<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.
1
<PAGE>
___________________
TABLE OF CONTENTS
<TABLE>
<S> <C>
Selected Financial Highlights............................3
Report to Shareholders...................................4
Management's Discussion and Analysis.....................7
Report of Independent Auditors..........................17
Financial Statements....................................18
Notes to Financial Statements...........................23
Form 10-K...............................................42
Officers and Managers...................................55
Board of Directors......................................55
Information on Common Stock.............................56
Shareholder Information.................................56
</TABLE>
2
<PAGE>
_______________________________
SELECTED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIODS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------
($ in thousands, except per share data)
<S> <C> <C> <C>
Net Income $ 611 $ 1,245 $ 1,582
Earnings Per Share/(1)/ $ .35 $ .73 $ .93
Dividends Declared $ .50 $ .50 $ .50
Dividend Payout Ratio 142.86% 68.49% 53.76%
Return on Average Assets .24% .54% .71%
Return on Average Equity 3.15% 6.95% 8.76%
<CAPTION>
AS OF DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------
($ in thousands, except book value data)
<S> <C> <C> <C>
Total Assets $ 264,385 $ 258,216 $ 233,363
Total Deposits $ 213,959 $ 199,971 $ 194,533
Total Securities $ 27,599 $ 28,415 $ 20,363
Net Loans $ 215,899 $ 208,169 $ 193,810
Federal Home Loan Bank $ 20,174 $ 26,936 $ 15,211
Advances
Shareholders' Equity/ (2)/ $ 19,194 $ 19,544 $ 18,253
Book Value of Shares $ 11.26 $ 11.57 $ 10.92
Outstanding
Average Equity to Average 7.51% 7.72% 8.15%
Assets
Shares Outstanding 1,704,982 1,689,503 1,670,986
Number of Branch Locations 10 10 10
</TABLE>
/(1)/ See Note 1 to Consolidated Financial Statements regarding earnings per
share.
/ (2//)/ See Note 13 to Consolidated Financial Statements regarding the
issuance of common stock.
3
<PAGE>
REPORT TO SHAREHOLDERS
We believe that 1996 will turn out to be one of the most pivotal years in
the history of the Bank and the Company. Never before have so many issues of
strategic importance occurred within such a narrow window of time as they did
during this past year. There is considerable excitement about the future
prospects as more and more opportunities begin to present themselves to us in
the years ahead.
From the perspective of our financial performance, consolidated net income
at year-end 1996 was $610,711, or $0.35 per share. This compares to the 1995
year-end results of $1,244,823, or $0.73 per share. Earnings for the year were
impacted by a non-recurring $995,000 FDIC deposit insurance recapitalization
assessment, a fourth-quarter charge of $869,979 to the provision for loan
losses, and certain interim expenses directly associated with the acquisition of
Landmark Bank. Net interest income continues to be a source of strength, rising
by more than $500,000 over the previous twelve-month period. While the
fundamental improvements in our operating results are more fully detailed in the
Management Discussion and Analysis section immediately following, the financial
stability of the Company is clearly evident when one simply adds back to
earnings the various one-time expenses reflected in the 1996 figures.
The long-awaited deposit insurance fund resolution was finally approved by
Congress and signed into law on September 30, 1996. The financial impact of this
action meant that our proportionate share of the one-time multi-billion dollar
assessment, paid out in November, was just under $1,000,000. A considerable
amount to be sure, but also an investment in our future because for 1997 and
beyond, the premiums paid for deposit insurance will drop by more than $300,000
on an annual basis. Similar to an annuity, this means that for the single
payment, the Company will effectively receive the benefit of a 30% return every
year from this point forward. In addition, once the deposits from Landmark Bank
have been merged into the Bank, we will see a further benefit from the treatment
of their deposits under a combined premium structure.
Earlier in the year, confidential discussions took place between your
Company and representatives of Landmark Bank located in Lebanon, New Hampshire.
Following a period of analysis and review, agreement was reached and a plan for
acquisition and merger was entered into on July 26, 1996. Consistent with our
previously stated goals of seeking out and identifying opportunities for growth
and expansion, the decision to acquire Landmark Bank clearly fulfilled not only
one of our longer-term goals to surpass the $300 million asset mark, but also
brought far greater diversity to our balance sheet in the form of their
commercially-oriented transaction deposit base and their prime-based loan
portfolio. On December 19, 1996, the shareholders of both New Hampshire Thrift
Bancshares, Inc. and Landmark Bank overwhelmingly voted in favor of the
affiliation. Final regulatory approval was received shortly thereafter and the
transaction was officially consummated on January 22, 1997. The immediate result
was a banking franchise with an increased asset base of $315 million, total
loans of $260 million, deposits of $254 million, and combined capital of $23
million.
...1996 will turn out to be one of the most pivotal years in the history of the
- -------------------------------------------------------------------------------
Bank and the Company.
- ---------------------
4
<PAGE>
Like most smaller banking institutions located in the Northeast, your
Company continues to face the ever-present challenge of growing the asset base
in an economic environment that currently provides only a minimal level of
opportunity. Thus, while another relatively active year is predicted for
residential mortgage finance, it is clear that a comprehensive strategy must be
developed and implemented to ensure that a consistent level of growth can be
achieved, maintained and sustained over time. To this end, your Company has
embarked upon a strategic planning process that is designed to address the
fundamental issues of who we are, what is our purpose, and where should we be
headed. All pertinent issues have been part of our internal debate and have
helped to crystallize a vision for the future of the organization over the next
few years. In short, your Company envisions itself as the leading independent
provider of financial services throughout the Kearsarge-Lake Sunapee-Upper
Valley Region by delivering exceptional service to an expanding customer base in
a tradition of integrity and personalized style. The underlying premise is that
how we choose to conduct our business is just as important as what we do.
With the support of the Board, we are embarking upon a strategic plan that
will, by the turn of the century, very systematically address the underlying
issues of sustained profitability, capital adequacy, portfolio diversification
and ever-increasing shareholder value. Through a concerted effort to develop a
marketing-based culture, we will be promoting an expanded array of both
traditional and non-traditional banking products and services.
When coupled with our existing relationships with Preferred Investments,
for full-service securities brokerage, and Charter Trust Company, for trusts and
financial planning, the long-term value of the Company can only be further
enhanced.
One of the associated issues arising from the deposit insurance resolution
is the fact that much more effort is now being paid to the creation and
development of a unified charter for banks and thrifts. This is of considerable
importance and concern to the Company and one which will receive our special
attention. Our existing charter currently provides for our involvement in a
number of business activities which may be very strategically valuable in the
years ahead.
Coincident with our expansion planning and deeper penetration into the
Upper Valley markets of Lebanon, Hanover, White River Junction and Norwich, you
should know that we have just recently agreed to establish a new branch bank
within a retail/commercial project, known as Centerra Resource Park & Market,
that is now under development by Dartmouth College and that is located directly
across from the main access road to the newly built Dartmouth Hitchcock Medical
Center complex. This is viewed as a strategic position for us, not only for the
near-term, but as an important element in establishing the Bank on the threshold
of its new marketing effort.
While personalized service within a traditional branch bank setting
continues to be the cornerstone of our delivery system, technological advances
must be embraced as
...opportunities that will have a positive impact upon our employees, the
- --------------------------------------------------------------------------------
communities we serve, and our shareholders.
- --------------------------------------------
5
<PAGE>
the continued proliferation of personal computers find their way into more and
more homes. As a direct result of the Technology Committee, we were able to
introduce "telephone-banking" to our customers during mid-1996 and now find
that, on average, more than 500 transactions per day are efficiently handled
without impacting our personnel, leaving them more available to address the
individual needs of those customers whose issue cannot be handled otherwise.
This has proven to be an effective tool that better serves our banking
constituencies. While we recognize that institutions like ours cannot afford to
financially support the "first-wave" of new technology, future enhancements to
our products and services will include check imaging, relationship statements,
and full-service debit cards. Additionally, we are very much aware of the
"Year-2000 Compliant" concerns as they relate to date processing and information
systems world-wide and have been assured by all of our providers that the
solutions are well in hand.
Looking forward, we see numerous potential opportunities that will have a
positive impact upon our employees, the communities we serve, and our
shareholders. While early 1997 will be somewhat affected by the assimilation of
Landmark Bank into Lake Sunapee Bank and the capital deployed to make the
acquisition will need to be rebuilt in a timely fashion, it is evident to all
involved that we should be able to witness the initial financial and operating
benefits of this acquisition by year-end 1997.
As we continue to build upon our strengths, we must also acknowledge the
valuable role you hold as shareholders of the Company and recognize our
responsibility to maintain a policy of current income through the payment of
consistent dividends and growth in per share value over time. It is interesting
to note as we complete our first decade as a public company, that the original
investors have realized a total annualized return of 11.41%. Assuming the
reinvestment of dividends, a $1,000 investment made in 1986 would be valued at
$2,141 as of December 31, 1996.
In conclusion, we must also recognize the effort and dedication of our
employees and Board of Directors and to once again express our sincere
appreciation for the continued support and confidence that is evidenced by both
our customers and shareholders alike.
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
Vice Chairman of the Board,
President and Chief Executive Officer
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
...original investors have realized a total annualized return of 11.41%.
- -------------------------------------------------------------------------
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 1996, the Company earned $610,711, or $.35 per share, compared to
$1,244,823, or $.73 per share in 1995. The decline in earnings can be traced to
two events. First, the Bank paid a one-time premium assessment of $995,000 to
the Federal Deposit Insurance Corporation (FDIC) as part of the recapitalization
of the Savings Insurance Fund (SAIF). If the Bank had not made this payment, net
earnings would have been approximately $1,276,711, or $.74 per share. The Bank
also expensed $1,660,741 to the Provision for Loan Losses in 1996, compared to
$1,163,710 in 1995. This increase occurred because of the write-down of the
Bank's remaining real estate development loans and the taking of a more
aggressive posture in the methodology used in determining the Bank's General
Allowance for Loan Losses. This is discussed in greater detail under the section
entitled, "Provision for Loan Losses."
On July 26, 1996, the Bank announced its intention to acquire Landmark
Bank, located in Lebanon , NH. The combination of the two banks was completed on
January 22, 1997. This transaction increased the Bank's assets by approximately
$51,000,000. The Bank expects the acquisition to be accretive to earnings in
1997.
FINANCIAL CONDITION
Total assets increased by $6,169,267, or 2.39% from $258,216,077 to
$264,385,344. Total loans increased from $210,676,325 to $219,206,929 or 4.05%.
The table on page 15 illustrates the maturities of the loan portfolio at
December 31, 1996. Real estate loans increased by $8,828,880, or 5.01% from
$176,153,471 to $184,982,351. The Bank also increased the net level of loans
sold into the secondary market by approximately $8,000,000. At December 31,
1996, the Bank had $52,165,252 in its servicing portfolio. The Bank expects to
continue to sell fixed rate loans into the secondary market in order to manage
interest rate risk. Adjustable rate mortgages comprise 83% of the Bank's real
estate mortgage loan portfolio. This is consistent with prior years.
Investments decreased by $475,266, or 1.68% from $28,266,003 to $27,790,737
(at amortized cost). The Bank's net unrealized loss of $192,179 at December 31,
1996 compares to last year's net unrealized gain of $148,596. This change of
$340,775 in market value reflects the increase in interest rates during 1996 and
the resultant drop in bond values.
Real estate owned and property acquired in settlement of loans decreased by
$260,707, or 26.49% to $723,478. This total reflects $473,219 , or 65.41% , in
market value for the remaining seven lots at Blye Hill Landing in Newbury, NH.
During 1996, six real estate owned properties totaling $413,330, were sold.
Deposits increased by $13,987,974, or 7.00% to $213,958,895 from
$199,970,921. Customers continued to place funds in Certificates of Deposit
(CDs) with CDs comprising 49.89% of total deposits versus 46.61% last year.
Total CDs increased by $13,529,233 or 14.51% to $106,740,465.
Advances from the Federal Home Loan Bank (FHLB) decreased by $6,762,143, or
25.10% to $20,174,025 from $26,936,168. The Bank was able to fund its loan
growth through deposit growth and utilize excess funds to pay-down FHLB
advances.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain a 5% ratio of liquid assets to net
withdrawable funds. At year-end 1996, the Bank's ratio of 12.16% 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, 1996 the Bank had approximately $50,000,000 in
additional borrowing capacity from the FHLB.
7
<PAGE>
================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
At December 31, 1996, the Company's shareholders' equity totaled
$19,193,690 or 7.26% of total assets, compared to $19,544,005 or 7.57% of total
assets at year-end 1995. The decrease of $350,315 reflects net income of
$610,711, the payment of $847,066 in common stock dividends, the repurchase of
3,251 shares of stock at a cost of $43,482, the exercise of 18,730 of stock
options in the amount of $72,903, a gain of $81,392 on the sale of treasury
stock, and the recording of $127,179 in net unrealized losses on securities
classified as available for sale. As interest rates moved upward throughout
1996, the Bank's bond portfolio decreased 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 loss to be
recorded, net of the effect of income taxes, in shareholders' equity.
On December 23, 1996, the Bank received authorization from the Office of
Thrift Supervision to dividend $1,800,000 to the Company. The purpose of this
upstream was to fund the cash portion of the Landmark acquisition. On February
16, 1996, the Bank paid a dividend of $1,000,000 to the Company. Approximately
$17.9 million in capital remains at the Bank level, and $1.3 million at the
Company at December 31, 1996.
Net cash provided by operating activities was $3,841,010 in 1996 versus
$1,243,025 in 1995. This change is mostly 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 $9,401,970 in
1996 compared to negative $20,810,142 in 1995. Funds used in lending activities
were $9,539,579 in 1996 compared to $15,384,264 in 1995. Net funds used in
securities activities amounted to ($ 401,271) in 1996 compared to $5,976,005 in
1995. These two areas accounted for the bulk of the change in investing
activities.
