<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 8-K/A
CURRENT REPORT
---------------------------------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 22, 1997
-----------------
New Hampshire Thrift Bancshares, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-17859 02-0430695
- -------------------------------- -------------------------- ------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
The Carriage House, New London, New Hampshire 03257
- ----------------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 863-5772
------------------------
Not Applicable
- --------------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
</TABLE>
<PAGE>
Item 7. Financial Statement and Exhibits.
(a) The financial statements of New Hampshire Thrift Bancshares, Inc. its
subsidiaries, and that of its acquiree, Landmark Bank, that are required to be
stated herein are included pursuant to Item 310(a) of Regulation S-B for the
fiscal year ended December 31, 1996.
(b) The pro forma financial information of New Hampshire Thrift Bancshares,
Inc. its subsidiaries, and that of its acquiree, Landmark Bank, required
pursuant to Item 310(d) of Regulation S-B is stated herein on an unaudited
basis.
(c) The following exhibits are filed with this Report:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
99.1 Financial Statements of New Hampshire Thrift Bancshares, Inc. and
its subsidiary as of December 31, 1996.
99.2 Financial Statements of Landmark Bank and subsidiaries as of
December 31, 1996 and 1995.
99.3 Unaudited pro forma combined financials as of December 31, 1996
and for the year ended December 31, 1996, giving effect to the Landmark merger.
</TABLE>
Page 2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW HAMPSHIRE THRIFT BANCSHARES, INC.
By: /s/ Stephen R. Theroux
--------------------------------------
Stephen R. Theroux
Executive Vice President and
Chief Financial Officer
Dated: April 4, 1997
---------------------
Page 3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
99.1 Financial Statements of New Hampshire 5
Thrift Bancshares, Inc. as of
December 31, 1996
99.2 Financial Statements of Landmark 33
Bank as of December 31, 1996
99.3 Unaudited pro forma combined 58
financial statements as of
December 31, 1996, giving effect to
the Landmark merger
</TABLE>
Page 4
<PAGE>
EXHIBIT 99.1
Financial Statements of New Hampshire Thrift Bancshares, Inc.
as of December 31, 1996
Page 5
<PAGE>
[LETTERHEAD OF SHATSWELL, MacLEOD & COMPANY, P.C. APPEARS HERE]
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
Page 6
<PAGE>
[LETTERHEAD OF SMITH, BATCHELDER & RUGG APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
New Hampshire Thrift Bancshares, Inc. and subsidiaries:
We have audited the accompanying consolidated statements of financial condition
of New Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1994, 1993,
and 1992. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for the years
ended December 31, 1994, 1993 and 1992, in conformity with generally accepted
accounting principles.
/s/ Smith, Batchelder & Rugg
Lebanon, New Hampshire
January 24, 1995
Page 7
<PAGE>
[LETTERHEAD OF BERRY, DUNN, MCNEIL & PARKER APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
New Hampshire Thrift Bancshares, Inc. and subsidiaries
We have audited the accompanying consolidated statement of financial condition
of New Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31,
1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the year ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated statement of financial
condition of New Hampshire Thrift Bancshares, Inc. and subsidiaries as of
December 31, 1994 and the consolidated statements of income, changes in
stockholders' equity, and cash flows for the two years then ended were audited
by Smith, Batchelder & Rugg whose report, dated January 24, 1995, expressed an
unqualified opinion on those statements. Included in Notes 3 and 4 to the
financial statements is information included in New Hampshire Thrift Bancshares,
Inc. and subsidiaries financial statements as of December 31, 1993, 1992 and
1991, upon which Smith, Batchelder & Rugg issued their unqualified opinions
dated January 21, 1994 and January 22, 1993.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of New
Hampshire Thrift Bancshares, Inc. and subsidiaries as of December 31, 1995, and
the results of their operations and their cash flows for the year ended December
31, 1995, in conformity with generally accepted accounting principles.
/s/ Berry, Dunn, McNeil & Parker
Lebanon, New Hampshire
January 19, 1996
Page 8
<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.
Page 9
<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.
Page 10
<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.
Page 11
<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.
Page 12
<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.
Page 13
<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.
Page 14
<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.
Page 15
<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
Page 16
<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.
Page 17
<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>
Page 18
<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.
Page 19
<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>
Page 20
<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
============================
Page 21
<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.
Page 22
<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>
Page 23
<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.
Page 24
<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.
Page 25
<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>
Page 26
<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>
Page 27
<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
==================================
Page 28
<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>
Page 29
<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>
Page 30
<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>
Page 31
<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.
Page 32
<PAGE>
EXHIBIT 99.2
Financial Statements of Landmark Bank
as of December 31, 1996
Page 33
<PAGE>
LANDMARK BANK
FINANCIAL REPORT
DECEMBER 31, 1996
A.M. PEISCH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
- SINCE 1920 -
Page 34
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets 2
Consolidated statements of income 3
Consolidated statements of stockholders' equity 4
Consolidated statements of cash flows 5 and 6
Notes to consolidated financial statements 7 - 22
</TABLE>
Page 35
<PAGE>
A. M. PEISCH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
-- SINCE 1920 --
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Landmark Bank
We have audited the accompanying consolidated balance sheets of Landmark Bank
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years ended
December 31, 1996, 1995 and 1994. These consolidated financial statements are
the responsibility of the Bank's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Landmark Bank and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.
