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New Hampshire Thrift Bancshares, Inc. is the parent company of Lake
Sunapee Bank,fsb, a federal stock savings bank providing financial
services throughout central and western New Hampshire and central Vermont.

The Bank encourages and supports the
personal and professional development of its employees, dedicates itself to consistent service of the highest level for all customers, and recognizes its responsibility to be an active participant in, and advocate for, community growth and
prosperity.



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Table of Contents



|                                                                                      |  |   
|------------------------------------------------------------------------------------- |  | --
|Selected Financial Highlights                                                         |  | 1 
|                                                                                      | 
|Letter to Stockholders                                                                |  | 2 
|                                                                                      | 
|Managements Discussion and Analysis of Financial Condition and Results of
Operations |  | 5 
|                                                                                      | 
|Report of Independent Registered Public Accounting Firm                               |  | 25
|                                                                                      | 
|Financial Statements                                                                  |  | 26
|                                                                                      | 
|Notes to Financial Statements                                                         |  | 32
|                                                                                      | 
|Form 10-K                                                                             |  | 65
|                                                                                      | 
|Board of Directors                                                                    |  | 91
|                                                                                      | 
|Officers and Managers                                                                 |  | 91
|                                                                                      | 
|Board of Advisors                                                                     |  | 92
|                                                                                      | 
|Stockholder Information                                                               |  | 92
|                                                                                      | 
|Information on Common Stock                                                           |  | 92



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Selected Financial Highlights



|                                        |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|--------------------------------------- |  | ------------------------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|For the Years Ended December 31,        |  | 2009                                  |           |   | 2008 |   |           | 2007 |  |   | 2006      |   |  | 2005 |          
|                                        |  | (In thousands, except per share data) |          
|                                        |  |                                       |           |   |     
|Net Income                              |  | $                                     | 6,598     |   |      | $ | 5,725     |      |  | $ | 4,516     |   |  | $    | 5,040     |   |  | $ | 5,524     |  
|                                        |  |                                       |           |   |     
|Per Share Data:                         |  |                                       |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic Earnings(1)                       |  |                                       | 1.06      |   |      |   | 1.00      |      |  |   | 0.93      |   |  |      | 1.20      |   |  |   | 1.31      |  
|Diluted Earnings                        |  |                                       | 1.06      |   |      |   | 0.99      |      |  |   | 0.92      |   |  |      | 1.17      |   |  |   | 1.29      |  
|Dividends Paid                          |  |                                       | 0.52      |   |      |   | 0.52      |      |  |   | 0.52      |   |  |      | 0.52      |   |  |   | 0.50      |  
|Dividend Payout Ratio                   |  |                                       | 49.06     |   |      |   | 52.00     |      |  |   | 55.91     |   |  |      | 43.33     |   |  |   | 38.17     |  
|                                        |  |                                       |           |   |     
|Return on Average Assets                |  |                                       | 0.73      |   |      |   | 0.69      | %    |  |   | 0.61      | % |  |      | 0.75      | % |  |   | 0.89      | %
|Return on Average Equity                |  |                                       | 7.75      |   |      |   | 7.84      | %    |  |   | 7.98      | % |  |      | 11.04     | % |  |   | 13.10     | %
|                                        |  |                                       |           |   |     
|As of December 31,                      |  | 2009                                  |           |   | 2008 |   |           | 2007 |  |   | 2006      |   |  | 2005 |          
|                                        |  | (In thousands, except per share data) |          
|                                        |  |                                       |           |   |     
|Total Assets                            |  | $                                     | 962,601   |   |      | $ | 843,198   |      |  | $ | 834,210   |   |  | $    | 672,031   |   |  | $ | 650,179   |  
|Total Deposits                          |  |                                       | 734,429   |   |      |   | 653,353   |      |  |   | 652,952   |   |  |      | 465,506   |   |  |   | 464,637   |  
|Total Securities(2)                     |  |                                       | 224,469   |   |      |   | 86,935    |      |  |   | 94,343    |   |  |      | 99,063    |   |  |   | 119,303   |  
|Loans, Net                              |  |                                       | 620,333   |   |      |   | 636,720   |      |  |   | 626,274   |   |  |      | 492,712   |   |  |   | 463,151   |  
|Federal Home Loan Bank Advances         |  |                                       | 95,962    |   |      |   | 66,317    |      |  |   | 63,387    |   |  |      | 120,000   |   |  |   | 100,000   |  
|Stockholders Equity                    |  |                                       | 87,776    |   |      |   | 74,677    |      |  |   | 72,667    |   |  |      | 48,409    |   |  |   | 46,727    |  
|Book Value per Common Share             |  | $                                     | 13.48     |   |      | $ | 12.99     |      |  | $ | 12.69     |   |  | $    | 11.58     |   |  | $ | 11.07     |  
|Average Common Equity to Average Assets |  |                                       | 9.45      | % |      |   | 8.76      | %    |  |   | 7.84      | % |  |      | 6.91      | % |  |   | 6.80      | %
|Shares Outstanding                      |  |                                       | 5,771,772 |   |      |   | 5,747,772 |      |  |   | 5,726,772 |   |  |      | 4,180,080 |   |  |   | 4,219,980 |  
|Number of Branch Locations              |  |                                       | 28        |   |      |   | 28        |      |  |   | 29        |   |  |      | 18        |   |  |   | 17        |  



|(1) | See Note 1 to Consolidated Financial Statements regarding earnings per share.
|--- | -----------------------------------------------------------------------------

|(2) | Includes available-for-sale securities shown at fair value, held-to-maturity securities at cost and Federal Home Loan Bank stock at cost.
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Letter to Stockholders



|                                                                                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
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|those who know the industry well understand that the fundamental principles of sound banking practices have not in any way been diminished |  | Dear Stockholder:  The Company continued to make significant progress in a number of
critical areas as we moved through 2009a year that was filled with severe financial and regulatory uncertainty. Public perceptions of the banking industry as a whole have been shaped by sound-bites and articles depicting the worst of
characters as perhaps representative of the larger group. This is, of course, not the case at all. And community bankers across the countrythose who know the industry wellunderstand that the fundamental principles of sound banking
practices have not in any way been diminished.  Everyday community banks make a real difference by taking the time to understand the financial needs of the retail and commercial customers we are here to serve. Sound relationships are built on trust. We recognize that trust must not be
taken for granted, and we work to earn that trust in everything that we do. In todays world, knowing that similar products and services are so readily available from a wide variety of sources, there is an almost constant need to reinforce the
role of community banks as the provider-of-choice for all of a customers banking needs.  While the worst of the economic downturn may now be passing, it is important to note the underlying strength of the New England region within which the Company does business and to highlight the fact the
banks in the three Northern New England states have the lowest level of non-performing assets of anywhere else in the country. Ours is a low-to-the-ground-business from community to community where we know our customers and they know us.
This is the economic and relationship platform upon which we continue to build the core of our business.  COMPANY EARNINGS  The Company reported consolidated net income for the year-ended December 31, 2009 of $6,597,706, or $1.06 per share (fully diluted). This compares quite favorably to the $5,725,072, or $0.99 per
share (fully diluted) that was reported for the year ended December 31, 2008. While margin compression continues to be of concern for the longer term, the results for 2009 reflect an increase in net interest and dividend income, as well as
increases in the net gains on the sales of loans and on the sales of securities.  Having participated in the Treasury Departments Capital Purchase Program (CPP) at the start of 2009, the Company was able to leverage the $10,000,000 in new capital in a way that provided additional
benefits to the bottom line by enabling the Company to expand its asset base by investing in low-risk securities and growing that portfolio nearly three-fold to just under $220,000,000 at the end of the year. For a more in depth analysis of the
Companys financials, please refer to the Managements Discussion and Analysis section immediately following this letter.  STOCKHOLDER VALUE  As a matter of fundamental practice, the Company continues to focus its energy on managing the core components of our business model that
will yield progressive growth in stockholder value over the long term. The inevitability of economic cycles only serves to strengthen our resolve to build a sustainable franchise that can best weather a downturn in the markets and take advantage of
the same markets when they are more robust. This means developing and maintaining a corporate strategy that continually assesses the quality of our assets, reviews our products, services and policies, and looks to find areas of opportunity and
growth.  The Companys stock price closed out the
year 2009 at $9.69, well above the start of the year when it closed at $7.01 at the beginning of January, with daily closing prices having ranged from a low of $6.40 to high of $10.40 over the course of the year. Stockholders equity stood at
$87,776,253 at December 31, 2009 as compared to $74,677,092 a year earlier. The number of common shares outstanding at the end of the year totaled 5,771,772 and the book value per share stood at $13.48, an increase of $0.49 per share from a
year ago. During this past year, the Company continued to pay a regular cash dividend of $0.52 per share on its common stock.



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Letter to Stockholders (continued)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------
|BALANCE SHEET HIGHLIGHTS  Total assets of the Company amounted to $962,601,187 at year-end
December 31, 2009 as compared to $843,198,414 at December 31, 2008, a significant increase over the prior year end that is primarily reflective of the leverage strategy undertaken in connection with the Companys participation in the
CPP program as well as in conjunction with the growth in deposits and FHLB advances. Loans held in portfolio decreased from $636,720,290 at year-end 2008 to $620,332,606 at December 31, 2009. This decline was the direct result of the mortgage
loan refinance boom that took place during the early part of 2009. The Company saw a large number of portfolio loans transition into the fixed-rate secondary market, with a corresponding growth in our off-balance-sheet servicing portfolio that now
stands at just over $350,000,000.  With the economy in
decline, the Company took a disciplined and dedicated approach to building its loan loss reserves over the course of the year, resulting in an allowance for loan losses that increased by $3,924,320, net, to $9,518,632 at year end, up from $5,594,312
at December 31, 2008. This action further shields the Company from the possibility of loan quality erosion within the residential and commercial loan portfolios. Non-performing loans as a percentage of total loans stood at 0.98% at year-end
2009 as compared to 1.10% at year-end 2008. And the Company remains well-capitalized with a Tier 1 Capital ratio of 8.45% at December 31, 2009.  THE BUSINESS MODEL  Many articles that appeared during the last year made reference to a new normal in both the local and national business
environments. The economic reality of the past couple of years has led many to envision an undetermined period of time during which we all will see major changes in the way consumers do business and in what their expectations will be aboutand
fromthe companies they choose to do business with in the future.  As we work to clarify the financial services role of the Company within the variety of communities currently served, the underlying theme continues to revolve around the need to nurture and support the
service culture that has become so embedded within everything that we do here on a daily basis. We remain committed to our choice to focus on a relatively narrow set of operating principles reinforce them, refine them and adapt
them to meet the needs and expectations of an ever-changing business climate. For community banks, it is consistency that matters most, and we must always strive to anticipate our customers changing needs.  Capitalizing on our network of branch offices, we seek to further
delineate the Company as a retailer of financial services by developing a better understanding of our core customers, planning effectively and being flexible and agile enough to make changes to our business model as necessary. The goal has always
been to grow the Company by looking for avenues of opportunity to increase market share, enhance revenues and optimize expenses by advancing our relationship presence in the lives of our customers and communities we serve.  THE REGULATORY PENDULUM  The current trend in regulatory reform that is sweeping its way
through Congress remains of great and grave concern to community bankers. The costly burden of ever- increasing layers of new and revised regulations weighs heavily upon financial institutions. However, working within a highly regulated industry, we
understand the need for a tighter set of rules in order to provide greater consumer protections.  Enterprise risk management embodies a host of new initiatives to identify any and all potential threats and weaknesses throughout all levels of an institution. We are and will continue to be focused on
key questions, including, what is the downside of all the different things that we do? What would or could the impact be of rising or falling interest rates? What about asset quality? What about liquidity? What about capital? What about reserves?
And the list goes on from there  Looking at
ourselves introspectively brings with it a much greater understanding of the complexities of a financial services company like ours and draw attention to areas that will continue to strengthen the core value of the institution over
time. |  | .the goal has always been to grow the Company by looking for avenues of opportunity



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Letter to Stockholders (continued)



|                                                                           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|the recent economic downturn will have long-lasting financial implications |  | LOOKING FORWARD  The role of social networking and its place in the
context of a banks delivery system for both traditional and new products and services is one of the areas next to be investigated by our management team. Many more people are becoming accustomed to communicating with each otherand with
people they dont knowthrough the use of a widening variety of on-line avenues. Where we should be in this new environment has yet to be determined, but we do recognize that there will be a base of customers that could broaden our
traditional scope and territory of operations.  Economic shifts are also taking place as the baby boomer generation moves toward retirementorperhaps stays in the workforce beyond their normal planned retirement date. Determining what their needs will be and how
those needs can be best met by companies like ours will be an added challenge as we move into the not to distant future. The recent economic downturn will have long-lasting financial implications for many people and understanding how we can help
them will increase the importance of the customer relationships that we have been developing over the years.  The operating culture of people helping people that has been developed with the Company is ideally suited to meeting the
challenges ahead of us. Emphasis continues to be placed on the retention and development of our core employee base by providing them with opportunities for both personal and professional growth and development in a proactive environment. We believe
we obtain a beneficial advantage by deepening the relationship between each of our employees and the Company.  IN CLOSING  Our underlying operating premise is to seek ways to further develop, enhance and build upon the franchise value that has become the backbone of the Company as we move to advance our presence throughout the communities served by our branch
offices in New Hampshire and Vermont. We strive to maintain high quality assets within our loan and securities portfolios, while remaining diligent in the pursuit of emerging opportunities that would be beneficial to the longer-term growth of the
Company.  On behalf of those of us who work together
to strengthen the financial position of the Company, I want to once again take this opportunity to express our appreciation to youour stockholdersfor the continuing support and confidence that you have shown over the years.   /s/  Stephen W. Ensign



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Managements Discussion and Analysis

of Financial Condition and Results of Operations

General

New Hampshire Thrift Bancshares, Inc.s (the Company or NHTB) profitability is derived from its subsidiary,
Lake Sunapee Bank, fsb (the Bank). The Banks earnings are primarily generated from the difference between the yield on its loans and investments and the cost of its deposit accounts and borrowings. Loan origination fees,
retail-banking service fees, and gains on security and loan transactions supplement these core earnings.

Overview



| |  |  | Total assets stood at $962,601,187 at December 31, 2009, an increase of $119,402,773, or 14.16%, from $843,198,414 at December 31, 2008.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net loans decreased $16,387,684, or 2.57%, to $620,332,606 at December 31, 2009 from $636,720,290 at December 31, 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | In 2009, the Bank originated $309,592,066 in loans, compared to $241,431,731 in 2008.
| | - |  | -------------------------------------------------------------------------------------



| |  |  | The Banks loan servicing portfolio increased to $352,066,692 at December 31, 2009 from $311,228,362 at December 31, 2008, an increase
of $40,838,330, or 13.12%.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company earned $6,597,706, or $1.06 per common share, assuming dilution, for the year ended December 31, 2009, compared to $5,725,072, or
$0.99 per common share, assuming dilution, for the year ended December 31, 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net interest and dividend income for the year ended December 31, 2009 increased $1,386,231, or 5.35%, to $27,307,960.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | The Banks interest rate spread decreased to 3.32% at December 31, 2009 from 3.37% at December 31, 2008.
| | - |  | --------------------------------------------------------------------------------------------------------

Forward-looking Statements

Statements included in this discussion and in future filings by the Company with the Securities and Exchange Commission, in the Companys press releases, and in oral statements made with the approval
of an authorized executive officer, which are not historical or current facts, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are subject to certain
risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on such forward-looking statements,
which speak only at the date made. The following important factors, among others, in some cases have affected and in the future could affect the Companys actual results, and could cause the Companys actual financial performance to differ
materially from that expressed in any forward-looking statement: (1) the Companys loan portfolio includes loans with a higher risk of loss; (2) if the Companys allowance for loan losses is not sufficient to cover actual loan
losses, earnings could decrease; (3) changes in interest rates could adversely affect the companys results of operations and financial condition; the local economy may affect future growth possibilities; (4) the Company depends on
its executive officers and key personnel to continue the implementation of its long-term business strategy and could be harmed by the loss of their services; (5) the Company operates in a highly regulated environment, and changes in laws and
regulations to which it is subject may adversely affect its results of operations; and (6) competition in the Banks primary market area may reduce its ability to attract and retain deposits and originate loans. The foregoing list should
not be construed as exhaustive, and the Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or
unanticipated events or circumstances.

Critical Accounting Policies

The Company considers the following accounting policies to be most critical in their potential effect on its financial position or results of
operations:

Allowance for Loan Losses

The allowance for loan losses is established through a charge to the provision for loan losses. Provisions are made to reserve for estimated losses in outstanding loan balances. The allowance for loan
losses is a significant estimate and is regularly reviewed by the Company for adequacy by assessing such factors as changes in the mix and volume of the loan portfolio; trends in portfolio credit quality, including delinquency and charge-off rates;
and current economic conditions that may affect a borrowers ability to repay. The Companys methodology with respect to the assessment of the adequacy of the allowance for loan losses is more fully discussed on pages 13-17 of
Managements Discussion and Analysis of Financial Conditions and Results of Operations.



Income Taxes

The Company must estimate income tax expense for each
period for which a statement of operations is presented. This involves estimating the Companys actual current tax exposure as well as assessing temporary differences resulting from differing treatment of items, such as timing of the deduction
of expenses, for tax and accounting purposes. These differences result in deferred tax assets and liabilities,



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| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



which are included in the Companys consolidated balance sheets. The Company must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and to
the extent that recovery is not likely, a valuation allowance must be established. Significant management judgment is required in determining income tax expense, and deferred tax assets and liabilities. At December 31, 2009, there were no
valuation allowances set aside against any deferred tax assets.

Interest Income Recognition

Interest on loans is included in income as earned based upon interest rates applied to unpaid principal. Interest is not accrued on loans 90
days or more past due. Interest is not accrued on other loans when management believes collection is doubtful. All loans considered impaired are nonaccruing. Interest on nonaccruing loans is recognized as payments are received when the ultimate
collectibility of interest is no longer considered doubtful. When a loan is placed on nonaccrual status, all interest previously accrued is reversed against current-period interest income.

Capital Securities

On March 30, 2004, NHTB Capital Trust II (Trust II), a Connecticut statutory trust formed by the Company, completed the sale of $10.0 million of Floating Capital Securities, adjustable every three months at LIBOR plus 2.79%
(Capital Securities II). Trust II also issued common securities to the Company and used the net proceeds from the offering to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (Debentures II) of the
Company. Debentures II are the sole assets of Trust II. Total expenses associated with the offering of $160,402 are included in other assets and are being amortized on a straight-line basis over the life of Debentures II.

Capital Securities II accrue and pay distributions quarterly based on the stated liquidation amount of $10 per capital security. The Company
has fully and unconditionally guaranteed all of the obligations of Trust II. The guaranty covers the quarterly distributions and payments on liquidation or redemption of Capital Securities II, but only to the extent that Trust II has funds necessary
to make these payments.

Capital Securities II are mandatorily redeemable upon the maturing of Debentures II on March 30,
2034 or upon earlier redemption as provided in the Indenture. The Company has the right to redeem Debentures II, in whole or in part on or after March 30, 2009 at the liquidation amount plus any accrued but unpaid interest to the redemption
date.

On March 30, 2004, NHTB Capital Trust III (Trust III), a Connecticut statutory trust formed by the
Company, completed the sale of $10.0 million of 6.06%, 5 Year Fixed-Floating Capital Securities (Capital Securities III). Trust III also issued common securities to the Company and used the net proceeds from the offering to purchase a
like amount of 6.06% Junior Subordinated Deferrable Interest Debentures (Debentures III) of the Company. Debentures III are the sole assets of Trust III. Total expenses associated with the offering of $160,402 are included in other
assets and are being amortized on a straight-line basis over the life of Debentures III.

Capital Securities III accrue and
pay distributions quarterly at an annual rate of 6.06% for the first 5 years of the stated liquidation amount of $10 per capital security. The Company has fully and unconditionally guaranteed all of the obligations of the Trust. The guaranty covers
the quarterly distributions and payments on liquidation or redemption of Capital Securities III, but only to the extent that the Trust has funds necessary to make these payments.

Capital Securities III are mandatorily redeemable upon the maturing of Debentures III on March 30, 2034 or upon earlier redemption as
provided in the Indenture. The Company has the right to redeem Debentures III, in whole or in part on or after March 30, 2009 at the liquidation amount plus any accrued but unpaid interest to the redemption date.

Interest Rate Swap

On May 1, 2008, the Company entered into an interest rate swap agreement with PNC Bank, effective on June 17, 2008. The interest rate agreement converts Trust IIs interest rate from a floating rate to a fixed-rate basis. The
interest rate swap agreement has a notional amount of $10 million maturing June 17, 2013. Under the swap agreement, the Company is to receive quarterly interest payments at a floating rate based on three month LIBOR plus 2.79% and is obligated
to make quarterly interest payments at a fixed-rate of 6.65%.

Comparison of Years Ended December 31, 2009 and 2008

Financial Condition

Total assets increased $119,402,773, or 14.16%, to $962,601,187 at December 31, 2009 from $843,198,414 at December 31, 2008. Cash and Federal Home Loan Bank overnight deposits increased
$15,476,961.

Total net loans receivable excluding loans held-for-sale decreased $16,387,684, or 2.57% to $620,332,606 at
December 31, 2009. The Banks conventional real estate loan portfolio decreased $10,469,964, or 3.04%, to $333,531,436. Construction loans decreased $1,047,422, or 7.75%, to $12,467,786. Commercial real estate loans decreased $3,753,796,
or 2.69%, to $135,838,539. Additionally, consumer loans increased $3,513,309, or 4.42%, to $82,981,689 and commercial and municipal loans decreased $104,519, or 0.17%, to $62,386,826. Sold loans totaled $352,066,692 at year-end 2009, compared to
$311,228,362, at year-end 2008. Sold loans are loans originated by the Bank and sold to the secondary market with the Bank retaining the majority of servicing of these loans. The Bank expects to continue to sell fixed-rate loans into the secondary
market,



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| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



retaining the servicing, in order to manage interest rate risk and control growth. Typically, the Bank holds adjustable-rate loans in portfolio. At December 31, 2009, adjustable-rate
mortgages comprised approximately 80% of the Banks real estate mortgage loan portfolio, which is consistent with prior years. Non-performing assets were 0.29% of total assets and 0.98% of total loans at December 31, 2009, compared to
0.83% and 1.10%, respectively, at December 31, 2008, as the Bank continued to originate loans using conservative, standardized underwriting.

The fair value of investment securities available-for-sale increased $136,304,613, or 166.25%, to $218,293,101 at December 31, 2009, from $81,988,488 at December 31, 2008. The Bank realized
$3,648,795 in the gains on the sales and calls of securities during 2009, compared to $909,919 in gains on the sales and calls of securities recorded during 2008. The U.S. Treasurys actions during 2008 to place Fannie Mae under conservatorship
resulted in an other-than-temporary impairment to the fair market value of 20,000 shares of Fannie Mae Preferred Stock, Series F held by the Bank as previously disclosed in Current Report Form 8-K dated October 1, 2008. As a result, the Company
recorded a writedown of $879,720 due to the other-than-temporary impairment of Fannie Mae Preferred Stock during 2008. At December 31, 2009, the Banks investment portfolio had a net unrealized holding loss of $837,491, compared to a net
unrealized holding gain of $368,441 at December 31, 2008.The securities in the Banks investment portfolio that are temporarily impaired at December 31, 2009 consist of debt securities issued by U.S. Government corporations or
agencies, corporate debt with investment-grade credit ratings and preferred stock issued by corporations and government sponsored agencies. At December 31, 2009, one investment held in the Companys portfolio as available-for-sale, U.S.
Bank Capital Trust Preferred VIII, had an unrealized market loss of $348,000 compared an unrealized market loss of $722,000 at December 31, 2008. The unrealized loss is primarily attributable to changes in market interest rates. Management does
not intend to sell these securities in the near term. As management has the ability to hold debt securities until maturity and equity securities for the foreseeable future, no declines are deemed to be other than temporary.

Real estate owned and property acquired in settlement of loans was at $100,000 at December 31, 2009 compared to $263,000 at
December 31, 2008.

Goodwill was unchanged at $27,293,470 at December 31, 2009, compared to December 31, 2008.
Goodwill includes $7,503,046 related to the acquisition of First Brandon Financial Corporation and $7,650,408 related to the acquisition of First Community Bank, both in 2007. Goodwill also includes $2,471,560 relating to the acquisition of Landmark
Bank in 1998 and $9,668,456 relating to the acquisition of three branch offices of New London Trust in 2001.

Core deposit
intangibles decreased to $2,023,806 at December 31, 2009, compared to $2,560,527 at December 31, 2008. The Bank amortized $536,721 during 2009 and utilized the sum-of-the-years-digits method over ten years to amortize the core deposit
intangibles.

Total deposits increased $81,075,443, or 12.41%, to $734,428,768 at December 31, 2009 from $653,353,325 at
December 31, 2008. The Bank was able to retain and attract deposits as customers were drawn to the safety and guarantee of FDIC insurance resulting from uncertain credit markets and a lingering national recession.

Advances from the Federal Home Loan Bank (FHLB) increased $29,644,521, or 44.70%, to $95,962,006 from $66,317,485 at December 31, 2008.
The weighted average interest rate for the outstanding FHLB advances was 1.71% at December 31, 2009, compared to 2.94% at December 31, 2008.

Liquidity and Capital Resources

The Bank is required to maintain sufficient liquidity for safe and
sound operations. At year-end 2009, the Banks liquidity was sufficient to cover the Banks anticipated needs for funding new loan commitments of approximately $18.3 million. The Banks source of funds is derived primarily from net
deposit inflows, loan amortizations, principal pay downs from loans, sold loan proceeds, and advances from the FHLB. At December 31, 2009, the Bank had approximately $132.2 million in additional borrowing capacity from the FHLB.

At December 31, 2009, the Companys stockholders equity totaled $87,776,253, compared to $74,677,092, at year-end 2008. The
increase of $13,099,161 reflects net income of $6,597,706, the payout of $2,994,821 in common stock dividends, the payout of $415,278 in preferred stock dividends, the exercise of stock options in the amount of $197,673, including a tax benefit,
other comprehensive loss in the amount of $286,119, the issuance of preferred stock in the amount of $9,914,980, and the issuance of common stock warrants in the amount of $85,020.

On June 12, 2007, the Company approved the repurchase of up to an additional 253,776 shares of common stock. At December 31, 2009,
148,088 shares remained to be repurchased under the plan. The Board of Directors of the Company has determined that a share buyback is appropriate to enhance stockholder value because such repurchases generally increase earnings per common share,
return on average assets and on average equity; three performing benchmarks against which bank and thrift holding companies are measured. The Company buys stock in the open market whenever the price of the stock is deemed reasonable and the Company
has funds available for the purchase. During 2009, no shares were repurchased. However, as a participant in the Capital Purchase Program established by the U.S. Department of the Treasury (Treasury) under the Emergency Economic
Stabilization Act of 2009 (the EESA), the Company is prohibited from repurchasing shares of its common stock, except in certain circumstances, without the consent of the Treasury prior to January 16, 2012.



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



At December 31, 2009, the Company had funds in the amount of $1,887,922. Total cash
needs for the Company during 2010 will amount to approximately $4.5 million with $3.0 million projected to be used to pay dividends on the Companys common stock, $1.0 million to pay interest on the Companys capital securities and $0.5
million to pay interest dividends on the Companys Preferred Stock Series A. The Bank pays dividends to the Company as its sole stockholder, within guidelines set forth by the Office of Thrift Supervision (OTS). Since the Bank is well
capitalized and has capital in excess of regulatory requirements, it is anticipated that funds will be available to cover the Companys cash needs for 2010 as long as earnings at the Bank are sufficient to maintain adequate Tier I capital.

During 2009, the Bank employed a leverage strategy to utilize the $10 million of capital received through participation n the
CPP. This leverage included the purchase of additional investments, primarily in Fannie Mae and Freddie Mac mortgage-back securities, funded through the influx of deposits as well as additional FHLB advances.

Net cash provided by operating activities decreased $5,245,778 to $6,140,450 in 2009 from $11,386,228 in 2008. The decrease includes an
increase in the amount of $4,850,900 in provision for loan losses, an increase in gains on sales and calls of securities of $2,738,876, an increase in mortgage servicing rights of $1,936,594, and a decrease of $2,005,800 in accrued expenses and
other liabilities.

Net cash flows used in investing activities totaled $105,093,049 in 2009, compared to net cash flows used
in investing activities of $24,729,196 in 2008, an increase of $80,363,853. During 2009, net cash provided by loan originations and net principal collections increased by $21,487,728 reflecting the sales of fixed-rate loans into the secondary
market, while net cash used in securities available-for-sale increased $99,959,811.

Net cash flows provided by financing
activities totaled $114,429,560 in 2009, compared to net cash flows provided by financing activities of $1,870,118, a change of $112,559,442. Net cash provided by FHLB advances increased $26,715,802 during 2009 compared to $2,901,952 during 2008 as
cash provided by deposits increased $80,859,385.

The Bank expects to be able to fund loan demand and other investing
activities during 2010 by continuing to utilize the FHLBs advance program and cash flows from securities and loans. On December 31, 2009, approximately $18.3 million in commitments to fund loans had been made. Management is not aware of
any trends, events, or uncertainties that will have, or that are reasonably likely to have, a material effect on the Banks liquidity, capital resources or results of operations.

On January 16, 2009, as part of the Capital Purchase Program, the Company entered into a Letter Agreement with the Treasury pursuant to
which the Company issued and sold to Treasury 10,000 shares of the Companys Fixed-rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per preferred share, having a liquidation reference of $1,000 per preferred share (the
Series A Preferred Stock) and a ten-year warrant to purchase up to 184,275 shares of the Companys common stock, par value $0.01 per common share (the Common Stock), at an initial exercise price of $8.14 per common share
(the Warrant), for an aggregate purchase price of $10.0 million in cash. All of the proceeds from the sale of the Series A Preferred Stock are treated as Tier 1 capital for regulatory purposes.

Cumulative dividends on the Series A Preferred Stock accrue on the liquidation preference at a rate of 5% per annum for the first five
years, and at a rate of 9% per annum thereafter, but will be paid only when declared by the Companys Board of Directors. The Series A Preferred Stock has no maturity date and ranks senior to the Common Stock with respect to the payment of
dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company.

The Series A
Preferred Stock generally is non-voting, other than class voting on certain matters that could adversely affect the Series A Preferred Stock. Please refer to Note 19 of the Consolidated Financial Statements for further discussion.

The OTS requires that the Bank maintain tangible, core, and total risk-based capital ratios of 1.50%, 4.00%, and 8.00%, respectively. At
December 31, 2009, the Banks ratios were 8.45%, 8.45%, and 13.27%, respectively, well in excess of the OTS requirements for well-capitalized banks.

Book value per common share was $13.48 at December 31, 2009, compared to $12.99 per common share at December 31, 2008. Tangible book value per common share was $10.51 at December 31, 2009,
compared to $9.19 per common share at December 31, 2008

Impact of Inflation

The financial statements and related data presented elsewhere herein are prepared in accordance with generally accepted accounting principles
(GAAP), which require the measurement of the Companys financial position and operating results generally in terms of historical dollars and current market value, for certain loans and investments, without considering changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations.