In 1996, net cash provided by financing activities was $5,570,412 compared
to $22,306,826 in 1995. As mentioned above, the Bank utilized the increase of
$13,987,974 in deposits to fund the pay-off of FHLB advances and investing
activities.
The Bank expects to be able to fund loan demand and other investing
activities, including the cash portion of Landmark Bank purchase, during 1997 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, 1996, the Bank's ratios were 6.76%, 6.76%, and 12.00%,
respectively, well in excess of the regulators' requirements.
Book value per share was $11.26 at December 31, 1996 versus $11.57 per
share at December 31, 1995. The change in the market value of the Bank's
investment security portfolio and the decrease in retained earnings, when
coupled with an increase of 15,479 shares outstanding, caused the drop in book
value per share.
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
8
<PAGE>
================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
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 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, 1996 was -9.58%, compared to the
December 31, 1995 Gap position of-6.69%. 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 nine percent at December 31,
1996, 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, 1996, the Bank's interest earning assets scheduled to
reprice within one year or less totaled $121.9 million, or 48.56% of earning
assets compared to $128.8 million, or 53.55% of earning assets at December 31,
1995. At December 31, 1996, interest bearing liabilities, which were scheduled
to reprice within one year, amounted to $146.0 million, or 62.86% of interest
bearing liabilities as compared to $144.9 million, or 64.25% of interest bearing
liabilities as of December 31, 1995.
NET INTEREST INCOME
Net interest income for the year ended December 31, 1996 increased by
$511,721, or 6.50%, to $8,379,707. The increase can be attributed to the
increased volume of the Bank's loan portfolio. Total interest income increased
by $1,237,914, or 7.09%, with 62.12% attributed to the increase in volume, and
37.88% related to the change in interest rates.
Total interest expense increased $726,193, or 7.57%, with 13.09% attributed
to the increased volume of both deposits and FHLB advances, and 86.91% related
to the rise in interest rates. Despite the rise in interest rates, the Bank's
cost of funds increased slightly to 4.54% during 1996 from 4.50% in 1995, as the
Bank's deposits as a percentage of total interest bearing liabilities increased
from 88.13% in 1995 to 91.38% in 1996. Advances typically are higher costing
funding instruments. In 1996, the cost of advances was 5.86% compared to 6.42%
in 1995. Deposits' cost in 1996 was 4.36% versus 4.27% in 1995. As a result, the
Bank's spread increased to 3.13% at December 31, 1996 compared to 3.08% at
December 31, 1995.
The following table sets forth the average yield on loans and investments, the
average interest rate paid on deposits and borrowings, the net interest rate
margin, and the net yield on interest earning assets for the periods indicated:
1996 1995 1994 1993 1992
----------------------------------------
Yield on loans 7.86% 7.71% 7.10% 7.49% 8.68%
Yield on investment securities 6.35% 6.53% 6.14% 5.68% 6.65%
Combined yield on loans and investments 7.67% 7.58% 7.00% 7.28% 8.42%
Cost of deposits 4.36% 4.27% 3.63% 3.81% 4.76%
Cost of borrowings 5.86% 6.42% 4.29% 4.55% 8.00%
Combined cost of deposits and borrowings 4.54% 4.50% 3.67% 3.83% 4.88%
Interest rate spread 3.13% 3.08% 3.33% 3.45% 3.54%
Net interest yield 3.44% 3.42% 3.61% 3.75% 3.79%
9
<PAGE>
===============================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following table shows the Bank's interest rate sensitivity table at December
31, 1996:
<TABLE>
<CAPTION>
0-3 3-6 6 MONTHS- 1-3 BEYOND
MONTHS MONTHS 1 YEAR YEARS 3 YEARS TOTAL
-------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $ 30,220 $ 22,968 $ 53,804 $ 60,743 $ 50,623 $ 218,358
Investments 10,428 652 3,852 10,342 7,460 32,734
-------------------------------------------------------------------------------
Total $ 40,648 $ 23,620 $ 57,656 $ 71,085 $ 58,083 $ 251,092
-------------------------------------------------------------------------------
Interest bearing liabilities:
Deposits $ 70,320 $ 23,193 $ 31,339 $ 59,805 $ 18,713 $ 203,370
Repurchase agreements 8,663 - - - - 8,663
Borrowings 4,400 3,060 5,000 7,331 388 20,179
-------------------------------------------------------------------------------
Total $ 83,383 $ 26,253 $ 36,339 $ 67,136 $ 19,101 $ 232,212
-------------------------------------------------------------------------------
Period sensitivity gap $ (42,735) $ (2,633) $ 21,317 $ 3,949 $ 38,982 $ 18,880
Cumulative sensitivity $ (42,735) $ (45,368) $ (24,051) $ (20,102) $ 18,880 $ 18,880
Cumulative sensitivity
gap as a percent of
earning assets -17.02% -18.07% -9.58% -8.01% 7.52% 7.52%
</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, 1996 1995 1994
----------------------------- -------------------------------- ---------------------------------
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)/ $ 213,473 $ 16,776 7.86% $ 205,548 $ 15,846 7.71% $ 186,651 $ 13,251 7.10%
Investment securities and
other/ (3)/ 30,348 1,928 6.35% 24,790 1,620 6.53% 21,033 1,292 6.14%
--------------------- ----------------------- ----------------------
Total interest earning
assets 243,821 18,704 7.67% 230,338 17,466 7.58% 207,684 14,543 7.00%
--------------------- ----------------------- ----------------------
Non-interest earning assets:
Cash 5,964 5,976 5,782
Other non-interest earning
assets/ (4)/ 8,425 8,285 7,512
---------- ---------- -----------
Total non-interest earning
assets 14,389 14,261 13,294
---------- ---------- -----------
Total $ 258,210 $ 244,599 $ 220,978
========== ========== ===========
Liabilities and Shareholders'
Equity:
Interest bearing liabilities:
Savings deposits $ 96,062 2,607 2.71% $ 96,698 $ 2,855 2.95% $ 107,592 $ 2,996 2.78%
Time deposits 98,248 5,877 5.98% 88,310 5,065 5.74% 68,250 3,344 4.90%
Repurchase agreements 4,922 203 4.12% 4,702 177 3.76% 2,218 115 5.18%
Other borrowed funds 27,960 1,638 5.86% 23,388 1,501 6.42% 13,815 592 4.29%
--------------------- ----------------------- ----------------------
Total interest bearing
liabilities 227,192 10,325 4.54% 213,098 9,598 4.50% 191,875 7,047 3.67%
--------------------- ----------------------- ----------------------
Non-interest bearing
liabilities:
Demand deposits 6,983 7,050 7,005
Other 4,656 5,570 4,028
---------- ---------- -----------
11,639 12,620 11,033
Shareholders' Equity 19,379 18,881 18,070
---------- ---------- -----------
Total $ 258,210 $ 244,599 $ 220,978
========== ========== ===========
Net interest income/interest
rate spread $ 8,379 3.13% $ 7,868 3.08% $ 7,496 3.33%
================= ================= =================
Net earning balance/net yield
on earning assets $ 16,629 3.44% $ 17,240 3.42% $ 15,809 3.61%
============================ =============================== ==============================
</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.
YEAR ENDED DECEMBER 31, 1996 VS. 1995
INCREASE (DECREASE)
DUE TO
VOLUME RATE TOTAL
--------------------------------
($ in thousands)
Interest income on loans $ 448 $ 482 $ 930
Interest income on investments 321 (13) 308
----------------------------------
Total interest income 769 469 1,238
----------------------------------
Interest expense on savings deposits (23) (226) (249)
Interest expense on time deposits 398 414 812
Interest expense on repurchase 3 23 26
agreements
Interest expense on borrowings (284) 421 137
----------------------------------
Total interest expense 94 632 726
----------------------------------
Net interest income $ 675 $ (163) $ 512
==================================
YEAR ENDED DECEMBER 31, 1995 VS. 1994
INCREASE (DECREASE)
DUE TO
VOLUME RATE TOTAL
--------------------------------
($ in thousands)
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 83 (20) 63
agreements
Interest expense on borrowings 530 379 909
Total interest expense 1,344 1,208 2,552
----------------------------------
Net interest income $ 302 $ 70 $ 372
==================================
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. However, the Bank increased the risk factor on its
general allowance from 0.25% to 0.50% . This change required an additional
provision of approximately $550,000 to General Allowance for Loan Loss Reserves.
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 losses at December 31, 1996 was $2,158,026, compared
to $1,828,060 at year-end 1995. The allowance in 1996 includes $1,801,589 in
general reserves as compared to $1,200,000 in 1995. As a result of charge-offs
in 1996, the Bank expensed to the provision for loan losses $1,660,741, in 1996,
as compared to $1,163,710, in 1995. Net charged-off loans during 1996 amounted
to 0.63% of average loans, as compared to 1.02% in 1995. The allowance
represented 0.98% of total loans at year-end 1996 versus 0.87% at year-end 1995.
The allowance for loan losses as a percentage of non-performing assets was
91.43% at December 31, 1996 compared to 75.36% at December 31, 1995. The
allowance for loan losses as a percentage of non-performing assets (less real
estate owned) and troubled debt restructured was 131.53% at December 31, 1996
compared to 126.82% at December 31, 1995. 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, 1996, 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, 1996
and 1995 were $5,254,069 and $6,049,066, respectively. Total nonperforming
assets amounted to $2,343,898 and $2,425,650 for the respective years. Loans
classified as 90 day delinquent increased to $787,930, which includes $723,595
of conventional real estate loans, at December 31, 1996 compared to $1,144,293
and $1,132,475 at December 31, 1995, respectively.
13
<PAGE>
================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following table sets forth the breakdown of non-performing assets:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
90 Day delinquent loans/(1)/ $ 787,930 $ 1,144,293 $ 23,825 $ 288,663 $ 152,692
Non-earning assets/(2)/ 848,942 297,172 1,692,608 501,408 1,388,864
Real estate owned 707,026 984,185 1,504,880 1,854,047 2,736,845
-------------------------------------------------------------------------
Total non-performing assets $ 2,343,898 $ 2,425,650 $ 3,221,313 $ 2,644,118 $ 4,278,401
=========================================================================
Troubled debt restructured $ N/A $ 445,417 $ 2,337,058 $ 3,466,820 $ 4,391,549
=========================================================================
Impaired Loans $ 1,188,183 N/A N/A N/A N/A
=========================================================================
</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>
1996 1995 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans -
Conventional $ 723,595 $ 1,132,475 $ - $ 288,663 $ 152,692
Construction - - 23,825 - -
Consumer loans 64,335 3,983 - - -
Commercial and municipal loans - 7,835 - - -
Other loans - - - - -
--------------------------------------------------------------
Total $ 787,930 $ 1,144,293 $ 23,825 $ 288,663 $ 152,692
==============================================================
</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>
1996 1995 1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans -
Conventional $ 1,603,860 84% $ 687,547 83% $ 726,959 81% $ 853,710 79% $ 1,258,635 79%
Construction 83,750 201,257 1,598,266 2% 1,245,382 2% 670,378 1%
Collateral and
consumer loans 36,873 12% 8,067 12% 5,464 12% 22,907 14% 10,684 15%
Commercial and
municipal loans 294,034 4% 276,526 4% 422,196 4% 252,002 5% 155,234 4%
Impaired loans 139,509 654,663 1% N/A N/A N/A
Other - - - 1% - - 1%
--------------------------------------------------------------------------------------------------------
Valuation allowance $ 2,158,026 100% $ 1,828,060 100% $ 2,752,885 100% $ 2,374,001 100% $ 2,094,931 100%
========================================================================================================
Valuation allowance
as a percentage of
total loans .98% .87% 1.38% 1.35% 1.22%
=======================================================================================================
</TABLE>
14
<PAGE>
================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The following sets forth the maturities of the loan portfolio at December 31,
1996:
<TABLE>
<CAPTION>
ONE YEAR ONE THRU OVER
MATURITIES: OR LESS FIVE YEARS FIVE YEARS TOTAL
<S> <C> <C> <C> <C>
Real Estate Loans - $ 8,412,470 $ 28,282,491 $ 148,287,390 $ 184,982,351
-----------------------------------------------------------------------
Real Estate Loans with:
Predetermined interest rates 1,714,755 7,082,348 21,786,595 30,583,698
Adjustable interest rates 6,697,715 21,200,143 126,500,795 154,398,653
-----------------------------------------------------------------------
8,412,470 28,282,491 148,287,390 184,982,351
-----------------------------------------------------------------------
Collateral Loans - 11,213,109 5,877,395 3,484,206 20,574,710
-----------------------------------------------------------------------
Collateral Loans with:
Predetermined interest rates 10,147,381 3,900,095 611,832 14,659,308
Adjustable interest rates 1,065,728 1,977,300 2,872,374 5,915,402
-----------------------------------------------------------------------
11,213,109 5,877,395 3,484,206 20,574,710
-----------------------------------------------------------------------
Consumer Loans - 4,832,099 28,226 - 4,860,325
-----------------------------------------------------------------------
Consumer Loans with:
Predetermined interest rates 114,076 28,226 - 142,302
Adjustable interest rates 4,718,023 - - 4,718,023
-----------------------------------------------------------------------
4,832,099 28,226 - 4,860,325
-----------------------------------------------------------------------
Commercial/Municipal Loans- 3,357,574 2,866,600 2,128,615 8,352,789
-----------------------------------------------------------------------
Commercial/Municipal Loans with:
Predetermined interest rates 1,427,783 893,134 109,837 2,430,754
Adjustable interest rates 1,929,791 1,973,466 2,018,778 5,922,035
-----------------------------------------------------------------------
3,357,574 2,866,600 2,128,615 8,352,789
-----------------------------------------------------------------------
Other Loans - 116,295 311,402 9,057 436,754
-----------------------------------------------------------------------
Other Loans with:
Predetermined interest rates 90,228 223,157 4,947 318,332
Adjustable interest rates 26,067 88,245 4,110 118,422
-----------------------------------------------------------------------
116,295 311,402 9,057 436,754
-----------------------------------------------------------------------
TOTALS $ 27,931,547 $ 37,366,114 $ 153,909,268 $ 219,206,929
=======================================================================
</TABLE>
The preceding schedule includes $848,942 of non-earning assets categorized
within the respective loan types.
