounts based on a percentage of the total amount of an institution's deposits.
During 1995, the Bank paid $440,439 in deposit insurance premiums. For
information regarding the resolution of the Savings Association Insurance Fund,
refer to page five of the "Report to Shareholders".
The Bank is required to maintain, through appropriations of current
income or retained income, certain reserve accounts which may be used only to
absorb losses, and to maintain its net worth at or above certain specified
minimum levels. Under such regulations, the Bank was required to have a core
capital as derived in applicable regulations on December 31, 1995, of 3% of
total assets. The Bank is in compliance with that requirement.
52
<PAGE>
If any insured institution fails to meet or maintain its net worth
requirements, the OTS may require decreased interest rates on such institution's
deposit account, impose limitations upon the opening of new accounts, lending
activities and operational expenditures and/or impose other limitations upon
such institution's business. In cases of flagrant violation, the OTS may take
steps toward termination of insurance.
REGULATORY AUTHORITY
The Bank is a member of the Federal Home Loan Bank System (FHLB),
which functions in a reserve credit capacity for certain home financing
institutions. Twelve regional Federal Home Loan Banks are contained within the
system. Each member institution is required by the Federal Home Loan Bank Act to
acquire and hold shares of capital stock in its respective district Federal Home
Loan Bank in an amount equal to at least 1% of the aggregate of the unpaid
principal of its home mortgage loans, home purchase contracts and similar
obligations at the beginning of the year. At December 31, 1995, the Bank owned
18,610 shares totaling $1,861,000 of capital stock in the Federal Home Loan Bank
of Boston which is in compliance with regulatory requirements.
The Office of Thrift Supervision regulations require, among other
things, that member institutions maintain liquid assets equal to a prescribed
percentage of the aggregate of net withdrawable deposit accounts and borrowings
payable in one year or less. At December 31, 1995, the liquid asset long-term
and short-term ratio requirements were 5% and 1%, respectively. The ratio is
divided into short-term liquidity (i.e., cash, time deposits, loans of federal
funds, banker's acceptances, and short-term, i.e., one year or less, treasury
obligations) and long-term liquid assets (i.e., treasury obligations of more
than one year and less than five years, state agency obligations having a term
of 18 months or less, etc.) in accordance with regulations. The liquidity
requirement is varied from time to time depending upon economic conditions and
the flow of money to member institutions. Penalties may be imposed upon member
institutions which are in violation of the liquidity requirements. The Bank is
presently in compliance with the liquidity regulations. For December 31, 1995,
its long-term and short-term liquid asset ratios were 11.92% and 7.54%.
TAXATION
Under applicable provisions of the Internal Revenue Code, (the
"Code"), thrift institutions that meet certain definitional tests relating
primarily to the composition of their assets and the sources of their income are
permitted to establish reserves for bad debts and to make annual reasonable
additions thereto which qualify as deductions from taxable income. A qualifying
institution may elect annually one of the following three methods to compute its
allowable additions to bad debt reserves on qualifying real property loans (i)
the percentage of taxable income method, (ii) the actual experience method, or
(iii) the percentage of eligible loans method. Since the year ended December 31,
1990, the Bank has used the actual experience method to compute its bad debt
deduction. As a result, there have been no additions to the tax bad debt
reserve. For the years ended December 31, 1986, through 1989, the Bank computed
its addition to the tax bad debt reserves using the percentage of taxable income
method to obtain the maximum, allowable deduction.
The reserve addition under the percentage of taxable income method
for stock savings banks is scaled downward in the event that less than 60% of
the stock savings bank's total assets consist of certain specified qualifying
assets (generally, loans secured by residential real estate or deposits,
educational loans, cash, government obligations and certificates of deposit).
Accumulations of additional non-qualifying assets by the Bank could reduce the
amount of the bad debt reserve deduction available. The bad debt reserve
deduction for reasonable additions is available only to the extent that the
amounts accumulated in total reserves for qualifying real estate loans do not
exceed 6% of such loans at year end. In addition, the annual reserve addition is
further limited to the amount by which 12% of total deposits for withdrawable
accounts of depositors at year end exceeds the sum of surplus, undivided profits
and reserves at the beginning of the year.
A thrift institution organized in stock form which utilizes the bad
debt reserve method described above will be subject to certain recapture taxes
on such reserves in the event it makes certain types of distributions to its
stockholders. Dividends may be paid out of appropriated retained income without
the imposition of any tax on an institution to the extent that the amounts paid
as dividends do not exceed such current and accumulated earnings and profits as
calculated for federal income tax purposes. Stock redemptions, dividends paid in
excess of an institution's current and accumulated earnings and profits as
calculated for tax purposes, and partial or complete liquidation distributions
made with respect to an institution's stock, however, are deemed under
applicable provisions of the Code to be made from the institution's bad debt
reserve, to the extent that such reserve exceeds the amount that could have been
accumulated under the actual experience method. In the event a thrift
institution makes a distribution that is treated as having been made from the
tax bad debt reserve, the distribution is treated as an after tax distribution
and the institution will be liable for tax on the gross amount before tax at the
then current
53
<PAGE>
tax rate. Amounts added to the bad debt reserves for federal income tax purposes
are also used by the Bank to meet the OTS reserve requirements described under
"Regulation-Insurance of Accounts."
At December 31, 1995, the Bank's retained earnings included
approximately $2,044,958 for which no provision for federal income taxes has
been made. If such amounts are used for any purpose other than to absorb loan
losses, the Bank will incur a tax liability at the current federal income tax
rate. At this time, the Bank does not anticipate that such amount will be made
available for payment of dividends or for any other purpose that would result in
the payment of federal income taxes.
The Bank's tax returns have been audited and accepted through
December 31, 1991 by the Internal Revenue Service.
STATE INCOME TAX
The Bank is subject to an annual Business Profits Tax (BPT) imposed
by the State of New Hampshire at the rate of 7.00% of the total amount of
federal taxable income, less deductions for interest earned on United States
government securities. During 1993, the State of New Hampshire instituted a
Business Enterprise Tax (BET), which places a tax on certain expense items.
Interest, dividends, wages, benefits and pensions are taxed at a rate of 0.25%.
Business Enterprise Taxes are allowed as a credit against the Business Profits
Tax.
Upon conversion to a holding company, NHTB became subject to a state
franchise tax imposed by Delaware. For the year ended 1995, the tax amounted to
$12,830.
54
<PAGE>
The following sets forth the maturities of the loan portfolio at December 31.
1995:
<TABLE>
<CAPTION>
One year One thru Over
Maturities: or less five years five years Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate Loans - $ 7,456,239 $26,734 216 $141,963,016 $ 176,153,471
---------------------------------------------------------
Real Estate Loans with:
Predetermined interest rates 1,393,001 6,394,695 17,804,965 25,592,661
Adjustable interest rates 6,063,238 20,339,521 124,158,051 150,560,810
---------------------------------------------------------
7 456,239 26,734,216 141,963,016 176,153,471
---------------------------------------------------------
Collateral Loans - 8,500,073 6,866,387 4,158,246 19,524,706
---------------------------------------------------------
Collateral Loans with:
Predetermined interest rates 7,803,880 4,150,938 844,015 12,798,833
Adjustable interest rates 696,193 2,715,449 3,314,231 6,725,873
---------------------------------------------------------
8,500,073 6,866,387 4,158,246 19,524,706
Consumer Loans - 5,000,039 25,779 - 5,025,818
---------------------------------------------------------
Consumer Loans with:
Predetermined interest rates 119,964 25,779 - 145,743
Adjustable interest rates 4,880,075 - - 4,880,075
---------------------------------------------------------
5,000,039 25,779 - 5,025,818
---------------------------------------------------------
Commercial/Municipal Loans- 1,818,188 5,135,300 2,347,540 9,301,028
---------------------------------------------------------
Commercial/Municipal Loans
Predetermined interest rates 923,134 1,366,265 137,394 2,426,793
Adjustable interest rates 895,054 3,769,035 2,210,146 6,874,235
---------------------------------------------------------
1,818,188 5,135,300 2,347,540 9,301,028
---------------------------------------------------------
Other Loans - 225,840 407,918 37,544 671,302
---------------------------------------------------------
Other Loans with:
Predetermined interest rates 164,438 322,417 15,065 501,920
Adjustable interest rates 61,402 85,501 22,479 169,382
---------------------------------------------------------
225,840 407,918 37,544 671,302
---------------------------------------------------------
TOTALS $23,000,379 $39,169,600 $148,506,346 $ 210,676,325
=========================================================
</TABLE>
The preceding schedule includes $297,172 of non-earning assets categorized
within the respective loan types.