January 23, 1997 /s/ A.M. Peisch & Company
White River Junction, Vermont
Page 36
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,934,409 $ 1,743,476
Federal funds sold 965,000 1,980,000
Securities available-for-sale, at fair value 1,795,567 9,523,269
Securities, held-to-maturity (approximate fair value
1996 $3,745,231; 1995 $823,916) 3,799,605 812,357
Loans, net 41,906,937 42,861,602
Premises and equipment, net 2,586,928 2,652,038
Accrued interest receivable 252,498 341,795
Deferred income taxes 456,927 203,312
Investment in real estate 114,504 158,308
Other assets 663,378 486,887
----------- -----------
$54,475,753 $60,763,044
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 3,887,390 $ 3,867,185
NOW accounts 4,269,388 3,694,513
Savings and money market 12,700,403 12,017,434
Time, $100,000 and over 6,517,373 7,986,106
Other time 23,031,257 28,793,757
----------- -----------
50,405,811 56,358,995
Securities sold under repurchase agreements 274,569 303,953
Accrued interest and other liabilities 514,706 209,137
----------- -----------
51,195,086 56,872,085
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A convertible, noncumulative, perpetual
preferred stock, $1 par value, $20 stated
value; 600,000 shares authorized, 59,667
issued and outstanding in 1996, 59,664 in 1995 1 ,094,064 1 ,094,004
Common stock, $1 par value; 865,658 shares
authorized; 354,138 shares issued and
outstanding 354,138 354,138
Additional paid-in capital 2,826,281 2,826,281
Accumulated deficit ( 836,112) ( 332,210)
Unrealized gain on securities
available-for-sale, net 4,468 91,899
Unrealized loss on securities
held-to-maturity, net ( 162,172) ( 143,153)
----------- -----------
3,280,667 3,890,959
----------- -----------
$54,475,753 $60,763,044
=========== ===========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
Page 37
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 0F INCOME
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $4,010,642 $4,268,442 $3,196,57^
Interest on investment securities:
U.S. Treasury 110,319 145,979 58,34^
U.S. government agencies and mortgage-backed securities 379,709 530,277 285,109
Interest on federal funds sold 158,813 217,962 52,91^
---------- ---------- ----------
4,659,483 5,162,660 3,592,93^
---------- ---------- ----------
Interest expense:
Interest on deposits 2,716,973 2,847,901 1,373,080
Other interest expense 8,451 9,662 18,478
---------- ---------- ----------
2,725,424 2,857,563 1,391,558
---------- ---------- ----------
Net interest income 1,934,059 2,305,097 2,201,378
Provision for possible loan losses 361,000 205,483 203,013
---------- ---------- ----------
Net interest income after provision for possible loan losses 1,573,059 2,099,614 1,998,365
---------- ---------- ----------
Other income:
Service fees 96,409 89,707 85,877
Net gains on sales of securities available-for-sale 91,869 -0- 841
Gains on sale of loans 6,995 63,989 162,550
Secondary market loan fees 72,724 111,408 137,265
Other 133,094 146,713 174,663
---------- ---------- ----------
401,091 411,817 561,196
---------- ---------- ----------
Other expenses:
Salaries and employee benefits 1,265,510 1,165,997 1,056,710
Advertising and promotion 113,163 135,297 138,503
Occupancy expenses 141,997 243,049 214,875
Equipment rentals, depreciation and maintenance 275,759 250,553 193,791
Other operating expenses 836,623 690,237 588,696
---------- ---------- ----------
2,633,052 2,485,133 2,192,575
---------- ---------- ----------
Income (loss) before income taxes ( 658,902) 26,298 366,986
Income tax expense (benefit) ( 155,000) 5,315 140,632
---------- ---------- ----------
Net income (loss) ($ 503,902) $ 20,983 $ 226,354
========== ========== ==========
Earnings (loss) per share on weighted average number
of common and common equivalent shares ($ 1.42) ($ .20) $ .34
========== ========== ==========
Weighted average number of common and common
equivalent shares $ 354,138 $ 354,138 $ 354,138
========== ========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
Page 38
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 0F STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized Gain (Loss) on Securities
Additional Available- Held-to
Preferred Common Paid-in Accumulated for-Sale, Maturity,
Stock Stock Capital Deficit net net Totals
---------- ---------- ----------------- ----------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 $ 956,864 $354,138 $2,826,281 ($ 380,601) ( $9,841) $ -0- $3,746,841
Net income -0- -0- -0- 226,354 -0- -0- 226,354
Issuance of preferred stock 60,000 -0- -0- -0- -0- -0- 60,000
Preferred stock dividends
declared -0- -0- -0- ( l06,337) -0- -0- ( 106,337)
Reinvested preferred stock
dividends 42,960 -0- -0- -0- -0- -0- 42,960
Increase in unrealized loss
on securities
available-for-sale, net -0- -0- -0- -0- ( 182,490) -0- (182,490)
Unrealized loss on
transfer of securities
from available-for-sale to
held-to-maturity -0- -0- -0- -0- 163,750 ( l63,750) -0-
Amortization of unrealized
loss on securities
transferred to
held-to-maturity -0- -0- -0- -0- -0- 4,120 4,120
---------- -------- ---------- ---------- ---------- ---------- ---------
Balances, December 31, 1994 1,059,824 354,138 2,826,281 ( 260,584) ( 28,581) ( 159,630) 3,791,448
Net income -0- -0- -0- 20,983 -0- -0- 20,983
Preferred stock dividends
declared -0- -0- -0- ( 92,609) -0- -0- (92,609)
Reinvested preferred
stock dividends 34,180 -0- -0- -0- -0- -0- 34,180
Increase in unrealized
gain on securities
available-for-sale, net -0- -0- -0- -0- 120,480 -0- 120,480
Amortization of unrealized
loss on securities
transferred to
held-to-maturity -0- -0- -0- -0- -0- l6,477 l6,477
---------- -------- ---------- --------- ---------- ---------- ---------
Balances, December 31,1995 1,094,004 354,138 2,826,281 ( 332,210) 91,899 ( 143,153) 3,890,959
Net income (loss) -0- -0- -0- ( 503,902) -0- -0- (503,902)
Issuance of preferred stock 60 -0- -0- -0- -0- -0- 60
Decrease in unrealized
gain on securities
available-for-sale, net -0- -0- -0- -0- (124,668) -0- (124,668)
Amortization of unrealized
loss on securities
transferred to
held-to-maturity -0- -0- -0- -0- -0- 18,218 18,218
Unrealized loss on
transfer of securities
from available-for-sale to
held-to-maturity -0- -0- -0- -0- 37,237 ( 37,237) -0-
---------- -------- ---------- --------- ---------- ---------- ----------
Balances, December 31, 1996 $1,094,064 $354,138 $2,826,281 ($ 836,112) $ 4,468 ($ 162,172) $3,280,667
========== ======== ========== ========= ========== ========== ==========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
Page 39
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($ 503,902) $ 20,983 $ 226,354
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 214,583 178,485 133,179
Provision for loan losses 361,000 205,483 203,013
Net gains on sale of securities available-for-sale ( 91,869) -0- ( 841)
Gains on sale of loans ( 6,995) ( 63,989) ( 162,550)
Gain on sale of investment in real estate ( 14,789) -0- -0-
Decrease in loans held for sale -0- -0- 174,898
Amortization (accretion) net 30,627 ( 94,615) ( 43,426)
Provision for deferred income taxes ( 155,000) ( 10,615) 23,548
Increase in accrued interest receivable
and other assets ( 126,634) ( 243,097) ( 190,080)
Increase in deferred loan costs ( 44,397) ( 33,357) ( 27,908)
Increase (decrease) in accrued interest and