Unlike other companies, nearly all of the assets and liabilities of a bank are monetary in nature. As a result, interest rates have a far greater impact on a banks performance than the effects of the general level of inflation.



8



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##### Table of Contents

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| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services, since such prices are affected by inflation. In the current interest rate
environment, liquidity and the maturity structure of the Banks assets and liabilities are important to the maintenance of acceptable performance levels.

Interest Rate Sensitivity

The principal objective of the
Banks interest rate management function is to evaluate the interest rate risk inherent in certain balance sheet accounts and determine the appropriate level of risk given the Banks business strategies, operating environment, capital and
liquidity requirements and performance objectives, and to manage the risk consistent with the Board of Directors approved guidelines. The Banks Board of Directors has established an Asset/Liability Committee (ALCO) to review its
asset/liability policies and interest rate position. Trends and interest rate positions are reported to the Board of Directors monthly.

Gap analysis is used to examine the extent to which assets and liabilities are rate sensitive. An asset or liability is said to be interest rate sensitive within a specific time period if it
will mature or reprice within that time. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specified period of time and the amount of interest-bearing
liabilities maturing or repricing within the same specified period of time. The strategy of matching rate sensitive assets with similar liabilities stabilizes profitability during periods of interest rate fluctuations.

The Banks one-year cumulative interest-rate gap at December 31, 2009, was negative 7.10%, compared to the December 31, 2008
gap of positive 9.57%. At December 31, 2009, repricing liabilities over the next twelve months was $60.8 million more than repricing assets for the same period compared to repricing assets exceeding repricing liabilities in the amount of $69.0
million at December 31, 2008. With a liability sensitive (negative) gap, if rates were to rise, net interest margin would likely decrease and if rates were to fall, the net interest margin would likely increase.

The Bank continues to offer adjustable-rate mortgages, which reprice at one, three, five and seven-year intervals. In addition, the Bank
sells most fixed-rate mortgages to the secondary market in order to minimize interest rate risk and provide liquidity.

As
another part of its interest rate risk analysis, the Bank uses an interest rate sensitivity model, which generates estimates of the change in the Banks net portfolio value (NPV) over a range of interest rate scenarios. The OTS produces the
data quarterly using its own model and data submitted by the Bank.

NPV is the present value of expected cash flows from
assets, liabilities and off-balance sheet contracts. The NPV ratio, under any rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. Modeling changes require making certain assumptions,
which may or may not reflect the manner in which actual yields and costs respond to the changes in market interest rates. In this regard, the NPV model assumes that the composition of the Banks interest sensitive assets and liabilities
existing at the beginning of a period remain constant over the period being measured and that a particular change in interest rates is reflected uniformly across the yield curve. Accordingly, although the NPV measurements and net interest income
models provide an indication of the Banks interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market rates on the Banks net
interest income and will likely differ from actual results.



9



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



The following table shows the Banks interest rate sensitivity (gap) table at December 31,
2009:



|                                                                      |  |                  |         |   |           |   |         |                 |  |   |          |   |  |               |         |   |       |   |         |   |  |   |         |  
|--------------------------------------------------------------------- |  | ---------------- | ------- | - | --------- | - | ------- | --------------- |  | - | -------- | - |  | ------------- | ------- | - | ----- | - | ------- | - |  | - | ------- | -
|                                                                      |  | 0-3Months        |         |   | 3-6Months |   |         | 6 Months-1 Year |  |   | 1-3Years |   |  | Beyond3
Years |         |   | Total |  
|                                                                      |  | ($ in thousands) |        
|Interest-earning assets:                                              |  |                  |         |   |           |   |         |                 |  |   |          |   |  |               |         |   |       |   |         |   |  |   |         |  
|Loans                                                                 |  | $                | 159,643 |   |           | $ | 57,933  |                 |  | $ | 89,639   |   |  | $             | 176,013 |   |       | $ | 137,105 |   |  | $ | 620,333 |  
|Investments and overnight deposit                                     |  |                  | 23,809  |   |           |   | 7,619   |                 |  |   | 18,564   |   |  |               | 68,357  |   |       |   | 122,144 |   |  |   | 240,493 |  
|                                                                      |  |                  |         |   |           |   |         |                 |  |   |          |   |  |               |         |   |       |   |         |   |  |   |         |  
|Total                                                                 |  |                  | 183,452 |   |           |   | 65,552  |                 |  |   | 108,203  |   |  |               | 244,370 |   |       |   | 259,249 |   |  |   | 860,826 |  
|                                                                      |  |                  |         |   |           |   |         |                 |  |   |          |   |  |               |         |   |       |   |         |   |  |   |         |  
|                                                                      |  |                  |         |   |           |  
|Interest-bearing liabilities:                                         |  |                  |         |   |           |   |         |                 |  |   |          |   |  |               |         |   |       |   |         |   |  |   |         |  
|Deposits                                                              |  |                  | 180,860 |   |           |   | 90,273  |                 |  |   | 69,767   |   |  |               | 68,686  |   |       |   | 324,843 |   |  |   | 734,429 |  
|Repurchase agreements                                                 |  |                  | 12,119  |   |           |   |        |                 |  |   |         |   |  |               |         |   |       |   |         |   |  |   | 12,119  |  
|Borrowings                                                            |  |                  | 60,000  |   |           |   | 5,000   |                 |  |   |         |   |  |               | 10,000  |   |       |   | 20,962  |   |  |   | 95,962  |  
|                                                                      |  |                  |         |   |           |   |         |                 |  |   |          |   |  |               |         |   |       |   |         |   |  |   |         |  
|Total                                                                 |  |                  | 252,979 |   |           |   | 95,273  |                 |  |   | 69,767   |   |  |               | 78,686  |   |       |   | 345,805 |   |  |   | 842,510 |  
|                                                                      |  |                  |         |   |           |   |         |                 |  |   |          |   |  |               |         |   |       |   |         |   |  |   |         |  
|Period sensitivity gap                                                |  |                  | (69,527 | ) |           |   | (29,721 | )               |  |   | 38,436   |   |  |               | 165,684 |   |       |   | (86,556 | ) |  | $ | 18,316  |  
|Cumulative sensitivity gap                                            |  | $                | (69,527 | ) |           | $ | (99,248 | )               |  | $ | (60,812  | ) |  | $             | 104,872 |   |       | $ | 18,316  |   |  |   |        |  
|Cumulative sensitivity gap as a percentage of interest-earning assets |  |                  | -8.08   | % |           |   | -11.53  | %               |  |   | -7.06    | % |  |               | 12.18   | % |       |   | 2.13    | % |  |   | 2.13    | %

The following table sets forth the
Banks NPV at December 31, 2009, as calculated by the OTS:



|                |          |                     |          |  |                       |  |     |           |  |       |        |  |       
|--------------- | -------- | ------------------- | -------- |  | --------------------- |  | --- | --------- |  | ----- | ------ |  | ------
|Change in Rates |          | Net Portfolio Value |          |  | NPV as % of PV Assets
|                | $ Amount |                     | $ Change |  | % Change              |  |     | NPV Ratio |  |       | Change
|+300 bp         |          | $                   | 73,256   |  | -41,451               |  | -36 | %         |  | 7.90  | %      |  | -389bp
|+200 bp         |          |                     | 90,110   |  | -24,597               |  | -21 | %         |  | 9.53  | %      |  | -226bp
|+100 bp         |          |                     | 105,505  |  | -9,202                |  | -8  | %         |  | 10.96 | %      |  | -82bp 
|+50 bp          |          |                     | 110,919  |  | -3,788                |  | -3  | %         |  | 11.45 | %      |  | -34bp 
|0 bp            |          |                     | 114,707  |  |                      |  |    |           |  | 11.79 | %      |  |      
|-50 bp          |          |                     | 118,864  |  | 4,158                 |  | +4  | %         |  | 12.15 | %      |  | +36bp 
|-100 bp         |          |                     | 121,611  |  | 6,904                 |  | +6  | %         |  | 12.39 | %      |  | +60bp 

Comparison of Years
Ended December 31, 2009 and 2008

Net Interest and Dividend Income

Net interest and dividend income for the year ended December 31, 2009 increased $1,386,231, or 5.35%, to $27,307,960. The
increase was primarily due to the Banks lower cost of funds during 2009. Total interest and dividend income decreased $3,251,635, or 7.63%, to $39,384,142 as the yield on interest-earning assets decreased to 4.92% from 5.69%.
Interest and fees on loans decreased $4,394,628, or 11.70%, to $33,176,044 in 2009, due primarily to a decrease in the average yield on loans to 5.16% from 5.86%

Interest on taxable investments increased $1,671,709, or 37.48%, to $6,131,899, due primarily to an increase in average taxable investments as the Bank leveraged the capital funds to purchase
investments, primarily mortgage-backed securities issued by Fannie Mae and Freddie Mac. Dividends decreased $309,188, or 93.73%, to $20,689. Interest on other investments decreased $219,528, or 79.82%, to $55,510. The yield on the
Banks investment portfolio declined from 4.67% for the year ended December 31, 2008 to 3.94% the year ended December 31, 2009 due to lower yielding investments purchased to replace maturing and called securities in a falling interest
rate environment.

Total interest expense decreased $4,637,866, or 27.75%, to $12,076,182 for the year ended
December 31, 2009. For the year ended December 31, 2009, interest on deposits decreased $4,175,506, or 32.27%, to $8,762,151, despite an increase in average deposits as the cost of deposits decreased to 1.36% from 2.08%, compared to
the same period in 2008. The increase on average deposits resulted primarily from customers seeking the safety of insured deposits. Interest on FHLB advances and other borrowed money decreased $128,507, or 5.77%, for the twelve months



10



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##### Table of Contents

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| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



ended December 31, 2009, to $2,098,049 for the same period in 2008, as FHLB advances outstanding increased to $95,962,006 at December 31, 2009, from $66,317,485 at December 31,
2008. The Bank was able to replace maturing advances at substantially lower rates during 2009 resulting in overall lower costs due to the falling interest rate environment.

For the year ended December 31, 2009, the Banks combined cost of funds decreased to 1.60% as compared to 2.32% for 2008. The cost
of deposits, including repurchase agreements, decreased 73 basis points for 2009 to 1.34% compared to 2.07% in 2008, due primarily to the downward repricing of maturing time deposits and advances.

The Banks interest rate spread, which represents the difference between the weighted average yield on interest-earning assets and the
weighted average cost of interest-bearing liabilities, decreased to 3.32% in 2009 from 3.37% in 2008. The Banks net interest margin, representing net interest income as a percentage of average interest-earning assets, decreased to 3.41% during
2009, from 3.46% during 2008.





The following table sets forth the average yield on loans and investments, the average interest rate paid on deposits and borrowings, the interest rate
spread, and the net interest rate margin:



|                                                  |  |                                  |   |  |      |   |  |      |   |  |      |   |  |      |  
|------------------------------------------------- |  | -------------------------------- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ---- | -
|                                                  |  | For the Years Ended December 31, |  
|                                                  |  | 2009                             |   |  | 2008 |   |  | 2007 |   |  | 2006 |   |  | 2005 |  
|Yield on loans                                    |  | 5.16                             | % |  | 5.86 | % |  | 6.20 | % |  | 5.80 | % |  | 5.37 | %
|Yield on investment securities                    |  | 3.94                             | % |  | 4.67 | % |  | 4.93 | % |  | 4.41 | % |  | 3.95 | %
|Combined yield on loans and investments           |  | 4.92                             | % |  | 5.69 | % |  | 5.99 | % |  | 5.53 | % |  | 5.06 | %
|Cost of deposits, including repurchase agreements |  | 1.34                             | % |  | 2.07 | % |  | 2.59 | % |  | 1.77 | % |  | 1.09 | %
|Cost of other borrowed funds                      |  | 3.29                             | % |  | 4.19 | % |  | 5.37 | % |  | 5.22 | % |  | 3.94 | %
|Combined cost of deposits and borrowings          |  | 1.60                             | % |  | 2.32 | % |  | 3.08 | % |  | 2.66 | % |  | 1.66 | %
|Interest rate spread                              |  | 3.32                             | % |  | 3.37 | % |  | 2.91 | % |  | 2.87 | % |  | 3.40 | %
|Net interest margin                               |  | 3.41                             | % |  | 3.46 | % |  | 3.06 | % |  | 3.02 | % |  | 3.49 | %



11



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



The following table presents, for the years indicated, the total dollar amount of interest income from
interest-earning assets and the resultant yields as well as the interest paid on interest-bearing liabilities, and the resultant costs:



|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|--------------------------------------------------------------------- |  | ----------------- | ------- | -------- | ---- | ---------- |  | ------ | ----------------- |  | -------- | ------- | ---------- | - | ------ | ----------------- | ------ | -------- |  | ---------- | ------- |  | - | ------ |  | ------ | -
|Years ended December 31,                                              |  | 2009              |         |          | 2008 |            |  | 2007   |                  
|                                                                      |  | AverageBalance(1) |         | Interest |      | Yield/Cost |  |        | AverageBalance(1) |  | Interest |         | Yield/Cost |   |        | AverageBalance(1) |        | Interest |  | Yield/Cost |        
|                                                                      |  | ($ in thousands)  |        
|Assets:                                                               |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Interest-earning assets:                                              |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Loans(2)                                                              |  | $                 | 642,655 |          | $    | 33,176     |  | 5.16   | %                 |  | $        | 641,100 |            | $ | 37,571 |                   | 5.86   | %        |  | $          | 552,203 |  | $ | 34,258 |  | 6.20   | %
|Investment securities and other                                       |  |                   | 157,405 |          |      | 6,208      |  | 3.94   | %                 |  |          | 108,533 |            |   | 5,065  |                   | 4.67   | %        |  |            | 109,158 |  |   | 5,385  |  | 4.93   | %
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Total interest-earning assets                                         |  |                   | 800,060 |          |      | 39,384     |  |        |                   |  |          | 749,633 |            |   | 42,636 |                   | 5.69   | %        |  |            | 661,361 |  |   | 39,643 |  | 5.99   | %
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                  
|Noninterest-earning assets:                                           |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Cash                                                                  |  |                   | 15,983  |          |      |            |  |        |                   |  |          | 17,541  |            |   |        |                   |        |          |  |            | 16,940  |  |   |        |  |        |  
|Other noninterest-earning assets (3)                                  |  |                   | 84,867  |          |      |            |  |        |                   |  |          | 66,151  |            |   |        |                   |        |          |  |            | 43,922  |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Total noninterest-earning assets                                      |  |                   | 100,850 |          |      |            |  |        |                   |  |          | 83,692  |            |   |        |                   |        |          |  |            | 60,862  |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Total                                                                 |  | $                 | 900,910 |          |      |            |  |        |                   |  | $        | 833,325 |            |   |        |                   |        |          |  | $          | 722,223 |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                  
|Liabilities and Stockholders Equity:                                 |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Interest-bearing liabilities:                                         |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Savings, NOW and MMAs                                                 |  | $                 | 333,352 |          | $    | 1,080      |  | 0.32   | %                 |  | $        | 331,586 |            | $ | 2,512  |                   | 0.76   | %        |  | $          | 280,578 |  | $ | 2,666  |  | 0.95   | %
|Time deposits                                                         |  |                   | 310,994 |          |      | 7,682      |  | 2.47   | %                 |  |          | 290,648 |            |   | 10,426 |                   | 3.59   | %        |  |            | 226,618 |  |   | 10,275 |  | 4.53   | %
|Repurchase agreements                                                 |  |                   | 13,705  |          |      | 58         |  | 0.42   | %                 |  |          | 14,184  |            |   | 234    |                   | 1.65   | %        |  |            | 10,420  |  |   | 454    |  | 4.35   | %
|Capital securities and other borrowed funds                           |  |                   | 98,913  |          |      | 3,256      |  | 3.29   | %                 |  |          | 84,276  |            |   | 3,542  |                   | 4.20   | %        |  |            | 111,499 |  |   | 5,986  |  | 5.37   | %
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Total interest-bearing liabilities                                    |  |                   | 756,964 |          |      | 12,076     |  | 1.60   | %                 |  |          | 720,694 |            |   | 16,714 |                   | 2.32   | %        |  |            | 629,115 |  |   | 19,381 |  | 3.08   | %
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                  
|Noninterest-bearing liabilities:                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Demand deposits                                                       |  |                   | 27,917  |          |      |            |  |        |                   |  |          | 29,286  |            |   |        |                   |        |          |  |            | 30,573  |  |   |        |  |        |  
|Other                                                                 |  |                   | 30,880  |          |      |            |  |        |                   |  |          | 10,309  |            |   |        |                   |        |          |  |            | 5,940   |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Total noninterest-bearing liabilities                                 |  |                   | 58,797  |          |      |            |  |        |                   |  |          | 39,595  |            |   |        |                   |        |          |  |            | 36,513  |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Stockholders equity                                                  |  |                   | 85,149  |          |      |            |  |        |                   |  |          | 73,036  |            |   |        |                   |        |          |  |            | 56,595  |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|Total                                                                 |  | $                 | 900,910 |          |      |            |  |        |                   |  | $        | 833,325 |            |   |        |                   |        |          |  | $          | 722,223 |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                  
|Net interest income/Net interest rate spread                          |  |                   |         |          | $    | 27,308     |  | 3.32   | %                 |  |          |         |            | $ | 25,922 |                   | 3.37   | %        |  |            |         |  | $ | 20,262 |  | 2.91   | %
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                  
|Net interest margin                                                   |  |                   |         |          |      |            |  | 3.41   | %                 |  |          |         |            |   |        |                   | 3.46   | %        |  |            |         |  |   |        |  | 3.06   | %
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  
|                                                                      |  |                   |         |          |      |            |  |        |                  
|Percentage of interest-earning assets to interest-bearing liabilities |  |                   |         |          |      |            |  | 105.69 | %                 |  |          |         |            |   |        |                   | 104.02 | %        |  |            |         |  |   |        |  | 105.13 | %
|                                                                      |  |                   |         |          |      |            |  |        |                   |  |          |         |            |   |        |                   |        |          |  |            |         |  |   |        |  |        |  



|(1) | Monthly average balances have been used for all periods.
|--- | --------------------------------------------------------

|(2) | Loans include 90-day delinquent loans, which have been placed on a non-accruing status.
Management does not believe that including the 90-day delinquent loans in loans caused any material difference in the information presented.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Other noninterest-earning assets include non-earning assets and other real estate owned.
|--- | ----------------------------------------------------------------------------------------



12



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| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



The following table sets forth, for the years indicated, a summary of the changes in interest earned and
interest paid resulting from changes in volume and rates. The net change attributable to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate.



|                                                            |  |                                                                |       |   |      |   |        |       |  |   |        |  
|----------------------------------------------------------- |  | -------------------------------------------------------------- | ----- | - | ---- | - | ------ | ----- |  | - | ------ | -
|                                                            |  | Year ended December 31, 2009 vs. 2008Increase (Decrease)due to |      
|                                                            |  | Volume                                                         |       |   | Rate |   |        | Total | 
|                                                            |  | ($ in thousands)                                               |      
|Interest income on loans                                    |  | $                                                              | 80    |   |      | $ | (4,475 | )     |  | $ | (4,395 | )
|Interest income on investments                              |  |                                                                | 1,927 |   |      |   | (784   | )     |  |   | 1,143  |  
|                                                            |  |                                                                |       |   |      |   |        |       |  |   |        |  
|Total interest income                                       |  |                                                                | 2,007 |   |      |   | (5,259 | )     |  |   | (3,252 | )
|                                                            |  |                                                                |       |   |      |   |        |       |  |   |        |  
|                                                            |  |                                                                |      
|Interest expense on savings, NOW and MMAs                   |  |                                                                | 6     |   |      |   | (1,438 | )     |  |   | (1,432 | )
|Interest expense on time deposits                           |  |                                                                | 503   |   |      |   | (3,246 | )     |  |   | (2,743 | )
|Interest expense on repurchase agreements                   |  |                                                                | (2    | ) |      |   | (185   | )     |  |   | (187   | )
|Interest expense on capital securities and other borrowings |  |                                                                | 482   |   |      |   | (757   | )     |  |   | (275   | )
|                                                            |  |                                                                |       |   |      |   |        |       |  |   |        |  
|Total interest expense                                      |  |                                                                | 989   |   |      |   | (5,626 | )     |  |   | (4,637 | )
|                                                            |  |                                                                |       |   |      |   |        |       |  |   |        |  
|Net interest income                                         |  | $                                                              | 1,018 |   |      | $ | 367    |       |  | $ | 1,385  |  
|                                                            |  |                                                                |       |   |      |   |        |       |  |   |        |  



|                                                            |  |                                                                |        |   |      |   |        |       |  |   |        |  
|----------------------------------------------------------- |  | -------------------------------------------------------------- | ------ | - | ---- | - | ------ | ----- |  | - | ------ | -
|                                                            |  | Year ended December 31, 2008 vs. 2007Increase (Decrease)due to |       
|                                                            |  | Volume                                                         |        |   | Rate |   |        | Total | 
|                                                            |  | ($ in thousands)                                               |       
|Interest income on loans                                    |  | $                                                              | 5,210  |   |      | $ | (1,897 | )     |  | $ | 3,313  |  
|Interest income on investments                              |  |                                                                | (29    | ) |      |   | (291   | )     |  |   | (320   | )
|                                                            |  |                                                                |        |   |      |   |        |       |  |   |        |  
|Total interest income                                       |  |                                                                | 5,181  |   |      |   | (2,188 | )     |  |   | 2,993  |  
|                                                            |  |                                                                |        |   |      |   |        |       |  |   |        |  
|                                                            |  |                                                                |       
|Interest expense on savings, NOW and MMAs                   |  |                                                                | 386    |   |      |   | (540   | )     |  |   | (154   | )
|Interest expense on time deposits                           |  |                                                                | 2,297  |   |      |   | (2,146 | )     |  |   | 151    |  
|Interest expense on repurchase agreements                   |  |                                                                | 65     |   |      |   | (274   | )     |  |   | (209   | )
|Interest expense on capital securities and other borrowings |  |                                                                | (1,141 | ) |      |   | (1,314 | )     |  |   | (2,455 | )
|                                                            |  |                                                                |        |   |      |   |        |       |  |   |        |  
|Total interest expense                                      |  |                                                                | 1,607  |   |      |   | (4,274 | )     |  |   | (2,667 | )
|                                                            |  |                                                                |        |   |      |   |        |       |  |   |        |  
|Net interest income                                         |  | $                                                              | 3,574  |   |      | $ | 2,086  |       |  | $ | 5,660  |  
|                                                            |  |                                                                |        |   |      |   |        |       |  |   |        |  

Allowance and Provision for Loan Losses

Lake Sunapee Bank maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. Adjustments to the allowance for
loan losses are charged to income through the provision for loan losses. The Bank tests the adequacy of the allowance for loan losses at least quarterly by preparing an analysis applying loss factors to outstanding loans by type. This analysis
stratifies the loan portfolio by loan type and assigns a loss factor to each type based on an assessment of the risk associated with each type. In determining the loss factors, the Bank considers historical losses and market conditions. Loss factors
may be adjusted for qualitative factors that, in managements judgment, affect the collectibility of the portfolio.

The
allowance for loan losses incorporates the results of measuring impairment for specifically identified non-homogenous problem loans in accordance with ASC 310-10-35, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit
Quality-Subsequent Measurement. In accordance with ASC 310-10-35, the specific allowance reduces the carrying amount of the impaired loans to their estimated fair value. A loan is recognized as impaired when it is probable that principal
and/or interest are not collectible in accordance with the contractual terms of the loan. Measurement of impairment can be based on the present



13



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



value of expected cash flows discounted at the loans effective interest rate, the market price of the loan, or the fair value of the collateral if the loan is collateral dependent.

Measurement of impairment does not apply to large groups of smaller balance homogenous loans such as residential mortgage, home equity, or
installment loans that are collectively evaluated for impairment. Please refer to Note 4 of the notes to the Consolidated Financial Statements for information regarding impaired loans.

The Banks commercial loan officers review the financial condition of commercial loan customers on a regular basis and perform visual
inspections of facilities and inventories. The Bank also has loan review, internal audit, and compliance programs with results reported directly to the Audit Committee of the Banks Board of Directors.

At December 31, 2009, the allowance for loan losses was $9,494,007 compared to $5,567,859 at year-end 2008. The increase is due to
provisions of $5,846,000 and recoveries of $211,906, which were partially offset by loan charge-offs of $2,131,758. The amounts shown in this paragraph and the next two paragraphs do not include amounts associated with overdrafts on checking
accounts.

The $5,846,000 provision made in 2009 reflects both the higher loan loss experience in 2009 and the changes in
economic conditions that increase the risk of loss inherent in the loan portfolio. The higher loan loss experience is largely attributable to weaker real estate market conditions. Management anticipates making additional provisions in 2010 to
maintain the allowance at an adequate level.

Loan charge-offs were $2,131,758 in 2009 compared to $545,404 in 2008. The
increase reflects a writedown of approximately $1.0 million in commercial real estate in addition to higher charge-offs in all other categories. Recoveries were $211,906 for the period ended December 31, 2009, compared to $42,635 for the same
period in 2008 resulting in net charge-offs for 2009 and 2008 of $1,919,852 and $502,769, respectively. The increase in the amount of the allowance for loan losses, due to the provisions made during 2009, increased the allowance from 0.87% to 1.51%
of total loans.

In addition to the allowance for loan losses, the Bank maintains an allowance for losses associated with the
fee for service overdraft privilege program, which was introduced in July 2005. The Bank seeks to maintain an allowance equal to 100% of the aggregate balance of negative balance accounts that have remained negative for 30 days or more. Negative
balance accounts are charged-off when the balance has remained negative for 60 consecutive days.

The allowance for overdrafts
was $24,626 at December 31, 2009, compared to $26,453 at year-end 2008. The tables in this section show the activity in the accounts for both the allowance for loan losses and the allowance for overdraft losses.

Total classified loans, excluding special mention loans, at December 31, 2009 and 2008, were $11,876,373 and $9,122,365 respectively.
Special mention loans were $14,054,577 at December 31, 2009, compared to $12,153,366 at year-end 2008. These changes are a reflection of the lingering national recession which has adversely affected borrowers capacity to service debt. The
special mention loans continue to perform and do not warrant adverse classification at this time.

The classified loans
include $4,237,087 of impaired loans at December 31, 2009, compared to $4,547,504 at December 31, 2008. The impaired loans meet the criteria established under ASC 310-10-35, although one $2.0 million loan considered restructured at
year-end 2009 and impaired at year-end 2008 continues to perform. The $2.0 million loan is not considered collateral dependent at this time, but the appraised value of the commercial real estate suggests no loss of principal and supports the current
valuation. Four loans considered impaired loans at December 31, 2009, with specific reserves, are all under $200,000 and are secured with real estate. At December 31, 2009, the allowance included $165,000 allocated to impaired loans. The
portion of the allowance allocated to impaired loans at December 31, 2008 was $209,500.

Loans 30 to 89 days past due
were $9,883,831 and $10,018,803 at December 31, 2009 and 2008, respectively. Total non-performing loans amounted to $2,754,443 and $7,026,992 at December 31, 2009 and 2008, respectively. Loans over 90 days past due are placed on nonaccrual
status and are included in non-performing loans. Loans over 90 days past due were $2,754,443 at December 31, 2009 compared to $3,003,615 at December 31, 2008. At year-end 2009, there were 18 loans over 90 days past due compared to 28 at
the end of 2008.

As a percent of assets, non-performing loans decreased from 0.87% at the year-end 2008 to 0.29% at
December 31, 2009, and as a percent of total loans, decreased from 1.10% at the end of 2008 to 0.98% at the end of 2009. At December 31, 2009, the Bank held $100,000 of other real estate owned and repossessed assets. This represents a
decrease over the $263,000 held at the end of 2008. During 2009, the Bank sold three properties that were acquired in previous periods and sold two properties that were acquired during 2009. One property acquired during 2009 remained in OREO at
December 31, 2009 with a book value of $100,000. Adjustments to the valuation of OREO are charged against earnings and do not impact the allowance

for loan losses. If all non-accruing loans had been current in accordance with their terms during the years ended December 31, 2009 and 2008, interest income realized on such loans would have
amounted to approximately $139,520 and $118,700 respectively.



14



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



At December 31, 2009, the Bank had eight loans with net carrying values of
$3,469,660 considered to be troubled debt restructurings as defined in ASC 310-40, Receivables-Troubled Debt Restructurings by Creditors. At December 31, 2009, all troubled debt restructurings are performing
under contractual terms and are included in impaired loans. At December 31, 2008, the Bank had no loans considered troubled debt restructures.

At December 31, 2009 there were no other loans excluded in the tables below or discussed above where known information about possible credit problems of the borrowers caused management to have doubts
as to the ability of the borrower to comply with present loan repayment terms and which may result in disclosure of such loans in the future.