55
<PAGE>
Item 2. Properties
The following table sets forth the location of the LSB offices and certain
additional information relating to these offices at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
YEAR NET BOOK VALUE EXPIRATION LEASE RENEWAL
LOCATION OPENED LEASED OWNED DATE OF LEASE OPTION
- -------------------------------------------------------------------------------------------------------
Corporate Office
9 Main Street
Newport, NH 1868 $ 1,398,082
Guild Office
Guild Road
Newport, NH 1978 $ 59,463
Bradford Office
Main Street
Bradford, NH 1975 $ 56,963
Grantham Office
Route 10
Grantham, NH 1980 $ 248,991
Lebanon Office
Heater Road
Lebanon, NH 1986 $ 470,312
New London Office
Route 11
New London, NH 1981 $ 201,494
Sunapee Office
Route 11
Sunapee, NH 1965 $ 82,722
Andover Office (l)
Jet Rte 4A and 11
Andover, NH 1987 $ 35,941 1997
Hillsboro Office
15 Antrim Road
Hillsboro, NH 1994 $ 18,563 1997 7 Years
West Lebanon Office (1)
83 Main Street
West Lebanon, NH 1994 $ 162,346 1999 15 Years
</TABLE>
(1) Operating lease, value of improvements.
Employees: At December 31, 1995, LSB had a total of 82 full-time employees and
22 part-time employees. These employees are not represented by collective
bargaining agents. LSB believes that its relationship with its employees is
good.
Item 3. Legal Proceedings
There is no material litigation pending in which the Company is a party or which
the property of the Company is subject.
56
<PAGE>
PART II.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The following table shows the market range for the Company's Common Stock based
on reported sales prices on the NASDAQ Market System. New Hampshire Thrift
Bancshares, Inc. is traded under the symbol NHTB.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------------- ------- -------
<S> <C> <C> <C>
1995 First Quarter $ 10 $8 7/8
Second Quarter 10 1/4 8 3/4
Third Quarter 11 9 1/2
Fourth Quarter 11 9 3/4
1994 First Quarter $ 9 1/2 $8 3/4
Second Quarter 10 3/4 8 7/8
Third Quarter 10 1/2 9 1/2
Fourth Quarter 10 1/4 8 1/2
</TABLE>
The bid quotations set forth above represent prices between dealers and do not
include retail mark-ups, mark-downs or commissions and may not represent actual
transactions. As of December 31, 1995, New Hampshire Thrift Bancshares, Inc. had
approximately 792 stockholders of record. The number of stockholders does not
reflect the number of persons or entities who held their stock in nominee or
"street" name through various brokerage firms.
The following table sets forth certain information regarding per share
dividends declared on the Company's Common Stock:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
First Quarter $.125 $.125
Second Quarter .125 .125
Third Quarter .125 .125
Fourth Quarter .125 .125
</TABLE>
For information regarding limitations of the declaration and payment of
dividends by New Hampshire Thrift Bancshares, Inc., see Note 14 of the Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item is contained on pages 16 through 22 of
this document.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
The information called for by this item is contained on pages 7 through 22 of
this document.
ITEM 8. FINANCIAL STATEMENTS
The report of independent accountants and the financial information called for
by this item are contained on pages 23 through 46 of this document.
57
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant
Certain information relating to directors and executive officers of the Company,
executive compensation, security ownership of certain beneficial owners and
management, and certain relationships and related transactions is incorporated
by reference herein from the Company's definitive proxy statement in connection
with its Annual Meeting of Shareholders to be held on April 10, 1996, which
proxy statement will be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
Certain information relating to directors and executive officers of the Company,
executive compensation, security ownership of certain beneficial owners and
management, and certain relationships and related transactions is incorporated
by reference herein from the Company's definitive proxy statement in connection
with its Annual Meeting of Shareholders to be held on April 10, 1996, which
proxy statement will be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Certain information relating to directors and executive officers of the Company,
executive compensation, security ownership of certain beneficial owners and
management, and certain relationships and related transactions is incorporated
by reference herein from the Company's definitive proxy statement in connection
with its Annual Meeting of Shareholders to be held on April 10, 1996, which
proxy statement will be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Certain information relating to directors and executive officers of the Company,
executive compensation, security ownership of certain beneficial owners and
management, and certain relationships and related transactions is incorporated
by reference herein from the Company's definitive proxy statement in connection
with its Annual Meeting of Shareholders to be held on April 10, 1996, which
proxy statement will be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year.
58
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements are included in Item
8:
Consolidated Statements of Financial Condition for December 31, 1995
and 1994.
Consolidated Statements of Income for Years ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Changes in Shareholders' Equity for Years
ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for Years ended December 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
(a) 2. Supplementary Financial Statements
None.
(a) 3. Listing of Exhibits
Exhibits have been filed separately with the Securities and Exchange
Commission in connection with this annual report on Form 10-KSB or have been
incorporated into the report by reference.
(b) Reports on Form 8-K
There have been no 8-K filings during the three months ended December
31, 1995.
(c) Exhibits
None.
(d) Financial Statement Schedules
Schedules other than those listed above have been omitted since they
are either not required or the information is otherwise included.
59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
New Hampshire Thrift Bancshares, Inc. Date March 8, 1996
By: /s/ John J. Kiernan Chairman of the Board
------------------
(John J. Kiernan)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ John J. Kiernan Chairman of the Board March 8, 1996
- ---------------------------
(John J. Kiernan)
/s/ Stephen W. Ensign Director, President and March 8, 1996
- ---------------------------
(Stephen W. Ensign) Chief Executive Officer
/s/ Ralph B. Fifield, Jr. Director March 8, 1996
- ---------------------------
(Ralph B. Fifield, Jr.)
/s/ John E. Johannessen Director March 8, 1996
- ---------------------------
(John E. Johannessen)
/s/ John A. Kelley, Jr. Director March 8, 1996
- ---------------------------
(John A. Kelley, Jr.)
/s/ Dennis A. Morrow Director March 8, 1996
- ---------------------------
(Dennis A. Morrow)
/s/ Priscilla W. Ohler Director March 8, 1996
- ---------------------------
(Priscilla W. Ohler)
/s/ Perry R. Smith, Jr. Director March 8, 1996
- ---------------------------
(Perry R. Smith, Jr.)
/s/ Stephen R. Theroux Director, Executive Vice President and March 8, 1996
- ---------------------------
(Stephen R. Theroux) Chief Financial Officer
/s/ Kenneth D. Weed Director March 8, 1996
- ---------------------------
(Kenneth D. Weed)
</TABLE>
60
<PAGE>
DIRECTORS AND OFFICERS OF NEW HAMPSHIRE THRIFT BANCSHARES, INC.
DIRECTORS
- ---------
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
President and
Chief Executive Officer
Stephen R. Theroux
Executive Vice President and Chief Financial Officer
Ralph B. Fifield, Jr.
Executive Vice President
Lending and Commercial Finance
John E. Johannessen
Retired Executive
Mobil Corporation
John A. Kelley, Jr.
Real Estate Developer
Dennis A. Morrow
Sales Manager
Cote & Reney Lumber Company
Priscilla W. Ohler
Community Representative
Perry R. Smith, Jr., Retired
Co-owner Lake Sunapee
Realty Company, Inc.