other liabilities 230,569 ( 97,451) 140,785
----------- ----------- -----------
Net cash provided by (used in) operating activities ( 106,807) ( 138,173) 476,972
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in federal funds sold 1,015,000 ( 650,000) 529,000
Purchases of securities available-for-sale ( 7,473,462) ( 499,766) ( 1,977,929)
Proceeds from sales and maturities of securities
available-for-sale 11,837,288 581,443 241,921
Purchases of securities held-to-maturity -0- -0- ( 7,807,934)
Proceeds from maturities of securities
held-to-maturity 272,246 827,263 146,229
Net decrease (increase) in loans 645,057 ( 2,505,059) ( 13,070,481)
Purchase of promises and equipment ( 61,666) ( 2,257,413) ( 129,159)
Purchase of real estate held for investment -0- ( 936) ( 157,383)
Proceeds from sale of real estate held for investment 45,785 -0- -0-
----------- ----------- -----------
Net cash provided by (used in) investing activities 6,280,248 ( 4,504,468) ( 22,225,736)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts, savings and money market 1,278,049 ( 8,959,417) 15,157,463
Net (decrease) increase in time deposits ( 7,231,233) 13,327,509 7,488,351
Net (decrease) increase in repurchase agreements ( 29,384) 83,751 ( 130,695)
Decrease in capital lease obligations -0- ( 38,910) ( 81,876)
Proceeds from sale of preferred stock 60 -0- 60,000
Dividends paid, net of reinvestment -0- ( 40,486) ( 63,377)
----------- ----------- -----------
Net cash provided by (used in) financing activities ( 5,982,508) 4,372,447 22,429,866
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 190,933 ( 270,194) 681,102
Cash and cash equivalents
Beginning 1,743,476 2,013,670 1,332,568
----------- ----------- -----------
Ending $1,934,409 $1,743,476 $ 2,013,670
=========== =========== ===========
</TABLE>
(Continued)
The notes to consolidated financial statements are an integral part of these
statements.
Page 40
<PAGE>
LANDMARK BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
(Continued)
<TABLE>
<CAPTION>
1996 1995 1994
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
<S> <C> <C> <C>
Interest paid $ 2,727,140 $ 2,859,592 $ 1,288,156
=========== =========== ===========
Income taxes paid (received) ($ 32,299) $ 183,980 $ 78,969
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Increase (decrease) in unrealized gain on
securities available-for-sale ($ 139,947) $ 192,769 ($ 35,888)
=========== =========== ===========
Transfer of securities available-for-sale to
securities held-to-maturity (fair value) $ 3,040,086 $ -0- $ 838,000
=========== =========== ===========
</TABLE>
Page 41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
The accounting policies of Landmark Bank and subsidiaries (the Bank)
are in conformity with generally accepted accounting principles and
general practices within the banking industry. The following is a
description of the more significant policies.
Basis of consolidation
The consolidated financial statements include the accounts of
Landmark Bank and its wholly owned subsidiaries, Landmarkbanc Realty
Holdings Corp. and Landmark Bank Mortgage Corporation. These
subsidiaries were established in 1995 for the purposes of holding
title to the bank building and opening a loan production office in
Vermont. (Landmark Bank Mortgage Corporation has been inactive since
its inception.) All significant intercompany accounts and
transactions have been eliminated.
Nature of operations
The Bank provides a variety of financial services through its two
branch locations to individuals and corporate customers in the City
of Lebanon and the surrounding towns of Hanover, Enfield, and
Plainfield, New Hampshire, as well as the Vermont towns of Norwich
and Hartford. The Bank's primary deposit products are checking and
savings accounts and certificates-of-deposit. Its primary lending
products are commercial, real estate and consumer loans.
Concentration of risk
The Bank's operations are affected by various risk factors, including
interest rate risk, credit risk and risk from geographic
concentration of lending activities. Management attempts to manage
interest rate risk through various asset/liability management
techniques designed to match maturities of assets and liabilities.
Loan policies and administration are designed to provide assurance
that loans will only be granted to credit-worthy borrowers, although
credit losses are expected to occur because of subjective factors and
factors beyond the control of the Bank. Although the Bank has a
diversified loan portfolio and economic conditions are stable, most
of its lending activities are conducted within the geographic area
where it is located. As a result, the Bank and its borrowers may be
especially vulnerable to the consequences of changes in the local
economy. In addition, a substantial portion of the Bank's loans are
secured by real estate.
Earnings per share
Earnings per share are computed based on the weighted average number
of common and common equivalent shares outstanding during the year.
Page 42
<PAGE>
Note 1. Significant Accounting Policies (Continued)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
A material estimate that is particularly susceptible to significant
change relates to the determination of the allowance for losses on
loans. In connection with the determination of this allowance,
management obtains independent appraisals for significant properties
securing the loans. Accordingly, the ultimate collectibility of a
substantial portion of the Bank's loan portfolio is susceptible to
changes in local market conditions.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such
agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the
time of their examination.
Presentation of cash flows
For purposes of reporting cash flows, cash and cash equivalents
includes cash on hand, cash items in the process of clearing, and
amounts due from banks. The statement of cash flows for the year ended
December 31, 1994 has been restated using the indirect method to
conform with the 1996 and 1995 presentations.
Investment securities
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost,
adjusted for amortization of premium and accretion of discounts using
methods approximating the interest method. Other marketable securities
are classified as available-for-sale and are carried at fair value.
Unrealized gains and losses on securities available-for-sale are
recognized as direct increases or decreases in stockholders' equity,
net of tax. Cost of securities sold is recognized using the specific
identification method.
Interest income on floating rate bonds is recognized on a level-yield
basis over the life of the related bonds.
Page 43
<PAGE>
Note 1. Significant Accounting Policies (Continued)
Loans held for sale
Mortgage loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a
valuation allowance by charges to income
Loans
The Bank adopted Financial Accounting Standards Board (FASB) Statement
No. 114 (as amended by Statement No. 118), Accounting by Creditors
for Impairment of a Loan, effective January 1, 1995. This statement
is considered the primary source of authoritative guidance for
determining allowances relating to specific loans. The effect of
adoption of this statement was immaterial to the Bank's financial
statements.