The following table sets forth the breakdown of non-performing assets at December 31:



|                                       |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        
|-------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | ---- | --------- | ---- | - | ------- |  | - | -------
|                                       |  | 2009 |           | 2008 |   | 2007      |  | 2006 |           | 2005
|Nonaccrual loans(1) (2)                |  | $    | 2,754,443 |      | $ | 7,026,992 |  | $    | 4,744,729 |      | $ | 753,992 |  | $ | 278,422
|Real estate and chattel property owned |  |      | 100,000   |      |   | 288,305   |  |      | 241,346   |      |   |        |  |   |       
|                                       |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        
|Total nonperforming assets             |  | $    | 2,854,443 |      | $ | 7,315,297 |  | $    | 4,986,075 |      | $ | 753,992 |  | $ | 278,422
|                                       |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        



|(1) | All loans 90 days or more delinquent are placed on a nonaccruing status.
|--- | ------------------------------------------------------------------------

|(2) | At December 31, 2009, $3,469,660 of troubled debt restructured loans, not included above, were on accrual status and performing.
|--- | --------------------------------------------------------------------------------------------------------------------------------

The following table sets forth nonaccrual(1)(2)loans by category at December 31:



|                               |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        
|------------------------------ |  | ---- | --------- | ---- | - | --------- |  | ---- | --------- | ---- | - | ------- |  | - | -------
|                               |  | 2009 |           | 2008 |   | 2007      |  | 2006 |           | 2005
|Real estate loans -            |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        
|Conventional                   |  | $    | 2,116,713 |      | $ | 2,471,866 |  | $    | 851,201   |      | $ | 448,685 |  | $ | 254,982
|Construction                   |  |      |          |      |   |          |  |      |          |      |   |        |  |   |       
|Consumer loans                 |  |      | 35,612    |      |   | 7,622     |  |      | 97,717    |      |   |        |  |   | 7,977  
|Commercial and municipal loans |  |      |          |      |   | 524,127   |  |      |          |      |   |        |  |   | 15,463 
|Nonaccrual impaired loans      |  |      | 602,118   |      |   | 4,023,377 |  |      | 3,795,811 |      |   | 305,307 |  |   |       
|                               |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        
|Total                          |  | $    | 2,754,443 |      | $ | 7,026,992 |  | $    | 4,744,729 |      | $ | 753,992 |  | $ | 278,422
|                               |  |      |           |      |   |           |  |      |           |      |   |         |  |   |        



|(1) | All loans 90 days or more delinquent are placed on a nonaccruing status.
|--- | ------------------------------------------------------------------------

|(2) | At December 31, 2009, $3,469,660 of troubled debt restructured loans, not included above, were on accrual status and performing.
|--- | --------------------------------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



The following is a summary of activity in the allowance for loan losses account for the years ended
December 31:



|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|----------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                          |  | 2009 |           |   | 2008 |   |           | 2007 |  |   | 2006      |   |  | 2005 |          
|Balance, beginning of year                |  | $    | 5,567,859 |   |      | $ | 5,160,628 |      |  | $ | 3,950,986 |   |  | $    | 3,990,503 |   |  | $ | 4,019,450 |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Charge-offs and writedowns:               |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Residential real estate                   |  |      | 296,801   |   |      |   | 243,480   |      |  |   | 89,872    |   |  |      |          |   |  |   |          |  
|Commercial real estate                    |  |      | 1,387,525 |   |      |   | 133,447   |      |  |   |          |   |  |      |          |   |  |   |          |  
|Construction                              |  |      | 45,102    |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Consumer loans                            |  |      | 105,326   |   |      |   | 78,812    |      |  |   | 33,530    |   |  |      | 18,498    |   |  |   | 36,766    |  
|Commercial loans                          |  |      | 297,004   |   |      |   | 89,665    |      |  |   | 5,164     |   |  |      | 56,698    |   |  |   |          |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total charged-off loans                   |  |      | 2,131,758 |   |      |   | 545,404   |      |  |   | 128,566   |   |  |      | 75,196    |   |  |   | 36,766    |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                          |  |      |           |   |     
|Recoveries                                |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Residential real estate                   |  |      | 99,570    |   |      |   | 31,838    |      |  |   | 5,317     |   |  |      |          |   |  |   | 2,403     |  
|Commercial real estate                    |  |      | 1,000     |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Construction                              |  |      |          |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|Consumer loans                            |  |      | 11,000    |   |      |   | 10,797    |      |  |   | 29,530    |   |  |      | 5,979     |   |  |   | 5,416     |  
|Commercial loans                          |  |      | 100,336   |   |      |   |          |      |  |   |          |   |  |      |          |   |  |   |          |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Total recoveries                          |  |      | 211,906   |   |      |   | 42,635    |      |  |   | 34,847    |   |  |      | 5,979     |   |  |   | 7,819     |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                          |  |      |           |   |     
|Net charge-offs                           |  |      | 1,919,852 |   |      |   | 502,769   |      |  |   | 93,719    |   |  |      | 69,217    |   |  |   | 28,947    |  
|                                          |  |      |           |   |     
|Allowance from Acquisitions               |  |      |          |   |      |   |          |      |  |   | 1,303,361 |   |  |      |          |   |  |   |          |  
|                                          |  |      |           |   |     
|Provision for loan loss charged to income |  |      | 5,846,000 |   |      |   | 910,000   |      |  |   |          |   |  |      | 29,700    |   |  |   |          |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                          |  |      |           |   |     
|Balance, end of year                      |  | $    | 9,494,007 |   |      | $ | 5,567,859 |      |  | $ | 5,160,628 |   |  | $    | 3,950,986 |   |  | $ | 3,990,503 |  
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Ratio of net charge-offs to average loans |  |      | 0.30      | % |      |   | 0.08      | %    |  |   | 0.02      | % |  |      | 0.01      | % |  |   | 0.01      | %
|                                          |  |      |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  

The following is a summary of activity in the allowance for overdraft privilege account for the years ended
December 31:



|                          |  |      |         |      |   |         |  |      |         |      |   |         |  |   |       
|------------------------- |  | ---- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | ------
|                          |  | 2009 |         | 2008 |   | 2007    |  | 2006 |         | 2005
|Beginning Balance         |  | $    | 26,453  |      | $ | 20,843  |  | $    | 24,136  |      | $ | 31,838  |  | $ |      
|                          |  |      |         |      |   |         |  |      |         |      |   |         |  |   |       
|Overdraft Charge-offs     |  |      | 313,736 |      |   | 373,598 |  |      | 273,872 |      |   | 391,821 |  |   | 87,119
|Overdraft Recoveries      |  |      | 205,908 |      |   | 188,108 |  |      | 148,079 |      |   | 183,809 |  |   | 30,457
|                          |  |      |         |      |   |         |  |      |         |      |   |         |  |   |       
|Net Overdraft Losses      |  |      | 107,828 |      |   | 185,490 |  |      | 125,793 |      |   | 208,012 |  |   | 56,662
|                          |  |      |         |      |   |         |  |      |         |      |   |         |  |   |       
|Provisions for Overdrafts |  |      | 106,000 |      |   | 191,100 |  |      | 122,500 |      |   | 200,310 |  |   | 88,500
|                          |  |      |         |      |   |         |  |      |         |      |   |         |  |   |       
|Ending Balance            |  | $    | 24,625  |      | $ | 26,453  |  | $    | 20,843  |      | $ | 24,136  |  | $ | 31,838
|                          |  |      |         |      |   |         |  |      |         |      |   |         |  |   |       



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| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



The following table sets forth the allocation of the loan loss allowance (excluding overdraft
allowances), the percentage of allowance to the total allowance and the percentage of loans in each category to total loans at December 31 ($ in thousands):



|                                         |  |      |       |  |      |   |       |      |   |  |       |       |  |     |   |  |     |   |  |   |       |  |     |   |  |     |  
|---------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | ---- | - |  | ----- | ----- |  | --- | - |  | --- | - |  | - | ----- |  | --- | - |  | --- | -
|                                         |  | 2009 |       |  | 2008 |   |       | 2007 |  
|Real estate loans -                      |  |      |       |  |      |   |       |      |   |  |       |       |  |     |   |  |     |   |  |   |       |  |     |   |  |     |  
|Conventional                             |  | $    | 6,990 |  | 74   | % |       | 75   | % |  | $     | 3,448 |  | 61  | % |  | 76  | % |  | $ | 3,023 |  | 58  | % |  | 76  | %
|Construction                             |  |      | 227   |  | 2    | % |       | 2    | % |  |       | 421   |  | 8   | % |  | 2   | % |  |   | 501   |  | 10  | % |  | 3   | %
|Collateral and consumer loans            |  |      | 100   |  | 1    | % |       | 13   | % |  |       | 139   |  | 2   | % |  | 12  | % |  |   | 199   |  | 4   | % |  | 12  | %
|Commercial and municipal loans           |  |      | 2,012 |  | 21   | % |       | 10   | % |  |       | 1,376 |  | 25  | % |  | 9   | % |  |   | 1,413 |  | 27  | % |  | 8   | %
|Impaired loans                           |  |      | 165   |  | 2    | % |       |     |   |  |       | 210   |  | 4   | % |  | 1   | % |  |   | 45    |  | 1   | % |  | 1   | %
|Unallocated                              |  |      |      |  |     |   |       |     |   |  |       |      |  |    |   |  |    |   |  |   |      |  |    |   |  |    |  
|                                         |  |      |       |  |      |   |       |      |   |  |       |       |  |     |   |  |     |   |  |   |       |  |     |   |  |     |  
|Allowance                                |  | $    | 9,494 |  | 100  | % |       | 100  | % |  | $     | 5,594 |  | 100 | % |  | 100 | % |  | $ | 5,181 |  | 100 | % |  | 100 | %
|                                         |  |      |       |  |      |   |       |      |   |  |       |       |  |     |   |  |     |   |  |   |       |  |     |   |  |     |  
|Allowance as a percentage of total loans |  |      | 1.51% |  |      |   | 0.87% |      |   |  | 0.82% |      
|                                         |  |      |       |  |      |   |       |      |   |  |       |       |  |     |   |  |     |   |  |   |       |  |     |   |  |     |  



|                                         |  |      |       |  |      |   |       |     |   |  |   |       |  |     |   |  |     |  
|---------------------------------------- |  | ---- | ----- |  | ---- | - | ----- | --- | - |  | - | ----- |  | --- | - |  | --- | -
|                                         |  | 2006 |       |  | 2005 |  
|Real estate loans -                      |  |      |       |  |      |   |       |     |   |  |   |       |  |     |   |  |     |  
|Conventional                             |  | $    | 2,592 |  | 65   | % |       | 78  | % |  | $ | 2,544 |  | 63  | % |  | 77  | %
|Construction                             |  |      | 357   |  | 9    | % |       | 3   | % |  |   | 291   |  | 7   | % |  | 3   | %
|Collateral and consumer loans            |  |      | 130   |  | 3    | % |       | 13  | % |  |   | 224   |  | 6   | % |  | 14  | %
|Commercial and municipal loans           |  |      | 850   |  | 22   | % |       | 6   | % |  |   | 963   |  | 24  | % |  | 6   | %
|Impaired loans                           |  |      | 46    |  | 1    | % |       |    |   |  |   |      |  |    |   |  |    |  
|Unallocated                              |  |      |      |  |     |   |       |    |   |  |   |      |  |    |   |  |    |  
|                                         |  |      |       |  |      |   |       |     |   |  |   |       |  |     |   |  |     |  
|Allowance                                |  | $    | 3,975 |  | 100  | % |       | 100 | % |  | $ | 4,022 |  | 100 | % |  | 100 | %
|                                         |  |      |       |  |      |   |       |     |   |  |   |       |  |     |   |  |     |  
|Allowance as a percentage of total loans |  |      | 0.80% |  |      |   | 0.86% |    
|                                         |  |      |       |  |      |   |       |     |   |  |   |       |  |     |   |  |     |  

The Bank believes the current allowance for loan losses is at a level sufficient to cover losses in the loan
portfolio, given present conditions. At the same time, the Bank recognizes the determination of future loss potential is inherently uncertain. Future adjustments to the allowance may be necessary if economic, real estate, and other conditions differ
substantially from the current operating environment resulting in increased levels of non-performing loans and substantial differences between estimated and actual losses.

Noninterest Income and Expense

Total noninterest income
increased $5,148,937, or 66.89%, to $12,846,035 for the twelve months ended December 31, 2009, most notably the net gain on the sales and calls of securities and the net gain on the sales of loans accounted for 86.46% of the increase.



| |  |  | Customer service fees decreased $55,686, or 1.01%, due primarily to reduced fees assessed on the Banks overdraft protection program during
2009.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net gain on sales and calls of securities increased $2,738,876 due to the sales, maturities and calls of securities in the amount of
$289,998,085 as the Bank took advantage of interest rate volatility on the long-end yield curve.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net gain on sales of loans increased $1,713,145, or 204.34%, as the Bank sold $136.5 million in loans to the secondary market during 2009, up
from $48.3 million of loans sold during 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net loss on sale of other real estate owned and fixed assets decreased $50,443 during 2009 as the Bank recognized losses of $9,435 on other real
estate and chattel property owned during 2009 compared to the recognition of losses in 2008 that included losses on leasehold improvements of $38,535 as a result of closing the retail branch in Killington, Vermont, in August 2008, and losses on
other real estate owned in the amount of $27,644 during 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rental income increased $28,316, or 4.19%, primarily as a result of ordinary consumer price index-based increases during 2009.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | The realized gain in Charter Holding Corp. decreased $146,819, or 58.01%, to $106,295 for the twelve months ended December 31, 2009, from
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



17



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| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



| | $253,114 for the same period in 2008, as a direct reflection of earnings reported by Charter Holding Corp. This includes a non-recurring expense of $54,983 recorded during the second quarter of
2009.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Brokerage service income decreased in the amount of $75,469, or 88.47%, to $9,832 for the year ended December 31, 2009, as the Company saw
a decline due to the resignation of the Banks principal broker who was not replaced.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total
noninterest expenses decreased $126,549, or 0.51%, to $24,491,780 for the twelve months ended December 31, 2009, from $24,618,329 for the same period in 2008.



| |  |  | Salaries and employee benefits increased $167,684, or 1.38%, to $12,358,148 for the twelve months ended December 31, 2009 from $12,190,464
for the same period in 2008. Gross salaries and benefits paid, which exclude the deferral of expenses associated with the origination of loans, increased $582,326, or 4.41%, to $13,773,060 for the twelve months ended December 31, 2009, from
$13,190,734 for the same period in 2008. Gross salaries increased $181,730, or 1.74%, to $10,627,440 for the twelve months ended December 31, 2009, compared to the same period in 2008. Average full time equivalents decreasing to 234 for the
twelve months ended December 31, 2009, compared to 250 for the same period in 2008. Benefits costs, particularly associated with retirement and pension benefits, increased $454,119. This increase includes an increase of $324,528 related to
periodic pension costs. The deferral of expenses associated with the origination of loans increased $414,642, or 41.45%, to $1,414,912 for the twelve months ended December 31, 2009, from $1,000,270 for the same period in 2008. This increase was
due to higher volume of loans originated in 2009 compared to 2008, resulting in a higher amount of deferred salary and employee benefits expenses associated with origination costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Occupancy and equipment expenses decreased $173,398, or 4.35%, to $3,815,924 for the twelve months ended December 31, 2009 from $3,989,322
for the same period in 2008, due primarily to savings on depreciation as a number of fixed assets became fully depreciated and a reduction in maintenance expenses.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Advertising and promotion decreased $106,998, or 22.13%, to $376,431 for the twelve months ended December 31, 2009 from $483,429 for the
same period in 2008, due primarily to a reduction in the utilization of print media and associated costs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Depositors insurance increased $1,048,902 to $1,117,519 at December 31, 2009, compared to $128,617 at December 31, 2008, due
primarily to an FDIC Special Assessment of $415,887 recorded during the nine months ended September 30, 2009 and the depletion of deposit insurance premium credits.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional fees increased $176,905, or 21.19% to $1,011,861 for the twelve months ended December 31, 2009 from $834,956 for the same
period in 2008, due to increased audit, accounting and legal fees during 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data processing and outside services fees decreased $65,237, or 6.64%, to $917,170 for the twelve months ended December 31, 2009 from
$982,407 for the same period in 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ATM processing fees increased $31,649, or 5.43%, to $614,516 for the twelve months ended December 31, 2009 from $582,867 for the same
period in 2008, due to the increase in ATM transaction activity, which was offset by fees generated from ATM transaction activity.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amortization of mortgage servicing rights (MSR) in excess of mortgage servicing income increased $95,885, or 371.03%, to $121,728 for the twelve
months ended December 31, 2009 from $25,843 for the same period in 2008, due to a higher volume of prepayments of sold loans during 2009.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other expenses decreased $1,229,461, or 24.88%, to $3,711,223 for the twelve months ended December 31, 2009 from $4,940,684 for the same
period in 2008. In particular, periodic impairment benefits associated with mortgage servicing rights increased $1,306,849 to $587,576 for the twelve months ended December 31, 2009 compared to periodic impairment costs of $719,273 for the same
period in 2008.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Impact of New Accounting Standards

In June 2009, the Financial Accounting Standards Board (FASB) issued an update to Accounting Standard Codification 105-10,
Generally Accepted Accounting Principles. This standard establishes the FASB Accounting Standard Codification (Codification or ASC) as the source of authoritative U.S. GAAP recognized by the FASB for
nongovernmental entities. The Codification is effective for interim and annual periods ending after September 15, 2009. The Codification is a reorganization of existing U.S. GAAP and does not change existing U.S. GAAP. The Company adopted this
standard during the third quarter of 2009. The adoption had no impact on the Companys financial position or results of operations.



18



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, and SFAS No. 167, Amendments to FASB Interpretation No. 46(R). These standards are effective for the first interim reporting period of 2010. SFAS No. 166 amends the guidance in ASC 860 to eliminate
the concept of a qualifying special-purpose entity (QSPE) and changes some of the requirements for derecognizing financial assets. SFAS No. 167 amends the consolidation guidance in ASC 810-10. Specifically, the amendments will
(a) eliminate the exemption for QSPEs from the new guidance, (b) shift the determination of which enterprise should consolidate a variable interest entity (VIE) to a current control approach, such that an entity that has both
the power to make decisions and right to receive benefits or absorb losses that could potentially be significant, will consolidate a VIE, and (c) change when it is necessary to reassess who should consolidate a VIE. The Company is evaluating
the impact that these standards will have on its financial statements.

In August 2009, the FASB issued Accounting Standards
Update (ASU) 2009-05, Measuring Liabilities at Fair Value, which updates ASC 820-10, Fair Value Measurements and Disclosures. The updated guidance clarifies that the fair value of a liability can be measured in
relation to the quoted price of the liability when it trades as an asset in an active market, without adjusting the price for restrictions that prevent the sale of the liability. This guidance is effective beginning January 1, 2010. The Company
does not expect that the guidance will change its valuation techniques for measuring liabilities at fair value.

In May 2009,
the FASB updated ASC 855, Subsequent Events. ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be
issued. The Company adopted this guidance during the second quarter of 2009. In accordance with the update, the Company evaluates subsequent events through the date its financial statements are issued. The adoption of this guidance did not have an
impact on the Companys financial position or results of operations.

In April 2009, the FASB updated ASC 320-10,
Investments  Debt and Equity Securities. The guidance amends the other-than-temporary impairment (OTTI) guidance for debt securities. If the fair value of a debt security is less than its amortized cost basis at the
measurement date, the updated guidance requires the Company to determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized
cost basis. If either condition is met, an entity must recognize full impairment. For all other debt securities that are considered other-than-temporarily impaired and do not meet either condition, the guidance requires that the credit loss portion
of impairment be recognized in earnings and the temporary impairment related to all other factors be recorded in other comprehensive income. In addition, the guidance requires additional disclosures regarding impairments on debt and equity
securities. The Company adopted this guidance effective April 1, 2009. The adoption of this guidance did not have an impact on the Companys financial position or results of operations.

In April 2009, the FASB updated ASC 820-10, Fair Value Measurements and Disclosures, to provide guidance on determining fair
value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This issuance provides guidance on estimating fair value when there has been a significant
decrease in the volume and level of activity for the asset or liability and for identifying transactions that may not be orderly. The guidance requires entities to disclose the inputs and valuation techniques used to measure fair value and to
discuss changes in valuation techniques and related inputs, if any, in both interim and annual periods. The Company adopted this guidance during 2009 and the adoption did not have a material impact on the Companys financial position and
results of operations. The enhanced disclosures related to this guidance are included in Note 15, Fair Value Measurements, to the Consolidated Financial Statements.

In April 2009, the FASB updated ASC 825-10 Financial Instruments. This update amends the fair value disclosure guidance in ASC
825-10-50 and requires an entity to disclose the fair value of its financial instruments in interim reporting periods as well as in annual financial statements. The methods and significant assumptions used to estimate the fair value of financial
instruments and any changes in methods and assumptions used during the reporting period are also required to be disclosed both on an interim and annual basis. The Company adopted this guidance during 2009. The required disclosures have been included
in Note 15, Fair Value Measurements, to the Consolidated Financial Statements.

In June 2008, the FASB updated ASC
260-10, Earnings Per Share. The guidance concludes that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities that should be included in the earnings
allocation in computing earnings per share under the two-class method. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior period
earnings per share data presented must be adjusted retrospectively. The adoption of this update, effective January 1, 2009, did not have an impact on the Companys earnings per share.



19



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



In March 2008, the FASB updated ASC 815, Derivatives and Hedging. This
guidance changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under ASC 815 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows.
The guidance in ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This guidance encourages, but does not require, comparative
disclosures for earlier periods at initial adoption. The adoption of this guidance did not have a material impact on the Companys financial condition and results of operations.

In February 2008, the FASB updated ASC 860, Transfers and Servicing. This guidance clarifies how the transferor and transferee
should separately account for a transfer of a financial asset and a related repurchase financing if certain criteria are met. This guidance became effective January 1, 2009. The adoption of this guidance did not have a material effect on the
Companys results of operations or financial position.

In December 2007, the FASB updated ASC 810-10,
Consolidation, which provides new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest should be reported as a
component of equity in the consolidated financial statements. This guidance also required expanded disclosures that identify and distinguish between the interests of the parents owners and the interests of the noncontrolling owners of an
entity. The adoption of this guidance did not have a material impact on the Companys results of operations or financial position.

In December 2007, the FASB updated ASC 805, Business Combinations. The updated guidance significantly changed the accounting for business combinations. Under ASC 805, an acquiring entity will
be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. It also amends the accounting treatment for certain specific items including acquisition costs and
non controlling minority interests and includes a substantial number of new disclosure requirements. ASC 805 applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The adoption of this
statement did not have a material impact on the Companys financial condition and results of operations.

For additional
information on the above-referenced new accounting standards, refer to Note 1 of the Consolidated Financial Statements beginning on page 32 of this report.

Accounting for Income Taxes

The provision for income taxes for the
years ended December 31, 2009, 2008, and 2007 includes net deferred income tax benefit of $1,200,943, $681,082, and $126,437, respectively. These amounts were determined by the asset and liability method in accordance with generally accepted
accounting principles for each year.

The Bank has provided deferred income taxes on the difference between the provision for
loan losses permitted for income tax purposes and the provision recorded for financial reporting purposes.

Comparison of Years Ended
December 31, 2008 and 2007

In 2008, the Company earned $5,725,072, or $0.99 per common share, assuming dilution,
compared to $4,515,682 or $0.92 per common share, assuming dilution, in 2007.

Financial Condition

Total assets increased $8,988,572, or 1.08%, to $843,198,414 as of December 31, 2008 from $834,209,842 as of December 31, 2007.
Cash and Federal Home Loan Bank overnight deposits decreased $11,472,850.

Total loans receivable, net, excluding loans
held-for-sale, increased $10,445,828, or 1.67% to $636,720,920 as of December 31, 2008. The Banks conventional real estate loan portfolio increased $8,318,724, or 2.48%, to $344,101,400. Construction loans decreased $8,188,946, or 37.73%,
to $13,515,208. Commercial real estate loans decreased $2,876,868, or 2.02%, to $139,592,335. Additionally, consumer loans increased $3,848,877, or 5.09%, to $79,468,380 and commercial and municipal loans increased $9,976,561, or 19.00%, to
$62,491,345. Sold loans totaled $311,228,362 at year-end 2008, compared to $305,838,179, at year-end 2007. Sold loans are loans originated by the Bank and sold to the secondary market with the Bank retaining the majority of servicing of these loans.
The Bank expects to continue to sell fixed-rate loans into the secondary market, retaining the servicing, in order to manage interest rate risk and control growth. Typically, the Bank holds adjustable-rate loans in portfolio. Adjustable-rate
mortgages comprise approximately 80% of the Banks real estate mortgage loan portfolio, which is consistent with prior years. Assets remained strong with non-performing assets at 0.83% of total assets as the Bank continued to originate loans
using conservative, standardized underwriting. In particular, the Bank does not originate nor purchase sub-prime mortgage loans.

The fair value of investment securities available-for-sale decreased $4,821,515, or 5.55%, to $81,988,488 as of



20



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



December 31, 2008, from $86,810,003 at December 31, 2007. The Bank realized $909,919 in the gain on the sales and calls of securities during 2008, compared to no gains recorded during
2007. The U.S. Treasurys actions during 2008 to place Fannie Mae under conservatorship resulted in an other-than-temporary impairment to the fair market value of 20,000 shares of Fannie Mae Preferred Stock, Series F, as previously disclosed in
our Current Report Form 8-K dated October 1, 2008. As a result, the Company recorded a writedown of $879,720 due to the other-than-temporary impairment of Fannie Mae Preferred Stock. As of December 31, 2008, the Banks investment
portfolio had a net unrealized holding gain of $368,441, compared to a net unrealized holding loss of $1,663,149 at December 31, 2007.The investments in the Banks investment portfolio that were temporarily impaired as of
December 31, 2008 consisted of debt securities issued by U.S. Government corporations or agencies, corporate debt with investment-grade credit ratings and preferred stock issued by corporations and government sponsored agencies. At
December 31, 2008, one investment held in the Companys portfolio as available-for-sale, U.S. Bank Capital Trust Preferred VIII had an unrealized market loss of $722,000. The unrealized loss was primarily attributable to changes in market
interest rates. Management does not intend to sell these securities in the near term. As management has the ability to hold debt securities until maturity and equity securities for the foreseeable future, no declines are deemed to be other than
temporary.

Real estate owned and property acquired in settlement of loans was at $263,000 at December 31, 2008 compared
to $240,802 at December 31, 2007.

Goodwill was unchanged at $27,293,470 as of December 31, 2008, compared to
December 31, 2007. Goodwill recognized due to the acquisition of First Brandon amounted to $7,503,046, after acquisition costs of $20,832,293. Goodwill recognized due to the acquisition of First Community amounted to $7,650,408, after
acquisition costs of $14,649,648. Goodwill also included $2,471,560 relating to the acquisition of Landmark Bank in 1998 and $9,668,456 relating to the acquisition of three branch offices of New London Trust in 2001.

Core deposit intangible decreased to $2,560,527 as of December 31, 2008, compared to $3,160,303 at December 31, 2007. The Bank
amortized $599,776 during 2008, utilizing the sum-of-the-years-digits method over ten years to amortize the core deposit intangible.

Total deposits increased $401,308, or 0.06%, to $653,353,325 as of December 31, 2008 from $652,952,017 as of December 31, 2007.

Advances from FHLB increased $2,930,611, or 4.62%, to $66,317,485 from $63,386,874 at December 31, 2007. The weighted average interest rate for the outstanding FHLB advances was 2.94% as of
December 31, 2008, compared to 4.52% as of December 31, 2007.

Net Interest and Dividend Income

Net interest and dividend income for the year ended December 31, 2008 increased $5,659,267, or 27.93%, to $25,921,729 compared to
the same period in 2007. The increase was primarily due to increased interest rate margins and increases in the Banks loan portfolio. In addition, the full-year impact of the acquisitions made during 2007 were realized during 2008. Total
interest and dividend income increased $2,992,700, or 7.55%, to $42,635,777. Interest and fees on loans increased $3,313,168, or 9.67%, to $37,570,672 in 2008, due primarily to the increase in average loans outstanding.

Interest on taxable investments increased $187,916, or 4.40%, to $4,460,190. Dividends decreased $209,541, or 38.85%, to
$329,877. Interest on other investments decreased $298,843, or 52.07%, to $275,038. The yield on the Banks investment portfolio declined from 4.93% for the year ended December 31, 2007 to 4.67% the year ended December 31, 2008
due to lower yielding investments purchased to replace maturing and called securities in a falling interest rate environment.

Total interest expense decreased $2,666,567, or 13.76%, to $16,714,048 for the year ended December 31, 2008. Interest on deposits decreased slightly by $2,935, or 0.02%, to $12,937,657, while interest on FHLB advances
and other borrowed money decreased $2,280,107, or 50.59%, to $2,226,556 for the same period. FHLB advances outstanding increased to $66,317,485 at December 31, 2008 from $63,386,874 at December 31, 2007. The Bank was able to replace
maturing advances at substantially lower rates during 2008 resulting in overall lower costs due to the falling interest rate environment.

For the year ended December 31, 2008, the Banks combined cost of funds decreased to 2.32% as compared to 3.08% for the same period in 2007. The cost of deposits, including repurchase
agreements, decreased 52 basis points in 2008 to 2.07% compared to 2.59% in 2007, due primarily to the downward repricing of maturing time deposits.

The Banks interest rate spread, which represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities, increased
to 3.37 % in 2008 from 2.91% in 2007. The Banks net interest margin, representing net interest income as a percentage of average interest-earning assets, increased to 3.46% during 2008, from 3.06% during 2007. Both increases were
indicative of the Federal Reserve Banks easing of the Fed Funds rate and the subsequent steepening of the yield curve. For the year ended December 31, 2008, the Banks interest expense decreased 13.76% compared to the increase in
interest income of 7.55% during the same period in 2007.



21



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



Allowance and Provision for Loan Losses

At December 31, 2008, the allowance for loan losses was $5,567,859 compared to $5,160,628 at year-end 2007. The increase is due to
provisions of $910,000 and recoveries of $42,635, which were partially offset by loan charge-offs of $545,404. The amounts shown in this paragraph and the next two paragraphs do not include amounts associated with overdrafts.

There was no loan loss provision during 2007. The $910,000 provision made in 2008 reflected both the higher loan loss experience in 2008 and
the changes in economic conditions that increased the risk of loss inherent in the loan portfolio. The higher loan loss experience was largely attributable to weaker real estate market conditions. Unlike prior periods, some borrowers experiencing
difficulty were not able to sell their property to resolve repayment issues.

Loan charge-offs were $545,404 in 2008 compared
to $128,566 in 2007. The increase came from higher losses in all categories. Recoveries were $42,635 for the period ended December 31, 2008, compared to $34,847 for the same period in 2007. This resulted in net charge-offs for 2008 and 2007 of
$502,769 and $93,719, respectively. The increase in the amount of the allowance for loan loss, due to the provisions made during 2008, increased the allowance up from 0.82% to 0.87% of total loans, despite the growth of the loan portfolio.

In addition to the allowance for loan loss, the Bank maintains an allowance for losses associated with the fee for service
overdraft privilege program, which was introduced in July 2005. The Bank seeks to maintain an allowance equal to 100% of the aggregate balance of negative balance accounts that have remained negative for 30 days or more. Negative balance accounts
are charged-off when the balance has remained negative for 60 consecutive days.

The allowance for overdrafts was $26,453 at
December 31, 2008, compared to $20,843 at year-end 2007. The tables in this section show the activity in the accounts for both the allowance for loan losses and the allowance for overdraft losses.

Total classified loans, excluding special mention loans, as of December 31, 2008 and 2007, were $9,122,365 and $6,172,310,
respectively. The increase came from a $1.8 million increase in loans over 90 days past due and changes in the risk ratings of some performing loans. Special mention loans were $12,153,366 at December 31, 2008, compared to $2,099,598 at
year-end 2007. The increase resulted from changes in loan risk ratings. Those changes were a reflection of economic conditions with some borrowers experiencing weaker cash flows and diminished capacity to service debt.

The classified loans include $4,547,504 of impaired loans at December 31, 2008, compared to $3,795,811 at December 31, 2007. The
impaired loans met the criteria established under ASC 310-10-35, although one $2.9 million loan considered impaired at both year-end 2008 and 2007 continues to perform. The increase in impaired loans came from seven loans that were unlikely to be
repaid in accordance with contractual terms at December 31, 2008. At December 31, 2008, the allowance included $209,500 allocated to impaired loans. The portion of the allowance allocated to impaired loans at December 31, 2007 was
$45,000.

Loans 30 to 89 days past due were $10,018,803 and $8,291,466 at December 31, 2008 and 2007, respectively. Total
non-performing loans amounted to $7,026,992 and $4,744,729 at December 31, 2008 and 2007, respectively. Loans over 90 days past due are placed on nonaccrual status and are included in non-performing loans. Loans over 90 days past due were
$3,003,615 at December 31, 2008 compared to $1,230,348 at December 31, 2007. The $1.8 million increase included two loans over $500,000 and three over $200,000. No loss was expected on those loans as they were well secured with real
estate. At year-end 2008, there were 28 loans over 90 days past due compared to 27 at the end of 2007.