Kenneth D. Weed, Partner
L.E. Weed and Son
Everett R. Reney (Emeritus)
Retired Partner
Cote & Reney Lumber Company
OFFICERS
- --------
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
President and
Chief Executive Officer
Stephen R. Theroux
Executive Vice President and Chief Financial Officer
Linda L. Oldham
Senior Vice President
and Secretary
Sandra M. Blackington
Assistant Secretary
DIRECTORS AND OFFICERS OF LAKE SUNAPEE BANK, FSB
DIRECTORS
- ---------
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
President and
Chief Executive Officer
Stephen R. Theroux
Executive Vice President and Chief Financial Officer
Ralph B. Fifield, Jr.
Executive Vice President
Lending and Commercial Finance
John E. Johannessen
Retired Executive
Mobil Corporation
John A. Kelley, Jr.
Real Estate Developer
Dennis A. Morrow
Sales Manager
Cote & Reney Lumber Company
Priscilla W. Ohler
Community Representative
Perry R. Smith, Jr., Retired
Co-owner Lake Sunapee Realty Company, Inc.
Kenneth D. Weed, Partner
L.E. Weed and Son
Everett R. Reney
(Emeritus)
Retired Partner
Cote & Reney Lumber Company
OFFICERS
- --------
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
President and
Chief Executive Officer
Stephen R. Theroux
Executive Vice President and Chief Financial Officer
Ralph B. Fifield, Jr.
Executive Vice President
Lending and Commercial Finance
ACCOUNTING AND ADMINISTRATION
Daryl J. Cady
Vice President and
Controller
Sandra M. Blackington
Assistant Secretary
BUSINESS DEVELOPMENT
Peter R. Lovely
Senior Vice President
COMPLIANCE AND INTERNAL AUDIT
H. Bliss Dayton
Vice President
Linda M. Basher
Assistant Vice President
Arthur W. Phillips
Assistant Vice President and Certified Real Estate Appraiser
EDUCATION AND HUMAN RESOURCES
Betty H. Ramspott
Vice President
LENDING
W. Grant MacEwan
Senior Vice President
Commercial Lending
Sharon L. Whitaker
Vice President
LOAN ORIGINATION
Robert C. O'Brien
Senior Vice President
Colin S. Campbell
Vice President
Elizabeth C. Crockford
Assistant Vice President
Stephen B. Ellis
Assistant Vice President
Peter N. Jennings
Loan Officer
OPERATIONS
Robert S. Simpson
Vice President
Sandra J. Luckury
Assistant Vice President
Gail A. Fraser
Assistant Vice President
Francetta Raymond
Assistant Vice President
SHAREHOLDER RELATIONS AND SECRETARY
Linda L. Oldham
Senior Vice President
RETAIL OFFICES
HOME OFFICE
9 Main Street
Newport, NH 03773
(603) 863-5772
(800) 281-5772
Terri G. Spanos
Assistant Vice President
Junction Route 4A and 11
Andover, NH 03216
(603) 735-5772
Sue-Anne C. Bourbeau Supervisor
Main Street
Bradford, NH 03221
(603) 938-2277
Nancy E. Desmarais Supervisor
Route 10
Grantham, NH 03753
(603) 863-5600
Anita G. Sanborn
Manager
15 Antrim Road
Hillsboro, NH 03244
(603) 464-4820
Virginia S. Landers
Supervisor
Heater Road
Lebanon, NH 03766
(603) 448-2566
Erik C. Cinquemani
Assistant Vice President
Newport Road
New London, NH 03257
(603) 526-6933
Heather K. Melson
Assistant Vice President
Maxine B. Wiggins
Customer Service Officer
Guild Road
Newport, NH 03773
(603) 863-1428
Sherri A. Cummings
Supervisor
Route 11
Sunapee, NH 03782
(603) 763-2511
Heide Hubert Menard
Supervisor
83 Main Street
West Lebanon, NH 03784
(603) 298-7500
Raymond G. Morin
Supervisor
AFFILIATED COMPANY
Charter Trust Company
90 North Main Street
Concord, NH 03302
(603) 224-1350
(800) 639-5903
<PAGE>
=================
BOARD OF ADVISORS
Philip D. Allen /(1)/
Prunella O. Anastos
Benjamin K. Barton
Kenneth O. Barton
George O. Binzel
William A. Bittinger
Paul R. Boucher
James F. Briggs
Robert S. Burgess
Walton W. Chadwick
Earle W. Chandler
F. Read Clarke
Jacqueline C. Cote
Robert J. Cricenti
Richard F. Curtis
Ernest G. Dennis, Jr.
Terri C. Dudley
William J. Faccone, Sr.
Gordon B. Flint, Sr.
John W. Flynn, Jr.
John W. Flynn, Sr.
Charles E. Goyette, Jr.
Sam N. Hale
Sheffield J. Halsey
Louise K. Hastings
Howard T. Heintz
Douglas J. Homan
Rita M. Hurd
Lisa S. Hustis
Alf E. Jacobson
Robert B. Jennings
Michael D. Johnson
John J. Kiernan, Jr.
Jeffrey A. Lantz
Victor W. Laro
Paul J. Linehan
Robert A. MacNeil
Elizabeth W. Maiola
Raymond A. Manning
John J. Marcotte
Jerry N. Mathis
David W. McClintic
Denise A. McClintic
Thomas F. McCormick
J. David McCrillis
John C. McCrillis
Paul S. Olsen
Daniel P. O'Neill
David N. Reney
Genelle M. Richards
J. Barrie Sellers
Edwin G. Sielewicz
Fredric M. Smith
Herbert N. Smith
Fred F. Stockwell
Earl F. Strout
James R. Therrien
Janis H. Wallace
James P. Wheeler
Bradford C. White
John W. Wiggins, Sr.
Peter Wittman
Thomas B. Woodger
Michael J. Work
/(1)/ Honorary
=======================
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
New Hampshire Thrift Bancshares, Inc.
The Carriage House
PO Box 37
New London, New Hampshire 03257-0037
TRANSFER AGENT
Chemical Mellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
Tel: 1-800-851-9677
INDEPENDENT ACCOUNTANTS
Berry, Dunn, McNeil & Parker
Rivermill Complex, Suite 400
85 Mechanic Street
Lebanon, New Hampshire 03766
===========================
INFORMATION ON COMMON STOCK
The common stock is traded over-the-counter and quoted on the NASDAQ National
Market System under the symbol NHTB. There were approximately 792 shareholders
of record on December 31, 1995.
The following table sets forth the Company's high and low prices for the common
stock as reported by NASDAQ for the periods indicated:
1995 HIGH LOW
- -------------------------------------
First Quarter $ 10 $ 8 7/8
Second Quarter 10 1/4 8 3/4
Third Quarter 11 9 1/2
Forth Quarter 11 9 3/4
62
<PAGE>
=====
NOTES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
=====
NOTES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
PO BOX 37, NEW LONDON, NEW HAMPSHIRE 03257-0037
(603) 526-2116
<PAGE>
Appendix E-2
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended June 30, 1996
-------------
Commission File Number 0-17859
-------
NEW HAMPSHIRE THRIFT
BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
State of Delaware 02-0430695
(State of Incorporation) (IRS Employer I.D. Number)
New London, New Hampshire 03257
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 603-526-2116
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 X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, $.01 par value per share, as of July 11, 1996 was 1,691,803.
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1 Financial Statements:
Consolidated Statements of Financial Condition - 1
June 30, 1996 and December 31, 1995
Consolidated Statements of Income - 2
For the Three Months Ended June 30, 1996 and 1995 and
the Six Months Ended June 30, 1996 and 1995
Consolidated Statements of Changes In Shareholders' Equity - 3
For the Three Months Ended June 30, 1996 and 1995 and the
Six Months Ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows - 4
For the Six Months Ended June 30, 1996 and 1995
Notes To Consolidated Financial Statements - 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations - 13
PART II. OTHER INFORMATION 18
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Common Shareholders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
Part 1. Item 1.