15
<PAGE>
================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
OTHER INCOME AND EXPENSE
Total non-interest income decreased by $487,683, or 33.97% to $1,923,239.
Net gains on the sale of securities and bank property increased $365,813 due to
the sale of a piece of property located adjacent to the Bank's New London branch
office.
Total non-interest expense increased $1,454,322, or 23.12% to $7,745,331.
This increase was due to the one-time payment of $995,000 to the Federal Deposit
Insurance Corporation (FDIC) to recapitalize the Savings Insurance Fund (SAIF)
and the expensing of $229,970 to Other expense to cover write-downs on real
estate owned. Without these two events, the Bank's non-interest expense would
have increased 3.60%.
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, 1996, 1995 and 1994 includes net deferred income tax
expense of ($120,481), $324,909, and $75,000, 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, 1995 AND 1994
NET INTEREST INCOME
Net interest income for the year ended December 31, 1995 was $7,867,986,
compared to $7,496,030 for 1994, an increase of $371,956 or 4.96%. The increase
was the result of increased volume of the Bank's loan and investment portfolio.
Total interest income increased $2,923,897 or 20.11%, with 56.29% of the
increase attributed to the change in volume.
Interest expense increased $2,551,941, or 36.22%, with 52.66% attributed to
increased balances on customer deposits and FHLB advances.
PROVISION FOR LOAN LOSSES
The allowance for loan losses was $1,828,060 for the year ended December
31, 1995, compared to $2,752,885 at year-end 1994. Charge-offs were $2,095,220
for 1995, and $396,116 for 1994. The allowance as a percentage of total loans
was 0.87% at year-end 1995 versus 1.38% from 1994. Non-performing assets
amounted to $2,425,649, or 0.94% of total assets for 1995 compared to
$3,221,313, or 1.38% of total assets for year-end 1994.
OTHER INCOME AND EXPENSE
Total non-interest income decreased by $121,676, or 7.81% to $1,435,556.
Total other expenses increased $304,552 to $6,291,009, or 5.08%.
16
<PAGE>
[LETTERHEAD OF SHATSWELL, MacLEOD & COMPANY, P.C.]
The Board of Directors,
New Hampshire Thrift Bancshares, Inc.
Newport, New Hampshire
INDEPENDENT AUDITORS' REPORT
----------------------------
We have audited the accompanying consolidated statement of financial condition
of New Hampshire Thrift Bancshares, Inc. and Subsidiaries as of December 31,
1996 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for the year then ended. 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 financial statements of New
Hampshire Thrift Bancshares, Inc. and Subsidiaries as of December 31, 1995 and
1994, were audited by other auditors whose reports dated January 19, 1996 and
January 24, 1995, expressed unqualified opinions of those statements.
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 1996 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, 1996
and the consolidated results of their operations and their cash flows for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," effective January 1, 1996.
/s/ Shatswell, MacLeod & Company, P.C.
SHATSWELL, MacLEOD & COMPANY, P.C.
West Peabody, Massachusetts
January 22, 1997
17
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=======================================================
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,868,749 $ 7,544,297
Federal funds sold 5,134,000 3,449,000
-----------------------------------------------
Cash and cash equivalents 11,002,749 10,993,297
Securities available for sale 24,950,725 25,718,260
Securities held to maturity 340,276 393,054
Other investments 2,307,557 2,303,285
Loans held for sale 745,650 3,095,971
Loans receivable, net 215,153,819 205,073,080
Nonaccrual loans 848,942 297,172
Accrued interest receivable 1,354,042 1,433,882
Bank premises and equipment, net 5,104,366 5,316,837
Investments in real estate 619,487 638,557
Real estate owned and property acquired in settlement of loans 723,478 984,185
Other assets 1,234,253 1,968,497
-----------------------------------------------
Total assets $ 264,385,344 $ 258,216,077
===============================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 10,587,757 $ 10,934,512
Savings and NOW accounts 96,630,673 95,825,177
Time deposits 106,740,465 93,211,232
-----------------------------------------------
Total deposits 213,958,895 199,970,921
Securities sold under agreement to repurchase 8,662,736 9,552,825
Advances from Federal Home Loan Bank 20,174,025 26,936,168
Accrued expenses and other liabilities 2,395,998 2,212,158
-----------------------------------------------
Total liabilities 245,191,654 238,672,072
-----------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value per share: 2,500,000 shares authorized, - -
no shares issued or outstanding
Common stock, $.01 par value, per share: 5,000,000 shares authorized,
2,147,282 shares issued and 1,704,982 shares outstanding at
December 31, 1996, 2,147,282 shares issued and 1,689,503 shares
outstanding at December 31, 1995 21,473 21,473
Paid-in capital 13,241,774 13,160,382
Retained earnings 8,437,149 8,673,504
Net unrealized holding gain (loss) on securities available for sale net
of $65,000 of deferred tax benefit in 1996, and $51,000 of
deferred taxes in 1995 (127,179) 97,594
21,573,217 21,952,953
Treasury stock, at cost, 442,300 shares as of December 31, 1996
and 457,779 shares as of December 31, 1995 (2,379,527) (2,408,948)
-----------------------------------------------
Total shareholders' equity 19,193,690 19,544,005
-----------------------------------------------
Total liabilities and shareholders' equity $ 264,385,344 $ 258,216,077
===============================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
18
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=========================================================
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans $ 16,775,792 $ 15,846,308 $ 13,250,592
Interest and dividends on investments 1,928,455 1,620,025 1,291,844
-------------------------------------------------
Total interest income 18,704,247 17,466,333 14,542,436
-------------------------------------------------
INTEREST EXPENSE
Interest on deposits 8,686,678 8,096,851 6,454,599
Interest on advances and other borrowed money 1,637,862 1,501,496 591,807
-------------------------------------------------
Total interest expense 10,324,540 9,598,347 7,046,406
-------------------------------------------------
Net interest income 8,379,707 7,867,986 7,496,030
PROVISION FOR LOAN LOSSES 1,660,741 1,163,710 761,555
-------------------------------------------------
Net interest income after provision for loan losses 6,718,966 6,704,276 6,734,475
-------------------------------------------------
OTHER INCOME
Loan origination fees 75,564 89,632 295,173
Customer service fees 1,190,726 1,058,868 856,327
Net gain (loss) on sale of securities and bank property 276,986 (88,827) 35,706
Rental income 223,673 227,885 220,460
Brokerage service income 153,261 110,705 149,566
Other income 3,029 37,293 -
-------------------------------------------------
Total other income 1,923,239 1,435,556 1,557,232
-------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 3,039,929 2,917,180 2,861,435
Occupancy expenses 1,242,216 1,195,834 1,101,198
Advertising and promotion 188,512 162,745 154,382
Depositors' insurance 1,448,801 440,439 406,630
Outside services 364,101 333,361 350,812
Provision for other real estate owned losses 229,970 - -
Other expenses 1,231,802 1,241,450 1,112,000
-------------------------------------------------
Total other expenses 7,745,331 6,291,009 5,986,457
-------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 896,874 1,848,823 2,305,250
PROVISION FOR INCOME TAXES 286,163 604,000 723,000
-------------------------------------------------
NET INCOME $ 610,711 $ 1,244,823 $ 1,582,250
=================================================
Earnings per common share $ .35 $ .73 $ .93
=================================================
Dividends declared per common share $ .50 $ .50 $ .50
=================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
===================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<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 $ 13,160,382 $ 13,103,404 $ 13,069,785
Gain on sale of treasury stock, at cost 81,392 56,978 33,619
------------------------------------------------------
Balance, end of year $ 13,241,774 $ 13,160,382 $ 13,103,404
------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year $ 8,673,504 $ 8,268,094 $ 7,516,147
Net income 610,711 1,244,823 1,582,250
Cash dividends paid (847,066) (839,413) (830,303)
------------------------------------------------------
Balance, end of year $ 8,437,149 $ 8,673,504 $ 8,268,094
------------------------------------------------------
NET UNREALIZED HOLDING GAIN (LOSS) ON
SECURITIES AVAILABLE FOR SALE
Balance, beginning of year $ 97,594 $ (728,667) $ 95,857
Adjustment to fair value (340,773) 1,252,661 (1,199,924)
Effect of change in deferred taxes 116,000 (426,400) 375,400
------------------------------------------------------
Balance, end of year $ (127,179) $ 97,594 $ (728,667)
------------------------------------------------------
TREASURY STOCK
Balance, beginning of year $ (2,408,948) $ (2,411,430) $ (2,316,293)
Shares repurchased, (3,251 shares in 1996,
14,968 shares in 1995, and 20,900 shares in 1994) (43,482) (144,015) (193,938)
Exercise of stock options, (18,730 shares in 1996,
33,485 shares in 1995, and 22,583 shares in 1994) 72,903 146,497 98,801
------------------------------------------------------
Balance, end of year $ (2,379,527) $ (2,408,948) $ (2,411,430)
------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=======================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 610,711 $ 1,244,823 $ 1,582,250
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 455,910 435,467 435,124
Loans originated for sale (14,233,140) (18,911,177) (7,431,617)
Proceeds from sale of loans 14,166,770 18,874,886 7,355,527
(Gain) loss from sale of loans 66,370 36,291 76,090
(Gain) loss from sale of premises and equipment (251,770) 14,603 (2,955)
(Gain) loss from sale of debt securities available 667 3,957 (1,760)
for sale and writedowns
(Gain) loss from sale of equity securities available 25,833 33,975 (65,499)
for sale
Gain from sale of other real estate owned - - (41,581)
Provision for other real estate owned losses 229,970 - -
Provision for loan losses 1,660,741 1,163,710 761,555
Deferred tax expense (benefit) (120,481) 324,909 75,000
(Increase) decrease in accrued interest and other assets 861,580 (1,718,404) 96,149
Decrease in deferred loan fees (81,550) (138,396) (198,762)
Increase (decrease) in accrued expenses and other 449,399 (121,619) 11,183
liabilities
----------------------------------------------------------------
Net cash provided by operating activities 3,841,010 1,243,025 2,650,704
----------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of premises and equipment 344,387 84,400 31,119
Capital expenditures (316,986) (545,515) (952,379)
Proceeds from sale of debt securities available for sale 2,468,275 3,723,564 999,609
Proceeds from sale of equity securities available for sale 450,642 794,170 713,223
Principal reduction on securities held to maturity 52,778 52,778 51,389
Purchase of securities available for sale (9,063,424) (13,211,517) (9,006,732)
Maturities of securities available for sale 6,498,000 2,665,000 3,725,000
Purchase of other investments (5,000) (385,289) -
Purchase of Federal Home Loan Bank stock - (519,600) (124,900)
Net increase in loans to customers (9,539,579) (15,384,264) (21,539,263)
(Increase) decrease in nonaccrual loans (551,770) 1,395,436 (1,191,200)
Decrease in real estate owned 260,707 520,695 390,748
----------------------------------------------------------------
Net cash used in investing activities (9,401,970) (20,810,142) (26,903,386)
----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 13,987,974 5,437,855 17,816,769
Net increase (decrease) in repurchase agreements (890,089) 5,954,918 (987,213)
Increase (decrease) in advances from Federal Home (6,762,143) 11,725,374 9,770,015
Loan Bank
Net change in other borrowed money (29,077) (31,368) (31,034)
Payments to acquire treasury stock (43,482) (144,015) (193,938)
Dividends paid (847,066) (839,413) (830,303)
Proceeds from exercise of stock options 154,295 203,475 132,420
----------------------------------------------------------------
Net cash provided by financing activities 5,570,412 22,306,826 25,676,716
----------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,452 2,739,709 1,424,034
CASH AND CASH EQUIVALENTS, beginning of year 10,993,297 8,253,588 6,829,554
----------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 11,002,749 $ 10,993,297 $ 8,253,588
================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=======================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest on deposit accounts $ 8,701,566 $ 8,677,030 $ 6,343,205
Interest on advances and other borrowed money 1,678,133 1,418,043 553,577
------------------------------------------------------------
Total interest paid $ 10,379,699 $ 10,095,073 $ 6,896,782
============================================================
Income taxes $ 331,763 $ 363,879 $ 701,986
============================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Loans originated to facilitate sales of other real estate owned $ 207,500 $ - $ -
============================================================
Transfers from loans to real estate acquired through foreclosure $ 462,302 $ 320,000 $ 305,717
============================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=======================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS - New Hampshire Thrift Bancshares, Inc. (Company) is
a savings association holding company headquartered in New London, New
Hampshire. The Company's subsidiary, Lake Sunapee Bank, fsb (Bank), a federal
stock savings bank operates ten branches primarily in Grafton, Sullivan, and
Merrimack Counties in west central New Hampshire. Although the Company 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 the Company, the Bank, Lake Sunapee Group, Inc. (LSGI),
and Lake Sunapee Financial Services Corp. (LSFSC). LSGI and LSFSC are wholly-
owned subsidiaries of the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Company considers federal funds sold and due from banks to be cash equivalents.