As a percent of
assets, non-performing loans increased from 0.57% at the year-end 2007 to 0.83% at December 31, 2008. Non-performing loans as a percent of total loans increased from 0.75% to 1.10% at the end of 2008. That increase reflected the changes in
economic conditions and its adverse impact on borrower repayment capacity. At December 31, 2008, the Bank held $288,305 of other real estate owned and repossessed assets. That represented a slight increase over the $241,346 held at the end of
2007. The increase came from properties acquired in 2008. During 2008, the Bank wrote down two properties with a charge against earnings in the amount of $53,741 to reduce the book value of those assets. One of those properties remained in OREO at
December 31, 2008 with a book value $36,000 less than at year-end 2007. Adjustments to the valuation of OREO are charged against earnings and do not impact the allowance for loan loss. If all non-accruing loans had been current in accordance
with their terms during the years ended December 31, 2008 and 2007, interest income on such loans would have amounted to approximately $118,700 and $64,200, respectively.

At December 31, 2008 the Bank had no loans considered to be troubled debt restructurings as defined in ASC 310-40,
Receivables-Troubled Debt Restructurings by Creditors. At December 31, 2007, the Bank had $53,352 of troubled debt restructured loans. The restructuring did not improve performance, and the loan was charged off in 2008.



22



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



Noninterest Income and Expense

Total noninterest income increased $782,721, or 11.32%, to $7,697,098 for the twelve months ended December 31, 2008.



| |  |  | Customer service fees increased $708,214, or 14.80%, due in part to additional fees in the amount of approximately $243,000 contributed from a
full fiscal years impact of the two banks acquired in 2007 as well as increased transaction activity resulting in higher ATM and overdraft protection fee income.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net gain on sales and calls of securities increased in the amount of $909,919 and offset the $879,720 writedown of securities that
recorded the other than temporary impairment of 20,000 shares of Fannie Mae Preferred Stock, Series F.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net gain on sales of loans decreased $7,432, or 0.88%, as the Banks total of sold loans decreased to $48.3 million during 2008 from $49.7
million of sold loans during 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loss on sale of other real estate owned and fixed assets increased $59,878 during 2008 due in part to the recognition of losses on leasehold
improvements in the amount of $38,535 as a result of closing the retail branch in Killington, Vermont, in August 2008, as well as net losses on other real estate owned in the amount of $27,644.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rental income increased in the amount of $22,694, or 3.48%, as a result of ordinary consumer price index-based increases during 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The realized gain in Charter Holding Corp. increased $28,738, or 12.81%, to $253,114 for the twelve months ended December 31, 2008, from
$224,376 for the same period in 2007, as a direct reflection of earnings reported by Charter Holding Corp.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Brokerage service income decreased in the amount of $96,788, or 53.15%, to $85,301 for the year ended December 31, 2008, as commissions
received declined during the year.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total noninterest expenses increased $3,990,712, or 19.35%, to
$24,618,329 for the twelve months ended December 31, 2008, from $20,627,617 for the same period in 2007.



| |  |  | Salaries and employee benefits increased $1,720,564, or 16.43%, to $12,190,464 for the twelve months ended December 31, 2008 from
$10,469,900 for the same period in 2007. Gross salaries and benefits paid, which exclude the deferral of expenses associated with the origination of loans, increased $1,854,482, or 16.36%, to $13,190,734 for the twelve months ended December 31,
2008, from $11,336,252 for the same period in 2007. In addition to normal salary and benefit increases, during 2008, the Bank recognized a full twelve months of expenses associated with staffing the branches acquired from First Brandon and First
Community. Average full time equivalents increased to 250 for the twelve months ended December 31, 2008, compared to 214 for the same period in 2007 due to the acquisitions during 2007. The deferral of expenses in conjunction with the
origination of loans increased $133,918, or 15.46%, to $1,000,270 for the twelve months ended December 31, 2008, from $866,352 for the same period in 2007. This increase was due to higher volume of loans originated in 2008 compared to 2007,
which resulted in a higher amount of deferred expenses associated with origination costs associated with salary and employee benefits.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Occupancy and equipment expenses increased $630,602, or 18.78%, to $3,989,322 for the twelve months ended December 31, 2008 from $3,358,720
for the same period in 2007 as the Bank recorded a full twelve months of expenses from operating the acquired branch offices of First Brandon and First Community which were recognized for seven and three month periods, respectively, during 2007.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Advertising and promotion increased in the amount of $79,993, or 19.83%, to $483,429 for the twelve months ended December 31, 2008 from
$403,436 for the same period in 2007, due to increased media outlets associated with the Banks two-state geographical footprint.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Professional fees increased $226,428, or 37.21%, to $834,956 for the twelve months ended December 31, 2008 from $608,528 for the same
period in 2007, due to expanded requirements associated with the Banks audit and compliance programs.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Data processing and outside services fees increased $186,869, or 23.49%, to $982,407 for the twelve months ended December 31, 2008 from
$795,538 for the same period in 2007, as the Bank recorded a full twelve months expenses from operating the acquired branch offices of First Brandon and First Community which were recognized for seven and three month periods, respectively,
during 2007.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ATM processing fees increased $65,941, or 12.76%, to $582,867 for the twelve months ended December 31, 2008 from $516,926 for the same
period in
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



23



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##### Table of Contents

| |  |                                                 |  | 
| |  | ----------------------------------------------- |  | 
| |  | Managements Discussion and Analysis(continued) |  | 



| | 2007, due to the increase in ATM transaction activity, which were offset by fees generated from ATM transaction activity, due in part to the placement of additional ATMs into service 2008
compared to 2007 through the acquisitions.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amortization of mortgage servicing rights (MSR) in excess of mortgage servicing income decreased in the amount of $60,346, or 70.02%, to $25,843
for the twelve months ended December 31, 2008 from $86,189 for the same period in 2007, due to a higher volume of prepayments of sold loans during 2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other expenses increased in the amount of $1,119,612, or 28.35%, to $5,069,301 for the twelve months ended December 31, 2008 from
$3,949,689 for the same period in 2007, as the Bank recorded a full twelve months expenses from operating the acquired branch offices of First Brandon and First Community which were recognized for seven and three month periods, respectively,
during 2007. In particular, as prepayment of mortgage loan estimates increased substantially and rapidly in the final month of 2008, periodic impairment associated with mortgage servicing rights increased $714,167 to $719,273 for the twelve months
ended December 31, 2008 compared to $5,106 for the same period in 2007. In addition to increases in postage and telephone usage of $165,106, the Company recognized an increase of approximately $292,000 in amortization of the core deposit
intangible, attributable to the acquired banks, during 2008 compared to 2007, due to a full twelve months of recognition.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

The Company is party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, standby letters of credit and unadvanced funds on loans. The instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. Further detail on
the financial instruments with off-balance sheet risk to which the Company is party is contained in Note 20 to the Consolidated Financial Statements.



24



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##### Table of Contents

LOGO

The Board of Directors

New Hampshire Thrift Bancshares, Inc.

Newport, New Hampshire

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of New Hampshire Thrift Bancshares, Inc. and Subsidiaries as of December 31, 2009 and 2008
and the related consolidated statements of income, changes in stockholders equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2009. 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. 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, 2009 and 2008 and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United States of America.



LOGOSHATSWELL, MacLEOD & COMPANY, P.C.


West Peabody,
Massachusetts

March 26, 2010

LOGO



25



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##### Table of Contents

New Hampshire Thrift Bancshares, Inc.
and Subsidiaries

Consolidated Balance Sheets



|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|As of December 31,                                                                                                                                                                                                                           |  | 2009 |             |   | 2008 |  
|ASSETS                                                                                                                                                                                                                                       |  |      |             |   |      |   |             |  
|Cash and due from banks                                                                                                                                                                                                                      |  | $    | 20,338,652  |   |      | $ | 22,561,691  |  
|Federal Reserve Bank interest bearing deposit                                                                                                                                                                                                |  |      | 17,700,000  |   |      |   |            |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|Total cash and cash equivalents                                                                                                                                                                                                              |  |      | 38,038,652  |   |      |   | 22,561,691  |  
|Securities available-for-sale                                                                                                                                                                                                                |  |      | 218,293,101 |   |      |   | 81,988,488  |  
|Federal Home Loan Bank stock                                                                                                                                                                                                                 |  |      | 6,175,800   |   |      |   | 4,946,300   |  
|Loans held-for-sale                                                                                                                                                                                                                          |  |      | 2,077,900   |   |      |   | 1,937,750   |  
|Loans receivable, net of the allowance for loan losses of $9,518,632 as of December 31, 2009 and $5,594,312 as of
December 31, 2008                                                                                                          |  |      | 620,332,606 |   |      |   | 636,720,290 |  
|Accrued interest receivable                                                                                                                                                                                                                  |  |      | 2,972,403   |   |      |   | 2,715,864   |  
|Premises and equipment, net                                                                                                                                                                                                                  |  |      | 17,034,220  |   |      |   | 17,649,624  |  
|Investments in real estate                                                                                                                                                                                                                   |  |      | 3,505,828   |   |      |   | 3,587,020   |  
|Other real estate owned                                                                                                                                                                                                                      |  |      | 100,000     |   |      |   | 263,000     |  
|Goodwill                                                                                                                                                                                                                                     |  |      | 27,293,470  |   |      |   | 27,293,470  |  
|Intangible assets - core deposits                                                                                                                                                                                                            |  |      | 2,023,806   |   |      |   | 2,560,527   |  
|Investment in partially owned Charter Holding Corp., at equity                                                                                                                                                                               |  |      | 3,083,084   |   |      |   | 3,135,895   |  
|Bank owned life insurance                                                                                                                                                                                                                    |  |      | 9,965,068   |   |      |   | 9,556,167   |  
|Due from broker                                                                                                                                                                                                                              |  |      |            |   |      |   | 20,868,360  |  
|Other assets                                                                                                                                                                                                                                 |  |      | 11,705,249  |   |      |   | 7,413,968   |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|Total assets                                                                                                                                                                                                                                 |  | $    | 962,601,187 |   |      | $ | 843,198,414 |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|                                                                                                                                                                                                                                             |  |     
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                         |  |      |             |   |      |   |             |  
|LIABILITIES                                                                                                                                                                                                                                  |  |      |             |   |      |   |             |  
|Deposits:                                                                                                                                                                                                                                    |  |      |             |   |      |   |             |  
|Noninterest-bearing                                                                                                                                                                                                                          |  | $    | 48,430,291  |   |      | $ | 45,968,057  |  
|Interest-bearing                                                                                                                                                                                                                             |  |      | 685,998,477 |   |      |   | 607,385,268 |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|Total deposits                                                                                                                                                                                                                               |  |      | 734,428,768 |   |      |   | 653,353,325 |  
|Federal Home Loan Bank advances                                                                                                                                                                                                              |  |      | 95,962,006  |   |      |   | 66,317,485  |  
|Other borrowings                                                                                                                                                                                                                             |  |      | 2,077,500   |   |      |   | 2,157,500   |  
|Securities sold under agreements to repurchase                                                                                                                                                                                               |  |      | 12,118,953  |   |      |   | 15,072,991  |  
|Subordinated debentures                                                                                                                                                                                                                      |  |      | 20,620,000  |   |      |   | 20,620,000  |  
|Accrued expenses and other liabilities                                                                                                                                                                                                       |  |      | 9,617,707   |   |      |   | 11,000,021  |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|Total liabilities                                                                                                                                                                                                                            |  |      | 874,824,934 |   |      |   | 768,521,322 |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|                                                                                                                                                                                                                                             |  |     
|Commitments and contingencies                                                                                                                                                                                                                |  |      |             |   |      |   |             |  
|                                                                                                                                                                                                                                             |  |     
|STOCKHOLDERS EQUITY                                                                                                                                                                                                                         |  |      |             |   |      |   |             |  
|Preferred stock, $.01 par value, per share: 2,500,000 shares authorized, fixed rate cumulative perpetual Series A; 10,000 shares
issued and outstanding as of December 31, 2009; liquidation value $1,000 per share                          |  |      | 100         |   |      |   |            |  
|Common stock, $.01 par value, per share: 10,000,000 shares authorized, 6,232,051 shares issued and 5,771,772 shares outstanding
as of December 31, 2009 and 6,208,051 shares issued and 5,747,772 shares outstanding as of December 31, 2008 |  |      | 62,321      |   |      |   | 62,081      |  
|Warrants                                                                                                                                                                                                                                     |  |      | 85,020      |   |      |   |            |  
|Paid-in capital                                                                                                                                                                                                                              |  |      | 55,884,604  |   |      |   | 45,756,112  |  
|Retained earnings                                                                                                                                                                                                                            |  |      | 41,570,797  |   |      |   | 38,399,369  |  
|Accumulated other comprehensive loss                                                                                                                                                                                                         |  |      | (2,675,866  | ) |      |   | (2,389,747  | )
|Treasury stock, 460,279 shares as of December 31, 2009 and 2008, at cost                                                                                                                                                                     |  |      | (7,150,723  | ) |      |   | (7,150,723  | )
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|Total stockholders equity                                                                                                                                                                                                                   |  |      | 87,776,253  |   |      |   | 74,677,092  |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                                                                                                                                                   |  | $    | 962,601,187 |   |      | $ | 843,198,414 |  
|                                                                                                                                                                                                                                             |  |      |             |   |      |   |             |  

The accompanying notes are an integral part of these consolidated financial statements.



26



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##### Table of Contents

New Hampshire Thrift Bancshares, Inc. and Subsidiaries

Consolidated Statements of Income



|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|-------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------
|For the years ended December 31,                                                 |  | 2009 |            |   | 2008 |   |            | 2007
|INTEREST AND DIVIDEND INCOME                                                     |  |      |            |   |      |   |            |      |  |   |           
|Interest and fees on loans                                                       |  | $    | 33,176,044 |   |      | $ | 37,570,672 |      |  | $ | 34,257,504
|Interest on debt investments                                                     |  |      |            |   |      |   |            |      |  |   |           
|Taxable                                                                          |  |      | 6,131,899  |   |      |   | 4,460,190  |      |  |   | 4,272,274 
|Dividends                                                                        |  |      | 20,689     |   |      |   | 329,877    |      |  |   | 539,418   
|Other                                                                            |  |      | 55,510     |   |      |   | 275,038    |      |  |   | 573,881   
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Total interest and dividend income                                               |  |      | 39,384,142 |   |      |   | 42,635,777 |      |  |   | 39,643,077
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|INTEREST EXPENSE                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Interest on deposits                                                             |  |      | 8,762,151  |   |      |   | 12,937,657 |      |  |   | 12,940,592
|Interest on advances and other borrowed money                                    |  |      | 2,098,049  |   |      |   | 2,226,556  |      |  |   | 4,506,663 
|Interest on debentures                                                           |  |      | 1,157,953  |   |      |   | 1,315,365  |      |  |   | 1,479,622 
|Interest on securities sold under agreements to repurchase                       |  |      | 58,029     |   |      |   | 234,470    |      |  |   | 453,738   
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Total interest expense                                                           |  |      | 12,076,182 |   |      |   | 16,714,048 |      |  |   | 19,380,615
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Net interest and dividend income                                                 |  |      | 27,307,960 |   |      |   | 25,921,729 |      |  |   | 20,262,462
|PROVISION FOR LOAN LOSSES                                                        |  |      | 5,952,000  |   |      |   | 1,101,100  |      |  |   | 122,500   
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Net interest and dividend income after provision for loan losses                 |  |      | 21,355,960 |   |      |   | 24,820,629 |      |  |   | 20,139,962
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|NONINTEREST INCOME                                                               |  |      |            |   |      |   |            |      |  |   |           
|Customer service fees                                                            |  |      | 5,437,153  |   |      |   | 5,492,839  |      |  |   | 4,784,625 
|Net gain on sales and calls of securities                                        |  |      | 3,648,795  |   |      |   | 909,919    |      |  |   |          
|Writedown of securities                                                          |  |      |           |   |      |   | (879,720   | )    |  |   |          
|Income on other investments                                                      |  |      |           |   |      |   |           |      |  |   | 144,174   
|Net gain on sales of loans                                                       |  |      | 2,551,545  |   |      |   | 838,400    |      |  |   | 845,832   
|Net loss on sales of other real estate owned, other assets and fixed assets      |  |      | (9,435     | ) |      |   | (59,878    | )    |  |   |          
|Rental income                                                                    |  |      | 703,572    |   |      |   | 675,256    |      |  |   | 652,562   
|Realized gain in Charter Holding Corp.                                           |  |      | 106,295    |   |      |   | 253,114    |      |  |   | 224,376   
|Brokerage service income                                                         |  |      | 9,832      |   |      |   | 85,301     |      |  |   | 182,089   
|Bank owned life insurance income                                                 |  |      | 371,930    |   |      |   | 380,195    |      |  |   | 80,307    
|Other income                                                                     |  |      | 26,348     |   |      |   | 1,672      |      |  |   | 412       
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Total noninterest income                                                         |  |      | 12,846,035 |   |      |   | 7,697,098  |      |  |   | 6,914,377 
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|NONINTEREST EXPENSES                                                             |  |      |            |   |      |   |            |      |  |   |           
|Salaries and employee benefits                                                   |  |      | 12,358,148 |   |      |   | 12,190,464 |      |  |   | 10,469,900
|Occupancy and equipment expenses                                                 |  |      | 3,815,924  |   |      |   | 3,989,322  |      |  |   | 3,358,720 
|Advertising and promotion                                                        |  |      | 376,431    |   |      |   | 483,429    |      |  |   | 403,436   
|Depositors insurance                                                            |  |      | 1,177,519  |   |      |   | 128,617    |      |  |   | 60,269    
|Professional services                                                            |  |      | 1,011,861  |   |      |   | 834,956    |      |  |   | 608,528   
|Data processing and outside services fees                                        |  |      | 917,170    |   |      |   | 982,407    |      |  |   | 795,538   
|ATM processing fees                                                              |  |      | 614,516    |   |      |   | 582,867    |      |  |   | 516,926   
|Amortization of mortgage servicing rights in excess of mortgage servicing income |  |      | 121,728    |   |      |   | 25,843     |      |  |   | 86,189    
|Supplies                                                                         |  |      | 387,260    |   |      |   | 459,740    |      |  |   | 438,691   
|Other expenses                                                                   |  |      | 3,711,223  |   |      |   | 4,940,684  |      |  |   | 3,889,420 
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Total noninterest expenses                                                       |  |      | 24,491,780 |   |      |   | 24,618,329 |      |  |   | 20,627,617
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|INCOME BEFORE PROVISION FOR INCOME TAXES                                         |  |      | 9,710,215  |   |      |   | 7,899,398  |      |  |   | 6,426,722 
|PROVISION FOR INCOME TAXES                                                       |  |      | 3,112,509  |   |      |   | 2,174,326  |      |  |   | 1,911,040 
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|NET INCOME                                                                       |  | $    | 6,597,706  |   |      | $ | 5,725,072  |      |  | $ | 4,515,682 
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|NET INCOME AVAILABLE TO COMMON STOCKHOLDERS                                      |  | $    | 6,103,445  |   |      | $ | 5,725,072  |      |  | $ | 4,515,682 
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|                                                                                 |  |      |           
|Earnings per common share                                                        |  | $    | 1.06       |   |      | $ | 1.00       |      |  | $ | 0.93      
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Earnings per common share, assuming dilution                                     |  | $    | 1.06       |   |      | $ | 0.99       |      |  | $ | 0.92      
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           
|Dividends declared per common share                                              |  | $    | 0.52       |   |      | $ | 0.52       |      |  | $ | 0.52      
|                                                                                 |  |      |            |   |      |   |            |      |  |   |           

The accompanying notes are an integral part of these
consolidated financial statements.



27



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##### Table of Contents

New Hampshire Thrift Bancshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders Equity



|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|----------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|For the years ended December 31,                                                                |  | 2009 |            |   | 2008 |   |            | 2007 | 
|PREFERRED STOCK                                                                                 |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, beginning of year                                                                      |  | $    |           |   |      | $ |           |      |  | $ |           |  
|Issuance of preferred stock                                                                     |  |      | 100        |   |      |   |           |      |  |   |           |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                                                            |  | $    | 100        |   |      | $ |           |      |  | $ |           |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                                |  |      |           
|COMMON STOCK                                                                                    |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, beginning of year                                                                      |  | $    | 62,081     |   |      | $ | 61,821     |      |  | $ | 42,936     |  
|Exercise of stock options (24,000 shares in 2009, 26,000 shares in 2008, 68,758 shares in 2007) |  |      | 240        |   |      |   | 260        |      |  |   | 688        |  
|Shares issued for acquisitions (1,819,713 shares)                                               |  |      |           |   |      |   |           |      |  |   | 18,197     |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                                                            |  | $    | 62,321     |   |      | $ | 62,081     |      |  | $ | 61,821     |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                                |  |      |           
|WARRANTS                                                                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, beginning of year                                                                      |  | $    |           |   |      | $ |           |      |  | $ |           |  
|Issuance of warrants                                                                            |  |      | 85,020     |   |      |   |           |      |  |   |           |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                                                            |  | $    | 85,020     |   |      | $ |           |      |  | $ |           |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                                |  |      |           
|PAID-IN CAPITAL                                                                                 |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, beginning of year                                                                      |  | $    | 45,756,112 |   |      | $ | 45,480,955 |      |  | $ | 17,930,597 |  
|Increase on issuance of common stock from the exercise of stock options                         |  |      | 180,260    |   |      |   | 248,865    |      |  |   | 782,044    |  
|Tax benefit for stock options                                                                   |  |      | 17,173     |   |      |   | 26,292     |      |  |   | 47,911     |  
|Issuance of preferred stock                                                                     |  |      | 9,914,880  |   |      |   |           |      |  |   |           |  
|Preferred stock net accretion                                                                   |  |      | 16,179     |   |      |   |           |      |  |   |           |  
|Acquisition of First Brandon                                                                    |  |      |           |   |      |   |           |      |  |   | 15,582,350 |  
|Acquisition of First Community                                                                  |  |      |           |   |      |   |           |      |  |   | 11,138,053 |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                                                            |  | $    | 55,884,604 |   |      | $ | 45,756,112 |      |  | $ | 45,480,955 |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                                |  |      |           
|RETAINED EARNINGS                                                                               |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, beginning of year                                                                      |  | $    | 38,399,369 |   |      | $ | 35,982,392 |      |  | $ | 33,941,729 |  
|Net income                                                                                      |  |      | 6,597,706  |   |      |   | 5,725,072  |      |  |   | 4,515,682  |  
|Cumulative effect of a change in accounting principle - initial application of ASC 715 - 60     |  |      |           |   |      |   | (320,034   | )    |  |   |           |  
|Preferred stock net accretion                                                                   |  |      | (16,179    | ) |      |   |           |      |  |   |           |  
|Cash dividends paid, preferred stock                                                            |  |      | (415,278   | ) |      |   |           |      |  |   |           |  
|Cash dividends paid, common stock                                                               |  |      | (2,994,821 | ) |      |   | (2,988,061 | )    |  |   | (2,475,019 | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                                                            |  | $    | 41,570,797 |   |      | $ | 38,399,369 |      |  | $ | 35,982,392 |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                                |  |      |           
|ACCUMULATED OTHER COMPREHENSIVE LOSS                                                            |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, beginning of year                                                                      |  | $    | (2,389,747 | ) |      | $ | (1,768,076 | )    |  | $ | (1,707,556 | )
|Unrealized holding (loss) gain on securities available-for-sale, net of tax effect              |  |      | (728,263   | ) |      |   | 1,226,878  |      |  |   | 60,050     |  
|Other comprehensive income (loss) - pension plan                                                |  |      | 291,498    |   |      |   | (1,356,767 | )    |  |   | (120,570   | )
|Other comprehensive income (loss) - derivative                                                  |  |      | 146,845    |   |      |   | (480,741   | )    |  |   |           |  
|Other comprehensive income (loss) - equity investment                                           |  |      | 3,801      |   |      |   | (11,041    | )    |  |   |           |  
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                                                            |  | $    | (2,675,866 | ) |      | $ | (2,389,747 | )    |  | $ | (1,768,076 | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                                |  |      |           
|TREASURY STOCK                                                                                  |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, beginning of year                                                                      |  | $    | (7,150,723 | ) |      | $ | (7,089,769 | )    |  | $ | (1,798,300 | )
|Shares repurchased (5,000 shares in 2008 and 341,779 shares in 2007)                            |  |      |           |   |      |   | (60,954    | )    |  |   | (5,291,469 | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                                                            |  | $    | (7,150,723 | ) |      | $ | (7,150,723 | )    |  | $ | (7,089,769 | )
|                                                                                                |  |      |            |   |      |   |            |      |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



28



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##### Table of Contents

New Hampshire Thrift Bancshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income



|                                            |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|For the years ended December 31,            |  | 2009 |           |   | 2008 |   |           | 2007 | 
|Net income                                  |  | $    | 6,597,706 |   |      | $ | 5,725,072 |      |  | $ | 4,515,682 |  
|Other comprehensive loss, net of tax effect |  |      | (286,119  | ) |      |   | (621,671  | )    |  |   | (60,520   | )
|                                            |  |      |           |   |      |   |           |      |  |   |           |  
|Comprehensive income                        |  | $    | 6,311,587 |   |      | $ | 5,103,401 |      |  | $ | 4,455,162 |  
|                                            |  |      |           |   |      |   |           |      |  |   |           |  
|                                            |  |      |          
|                                            |  |      |           |   |      |   |           |      |  |   |           |  

Reclassification disclosure for the years ended December 31:



|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | -------- | -
|                                                              |  | 2009 |            |   | 2008 |   |            | 2007 | 
|Net unrealized holding gains on available-for-sale securities |  | $    | 2,442,863  |   |      | $ | 2,061,789  |      |  | $ | 99,438   |  
|Reclassification adjustment for realized gains in net income  |  |      | (3,648,795 | ) |      |   | (30,199    | )    |  |   |         |  
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|Other comprehensive (loss) income before income tax effect    |  |      | (1,205,932 | ) |      |   | 2,031,590  |      |  |   | 99,438   |  
|Income tax benefit (expense)                                  |  |      | 477,669    |   |      |   | (804,712   | )    |  |   | (39,388  | )
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|                                                              |  |      | (728,263   | ) |      |   | 1,226,878  |      |  |   | 60,050   |  
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|Other comprehensive income (loss) - pension plan              |  |      | 482,693    |   |      |   | (2,246,677 | )    |  |   | (199,652 | )
|Income tax (expense) benefit                                  |  |      | (191,195   | ) |      |   | 889,910    |      |  |   | 79,082   |  
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|                                                              |  |      | 291,498    |   |      |   | (1,356,767 | )    |  |   | (120,570 | )
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|Change in fair value of derivatives used for cash flow hedges |  |      | 243,162    |   |      |   | (796,061   | )    |  |   |         |  
|Income tax (expense) benefit                                  |  |      | (96,317    | ) |      |   | 315,320    |      |  |   |         |  
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|                                                              |  |      | 146,845    |   |      |   | (480,741   | )    |  |   |         |  
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|Other comprehensive income (loss) - equity investment         |  |      | 11,042     |   |      |   | (18,282    | )    |  |   |         |  
|Income tax (expense) benefit                                  |  |      | (7,241     | ) |      |   | 7,241      |      |  |   |         |  
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|                                                              |  |      | 3,801      |   |      |   | (11,041    | )    |  |   |         |  
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  
|                                                              |  |      |           
|Other comprehensive loss, net of tax effect                   |  | $    | (286,119   | ) |      | $ | (621,671   | )    |  | $ | (60,520  | )
|                                                              |  |      |            |   |      |   |            |      |  |   |          |  

Accumulated other comprehensive loss consists of the following as of December 31:



|                                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                     |  | 2009 |            |   | 2008 |   |            | 2007 | 
|Net unrealized holding (losses) gains on available-for-sale securities, net of taxes |  | $    | (505,761   | ) |      | $ | 222,502    |      |  | $ | (1,004,376 | )
|Unrecognized net actuarial loss, defined benefit pension plan, net of tax            |  |      | (1,828,969 | ) |      |   | (2,120,467 | )    |  |   | (763,700   | )
|Unrecognized net loss, derivative, net of tax                                        |  |      | (333,896   | ) |      |   | (480,741   | )    |  |   |           |  
|Unrecognized net loss, equity investment, net of tax                                 |  |      | (7,240     | ) |      |   | (11,041    | )    |  |   |           |  
|                                                                                     |  |      |            |   |      |   |            |      |  |   |            |  
|                                                                                     |  |      |           
|Accumulated other comprehensive loss                                                 |  | $    | (2,675,866 | ) |      | $ | (2,389,747 | )    |  | $ | (1,768,076 | )
|                                                                                     |  |      |            |   |      |   |            |      |  |   |            |  

The accompanying notes are an integral part of these consolidated financial statements.