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIAR1ES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, 1996 December 31, 1995
ASSETS ------------- -----------------
Cash and due from banks 7,660,216 7,544,297
Federal funds sold - 3,449,000
Securities held to maturity 368,054 393,054
Securities available for sale 25,234,393 25,718,260
Other investments 2,307,557 2,303,285
Loans held for sale 1,000,855 3,095,971
Loans receivable, net 211,438,852 205,073,080
Accrued interest receivable 1,550,660 1,433,882
Bank premises and equipment, net 5,794,351 5,955,394
Real estate owned and property acquired in settlement of loans 819,679 984,185
Non-earning assets 1,444,239 297,172
Other assets 907,269 1,968,497
------------- -------------
Total assets $ 258,526,125 $ 258,216,077
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 200,303,248 $ 199,970,921
Repurchase agreements 4,201,001 9,552,825
Federal funds purchased 1,143,000 -
Advances from Federal Home Loan Bank 31,27O,344 26,936,168
Accrued expense and other liabilities 2,133,405 2,212,158
----------- -----------
Total liabilities 239,050,998 238,672,072
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value - -
Common stock, $.01 par value 1,691,803 shares outstanding
as of June 30, 1996 and 1,689,503 as of December 31, 1995 21,473 21,473
Paid-in capital 13,167,570 13,167,382
Retained earnings 9,079,266 8,673,504
Unrealized gain (loss) on securities available for sale (394,297) 97,594
----------- -----------
21,874,012 21,952,953
Treasury stock, at cost, 455,479 shares as of
June 30, 1996 and 457,779 as of December 31, 1995 (2,398,885) (2,408,948)
----------- -----------
Total shareholders' equity 19,475,127 19,544,005
----------- -----------
Total liabilities and shareholders' equity $ 258,526,125 $ 258,216,077
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
1
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 1996 and 1995
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Month Ended June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Income of loans $ 4,176,389 $ 3,899,303 $ 8,243,982 $ 7,587,163
Interest and dividends on investments 463,931 405,773 953,543 763,011
----------- ----------- ----------- -----------
Total interest income 4,640,320 4,305,076 9,197,525 8,350,174
----------- ----------- ----------- -----------
Interest expense
Interest paid to depositors 2,066,025 1,990,734 4,198,985 3,853,261
Interest on advances and other borrowed
money 455,074 415,781 855,820 698,806
----------- ----------- ----------- -----------
Total interest expense 2,521,099 2,406,515 5,054,805 4,552,067
----------- ----------- ----------- -----------
Net interest income 2,119,221 1,898,561 4,142,720 3,798,107
Provision for loan losses, net 522,554 280,000 744,191 580,000
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 1,596,667 1,618,561 3,398,529 3,218,107
----------- ----------- ----------- -----------
Non-interest income
Customer service fees 327,429 210,118 563,762 471,493
Loan origination fees 23,623 15,914 42,062 32,066
Net gain on sale of securities and bank
property 262,427 15,087 259,873 21,577
Rental income 55,393 55,049 111,392 110,854
Brokerage service income 40,924 32,548 107,638 59,477
Other income 671 595 1,966 16,235
----------- ----------- ----------- -----------
Total other operating income 710,467 329,311 1,086,693 711,702
----------- ----------- ----------- -----------
Other operating expenses
Salaries and employee benefits 734,965 696,344 1,558,905 1,525,916
Occupancy expenses 327,313 293,518 655,002 603,466
Advertising and promotion 50,648 41,519 64,745 99,916
Depositors insurance 114,747 109,883 227,775 219,765
Outside services 92,759 80,380 182,381 161,442
Other expenses 271,621 343,052 560,184 652,203
----------- ----------- ----------- -----------
Total other operating expenses 1,592,053 1,564,696 3,248,992 3,262,708
----------- ----------- ----------- -----------
Income before provision for income
taxes 715,081 383,176 1,236,230 667,101
Provision for income taxes 235,700 126,000 408,000 220,000
----------- ----------- ----------- -----------
Net income $ 479,381 $ 257,176 $ 828,230 $ 447,101
=========== =========== =========== ===========
Earnings per common share $ .28 $ .15 $ .49 $ .26
=========== =========== =========== ===========
Dividends declared per common share $ .125 $ .125 $ .25 $ .25
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
2
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended June 30, 1996 and 1995
and the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
COMMON STOCK
Balance, beginning and end of period $ 21,473 $ 21,743 $ 21,473 $ 21,473
============ ============ ============ ============
PAID-IN CAPITAL
Balance, beginning of period $ 13,160,382 $ 13,103,404 $ 13,160,382 $ 13,103,404
Change during the period 7,188 1,900 7,188 1,900
------------ ------------ ------------ ------------
Balance, end of period $ 13,167,570 $ 13,105,304 $ 13,167,570 $ 13,105,304
============ ============ ============ ============
RETAINED EARNINGS
Balance, beginning of period $ 8,811,185 $ 8,249,145 $ 8,673,504 $ 8,268,094
Net income 479,381 257,176 828,230 447,101
Cash dividends paid (211,280) (208,949) (422,468) (417,823)
------------ ------------ ------------ ------------
Balance, end of period $ 9,079,266 $ 8,297,372 $ 9,079,266 $ 8,297,372
============ ============ ============ ============
UNREALIZED GAIN (LOSS) ON SECURITIES
AVAILABLE FOR SALE
Balance, beginning of period $ (167,398) $ (437,252) $ 97,594 $ (728,667)
Adjustment to fair value (343,899) 144,461 (745,891) 192,876
Effect of change in deferred taxes 117,000 151,000 254,000 394,000
------------ ------------ ------------ ------------
Balance, end of period $ (394,297) $ (141,791) $ (394,297) $ (141,791)
============ ============ ============ ============
TREASURY STOCK
Balance, beginning of period $ (2,408,948) $ (2,411,430) $ (2,408,948) $ (2,411,430)
Exercise of stock options (2,300 shares at
June 30, 1996 and 608 shares at June
30, 1995) 10,063 2,660 10,063 2,660
------------ ------------ ------------ ------------
Balance, end of period $ (2,398,885) $ (2,408,770) $ (2,398,885) $ (2,408,770)
============ ============ ============ ============
</TABLE>
The accompanying note to consolidated financial statements are an integral
part of these statements.