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 $728 and $76,590 have been included in earnings as
realized losses for the years ended 1996 and 1995, respectively. There was no
related write-down for the year 1994.
SECURITIES HELD TO MATURITY - Bonds, notes, and debentures which the
Company 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.
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 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.
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. When the interest
accrual is discontinued, all unpaid accrued interest is reversed. 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 Company'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.
23
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=======================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
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.
Factors considered by management in determining impairment include payment
status, net worth and collateral value. An insignificant payment delay or an
insignificant shortfall in payment does not in itself result in the review of a
loan for impairment. The Company applies SFAS No. 114 on a loan-by-loan basis.
The Company does not apply SFAS No. 114 to aggregations of loans that have risk
characteristics in common with other impaired loans. Substantially all of the
Company's loans that have been identified as impaired have been measured by the
fair value of existing collateral.
BANK PREMISES AND EQUIPMENT - Company 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.
INVESTMENT IN REAL ESTATE - Investment in real estate is carried at the
lower of cost or estimated fair value. The buildings are being depreciated over
their useful lives. The properties consist of a condominium that the Company
rents to the public and three buildings that the Company rents for commercial
purposes. Rental income is recorded in income when received and expenses for
maintaining these assets are charged to expense as incurred.
REAL ESTATE OWNED AND PROPERTY ACQUIRED IN SETTLEMENT OF LOANS - The Bank
classifies loans as in-substance, repossessed or foreclosed if the Bank receives
physical possession of the debtor's assets regardless of whether formal
foreclosure proceedings take place. At the time of foreclosure or possession,
the Company records the 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.
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 stock 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 1,722,983, 1,699,536,
and 1,693,259, for the years ended December 31, 1996, 1995 and 1994,
respectively.
24
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=======================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
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 Company 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, 1996 and 1995, other assets include $67,019 and $115,431, respectively, of
unamortized computer costs.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and
assumptions were used by the Company 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.
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 1995 and 1994 consolidated
financial statements have been reclassified to conform to the current year's
presentation.
DEFERRED LOAN ORIGINATION FEES - Loan origination, commitment fees and
certain direct origination costs are deferred, and the net amount is being
amortized as an adjustment of the related loan's yield. The Company is
generally amortizing these amounts over the contractual life of the related
loans.
STOCK BASED COMPENSATION - SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued in October 1995 and introduces a fair value method of
accounting for employee stock options, restricted stock grants, stock
appreciation rights or similar equity instruments. In accordance with SFAS No.
123, entities can recognize stock-based compensation expense in the basic
financial statements using either (i) the intrinsic value approach set forth in
APB
25
<PAGE>
NEW HAMPSHIRE THRIFT BANCSHARES INC. AND SUBSIDIARY
=======================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Opinion No. 25 or (ii) the fair value method introduced in SFAS No. 123.
Entities electing to continue to follow the provisions of APB Opinion No. 25
must make pro forma disclosure of net income and earnings per share, as if the
fair value method of accounting defined in SFAS No. 123 had been applied.
Management will continue to measure stock-based compensation costs in accordance
with APB Opinion No. 25 and has made the pro forma disclosure requirements of
SFAS No. 123 for 1996 and 1995.
LOAN SERVICING - Effective January 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65." This statement requires that a
mortgage banking enterprise recognize as separate assets from its related loans
the rights to service mortgage loans for others, either through acquisition of
those rights or from the sale or securitization of loans with the servicing
rights retained on those loans, based on their relative fair values. To
determine the fair value of the servicing rights created, the Company uses the
market prices under comparable servicing sale contracts, when available, or
alternatively uses a valuation model that calculated the present value of future
cash flows to determine the fair value of the servicing rights. In using this
valuation method, the Company incorporates assumptions that market participants
would use in estimating future net servicing income, which includes estimates of
the cost of servicing loans, the discount rate, ancillary income, prepayment
speeds and default rates.
The cost of mortgage servicing rights is amortized on a straight-line basis
which has substantially the same effect as amortizing the rights in proportion
to, and over the period of, estimated net servicing revenues. Impairment of
mortgage servicing rights is assessed based on the fair value of those rights.
Fair values are estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights are stratified
based on the following interest rate risk characteristics of the underlying
loans. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceed their fair value.
CONCENTRATION OF CREDIT RISK - Most of the Company's business activity is
with customers located within the state. There are no concentrations of credit
to borrowers that have similar economic characteristics. The majority of the
Company's loan portfolio is comprised of loans collateralized by real estate
located in the state of New Hampshire.
26
<PAGE>
==============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES:
The amortized cost and approximate market value of securities are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
FAIR HOLDING HOLDING AMORTIZED
VALUE GAIN LOSS COST
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity:
Bonds and notes -
Municipal bonds $ 340,276 $ - $ - $ 340,276
----------------------------------------------------------------------
Total held to maturity 340,276 - - 340,276
----------------------------------------------------------------------
Available for sale:
Bonds and notes -
U. S. Treasury Notes 12,884,840 31,066 94,145 12,947,919
U. S. Government, including agencies 3,269,758 17,393 18,099 3,270,464
Other bonds and debentures 7,641,502 17,692 97,336 7,721,146
----------------------------------------------------------------------
23,796,100 66,151 209,580 23,939,529
Equity securities 1,154,625 45,575 94,325 1,203,375
----------------------------------------------------------------------
Total available for sale 24,950,725 111,726 303,905 25,142,904
----------------------------------------------------------------------
Other investments:
Federal Home Loan Bank stock 1,861,000 - - 1,861,000
Other securities 446,557 - - 446,557
----------------------------------------------------------------------
Total other investments 2,307,557 2,307,557
----------------------------------------------------------------------
Total securities $ 27,598,558 $ 111,726 $ 303,905 27,790,737
======================================================================
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
FAIR HOLDING HOLDING 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
======================================================================
</TABLE>
27
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross gains of $810, $3,425, and $3,536, and gross losses of $807,
$7,382, and $1,776, were realized during 1996, 1995, and 1994, respectively, on
sales of available-for-sale debt securities. Gross losses of $25,833 were
realized during 1996 on sales of available-for-sale equity securities.
Maturities of debt securities are as follows as of December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AMORTIZED FAIR AVERAGE
AVAILABLE FOR SALE: bonds and notes - COST VALUE YIELD
------------------------------------------------------
<S> <C> <C> <C>
U. S. Treasury Notes $ 2,024,190 $ 2,024,374 5.78%
U. S. Government, including agencies 1,739,566 1,741,076 7.83%
Other bonds and debentures 2,601,685 2,569,554 6.62%
---------------------------------
Total due in one year or less 6,365,441 6,335,004 6.68%
---------------------------------
U. S. Treasury Notes 10,923,729 10,860,467 5.80%
U. S. Government, including agencies 502,683 497,343 6.51%
Other bonds and debentures 4,845,590 4,799,216 6.29%
---------------------------------
Total due after one year through five years 16,272,002 16,157,026 5.97%
---------------------------------
U. S. Government, including agencies 1,000,000 1,003,124 6.50%
Other bonds and debentures 202,702 201,562 5.33%
---------------------------------
Total due after five years through ten years 1,202,702 1,204,686 6.30%
---------------------------------
Other bonds and debentures 99,384 99,384 6.04%
---------------------------------
Total due after ten years 99,384 99,384 6.04%
---------------------------------
$ 23,939,529 $ 23,796,100 6.17%
=================================
</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 at an amount of
$240,276 and 6.48%, 6/1/2000 at an amount of $100,000. 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.
There were no issuers of securities whose aggregate book value exceeded 10%
of shareholders' equity as of December 31, 1996.
A total par value of $1,000,000 was pledged to secure the treasury, tax,
and loan account as of December 31, 1996.
28
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS RECEIVABLE:
Loans receivable consisted of the following as of December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans -
Conventional $ 183,550,150 $ 175,130,966 $ 161,091,563 $ 139,580,597 $ 135,252,277
Construction 2,702,613 2,456,763 7,793,601 4,301,243 3,478,459
-----------------------------------------------------------------------------------
186,252,763 177,587,729 168,885,164 143,881,840 138,730,736
Less - Unadvanced portion 1,270,412 1,434,258 2,841,500 1,222,932 955,860
-----------------------------------------------------------------------------------
184,982,351 176,153,471 166,043,664 142,658,908 137,774,876
Collateral loans 20,574,710 19,524,706 18,776,523 19,584,411 19,768,631
Consumer loans 4,860,325 5,025,818 5,264,449 5,158,271 5,796,200
Commercial and municipal loans 8,352,789 9,301,028 8,066,390 8,049,016 7,132,313
Other loans 436,754 671,302 625,006 977,633 673,793
-----------------------------------------------------------------------------------
Total loans 219,206,929 210,676,325 198,776,032 176,428,239 171,145,813
Less - Allowance for loan losses 2,158,026 1,828,060 2,752,885 2,374,001 2,094,931
- Deferred loan origination fees 300,492 382,042 520,438 719,200 694,983
- Nonaccrual loans 848,942 297,172 1,692,608 501,408 1,388,864
-----------------------------------------------------------------------------------
Net loans $ 215,899,469 $ 208,169,051 $ 193,810,101 $ 172,833,630 $ 166,967,035
===================================================================================
</TABLE>
When, in the opinion of management, a loan becomes delinquent and/or
uncollectible, it is reclassified as a non-earning loan on which interest is not
accrued. These loans are categorized as possible foreclosures. In addition to
non-earning assets, $787,930 and $1,144,293 of delinquent loans were classified
as non-accrual loans as of December 31, 1996 and 1995, respectively.
The following is a summary of activity in the allowance for loan loss
account for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, beginning of year $ 1,828,060 $ 2,752,885 $ 2,374,001 $ 2,094,931 $ 2,289,523
-----------------------------------------------------------------------------------
Loans charged-off:
Real estate loans -
Conventional 628,107 141,541 252,258 723,131 475,096
Construction 614,355 1,014,670 2,871 333,581 1,666,932
Collateral and consumer loans 36,721 25,568 612 5,289 5,869
Commercial and municipal loans 101,431 913,441 140,375 57,719 291,695
----------------------------------------------------------------------------------
Total charged-off loans 1,380,614 2,095,220 396,116 1,119,720 2,439,592
----------------------------------------------------------------------------------
Recoveries on loans:
Real estate loans -
Conventional 9,063 3,300 11,666 24,532 63,045
Collateral and consumer loans 22,105 2,099 1,779 1,584 969
Commercial and municipal loans 8,671 1,286 - - 15,551
---------------------------------------------------------------------------------
Total recoveries 49,839 6,685 13,445 26,116 79,565
---------------------------------------------------------------------------------
Net charged-off loans: 1,330,775 2,088,535 382,671 1,093,604 2,360,027
---------------------------------------------------------------------------------
Provision for loan losses charged
to income: 1,660,741 1,163,710 761,555 1,372,674 2,165,435
-----------------------------------------------------------------------------------
BALANCE, end of year $ 2,158,026 $ 1,828,060 $ 2,752,885 $ 2,374,001 $ 2,094,931
==================================================================================
Ratios of net charged-off loans during
the period to average loans
outstanding during the period .63% 1.02% .20% .64% 1.41%
==================================================================================
</TABLE>
29
<PAGE>
=============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS RECEIVABLE: (continued)
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, 1996 and
1995. Certain directors and executive officers of the Bank and companies in
which they have significant ownership interest were customers of the Bank during
1996. Total loans to such persons and their companies amounted to $1,066,552 as
of December 31, 1996. During 1996 advances of $319,847 were made and repayments
totaled $255,150.
As of December 31, 1996, all loans restructured in a troubled debt
restructuring were considered to be "Impaired loans" and are included in the
amount shown as the recorded investment in impaired loans. The Company had no
loans restructured in a troubled debt restructuring that are not impaired based
on the terms specified by the restructuring agreement.
During 1996 and 1995, 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 $362,436 and $370,672 from loans to real
estate owned and reduce interest income by $22,602 and $23,063 for the years
ended December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
IMPAIRED LOANS AS OF DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average recorded investment in impaired loans $ 837,357 $ 934,829
Recorded investment in impaired loans at December 31 $ 1,188,183 $ 1,452,049
Portion of valuation allowance allocated to impaired loans $ 139,509 $ 654,663
Net balance of impaired loans $ 1,048,674 $ 797,386
Interest income recognized on impaired loans $ 40,006 $ 102,449
Interest income on impaired loans on cash basis $ 37,592 $ 97,401
Recorded investment in impaired loans with related allowance for credit losses $ 814,182 $ 1,452,049
Recorded investment in impaired loans with no related allowance for credit losses $ 374,001 $ 0
</TABLE>
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:
1996 1995
-----------------------------
Sold loans $ 52,165,252 $ 43,433,158
=============================
Participation loans $ 2,664,278 $ 2,763,715
=============================
Mortgage servicing rights of $118,086 were capitalized in 1996.
Amortization of mortgage servicing rights was $15,056 in 1996. No valuation
allowance for capitalized servicing rights was required in 1996.
The Company has issued letters of credit and has approved lines of credit
loans to specific individuals and companies. The unused portions as of December
31, are as follows:
1996 1995
----------------------------
Letters of credit $ 468,750 $ 448,150
============================
Lines of credit $ 10,420,574 $ 11,139,725
============================
30
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. 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:
1996 1995
-------------------------------
Land $ 823,218 $ 679,980
Buildings and premises 4,891,724 4,982,713
Furniture, fixtures and equipment 3,610,607 3,464,598
-------------------------------
9,325,549 9,127,291
Less - Accumulated depreciation 4,221,183 3,810,454
-------------------------------
$ 5,104,366 $ 5,316,837
===============================
NOTE 5. REAL ESTATE OWNED AND PROPERTY ACQUIRED:
As of December 31, 1996 and 1995, the Company owned property acquired by
foreclosure and chattel property. The balances consisted of the following:
1996 1995
-------------------------------
Residential real estate $ 75,000 $ 34,970
Commercial real estate 632,026 949,215
Chattel property 16,452 -
-------------------------------
$ 723,478 $ 984,185
===============================
As of December 31, 1996 and 1995, real estate owned includes $539,026 and
$831,215, respectively, for two real estate development projects. The
properties have been developed and are ready for individual lots to be sold.