Loans are stated at the amount of unpaid principal, increased by
deferred costs and reduced by an allowance for possible loan losses
and deferred gains on loan sales.
Loan origination and commitment fees and certain direct loan
origination costs are being deferred and the net amount amortized as
an adjustment of the related loan's yield. The Bank is generally
amortizing these amounts over the contractual life.
The Bank periodically sells certain interests (for example, the
guaranteed portions) in U.S. Small Business Administration loans. At
the time the portion of the loan is sold, the Bank allocates its
recorded investment in the loan between the portion of the loan sold
and the portion retained, including any excess servicing, based on
their relative fair values. This allocation is used to determine the
gain or loss on the portion of the loan sold and the carrying amount
of the portion retained. The excess servicing receivables and deferred
loan gains resulting from such sales are amortized over the estimated
life using a method approximating the interest method.
Loan interest income is accrued daily on the outstanding balances.
Accrual of interest is discontinued when a loan is specifically
determined to be impaired or management believes, after considering
collection efforts and other factors, that the borrower's financial
condition is such that collection of interest is doubtful.
Any unpaid interest previously accrued on those loans is reversed from
income. Interest income is generally not recognized on specific
impaired loans unless the likelihood of further loss is remote.
Interest payments received on such loans are generally applied as a
reduction of the loan principal balance. Interest income on other
nonaccrual loans is recognized only to the extent of interest payments
received.
Page 44
<PAGE>
Note 1. Significant Accounting Policies (Continued)
Mortgage servicing
In May, 1995, the FASB issued Statement No. l22, Accounting for
Mortgage Servicing Rights, an amendment to FASB Statement No. 65,
which became effective January 1, 1996. This statement requires the
Bank to recognize rights to service mortgage loans for others as
separate assets, however those rights are acquired. The statement also
requires that capitalized mortgage servicing rights be amortized in
proportion to, and over the period of, estimated net servicing
revenues. The effect of adoption of this statement was immaterial to
the Bank's consolidated financial statements.
Allowance for possible loan losses
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in
the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends
in historical loss experience, specific impaired loans, and economic
conditions. Allowances for impaired loans are generally determined
based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses,
which is charged to expense, and reduced by charge-offs, net of
recoveries.
Premises and equipment
Premises and equipment are stated at cost less accumulated
depreciation. The provision for depreciation is computed over the
estimated useful life of the related asset, principally by the
straight-line method. Improvements to leased property are amortized
over the lesser of the term of the lease or the life of the
improvements. The cost of assets sold or otherwise disposed of and the
related allowance for depreciation are eliminated from the accounts
and the resulting gains or losses are reflected in the income
statement. Maintenance and repairs are charged to current expenses as
incurred and the cost of major renewals and betterments are
capitalized.
Investment in real estate
Investment in real estate consists of residential property adjacent to
the Bank's main office. The property is carried at the lower of
carrying amount or fair value less cost to sell and is currently for
sale by the Bank.
Pension costs
Pension costs relating to the Bank's 401 (k) plan are charged to
employee benefits expense and are funded as accrued.
Advertising costs
The Bank expenses advertising costs as incurred.
Page 45
<PAGE>
Note 1. Significant Accounting Policies (Continued)
Income taxes
The Bank recognizes income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are established
for the temporary differences between the accounting basis and the tax
basis of the Bank's assets and liabilities at enacted tax rates
expected to be in effect when the amounts related to such temporary
differences are realized or settled. Adjustments to the Bank's deferred
tax assets are recognized as deferred income tax expense or benefit
based on management's judgments relating to the realizability of such
asset.
Off-balance-sheet financial instruments
In the ordinary course of business the Bank has entered into off-
balance-sheet financial instruments consisting of commitments to extend
credit, commercial letters of credit, and standby letters of credit.
Such financial instruments are recorded in the financial statements
when they become payable.
Fair values of financial instruments
In December, 1996, the FASB issued Statement No. 126, Exemption from
Certain Required Disclosures about Financial Instruments for Certain
Nonpublic Entities, which became effective immediately. Statement No.
126 exempts some entities from disclosing the fair value of its
financial instruments (as required by Statement No. 107) if certain
conditions are met. The Bank is no longer required to disclose the fair
values of its financial instruments under the new statement and has
elected to omit disclosure of this information in its financial
statements.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified
to conform with the 1996 and 1995 presentations.
Note 2. Restrictions on Cash and Due From Banks
The Bank is required to maintain reserve balances in cash with the
Federal Reserve Bank. The total of those reserve balances was
approximately $101,000 and $98,000 at December 31, 1996 and 1995,
respectively.
Page 46
<PAGE>
Note 3. Investment Securities
Securities available-for-sale (AFS) and held-to-maturity (HTM) consist
of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities AFS:
December 31, 1996:
U.S. Treasury $1,496,553 $ 1,815 $ 1,961 $1,496,407
Mortgage-backed
securities 272,626 8,897 2,058 279,465
Collateralized
mortgage
obligations 19,295 400 -0- 19,695
---------- ---------- ---------- ----------
$1,788,474 $ 11,112 $ 4,019 $1,795,567
========== ========== ========== ==========
December 31, 1995:
U.S. Treasury $1,999,279 $ 5,321 $ -0- $2,004,600
Mortgage-backed
securities 7,348,236 143,454 1,895 7,489,795
Collateralized
mortgage
obligations 28,714 160 -0- 28,874
---------- ---------- ---------- ----------
$9,376,229 $148,935 $ 1,895 $9,523,269
========== ========== ========== ==========
Securities HTM:
December 31, 1996:
U.S. Gov't.
agencies $ 843,058 $ -0- $65,819 $ 777,239
Collateralized
mortgage
obligations 2,956,547 11,445 -0- 2,967,992
---------- ---------- ---------- ----------
$3,799,605 $ 11,445 $65,819 $3,745,231
========== ========== ========== ==========
December 31, 1995:
U.S. Gov't.
agencies $ 812,357 $ 11,559 $ -0- $ 823,916
========== ========== ========== ==========
</TABLE>
U.S. Gov't. agencies classified as held-to-maturity at December 31, 1996
and 1995 consist of two Federal Home Loan Bank notes. The interest rates
on these investments, which are considered structured notes, fluctuate
based on changes in the LIBOR rate. These notes were transferred from
the available-for-sale category to the held-to-maturity category at fair
value in 1995. The unrealized loss of $163,750 (net of tax) at the time
of the transfer is being amortized using a method approximating the
interest method.