3
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 828,230 $ 447,101
------------------ ---------------
Adjustments to reconcile net income to net
cash provided by operating activites-
Depreciation and amortization 235,558 216,418
Loans originated for sale (6,301,226) (4,931,893)
Proceeds from sale of loans 6,309,540 4,936,030
Gain from sale of loans (8,314) (4,137)
Loss from sale of debt securities available for sale 731 4,199
Gain from sale of equity securities available for sale - (21,639)
Gain from sale of bank premises and equipment (253,497) -
Provision for loan losses 744,191 580,000
Provision for deferred taxes - (64,200)
(Increase) decrease in accrued interest and other assets 970,411 (395,420)
Decrease in deferred loan fees (42,005) (74,163)
Increase in accrued expenses and other liabilities 184,324 1,668,991
------------------ ---------------
Net cash provided by operating activities 2,667,943 2,361,287
------------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (151,018) (269,028)
Proceeds from sale of bank premises and equipment 330,000 -
Proceeds from sale of debt securities available for sale 951,471 1,384,091
Proceeds from sale of equity securities available for sale 200,000 448,414
Principal reductions on securities held to maturity 25,000 25,000
Purchase of securities available for sale (3,842,459) (3,934,770)
Purchase of Federal Home Loan Bank Stock - (247,000)
Maturities of securities available for sale 2,398,000 100,000
Net increase in loans to customers (4,972,842) (10,242,845)
(Increase) decrease in non-earning assets (1,147,067) 520,154
Decrease in real estate owned 164,506 223,331
------------------ ---------------
Net cash used in investing activities (6,044,409) (11,992,653)
------------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits and repurchase agreements (5,019,497) 3,188,726
Increase in advances from Federal Home Loan Bank 5,477,176 7,763,778
Net change in other borrowed money (9,077) (5,658)
Dividends paid (422,468) (417,822)
Exercise of stock options 17,251 4,560
------------------ ---------------
Net cash provided by financing activities 43,385 10,533,584
------------------ ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,333,081) 902,218
CASH AND CASH EQUIVALENTS, beginning of period 10,993,297 8,253,588
------------------ ---------------
CASH AND CASH EQUIVALENTS, end of period $ 7,660,216 $ 9,155,806
================== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposit accounts $ 4,215,158 $ 3,818,906
Interest on advances and other borrowed money $ 853,362 $ 631,555
------------------ ---------------
Total interest paid $ 5,068,520 $ 4,450,461
================== ===============
Income taxes, net $ 190,619 $ 139,252
================== ===============
Supplemental disclosure of noncash investing and financing activities:
Transfers from loans to real estate acquired through foreclosure $ - $ 40,000
================== ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and December 31, 1995
1. Summary of significant accounting policies:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of New Hampshire Thrift Bancshares, Inc. (NHTB or Company, a unitary
holding company), Lake Sunapee Bank fsb (LSB), Lake Sunapee Group, Inc. (LSGI),
and Lake Sunapee Financial Services Corp. (LSFSC). LSB is owned by the holding
company and the other entities are wholly-owned subsidiaries of LSB. All
significant intercompany accounts and transactions have been eliminated. The
financial statements include all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
three months and the six months ended June 30, 1996 and 1995.
EARNINGS PER SHARE - Earnings per share are calculated using the weighted
average number of shares outstanding at the end of the period plus common stock
equivalents, as appropriate, resulting from the granting of incentive stock
options. Common stock equivalents are determined using the treasury method.
Common stock equivalents are included in the computation of earnings per share
if they nave a dilutive effect. As of June 30, 1996 and 1995, there was a
dilutive effect from stock options. The number of shares used in computing
earnings per share was 1,695,931 and 1,694,095 for the periods ended June 30,
1996 and 1995, respectively.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the Bank
considers federal funds sold and due from banks to be cash equivalents.
TREASURY STOCK - Treasury Stock is accounted for at cost when purchased. Sales
of Treasury Stock are on a first in first out basis at cost. Any gain on the
sale of Treasury Stock is recorded to Paid-in Capital.
MORTGAGE SERVICING RIGHTS - Effective January 1, 1996, Lake Sunapee Bank, fsb
recorded as a separate asset the rights to service mortgage loans for others
according to FAS No. 122 "Accounting for Mortgage Servicing Rights." The
accounting standard is effective for loans sold after December 31, 1995. The
mortgage servicing rights (MSR's) are valued at the lower of cost or market on
an aggregate basis. The MSR's are amortized on a straight-line basis over the
anticipated life of the related loans.
5
<PAGE>
NEW HAMPSHIRE THRIFT BALNCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and December 31, 1995
2. Securities
The amortized cost and appropriate market value of securities are summarized
as follows:
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gain Loss Cost
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity:
Bonds and notes-
Municipal bonds $ 368,054 $ - $ - $ 368,054
----------------------------------------------------------------
Total held to maturity 368,054 - - 368,054
----------------------------------------------------------------
Available for Sale:
Bonds and notes -
U.S. Treasury Notes 12,746,404 3,990 209,440 12,951,854
U.S Government, including
agencies 2,484,811 7,040 82,824 2,560,595
Other bonds and debentures 8,658,928 18,617 199,080 8,839,392
----------------------------------------------------------------
23,890,143 29,648 491,344 24,351,840
Equity securities 1,344,250 18,575 154,175 1,479,850
----------------------------------------------------------------
Total available for sale 25,234,393 48,223 645,519 25,831,690
----------------------------------------------------------------
Investments at cost:
Federal Home Loan Bank Stock 1,861,000 - - 1,861,000
Other securities 446,557 - - 446,557
----------------------------------------------------------------
Total investments at cost 2,307,557 2,307,557
----------------------------------------------------------------
Total securities $ 27,910,004 $ 48,223 $ 645,519 $ 28,507,301
================================================================
<CAPTION>
December 31, 1995
----------------------------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gain Loss Cost
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity:
Bonds and notes-
Municipal bonds $ 393,054 $ - $ - $ 393,054
---------------------------------------------------------------
Total held to maturity 393,054 - - 393,054
---------------------------------------------------------------
Available for Sale:
Bonds and notes -
U.S. Treasury Notes 12,139,529 147,900 3,166 11,994,795
U.S Government, including
agencies 2,724,130 33,249 40 2,690,921
Other bonds and debentures 9,352,476 104,119 38,416 9,286,773
---------------------------------------------------------------
24,216,135 285,268 41,622 23,972,489
Equity securities 1,502,125 11,750 106,800 1,597,175
---------------------------------------------------------------
Total available for sale 25,718,260 297,018 148,422 25,569,664
---------------------------------------------------------------
Investments at cost:
Federal Home Loan Bank Stock 1,861,000 - - 1,861,000
Other securities 442,285 - - 442,285
---------------------------------------------------------------
Total invesment at cost 2,303,285 2,303,285
---------------------------------------------------------------
Total securities $ 28,414,599 $ 297,018 $ 148,422 $ 28,266,003
===============================================================
</TABLE>
6
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
3. Loans
Loans consisted of the following as of: June 30, December 31,
1996 1995
-------------- ---------------
<S> <C> <C>
Real estate loans -
Conventional $ 180,898,716 $ 175,130,966
Construction 693,630 2,456,763
-------------- ---------------
181,592,346 177,587,729
Less: Unadvanced portion 321,596 1,434,258
-------------- ---------------
Total real estate loans 181,270,750 176,153,471
Collateral loans 21,620,233 19,524,706
Consumer loans 4,753,166 5,025,818
Commercial and municipal loans 7,998,711 9,301,028
Other loans 88,536 671,302
-------------- ---------------
Total loans 215,731,396 210,676,325
Less: Reserve for loan losses 1,507,413 1,828,060
Deferred loan origination fees 340,037 382,042
Non-earning assets 1,444,239 297,172
-------------- ---------------
Net loans $ 212,439,707 $ 208,169,051
============== ===============
A summary of activity in the reserve for loan loss account consisted of the
following as of:
<CAPTION>
June 30, December 31,
1996 1995
-------------- ---------------
<S> <C> <C>
BALANCE, beginning of period $ 1,828,060 $ 2,752,885
----------- ---------------
Loans charged-off:
Real estate loans -
Conventional 329,300 141,541
Construction 649,274 1,014,670
Collateral and consumer loans 15,199 25,568
Commercial and municipal loans 75,424 913,441
----------- ---------------
Total charged-off loans 1,069,197 2,095,220
----------- ---------------
Recoveries:
Real estate loans -
Conventional 3,963 3,300
Collateral and consumer loans 396 2,099
Commercial and municipal loans - 1,286
----------- ---------------
Total recoveries 4,359 6,685
----------- ---------------
Charged-off loans, net of recoveries 1,064,838 2,088,535
----------- ---------------
Provision for loan losses charged to income 744,191 1,163,710
----------- ---------------
BALANCE, end of period $ 1,507,413 $ 1,828,060
=========== ===============
Ratio of net charged-off loans during the period
to average loans outstanding during the period 0.50% 1.02%
=========== ===============
</TABLE>
7
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLDIATED FINANCIAL STATEMENTS - (continued)
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
3. Loans (continued):
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Non-earning assets $1,444,239 $ 297,172
Amount of interest income which would have been earned 61,426 55,864
Amount of interest income that was included in net income 23,001 13,553
Troubled debt restructured 524,338 445,417
In addition to non-earning assets, non-accrual
loans included the following amount of delinquent loans 856,135 1,144,293
EFFECT OF FASB NO. 66:
Loans reclassified to real estate owned $ 366,316 $ 370,672
Interest income reduced by 12,734 23,063
IMPAIRED LOANS:
Average recorded investment in impaired loans $ 810,596 $ 934,829
Investment in impaired loans, end of period 493,645 1,452,049
Portion of valuation allowance allocated to impaired loans 52,412 654,663
Net balance of impaired loans 441,232 797,386
Interest income recognized on impaired loans 17,345 102,449
Interest income on impaired loans on cash basis 14,454 97,401
</TABLE>
There are no impaired loans which do not have a valuation allowance assigned to
them.