One lot was sold during 1996.
It is the policy of the Company, 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. Company employees are also
encouraged to participate in the selling of these properties.
For 1996, 1995 and 1994, $179,443, $112,544 and $17,629, respectively, of
net operating cost of other real estate is included in net income.
31
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. DEPOSITS:
Deposits consisted of the following as of December 31:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Checking accounts (non-interest-bearing) $ 10,587,756 4.9% $ 10,934,512 5.5%
NOW accounts 26,030,170 12.2% 26,014,007 13.0%
Ever-Ready Money Market 11,207,455 5.2% 13,971,617 7.0%
Regular savings accounts 9,167,458 4.3% 11,363,366 5.7%
Treasury savings accounts 50,154,503 23.5% 44,388,408 22.2%
Club deposits 71,088 .0% 87,779 .0%
-----------------------------------------------------------
107,218,430 50.1% 106,759,689 53.4%
-----------------------------------------------------------
Time deposits -
2.00% - 2.99% 448,874 .2% 251,318 .1%
3.00% - 3.99% - - - -
4.00% - 4.99% 2,738,534 1.3% 6,140,501 3.1%
5.00% - 5.99% 77,115,922 36.0% 41,959,447 21.0%
6.00% - 6.99% 11,667,942 5.5% 31,152,885 15.6%
7.00% - 7.99% 12,503,732 5.8% 10,889,340 5.4%
8.00% - 8.99% 2,265,461 1.1% 2,817,741 1.4%
-----------------------------------------------------------
106,740,465 49.9% 93,211,232 46.6%
===========================================================
$ 213,958,895 100.0% $ 199,970,921 100.0%
===========================================================
</TABLE>
The following is a summary of maturities of time deposits as of December
31, 1996:
<TABLE>
<S> <C>
1997 $ 71,668,007
1998 21,762,683
1999 10,970,261
2000 2,100,953
2001 236,179
Thereafter 2,382
-----------------------
$ 106,740,465
=======================
</TABLE>
As of December 31, 1996, time deposits include $12,884,426 of certificates
of deposit with a minimum balance of $100,000. Maturities of these certificates
are as follows:
<TABLE>
<S> <C>
Less than 3 months $ 3,730,043
Over 3 months and less than 6 months 4,150,174
Over 6 months and less than 12 months 2,872,478
Over 12 months 2,131,731
-----------------------
$ 12,884,426
=======================
</TABLE>
32
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
The purchasers of the agreements have agreed to resell to the Company
substantially identical securities at the maturities of the agreements.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
<S> <C> <C>
Average balance during the year $ 5,060,481 $ 4,272,752
Average interest rate during the year 4% 4%
Maximum month-end balance during the year 8,662,736 9,552,825
Securities underlying the agreements at year-end:
Carrying amount 12,947,919 11,994,795
Estimated fair value 12,884,841 12,139,529
</TABLE>
As of December 31, 1996, sixteen repurchase agreements were outstanding.
The maturity dates of the repurchase agreements are from January 27, 1997 to
October 25, 1997 on the anniversary date of the repurchase agreement.
Securities are under control of the Bank.
NOTE 8. ADVANCES FROM FEDERAL HOME LOAN BANK:
Advances from the Federal Home Loan Bank consisted of loans, at various
interest rates ranging from 4.87% to 7.32%, maturing as follows at December 31,
1996.
<TABLE>
<S> <C>
1997 (4.87% - 7.32%) $ 7,927,707
1998 (4.87% - 5.82%) 7,166,033
1999 (5.78%) 56,085
2000 and thereafter (5.41% - 5.82%) 5,024,200
----------------
$ 20,174,025
================
</TABLE>
These advances are secured by Federal Home Loan Bank stock (Note 2) and
unspecified first mortgage loans. The Company is able to borrow up to an
additional $50,000,000 of Federal Home Loan Bank advances.
In addition to the above advances, the Company has credit available up to
$5,167,000 under a revolving loan agreement with the Federal Home Loan Bank. No
amounts were borrowed against the line of credit as of December 31, 1996 and
1995. Interest is payable monthly as funds are borrowed.
33
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES:
The Company, the Bank and its wholly-owned subsidiaries file a consolidated
federal income tax return. Applicable income taxes amounted to $286,163 in 1996
$604,000 in 1995 and $723,000 in 1994. 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>
1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C>
Tax on income at statutory tax rates $ 304,907 $ 628,600 $ 783,785
Tax effect of dividends received deduction (27,023) (35,714) (39,270)
Tax effect of tax exempt interest, net (14,630) (19,289) (22,246)
Tax effect of unallowable amortization - - 3,292
Other, net 22,909 30,403 (2,561)
--------------------------------------------------------------
Tax at effective rate $ 286,163 $ 604,000 $ 723,000
==============================================================
</TABLE>
Income tax expense is made up of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense $ 406,644 $ 279,091 $ 648,000
Deferred tax expense (benefit) (120,481) 324,909 75,000
--------------------------------------------------------------
$ 286,163 $ 604,000 $ 723,000
==============================================================
</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>
1996 1995
------------------------------------------
<S> <C> <C>
Difference between book and tax depreciation $ 8,587 $ 11,533
Deferred loan origination fees included in taxable income 31,495 47,055
Bad debts deducted for taxable income not for book income (232,334) 174,852
Unrealized gain (loss) on securities available for sale (116,000) 426,400
Other, net 71,771 91,469
------------------------------------------
$ (236,481) $ 751,309
==========================================
</TABLE>
The components of the net deferred tax asset or liability on the
consolidated statements of financial condition are as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------
<S> <C> <C>
Deferred tax liability $ 478,541 $ 728,422
Deferred tax asset (118,022) (131,422)
------------------------------------------
$ 360,519 $ 597,000
==========================================
</TABLE>
Deferred tax assets as of December 31, 1996 have not been reduced by a
valuation allowance because management believes that it is more likely than not
that the full amount of deferred tax assets will be realized.
As of December 31, 1996, the Company had no operating loss and tax credit
carryovers for tax purposes.
34
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK COMPENSATION PLANS:
As of December 31, 1996, the Company had three fixed option, stock-based
compensation plans, which are described below. The Company has adopted the
disclosure only provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" but applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C> <C>
Net income As reported $ 610,711 $ 1,244,823
Pro forma $ 500,828 $ 1,216,275
Earnings per share As reported $ .35 $ .73
Pro forma $ .29 $ .72
</TABLE>
Under the 1986 plan, the Company may grant options to its employees for up
to 57,880 additional shares of common stock. Under the 1987 plan, the Company
may grant options to its employees for up to 27,666 additional shares of common
stock. Under both plans, 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. Options are exercisable immediately.
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.
On December 2, 1996 48,000 options were granted from the 1996 stock option plan
at an exercise price of $12.50 per share, the fair market value on that date.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1995
-------------------------------
<S> <C> <C>
Weighted risk-free interest rate 6.37% 6.67%
Weighted expected life 9.25 years 9.25 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.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------
Weighted Average Weighted Average
Fixed Options Shares Exercise Price Shares Exercise Price
- ------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 62,590 $ 8.22 66,075 $ 6.78
Granted 97,900 11.29 30,000 9.00
Exercised (18,730) 8.24 (33,485) 6.08
Forfeited
------------------- --------------
Outstanding at end of year 141,760 $ 10.34 62,590 $ 8.22
=================== ==============
Options exercisable at year-end 141,760 62,590
Weighted-average fair value of $ 1.84 $ 1.56
options granted during the year
</TABLE>
35
<PAGE>
==========================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. STOCK COMPENSATION PLANS: (continued):
The following table summarizes information about fixed stock options
outstanding as of December 31, 1996:
Options Outstanding and Exercisable
------------------------------------------------------------
Number
Outstanding Remaining
Exercise Prices as of 12/31/96 Contractual Life
--------------- -------------- ----------------
$ 7.500 21,190 1.2 year
9.000 25,170 8.0 years
10.125 47,400 9.0 years
12.500 48,000 9.9 years
----------------
$ 10.340 141,760 8.0 years
=========================================================
NOTE 11. EMPLOYEE BENEFIT PLANS:
DEFINED BENEFIT PENSION PLAN - The Company has 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 Company's defined benefit pension plan consisted
of the following components as of December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------------
<S> <C> <C> <C>
Service cost $ 84,057 $ 88,168 $ 77,370
Interest cost on projected benefit obligation 109,326 104,325 100,515
Actual return on plan assets (143,470) (143,671) 55,611
Net amortization and deferral 72,337 85,790 (125,230)
----------------------------------------------------
$ 122,250 $ 134,612 $ 108,266
====================================================
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the accompanying consolidated statements of financial position as
of December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,297,443 $ 1,250,767
=======================================
Accumulated benefit obligation $ 1,350,262 $ 1,273,735
=======================================
Projected benefit obligation $ 1,516,431 $ 1,477,750
Plan assets at fair value, primarily invested in debt and equity securities 1,636,405 1,395,207
---------------------------------------
Projected benefit obligation (in excess of) less than plan assets 119,974 (82,543)
Unrecognized net loss 286,143 374,051
Unrecognized prior service cost (32,658) (35,351)
---------------------------------------
Prepaid expense, included in other assets $ 373,459 $ 256,157
=======================================
</TABLE>
36
<PAGE>
==========================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. EMPLOYEE BENEFIT PLANS: (continued)
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of December 31:
1996 1995
----------------------
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 $9,500 for 1996.
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 1996, 1995 and 1994, participating employees' contributions totaled
$118,346, $96,452, and $88,682 respectively. The Bank made a matching
contribution of $10,000 for 1996 and $9,500 for 1995. No matching contribution
was made for 1994. 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.
NOTE 12. COMMITMENTS AND CONTINGENCIES:
In the normal course of business, the Company 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, 1996, the Company had entered into commitments to fund loans totaling
$4,195,156. 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:
1996 1995
----------------------------------
6.00% - 6.99% $ 2,439,825 $ 594,250
7.00% - 7.99% 1,500,194 3,070,875
8.00% - 8.99% 210,137 445,118
9.00% - 9.99% 20,000 264,750
10.00% - 10.99% 25,000 35,000
----------------------------------
$ 4,195,156 $ 4,409,993
==================================
37
<PAGE>
============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. 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. Company management believes the balance in the
liquidation account would be immaterial to the consolidated financial statements
as of December 31, 1996.
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.
TREASURY STOCK - On July 15, 1993, the Company announced a buy back program
whereby the Company intends to repurchase, on the open market, 10% of its
currently outstanding common stock. As of December 31, 1996, 117,782 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 - In prior years, Lake Sunapee Savings Bank,
fsb, a wholly-owned subsidiary of the Company, was allowed a special tax-basis
under certain provisions of the Internal Revenue Code. As a result, retained
income of Lake Sunapee Bank, fsb, as of December 31, 1996 includes approximately
$1,896,000 for which federal and state income taxes have not been provided. If
the Bank no longer qualifies as a bank as defined in certain provisions of the
Internal Revenue Code, this amount will be subject to recapture in taxable
income ratably over six (6) years, subject to a combined federal and state tax
rate of approximately 39%.
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
1996 1995 1996 1995 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance reported to OTS $ 17,856,000 $ 18,456,000 $ 625,000 $ 1,258,000 $ 1,605,000
Parent company -
Loss before equity in earnings
of subsidiary (13,874) (12,830) (13,874) (12,830) (20,960)
Dividends from LSB to NHTB 1,000,000 1,000,000 - - -
Stock options exercised 725,120 570,825 - - -
Cash dividends paid to - - -
shareholders of NHTB (847,066) (839,413)
Retained earnings 3,347,321 3,199,564 - - -
Treasury stock purchased (2,873,530) (2,830,048) - - -
Other, net (281) (93) (415) (347) (1,790)
---------------------------------------------------------------------------
Balance per consolidated
financial statements $ 19,193,690 $ 19,544,005 $ 610,711 $ 1,244,823 $ 1,582,250
===========================================================================
</TABLE>
38
<PAGE>
=============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS:
The Company and the Bank are subject to various capital requirements
administered by their primary federal regulators, the Office of Thrift
Supervision (OTS) . Failure to meet minimum regulatory requirements can
initiate mandatory, and possible additional discretionary actions by regulators,
that if undertaken, could have a direct material effect on the Company's and the
consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines involving quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications under the prompt corrective action guidelines are also subject
to qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total risk-based capital and Tier I capital to risk-weighted assets
(as defined in the regulations), Tier I capital to adjusted total assets (as
defined) and tangible capital to adjusted total assets (as defined).
Management believes, as of December 31, 1996, that the Bank meets all
capital requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the regulatory
frame work for prompt corrective action. To be categorized as well capitalized
Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
The table below presents the Bank's regulatory capital as compared to OTS
and FDIC requirements as of December 31, 1996. There was no deduction from
capital for interest-rate risk.