29



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##### Table of Contents

New Hampshire Thrift Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows



|                                                                                                              |  |      |              |   |      |   |             |      |  |   |             |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------------ | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|For the years ended December 31,                                                                              |  | 2009 |              |   | 2008 |   |             | 2007 | 
|Cash flows from operating activities:                                                                         |  |      |              |   |      |   |             |      |  |   |             |  
|Net income                                                                                                    |  | $    | 6,597,706    |   |      | $ | 5,725,072   |      |  | $ | 4,515,682   |  
|Adjustments to reconcile net income to net cash provided by operating activities:                             |  |      |              |   |      |   |             |      |  |   |             |  
|Depreciation and amortization                                                                                 |  |      | 1,497,721    |   |      |   | 1,521,290   |      |  |   | 1,671,562   |  
|Net (increase) decrease in mortgage servicing rights                                                          |  |      | (982,975     | ) |      |   | 953,619     |      |  |   | 227,113     |  
|Amortization of securities, net                                                                               |  |      | 391,218      |   |      |   | 8,541       |      |  |   | 54,106      |  
|Amortization of deferred expenses relating to issuance of capital securities and subordinated debentures      |  |      | 10,694       |   |      |   | 10,693      |      |  |   | 10,694      |  
|Amortization of fair value adjustments, net (loans, deposits and borrowings)                                  |  |      | 123,409      |   |      |   | 273,863     |      |  |   | 209,715     |  
|Amortization of core deposit intangible                                                                       |  |      | 536,721      |   |      |   | 599,776     |      |  |   | 307,697     |  
|Net (increase) decrease in loans held-for-sale                                                                |  |      | (140,150     | ) |      |   | 570,130     |      |  |   | (737,380    | )
|Writedown of other real estate                                                                                |  |      |             |   |      |   | 53,741      |      |  |   |            |  
|Net loss on sales of premises, equipment, investment in real estate, other real estate owned and other assets |  |      | 9,435        |   |      |   | 59,878      |      |  |   |            |  
|Net gain on sales and calls of securities                                                                     |  |      | (3,648,795   | ) |      |   | (909,919    | )    |  |   |            |  
|Writedown of securities                                                                                       |  |      |             |   |      |   | 879,720     |      |  |   |            |  
|Equity in gain of partially owned Charter Holding Corp.                                                       |  |      | (117,334     | ) |      |   | (253,116    | )    |  |   | (224,375    | )
|Provision for loan losses                                                                                     |  |      | 5,952,000    |   |      |   | 1,101,100   |      |  |   | 122,500     |  
|Deferred tax benefit                                                                                          |  |      | (1,200,943   | ) |      |   | (681,082    | )    |  |   | (126,437    | )
|Change in cash surrender value of life insurance                                                              |  |      | (397,806     | ) |      |   | (403,223    | )    |  |   | (104,597    | )
|(Increase) decrease in accrued interest receivable and other assets                                           |  |      | (2,982,905   | ) |      |   | (340,816    | )    |  |   | 373,777     |  
|Change in deferred loan origination costs, net                                                                |  |      | 404,330      |   |      |   | 123,037     |      |  |   | (128,158    | )
|Increase (decrease) in accrued expenses and other liabilities                                                 |  |      | 88,124       |   |      |   | 2,093,924   |      |  |   | (2,135,727  | )
|                                                                                                              |  |      |              |   |      |   |             |      |  |   |             |  
|                                                                                                              |  |      |             
|Net cash provided by operating activities                                                                     |  |      | 6,140,450    |   |      |   | 11,386,228  |      |  |   | 4,036,172   |  
|                                                                                                              |  |      |              |   |      |   |             |      |  |   |             |  
|                                                                                                              |  |      |             
|Cash flows from investing activities:                                                                         |  |      |              |   |      |   |             |      |  |   |             |  
|Proceeds from sale of premises and equipment                                                                  |  |      |             |   |      |   | 16,000      |      |  |   |            |  
|Capital expenditures - investment in real estate                                                              |  |      | (12,503      | ) |      |   | (164,692    | )    |  |   | (54,896     | )
|Capital expenditures - software                                                                               |  |      | (32,148      | ) |      |   | (191,779    | )    |  |   | (26,213     | )
|Capital expenditures - premises and equipment                                                                 |  |      | (681,617     | ) |      |   | (1,381,003  | )    |  |   | (1,762,264  | )
|Proceeds from sales of securities available-for-sale                                                          |  |      | 249,601,020  |   |      |   | 20,191,593  |      |  |   |            |  
|Purchases of securities available-for-sale                                                                    |  |      | (403,382,693 | ) |      |   | (76,008,596 | )    |  |   | (13,017,831 | )
|Proceeds from maturities of securities available-for-sale                                                     |  |      | 40,397,065   |   |      |   | 41,823,406  |      |  |   | 37,980,100  |  
|Purchases of Federal Home Loan Bank stock                                                                     |  |      | (1,229,500   | ) |      |   | (660,700    | )    |  |   |            |  
|Redemption of Federal Home Loan Bank stock                                                                    |  |      |             |   |      |   | 3,247,100   |      |  |   | 759,500     |  
|Redemption of Federal Reserve Bank stock                                                                      |  |      |             |   |      |   |            |      |  |   | 12,000      |  
|Capital distribution - Charter Holding Corp., at equity                                                       |  |      | 170,145      |   |      |   | 251,171     |      |  |   | 212,463     |  
|Loan originations and principal collections, net                                                              |  |      | 10,569,361   |   |      |   | (10,918,367 | )    |  |   | (2,639,379  | )
|Purchases of loans                                                                                            |  |      | (1,176,964   | ) |      |   | (1,326,296  | )    |  |   | (2,173,433  | )
|Recoveries of loans previously charged off                                                                    |  |      | 417,815      |   |      |   | 230,744     |      |  |   | 182,926     |  
|Proceeds from sales of other real estate and other assets                                                     |  |      | 278,065      |   |      |   | 173,318     |      |  |   |            |  
|Purchases of limited partnerships                                                                             |  |      |             |   |      |   |            |      |  |   | (246,288    | )
|Purchase of bank owned life insurance                                                                         |  |      |             |   |      |   |            |      |  |   | (5,000,000  | )
|Premium paid on life insurance policies                                                                       |  |      | (11,095      | ) |      |   | (11,095     | )    |  |   | (11,095     | )
|Cash and cash equivalents acquired from First Brandon and First Community, net of expenses paid of $1,320,347 |  |      |             |   |      |   |            |      |  |   | 7,678,405   |  
|                                                                                                              |  |      |              |   |      |   |             |      |  |   |             |  
|                                                                                                              |  |      |             
|Net cash (used in) provided by investing activities                                                           |  |      | (105,093,049 | ) |      |   | (24,729,196 | )    |  |   | 21,893,995  |  
|                                                                                                              |  |      |              |   |      |   |             |      |  |   |             |  



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New Hampshire Thrift Bancshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Continued)



|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|-------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|For the years ended December 31,                                     |  | 2009 |             |   | 2008 |   |             | 2007 | 
|Cash flows from financing activities:                                |  |      |             |   |      |   |             |      |  |   |             |  
|Net increase (decrease) in demand deposits, savings and NOW accounts |  |      | 32,835,474  |   |      |   | 2,700,885   |      |  |   | (11,904,868 | )
|Net increase (decrease) in time deposits                             |  |      | 48,239,969  |   |      |   | (2,484,827  | )    |  |   | 47,270,927  |  
|Increase in short-term advances from Federal Home Loan Bank          |  |      | 35,000,000  |   |      |   | 4,383,000   |      |  |   | 617,000     |  
|Principal advances from Federal Home Loan Bank                       |  |      | 5,000,000   |   |      |   | 60,000,000  |      |  |   | 10,000,000  |  
|Repayment of advances from Federal Home Loan Bank                    |  |      | (10,382,246 | ) |      |   | (61,481,048 | )    |  |   | (70,848,726 | )
|Increase in other borrowed funds                                     |  |      |            |   |      |   | 2,000,000   |      |  |   | 237,500     |  
|Repayment of other borrowed funds                                    |  |      | (80,000     | ) |      |   | (80,000     | )    |  |   |            |  
|Net (decrease) increase in repurchase agreements                     |  |      | (2,954,038  | ) |      |   | (368,002    | )    |  |   | 4,789,517   |  
|Proceeds from issuance of preferred stock                            |  |      | 10,000,000  |   |      |   |            |      |  |   |            |  
|Repurchase of treasury stock                                         |  |      |            |   |      |   | (60,954     | )    |  |   | (5,291,469  | )
|Dividends paid on preferred stock                                    |  |      | (415,278    | ) |      |   |            |      |  |   |            |  
|Dividends paid on common stock                                       |  |      | (2,994,821  | ) |      |   | (2,988,061  | )    |  |   | (2,475,019  | )
|Proceeds from exercise of stock options                              |  |      | 180,500     |   |      |   | 249,125     |      |  |   | 782,732     |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                     |  |      |            
|Net cash provided by (used in) financing activities                  |  |      | 114,429,560 |   |      |   | 1,870,118   |      |  |   | (26,822,406 | )
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                     |  |      |            
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 |  |      | 15,476,961  |   |      |   | (11,472,850 | )    |  |   | (892,239    | )
|CASH AND CASH EQUIVALENTS, beginning of year                         |  |      | 22,561,691  |   |      |   | 34,034,541  |      |  |   | 34,926,780  |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|CASH AND CASH EQUIVALENTS, end of year                               |  | $    | 38,038,652  |   |      | $ | 22,561,691  |      |  | $ | 34,034,541  |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                     |  |      |            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                    |  |      |             |   |      |   |             |      |  |   |             |  
|Interest paid                                                        |  | $    | 12,232,380  |   |      | $ | 17,216,587  |      |  | $ | 19,392,958  |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Income taxes paid                                                    |  | $    | 4,036,885   |   |      | $ | 2,966,932   |      |  | $ | 2,098,875   |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Loans transferred to other real estate owned                         |  | $    | 350,000     |   |      | $ | 284,000     |      |  | $ | 240,802     |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Loans originated from sales of other real estate owned               |  | $    | 225,500     |   |      | $ |            |      |  | $ |            |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Investment in real estate transferred to premises and equipment      |  | $    |            |   |      | $ |            |      |  | $ | 4.425       |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  
|Change in due from broker                                            |  | $    | (20,868,360 | ) |      | $ | 20,868,360  |      |  | $ |            |  
|                                                                     |  |      |             |   |      |   |             |      |  |   |             |  

First Brandon Financial Corporation and First Community Bank acquisitions:



|                                                       |  |   |            
|------------------------------------------------------ |  | - | -----------
|                                                       | 
|Cash and cash equivalents acquired                     |  | $ | 16,421,746 
|Available-for-sale securities                          |  |   | 20,854,637 
|Federal Home Loan Bank stock                           |  |   | 751,600    
|Federal Reserve Bank stock                             |  |   | 12,000     
|Net loans acquired                                     |  |   | 129,230,384
|Premises and equipment acquired                        |  |   | 4,283,792  
|Investment in real estate acquired                     |  |   | 309,819    
|Accrued interest receivable                            |  |   | 770,286    
|Bank owned life insurance policies                     |  |   | 3,530,790  
|Other assets acquired                                  |  |   | 629,581    
|Core deposit intangible                                |  |   | 3,468,000  
|                                                       |  |   |            
|                                                       |  |   | 180,262,635
|                                                       |  |   |            
|Deposits assumed                                       |  |   | 151,964,388
|Federal Home Loan Bank borrowings assumed              |  |   | 3,607,095  
|Securities sold under agreements to repurchase assumed |  |   | 1,769,612  
|Other liabilities assumed                              |  |   | 2,593,053  
|                                                       |  |   |            
|                                                       |  |   | 159,934,148
|                                                       |  |   |            
|Net assets acquired                                    |  |   | 20,328,487 
|                                                       | 
|Merger costs                                           |  |   | 35,481,941 
|                                                       |  |   |            
|                                                       | 
|Goodwill                                               |  | $ | 15,153,454 
|                                                       |  |   |            

The accompanying notes are an integral part of these
consolidated financial statements.



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Notes to Consolidated Financial Statements

NOTE 1. Summary of significant accounting policies:

Nature of
operations - New Hampshire Thrift Bancshares, Inc. (Company) is a savings and loan holding company headquartered in Newport, New Hampshire. The Companys subsidiary, Lake Sunapee Bank, fsb (Bank), a federal stock savings bank,
operates twenty eight branches primarily in Grafton, Hillsborough, Sullivan, and Merrimack Counties in west central New Hampshire and Rutland and Windsor Counties in Vermont. 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 individuals.

Use of estimates in the preparation of financial statements - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America 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.

Principles of consolidation - The consolidated financial statements include the accounts of the Company, the Bank, Lake Sunapee Group, Inc. (LSGI), which owns and maintains all buildings, and Lake
Sunapee Financial Services Corp. (LSFSC), which was formed to handle the flow of funds from the brokerage services. LSGI and LSFSC are wholly-owned subsidiaries of the Bank. All significant intercompany accounts and transactions have been eliminated
in consolidation.

NHTB Capital Trust II and NHTB Capital Trust III, affiliates of the Company, were formed to sell capital
securities to the public through a third party trust pool. In accordance with ASC 810-10, Consolidation - Overall, the subsidiaries have not been included in the consolidated financial statements.

As described in recent accounting pronouncements, in June of 2009 ASC 810-10 was amended by SFAS No. 166 and SFAS No. 167, which
are effective for the Company in the first interim reporting period of 2010. SFAS No. 167 amends the consolidation guidance in ASC 810-10. The Company is evaluating the impact that these standards will have on its financial statements.

Cash and cash equivalents - For purposes of reporting cash flows, the Company considers cash and due from banks and
Federal Home Loan Bank (FHLB) overnight deposit to be cash equivalents. Cash and due from banks as of December 31, 2009 and 2008 includes $9,049,000 and $7,946,000, respectively which is subject to withdrawal and usage restrictions to satisfy
the reserve requirements of the Federal Reserve Bank and PNC Bank.

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.

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. No write-downs have occurred for securities held-to-maturity.

For any debt
security with a fair value less than its amortized cost basis, the Company will determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of
its amortized cost basis. If either condition is met, the Company will recognize a full impairment charge to earnings. For all other debt securities that are considered other-than-temporarily impaired and do not meet either condition, the credit
loss portion of impairment will be recognized in earnings as realized losses. The other-than-temporary impairment related to all other factors will be recorded in other comprehensive income.

Declines in marketable equity securities below their cost that are deemed other than temporary are reflected in earnings as realized losses.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 1. Summary of significant accounting policies: (continued)



Securities held for trading - Trading securities are carried at fair value on the
consolidated balance sheets. Unrealized holding gains and losses for trading securities are included in earnings.

Federal
Home Loan Bank stock - Federal Home Loan Bank stock is a restricted investment and is carried at cost. On December 8, 2008, the Federal Home Loan Bank of Boston announced a moratorium on the repurchase of excess stock held by its members.
The moratorium will remain in effect indefinitely.

Investment in Charter Holding Corp. - As of December 31, 1999,
the Company had an investment of $79,999 in the common stock of Charter Holding Corp. (CHC). This investment was included in other investments on the consolidated balance sheet and was accounted for under the cost method of accounting for
investments. On October 2, 2000, the Bank and two other New Hampshire banks acquired CHC and Phoenix New England Trust Company (PNET) from the Phoenix Home Life Mutual Insurance Company of Hartford, Connecticut. Contemporaneous with the
acquisition, CHC and PNET merged under the continuing name of Charter Holding Corp. with assets of approximately $1.7 billion under management. As a result of the acquisitions and merger, the Bank and each of the other two banks own one-third of CHC
at an additional cost of $3,033,337 each. Headquartered in Concord, New Hampshire, CHC provides trust and investment services from seven offices across New Hampshire. Charter New England Agency, a subsidiary of CHC, provides life insurance, fixed
and variable annuities and mutual fund products, in addition to full brokerage services through a broker/dealer affiliation with Lincoln Financial.

Goodwill resulting from the acquisition was pushed down to the financial statements of CHC.

The Bank uses the equity method of accounting to account for its investment in CHC. An investor using the equity method initially records an investment at cost. Subsequently, the carrying amount of the
investment is increased to reflect the investors share of income of the investee and is reduced to reflect the investors share of losses of the investee or dividends received from the investee. The investors share of the income or
losses of the investee is included in the investors net income as the investee reports them. Adjustments similar to those made in preparing consolidated financial statements, such as elimination of intercompany gains and losses, also are
applicable to the equity method.

At December 31, 2009 and 2008 the carrying amount of the Companys investment in
CHC equaled the amount of the Banks underlying equity in the net assets of CHC.

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.

Nonaccrual loans - Residential real estate loans and consumer loans are placed on nonaccrual status when
they become 90 days past due. Commercial loans are placed on nonaccrual status when they become 90 days past due or when it becomes probable that the Bank will be unable to collect all amounts due pursuant to the terms of the loan agreement. When a
loan has been placed on nonaccrual status, previously accrued interest is reversed with a charge against interest income on loans. Interest received on nonaccrual loans is generally booked to interest income on a cash basis. Residential real estate
loans and consumer loans generally are returned to accrual status when they are no longer over 90 days past due. Commercial loans are generally returned to accrual status when the collectibility of principal and interest is reasonably assured.

Allowance for loan losses - The allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 1. Summary of significant accounting policies: (continued)



The allowance for loan losses is evaluated on a regular basis by management and is based
upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest
rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large
groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.

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 amortizing these amounts over the contractual life of the related loans.

Loan servicing - For loans sold after December 31, 1995 with servicing retained, the Company recognizes as separate assets from their 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 calculates 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.

Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing
revenues. Refinance activities are considered in estimating the period of 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 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 states of New Hampshire and Vermont. 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 states of New Hampshire and Vermont.

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. Estimated lives are 5 to 40
years for buildings and premises and 3 to 15 years for furniture, fixtures and equipment. 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 company premises and equipment, the cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in income.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 1. Summary of significant accounting policies: (continued)



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 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 Company classifies loans as in-substance repossessed or foreclosed if the Company 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 - Basic earnings per share excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share, if applicable, reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Advertising - The Company directly expenses costs associated with advertising as they are incurred.

Income taxes - The Company 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 Company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.

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 cash equivalents - The carrying amounts of cash and cash
equivalents approximate their fair value.

Available-for-sale securities - Fair values for available-for-sale securities
are based on quoted market prices.

Other investments- The carrying amounts of other investments approximate their fair
values.

Loans held-for-sale - Fair values of loans held-for-sale are based on estimated market 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.

Due from broker
-The carrying amount of due from broker approximates fair value.

Investment in unconsolidated subsidiaries - Fair
value of investment in unconsolidated subsidiaries is estimated using discounted cash flow analyses, using interest rates currently being offered for similar investments.

Accrued interest receivable - The carrying amounts of accrued interest receivable approximate their fair values.

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.

Federal Home Loan Bank advances - Fair values for FHLB advances are estimated using a discounted cash flow technique that applies interest rates currently being offered on advances to a schedule of
aggregated expected monthly maturities on FHLB advances.

Other borrowed funds -The carrying amounts of other borrowed
funds approximate their fair values.

Securities sold under agreements to repurchase - The carrying amounts of
securities sold under agreements to repurchase approximate their fair values.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 1. Summary of significant accounting policies: (continued)



Subordinated debentures - Fair values of subordinated debentures are estimated
using discounted cash flow analyses, using interest rates currently being offered for debentures with similar terms.

Derivative financial instruments - Fair values for interest rate swap agreements are based upon the amounts required to settle the contracts.

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.

Interest rate swap agreement - For asset/liability management purposes, the Company uses interest rate swap agreements to hedge
various exposures or to modify interest rate characteristics of various balance sheet accounts. Such derivatives are used as part of the asset/liability management process and are linked to specific assets or liabilities, and have high correlation
between the contract and the underlying item being hedged, both at inception and throughout the hedge period.

The Company
utilizes interest rate swap agreements to convert a portion of its variable-rate debt to a fixed rate (cash flow hedge). Interest rate swaps are contracts in which a series of interest rate flows are exchanged over a prescribed period. The notional
amount on which the interest payments are based is not exchanged.

The effective portion of the gain or loss on a derivative
designated and qualifying as a cash flow hedging instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period or periods during which the hedged transaction affects
earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently in earnings.

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and
liabilities identified as exposing the Company to risk. Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as trading activities and would be recorded at fair value with changes in fair
value recorded in income. Derivative hedge contracts must meet specific effectiveness tests (i.e., over time the change in their fair values due to the designated hedge risk must be within 80 to 125 percent of the opposite change in the fair values
of the hedged assets or liabilities). Changes in fair value of the derivative financial instruments must be effective at offsetting changes in the fair value of the hedged items due to the designated hedge risk during the term of the hedge. Further,
if the underlying financial instrument differs from the hedged asset or liability, there must be a clear economic relationship between the prices of the two financial instruments. If periodic assessment indicates derivatives no longer provide an
effective hedge, the derivatives contracts would be closed out and settled or classified as a trading activity.

Hedges of
variable-rate debt are accounted for as cash flow hedges, with changes in fair value recorded in other assets or liabilities and other comprehensive income. The net settlement (upon close out or termination) that offsets changes in the value of the
hedged debt is deferred and amortized into net interest income over the life of the hedged debt. The portion, if any, of the net settlement amount that did not offset changes in the value of the hedged asset or liability is recognized immediately in
non-interest income.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of
assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Stock based compensation - At December 31, 2009, the Company has two stock-based employee compensation plans. The Company accounts for those plans under ASC 718-10, Compensation - Stock Compensation - Overall.

Recent accounting pronouncements - In June 2009, the Financial Accounting Standards Board (FASB) issued an
update to Accounting Standard Codification 105-10, Generally Accepted Accounting Principles. This standard establishes the FASB Accounting Standard Codification (Codification or ASC) as the source of authoritative
U.S. GAAP recognized by the FASB for nongovernmental entities. The Codification is effective for interim and annual periods ending after September 15, 2009. The Codification is a reorganization of existing U.S. GAAP and does not change existing
U.S. GAAP. The Company adopted this standard during the third quarter of 2009. The adoption had no impact on the Companys financial position or results of operations.



36



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 1. Summary of significant accounting policies: (continued)



In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, and SFAS No. 167, Amendments to FASB Interpretation No. 46(R). These standards are effective for the first interim reporting period of 2010. SFAS No. 166 amends the guidance in ASC 860 to eliminate
the concept of a qualifying special-purpose entity (QSPE) and changes some of the requirements for derecognizing financial assets. SFAS No. 167 amends the consolidation guidance in ASC 810-10. Specifically, the amendments will
(a) eliminate the exemption for QSPEs from the new guidance, (b) shift the determination of which enterprise should consolidate a variable interest entity (VIE) to a current control approach, such that an entity that has both
the power to make decisions and right to receive benefits or absorb losses that could potentially be significant, will consolidate a VIE, and (c) change when it is necessary to reassess who should consolidate a VIE. The Company is evaluating
the impact that these standards will have on its financial statements.

In August 2009, the FASB issued Accounting Standards
Update (ASU) 2009-05, Measuring Liabilities at Fair Value, which updates ASC 820-10, Fair Value Measurements and Disclosures. The updated guidance clarifies that the fair value of a liability can be measured in
relation to the quoted price of the liability when it trades as an asset in an active market, without adjusting the price for restrictions that prevent the sale of the liability. This guidance is effective beginning January 1, 2010. The Company
does not expect that the guidance will change its valuation techniques for measuring liabilities at fair value.

In May 2009,
the FASB updated ASC 855, Subsequent Events. ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be
issued. The Company adopted this guidance during the second quarter of 2009. In accordance with the update, the Company evaluates subsequent events through the date its financial statements are issued. The adoption of this guidance did not have an
impact on the Companys financial position or results of operations.

In April 2009, the FASB updated ASC 320-10,
Investments  Debt and Equity Securities. The guidance amends the other-than-temporary impairment (OTTI) guidance for debt securities. If the fair value of a debt security is less than its amortized cost basis at the
measurement date, the updated guidance requires the Company to determine whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized
cost basis. If either condition is met, an entity must recognize full impairment. For all other debt securities that are considered other-than-temporarily impaired and do not meet either condition, the guidance requires that the credit loss portion
of impairment be recognized in earnings and the total impairment related to all other factors be recorded in other comprehensive income. In addition, the guidance requires additional disclosures regarding impairments on debt and equity securities.
The Company adopted this guidance effective April 1, 2009. The adoption of this guidance did not have an impact on the Companys financial position or results of operations.

In April 2009, the FASB updated ASC 820-10, Fair Value Measurements and Disclosures, to provide guidance on determining fair
value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This issuance provides guidance on estimating fair value when there has been a significant
decrease in the volume and level of activity for the asset or liability and for identifying transactions that may not be orderly. The guidance requires entities to disclose the inputs and valuation techniques used to measure fair value and to
discuss changes in valuation techniques and related inputs, if any, in both interim and annual periods. The Company adopted this guidance during 2009 and the adoption did not have a material impact on the Companys financial position and
results of operations. The enhanced disclosures related to this guidance are included in Note 15, Fair Value Measurements, to the Consolidated Financial Statements.

In April 2009, the FASB updated ASC 825-10 Financial Instruments. This update amends the fair value disclosure guidance in ASC
825-10-50 and requires an entity to disclose the fair value of its financial instruments in interim reporting periods as well as in annual financial statements. The methods and significant assumptions used to estimate the fair value of financial
instruments and any changes in methods and assumptions used during the reporting period are also required to be disclosed both on an interim and annual basis. The Company adopted this guidance during 2009. The required disclosures have been included
in Note 15, Fair Value Measurements, to the Consolidated Financial Statements.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 1. Summary of significant accounting policies: (continued)



In June 2008, the FASB updated ASC 260-10, Earnings Per Share. The guidance
concludes that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities that should be included in the earnings allocation in computing earnings per share under the
two-class method. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior period earnings per share data presented must be adjusted
retrospectively. The adoption of this update, effective January 1, 2009, did not have an impact on the Companys earnings per share.

In March 2008, the FASB updated ASC 815, Derivatives and Hedging. This guidance changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. The guidance in ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. This guidance encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of this guidance did not have a material impact on the
Companys financial condition and results of operations.

In February 2008, the FASB updated ASC 860, Transfers and
Servicing. This guidance clarifies how the transferor and transferee should separately account for a transfer of a financial asset and a related repurchase financing if certain criteria are met. This guidance became effective January 1,
2009. The adoption of this guidance did not have a material effect on the Companys results of operations or financial position.

In December 2007, the FASB updated ASC 810-10, Consolidation, which provides new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
noncontrolling interest should be reported as a component of equity in the consolidated financial statements. This guidance also required expanded disclosures that identify and distinguish between the interests of the parents owners and the
interests of the noncontrolling owners of an entity. The adoption of this guidance did not have a material impact on the Companys results of operations or financial position.

In December 2007, the FASB updated ASC 805, Business Combinations. The updated guidance will significantly change the accounting
for business combinations. Under ASC 805, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. It also amends the accounting
treatment for certain specific items including acquisition costs and non controlling minority interests and includes a substantial number of new disclosure requirements. ASC 805 applies prospectively to business combinations for which the
acquisition date is on or after January 1, 2009. The adoption of this statement did not have a material impact on the Companys financial condition and results of operations.

NOTE 2. Issuance of Capital Securities:

On March 30, 2004, NHTB
Capital Trust II (Trust II), a Connecticut statutory trust formed by the Company, completed the sale of $10.0 million of Floating Capital Securities, adjustable every three months at LIBOR plus 2.79% (Capital Securities II).
Trust II also issued common securities to the Company and used the net proceeds from the offering to purchase a like amount of Junior Subordinated Deferrable Interest Debentures (Debentures II) of the Company. Debentures II are the sole
assets of Trust II. The Company used a portion of the proceeds to redeem the balance of securities issued by NHTB Capital Trust I, which were callable on September 30, 2004. The balance of the proceeds of Trust II are being used for general
corporate purposes. Total expenses associated with the offering of $160,402 are included in other assets and are being amortized on a straight-line basis over the life of Debentures II.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 2. Issuance of Capital Securities: (continued)



Capital Securities II accrue and pay distributions quarterly based on the stated
liquidation amount of $10 per Capital Security. The Company has fully and unconditionally guaranteed all of the obligations of Trust II. The guaranty covers the quarterly distributions and payments on liquidation or redemption of Capital Securities
II, but only to the extent that Trust II has funds necessary to make these payments.

Capital Securities II are mandatorily
redeemable upon the maturing of Debentures II on March 30, 2034 or upon earlier redemption as provided in the Indenture. The Company has the right to redeem Debentures II, in whole or in part on or after March 30, 2009 at the liquidation
amount plus any accrued but unpaid interest to the redemption date.

On March 30, 2004, NHTB Capital Trust III
(Trust III), a Connecticut statutory trust formed by the Company, completed the sale of $10.0 million of 6.06%, 5 Year Fixed-Floating Capital Securities (Capital Securities III). Trust III also issued common securities to the
Company and used the net proceeds from the offering to purchase a like amount of 6.06% Junior Subordinated Deferrable Interest Debentures (Debentures III) of the Company. Debentures III are the sole assets of Trust III. The Company used
the proceeds to redeem the securities issued by NHTB Capital Trust I, a wholly owned subsidiary of the Company, which were callable on September 30, 2004. Total expenses associated with the offering of $160,402 are included in other assets and
are being amortized on a straight-line basis over the life of Debentures III.

Capital Securities III accrue and pay
distributions quarterly at an annual rate of 6.06% for the first 5 years of the stated liquidation amount of $10 per Capital Security. The Company has fully and unconditionally guaranteed all of the obligations of the Trust. The guaranty covers the
quarterly distributions and payments on liquidation or redemption of Capital Securities III, but only to the extent that the Trust has funds necessary to make these payments.

Capital Securities III are mandatorily redeemable upon the maturing of Debentures III on March 30, 2034 or upon earlier redemption as
provided in the Indenture. The Company has the right to redeem Debentures III, in whole or in part on or after March 30, 2009 at the liquidation amount plus any accrued but unpaid interest to the redemption date.

On May 1, 2008, the Company entered into an interest rate swap agreement with PNC Bank to convert the floating rate payments on Trust
II to fixed rate payments. The terms of the interest rate swap agreement are as follows:



|                     |  |                                
|-------------------- |  | -------------------------------
|Notional amount:     |  | $10,000,000                    
|Trade date:          |  | May 1, 2008                    
|Effective date:      |  | June 17, 2008                  
|Termination date:    |  | June 17, 2013                  
|Fixed rate payer:    |  | New Hampshire Thrift Bancshares
|Payment dates:       |  | Quarterly                      
|Fixed rate:          |  | 6.65%                          
|Floating rate payer: |  | PNC Bank                       
|Payment dates:       |  | Quarterly                      
|Index:               |  | Three month LIBOR              

NOTE 3. Securities:

Debt and equity securities have been classified in the consolidated balance sheets according to managements intent.



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##### Table of Contents

| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 3. Securities: (continued)



The amortized cost of securities and their approximate fair values are summarized as
follows:



|                                     |  |               |             |                      |   |                       |  |           |           |  |   |            
|------------------------------------ |  | ------------- | ----------- | -------------------- | - | --------------------- |  | --------- | --------- |  | - | -----------
|                                     |  | AmortizedCost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|Available-for-sale:                  |  |               |             |                      |   |                       |  |           |           |  |   |            
|December 31, 2009:                   |  |               |             |                      |   |                       |  |           |           |  |   |            
|Bonds and notes -                    |  |               |             |                      |   |                       |  |           |           |  |   |            
|U. S. Government, including agencies |  | $             | 2,004,184   |                      | $ | 45,504                |  | $         |          |  | $ | 2,049,688  
|Mortgage-backed securities           |  |               | 169,448,355 |                      |   | 367,048               |  |           | 991,800   |  |   | 168,823,603
|Other bonds and debentures           |  |               | 42,183,387  |                      |   | 285,382               |  |           | 162,789   |  |   | 42,305,980 
|Preferred stock with maturities      |  |               | 5,000,000   |                      |   |                      |  |           | 348,000   |  |   | 4,652,000  
|Equity securities                    |  |               | 494,666     |                      |   | 23,380                |  |           | 56,216    |  |   | 461,830    
|                                     |  |               |             |                      |   |                       |  |           |           |  |   |            
|Total available-for-sale             |  | $             | 219,130,592 |                      | $ | 721,314               |  | $         | 1,558,805 |  | $ | 218,293,101
|                                     |  |               |             |                      |   |                       |  |           |           |  |   |            
|                                     |  |               |             |                     
|Available-for-sale:                  |  |               |             |                      |   |                       |  |           |           |  |   |            
|December 31, 2008:                   |  |               |             |                      |   |                       |  |           |           |  |   |            
|Bonds and notes -                    |  |               |             |                      |   |                       |  |           |           |  |   |            
|U. S. Government, including agencies |  | $             | 13,015,080  |                      | $ | 157,733               |  | $         |          |  | $ | 13,172,813 
|Mortgage-backed securities           |  |               | 59,209,471  |                      |   | 1,334,771             |  |           | 40,545    |  |   | 60,503,697 
|Asset-backed securities              |  |               | 1,499,732   |                      |   |                      |  |           | 305,642   |  |   | 1,194,090  
|Other bonds and debentures           |  |               | 2,401,098   |                      |   | 71,120                |  |           |          |  |   | 2,472,218  
|Preferred stock with maturities      |  |               | 5,000,000   |                      |   |                      |  |           | 722,000   |  |   | 4,278,000  
|Equity securities                    |  |               | 494,666     |                      |   | 540                   |  |           | 127,536   |  |   | 367,670    
|                                     |  |               |             |                      |   |                       |  |           |           |  |   |            
|Total available-for-sale             |  | $             | 81,620,047  |                      | $ | 1,564,164             |  | $         | 1,195,723 |  | $ | 81,988,488 
|                                     |  |               |             |                      |   |                       |  |           |           |  |   |            

For the year ended December 31, 2009, proceeds
from sales of securities available-for-sale amounted to $249,601,020. Gross gains of $3,664,809 and gross losses of $27,889 were realized during 2009 on sales of available-for-sale securities. The tax provision applicable to these net realized gains
amounted to $1,440,584. For the year ended December 31, 2008, proceeds from sales of securities available-for-sale amounted to $20,191,593. Gross gains of $909,919 were realized during 2008 on sales of available-for-sale securities. The tax
provision applicable to these gross realized gains amounted to $360,419. For the year ended December 31, 2007, there were no sales of securities available-for-sale.