Interest income on impaired loans is recognized using the accrual basis
accounting method when the impaired loan is less than 90 days past due and has
not been reclassified to non-accrual status. Interest income on impaired loans
over 90 days past due and on loans placed on non-accrual status is recognized on
the cash basis method. Cash receipts on impaired loans are recorded as both
interest income and a reduction in the impaired loan balance consistent with the
terms of the underlying contractual agreement. The net balance of impaired loans
represents the aggregate fair value or present value of expected cash flows on
individual loans identified as impaired. A loan becomes impaired when it is
probable all amounts due on the loan will not be received. A loan is placed on
non-accrual status when it is likely interest income will not be received. Non-
accrual loans are reviewed for possible impairment. Impaired loans are written-
down or charged-off when it has been determined the asset has such little value
that it no longer warrants remaining on the books. The decision to charge-off is
made on a case-by-case basis.
The Bank had no extensions of credit to affiliated parties in excess of 5% of
shareholders' equity at any time during the six months ended June 30, 1996.
MORTGAGE SERVICING RIGHTS - As of June 30, 1996, the fair value of MSR's was
$48,963. The significant assumptions used to estimate fair value included a
prepayment risk based on current market pricing information, a discount rate of
1% above the U. S. Treasury bond rate, and industry averages for other
significant assumptions. MSR's capitalized were reduced by S2,448 of
amortization during the quarter. For purposes of evaluating and measuring
impairment of MSR's, the Company stratifies the underlying loans by maturity and
by interest rate. As of June 30, 1996, the Company stratified its loans by
maturity into 15 and 30 year loans and stratified loans in each of the maturity
categories by every one-half percent change in interest rates. There is no
impairment to the value of the MSR's recorded during the quarter ended June 30,
1996.
8
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
4. Deposits:
Deposit accounts consisted of the following as of:
June 30, December 31,
1996 1995
----------- --------------
Checking Accounts (non-interest bearing) $ 9,403,790 $ 10,934,512
NOW Accounts 25,951,723 26,014,007
Ever-Ready Money Market 12,241,216 13,971,617
Regular Savings Accounts 10,252,895 11,363,366
Treasury Savings Accounts 45,878,940 44,388,408
Club Deposits 327,829 87,779
Time Deposits:
$100,000 and over 12,302,412 11,924,585
Other Time Deposits 83,944,443 81,286,647
------------ ------------
$200,303,248 $199,970,921
============ ============
REPURCHASE AGREEMENTS - As of June 30, 1996, fifteen repurchase agreements were
outstanding. Repurchase agreements are secured by U.S. Treasury Notes held by a
third party in safekeeping with a fair value of $12,746,404. The maturities of
the repurchase agreements are from July 13, 1996 to June 30, 1997 on the
anniversary date of the repurchase agreement.
5. Advances from Federal Home Loan Bank:
Advances from the Federal Home Loan Bank consisted of loans, at various
interest rates ranging from 4.87% to 7.32%, maturing as follows:
June 30, December 31,
1996 1995
----------- --------------
1996 (4.87% - 6.78%) $ 11,096,320 $ 6,762,143
1997 (4.87% - 7.32%) 7,927,707 7,927,707
1998 (4.87% - 5.82%) 7,166,033 7,166,033
1999 (5.78%) 56.084 56,085
2000 and after (5.74% - 5.82%) 5,024,200 5,024,200
------------ ------------
$ 31,270,344 $ 26,936,168
============ ============
These advances are secured by Federal Home Loan Bank Stock (Note 2) and
unspecified first mortgage loans. The Bank is able to borrow up to an additional
$46,000,000 of Federal Home Loan Bank advances.
In addition to the above advances, the Bank has credited available up to
$5,167,000 under a revolving loan agreement with the Federal Home Loan Bank. As
of June 30, 1996, $1,143,000 had been borrowed against this line of credit.
Interest is payable monthly as funds are borrowed.
9
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
June 30, 1996 and December 31, 1995
6. Shareholders' Equity:
On May 22, 1986, Lake Sunapee Bank fsb received approval from the Federal
Home Loan Bank Board and converted from a federally-chartered mutual savings
bank to a federally-chartered stock savings bank. Net proceeds of the
conversion (after deducting applicable costs of conversion) were
$11,889,397.
At the time of conversion, the Bank established a liquidation account in an
amount of $4,292,510 (equal to the Bank's net worth as of the date of the
latest financial statement included in the final offering circular used in
connection with the conversion). The liquidation account will be maintained
for the benefit of eligible account holders who maintain their deposit
accounts in the Bank after conversion. In the event of a complete
liquidation of the Bank subsequent to conversion (and only in such event),
each eligible account holder will be entitled to receive a liquidation
distribution from the liquidation account before any liquidation
distribution may be made with respect to capital stock. The amount of the
liquidation account is reduced to the extent that the balance of eligible
deposit accounts are reduced on any year-end closing date subsequent to the
conversion.
The Bank may not declare or pay a cash dividend on or purchase any of its
stock if the effect would be to reduce the net worth of the Bank below
either the amount of the liquidation account or the net worth requirements
of the Office of Thrift Supervision.
DIVIDENDS - The Board of Directors, at their July meeting, declared a cash
---------
dividend of $0.125 per share payable July 29, 1996
7. Stock Options:
On January 3, 1995, 30,000 options were granted from previously forfeited
shares of the 1986 plan at an exercise price of $9.00 per share, the fair
market value on that date. As of June 30, 1996, 57,880 of previously
forfeited shares remained available for grant and options to purchase
30,000 shares were available for exercise under the 1986 plan. At the Annual
Meeting held on April 15, 1987, the shareholders approved the adoption of
the "1987 Stock Option Plan." As of June 30, 1996, 27,666 of previously
forfeited shares remained available for grant and options to purchase 30,290
shares were available for exercise under the 1987 plan. On January 2, 1996,
49,900 options were granted and made available from previously ungranted and
forfeited shares of the 1987 plan at an exercise price of $10.125 per share,
the fair market value on that date. As of June 30, 1996, none of these
options had been exercised. At the Annual meeting held on April 10, 1996,
the shareholders approved the adoption of the "1996 Stock Option Plan."
Under this plan, an amount equal to 10% of the issued and outstanding common
stock of the Company has been reserved for future issuance. No options were
granted in the three month period ended June 30, 1996 and 1995.
10
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
June 30, 1996 and December 31, 1995
7. Stock Options (continued): A summary of the Company's stock option plans as
of June 30, 1996 and 1995 and changes during the six months ended is presented
below:
<TABLE>
<CAPTION>
1996 1995
------------------- -----------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 62,590 $ 8.22 32,590 $7.50
Granted 49,900 10.125 30,000 9.00
Exercised 0 0 0 0
Forfeited 0 0 0 0
Expired 0 0 0 0
------- ------- ------ -----
Outstanding, end of period 112,490 $ 9.06 62,590 $8.22
======= ======= ====== =====
Exercisable, end of period 112,490 62,590
======= ======
</TABLE>
The exercise price of each option equals the market price of the Company's
stock on the date of grant, and an option's maximum term is 10 years. The range
of exercise prices is $7.50 to $10.125 and $7.50 to $9.00 as of June 30, 1996
and 1995, respectively.