<TABLE>
<CAPTION>
Bank OTS FDIC
------------------- ------------------ ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $17,862 6.76% $ 3,966 1.50% N/A N/A
Core leverage capital $17,862 6.76% $ 7,932 3.00% $13,220 5.00%
Tier I risk-based capital $17,862 11.81% N/A N/A $ 9,072 6.00%
Total risk-based capital $18,146 12.00% $12,097 8.00% $15,121 10.00%
</TABLE>
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Company's financial instruments , all of
which are held or issued for purposes other than trading, were as follows as of
December 31:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 11,002,749 11,002,749 $ 10,993,297 $ 10,993,297
Securities available for sale 24,950,725 24,950,725 25,569,664 25,718,260
Securities held to maturity 340,276 340,276 393,054 393,054
Other investments 2,307,557 2,307,557 2,303,285 2,303,285
Loans 216,002,761 216,136,350 209,032,402 209,043,415
Loans held for sale 745,650 745,650 3,095,971 3,095,971
Accrued interest receivable 1,354,042 1,354,032 1,433,882 1,433,882
Financial liabilities:
Regular savings, NOW, demand and
money market deposits 107,218,430 107,218,430 106,759,689 106,759,689
Time deposits 106,740,465 107,416,000 93,211,231 93,677,261
Repurchase agreements 8,662,736 8,662,736 9,552,825 9,552,825
Advances from Federal Home Loan Bank 20,174,025 20,162,000 26,936,168 27,016,696
</TABLE>
39
<PAGE>
==========================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS: (continued):
The carrying amounts of financial instruments shown in the above table are
included in the consolidated statements of financial condition under the
indicated captions.
The Company has no derivative financial instruments subject to the
provisions of SFAS No. 119 "Disclosure About Derivative Financial Instruments
and Fair Value of Financial Instruments". Accounting policies related to
financial instruments are described in Note 1.
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
<TABLE>
<CAPTION>
1996 1995
------------------------------
<S> <C> <C>
ASSETS
Investment in subsidiary $ 17,855,719 $ 18,455,908
Advances to affiliates (LSB) 1,337,971 1,088,097
------------------------------
Total assets $ 19,193,690 $ 19,544,005
==============================
------------------------------
SHAREHOLDERS' EQUITY $ 19,193,690 $ 19,544,005
==============================
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Operating expenses $ 13,874 $ 12,830 $ 20,960
------------------------------------------
Loss before equity in earnings of subsidiary (13,874) (12,830) (20,960)
Equity in earnings of subsidiary 624,585 1,257,653 1,603,210
------------------------------------------
Net income $ 610,711 $ 1,244,823 $ 1,582,250
==========================================
</TABLE>
40
<PAGE>
==========================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. HOLDING COMPANY OPERATIONS: (continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 610,711 $ 1,244,823 $ 1,582,250
Adjustments to reconcile net income to net
cash
used in operating activities -
Equity in earnings of subsidiary (LSB) (624,585) (1,257,653) (1,603,210)
Amortization - - 13,752
-------------------------------------------------------
Net cash used in operating activities (13,874) (12,830) (7,208)
-------------------------------------------------------
Cash flows from investing activities:
Dividends received from subsidiary (LSB) 1,000,000 1,000,000 500,000
Advances from subsidiary, net (249,873) (207,217) 399,029
-------------------------------------------------------
Net cash provided by investing activities 750,127 792,783 899,029
-------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock options exercised 154,295 203,475 132,420
Dividends paid (847,066) (839,413) (830,303)
Acquisition of treasury stock (43,482) (144,015) (193,938)
-------------------------------------------------------
Net cash used in financing activities (736,253) (779,953) (891,821)
-------------------------------------------------------
Net increase in cash - - -
Cash, beginning of year - - -
-------------------------------------------------------
Cash, end of year $ - $ - $ -
-------------------------------------------------------
</TABLE>
The Parent Only Statements of Changes in Shareholders' Equity are identical
to the Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1996, 1995, and 1994, and therefore are not reprinted here.
NOTE 17. MERGER WITH LANDMARK BANK:
On July 26, 1996, the Company entered into an agreement and plan of
reorganization (the "Merger Agreement") with Landmark Bank. Pursuant to the
Merger Agreement, the Company will acquire all of the outstanding shares of
Landmark Bank for total consideration of approximately $6 million. The Merger
Agreement was subject to the approval of the shareholders of the Company,
shareholders of Landmark Bank, and various regulatory agencies. On January 22,
1997, the Company completed the acquisition of Landmark Bank.
Under the terms of the merger agreement, holders of Landmark Bank's stock
may elect to receive $12.00 in cash per share, or exchange their stock for stock
in the Company at a ratio of 1.1707 shares of the common stock of the Company
per Landmark share, subject to 60% of Landmark's stock being converted to stock
and 40% to cash. Allocation of the merger consideration is expected to take
place in February, 1997.
41
<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, 1996
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)
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-B 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-KSB or any
amendment to this Form 10-KSB. X
----
The aggregate market value of the voting stock held by non-affiliates of the
registrant is between $19,666,303 and $19,082,156 based on a $12.625 average bid
and a $12.25 average asked price, respectively, as of December 31, 1996.
Number of shares of Common Stock Outstanding as of January 21, 1997: 1,704,982
42
<PAGE>
========================================
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
INDEX
<TABLE>
<S> <C>
PART I
Item 1. Business............................................................................. 44
Item 2. Properties........................................................................... 50
Item 3. Legal Proceedings.................................................................... 50
Item 4. Submission of Matters to a Vote of Security Holders.................................. 50
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............. 51
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................................ 51
Item 7. Financial Statements and Supplementary Information
Report of Independent Auditors....................................................... 51
Consolidated Statements of Financial Condition....................................... 51
Consolidated Statements of Income.................................................... 51
Consolidated Statements of Changes in Shareholders' Equity........................... 51
Consolidated Statements of Cash Flows................................................ 51
Notes to Consolidated Financial Statements........................................... 51
Item 8. Disagreements on Accounting and Financial Disclosure................................. 51
PART III
Item 9. Directors and Executive Officers of the Registrant................................... 52
Item 10. Executive Compensation............................................................... 52
Item 11. Security Ownership of Certain Beneficial Owners and Management....................... 52
Item 12. Certain Relationships and Related Transactions....................................... 52
Item 13. Exhibits and Reports on Form 8-K
Exhibits............................................................................. 52
Reports on Form 8-K.................................................................. 53
Signatures........................................................................... 54
</TABLE>
43
<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).
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. 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 had assets of approximately $264 million as of December 31,
1996.
On January 22, 1997 the Company acquired all of the outstanding common
stock of Landmark Bank. The cost of the acquisition was approximately $6.7
million and will be accounted for as a purchase. Landmark Bank has total assets
of approximately $53 million.
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, 1996, Charter Trust Company had
approximately $700 million under investment and custodial management. The Bank
accounts for its investment in Charter Trust Company at cost which is
approximately $400,000.
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.
44
<PAGE>
LENDING ACTIVITIES
The Bank's loan portfolio totaled $219,206,929, including $745,650 of
loans held for sale at December 31, 1996, representing approximately 83% of
total assets. As of December 31, 1996, approximately 83% of the mortgage loan
portfolio had adjustable rates. As of December 31, 1996, the Bank had sold
$52,165,252 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 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 refinancing 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 offers commercial loans in accordance with
regulatory requirements. Under current regulation the bank is limited to 20%
of total assets. The Bank currently has approximately 10% commercial loans.
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.
45
<PAGE>
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.
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.
As of December 31, 1996, the Bank had 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 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
depository 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 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
46
<PAGE>
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 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 of 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. The special SAIF assessment was
paid by the Bank on November 27, 1996 in the amount of $994,025.
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 of 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 weakness. 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 depository institutions and abolition of separate chargers for
banks and thrift 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
47
<PAGE>
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.
REGULATIONS 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 of 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.
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 to 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.
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.
48
<PAGE>
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 $119,109, $150,058 and $101,600 during the
years ended December 31, 1996, 1995, and 1994, 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.
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 December 31, 1996 was 12.16% which exceeded
the applicable requirements. The Bank has never been subject to monetary
penalties for failure to meet its liquidity requirements.
TAXATION
A thrift institution organized in stock form which utilizes the bad
debt reserve method for bad debt 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 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."
The Bank's tax returns have been audited and accepted through December
31, 1995 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 1996, the tax amounted to
$13,874.
At December 31, 1996, LSB had a total of 79 full-time employees and 19
part-time employees. These employees are not represented by collective
bargaining agents. LSB believes that its relationship with its employees is
good.
49
<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, 1996:
<TABLE>
<CAPTION>
YEAR NET BOOK VALUE EXPIRATION LEASE RENEWAL
LOCATION OPENED LEASED OWNED DATE OF LEASE OPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Office
9 Main Street
Newport, NH 1868 $ 1,490,221
Guild Office
300 Sunapee Street
Newport, NH 1978 $ 105,750
Bradford Office
115 East Main Street
Bradford, NH 1975 $ 81,034
Grantham Office
165 Route 10 South
Grantham, NH 1980 $ 308,686
Lebanon Office
200 Heater Road
Lebanon, NH 1986 $ 585,159
New London Office
24 Newport Road
New London, NH 1981 $ 343,558
Sunapee Office
565 Route 11
Sunapee, NH 1965 $ 90,354
Andover Office/(1)/
720 Main Street
Andover, NH 1987 $ 34,818 1997 -
Hillsboro Office/(1)/
15 Antrim Road
Hillsboro, NH 1994 $ 18,083 1997 7 Years
West Lebanon Office/(1)/
83 Main Street
West Lebanon, NH 1994 $ 158,175 1999 15 Years
</TABLE>
/(1)/ Operating lease, value of improvements.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of shareholders of the Company held on December 19, 1996,
the Company presented the following matters to shareholders of the Company for
their votes of approval.
1. Adopt and approve the Agreement and Plan of Reoganization dated July 26,
1996 by and among the Company, the Bank and Landmark Bank, and the
Agreement and Plan of a Merger, dated July 26, 1996 by and between the Bank
and Landmark Bank, and joined in by the Company, and the transactions
comtemplated thereby.
FOR: 1,083,344 AGAINST: 8,319 ABSTAIN: 10,096
50
<PAGE>
2. Adopt a proposal to adjourn the special meeting for any reason.
FOR: 1,055,07 1 AGAINST: 46,368 ABSTAIN: 42,228
PART II.
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>
1996 First Quarter $ 10 1/2 $ 9 1/4
Second Quarter 10 7/16 9 1/2
Third Quarter 12 1/2 9 3/4
Fourth Quarter 13 1/2 11 3/8
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
</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, 1996, New Hampshire Thrift Bancshares, Inc.
had approximately 756 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>
1996 1995
--------------------
<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 13 of the Notes to
Consolidated Financial Statements.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
The information called for by this item is contained on pages 7 through 16 of
this document.
ITEM 7. FINANCIAL STATEMENTS
The report of independent accountants and the financial information called for
by this item are contained on pages 17 through 41 of this document.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
51
<PAGE>
PART III.
ITEM 9. 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 9, 1997, 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 10. 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 9, 1997, 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. 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 9, 1997, 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. 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 9, 1997, 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. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
The exhibits filed as a part of this Registration Statement are as
follows:
(A). LIST OF EXHIBITS. (Filed herewith unless otherwise noted.)
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement as Plan of Reorganization, dated as of July 26,
1996, by and among New Hampshire Thrift Bancshares, Inc.
("NHTB"), Lake Sunapee Bank, fsb (the "Bank") and Landmark
Bank ("Landmark"), including Annex A, Agreement and Plan of
Merger, dated as of July 26, 1996, by and between Landmark
and the Bank, and joined in by NHTB (previously filed as an
Exhibit to the Company's Form S-4 (No. 333-12645) filed with
the Securities and Exchange Commission (the "Commission") on
November 5, 1996 (the "November 5, 1996 S-4"))
52
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of NHTB
(previously filed as an exhibit to the November 5, 1996
S-4).
3.2 Amended and Restated Bylaws of NHTB.
4.1 Stock Certificate of New Hampshire Thrift Bancshares, Inc.
(previously filed as an exhibit to the Company's Form S-4
(file No. 33-27192) filed with the Commission on March 1,
1989).
10.1 Profit Sharing-Stock Ownership Plan of Lake Sunapee Bank,
fsb (previously filed as an exhibit to the November 5, 1996
S-4).
10.2 New Hampshire Thrift Bancshares, Inc. 1996 Stock Option Plan
(previously filed as an exhibit in the November 5, 1996 S-4.
10.3 Lake Sunapee Bank, fsb 1987 Incentive Stock filed as an
exhibit to the Option Plan (previously Commission on March
1, 1989). Company's Form S-4 (file No. 33-27192), filed with
the filed with the Commission on March 1, 1989).
10.4 New Hampshire Thrift Bancshares, Inc. 1996 Incentive Stock
Option Plan (previously filed as an exhibit to the Company's
Form S-4 (file No. 33-27192), filed with the Commission on
March 1, 1989).
10.5 Employment Agreement between NHTB and Stephen W. Ensign
(previously filed as an exhibit to the November 5, 1996 S-
4).
10.6 Employment Agreement between the Bank and Stephen
(previously filed as an R. Theroux exhibit to the November
5, 1996 S-4).
10.7 Stock Option Agreement, dated as of July 26, 1996, Landmark,
(previously between NHTB and filed as an exhibit to the
November 5, 1996 S-4).
11.1 Computation of Per Share Earnings (see Note 1 to
Consolidated Financial Statements).
16.1 Letter on Change in Certifying Accountant to the Company's
(previously filed as an exhibit Current Report on Form 8-K
dated July 10, 1996).
21.1 Subsidiaries of the Company (previously filed as an exhibit
to the November 5, 1996 S-4).
27.1 Financial Data Schedule (submitted only with filing in
electronic format).