Maturities of debt securities, excluding mortgage-backed securities and asset-backed securities, classified as available-for-sale are as follows as of December 31, 2009:



|                                             |  |           |           
|-------------------------------------------- |  | --------- | ----------
|                                             |  | FairValue
|U.S. Government, including agencies          |  | $         | 2,049,688 
|Other bonds and debentures                   |  |           | 1,054,394 
|                                             |  |           |           
|Total due in less than one year              |  | $         | 3,104,082 
|                                             |  |           |           
|                                             | 
|Other bonds and debentures                   |  | $         | 33,263,057
|                                             |  |           |           
|Total due after one year through five years  |  | $         | 33,263,057
|                                             |  |           |           
|                                             | 
|Other bonds and debentures                   |  | $         | 7,801,880 
|                                             |  |           |           
|Total due after five years through ten years |  | $         | 7,801,880 
|                                             |  |           |           
|                                             | 
|Preferred stock with maturities              |  | $         | 4,652,000 
|Other bonds and debentures                   |  |           | 186,649   
|                                             |  |           |           
|Total due after ten years                    |  | $         | 4,838,649 
|                                             |  |           |           



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 3. Securities: (continued)



There were no issuers of securities, other than U.S. government and agency obligations,
whose aggregate carrying value exceeded 10% of equity as of December 31, 2009.

Securities, carried at $154,067,231 and
$92,739,149 were pledged to secure public deposits, the treasury, tax and loan account and securities sold under agreements to repurchase as of December 31, 2009 and 2008, respectively. The securities pledged at December 31, 2008 includes
a security sold on December 19, 2008 that did not settle until January 2009. The fair value of this security was $20,961 as of December 31, 2008.

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized-loss position for less than twelve months and for twelve months or more, and are not other than
temporarily impaired, are as follows as of December 31:



|                                      |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|------------------------------------- |  | ------------------- | ----------- | ------------------- | - | --------- |  | ---------------- | --------- | --------- | - | ---------------- |  | - | ----------- |  | - | ---------
|                                      |  | Less than 12 Months |             | 12 Months or Longer |   | Total    
|                                      |  | FairValue           |             | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |           | FairValue |   | UnrealizedLosses
|December 31, 2009:                    |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|Bonds and notes -                     |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|Mortgage-backed securities            |  | $                   | 136,208,493 |                     | $ | 991,800   |  | $                |          |           | $ |                 |  | $ | 136,208,493 |  | $ | 991,800  
|Other bonds and debentures            |  |                     | 13,625,504  |                     |   | 162,789   |  |                  |          |           |   |                 |  |   | 13,625,504  |  |   | 162,789  
|Preferred stock with maturities       |  |                     |            |                     |   |          |  |                  | 4,652,000 |           |   | 348,000          |  |   | 4,652,000   |  |   | 348,000  
|Equity securities                     |  |                     |            |                     |   |          |  |                  | 432,630   |           |   | 56,216           |  |   | 432,630     |  |   | 56,216   
|                                      |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|Total temporarily impaired securities |  | $                   | 149,833,997 |                     | $ | 1,154,589 |  | $                | 5,084,630 |           | $ | 404,216          |  | $ | 154,918,627 |  | $ | 1,558,805
|                                      |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|                                      |  |                     |             |                     |   |          
|December 31, 2008:                    |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|Bonds and notes -                     |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|Mortgage-backed securities            |  | $                   | 1,176,741   |                     | $ | 33,269    |  | $                | 3,926,061 |           | $ | 7,276            |  | $ | 5,102,802   |  | $ | 40,545   
|Asset-backed securities               |  |                     | 1,194,090   |                     |   | 305,642   |  |                  |          |           |   |                 |  |   | 1,194,090   |  |   | 305,642  
|Preferred stock with maturities       |  |                     |            |                     |   |          |  |                  | 4,278,000 |           |   | 722,000          |  |   | 4,278,000   |  |   | 722,000  
|Equity securities                     |  |                     | 353,115     |                     |   | 127,536   |  |                  |          |           |   |                 |  |   | 353,115     |  |   | 127,536  
|                                      |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          
|Total temporarily impaired securities |  | $                   | 2,723,946   |                     | $ | 466,447   |  | $                | 8,204,061 |           | $ | 729,276          |  | $ | 10,928,007  |  | $ | 1,195,723
|                                      |  |                     |             |                     |   |           |  |                  |           |           |   |                  |  |   |             |  |   |          

The investments in the Companys investment
portfolio that are temporarily impaired as of December 31, 2009 consist of mortgage-backed securities issued by U.S. Government sponsored enterprises and agencies, a trust preferred security issued by a bank, and a common equity position in a
local bank. The unrealized losses on debt securities are primarily attributable to changes in market interest rates and current market inefficiencies. The unrealized losses in equity securities are due to general stock market declines and are not
specific to the issuer of the security. As company management has the ability to hold debt securities until maturity and equity securities for the foreseeable future, no declines are deemed to be other than temporary.



41



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 4. Loans receivable:

Loans receivable consisted of the following as of December 31:



|                                     |  |      |             |   |      |   |             |  
|------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                     |  | 2009 |             |   | 2008 |  
|Real estate loans                    |  |      |             |   |      |   |             |  
|Conventional                         |  | $    | 333,531,436 |   |      | $ | 344,101,400 |  
|Construction                         |  |      | 12,467,786  |   |      |   | 13,515,208  |  
|Commercial                           |  |      | 135,838,539 |   |      |   | 139,592,335 |  
|                                     |  |      |             |   |      |   |             |  
|                                     |  |      | 481,837,761 |   |      |   | 497,208,943 |  
|Consumer loans                       |  |      | 82,981,689  |   |      |   | 79,468,380  |  
|Commercial and municipal loans       |  |      | 62,386,826  |   |      |   | 62,491,345  |  
|Unamortized adjustment to fair value |  |      | 1,303,258   |   |      |   | 1,399,900   |  
|                                     |  |      |             |   |      |   |             |  
|Total loans                          |  |      | 628,509,534 |   |      |   | 640,568,568 |  
|Allowance for loan losses            |  |      | (9,518,632  | ) |      |   | (5,594,312  | )
|Deferred loan origination costs, net |  |      | 1,341,704   |   |      |   | 1,746,034   |  
|                                     |  |      |             |   |      |   |             |  
|Loans receivable, net                |  | $    | 620,332,606 |   |      | $ | 636,720,290 |  
|                                     |  |      |             |   |      |   |             |  

The following is a summary of activity of the allowance for loan losses for the years ended
December 31:



|                                                        |  |      |            |   |      |   |           |      |  |   |           |  
|------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                        |  | 2009 |            |   | 2008 |   |           | 2007 | 
|BALANCE, beginning of year                              |  | $    | 5,594,312  |   |      | $ | 5,181,471 |      |  | $ | 3,975,122 |  
|Charged-off loans                                       |  |      | (2,445,495 | ) |      |   | (919,003  | )    |  |   | (402,438  | )
|Recoveries of loans previously charged-off              |  |      | 417,815    |   |      |   | 230,744   |      |  |   | 182,926   |  
|Provision for loan losses charged to income             |  |      | 5,952,000  |   |      |   | 1,101,100 |      |  |   | 122,500   |  
|Increase in allowance for loan losses from acquisitions |  |      |           |   |      |   |          |      |  |   | 1,303,361 |  
|                                                        |  |      |            |   |      |   |           |      |  |   |           |  
|BALANCE, end of year                                    |  | $    | 9,518,632  |   |      | $ | 5,594,312 |      |  | $ | 5,181,471 |  
|                                                        |  |      |            |   |      |   |           |      |  |   |           |  

Certain directors and executive officers of the Company and companies in which they have significant
ownership interest were customers of the Bank during 2009. Total loans to such persons and their companies amounted to $732,256 as of December 31, 2009. During 2009 principal advances of $187,343 were made and principal payments totaled
$238,078.

The following is a summary of information regarding impaired loans, nonaccrual loans and accruing loans 90 days or
more overdue:



|                                                                                 |  |      |           |              |   |           |  |   |          
|-------------------------------------------------------------------------------- |  | ---- | --------- | ------------ | - | --------- |  | - | ---------
|                                                                                 |  |      |           | December 31,
|                                                                                 |  |      |           | 2009         |   | 2008     
|Total nonaccrual loans                                                           |  |      |           |              | $ | 2,754,443 |  | $ | 7,011,209
|                                                                                 |  |      |           |              |   |           |  |   |          
|                                                                                 |  |      |          
|Accruing loans which are 90 days or more overdue                                 |  |      |           |              | $ |          |  | $ |         
|                                                                                 |  |      |           |              |   |           |  |   |          
|                                                                                 |  |      |          
|Impaired loans as of December 31,                                                |  |      |           | 2009         |   | 2008     
|Recorded investment in impaired loans at December 31                             |  |      |           |              | $ | 4,237,087 |  | $ | 4,547,504
|Portion of allowance for loan losses allocated to impaired loans                 |  |      |           |              |   | 165,000   |  |   | 209,500  
|Net balance of impaired loans                                                    |  |      |           |              |   | 4,072,087 |  |   | 4,338,004
|Recorded investment in impaired loans with a related allowance for credit losses |  |      |           |              |   | 602,118   |  |   | 888,441  
|                                                                                 |  |      |          
|Years Ended December 31,                                                         |  | 2009 |           | 2008         |   | 2007     
|Average recorded investment in impaired loans                                    |  | $    | 4,990,862 |              | $ | 3,923,353 |  | $ | 1,805,074
|Interest income recognized on impaired loans                                     |  |      | 114,353   |              | $ | 144,512   |  | $ | 143,452  
|Interest income recognized on impaired loans on a cash basis                     |  |      | 52,482    |              | $ | 144,512   |  | $ | 143,452  

Included in certain
loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. At December 31, 2009, the Company had $408,877 of residential mortgages, $2,382,864 of commercial real estate loans, and $677,919 of
commercial loans that were modified in troubled debt restructurings and impaired. As of December 31, 2009, these troubled debt restructurings were performing in accordance with their modified terms. None of these loans were included in the
nonaccrual table at December 31, 2009.



42



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##### Table of Contents

| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 4. Loans receivable: (continued)



In addition to total loans previously shown, the Company services loans for other
financial institutions. Participation loans are loans originated by the Company for a group of banks. Sold loans are loans originated by the Company and sold to the secondary market. The Company services these loans and remits the payments received
to the buyer. The Company specifically originates long-term, fixed-rate loans to sell. The amount of loans sold and participated out which are serviced by the Company are as follows as of December 31:



|                    |  |      |             |      |   |            
|------------------- |  | ---- | ----------- | ---- | - | -----------
|                    |  | 2009 |             | 2008
|Sold loans          |  | $    | 352,066,692 |      | $ | 311,228,362
|                    |  |      |             |      |   |            
|                    |  |     
|Participation loans |  | $    | 27,168,509  |      | $ | 21,958,789 
|                    |  |      |             |      |   |            

The balance of capitalized servicing rights, net of
valuation allowances, included in other assets at December 31, 2009 and 2008 was $1,704,170 and $721,195, respectively.

Servicing rights of $1,349,169, $583,738 and $661,973 were capitalized in 2009, 2008 and 2007, respectively. Amortization of capitalized servicing rights was $953,770 in 2009, $818,084 in 2008 and $883,980 in 2007.

The fair value of capitalized servicing rights was $2,077,317 and $834,659 as of December 31, 2009 and 2008, respectively. Following is
an analysis of the aggregate changes in the valuation allowances for capitalized servicing rights:



|                           |  |      |          |   |      |   |        
|-------------------------- |  | ---- | -------- | - | ---- | - | -------
|                           |  | 2009 |          |   | 2008
|Balance, beginning of year |  | $    | 729,817  |   |      | $ | 10,544 
|(Decrease) increase        |  |      | (587,576 | ) |      |   | 719,273
|                           |  |      |          |   |      |   |        
|Balance, end of year       |  | $    | 142,241  |   |      | $ | 729,817
|                           |  |      |          |   |      |   |        

NOTE 5. Premises and equipment:

Premises and equipment are shown on the consolidated balance sheets at cost, net of accumulated depreciation, as follows as of
December 31:



|                                  |  |      |            |      |   |           
|--------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                  |  | 2009 |            | 2008
|Land and land improvements        |  | $    | 2,437,784  |      | $ | 2,437,784 
|Buildings and premises            |  |      | 18,509,782 |      |   | 18,099,097
|Furniture, fixtures and equipment |  |      | 8,654,366  |      |   | 8,383,434 
|                                  |  |      |            |      |   |           
|                                  |  |      | 29,601,932 |      |   | 28,920,315
|Less - Accumulated depreciation   |  |      | 12,567,712 |      |   | 11,270,691
|                                  |  |      |            |      |   |           
|                                  |  | $    | 17,034,220 |      | $ | 17,649,624
|                                  |  |      |            |      |   |           

Depreciation expense amounted to $1,297,021,
$1,345,106 and $1,225,934 for the years ending December 31, 2009, 2008 and 2007, respectively.

NOTE 6. Investment in real estate:

The balance in investment in real estate consisted of the following as of December 31:



|                                |  |      |           |      |   |          
|------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                |  | 2009 |           | 2008
|Land and land improvements      |  | $    | 411,828   |      | $ | 411,828  
|Building                        |  |      | 3,516,124 |      |   | 3,503,621
|                                |  |      |           |      |   |          
|                                |  |      | 3,927,952 |      |   | 3,915,449
|Less - Accumulated depreciation |  |      | 422,124   |      |   | 328,429  
|                                |  |      |           |      |   |          
|                                |  | $    | 3,505,828 |      | $ | 3,587,020
|                                |  |      |           |      |   |          



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| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 6. Investment in real estate: (continued)



Rental income from investment in real estate amounted to $224,366, $210,918 and $195,056
for the years ended December 31, 2009, 2008 and 2007, respectively. Depreciation expense amounted to $93,695, $89,798 and $84,948 for the years ending December 31, 2009, 2008 and 2007, respectively.

NOTE 7. Deposits:

Deposits
are summarized as follows as of December 31:



|                |  |      |             |      |   |            
|--------------- |  | ---- | ----------- | ---- | - | -----------
|                |  | 2009 |             | 2008
|Demand deposits |  | $    | 48,430,291  |      | $ | 45,968,057 
|Savings         |  |      | 127,871,076 |      |   | 118,265,931
|N.O.W.          |  |      | 178,048,057 |      |   | 155,661,950
|Money market    |  |      | 38,806,464  |      |   | 40,424,476 
|Time deposits   |  |      | 341,272,880 |      |   | 293,032,911
|                |  |      |             |      |   |            
|                |  | $    | 734,428,768 |      | $ | 653,353,325
|                |  |      |             |      |   |            

The following is a summary of maturities of time
deposits as of December 31, 2009:



|     |  |   |            
|---- |  | - | -----------
|2010 |  | $ | 268,298,319
|2011 |  |   | 44,247,685 
|2012 |  |   | 24,437,693 
|2013 |  |   | 2,025,112  
|2014 |  |   | 2,264,071  
|     |  |   |            
|     |  | $ | 341,272,880
|     |  |   |            

Interest expense by major category of interest-bearing
deposits is summarized as follows for the year ended December 31:



|              |  |      |           |      |   |            |  |   |           
|------------- |  | ---- | --------- | ---- | - | ---------- |  | - | ----------
|              |  | 2009 |           | 2008 |   | 2007      
|Time deposits |  | $    | 7,682,078 |      | $ | 10,425,592 |  | $ | 10,391,841
|N.O.W.        |  |      | 162,079   |      |   | 466,225    |  |   | 980,180   
|Money market  |  |      | 258,054   |      |   | 572,185    |  |   | 439,538   
|Savings       |  |      | 659,940   |      |   | 1,473,655  |  |   | 1,129,033 
|              |  |      |           |      |   |            |  |   |           
|              |  | $    | 8,762,151 |      | $ | 12,937,657 |  | $ | 12,940,592
|              |  |      |           |      |   |            |  |   |           

Deposits from related parties held by the Bank as of
December 31, 2009 and 2008 amounted to $2,485,630 and $1,316,574, respectively.

As of December 31, 2009 and 2008,
time deposits include $149,961,410 and $104,772,792, respectively, of certificates of deposit with a minimum balance of $100,000. Generally, deposits in excess of $250,000 are not federally insured.

NOTE 8. Federal Home Loan Bank Advances:

Advances consist of funds borrowed from the FHLB.



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| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 8. Federal Home Loan Bank Advances: (continued)



Maturities of advances from the FHLB for the years ending after December 31, 2009
are summarized as follows:



|                      |  |   |            |  
|--------------------- |  | - | ---------- | -
|2010                  |  | $ | 65,000,000 |  
|2011                  |  |   | 10,000,000 |  
|2013                  |  |   | 10,000,000 |  
|Thereafter            |  |   | 11,000,000 |  
|Fair value adjustment |  |   | (37,994    | )
|                      |  |   |            |  
|                      |  | $ | 95,962,006 |  
|                      |  |   |            |  

As of December 31, 2009, the following advances from the FHLB were redeemable at par at the option of
the FHLB:



|                 |  |                                           |  |        |           
|---------------- |  | ----------------------------------------- |  | ------ | ----------
|MATURITY DATE    |  | OPTIONAL REDEMPTION DATE                  |  | AMOUNT
|January 28, 2013 |  | January 28, 2011                          |  | $      | 10,000,000
|April 30, 2018   |  | January 28, 2010 and quarterly thereafter |  |        | 10,000,000
|                 |  |                                           |  |        |           
|                 |  |                                           |  | $      | 20,000,000
|                 |  |                                           |  |        |           

As of December 31, 2009, the Company had a
$1,000,000 putable advance (Knock-out Advance) from the FHLB which matures on September 1, 2015, and has a fixed interest rate of 4.13%. The FHLB will require that this borrowing become due immediately upon its Strike Date (next strike date is
March 1, 2010, and quarterly thereafter) if the three month LIBOR equals or exceeds the Strike Rate of 6.75%. As of December 31, 2009, the three month LIBOR was at 0.25%.

At December 31, 2009, the interest rates on FHLB advances ranged from 0.21% to 4.13%. The weighted average interest rate at
December 31, 2009 is 1.71%.

Amortizing advances are being repaid in equal monthly payments and are being amortized from
the date of the advance to the maturity date on a direct reduction basis.

Borrowings from the FHLB are secured by a blanket
lien on qualified collateral, consisting primarily of loans with first mortgages secured by one to four family properties, certain unencumbered investment securities and other qualified assets.

NOTE 9. Other borrowed funds:

Other borrowed funds consist of a promissory note payable to a third party in the amount of $77,500. The note is payable in three installments on June 1, 2008, 2009 and 2010, and bears a variable interest rate equal to the prime rate
as disclosed in the Wall Street Journal. Other borrowed funds also consists of a line of credit from PNC Bank with an outstanding balance of $2,000,000 at December 31, 2009. The terms of the line of credit are as follows:



|               |  |                 |  |                          |  |                      |          
|-------------- |  | --------------- |  | ------------------------ |  | -------------------- | ---------
|ORIGINAL DATE  |  | EXPIRATION DATE |  | INTEREST RATE            |  | LINE OF CREDITAMOUNT
|March 28, 2008 |  | March 26, 2010  |  | 3 month LIBOR plus 2.00% |  | $                    | 2,000,000

Principal is due
in full on the expiration date.



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| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 10. Securities sold under agreements to repurchase:

The securities sold under agreements to repurchase as of December 31, 2009 are securities sold on a short-term basis by the Bank that
have been accounted for not as sales but as borrowings. The securities consisted of U.S. Agencies. The securities were held in the Banks safekeeping account at Bank of America under the control of the Bank and pledged to the purchasers of the
securities. The purchasers have agreed to sell to the Bank substantially identical securities at the maturity of the agreements.

NOTE 11.
Income taxes:

The components of income tax expense are as follows for the years ended December 31:



|                                           |  |      |            |   |      |   |           |      |  |   |           |  
|------------------------------------------ |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                           |  | 2009 |            |   | 2008 |   |           | 2007 | 
|Current tax expense                        |  | $    | 4,537,591  |   |      | $ | 3,079,548 |      |  | $ | 2,093,512 |  
|Benefit from net operating loss carryovers |  |      | (224,139   | ) |      |   | (224,140  | )    |  |   | (56,035   | )
|Deferred tax benefit                       |  |      | (1,200,943 | ) |      |   | (681,082  | )    |  |   | (126,437  | )
|                                           |  |      |            |   |      |   |           |      |  |   |           |  
|Total income tax expense                   |  | $    | 3,112,509  |   |      | $ | 2,174,326 |      |  | $ | 1,911,040 |  
|                                           |  |      |            |   |      |   |           |      |  |   |           |  

The reasons for the differences between the tax at the statutory federal income tax rate and the effective
tax rates are summarized as follows for the years ended December 31:



|                                           |  |      |   |  |      |   |  |      |  
|------------------------------------------ |  | ---- | - |  | ---- | - |  | ---- | -
|                                           |  | 2009 |   |  | 2008 |   |  | 2007 |  
|Federal income tax at statutory rate       |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
|Increase (decrease) in tax resulting from: |  |      |   |  |      |   |  |      |  
|Tax-exempt income                          |  | (3.2 | ) |  | (4.5 | ) |  | (3.7 | )
|Dividends received deduction               |  | (.6  | ) |  | (2.1 | ) |  | (2.6 | )
|Federal tax credits                        |  | (.4  | ) |  | (1.3 | ) |  |     |  
|Other, net                                 |  | 2.3  |   |  | 1.4  |   |  | 2.0  |  
|                                           |  |      |   |  |      |   |  |      |  
|Effective tax rates                        |  | 32.1 | % |  | 27.5 | % |  | 29.7 | %
|                                           |  |      |   |  |      |   |  |      |  



46



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 11. Income taxes: (continued)



The Company had gross deferred tax assets and gross deferred tax liabilities as follows
as of December 31:



|                                                            |  |      |            |   |      |   |            |  
|----------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                            |  | 2009 |            |   | 2008 |  
|Deferred tax assets:                                        |  |      |            |   |      |   |            |  
|Interest on non-performing loans                            |  | $    | 41,888     |   |      | $ | 83,185     |  
|Allowance for loan losses                                   |  |      | 3,559,598  |   |      |   | 1,972,372  |  
|Deferred compensation                                       |  |      | 576,368    |   |      |   | 558,980    |  
|Deferred retirement expense                                 |  |      | 480,416    |   |      |   | 376,560    |  
|Accrued directors fees                                      |  |      | 44,207     |   |      |   | 49,733     |  
|Accrued group health contingency                            |  |      | 38,770     |   |      |   | 23,901     |  
|Writedown of securities                                     |  |      | 367,772    |   |      |   | 394,040    |  
|Net operating loss carryforwards                            |  |      | 68,400     |   |      |   | 292,539    |  
|Net unrealized loss on available-for-sale securities        |  |      | 331,730    |   |      |   |           |  
|Net unrealized loss on investment at equity                 |  |      |           |   |      |   | 7,241      |  
|Net unrealized loss on derivative                           |  |      | 219,003    |   |      |   | 315,320    |  
|Unrecognized employee benefits under ASC 715-10             |  |      | 1,199,627  |   |      |   | 1,390,822  |  
|Other                                                       |  |      | 40,111     |   |      |   | 42,230     |  
|                                                            |  |      |            |   |      |   |            |  
|Gross deferred tax assets                                   |  |      | 6,967,890  |   |      |   | 5,506,923  |  
|                                                            |  |      |            |   |      |   |            |  
|                                                            |  |     
|Deferred tax liabilities:                                   |  |      |            |   |      |   |            |  
|Deferred loan costs, net of fees                            |  |      | (530,987   | ) |      |   | (690,458   | )
|Prepaid pension                                             |  |      | (1,427,265 | ) |      |   | (1,465,847 | )
|Accelerated depreciation                                    |  |      | (459,381   | ) |      |   | (450,835   | )
|Purchased goodwill                                          |  |      | (2,368,579 | ) |      |   | (2,072,506 | )
|Mortgage servicing rights                                   |  |      | (675,022   | ) |      |   | (285,665   | )
|Core deposit intangibles and other market value adjustments |  |      | (1,332,900 | ) |      |   | (1,589,596 | )
|Net unrealized gain on available-for-sale securities        |  |      |           |   |      |   | (145,939   | )
|Other                                                       |  |      |           |   |      |   | (16,180    | )
|                                                            |  |      |            |   |      |   |            |  
|Gross deferred tax liabilities                              |  |      | (6,794,134 | ) |      |   | (6,717,026 | )
|                                                            |  |      |            |   |      |   |            |  
|                                                            |  |     
|Net deferred tax asset (liability)                          |  | $    | 173,756    |   |      | $ | (1,210,103 | )
|                                                            |  |      |            |   |      |   |            |  

During 2007, deferred tax assets were increased due to the acquisition of First Community Bank and First
Brandon National Bank by $1,109,957 and $305,157, respectively. The acquisition also resulted in an increase in deferred tax liabilities of $2,056,263 due to market value adjustments and core deposit intangibles recorded as a result of the
acquisitions.

As of December 31, 2009, the Company had federal net operating loss carryovers of $201,177. The carryovers
were transferred to the Company upon the acquisition of First Community Bank during 2007. The losses will expire in 2026 and are subject to certain annual limitations. Depending on the future earnings of the Company, up to $659,234 of losses can be
used each year until fully utilized.

The Company adopted ASC 740-20, Income Taxes - Intraperiod Tax Allocation,
as of December 31, 2008. It is the Companys policy to provide for uncertain tax positions and the related interest and penalties based upon managements assessment of whether a tax benefit is more likely than not to be sustained upon
examination by tax authorities. There was no effect on the Companys balance sheet or income statement from adoption of ASC 740-20.

NOTE 12. Stock compensation plans:

At December 31, 2009, the Company has two fixed stock-based employee
compensation plans under which options are outstanding. As of December 31, 2009, 245,510 options are available to be granted. Under the 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.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 12. Stock compensation plans: (continued)



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, 2009, 2008 and 2007 and changes during the
years ending on those dates is presented below:



|                                                               |  |         |   |      |                              |       |        |         |   |                              |   |        |  |         |                              |  |   |      
|-------------------------------------------------------------- |  | ------- | - | ---- | ---------------------------- | ----- | ------ | ------- | - | ---------------------------- | - | ------ |  | ------- | ---------------------------- |  | - | -----
|                                                               |  | 2009    |   | 2008 |                              | 2007 
|                                                               |  | Shares  |   |      | WeightedAverageExercisePrice |       | Shares |         |   | WeightedAverageExercisePrice |   | Shares |  |         | WeightedAverageExercisePrice
|Outstanding at beginning of year                               |  | 337,042 |   |      | $                            | 12.28 |        | 378,042 |   |                              | $ | 12.10  |  | 446,800 |                              |  | $ | 11.99
|Granted                                                        |  |        |   |      |                              |       |        |        |   |                              |   |        |  |        |                              |  |   |      
|Forfeited                                                      |  | (5,000  | ) |      |                              | 13.13 |        | (15,000 | ) |                              |   | 12.27  |  |        |                              |  |   |      
|Exercised                                                      |  | (24,000 | ) |      |                              | 7.52  |        | (26,000 | ) |                              |   | 9.58   |  | (68,758 | )                            |  |   | 11.38
|                                                               |  |         |   |      |                              |       |        |         |   |                              |   |        |  |         |                              |  |   |      
|Outstanding at end of year                                     |  | 308,042 |   |      | $                            | 12.64 |        | 337,042 |   |                              | $ | 12.28  |  | 378,042 |                              |  | $ | 12.10
|                                                               |  |         |   |      |                              |       |        |         |   |                              |   |        |  |         |                              |  |   |      
|                                                               |  |         |   |      |                              |      
|Options exercisable at year-end                                |  | 308,042 |   |      |                              |       |        | 337,042 |   |                              |   |        |  | 378,042 |                              |  |   |      
|Weighted-average fair value of options granted during the year |  |        |   |      |                              |       |        |        |   |                              |   |        |  |        |                              |  |   |      

The following table summarizes information about fixed stock options outstanding as of
December 31, 2009:



|                                    |       |                                 |   |                           |  |          
|----------------------------------- | ----- | ------------------------------- | - | ------------------------- |  | ---------
|Options Outstanding and Exercisable
|Exercise Prices                     |       | NumberOutstandingas of 12/31/09 |   | RemainingContractual Life
|$                                   | 9.125 |                                 | $ | 44,042                    |  | 2.5 years
|                                    | 13.05 |                                 |   | 107,500                   |  | 3.8 years
|                                    | 13.25 |                                 |   | 149,000                   |  | 5.9 years
|                                    | 15.30 |                                 |   | 7,500                     |  | 6.1 years
|                                    |       |                                 |   |                           |  |          
|$                                   | 12.64 |                                 | $ | 308,042                   |  | 4.7 years
|                                    |       |                                 |   |                           |  |          

NOTE 13. 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. In December 2006, the Company elected to suspend the plan so that employees no longer earn additional benefits for future service under this plan.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 13. Employee benefit plans: (continued)



The following tables set forth information about the plan, using a measurement date of
December 31 for the years ended December 31, 2009 and 2008 and 2007:



|                                                         |  |                          |           |   |      |   |            |      |  |   |           |  
|-------------------------------------------------------- |  | ------------------------ | --------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|                                                         |  | Years Ended December 31, |          
|                                                         |  | 2009                     |           |   | 2008 |   |            | 2007 | 
|Change in projected benefit obligation:                  |  |                          |           |   |      |   |            |      |  |   |           |  
|Benefit obligation at beginning of year                  |  | $                        | 5,232,843 |   |      | $ | 5,074,576  |      |  | $ | 4,879,462 |  
|Interest cost                                            |  |                          | 319,947   |   |      |   | 312,584    |      |  |   | 304,680   |  
|Actuarial loss (gain)                                    |  |                          | 153,100   |   |      |   | (3,577     | )    |  |   | 57,358    |  
|Benefits paid                                            |  |                          | (139,527  | ) |      |   | (150,740   | )    |  |   | (166,924  | )
|                                                         |  |                          |           |   |      |   |            |      |  |   |           |  
|Benefit obligation at end of year                        |  |                          | 5,566,363 |   |      |   | 5,232,843  |      |  |   | 5,074,576 |  
|                                                         |  |                          |           |   |      |   |            |      |  |   |           |  
|                                                         |  |                          |          
|Change in plan assets:                                   |  |                          |           |   |      |   |            |      |  |   |           |  
|Plan assets at estimated fair value at beginning of year |  |                          | 5,422,254 |   |      |   | 7,283,542  |      |  |   | 7,060,652 |  
|Actual return on plan assets                             |  |                          | 858,334   |   |      |   | (1,710,548 | )    |  |   | 389,814   |  
|Benefits paid                                            |  |                          | (139,527  | ) |      |   | (150,740   | )    |  |   | (166,924  | )
|                                                         |  |                          |           |   |      |   |            |      |  |   |           |  
|Fair value of plan assets at end of year                 |  |                          | 6,141,061 |   |      |   | 5,422,254  |      |  |   | 7,283,542 |  
|                                                         |  |                          |           |   |      |   |            |      |  |   |           |  
|                                                         |  |                          |          
|Funded status                                            |  | $                        | 574,698   |   |      | $ | 189,411    |      |  | $ | 2,208,966 |  
|                                                         |  |                          |           |   |      |   |            |      |  |   |           |  

Amounts recognized in accumulated other comprehensive loss, before tax effect, consist of unrecognized net
actuarial losses of $3,028,596 and $3,511,289 as of December 31, 2009 and 2008, respectively.