The weighted-average fair value of the options granted during the six months
ended June 30, 1996 and 1995 was $2.93 and $2.56, respectively.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the Company plans
been determined based on the fair value at the grant dates consistent with the
method of FASB Statement 123, the Company's net income and earnings per share
would have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
1996 1995 1996 1995
---------------------------------------
<S> <C> <C> <C> <C> <C>
Net income: As reported $479,381 $257,176 $828,230 $447,101
Pro forma $479,381 $257,176 $738,907 $400,301
Primary earnings per share: As reported $ 0.28 $ 0.15 $ 0.49 $ 0.27
Pro forma $ 0.28 $ 0.15 $ 0.44 $ 0.24
Fully diluted earnings per share: As reported $ 0.28 $ 0.15 $ 0.49 $ 0.26
Pro forma $ 0.28 $ 0.15 $ 0.44 $ 0.24
</TABLE>
The fair value of each option is estimated on the date of grant using the Black-
Scholes option pricing model using the following weighted-average assumptions:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
-------------- ----------------
<S> <C> <C>
Weighted risk-free interest rate 6.71% 6.67%
Weighted expected life 9.25 years 8.75 years
Weighted expected volatility 17.33% 17.33%
Weighted expected dividend yield 5.0% per year 5.0% per year
</TABLE>
No modifications have been made to the terms of the option agreements.
11
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
June 30, 1996 and December 31, 1995
8. Commitments and Contingencies:
In the normal course of business, LSB has outstanding various commitments
and contingent liabilities, such as legal claims, which are not reflected in
the financial statements. Management does not anticipate any material loss
as a result of these transactions.
As of June 30, 1996, LSB has entered into commitments to fund loans totaling
approximately $5 million. The majority of these loans will have adjustable
rates.
9. Treasury Stock:
On April 3, 1990, NHTB announced a Stock Repurchase Program to buy back, on
the open market, up to a total of 5% of its outstanding common stock or
107,364 shares. On July 11, 1990, NHTB completed its Stock Repurchase
Program whereby 107,364 shares were repurchased at an average price of
$4.37 per share. On August 9, 1990, NHTB announced a second buy back program
to buy back, on the open market, up to 10%, or 203,992 shares of its total
outstanding common stock. On June 11, 1991, a third buy back was announced
to cover an additional 10% of the then outstanding stock or 183,592 shares.
On July 15, 1993, NHTB announced another buy back program whereby the
company intends to repurchase, on the open market, 10%, or 165,233 shares of
its outstanding common stock. As of June 30, 1996, NHTB had repurchased a
total of 539,148 shares at an average price of $4.98 for all programs while
121,033 shares remained to be purchased from the 1993 buy back program.
10. Authorized Shares of Stock:
The authorized, issued and outstanding stock was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Preferred stock:
Authorized shares 2,500,000 2,500,000
Issued shares - -
Outstanding shares - -
Common stock:
Authorized shares 5,000,000 5,000,000
Issued shares 2,147,282 2,147,282
Outstanding shares 1,691,803 1,689,503
</TABLE>
12
<PAGE>
PART 1. ITEM II.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
New Hampshire Thrift Bancshares, Inc. (The Company), a Delaware holding
company organized on July 5, 1989, is the parent company of Lake Sunapee Bank,
fsb (The Bank), a federally chartered savings bank. The Bank was originally
chartered by the State of New Hampshire in 1868 as the Newport Savings Bank. On
December 1, 1980, the Bank became the first bank in the United States to convert
from a state chartered mutual savings bank to a federally-chartered mutual
savings bank. In 1981, the Bank changed its name to Lake Sunapee Savings Bank
fsb, and in 1994, changed its name to Lake Sunapee Bank fsb. The Bank is a
member of the Federal Deposit Insurance Corporation (FDIC) and its deposits are
insured through the Savings Association Insurance Fund (SAIF). The Bank is
regulated by the Office of Thrift Supervision (OTS).
The Company's profitability is derived from its only subsidiary, Lake
Sunapee Bank, fsb. The Bank's earnings in turn are generated from the net income
from the yield on its loan and investment portfolios less the cost of its
deposit accounts and borrowings. These core revenues are supplemented by loan
origination fees, retail banking service fees, gains on the sale of investment
securities, and brokerage fees. The Bank passes its earnings to the Company to
the extent allowed by OTS regulations. Current regulations enable the Bank to
pay to the Company the higher of an amount equal to seventy-five per cent of the
Bank's prior four quarter earnings or up to fifty per cent of excess capital
plus total current year earnings. As of June 30, 1996, the Company had capital
of $ 1,674,446 which the Company plans to use to continue its annual dividend
payout of $0.50 per share. The Bank's core capital position of $17,800,681
results in core capital of 6.89%.
The United States Congress continues to debate various methods for the
recapitalization of the Savings Association Insurance Fund (SAIF), to
which the Bank pays deposit insurance assessments. As currently proposed, this
legislation will require the Bank to incur a one-time, after-tax expense in the
range of $800,000 to $1,100,000 in order to cover its portion of a one-time
contribution to the SAIF fund. This will be offset by expected, annual, after-
tax expense savings in deposit insurance of approximately $200,000.
Proposed legislation also provided for the merger of the BIF and SAIF on
January 1, 1998, with such merger being conditioned upon the prior elimination
of the thrift charter. Congressional leaders had also agreed that Congress
should consider and act upon separate legislation to eliminate the thrift
charter as early as possible in 1996. If adopted, such legislation would require
that the Bank as a federal savings association, convert to a bank charter. Such
a requirement to convert to a bank charter could cause the Bank to lose the
favorable tax treatment for its bad debt reserves that it currently enjoys
under section 593 of the Internal Revenue Code and to have all or part of its
existing bad debt reserves recaptured into income.
On July 29, 1996, the Company announced that the Bank had entered into
a definitive agreement to acquire Landmark Bank located in Lebanon, NH. This
agreement provides that Landmark Bank shareholders may elect to receive $12.00
in cash per share, or to exchange their shares for New Hampshire Thrift
Bancshares, Inc. shares, with a total consideration of sixty per cent in stock
and forty per cent in cash. The total transaction value is $5,676,000.
The combined banking operation as of June 30, 1996, reflected total
assets of $316 million, deposits of $254 million, capital of $22.5 million, and
a total of 12 branches located in Sullivan, Merrimack, Grafton, and
Hillsborough counties. This transaction is expected to be accretive to earnings
in 1997.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
This acquisition is subject to shareholder approval by both New
Hampshire Thrift Bancshares and Landmark Bank. Approval of applicable
regulatory authorities and the satisfaction of certain other customary
conditions will be required.
FINANCIAL CONDITION
During the first six months of 1996, total assets increased slightly by
$310,048 or .12% to $258.5 million. The decrease in federal funds sold and loans
held for sale was offset by an increase in loans held in portfolio. In addition,
the decrease in the Bank's deposits held under repurchase agreements was offset
by an increase in advances from the Federal Home Loan Bank.
Total investments (at fair value) increased by $241,297, or .85% as
sales and maturities of approximately $3.6 million were offset by purchases of
approximately $3.8 million.
Real estate loans held in portfolio increased 2.90% from year-end.
Proceeds from the sales of loans increased $1,829,369 from March 31, 1996 to
approximately $46 million at June 30, 1996. The Bank from time-to-time sells
fixed-rate loans into the secondary market and retains the servicing on these
loans in order to build fee income. The selling of fixed-rate loans reduces
interest rate risk and creates liquidity.
Real estate owned totaled $819,679 and accounted for 26.28% of non-
performing assets at June 30, 1996 compared to $984,185, or 40.58% at year-end
1995. Continuing to be included in the real estate owned amount is a real estate
development loan, Blye Hill Landing in Newbury, NH, with a book value of
$615,902 at June 30, 1996. At June 30, 1996, the Bank had recorded no properties
as in-substance foreclosures.