99.1 Proxy Statement for the 1997 Annual Meeting of Company (to
be filed Rule pursuant to 14a-6 under the Securities and
Exchange Act of Shareholders of the 1934, as amended).
(B) REPORTS OF FORM 8-K.
None
53
<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.
By: /s/ John J. Kiernan Chairman of the Board March 7, 1997
-------------------
(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 7, 1997
-------------------
(John J. Kiernan)
/s/ Stephen W. Ensign Vice Chairman of the Board, March 7, 1997
---------------------
(Stephen W. Ensign) President and Chief Executive Officer
/s/ Stephen R. Theroux Director, Executive Vice President and March 7, 1997
----------------------
(Stephen R. Theroux) Chief Financial Officer
/s/ Leonard R. Cashman Director March 7, 1997
----------------------
(Leonard R. Cashman)
/s/ Ralph B. Fifield, Jr. Director March 7, 1997
-------------------------
(Ralph B. Fifield, Jr.)
/s/ John A. Kelley, Jr. Director March 7, 1997
-----------------------
(John A. Kelley, Jr.)
/s/ Dennis A. Morrow Director March 7, 1997
--------------------
(Dennis A. Morrow)
/s/ Jack H. Nelson Director March 7, 1997
------------------
(Jack H. Nelson)
/s/ Priscilla W. Ohler Director March 7, 1997
----------------------
(Priscilla W. Ohler)
/s/ Perry R. Smith, Jr. Director March 7, 1997
-----------------------
(Perry R. Smith, Jr.)
/s/ Kenneth D. Weed Director March 7, 1997
-------------------
(Kenneth D. Weed)
</TABLE>
54
<PAGE>
=========================================================================
DIRECTORS AND OFFICERS OF NEW HAMPSHIRE THRIFT BANCSHARES, INC.
DIRECTORS
- ---------
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
Vice Chairman of the
Board, President and
Chief Executive Officer
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
Leonard R. Cashman
Owner and Partner C.O.H.
Properties, Owner,
President, and Director
C.O.H. Enterprises, Inc.,
Partner Etna Real Estate
Associates
Ralph B. Fifield, Jr. Retired
Executive Vice President
Lending and Commercial
Finance
John A. Kelley, Jr.
Real Estate Developer
Dennis A. Morrow
Sales Manager
Cote & Reney Lumber Company
Jack H. Nelson
Chairman North East
Environmental Products,
Inc., President Hanover
Water 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
John E. Johannessen
(Emeritus)
Retired Executive
Mobil Corporation
OFFICERS
- --------
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
Vice Chairman of the
Board, 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
Vice Chairman of the Board,
President and Chief
Executive Officer
Stephen R. Theroux
Executive Vice President
and Chief Financial Officer
Peter R. Lovely
Senior Vice President
Investment Services
Leonard R. Cashman
Owner and Partner C.O.H.
Properties, Owner, President
and Director C.O.H.
Enterprises, Inc.
Partner Etna Real Estate
Associates
Ralph B. Fifield, Jr. Retired
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
Jack H. Nelson
Chairman North East
Environmental Products,
Inc., President Hanover
Water 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
Joseph B. Willey
Principal Owner, President
and Director Pro-Cut
International
OFFICERS
- --------
John J. Kiernan
Chairman of the Board
Stephen W. Ensign
Vice Chairman of the Board,
President and Chief
Executive Officer
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
ACCOUNTING
Daryl J. Cady
Vice President and
Controller
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
Sandra M. Blackington
Assistant Secretary
LENDING
W. Grant MacEwan
Senior Vice President
Commercial Lending
Sharon L. Whitaker
Vice President
Retail Lending
LOAN ORIGINATION
Robert C. O'Brien
Senior Vice President
Colin S. Campbell
Vice President
Stephen B. Ellis
Assistant Vice President
Peter N. Jennings
Loan Officer
MARKETING
Douglas S. Baxter
Vice President
OPERATIONS
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
9 Main Street
Newport, NH 03773
(603) 863-5772
(800) 281-5772
Terri G. Spanos
Assistant Vice President
720 Main Street
Andover, NH 03216
(603) 735-5772
Sue-Anne C. Bourbeau
Supervisor
115 East Main Street
Bradford, NH 03221
(603) 938-2277
Nancy E. Desmarais
Supervisor
165 Route 10 South
Grantham, NH 03753
(603) 863-5600
Anita G. Sanborn
Manager
15 Antrim Road
Hillsboro, NH 03244
(603) 464-4820
Virginia S. Landers
Supervisor
200 Heater Road
Lebanon, NH 03766
(603) 448-2566
Erik C. Cinquemani
Assistant Vice President
24 Newport Road
New London, NH 03257
(603) 526-6933
Heather K. Melson
Assistant Vice President
Maxine B. Wiggins
Customer Service Officer
300 Sunapee Street
Newport, NH 03773
(603) 863-1428
Sherri A. Cummings
Supervisor
565 Route 11
Sunapee, NH 03782
(603) 763-2511
Heide Hubert Menard
Supervisor
83 Main Street
West Lebanon, NH 03784
(603) 298-7500
Erik C. Cinquemani
Assistant Vice President
AFFILIATED COMPANY
Charter Trust Company
90 North Main Street
Concord, NH 03302
(603) 224-1350
(800) 639-5903
<PAGE>
<TABLE>
<CAPTION>
- ----------------- -----------------------
BOARD OF ADVISORS SHAREHOLDER INFORMATION
<S> <C> <C>
Philip D. Allen /(1)/ Jeffrey A. Lantz CORPORATE HEADQUARTERS
Prunella O. Anastos Victor W. Laro
Benjamin K. Barton Paul J. Linehan New Hampshire Thrift Bancshares, Inc.
Kenneth O. Barton Robert MacNeil The Carriage House
George O. Binzel Elizabeth W. Maiola PO Box 37
William A. Bittinger Raymond A. Manning New London, New Hampshire 03257-0037
Paul R. Boucher John J. Marcotte
James F. Briggs Jerry N. Mathis TRANSFER AGENT
Robert S. Burgess David W. McClintic
Walton W. Chadwick Denise A. McClintic ChaseMellon Shareholder Services, L.L.C.
Earle W. Chandler Thomas F. McCormick Overpeck Centre
F. Read Clarke J. David McCrillis 85 Challenger Road
Jacqueline C. Cote John C. McCrillis Ridgefield Park, NJ 07660
Robert J. Cricenti Paul Olsen Tel: 1-800-851-9677
Richard F. Curtis Daniel P. O'Neill Website: http://www.cmssonline.com
Ernest G. Dennis, Jr. David N. Reney
Terri C. Dudley Genelle M. Richards INDEPENDENT ACCOUNTANTS
William J. Faccone, Sr. J. Barrie Sellers
Gordon B. Flint, Sr. Edwin G. Sielewicz Shatswell, MacLeod & Company, P.C.
John W. Flynn, Jr. Fredric M. Smith 83 Pine Street
John W. Flynn, Sr. Herbert N. Smith West Peabody, Massachusetts 01960-3635
Charles E. Goyette, Jr. Fred F. Stockwell
Sam N. Hale Earl F. Strout
Sheffield J. Halsey James R. Therrien ---------------------------
Louise K. Hastings Janis H. Wallace INFORMATION ON COMMON STOCK
Howard T. Heintz James P. Wheeler
Douglas J. Homan Bradford C. White The common stock is traded over-the-counter and quoted
Rita M. Hurd John W. Wiggins, Sr. on the NASDAQ National Market System under the symbol NHTB.
Lisa S. Hustis Peter Wittman There were approximately 756 shareholders of record on
Alf E. Jacobson Thomas B. Woodger December 31, 1996.
Robert B. Jennings Michael J. Work
Michael D. Johnson /(1)/ Honorary The following table sets forth the Company's high and low
John J. Kiernan, Jr. prices for the common stock as reported by NASDAQ for the
periods indicated:
</TABLE>
<TABLE>
<CAPTION>
1996 HIGH LOW
--------------------------------------
<S> <C> <C>
First Quarter $ 10 1/2 $ 9 1/4
Second Quarter 10 7/16 9 1/2
Third Quarter 12 1/2 9 3/4
Fourth Quarter 13 1/2 11 3/8
</TABLE>
This Annual Report has been written by the Bank's staff.
56
<PAGE>
BYLAWS
OF
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
(the "Corporation")
ARTICLE I - OFFICES
SECTION 1. Registered Office. The registered office of the
-----------------
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
SECTION 2. Other Offices. The Corporation may also have an office
-------------
at The Carriage House, P. O. Box 37, New London, New Hampshire 03257-0037 or at
such other places both within and without the State of Delaware as the board of
directors may from time to time determine.
ARTICLE II - SHAREHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
-----------------
shareholders shall be held at 9 Main Street, Newport, New Hampshire or at such
other place, either within or without the State of Delaware, as the board of
directors may determine.
SECTION 2. Annual Meeting. A meeting of the shareholders of the
--------------
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually within 150 days after the end
of the Corporation's fiscal year on the date and at the hour determined by the
board of directors.
SECTION 3. Special Meetings. Special meetings of the shareholders
----------------
for any purpose or purposes may be called at any time only by the chairman of
the board or the president of the Corporation, or a majority of the board of
directors of the Corporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall
-------------------
be conducted in accordance with the rules specified by the officer presiding at
the meeting unless otherwise prescribed by law.
<PAGE>
SECTION 5. Notice of Meeting. Written notice stating the place,
-----------------
day, and hour of the meeting and the purposes for which the meeting is called
shall be delivered not less than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board or president, or the directors calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the Corporation as of the record date prescribed in Section 6 of this Article
II with postage prepaid. When any shareholders' meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. Provided no new record date for
the meeting is set, it shall not be necessary to give any notice of the time and
place of any meeting adjourned for less than 30 days or of the business to be
transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purposes of determining
---------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days nor less than 10 days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment.
SECTION 7. Voting Lists. At least 10 days before each meeting of
------------
the shareholders, the officer or agent having charge of the stock transfer books
for shares of the Corporation shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file either at a place within the city where the
meeting is to be held, which place shall be
2
<PAGE>
specified in the notice of meeting, or at the place where the meeting is to be
held and shall be subject to inspection by any shareholder at any time during
usual business hours for a period of at least 10 days prior to such meeting.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
entire time of the meeting. The original stock transfer book shall constitute
prima facie evidence of the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
SECTION 8. Quorum. One third of the outstanding shares of the
------
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than one third of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
Subject to Section 5 of this Article II of these bylaws, at such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
SECTION 9. Voting. Except as otherwise required by law, the
------
certificate of incorporation or these bylaws, any matter brought before any
meeting of shareholders shall be decided by the affirmative vote of the majority
of the votes cast on the matter. Each shareholder represented at a meeting of
shareholders shall be entitled to cast one vote for each share of the capital
stock entitled to vote thereat held by such shareholder. The board of
directors, in its discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
SECTION 10. Proxies. At all meetings of shareholders, a shareholder
-------
may vote by proxy executed in writing by the shareholder or his duly authorized
attorney in fact. Proxies solicited on behalf of the board of directors shall
be voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than three years from its date, unless the
3
<PAGE>
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power.
SECTION 11. Voting of Shares in the Name of Two or More Persons. If
---------------------------------------------------
shares or other securities having voting power stand of record in the names of
two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the secretary of the Corporation is given written notice to the contrary
and is furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall have the following effect: (1) if only one votes, his act binds
all; (2) if more than one vote, the act of the majority so voting binds all; (3)
if more than one vote, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or any person
voting the shares, or a beneficiary, if any, may apply to the Court of Chancery
of the State of Delaware or such other court as may have jurisdiction to appoint
an additional person to act with the persons so voting the shares, which shall
then be voted as determined by the majority of such persons and the person
appointed by the Court. If the instrument so filed shows that any such tenancy
is held in unequal interests, a majority or even-split for the purposes of this
subsection shall be a majority or even-split in interest.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in
-----------------------------------
the name of another corporation may be voted by any officer, agent, or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Shares
held by an administrator, executor, guardian, or conservator may be voted by him
or her, either in person or by proxy, without a transfer of such shares into his
or her name. Shares standing in the name of a trustee may be voted by him or
her, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him or her without a transfer of such shares into his or her
name. Shares standing in the name of a receiver
4
<PAGE>
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his or her name
if authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of
----------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the meeting may, or on the request of not fewer than
10 percent of the votes represented at the meeting shall, make such appointment
at the meeting. If appointed at the meeting, the majority of the votes present
shall determine whether one or three inspectors are to be appointed. In case
any person appointed as inspector fails to appear or fails or refuses to act,
the vacancy may be filled by appointment by the board of directors in advance of
the meeting or at the meeting by the chairman of the board.
Unless otherwise prescribed by law, the duties of such inspectors
shall include: determining the number of shares and the voting power of each
share, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies; receiving votes, ballots, or
consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and such
5
<PAGE>
acts as may be proper to conduct the election or vote with fairness to all
shareholders.
SECTION 14. Nominating Committee. Only persons who are nominated in
--------------------
accordance with the procedures set forth in this Section 14 shall be eligible
for election as directors. Nominations of persons for election to the board of
directors of the Corporation may be made at a meeting of shareholders by or at
the direction of the board of directors or by any shareholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 14. Such nominations, other
than those made by or at the direction of the board of directors, shall be made
pursuant to timely notice in writing to the secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 30 days nor
more than 90 days prior to the meeting; provided, however, that in the event
-------- -------
that less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or re-
election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or as otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the shareholder giving the notice, (i) the name and address, as they appear on
the Corporation's books, of such shareholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such shareholder. At
the request of the board of directors, any person nominated by the board of
directors for election as a director shall furnish to the secretary of the
Corporation that
6
<PAGE>
information required to be set forth in a shareholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 14. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the bylaws, and if he should so
determine, he shall declare to the meeting that the defective nomination shall
be disregarded.