The discount rate and rate
of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 6.00% and 0%, respectively, at December 31, 2009, 6.25% and 0% at December 31, 2008, respectively and 6.25%
and 0% at December 31, 2007, respectively.

The accumulated benefit obligation for the defined benefit pension plan was
$5,566,363 and $5,232,843 at December 31, 2009 and 2008, respectively.

Components of net periodic cost and other
comprehensive loss:



|                                                                                                                |  |                          |          |   |      |   |           |      |  |   |          |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | --------- | ---- |  | - | -------- | -
|                                                                                                                |  | Years Ended December 31, |         
|                                                                                                                |  | 2009                     |          |   | 2008 |   |           | 2007 | 
|Interest cost on benefit obligation                                                                             |  | $                        | 319,947  |   |      | $ | 312,584   |      |  | $ | 304,680  |  
|Expected return on assets                                                                                       |  |                          | (428,082 | ) |      |   | (576,915  | )    |  |   | (559,795 | )
|Amortization of unrecognized net loss                                                                           |  |                          | 205,541  |   |      |   | 37,209    |      |  |   | 27,687   |  
|Curtailment expense-prior service cost                                                                          |  |                          |         |   |      |   |          |      |  |   |         |  
|                                                                                                                |  |                          |          |   |      |   |           |      |  |   |          |  
|Net periodic cost (benefit)                                                                                     |  |                          | 97,406   |   |      |   | (227,122  | )    |  |   | (227,428 | )
|                                                                                                                |  |                          |          |   |      |   |           |      |  |   |          |  
|                                                                                                                |  |                          |         
|Other changes in plan assets and benefit obligations recognized in other comprehensive loss, before tax effect: |  |                          |          |   |      |   |           |      |  |   |          |  
|Actuarial (gain) loss                                                                                           |  |                          | (277,152 | ) |      |   | 2,283,886 |      |  |   | 227,339  |  
|Amortization of unrecognized actuarial loss                                                                     |  |                          | (205,541 | ) |      |   | (37,209   | )    |  |   | (27,687  | )
|                                                                                                                |  |                          |          |   |      |   |           |      |  |   |          |  
|Total recognized in other comprehensive loss                                                                    |  |                          | (482,693 | ) |      |   | 2,246,677 |      |  |   | 199,652  |  
|                                                                                                                |  |                          |          |   |      |   |           |      |  |   |          |  
|Total recognized in net periodic cost (benefit) and other comprehensive loss                                    |  | $                        | (385,287 | ) |      | $ | 2,019,555 |      |  | $ | (27,776  | )
|                                                                                                                |  |                          |          |   |      |   |           |      |  |   |          |  

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic
pension cost over the year ended December 31, 2010 is $169,557.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 13. Employee benefit plans: (continued)



For the years ended December 31, 2009, 2008 and 2007, the assumptions used to
determine the net period pension cost are as follows:



|                                                 |  |                          |   |  |      |   |  |      |  
|------------------------------------------------ |  | ------------------------ | - |  | ---- | - |  | ---- | -
|                                                 |  | Years Ended December 31, |  
|                                                 |  | 2009                     |   |  | 2008 |   |  | 2007 |  
|Discount rate                                    |  | 6.25                     | % |  | 6.25 | % |  | 6.25 | %
|Increase in future compensation levels           |  | 0                        | % |  | 0    | % |  | 0    | %
|Expected long-term rate of return on plan assets |  | 8.00                     | % |  | 8.00 | % |  | 8.00 | %

The Bank has
examined the historical benchmarks for returns in each asset class in its portfolio, and based on the target asset mix has developed a weighted-average expected return for the portfolio as a whole, partly taking into consideration forecasts of
long-term expected inflation rates of 2.0% to 3.5%. The long-term rate of return used by the Bank is 8.00%. This rate was determined by adding the expected inflation rates to the weighted sum of the expected long-term return on each asset
allocation.

Plan Assets

The Companys pension plan assets measured at fair value at December 31, 2009, by asset category, are as follows:



|                                      |  |                                                  |           |                                                           |   |                                          |  |                                      |           |  |   |  
|------------------------------------- |  | ------------------------------------------------ | --------- | --------------------------------------------------------- | - | ---------------------------------------- |  | ------------------------------------ | --------- |  | - | -
|                                      |  | Fair Value Measurements at Reporting Date Using:
|Asset Category                        |  | December 31, 2009                                |           | Quoted Prices inActive Markets forIdentical AssetsLevel 1 |   | SignificantOther ObservableInputsLevel 2 |  | SignificantUnobservableInputsLevel 3
|                                      |  |                                                  |           |                                                          
|U.S. equity securities                |  | $                                                | 1,028,967 |                                                           | $ | 1,028,967                                |  | $                                    |          |  | $ | 
|Registered investment companies (a)   |  |                                                  | 2,436,494 |                                                           |   |                                         |  |                                      | 2,436,494 |  |   | 
|Corporate debt securities             |  |                                                  | 955,144   |                                                           |   |                                         |  |                                      | 955,144   |  |   | 
|U.S. Government and agency securities |  |                                                  | 1,508,118 |                                                           |   |                                         |  |                                      | 1,508,118 |  |   | 
|Money market                          |  |                                                  | 212,338   |                                                           |   | 212,338                                  |  |                                      |          |  |   | 
|                                      |  |                                                  |           |                                                           |   |                                          |  |                                      |           |  |   |  
|Totals                                |  | $                                                | 6,141,061 |                                                           | $ | 1,241,305                                |  | $                                    | 4,899,756 |  | $ | 
|                                      |  |                                                  |           |                                                           |   |                                          |  |                                      |           |  |   |  



|(a) | Includes 6.5% invested in fixed income funds and 93.5% invested in equity and index funds.
|--- | ------------------------------------------------------------------------------------------

The Companys pension plan assets are generally classified within level 1 or level 2 of the fair value hierarchy (See Note 15,
Fair Value Measurements, to the Consolidated Financial Statements for a description of the fair value hierarchy) because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with
reasonable levels of price transparency.

Equity securities include 30,294 shares of the Companys common stock as of
December 31, 2009 and December 31, 2008. The fair value of the shares on those dates was $293,549 (4.8% of total plan assets) and $233,749 (4.3% of total plan assets), respectively.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 13. Employee benefit plans: (continued)



The investment policy for the defined benefit pension plan sponsored by the Bank is
based on ERISA standards for prudent investing. The Bank seeks maximum return while limiting risk, through a balanced portfolio of equity and fixed income investments, as well as alternative asset classes. Within each asset class, a diversified mix
of individual securities and bonds is selected. Equity allocations are targeted between 40% and 65% of the portfolio, with the remainder in fixed income investments and a small portion in alternative asset classes such as real estate. Asset manager
performance is reviewed at least once every six months and benchmarked against the peer universe for the given investment style. The target allocation for the 2010 plan year and for the prior two years follows.



|                                      |  |                                                          |   |  |       |   |  |       |  
|------------------------------------- |  | -------------------------------------------------------- | - |  | ----- | - |  | ----- | -
|                                      |  | Target Percentage of Plan AssetsYears Ended December 31, |  
|Asset Category                        |  | 2010                                                     |   |  | 2009  |   |  | 2008  |  
|Equity securities                     |  | 40-65                                                    | % |  | 40-65 | % |  | 40-65 | %
|Corporate debt securities             |  | 10-35                                                    | % |  | 10-35 | % |  | 10-35 | %
|U.S. Government and agency securities |  | 15-25                                                    | % |  | 15-25 | % |  | 15-25 | %
|Other                                 |  | 0-10                                                     | % |  | 0-10  | % |  | 0-10  | %

The Bank does
not expect to contribute to the defined benefit pension plan in 2010.

Estimated future benefit payments, which reflect
expected future service, as appropriate, are as follows:



|                |  |   |          
|--------------- |  | - | ---------
|2010            |  | $ | 152,000  
|2011            |  |   | 153,000  
|2012            |  |   | 231,000  
|2013            |  |   | 228,000  
|2014            |  |   | 241,000  
|Years 2015-2019 |  |   | 1,689,000

Defined
Contribution Plan

The Bank sponsors a Profit Sharing - Stock Ownership Plan. The Bank may elect, but is not required,
to make discretionary and/or matching contributions to the Plan.

For 2009, 2008 and 2007, participating employees
contributions totaled $582,800, $535,985 and $419,204, respectively. The Bank made contributions totaling $527,798 for 2009, $468,370, for 2008 and $371,692 for 2007. 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.

Effective January 1, 2008, the Bank
amended the Profit Sharing - Stock Ownership Plan whereby employees will receive a safe harbor, nonelective contribution equal to 3% of compensation for the plan year, as defined in the plan. In addition, the Bank shall make a matching contribution
in an amount equal to employees elective deferrals up to a percentage of compensation for the plan year, to be determined annually, not to exceed 4%. Finally, the Bank may make an additional profit sharing contribution, determined annually, to
be allocated on a pro rata basis to eligible employees based on their compensation in relation to the compensation of all participants.

The Company has entered into salary continuation agreements for supplemental retirement income with certain executives and senior officers. The total liability for these agreements included in other
liabilities was $1,390,196 and $1,162,232 for the years ended December 31, 2009 and 2008, respectively. Expense recorded under these agreements was $258,874, $191,330 and $53,394 in 2009, 2008 and 2007.

The Company and the Bank entered into parallel employment agreements (the Agreements) with the Chief Executive Officer of the
Company and with the President and Chief Financial Officer of the Company. The Agreements are for a period of five years and extend automatically each day unless either the Company or the Executive give contrary written notice in advance. The
Agreements provide for a salary and certain benefits.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 13. Employee benefit plans: (continued)



The Agreements also provide for severance benefits upon termination without cause or
following a change in control as defined in the agreements in an amount equal to the present value of the cash compensation and fringe benefits that the Executive(s) would have received if the Executive(s) would have continued working for an
additional year.

The severance payments described above are limited to the extent required by virtue of the Companys
participation in the United States Department of the Treasurys Capital Purchase Program.

In 2008, the Company adopted
ASC 715, Compensation  Retirement Benefits, and recognized a liability for the Companys future postretirement benefit obligations under endorsement split-dollar life insurance arrangements. The Company recognized this change
in accounting principles as a cumulative effect adjustment in 2008 to retained earnings of $320,034. The total liability for the arrangements included in other liabilities was $394,095 at December 31, 2009 and $331,056 at December 31,
2008. Expense under this arrangement was $63,039 in 2009 and $11,022 in 2008.

NOTE 14. 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, 2009, the Company was obligated under non-cancelable operating leases for bank premises and equipment expiring between February 22, 2011 and December 20, 2016. The total
minimum rent commitments due in future periods under these existing agreements is as follows as of December 31, 2009:



|                             |  |   |          
|---------------------------- |  | - | ---------
|2010                         |  | $ | 401,203  
|2011                         |  |   | 381,036  
|2012                         |  |   | 270,246  
|2013                         |  |   | 190,144  
|2014                         |  |   | 168,970  
|Years thereafter             |  |   | 63,310   
|                             |  |   |          
|Total minimum lease payments |  | $ | 1,474,909
|                             |  |   |          

Certain leases contain provisions for escalation of
minimum lease payments contingent upon increases in real estate taxes and percentage increases in the consumer price index. The total rental expense amounted to $428,133, $404,704 and $343,329 for the years ended December 31, 2009, 2008 and
2007, respectively.

NOTE 15. Fair value measurements:

The Company adopted ASC 820-10, Fair Value Measurements and Disclosures, which provides a framework for measuring fair value under generally accepted accounting principles. This guidance also
allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company did not elect fair value treatment for any financial
assets or liabilities upon adoption.

In accordance with ASC 820-10, the Company groups its financial assets and financial
liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also
includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical
assets or liabilities.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



Level 2 - Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 15. Fair value measurements: (continued)



Level 3 - Valuations for assets and liabilities that are derived from other
methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in
determining the fair value assigned to such assets and liabilities.

A financial instruments level within the fair value
hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the
valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the
Companys financial assets and financial liabilities carried at fair value for December 31, 2009 and 2008.

The
Companys cash instruments are generally classified within level 1 or level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of
price transparency.

The Companys investment in mortgage-backed securities, asset-backed securities, preferred stock
with maturities and other debt securities available-for-sale are generally classified within level 2 of the fair value hierarchy. For these securities, the Company obtains fair value measurements from independent pricing services. The fair value
measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instruments terms and conditions.

The Companys derivative financial instruments are generally classified within level 2 of the fair value hierarchy. For
these financial instruments, the Company obtains fair value measurements from independent pricing services. The fair value measurements utilize a discounted cash flow model that incorporates and considers observable data, that may include publicly
available third party market quotes, in developing the curve utilized for discounting future cash flows.

Level 3 is for
positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence
of such evidence, managements best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party
transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash
flows.

The Companys impaired loans are reported at the fair value of the underlying collateral if repayment is expected
solely from the collateral. Collateral values are estimated using level 2 inputs based upon appraisals of similar properties obtained from a third party.

The following summarizes assets and liabilities measured at fair value for the period ending December 31, 2009 and 2008.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 15. Fair value measurements: (continued)



Assets measured at fair value on a recurring basis



|                              |  |                                                  |             |                                                           |   |                                          |  |                                      |             |  |   |  
|----------------------------- |  | ------------------------------------------------ | ----------- | --------------------------------------------------------- | - | ---------------------------------------- |  | ------------------------------------ | ----------- |  | - | -
|                              |  | Fair Value Measurements at Reporting Date Using:
|December 31, 2009             |  | Total                                            |             | Quoted Prices inActive Markets forIdentical AssetsLevel 1 |   | SignificantOther ObservableInputsLevel 2 |  | SignificantUnobservableInputsLevel 3
|Securities available-for-sale |  | $                                                | 218,293,101 |                                                           | $ | 461,830                                  |  | $                                    | 217,831,271 |  | $ | 
|                              |  |                                                  |             |                                                           |   |                                          |  |                                      |             |  |   |  
|Totals                        |  | $                                                | 218,293,101 |                                                           | $ | 461,830                                  |  | $                                    | 217,831,271 |  | $ | 
|                              |  |                                                  |             |                                                           |   |                                          |  |                                      |             |  |   |  
|                              |  |                                                  |             |                                                          
|December 31, 2008             |  | Total                                            |             | Level 1                                                   |   | Level 2                                  |  | Level 3                             
|Securities available-for-sale |  | $                                                | 81,988,488  |                                                           | $ | 367,670                                  |  | $                                    | 81,620,818  |  | $ | 
|                              |  |                                                  |             |                                                           |   |                                          |  |                                      |             |  |   |  
|Totals                        |  | $                                                | 81,988,488  |                                                           | $ | 367,670                                  |  | $                                    | 81,620,818  |  | $ | 
|                              |  |                                                  |             |                                                           |   |                                          |  |                                      |             |  |   |  

Liabilities measured at fair value on a
recurring basis



|                                |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|------------------------------- |  | ------------------------------------------------ | ------- | --------------------------------------------------------- | - | ---------------------------------------- |  | ------------------------------------ | ------- |  | - | -
|                                |  | Fair Value Measurements at Reporting Date Using:
|December 31, 2009               |  | Total                                            |         | Quoted Prices inActive Markets forIdentical AssetsLevel 1 |   | SignificantOther ObservableInputsLevel 2 |  | SignificantUnobservableInputsLevel 3
|Derivative - interest rate swap |  | $                                                | 552,899 |                                                           | $ |                                         |  | $                                    | 552,899 |  | $ | 
|                                |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|Totals                          |  | $                                                | 552,899 |                                                           | $ |                                         |  | $                                    | 552,899 |  | $ | 
|                                |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|                                |  |                                                  |         |                                                          
|December 31, 2008               |  | Total                                            |         | Level 1                                                   |   | Level 2                                  |  | Level 3                             
|Derivative - interest rate swap |  | $                                                | 796,061 |                                                           | $ |                                         |  | $                                    | 796,061 |  | $ | 
|                                |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|Totals                          |  | $                                                | 796,061 |                                                           | $ |                                         |  | $                                    | 796,061 |  | $ | 
|                                |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  

Assets measured at fair value on a nonrecurring
basis

The following table presents the financial instruments carried on the consolidated balance sheet by caption and by level in the
fair value hierarchy at December 31, 2009 and 2008, for which a nonrecurring change in fair value has been recorded:



|                  |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|----------------- |  | ------------------------------------------------ | ------- | --------------------------------------------------------- | - | ---------------------------------------- |  | ------------------------------------ | ------- |  | - | -
|                  |  | Fair Value Measurements at Reporting Date Using:
|December 31, 2009 |  | Total                                            |         | Quoted Prices inActive Markets forIdentical AssetsLevel 1 |   | SignificantOther ObservableInputsLevel 2 |  | SignificantUnobservableInputsLevel 3
|Impaired loans    |  | $                                                | 437,118 |                                                           | $ |                                         |  | $                                    | 437,118 |  | $ | 
|                  |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|Totals            |  | $                                                | 437,118 |                                                           | $ |                                         |  | $                                    | 437,118 |  | $ | 
|                  |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|                  |  |                                                  |         |                                                          
|December 31, 2008 |  | Total                                            |         | Level 1                                                   |   | Level 2                                  |  | Level 3                             
|Impaired loans    |  | $                                                | 678,941 |                                                           | $ |                                         |  | $                                    | 678,941 |  | $ | 
|                  |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  
|Totals            |  | $                                                | 678,941 |                                                           | $ |                                         |  | $                                    | 678,941 |  | $ | 
|                  |  |                                                  |         |                                                           |   |                                          |  |                                      |         |  |   |  



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 15. Fair value measurements: (continued)



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:



|                                               |  |                |             |            |   |                |  |            |             |  |   |            
|---------------------------------------------- |  | -------------- | ----------- | ---------- | - | -------------- |  | ---------- | ----------- |  | - | -----------
|                                               |  | 2009           |             | 2008      
|                                               |  | CarryingAmount |             | Fair Value |   | CarryingAmount |  | Fair Value
|Financial assets:                              |  |                |             |            |   |                |  |            |             |  |   |            
|Cash and cash equivalents                      |  | $              | 38,038,652  |            | $ | 38,038,652     |  | $          | 22,561,691  |  | $ | 22,561,691 
|Securities available-for-sale                  |  |                | 218,293,101 |            |   | 218,293,101    |  |            | 81,988,488  |  |   | 81,988,488 
|Federal Home Loan Bank stock                   |  |                | 6,175,800   |            |   | 6,175,800      |  |            | 4,946,300   |  |   | 4,946,300  
|Loans held-for-sale                            |  |                | 2,077,900   |            |   | 2,102,912      |  |            | 1,937,750   |  |   | 1,954,036  
|Loans, net                                     |  |                | 620,332,606 |            |   | 626,101,000    |  |            | 636,720,290 |  |   | 645,178,000
|Other investment                               |  |                | 2,000,000   |            |   | 2,000,000      |  |            | 2,000,000   |  |   | 2,000,000  
|Investment in unconsolidated subsidiaries      |  |                | 620,000     |            |   | 546,828        |  |            | 620,000     |  |   | 515,545    
|Accrued interest receivable                    |  |                | 2,972,403   |            |   | 2,972,403      |  |            | 2,715,864   |  |   | 2,715,864  
|Due from broker                                |  |                |            |            |   |               |  |            | 20,868,360  |  |   | 20,868,360 
|Financial liabilities:                         |  |                |             |            |   |                |  |            |             |  |   |            
|Deposits                                       |  |                | 734,428,768 |            |   | 737,282,000    |  |            | 653,353,325 |  |   | 656,224,000
|FHLB advances                                  |  |                | 95,962,006  |            |   | 96,598,000     |  |            | 66,317,485  |  |   | 67,909,726 
|Other borrowings                               |  |                | 2,077,500   |            |   | 2,077,500      |  |            | 2,157,500   |  |   | 2,157,500  
|Securities sold under agreements to repurchase |  |                | 12,118,593  |            |   | 12,118,593     |  |            | 15,072,991  |  |   | 15,072,991 
|Subordinated debentures                        |  |                | 20,620,000  |            |   | 18,186,529     |  |            | 20,620,000  |  |   | 17,146,013 
|Derivative - interest rate swap                |  |                | 552,899     |            |   | 552,899        |  |            | 796,061     |  |   | 796,061    

The carrying
amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions, except for investment in unconsolidated subsidiaries and other investment which are included in other assets and
derivatives which are included in other liabilities. Accounting policies related to financial instruments are described in Note 1.

NOTE
16. 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, 2009.

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.

Special bad debts deduction - In prior years, the Bank, 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 the Bank, as of
December 31, 2009 includes $2,069,878 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 four (4) years, subject to a combined federal and state tax rate of approximately 40%.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 17. Earnings per share (EPS):

Reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income are as follows:



|                                                                |  |                   |           |   |                     |           |                 |   |     
|--------------------------------------------------------------- |  | ----------------- | --------- | - | ------------------- | --------- | --------------- | - | ----
|                                                                |  | Income(Numerator) |           |   | Shares(Denominator) |           | Per-ShareAmount
|Year ended December 31, 2009                                    |  |                   |           |   |                     |           |                 |   |     
|Basic EPS                                                       |  |                   |           |   |                     |           |                 |   |     
|Net income as reported                                          |  | $                 | 6,597,706 |   |                     |          |                 |   |     
|Preferred stock net accretion                                   |  |                   | (16,179   | ) |                     |           |                 |   |     
|Cumulative preferred stock dividend earned                      |  |                   | (478,082  | ) |                     |           |                 |   |     
|                                                                |  |                   |           |   |                     |           |                 |   |     
|Net income available to common stockholders                     |  |                   | 6,103,445 |   |                     | 5,760,240 |                 | $ | 1.06
|Effect of dilutive securities, options                          |  |                   |          |   |                     | 1,708     |                 |   |     
|                                                                |  |                   |           |   |                     |           |                 |   |     
|Diluted EPS                                                     |  |                   |           |   |                     |           |                 |   |     
|Income available to common stockholders and assumed conversions |  | $                 | 6,103,445 |   |                     | 5,761,948 |                 | $ | 1.06
|                                                                |  |                   |           |   |                     |           |                 |   |     
|                                                                |  |                   |          
|Year ended December 31, 2008                                    |  |                   |           |   |                     |           |                 |   |     
|Basic EPS                                                       |  |                   |           |   |                     |           |                 |   |     
|Net income and income available to common stockholders          |  | $                 | 5,725,072 |   |                     | 5,745,735 |                 | $ | 1.00
|Effect of dilutive securities, options                          |  |                   |          |   |                     | 12,495    |                 |   |     
|                                                                |  |                   |           |   |                     |           |                 |   |     
|Diluted EPS                                                     |  |                   |           |   |                     |           |                 |   |     
|Income available to common stockholders and assumed conversions |  | $                 | 5,725,072 |   |                     | 5,758,230 |                 | $ | 0.99
|                                                                |  |                   |           |   |                     |           |                 |   |     
|                                                                |  |                   |          
|Year ended December 31, 2007                                    |  |                   |           |   |                     |           |                 |   |     
|Basic EPS                                                       |  |                   |           |   |                     |           |                 |   |     
|Net income and income available to common stockholders          |  | $                 | 4,515,682 |   |                     | 4,841,538 |                 | $ | 0.93
|Effect of dilutive securities, options                          |  |                   |          |   |                     | 74,153    |                 |   |     
|                                                                |  |                   |           |   |                     |           |                 |   |     
|Diluted EPS                                                     |  |                   |           |   |                     |           |                 |   |     
|Income available to common stockholders and assumed conversions |  | $                 | 4,515,682 |   |                     | 4,915,691 |                 | $ | 0.92
|                                                                |  |                   |           |   |                     |           |                 |   |     

NOTE 18. Regulatory matters:

The Bank is subject to various capital requirements administered by its primary federal regulator, the Office of Thrift Supervision (OTS). Failure to meet minimum regulatory requirements can initiate
certain mandatory, and possibly additional discretionary actions by regulators, that if undertaken, could have a direct material effect on the Companys and the Banks 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 capital to risk-weighted assets (as defined in the regulations), core capital to adjusted tangible assets (as defined) and tangible capital to tangible assets (as defined). Management
believes, as of December 31, 2009 and 2008, that the Bank meets all capital requirements to which it is subject.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 18. Regulatory matters: (continued)



As of December 31, 2009, the most recent notification from the Office of Thrift
Supervision 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 1 risk-based and Tier 1 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.



|                                           |  |        |        |                               |                              |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|------------------------------------------ |  | ------ | ------ | ----------------------------- | ---------------------------- | - | ------ | ------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                           |  | Actual |        |                               | For CapitalAdequacy Purposes |   |        | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |       
|                                           |  | Amount |        | Ratio                         |                              |   | Amount |                                                               | Ratio  |  |      | Amount |  | Ratio |       
|                                           |  |        |        | (Dollar amounts in thousands) |                              |   |       
|As of December 31, 2009:                   |  |        |        |                               |                              |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total Capital (to Risk Weighted Assets)    |  | $      | 82,891 |                               | 13.27                        | % |        | $                                                             | 49,964 |  | >8.0 | %      |  | $     | 62,457 |  | >10.0 | %
|Core Capital (to Adjusted Tangible Assets) |  |        | 78,571 |                               | 8.45                         |   |        |                                                               | 37,201 |  | >4.0 |        |  |       | 46,498 |  | >5.0  |  
|Tangible Capital (to Tangible Assets)      |  |        | 78,571 |                               | 8.45                         |   |        |                                                               | 13,949 |  | >1.5 |        |  |       | N/A    |  | N/A   |  
|Tier 1 Capital (to Risk Weighted Assets)   |  |        | 78,571 |                               | 12.58                        |   |        |                                                               | N/A    |  | N/A  |        |  |       | 37,474 |  | >6.0  |  
|                                           |  |        |        |                               |                              |  
|As of December 31, 2008:                   |  |        |        |                               |                              |   |        |                                                               |        |  |      |        |  |       |        |  |       |  
|Total Capital (to Risk Weighted Assets)    |  |        | 67,118 |                               | 11.36                        |   |        |                                                               | 47,266 |  | >8.0 |        |  |       | 59,083 |  | >10.0 |  
|Core Capital (to Adjusted Tangible Assets) |  |        | 65,715 |                               | 8.12                         |   |        |                                                               | 32,366 |  | >4.0 |        |  |       | 40,457 |  | >5.0  |  
|Tangible Capital (to Tangible Assets)      |  |        | 65,715 |                               | 8.12                         |   |        |                                                               | 12,137 |  | >1.5 |        |  |       | N/A    |  | N/A   |  
|Tier 1 Capital (to Risk Weighted Assets)   |  |        | 65,715 |                               | 11.12                        |   |        |                                                               | N/A    |  | N/A  |        |  |       | 35,450 |  | >6.0  |  

The following is a reconcilement of the Banks total equity included in the consolidated balance sheet to the regulatory capital ratios disclosed in the table above:



|                                     |  |                   |         |   |                   |   |         |               |  |   |              |   |  |   |         |  
|------------------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | ------------- |  | - | ------------ | - |  | - | ------- | -
|                                     |  | December 31, 2009 |         |   | December 31, 2008 |  
|                                     |  | Tier 1Capital     |         |   | TotalCapital      |   |         | Tier 1Capital |  |   | TotalCapital |  
|                                     |  |                   |         |   | (in thousands)    |   |         |               | 
|Total equity                         |  | $                 | 105,716 |   |                   | $ | 105,716 |               |  | $ | 93,741       |   |  | $ | 93,741  |  
|Accumulated other comprehensive loss |  |                   | 2,342   |   |                   |   | 2,342   |               |  |   | 1,900        |   |  |   | 1,900   |  
|Allowable allowance for loan losses  |  |                   |        |   |                   |   | 7,826   |               |  |   |             |   |  |   | 5,358   |  
|Goodwill and core deposit intangible |  |                   | (29,317 | ) |                   |   | (29,317 | )             |  |   | (29,854      | ) |  |   | (29,854 | )
|Mortgage servicing asset             |  |                   | (170    | ) |                   |   | (170    | )             |  |   | (72          | ) |  |   | (72     | )
|Equity investments and other assets  |  |                   |        |   |                   |   | (3,506  | )             |  |   |             |   |  |   | (3,955  | )
|                                     |  |                   |         |   |                   |   |         |               |  |   |              |   |  |   |         |  
|                                     |  | $                 | 78,571  |   |                   | $ | 82,891  |               |  | $ | 65,715       |   |  | $ | 67,118  |  
|                                     |  |                   |         |   |                   |   |         |               |  |   |              |   |  |   |         |  

NOTE 19. Preferred stock:

On January 16, 2009, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (Treasury) under the Emergency Economic Stabilization Act of 2008 (the
EESA), the Company entered into a Letter Agreement (including the Securities Purchase Agreement-Standard Terms incorporated by reference therein, the Purchase Agreement) with the Treasury pursuant to which the Company issued
and sold to Treasury (i) 10,000 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, having a liquidation preference of $1,000 per share (the Series A Preferred Stock)
and (ii) a ten-year warrant to purchase up to 184,275 shares of the Companys common stock, par value $0.01 per share (the Common Stock), at an initial exercise price of $8.14 per share (the Warrant), for an
aggregate purchase price of $10 million in cash. All of the proceeds from the sale of the Series A Preferred Stock is treated as Tier 1 capital for regulatory purposes. The Warrant is immediately exercisable.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 19. Preferred stock: (continued)



Cumulative dividends on the Series A Preferred Stock accrue on the liquidation
preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, but will be paid only when declared by the Companys Board of Directors. The Series A Preferred Stock has no maturity date and
ranks senior to the Common Stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company. The Series A Preferred Stock generally is non-voting, other than class
voting on certain matters that could adversely affect the Series A Preferred Stock. The Company may redeem the Series A Preferred Stock upon payment of the Redemption Amount which is the liquidation amount plus accrued and unpaid dividends.

The Company has allocated the 10 million in proceeds received from the U.S. Treasury Department between Series A
Preferred Stock and the Warrants assuming that the Preferred Stock would be replaced with a qualifying equity offering and the Preferred Stock would therefore be redeemed at the end of 5 years. The allocation has been recorded assuming a discount
rate of 13% on the cash flows of each instrument.