Non-performing assets amounted to $3,120,133, or 1.21% of assets at June
30, 1996, compared to $2,425,647, or .94% at year-end 1995. The Bank includes
all loans 90 days past due, all real estate owned, and non-earning assets as
non-performing assets. The increase in non-performing assets resulted from the
transfer of a loan from classified or impaired to a non-performing status.
Impaired loans totaled $440,539 and $807,867 at June 30, 1996 and December 31,
1995, respectively. As of June 30, 1996, the Bank charged-off $1,069,197 of
loans which had been previously reserved for.
Deposits increased $332,327 for the first six months of 1996, after a
decline of $1.5 million in the first quarter, as customers shifted deposits into
longer-term instruments. Certificates of deposits increased as the Bank priced
its one-year certificates comparable to the one-year Treasury. In addition to
deposits, the Bank funded the growth in loans with advances from the Federal
Home Loan Bank of Boston (FHLBB). As stated above, advances increased $4,334,176
million to $31,270,344 during the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain a 5.00% ratio of long-term liquid
assets to net withdrawable funds. At June 30, 1996, the Bank's percentage of
10.49% exceeded regulatory requirements.
The Bank's sources of funds come from net deposit inflows, loan
amortizations, and advances from the FHLBB. At June 30, 1996, the Bank had
approximately $46 million in additional borrowing capacity available from the
FHLBB. The Bank expects to be able to fund loan commitments of approximately $5
million by utilizing the FHLBB advance program, in the event deposit inflows are
not sufficient to cover funding needs.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As of June 30, 1996, net cash inflows from operating activities amounted
to $2,667,943 compared to $2,361,287 for the same period in 1995. Net cash
inflows from financing activities were $43,385 compared to $10,533,584 for 1995.
This change was primarily due to the $8,208,223 decrease in deposits and
repurchase agreements. The net cash inflows from operating activities, when
added to the net cash inflows from financing activities were not sufficient, by
$3,333,081, to cover the investing cash outflow needs of $6,044,409. The Bank
utilized its beginning cash position to cover the balance of its investing
activity needs. Cash and cash equivalents, therefore, declined to $7,660,216 as
of June 30, 1996. Investing activity needs included the purchase of $3,842.459
of securities available for sale and a net increase in loans to customers of
$4,972,842.
At June 30, 1996, the Company's capital amounted to $19,475,127, or
7.53% of total assets, compared to $19,544,005, or 7.57% of total assets at
year-end 1995. The change of $68,878 is attributed to retaining income of
$405,762, a change in the unrealized loss on securities available for sale of
$491,891, and a change of $17,251 in paid-in capital and treasury stock due to
the exercise of stock options. An increase in interest rates during the first
six months of 1996 resulted in a drop in bond values. This increased the
unrealized loss on securities available for sale.
As part of the Financial Institution Reform, Recovery, and Enforcement
Act of 1989 (FIRREA), banks are required to maintain core, leverage, and risk-
based capital of 3.00%, 3.00%, and 8.00%, respectively. As of June 30, 1996, the
Bank's core, leverage and risk-based capital ratios were 6.98%, 6.98%, and
12.57%, respectively, well in excess of the regulators' requirements.
The Company's book value per share was $11.51 at June 30, 1996, versus
$11.57 at December 31, 1995. The decrease was attributable to the change in the
unrealized loss on securities available for sale.
INTEREST RATE SENSITIVITY
The Bank's one-year interest sensitive gap at June 30, 1996, was
approximately negative eight percent, compared to the December 31, 1995, gap
position of approximately negative seven percent. The Bank continues to offer
adjustable rate mortgages which reprice at one, three, and five year intervals.
In addition, from time-to-time, the Bank sells fixed rate mortgages into the
secondary market in order to minimize interest rate risk. As of June 30,
1996, adjustable rate mortgages amounted to approximately 83% of total loans.
The strategy of matching rate-sensitive assets with similar
liabilities stabilizes profitability during periods of interest rate
fluctuations. The Bank's gap, of approximately negative eight percent at June
30, 1996, means earnings would increase if interest rates trended downward. The
opposite would occur if interest rates were to rise. Management feels that
maintaining the gap within ten points of the parity line provides adequate
protection against severe interest rate swings. In an effort to maintain the gap
within ten points of parity, the Bank utilizes the Federal Home Loan Bank
advance program to control the repricing of liabilities.
NET INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1996
AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1995
Net income for the second quarter in 1996 was $479,381, or $0.28 per
share as compared to $257,176, or $0.15 per share for the same period in 1995,
an increase of $222,205, or 86%. Net interest income increased by $220,660, or
32.79% due to an increase in loan volume and upward adjustments to the Bank's
variable rate loans.
Total non-interest income increased $381,156, or 115.74%. Two factors
accounted for this increase. As mentioned in the March 31, 1996, 10-QSB, the
Bank expected to realize an after-tax gain of
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
approximately $200,000 from the sale of a piece of land adjacent to the Bank's
New London branch. The sale occurred in June. Fees from customer and brokerage
services increased $125,687 during the three months ended June 30, 1996.
Operating expenses remained flat, increasing slightly by $27,357, or
1.75%. The Bank expects future operating expenses to increase at approximately
the rate of inflation.
NET INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996
AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Net income for the six months ended June 30, 1996 increased $381,129 to
$828,230, or $0.49 per share compared to $447,101, or $0.26 per share at June
30, 1995. The reasons for the increase are explained above.
RESERVE FOR LOAN LOSSES
The Bank considers many factors in determining the level of loan loss
reserves. These factors include the risk and size characteristics of loans,
prior years' loss experience, the levels of delinquencies, the prevailing
economic conditions, the number of foreclosures, unemployment rates, interest
rates, and the value of collateral securing loans. Additionally, the Bank's
commercial loan officers review the financial condition of commercial loan
facilities and inventories. The Bank also has an internal audit and compliance
program whereby all loans are reviewed and classified to determine appropriate
loan loss reserve levels. Results of the audit and compliance programs are
reported directly to the Audit Committee of the Company's Board of Directors.
The reserve for loan losses at June 30, 1996, was $1,507,413 including
$7,411 in specific reserves for loans classified as loss, compared to
$1,828,060, including $628,060 in specific reserves, at year-end 1995. The
reserve for loan loss allowance represented 0.70% of total loans at June 30,
1996, compared to 0.87% at December 31, 1995. The allowance for loan losses as a
percentage of non-performing assets was 48.31% at June 30, 1996, compared to
75.36% at December 31, 1995.
Loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention do not result from trends or uncertainties which the Bank
expects will materially impact future operating results, liquidity, or capital
resources.
Total classified loans, excluding special mention, as of June 30, 1996,
were $6,739,969 compared to $6,049,066 at December 31, 1995. Of these amounts,
$3,120,133 and $2,425,647, respectively, are included in non-performing
assets.
16
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
PART II. OTHER 1NFORMATION
Item 1. Legal Proceedings
-----------------
There is no material litigation pending in which the Company or its
subsidiaries is a party or which the property of the Company or its
subsidiaries is subject.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Common Shareholders
------------------------------------------------------
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A.) Exhibits:
None
B.) Reports on Form 8-K:
(i) Form 8-K regarding change of independent auditors dated July 10,
1996
(ii) Form 8-K reporting announcement of agreement to acquire
Landmark Bank dated July 26, 1996
17
<PAGE>
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.
NEW HAMPSHIRE THRIFT BANCSHARES. INC.
-------------------------------------
(Registrant)
Date: August 14, 1996 /s/ Stephen W. Ensign
--------------- ---------------------
Stephen W. Ensign
President and Chief Executive Officer
Date: August 14, 1996 /s/ Stephen R. Theroux
--------------- ----------------------
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
18