Collateralized mortgage obligations classified as held-to-maturity at
December 31, 1996 were initially considered as available-for-sale. These
securities were transferred from the available-for-sale category to the
held-to-maturity at fair value in 1996. The unrealized loss of $37,237
(net of tax) at the time of the transfer is being amortized using a
method approximating the interest method.
Page 47
<PAGE>
Note 3. Investment Securities (Continued)
The FASB issued an implementation guide to Statement No.115 on
Accounting for Certain Investments in Debt and Equity Securities which
allowed the one time transfer of securities in the held-to-maturity
classification to the available-for-sale classification between the
period November 15 and December 31, 1995. In December, 1995 the Bank
transferred mortgage-backed securities with an approximate amortized
cost and fair value of $7,033,500 and $7,173,500, respectively, from the
held-to-maturity classification to the available-for-sale
classification. Under the implementation guide, this one time transfer
did not call into question the intent of the Bank to hold other debt
securities to maturity in the future.
Proceeds from the sale of securities available-for-sale during 1996 were
$10,475,872, resulting in gross realized gains and gross realized losses
of $135,329 and $43,460, respectively. No securities available-for-sale
were sold in 1995. Proceeds from the sale of securities available-for-
sale during 1994 were $119,776, resulting in gross realized gains of
$841.
The maturities of investment securities at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Securities AFS:
Due in one year or less $1,000,276 $ 999,531
Due from one to five years 591,182 593,459
Due from five to ten years 12,765 13,356
Due after ten years 184,251 189,221
---------- ----------
$1,788,474 $1,795,567
========== ==========
Securities HTM:
Due from one to five years $ 458,450 $ 447,500
Due from five to ten years 2,101,545 2,107,658
Due after ten years 1,239,610 1,190,073
---------- ----------
$3,799,605 $3,745,231
========== ==========
</TABLE>
Expected maturities will differ from contractual maturities on mortgage-
backed securities and collateralized mortgage obligations because
borrowers may have the right to call or prepay obligations without call
or prepayment penalties. The expected average lives of such securities
are substantially less than the contractual lives of the underlying
mortgage products.
Investment securities with an amortized cost of $3,456,424 and $7,070,335
and a fair value of $3,469,086 and $7,200,120 at December 31, 1996 and
1995, respectively, were pledged as collateral on public deposits and for
other purposes as required or permitted by law.
Page 48
<PAGE>
Note 4. Loans
The composition of net loans is as follows:
<TABLE>
<CAPTION>
------December 31,-------
1996 1995
<S> <C> <C>
Commercial and commercial real estate $18,179,605 $19,035,529
Real estate 21,269,779 20,679,143
Consumer 3,308,153 3,801,630
----------- -----------
42,757,537 43,516,302
Allowance for loan losses ( 906,901) ( 659,427)
Net deferred loan costs 79,081 34,684
Deferred gains on loan sales ( 22,780) ( 29,957)
----------- -----------
Loans, net $41,906,937 $42,861,602
=========== ===========
</TABLE>
The total recorded investment in impaired loans, all of which had
allowances determined in accordance with Statement No. 114 and No. 118,
amounted to approximately $844,169 and $302,393 at December 31, 1996
and 1995, respectively. The average recorded investment in impaired
loans amounted to approximately $679,681 and $302,393 for the years
ended December 31, 1996 and 1 995, respectively. The allowance for loan
losses related to impaired loans amounted to approximately $399,192 and
$167,635 at December31, 1996 and 1 995, respectively.
Interest income on impaired loans of $6,656 and $-0- was recognized for
cash payments received in 1996 and 1995, respectively.
The Bank has no commitments to loan additional funds to borrowers with
impaired or nonaccrual loans.
Note 5. Allowance for Possible Loan Losses
Changes in the allowance for possible loan losses are as follows:
<TABLE>
<CAPTION>
-----------December 31,-----------
1996 1995 1994
<S> <C> <C> <C>
Balance, beginning $ 659,427 $ 465,000 $264,971
Provision charged to
operating expense 361,000 205,483 203,013
Recoveries of amounts
charged off 6,400 20 -0-
---------- ---------- --------
1,026,827 670,503 467,984
Amounts charged off ( 119,926) ( 11,076) ( 2,984)
---------- ---------- --------
Balance, ending $906,901 $659,427 $465,000
========== ========== ========
</TABLE>
Page 49
<PAGE>
Note 6. Premises and Equipment
Premises and equipment were as follows:
<TABLE>
<CAPTION>
----------December 31,----------
1996 1995
<S> <C> <C>
Buildings $1,999,965 $1,999,965
Building improvements 260,400 235,925
Furniture and equipment 1,068,125 945,494
---------- ----------
3,328,490 3,181,384
Less accumulated
depreciation 741 562 529,346
---------- ----------
$2,586,928 $2,652,038
========== ==========
</TABLE>
Depreciation included in occupancy and equipment expense amounted to
$212,215, $162,261 and $115,572 for the years ended December 31,
1996, 1995 and 1994, respectively, of which $170,455, $152,969 and
$109,931, respectively, represented equipment depreciation.
Note 7. Deposits
The scheduled maturities of certificates of deposit at December 31,
1996 were as follows:
<TABLE>
<CAPTION>
December 31,
1996
<S> <C>
1997 $24,848,706
1998 3,558,931
1999 487,726
2000 517,633
2001 and thereafter 135,634
-----------
$29,548,630
===========
</TABLE>
Included in time deposits on the balance sheets at December 31, 1996
and 1995 are out-of-area certificates of deposit (brokered deposits)
of approximately $1,674,000 and $2,179,420, respectively, which are
considered volatile liabilities. Interest rates on these deposits,
typically one-half percent higher than those offered in the normal
course of business, range from 5.2% to 5.9%. These certificates
mature in one year or less.
Deposit accounts with related parties approximated $264,322 and
$316,000 at December 31, 1996 and 1995, respectively.
Page 50
<PAGE>
Note 8. Defined Contribution Plan
The Bank has established a 401(k) profit sharing plan which covers
all employees who are at least 21 years of age and who have completed
three months of service. Eligible employees may contribute a
percentage of their annual compensation to the plan each year. The
Bank matches a certain portion of employee contributions. For the
years ended December 31, 1996, 1995 and 1994, the Bank matched
$4,156, $5,948 and $6,277, respectively, of employee contributions
under this plan.
The Bank may also make additional discretionary contributions to the
plan on behalf of employees who meet the eligibility requirements.