SECTION 15. Business at Annual Meeting. At an annual meeting of the
--------------------------
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors, (b) otherwise
properly brought before the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the meeting by a
shareholder.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 40 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Corporation's books, of the shareholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (d) any material interest
of the shareholder in such business. Notwithstanding anything in these bylaws
to the contrary, no business shall be conducted at an annual meeting except in
7
<PAGE>
accordance with the procedures set forth in this Section 15. The chairman of an
annual meeting shall, if the facts warrant, determine and declare to the annual
meeting that a matter of business was not properly brought before the meeting in
accordance with the provisions of this Section 15, and that such business shall
not be transacted.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
--------------
Corporation shall be under the direction of its board of directors. The board of
directors shall annually elect a chairman from among its members who shall
preside at all meetings. In the absence of the chairman, the board of directors
may designate one of its members to preside at such meeting.
SECTION 2. Number and Term. The board of directors shall consist of
---------------
11 members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified or until earlier
resignation or removal. One class shall be elected by ballot annually. The size
of the board of directors may be increased or decreased only by a two-thirds
vote of the board of directors or by a vote of two-thirds of the shares eligible
to be voted at a duly constituted meeting of stockholders called for such
purpose.
SECTION 3. Qualifications. After the Corporation becomes publicly-
--------------
owned, each director shall at all times be the beneficial owner of not less than
100 shares of capital stock of the Corporation.
SECTION 4. Regular Meetings. A regular meeting of the board of
----------------
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of the shareholders. The board of
directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of
----------------
directors may be called by or at the request of the
8
<PAGE>
chairman of the board, the president, or one-third of the directors.
SECTION 6. Telephonic Participation. Members of the board of
------------------------
directors may participate in regular or special meetings by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other. Such participation shall constitute presence
in person and shall constitute attendance for the purpose of compensation
pursuant to Section 13 of this Article III.
SECTION 7. Notice. Written notice of any special meeting shall be
------
given to each director at least two days prior thereto when delivered personally
or by telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 8. Quorum. Two-thirds of the number of directors fixed by
------
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than two-thirds
of the directors are present at a meeting, two thirds of the directors present
may adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 7 of this Article III.
SECTION 9. Manner of Acting. The act of the majority of the
----------------
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, unless a greater number is prescribed by law or by the
certificate of incorporation or these bylaws.
9
<PAGE>
SECTION 10. Action Without a Meeting. Any action required or
------------------------
permitted to be taken by the board of directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
SECTION 11. Resignation. Any director may resign at any time by
-----------
sending a written notice of such resignation to the Corporation addressed to the
chairman of the board. Unless otherwise specified, such resignation shall take
effect upon receipt by the chairman of the board. More than three consecutive
absences from regular meetings of the board of directors, unless excused by
resolution of the board of directors, shall automatically constitute a
resignation, effective when such a resignation is accepted by the board of
directors.
SECTION 12. Vacancies. Vacancies and newly created directorships
---------
resulting from any increase in the authorized number of directors may be filled,
for the unexpired term, by the concurring vote of a majority of the directors
then in office, whether or not a quorum, and any director so chosen shall hold
office for the remainder of the full term of the class of directors in which the
new directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
SECTION 13. Compensation. Directors, as such, may receive a stated
------------
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
SECTION 14. Presumption of Assent. A director of the Corporation who
---------------------
is present at a meeting of the board of directors at which action on any matter
is taken shall be presumed to have assented to the action taken unless his
dissent or abstention shall be entered into the minutes of the meeting or unless
he shall file his written dissent to such action with the person
10
<PAGE>
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Corporation
within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 15. Removal of Directors. No director shall be removed
--------------------
except for cause and then only by an affirmative vote of a majority of the total
votes eligible to be cast by shareholders at a duly constituted meeting of
shareholders called expressly for such purpose. At least 30 days prior to such
meeting of shareholders, written notice shall be sent to the director whose
removal will be considered at such meeting.
SECTION 16. Age Limitation. No person 75 years of age shall be
--------------
eligible for election, reelection, appointment, or reappointment to the board of
directors of the Corporation. No director shall serve as such beyond the annual
meeting of shareholders of the Corporation immediately following the date on
which the director attained 75 years of age.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Appointment. The board of directors, by resolution
-----------
adopted by a majority of the full board, may designate the chief executive
officer and four of the other directors to constitute an executive committee.
The designation of any committee pursuant to this Article IV and the delegation
of authority shall not operate to relieve the board of directors, or any
director, of any responsibility imposed by law or regulation.
SECTION 2. Authority. The executive committee, when the board of
---------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
certificate of incorporation or bylaws of the Corporation, or recommending to
the shareholders a
11
<PAGE>
plan of merger, consolidation, or conversion; the sale, lease or other
disposition of all or substantially all of the property and assets of the
Corporation otherwise than in the usual and regular course of its business; a
voluntary dissolution of the Corporation; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
------
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. Meetings. Regular meetings of the executive committee may
--------
be held without notice at such times and places as the executive committee may
fix from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date, and hour of the meeting, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. Quorum. A majority of the members of the executive
------
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. Action Without a Meeting. Any action required or
------------------------
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the executive committee.
SECTION 7. Vacancies. Any vacancy in the executive committee may be
---------
filled by a resolution adopted by a majority of the full board of directors.
12
<PAGE>
SECTION 8. Resignations and Removal. Any member of the executive
------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the chairman of the board or the secretary of the Corporation. Unless
otherwise specified, such resignation shall take effect upon its receipt; the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 9. Procedure. The executive committee shall elect a
---------
presiding officer from its members and may fix its own rules of procedure which
shall not be inconsistent with these bylaws. It shall keep regular minutes of
its proceedings and report the same to the board of directors for its
information at the meeting held next after the proceedings shall have occurred.
SECTION 10. Other Committees. The board of directors may by
----------------
resolution establish an audit committee, a loan committee, and such other
committees composed of directors that are deemed necessary or appropriate for
the conduct of the business of the Corporation and may prescribe the duties,
constitution, and procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a
---------
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The offices of the secretary and
treasurer may be held by the same person and a vice president may also be either
the secretary or the treasurer. The board of directors may also elect or
authorize the appointment of such other officers as the business of the
Corporation may require. The officers shall have such authority and perform such
duties as the board of directors may from time to time authorize or determine.
In the absence of action by the board of directors,
13
<PAGE>
the officers shall have such powers and duties as generally pertain to their
respective offices.
SECTION 2. Election and Term of Office. The officers of the
---------------------------
Corporation shall be elected annually at the first meeting of the board of
directors held after each annual meeting of the shareholders. If the election of
the officers is not held at such meeting, such election shall be held as soon
thereafter as possible. Each officer shall hold office until a successor has
been elected and qualified or until the officer's death, resignation, or removal
in the manner hereinafter provided. Election or appointment of an officer,
employee or agent shall not of itself create contractual rights. The board of
directors may authorize the Corporation to enter into an employment contract
with any officer in accordance with applicable law; but no such contact shall
impair the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. Removal. Any officer may be removed by the board of
-------
directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal, other than for cause, shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
------------
fixed from time to time by the board of directors.
SECTION 6. Age Limitation. No person 70 years of age shall be
--------------
eligible for reelection, appointment, or reappointment as an officer of the
Corporation.
14
<PAGE>
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing
-----------------------
shares of capital stock of the Corporation shall be in such form as shall be
determined by the board of directors pursuant to applicable law. Such
certificates, which shall represent the number of shares registered in
certificate form, shall be signed by the president of the Corporation, attested
by the secretary or an assistant secretary, and sealed with the corporate seal
or a facsimile thereof. The signatures upon a certificate may be facsimiles. In
case any officer, transfer agent or registrar who had signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer before such certificate is issued, it may be used by the Corporation
with the same effect as if he were such officer at the date of issue. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and cancelled, except that in case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Corporation as the board of directors may prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of capital stock
------------------
of the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Corporation. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Corporation shall be deemed by the Corporation
to be the owner for all purposes.
15
<PAGE>
ARTICLE VII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on December 31 of each
year. The Corporation shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors. The appointment of such accountants shall be subject to
annual ratification by the shareholders.
ARTICLE VIII - DIVIDENDS
Subject to the terms of the Corporation's certificate of incorporation
and the laws of the State of Delaware, the board of directors may, from time to
time, declare, and the Corporation may pay, dividends on its outstanding shares
of capital stock.
ARTICLE IX - INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings Other
---------------------------------------------------------
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article IX, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, whether civil, criminal,
administrative, arbitrative or investigate (other than an action by or in the
right of the Corporation) by reason of the fact that he or she is or was a
director, officer, trustee, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, trustee,
employee or agent of another corporation, association, partnership, joint
venture, trust or other enterprise, against expenses (including attorney's
fees), judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
and any appeal therein, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding, and any appeal therein, by judgment,
16
<PAGE>
order, settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or
---------------------------------------------------------
in the Right of the Corporation. Subject to Section 3 of this Article IX, the
- -------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, and any appeal therein, and against amounts paid in settlement by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact he is or was a director, officer, trustee, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action, suit, or proceeding,
and any appeal therein, and against amounts paid in settlement if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; provided, however, that no indemnification
-------- -------
shall be made against expenses in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation or against amounts
paid in settlement unless and only to the extent that there is a determination
(as set forth in Section 3 of this Article IX) that despite the adjudication of
liability or the settlement, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses or
amounts paid in settlement.
17
<PAGE>
SECTION 3. Authorization of Indemnification. Any indemnification
--------------------------------
under this Article IX (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because such director, officer, trustee, employee or agent
has met the applicable standard of conduct set forth in Section 1 or Section 2
of this Article IX and, if applicable, is fairly and reasonably entitled to
indemnity as set forth in the proviso in Section 2 of this Article IX, as the
case may be. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, and any appeal therein, (ii) if such a quorum is not
obtainable, or, even if obtainable and a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
shareholders. To the extent, however, that a director, officer, trustee,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding, and any appeal therein,
described above, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case. No director, officer, trustee, employee or
agent of the Corporation shall be entitled to indemnification in connection with
any action, suit or proceeding, and any appeal therein, voluntarily initiated by
such person unless the action, suit or proceeding, and any appeal therein, was
authorized by a majority of the entire board of directors.
SECTION 4. Good Faith Defined. For purposes of any determination
------------------
under Section 3 of this Article IX, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on (i) the records or books of account of the Corporation
or another enterprise, (ii) information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, (iii) the
advice of legal counsel for the Corporation or another enterprise, or
18
<PAGE>
(iv) information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any association, partnership, joint venture, trust or
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent. The provisions
of this Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standards of conduct set forth in Sections 1 and 2 of this Article IX, as the
case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any contrary
--------------------------
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, trustee, employee or agent is proper
in the circumstances because he has met the applicable standards of the conduct
set forth in Sections 1 and 2 of this Article IX, as the case may be. Notice of
any application for indemnification pursuant to this Section 5 shall be given to
the Corporation promptly upon the filing of such application. Notwithstanding
any of the foregoing, unless otherwise required by law, no director, officer,
trustee, employee or agent of the Corporation shall be entitled to
indemnification in connection with any action, suit or proceeding, and any
appeal therein, voluntarily initiated by such person unless the action, suit or
proceeding, and any appeal therein, was authorized by a majority of the entire
board of directors.
19
<PAGE>
SECTION 6. Expenses Payable in Advance. Expenses incurred in
---------------------------
connection with a threatened or pending action, suit or proceeding, and any
appeal therein, may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding, and any appeal therein, as
authorized by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, trustee, employee or agent
to repay such amount unless it shall be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article IX.
SECTION 7. Contract, Non-exclusivity and Survival of
-----------------------------------------
Indemnification. The indemnification provided by this Article IX shall be deemed
- ---------------
to be a contract between the Corporation and each director, officer, employee
and agent who serves in such capacity at any time while this Article IX is in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing or any action, suit or proceeding, and any appeal
therein, theretofore or thereafter brought based in whole or in part upon any
such state of facts. Further, the indemnification provided by this Article IX
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any certificate of incorporation, bylaw,
agreement, contract, vote of shareholders or disinterested directors or pursuant
to the direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, it being the policy of the
Corporation that, subject to the limitation in Section 3 of this Article IX
concerning voluntary initiation of actions, suits or proceedings,
indemnification of the persons specified in Sections 1 and 2 of this Article IX
shall be made to the fullest extent permitted by law. The provisions of this
Article IX shall not be deemed to preclude the indemnification of any person who
is not specified in Sections 1 or 2 of this Article IX but whom the Corporation
has the power or obligation to indemnify under the provisions of the law of the
State of Delaware. The indemnification provided by this Article IX shall
continue as to a person who has ceased to be a director, officer, trustee,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
20
<PAGE>
SECTION 8. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, trustee, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, trustee, employee or agent of another corporation,
association, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article IX.
SECTION 9. Meaning of "Corporation" for Purposes of Article IX. For
---------------------------------------------------
purposes of this Article IX, references to the "Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers and employees and agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article IX with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE X - CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise attached.
21
<PAGE>
ARTICLE XI - AMENDMENTS
The board of directors or the shareholders may from time to time amend
the bylaws of the Corporation. Such action by the board of directors shall
require the affirmative vote of at least two-thirds of the directors then in
office at a duly constituted meeting of the board of directors called for such
purpose. Such action by the shareholders shall require the affirmative vote of
at least two-thirds of the total votes eligible to be voted at a duly
constituted meeting of the shareholders called for such purpose.
Revision Date: February 12, 1997
22
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