These contributions are allocated based on the annual salary of the
participants. No additional discretionary contributions were made for
1996, 1995 and 1994.
All plan members become fully vested after five years of service.
Note 9. Income Taxes
The Bank prepares its federal income tax return on a consolidated
basis (Note 1). Federal income taxes are allocated to members of the
consolidated group based on taxable income. State income tax returns
are filed individually by each member of the consolidated group.
Income tax expense (benefit) for the years ended December 31, 1996
and 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
-----------December 31,----------
1996 1995 1994
<S> <C> <C> <C>
Currently payable:
Federal $ -0- $ 15,930 $103,932
State -0- -0- 13,152
Deferred (155,000) ( 10,615) 23,548
------- ------- --------
($155,000) $ 5,315 $140,632
======== ======== ========
</TABLE>
Income tax expense included in the statements of income differs from
that computed at the statutory rate of 34% primarily because of
expenses deductible for financial reporting purposes that are not
deductible for tax purposes and the effect of the surtax exemption.
Temporary differences giving rise to deferred taxes consist primarily
of start-up costs capitalized for tax purposes but expensed for
financial reporting purposes, nondeductible provisions for loan
losses, and net operating loss carryforwards.
Page 51
<PAGE>
Note 9. Income Taxes (Continued)
At December 31, 1996 and 1995 gross deferred tax assets and gross
deferred tax liabilities were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Gross deferred tax assets $491,498 $288,650
Less valuation allowance -0- -0-
-------- --------
491,498 288,650
Gross deferred tax liabilities 34,571 85,338
-------- --------
Net deferred tax asset $456,927 $203,312
======== ========
</TABLE>
There was no change in the deferred tax asset valuation allowance
during 1996 and 1995. The Bank has a net operating loss carryforward
of approximately $174,223 available through 2011.
Note 10. Related Party Transactions
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors,
principal officers, their immediate families and affiliated companies
in which they are principal stockholders (commonly referred to as
related parties), all of which have been, in the opinion of
management, on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with others.
Aggregate loan transactions with related parties were as follows:
<TABLE>
<CAPTION>
------December 31,------
1996 1995
<S> <C> <C>
Balance, beginning $1,178,297 $1,114,272
New loans 719,103 665,716
Repayments ( 723,351) ( 601,691)
---------- ----------
Balance, ending $1,174,049 $1,178,297
========== ==========
</TABLE>
The Bank formerly leased its offices from an affiliated corporation,
of which most of its stockholders were directors of the Bank (Note
12). In August, 1995, the Bank's wholly owned subsidiary,
Landmarkbanc Realty Holdings Corp., purchased the building from the
affiliated corporation for $1,999,965, including closing costs.
Page 52
<PAGE>
Note 11. Repurchase Agreements
Repurchase agreements generally mature within one to four days from
the transaction date and are collateralized by securities in the
Bank's investment portfolio.
The maximum amount of repurchase agreements outstanding at any month-
end during 1996 and 1995 was $359,207 and $392,200, respectively; the
monthly average amount of repurchase agreements outstanding during
1996 and 1995 was $281,909 and $259,111, respectively.
All securities collateralizing repurchase agreements are under the
Bank's control.
Note 12. Leases
The Bank was the lessee of certain computer equipment under capital
leases which expired in 1995. Amortization of assets held under
capital leases is included in depreciation expense. The assets and
liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the
asset. The Bank purchased the computer equipment upon expiration of
the leases.
The Bank leased its main office space from a related party (Note 10)
under an operating lease until August, 1995. Subsequent to that date,
the Bank leases its main office space from Landmarkbanc Realty
Holdings Corp., a wholly- owned subsidiary. The lease has a term of
fifteen years. All costs and expenses relating to the leased
property, including taxes, insurance, and repairs and maintenance are
paid by the Bank.
The Bank also leases branch office facilities in West Lebanon, New
Hampshire. The lease has an initial term of ten years which commenced
on October 1, 1995, with two five year renewal periods. The Bank is
responsible for the payment of utilities and taxes relating to the
leased property.
Approximate minimum future lease payments as of December 31, 1996,
assuming no renewal options are exercised, for each of the next ten
years and in the aggregate are:
<TABLE>
<S> <C>
1997 $ 47,400
1998 47,400
1999 47,400
2000 47,400
2001 47,400
Subsequent to 2001 177,750
--------
$414,750
========
</TABLE>
Rent expense paid in connection with these leases for the years ended
December 31, 1996, 1995 and 1994 amounted to $47,400, $119,357 and
$123,185, respectively.
Page 53
<PAGE>
Note 13. Financial Instruments with Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit, standby letters of credit and financial guarantees,
and interest rate caps and floors written on adjustable rate loans.
Such instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance
sheet. The contract or notional amounts of those instruments reflect
the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit, standby letters of credit and financial guarantees is
represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. For interest
rate caps and floors written on adjustable rate loans, the
contractual amounts or notional amounts do not represent exposure to
credit loss. The Bank controls the risk of interest rate cap
agreements through credit approvals, limits and monitoring
procedures.
<TABLE>
<CAPTION>
The Bank generally requires collateral or other security to support
financial instruments with credit risk.
1996 1995
Financial instruments whose contract
amounts represent credit risk:
<S> <C> <C>
Commitments to extend credit $5,595,111 $8,529,323
========== ==========
Standby letters of credit and
commercial letters of credit $ 250,000 $ 152,741
========== ==========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation of the counter-party.
Collateral held varies but may include accounts receivable,
inventory, property and equipment, residential real estate and
income-producing commercial properties.
Page 54
<PAGE>
Note 13. Financial Instruments with Off-Balance-Sheet Risk (Continued)
Standby letters of credit and financial guarantees are conditional
commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to
support private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loans to customers.
The Bank enters into a variety of interest rate contracts, including
interest rate caps and floors written on adjustable rate loans in
managing its interest rate exposure. Interest rate caps and floors on
loans written by the Bank enables customers to transfer, modify, or
reduce their interest rate risk.
Note 14. Commitments and Contingencies
In the normal course of business, the Bank is involved in various
legal proceedings. In the opinion of management, after consulting
with the Bank's legal counsel, any liability resulting from such
proceedings would not have a material adverse effect on the Bank's
financial statements.
The Bank has executed an agreement allowing it to obtain credit from
the Federal Reserve Bank. Should the Bank utilize this credit,
certain portions of the investment and loan portfolios would be
pledged as collateral against the borrowings.
Note 15. Preferred Stock
During the period October, 1992 to January, 1994, the Bank offered
for sale 100,000 shares of Series A $20 convertible, noncumulative,
perpetual preferred stock, par value $1.00 per share, stated value
$20 per share, in which a total of 55,500 shares were issued.
Offering costs of $99,276 were charged to the preferred stock account
in connection with the offerings.
At their option, holders of Series A preferred stock have the right
to convert any share of preferred stock into two fully-paid shares of
common stock. Noncumulative dividends may be paid quarterly on this
preferred stock, subject to declaration of the Board of Directors of
the Bank. Any dividends declared may be automatically reinvested at
the option of the holders of the preferred stock.
A total of 600,000 shares of preferred stock are authorized, with
100,000 shares reserved for the dividend reinvestment plan. The total
number of shares of preferred stock outstanding at December 31, 1996
and 1995, including shares issued pursuant to the dividend
reinvestment plan, was 59,667 and 59,664, respectively.
Page 55
<PAGE>
Note 15. Preferred Stock (Continued)
In the event of the liquidation, dissolution or winding up of the
Bank, the liquidation preference of the preferred stock shareholders,
if any, would be fixed by the Board of Directors in accordance with
applicable law and the terms of the resolution which established the
Series A preferred stock.
Note 16. Warrants
The Bank has issued and delivered warrants to purchase shares of
common stock to certain of its organizers and to the underwriter of
its initial public offering.
Transferable warrants to purchase an aggregate of 59,000 shares of
common stock at a purchase price of $10.00 per share were issued on
July 31, 1992 to certain organizers of the Bank, pursuant to a
Warrant Resolution adopted by the Board of Directors on June 13,
1991. Further, pursuant to the terms of a Warrant Agreement dated
March 28, 1991 among the Bank and the underwriter, the Bank is
obligated to issue and deliver, upon payment of consideration of
$100, transferable warrants to purchase an aggregate of 2,620 shares
of common stock at a purchase price of $12.00 per share. The warrants
expired in 1996.
Note 17. Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification 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, dollars in thousands) of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized the 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.
Page 56
<PAGE>
Note 17. Regulatory Matters (Continued)
The Bank's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
Minimums To be well
Minimums Capitalized Under
For Capital Prompt corrective
Adequacy Purposes: Action Provisions:
Actual Actual
Amount Ratio Amount Ratio Amount Ratio
------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December31, 1996:
Total capital (to
risk weighted
assets) $3,895 10.6% $2,952 8.0% $3,690 10.0%
Tier I capital
(to risk weighted
assets) $3,428 9.3% $1,476 4.0% $2,214 6.0%
Tier I capital
(to average assets) $3,428 6.0% $2,291 4.0% $2,864 5.0%
</TABLE>
As of December 31, 1995, the Bank was considered well capitalized
under these guidelines.
New Hampshire law places restrictions on the Bank's ability to pay
dividends. The Board of Directors may declare and pay dividends only
to the extent that there is no impairment of the Bank's guaranty
fund. The Bank must maintain a guaranty fund equal to 3 percent of
the amount of all deposits in excess of $1,000,000. The guaranty fund
consists of all capital stock in excess of $100,000 plus such
additional amounts, transferred from net earnings, as may be
necessary to make up the required amount.
Note 18. Subsequent Events
On January 22, 1997, the Bank was merged with and into Lake Sunapee
Bank, fsb, pursuant to certain Articles of Combination filed with the
Office of Thrift Supervision. The Bank's outstanding preferred stock
was converted to common stock pursuant to the merger agreement and
the applicable provisions of the authorizing resolution adopted by
the Board of Directors which created the Series A preferred stock.
The transaction was treated as a purchase of the Bank by Lake Sunapee
Bank, fsb for accounting purposes.
Page 57
<PAGE>
Exhibit 99.3
Unaudited Pro Forma Combined Financial Statements
as of December 31, 1996,
Giving Effect to the Landmark Merger
Page 58
<PAGE>
New Hampshire Thrift Bancshares, Inc. and Landmark Bank
Pro Forma Combined Financial Statements
AS OF DECEMBER 31, 1996 AND THE YEAR THEN ENDED
On January 22, 1997, under an agreement and plan of reorganization ("agreement")
dated July 26, 1996, by and among Landmark Bank ("Landmark"), New Hampshire
Thrift Bancshares, Inc. ("NHTB"), and Lake Sunapee Bank, fsb, ("Bank"), Landmark
was merged with and into the Bank. Shares of the common stock of NHTB were
issued, or cash was paid to the holders of Landmark common stock. The following
unaudited pro forma condensed combined balance sheet is as of December 31, 1996
and the unaudited pro forma condensed combined statement of income is for the
year ended December 31, 1996. The balance sheet as of December 31, 1996 gives
effect to the agreement assuming the merger had occurred as of December 31,
1996. The income statement gives effect to the agreement assuming the merger
occurred at the beginning of the year. The pro forma information is based on
historical financial statements, giving effect to the merger under the purchase
method of accounting.
Page 59
<PAGE>
NHTB-LANDMARK
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
December 31, 1996
<TABLE>
<CAPTION>
Landmark NHTB
----------------------------------------- --------------------------
NHTB Pro Forma Pro Forma Pro Forma
(Historical) (Historical) Adjustments Pro Forma Adjustments Combined
------------ ------------ ------------ ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Assets:
Cash and due from banks .............. $ 5,869 $ 1,934 $ $ 1,934 $ (2,273)(b) $ 5,530
Federal funds sold ................... 5,134 965 965 6,099
Securities available-for-sale ........ 24,951 1,796 1,796 26,747
Securities held-to-maturity .......... 340 3,800 3,800 4,140
Other investments .................... 2,308 2,308
Loans held-for-sale .................. 746 746
Loans receivable, net ................ 215,154 41,907 41,907 257,061
Bank premises and equipment, net ..... 5,104 2,587 2,587 7,691
Investment in real estate ............ 619 115 115 734
Real estate owned and property .......
acquired in settlement of loans .. 723 723
Nonaccrual loans ..................... 849 849
Accrued interest receivable .......... 1,354 252 252 1,606
Goodwill ............................. 3,427(b) 3,427
Deferred income taxes ................ 457 457 457
Other assets ......................... 1,234 663 663 (458)(b) 1,439
---------- -------- ----------- -------- ---------- ----------
Total assets .................. $ 264,385 $ 54,476 $ $ 54,476 $ 696 319,557
========== ======== =========== ======== ========== ==========
Liabilities and Shareholders' Equity:
Liabilities:
Deposits ............................. $ 213,959 $ 50,406 $ $ 50,406 $ 264,365
Repurchase Agreements ................ 8,663 275 275 8,938
Borrowed funds ....................... 20,174 20,174
Other liabilities .................... 2,396 514 514 2,910
---------- -------- ----------- -------- ---------- ----------
Total liabilities .................... 245,192 51,195 51,195 296,387
---------- -------- ----------- -------- ---------- ----------
Shareholders' equity:
Preferred stock ...................... --- 1,094 (1,094)(a)
Common stock ......................... 21 354 119(a) 473 (473)(d)
3 (c) 24
Additional paid-in capital ........... 13,242 2,826 975(a) 3,801 (3,801)(d)
3,974 (c) 17,216
Retained earnings (deficit) .......... 8,437 (836) (836) 836 (d) 8,437
Unrealized net loss on securities
available-for-sale ............... (127) (157) (157) 157 (d) (127)
---------- -------- ----------- -------- ---------- ----------
21,573 3,281 3,281 696 25,550
Treasury stock ....................... (2,380) (2,380)
---------- -------- ----------- -------- ---------- ----------
Total shareholders' equity ........... 19,193 3,281 3,281 696 23,170
---------- -------- ----------- -------- ---------- ----------
Total liabilities and shareholders'
equity ........................... $ 264,385 $ 54,476 $ $ 54,476 $ 696 $ 319,557
========== ======== =========== ======== ========== ==========
Number of common shares
outstanding ...................... 1,704,982 354,138 473,472 2,027,984
========== ======== =========== ======== ==========
Common shareholders' equity per
share ............................ $ 11.26 $ 6.18 $ $ 6.93 $ 11.43
========== ======== =========== ======== ==========
</TABLE>
See Notes to Pro Forma Combined Condensed Financial Statements.
Page 60
<PAGE>
NHTB - LANDMARK
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
NHTB Landmark Pro Forma NHTB
(Historical) (Historical) Adjustments Pro Forma
------------ ------------ ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest on loans .................................................... $ 16,776 $ 4,011 $ $ 20,787
Interest and dividends on securities and federal funds sold .......... 1,928 648 2,576
---------- -------- ----------- -----------
Total interest and dividend income ............................... 18,704 4,659 23,363
---------- -------- ----------- -----------
Interest expense:
Interest on deposits ................................................. 8,686 2,717 11,403
Interest on borrowed funds ........................................... 1,638 8 1,646
---------- -------- ----------- -----------
Total interest expense ........................................... 10,324 2,725 13,049
---------- -------- ----------- -----------
Net interest and dividend income ................................. 8,380 1,934 10,314
Provision for loan losses, net ......................................... 1,661 361 2,022
---------- -------- ----------- -----------
Net interest and dividend income after provision for loan losses 6,719 1,573 8,292
Non-interest income .................................................... 1,923 401 2,324
Non-interest expense ................................................... 7,745 2,633 228 (e) 10,606
---------- -------- ----------- -----------
Income before income tax ............................................... 897 (659) (228) 10
Income tax expense (benefit) ........................................... 286 (155) 131
---------- -------- ----------- (f) -----------
Net income ............................................................. $ 611 $ (504) $ (228) $ (121)
========== ======== =========== ===========
Weighted average number of common shares outstanding ................... 1,722,983 354,138 (g) $ 2,055,559
========== ======== ===========
Earnings per common share .............................................. $ 0.35 $ (1.42) $ (0.06)
========== ======== ===========
</TABLE>
Landmark and NHTB combined pro forma per share information is calculated
on the assumption that all shares of Landmark Preferred Stock will be converted
into shares of Landmark Common Stock.
See notes to Pro Forma Combined Condensed Financial Statements.
Page 61
<PAGE>
Notes to Pro Forma Combined Condensed Financial Statements:
Pro Forma adjustments:
<TABLE>
<CAPTION>
<S> <C>
a. Conversion of all shares of Landmark preferred stock to Landmark common stock, $1 par value:
Common stock shares, 119,334 at $1 par value, in thousands............................... $ 119
Preferred stock balance, in thousands.................................................... 1,094
---------
Difference is paid-in capital, in thousands.............................................. $ 975
b. Computation of goodwill:
Cost to NHTB to purchase Landmark common shares:
Number of shares of Landmark common outstanding before pro forma....................... 354,138
Add number of Landmark common shares to be issued for all preferred stock:
59,667 preferred converted to common shares............................................ 119,334
---------
Pro forma number of shares of Landmark common outstanding.............................. 473,472
Pro forma number of shares of Landmark common stock to be issued the right to
receive NHTB common stock 60%........................................................ 284,083
Pro forma number of shares of NHTB common shares to be issued:
284,083 times 1.1707 ($14 divided by NHTB stock price)................................. 332,576
At fair value of $11.9587 per share, in thousands...................................... $ 3,977
Pro forma number of shares of Landmark common stock to be issued the right to
receive cash 40%..................................................................... 189,389
Cash to be paid at $12 per share, in thousands......................................... $ 2,273
Direct acquisition costs, in thousands................................................. $ 458
Total cost of purchase, in thousands................................................... $ 6,708
Pro forma book value net worth of Landmark after fair value adjustments, if any,
in thousands......................................................................... 3,281
---------
Difference is goodwill, in thousands................................................... $ 3,427
=========
c. NHTB pro forma combined stockholders' equity:
Common stock, 332,576 shares issued to Landmark common stockholders at $.01 par value,
in thousands......................................................................... $ 3
Net fair value of NHTB common stock issued............................................. 3,977
---------
Difference is paid-in capital.......................................................... $ 3,974
=========
d. Elimination of Landmark's stockholders' equity accounts
e. Reflects the amortization of goodwill over a fifteen-year period
f. Reflects the tax effect of the above adjustments, except goodwill, at 40%
g. Weighted average number of shares of NHTB Common Stock outstanding January 1, 1996 to
December 31, 1996...................................................................... 1,722,983
Add number of shares of NHTB Common Stock to be issued to Landmark shareholders...... 332,576
---------
Pro forma weighted average number of shares of NHTB Common Stock
outstanding January 1, 1996 to December 31, 1996..................................... 2,055,559
=========
</TABLE>
62