The allocation of the proceeds is as follows:



|                                               |  |   |           
|---------------------------------------------- |  | - | ----------
|Series A Preferred Stock                       |  | $ | 9,914,980 
|Warrants                                       |  |   | 85,020    
|                                               |  |   |           
|Proceeds received from the Treasury Department |  | $ | 10,000,000
|                                               |  |   |           

The Series A Preferred Stock is being accreted over a
5 year period, so that at the end of 5 years, the balance in Preferred Stock would equal $10,000,000.

Estimated accretion
from retained earnings for each of the five years succeeding 2009 is as follows:



|     |  |   |       
|---- |  | - | ------
|2010 |  | $ | 16,900
|2011 |  |   | 16,929
|2012 |  |   | 17,004
|2013 |  |   | 16,986
|2014 |  |   | 1,022 
|     |  |   |       
|     |  | $ | 68,841
|     |  |   |       

NOTE 20. Financial instruments:

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to originate loans, standby letters of credit and unadvanced funds on loans. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the
balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the
contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to originate loans are agreements to lend to a customer provided 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 Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements
credit evaluation of the borrower. Collateral held varies, but may include secured interests in mortgages, accounts receivable, inventory, property, plant and equipment and income-producing properties.



59



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 20. Financial instruments: (continued)



Standby letters of credit are conditional commitments issued by the Company to guarantee
the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2009 and 2008, the maximum potential
amount of the Companys obligation was $1,276,703 and $829,221, respectively, for financial and standby letters of credit. The Companys outstanding letters of credit generally have a term of less than one year. If a letter of credit is
drawn upon, the Company may seek recourse through the customers underlying line of credit. If the customers line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit.

Notional amounts of financial liabilities with off-balance sheet credit risk are as follows as of December 31:



|                                         |  |      |            |      |   |            
|---------------------------------------- |  | ---- | ---------- | ---- | - | -----------
|                                         |  | 2009 |            | 2008
|Commitments to extend credit             |  | $    | 18,292,104 |      | $ | 16,700,556 
|                                         |  |      |            |      |   |            
|Letters of credit                        |  | $    | 1,276,703  |      | $ | 829,221    
|                                         |  |      |            |      |   |            
|Lines of credit                          |  | $    | 89,715,566 |      |   | $87,761,000
|                                         |  |      |            |      |   |            
|Unadvanced portion of construction loans |  | $    | 3,114,383  |      | $ | 23,413,930 
|                                         |  |      |            |      |   |            

NOTE 21. Acquisitions:

On June 1, 2007, the Company acquired First Brandon Financial Corporation (First Brandon). Costs to acquire consisted of cash of
$4,403,088, 1,067,650 shares issued ($14.605 market value per share or $15,593,026) and merger costs of $836,179 for a total acquisition cost of $20,832,293. Goodwill recognized amounted to $7,503,046 and of that total amount, $0 is deductable for
tax purposes.

On October 1, 2007, the Company acquired First Community Bank (First Community). Costs to acquire
consisted of cash of $3,019,906, 752,063 shares issued ($14.82 market value per share or $11,145,574) and merger costs of $484,168 for a total acquisition cost of $14,649,648. Goodwill recognized amounted to $7,650,408 and of that total amount, $0
is deductable for tax purposes.

A summary of the fair values of assets acquired and liabilities assumed at the date of
acquisitions is as follows:



|                                                     |  |               |             |                 |   |           
|---------------------------------------------------- |  | ------------- | ----------- | --------------- | - | ----------
|                                                     |  | First Brandon |             | First Community
|Cash and cash equivalents                            |  | $             | 13,658,910  |                 | $ | 2,762,836 
|Securities available-for-sale                        |  |               | 17,309,352  |                 |   | 3,545,285 
|Federal Reserve and Federal Home Loan Bank stock     |  |               | 395,900     |                 |   | 367,700   
|Loans, net                                           |  |               | 67,524,872  |                 |   | 61,705,512
|Premises and equipment and investment in real estate |  |               | 2,488,976   |                 |   | 2,104,635 
|Bank owned life insurance                            |  |               | 2,227,260   |                 |   | 1,303,530 
|Other assets and accrued interest receivable         |  |               | 810,063     |                 |   | 589,804   
|                                                     |  |               |             |                 |   |           
|Total assets acquired                                |  |               | 104,415,333 |                 |   | 72,379,302
|                                                     |  |               |             |                 |   |           
|                                                     |  |              
|Total deposits                                       |  |               | 89,571,569  |                 |   | 62,392,819
|Securities sold under agreements to repurchase       |  |               | 1,769,612   |                 |   |          
|FHLB advances                                        |  |               | 114,220     |                 |   | 3,492,875 
|Accrued expenses and other liabilities               |  |               | 2,106,685   |                 |   | 486,368   
|                                                     |  |               |             |                 |   |           
|Total liabilities assumed                            |  |               | 93,562,086  |                 |   | 66,372,062
|                                                     |  |               |             |                 |   |           
|Net assets acquired                                  |  |               | 10,853,247  |                 |   | 6,007,240 
|                                                     |  |               |             |                 |   |           
|Goodwill                                             |  |               | 7,503,046   |                 |   | 7,650,408 
|Core deposit intangible asset                        |  |               | 2,476,000   |                 |   | 992,000   
|                                                     |  |               |             |                 |   |           
|Total purchase price                                 |  | $             | 20,832,293  |                 | $ | 14,649,648
|                                                     |  |               |             |                 |   |           

The results of operations of the acquired entities
have been included in the Companys consolidated financial statements since the respective acquisition dates.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 21. Acquisitions: (continued)



The following proforma information assumes that the acquisitions had occurred at the
beginning of the period presented.



|                    |  |             |           
|------------------- |  | ----------- | ----------
|                    |  | 2007       
|                    |  | (unaudited)
|Total revenue       |  | $           | 53,726,627
|Net income          |  | $           | 5,249,009 
|Earnings per share: |  |             |           
|Basic               |  | $           | 0.90      
|Diluted             |  | $           | 0.89      

The pro forma
information is presented for information purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection
of future results.

NOTE 22. Goodwill and intangible assets:

The Companys assets as of December 31, 2009 include goodwill of $15,153,454 relating to the acquisitions of First Brandon and
First Community in 2007. Goodwill also includes $2,471,560 relating to the acquisition of Landmark Bank and $9,668,456 relating to the acquisition of New London Trust in prior years.

The Company evaluated its goodwill and intangible assets as of December 31, 2009 and 2008 and found no impairment.

A summary of acquired amortizing intangible assets is as follows:



|                                        |  |                         |           |                         |   |                   |  |   |          
|--------------------------------------- |  | ----------------------- | --------- | ----------------------- | - | ----------------- |  | - | ---------
|                                        |  | As of December 31, 2009
|                                        |  | GrossCarryingAmount     |           | AccumulatedAmortization |   | NetCarryingAmount
|Core deposit intangible-First Brandon   |  | $                       | 2,476,000 |                         | $ | 1,065,430         |  | $ | 1,410,570
|Core deposit intangible-First Community |  |                         | 992,000   |                         |   | 378,764           |  |   | 613,236  
|                                        |  |                         |           |                         |   |                   |  |   |          
|Total                                   |  | $                       | 3,468,000 |                         | $ | 1,444,194         |  | $ | 2,023,806
|                                        |  |                         |           |                         |   |                   |  |   |          
|                                        | 
|                                        |  | As of December 31, 2008
|                                        |  | GrossCarryingAmount     |           | AccumulatedAmortization |   | NetCarryingAmount
|Core deposit intangible-First Brandon   |  | $                       | 2,476,000 |                         | $ | 686,527           |  | $ | 1,789,473
|Core deposit intangible-First Community |  |                         | 992,000   |                         |   | 220,946           |  |   | 771,054  
|                                        |  |                         |           |                         |   |                   |  |   |          
|Total                                   |  | $                       | 3,468,000 |                         | $ | 907,473           |  | $ | 2,560,527
|                                        |  |                         |           |                         |   |                   |  |   |          

Aggregate amortization expense was $536,721 in 2009,
$599,776 in 2008 and $307,697 in 2007. Amortization is being calculated on the sum-of-the-years digit method over ten years.

Estimated amortization expense for each of the five years succeeding 2009 is as follows:



|     |  |   |        
|---- |  | - | -------
|2010 |  | $ | 473,667
|2011 |  |   | 410,612
|2012 |  |   | 347,558
|2013 |  |   | 284,503
|2014 |  |   | 221,448



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 23. Condensed parent company only financial statements:

The following are condensed balance sheets, statements of income and cash flows for New Hampshire Thrift Bancshares, Inc. (Parent
Company) as of and for the years ended December 31:

CONDENSED BALANCE SHEETS



|                                                |  |      |             |      |   |           
|----------------------------------------------- |  | ---- | ----------- | ---- | - | ----------
|                                                |  | 2009 |             | 2008
|ASSETS                                          |  |      |             |      |   |           
|Cash in Lake Sunapee Bank                       |  | $    | 1,887,922   |      | $ | 1,073,134 
|Investment in subsidiary, Lake Sunapee Bank     |  |      | 105,715,992 |      |   | 93,732,163
|Investment in affiliate, NHTB Capital Trust II  |  |      | 310,000     |      |   | 310,000   
|Investment in affiliate, NHTB Capital Trust III |  |      | 310,000     |      |   | 310,000   
|Investment in DCC                               |  |      | 2,000,000   |      |   | 2,000,000 
|Deferred expenses                               |  |      | 261,989     |      |   | 272,683   
|Advances to Lake Sunapee Bank                   |  |      | 44,246      |      |   | 52,664    
|Other assets                                    |  |      | 467,021     |      |   | 432,670   
|                                                |  |      |             |      |   |           
|Total assets                                    |  | $    | 110,997,170 |      | $ | 98,183,314
|                                                |  |      |             |      |   |           
|                                                |  |     
|LIABILITIES                                     |  |      |             |      |   |           
|Subordinated debentures                         |  | $    | 20,620,000  |      | $ | 20,620,000
|Loan payable  PNC                              |  |      | 2,000,000   |      |   | 2,000,000 
|Other liabilities                               |  |      | 600,917     |      |   | 886,222   
|                                                |  |      |             |      |   |           
|Total liabilities                               |  |      | 23,220,917  |      |   | 23,506,222
|STOCKHOLDERS EQUITY                            |  |      | 87,776,253  |      |   | 74,677,092
|                                                |  |      |             |      |   |           
|Total liabilities and stockholders equity      |  | $    | 110,997,170 |      | $ | 98,183,314
|                                                |  |      |             |      |   |           

CONDENSED STATEMENTS OF INCOME



|                                                               |  |      |           |      |   |           |  |   |            |  
|-------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------- | -
|                                                               |  | 2009 |           | 2008 |   | 2007      | 
|Dividends from subsidiary, Lake Sunapee Bank                   |  | $    | 5,000,000 |      | $ | 4,500,000 |  | $ | 12,300,000 |  
|Dividends from subsidiaries, NHTB Capital Trust II and III     |  |      | 26,484    |      |   | 38,144    |  |   | 44,534     |  
|Investment interest income                                     |  |      | 240,000   |      |   | 182,000   |  |   | 52,667     |  
|Interest expense on subordinated debentures                    |  |      | 1,157,953 |      |   | 1,315,365 |  |   | 1,479,622  |  
|Interest expense on other borrowings                           |  |      | 61,644    |      |   | 71,129    |  |   |           |  
|Net operating income including tax benefit                     |  |      | 134,026   |      |   | 242,574   |  |   | 383,212    |  
|                                                               |  |      |           |      |   |           |  |   |            |  
|Income before equity in undistributed earnings of subsidiaries |  |      | 4,180,913 |      |   | 3,576,224 |  |   | 11,300,791 |  
|Equity in undistributed earnings (loss) of subsidiaries        |  |      | 2,416,793 |      |   | 2,148,848 |  |   | (6,785,109 | )
|                                                               |  |      |           |      |   |           |  |   |            |  
|Net income                                                     |  | $    | 6,597,706 |      | $ | 5,725,072 |  | $ | 4,515,682  |  
|                                                               |  |      |           |      |   |           |  |   |            |  



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 23. Condensed parent company only financial statements: (continued)



CONDENSED STATEMENTS OF CASH FLOWS



|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                         |  | 2009 |             |   | 2008 |   |            | 2007 | 
|Cash flows from operating activities:                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Net income                                                                                               |  | $    | 6,597,706   |   |      | $ | 5,725,072  |      |  | $ | 4,515,682  |  
|(Increase) decrease in and other assets                                                                  |  |      |             |   |      |   | (20,000    | )    |  |   | 20,000     |  
|(Decrease) increase in accrued interest payable and other liabilities                                    |  |      | (42,143     | ) |      |   | 34,668     |      |  |   | (1,484     | )
|(Increase) decrease in taxes receivable                                                                  |  |      | (104,315    | ) |      |   | (60,160    | )    |  |   | 55,508     |  
|(Increase) decrease in prepaid expenses                                                                  |  |      | (9,180      | ) |      |   | 10,169     |      |  |   | (13,440    | )
|Amortization of deferred expenses relating to issuance of capital securities and subordinated debentures |  |      | 10,694      |   |      |   | 10,693     |      |  |   | 10,694     |  
|Equity in undistributed (earnings) loss of subsidiaries                                                  |  |      | (2,416,793  | ) |      |   | (2,148,848 | )    |  |   | 6,785,109  |  
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|                                                                                                         |  |      |            
|Net cash provided by operating activities                                                                |  |      | 4,035,969   |   |      |   | 3,551,594  |      |  |   | 11,372,069 |  
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|                                                                                                         |  |      |            
|Cash flows from investing activities:                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Purchase of other investment                                                                             |  |      |            |   |      |   | (2,000,000 | )    |  |   |           |  
|Redemption of other investment                                                                           |  |      |            |   |      |   |           |      |  |   | 2,000,000  |  
|Investment in subsidiary, Lake Sunapee Bank                                                              |  |      | (10,000,000 | ) |      |   |           |      |  |   |           |  
|Net change in advances to subsidiary, Lake Sunapee Bank                                                  |  |      | 8,418       |   |      |   | 1,075      |      |  |   | 73,128     |  
|Net cash and cash equivalents paid for First Brandon and First Community acquisitions                    |  |      |            |   |      |   |           |      |  |   | (7,422,994 | )
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|                                                                                                         |  |      |            
|Net cash used in investing activities                                                                    |  |      | (9,991,582  | ) |      |   | (1,998,925 | )    |  |   | (5,349,866 | )
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|                                                                                                         |  |      |            
|Cash flows from financing activities:                                                                    |  |      |             |   |      |   |            |      |  |   |            |  
|Proceeds from exercise of stock options                                                                  |  |      | 180,500     |   |      |   | 249,125    |      |  |   | 782,732    |  
|Issuance of preferred stock                                                                              |  |      | 10,000,000  |   |      |   |           |      |  |   |           |  
|Proceeds from other borrowed money                                                                       |  |      |            |   |      |   | 2,000,000  |      |  |   |           |  
|Dividends paid on preferred stock                                                                        |  |      | (415,278    | ) |      |   |           |      |  |   |           |  
|Dividends paid on common stock                                                                           |  |      | (2,994,821  | ) |      |   | (2,988,061 | )    |  |   | (2,475,019 | )
|Repurchase of treasury stock                                                                             |  |      |            |   |      |   | (60,954    | )    |  |   | (5,291,469 | )
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|                                                                                                         |  |      |            
|Net cash provided by (used in) financing activities                                                      |  |      | 6,770,401   |   |      |   | (799,890   | )    |  |   | (6,983,756 | )
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|                                                                                                         |  |      |            
|Net increase (decrease) in cash                                                                          |  |      | 814,788     |   |      |   | 752,779    |      |  |   | (961,553   | )
|Cash, beginning of year                                                                                  |  |      | 1,073,134   |   |      |   | 320,355    |      |  |   | 1,281,908  |  
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  
|Cash, end of year                                                                                        |  | $    | 1,887,922   |   |      | $ | 1,073,134  |      |  | $ | 320,355    |  
|                                                                                                         |  |      |             |   |      |   |            |      |  |   |            |  

The Parent Company Only Statements of Changes in Stockholders Equity are identical to the Consolidated
Statements of Changes in Stockholders Equity for the years ended December 31, 2009, 2008 and 2007, and therefore are not reprinted here.



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| |  |                                                        |  | 
| |  | ------------------------------------------------------ |  | 
| |  | Notes to Consolidated Financial Statements(Continued) |  | 



NOTE 24. Quarterly Results of Operations (UNAUDITED)

Summarized quarterly financial data for 2009 and 2008 follows:



|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|-------------------------------------------- |  | ------------------------------------------------------------ | ------ | ------- | - | -------- |  | ------- | ------ |  | - | ------
|                                             |  | (In thousands, except earnings per share)2009 Quarters Ended
|                                             |  | March 31                                                     |        | June 30 |   | Sept. 30 |  | Dec. 31
|Interest and dividend income                 |  | $                                                            | 9,892  |         | $ | 9,766    |  | $       | 9,879  |  | $ | 9,847 
|Interest expense                             |  |                                                              | 3,316  |         |   | 3,199    |  |         | 2,950  |  |   | 2,611 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Net interest and dividend income             |  |                                                              | 6,576  |         |   | 6,567    |  |         | 6,929  |  |   | 7,236 
|Provision for loan losses                    |  |                                                              | 1,765  |         |   | 630      |  |         | 931    |  |   | 2,626 
|Noninterest income                           |  |                                                              | 2,835  |         |   | 2,827    |  |         | 2,916  |  |   | 4,268 
|Noninterest expense                          |  |                                                              | 5,695  |         |   | 6,300    |  |         | 6,164  |  |   | 6,333 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Income before income taxes                   |  |                                                              | 1,951  |         |   | 2,464    |  |         | 2,750  |  |   | 2,545 
|Income tax expense                           |  |                                                              | 619    |         |   | 782      |  |         | 941    |  |   | 770   
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Net income                                   |  | $                                                            | 1,332  |         | $ | 1,682    |  | $       | 1,809  |  | $ | 1,775 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|                                             |  |                                                              |        |        
|Net income available to common stockholders  |  | $                                                            | 1,227  |         | $ | 1,554    |  | $       | 1,679  |  | $ | 1,644 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|                                             |  |                                                              |        |        
|Basic earnings per common share              |  | $                                                            | 0.21   |         | $ | 0.27     |  | $       | 0.29   |  | $ | 0.28  
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Earnings per common share, assuming dilution |  | $                                                            | 0.21   |         | $ | 0.27     |  | $       | 0.29   |  | $ | 0.28  
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|                                             | 
|                                             |  | (In thousands, except earnings per share)2008 Quarters Ended
|                                             |  | March 31                                                     |        | June 30 |   | Sept. 30 |  | Dec. 31
|Interest and dividend income                 |  | $                                                            | 11,068 |         | $ | 10,506   |  | $       | 10,512 |  | $ | 10,550
|Interest expense                             |  |                                                              | 4,944  |         |   | 4,331    |  |         | 3,902  |  |   | 3,537 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Net interest and dividend income             |  |                                                              | 6,124  |         |   | 6,175    |  |         | 6,610  |  |   | 7,013 
|Provision for loan losses                    |  |                                                              | 37     |         |   | 140      |  |         | 184    |  |   | 741   
|Noninterest income                           |  |                                                              | 2,063  |         |   | 1,985    |  |         | 1,103  |  |   | 2,546 
|Noninterest expense                          |  |                                                              | 6,021  |         |   | 5,861    |  |         | 5,841  |  |   | 6,895 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Income before income taxes                   |  |                                                              | 2,129  |         |   | 2,159    |  |         | 1,688  |  |   | 1,923 
|Income tax expense                           |  |                                                              | 745    |         |   | 753      |  |         | 582    |  |   | 94    
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Net income                                   |  | $                                                            | 1,384  |         | $ | 1,406    |  | $       | 1,106  |  | $ | 1,829 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|                                             |  |                                                              |        |        
|Net income available to common stockholders  |  | $                                                            | 1,384  |         | $ | 1,406    |  | $       | 1,106  |  | $ | 1,829 
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|                                             |  |                                                              |        |        
|Basic earnings per common share              |  | $                                                            | 0.24   |         | $ | 0.24     |  | $       | 0.19   |  | $ | 0.32  
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       
|Earnings per common share, assuming dilution |  | $                                                            | 0.24   |         | $ | 0.24     |  | $       | 0.19   |  | $ | 0.32  
|                                             |  |                                                              |        |         |   |          |  |         |        |  |   |       

NOTE 25. Reclassification

Certain amounts in the prior year have been reclassified to be consistent with the current years statement presentation.



64



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UNITED
STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K







|x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended: December 31, 2009



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

SEC Commission File Number 000-17859





NEW HAMPSHIRE
THRIFT BANCSHARES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 02-0430695                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

9 Main Street, PO Box 9

Newport, New Hampshire 03773-0009

(Address of principal executive offices)

Registrants telephone
number, including area code: (603) 863-0886





Securities
registered pursuant to Section 12(b) of the Act:



|                             |  |                                     
|---------------------------- |  | ------------------------------------
|Common Stock, $.01 par value |  | The Nasdaq Stock Market, LLC        
|Title of Class               |  | Name of Exchange on which Registered

Securities registered pursuant to Section 12(g) of the Act:

None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes   ̈    No  x

Indicate by check mark is the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ̈    No  x

As of March 17, 2010 there were issued and outstanding 5,771,772 shares of
the registrants common stock.

The common stock is listed for trading on the NASDAQ Stock Market under the symbol
NHTB. Based on the closing price of $9.85 on June 30, 2009, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $56.9 million.





Documents Incorporated By Reference:

Portions of the
proxy statement for the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.









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##### Table of Contents



New Hampshire Thrift Bancshares, Inc.

INDEX



|            |  |                                                                                                                  |  |   
|----------- |  | ---------------------------------------------------------------------------------------------------------------- |  | --
|PART I      |  |                                                                                                                  |  |   
|            |  |                                                                                                                 
|Item 1.     |  | Business                                                                                                         |  | 66
|Item 2.     |  | Properties                                                                                                       |  | 81
|Item 3.     |  | Legal Proceedings                                                                                                |  | 82
|Item 4.     |  | Reserved                                                                                                         |  | 83
|            |  |                                                                                                                 
|PART II     |  |                                                                                                                  |  |   
|            |  |                                                                                                                 
|Item 5.     |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 84
|Item 7.     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 84
|Item 7A.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                       |  | 84
|Item 8.     |  | Financial Statements                                                                                             |  |   
|            |  | Report of Independent Registered Public Accounting Firm                                                          |  | 25
|            |  | Consolidated Balance Sheets                                                                                      |  | 26
|            |  | Consolidated Statements of Income                                                                                |  | 27
|            |  | Consolidated Statements of Changes in Stockholders Equity                                                       |  | 28
|            |  | Consolidated Statements of Comprehensive Income                                                                  |  | 29
|            |  | Consolidated Statements of Cash Flows                                                                            |  | 30
|            |  | Notes to Consolidated Financial Statements                                                                       |  | 32
|Item 9.     |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 85
|Item 9A(T). |  | Controls and Procedures                                                                                          |  | 85
|Item 9B.    |  | Other Information                                                                                                |  | 85
|            |  |                                                                                                                 
|PART III    |  |                                                                                                                  |  |   
|            |  |                                                                                                                 
|Item 10.    |  | Directors, Executive Officers and Corporate Governance                                                           |  | 85
|Item 11.    |  | Executive Compensation                                                                                           |  | 86
|Item 12.    |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 86
|Item 13.    |  | Certain Relationships and Related Transactions, and Director Independence                                        |  | 87
|Item 14.    |  | Principal Accountant Fees and Services                                                                           |  | 87
|            |  |                                                                                                                 
|PART IV     |  |                                                                                                                  |  |   
|            |  |                                                                                                                 
|Item 15.    |  | Exhibits and Financial Statement Schedules                                                                       |  | 87
|            |  | Signatures                                                                                                       |  | 90



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##### Table of Contents

PART I.



|Item 1. | Business
|------- | --------

GENERAL

Organization

New Hampshire Thrift Bancshares, Inc. (NHTB or the Company), a Delaware holding company organized on July 5, 1989, is the parent company of Lake Sunapee Bank, fsb (the Bank), a federally chartered savings bank. The Bank was originally
chartered by the State of New Hampshire in 1868 as the Newport Savings Bank. The Bank became a member of the Federal Deposit Insurance Corporation (FDIC) in 1959 and a member of the Federal Home Loan Bank of Boston in 1978. On December 1, 1980,
the Bank was the first bank in the United States to convert from a state-chartered mutual savings bank to a federally-chartered mutual savings bank. In 1981, the Bank changed its name to Lake Sunapee Savings Bank, fsb and in 1994,
refined its name to Lake Sunapee Bank, fsb. The Banks deposits are insured by the Deposit Insurance Fund of the FDIC.

The Bank is a thrift institution established for the purposes of providing the public with a convenient and safe place to invest funds, for the financing of housing, consumer-oriented products and
commercial loans, and for providing a variety of other consumer-oriented financial services. The Bank is a full-service community institution promoting the ideals of thrift, security, home ownership and financial independence for its customers. The
Banks operations are conducted from its home office located in Newport, New Hampshire and its branch offices located in Sunapee, Newbury, New London, Bradford, Grantham, Guild, Lebanon, West Lebanon, Hillsboro, Peterborough, Andover,
Claremont, Enfield, and Milford, New Hampshire, and Brandon, Pittsford, Rutland, West Rutland, and Woodstock, Vermont. The Company had assets of approximately $962.6 million as of December 31, 2009.

Through its subsidiary, Lake Sunapee Financial Services Corporation, the Bank offers brokerage services to its customers.

Market Area

The
Banks market area is concentrated in the counties of Merrimack, Sullivan, Hillsborough, Grafton and Cheshire in central and western New Hampshire and the counties of Rutland and Windsor in Vermont. These areas are best known for their
recreational facilities and their resort/retirement environment.

There are several distinct regions within the Banks
market area. The Upper Valley region is located in the northwest-central area of New Hampshire, and includes the towns of Lebanon, a commerce and manufacturing center, home to Dartmouth-Hitchcock Medical Center, New Hampshires only academic
medical center, and Hanover, home of Dartmouth College. The central and south-east portion of the Banks market area in New Hampshire is Lake Sunapee, a popular year-round recreation and resort area that includes both Lake Sunapee and Mount
Sunapee. Finally, the Monadnock region, in southwestern New Hampshire, is named after Mount Monadnock, the major geographic landmark in the region and consists of Cheshire, southern Sullivan and western Hillsborough counties.

Rutland and Windsor counties are located in south central Vermont. This region is home to many attractions, including Killington Mountain,
Okemo Resort, and the city of Rutland. The popular vacation destinations in this region include Woodstock, Brandon, Ludlow and Quechee.

Available Information

The Company files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, proxy statements or other information filed by the Company at the SECs public reference room in Washington, D.C., which is located at the following address: Public Reference Room,
100 F Street N.E., Washington, D.C. 20549.

You can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the SECs public reference room. The Companys SEC filings are also available to the public from document retrieval services and at the
SECs Internet website (http://www.sec.gov). We also make our filings available free of charge on our website (http://www.nhthrift.com) by clicking on SEC Filings.

LENDING ACTIVITIES

The Banks net loan
portfolio was $620,332,606 at December 31, 2009, representing approximately 65% of total assets. As of December 31, 2009, approximately 72% of the mortgage loan portfolio had adjustable rates. As of December 31, 2009, the Bank had
sold $352,066,692 in fixed-rate mortgage loans in an effort to meet customer demands for fixed-rate loans, minimize the Banks interest rate risk, provide liquidity and build a servicing portfolio.



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##### Table of Contents

REAL ESTATE LOANS. Conventional residential mortgage loans are solicited by the Banks
loan origination team in the local real estate marketplace. Residential borrowers are frequently referred to the Bank by its existing customers or real estate agents. Generally, the Bank makes conventional mortgage loans (loans of 80% of value or
less that are neither insured nor partially guaranteed by government agencies) on one- to four-family owner occupied dwellings. The Bank also makes residential loans up to 95% of the appraised value if the top 20% of the loan is covered by private
mortgage insurance. Residential mortgage loans typically have terms up to 30 years and are amortized on a monthly basis with principal and interest due each month. Currently, the Bank offers one-year, three-year and five-year adjustable-rate
mortgage loans and long-term fixed-rate loans. Borrowers may prepay loans at their option or refinance their loans on terms agreeable to the Bank. The Banks management believes that, due to prepayments in connection with refinancing and sales
of property, the average length of the Banks long-term residential loans is approximately seven years.

The terms of
conventional residential mortgage loans originated by the Bank have contained a due-on-sale clause which permits the Bank to accelerate the indebtedness of a loan upon the sale or other disposition of the mortgaged property. Due-on-sale
clauses are an important means of increasing the turnover of mortgage loans in the Banks portfolio.

Commercial real
estate loans are solicited by the Banks commercial banking team in the Banks local real estate market. In addition, commercial borrowers are frequently referred to the Bank by its existing customers, local accountants, and attorneys.
Generally, the Bank makes commercial real estate loans on loans up to 75% of value with terms up to twenty years, amortizing on a monthly basis with principal and interest due each month. Debt service coverage (the amount of cash left over after
expenses have been paid) required to cover the Banks interest and principal payments generally must equal or exceed 125% of the loan payments.

REAL ESTATE CONSTRUCTION LOANS. The Bank offers construction loan financing on one- to four-family owner occupied dwellings in the Banks local real estate market. Generally, the Bank makes
construction up to 80% of value with terms of up to nine months. During the construction phase, inspections are made to assess construction progress and monitor the disbursement of loan proceeds. The Bank also offers a one-step
construction loan, which provides construction and permanent financing with one loan closing. The one-step is provided under the same terms and conditions of the Banks conventional residential program.

CONSUMER LOANS. The Bank makes various types of secured and unsecured consumer loans, including home improvement loans. The Bank offers
loans secured by automobiles, boats and other recreational vehicles. The Bank believes that the shorter terms and the normally higher interest rates available on various types of consumer loans is helpful in maintaining a more profitable spread
between the Banks average loan yield and its cost of funds.

The Bank provides home equity loans secured by liens on
residential real estate located within the Banks market area. These include loans with regularly scheduled principal and interest payments as well as revolving credit agreements. The interest rate on these loans is adjusted quarterly and tied
to the movement of the prime rate.

COMMERCIAL LOANS. The Bank offers commercial loans in accordance with regulatory
requirements. Under current regulation, the Banks commercial loan portfolio is limited to 20% of total assets.

MUNICIPAL LOANS. The Banks activity in the municipal lending market is limited to those towns and school districts located within its primary lending area and such loans are extended for the purposes of either tax anticipation,
building improvements or other capital spending requirements. Municipal lending is considered to be an area of accommodation and part of the Banks continuing involvement with the communities it serves.

The following table sets forth the composition of the Banks loan portfolio in dollar amounts and as a percentage of the portfolio at December 31:



|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |        |  |   |            |   |  |        |  
|------------------------------------ |  | ---------------- | ------- | - | ---------- | ------ | - | ------ | - | ------- | ---------- |  | ------ | ------ |  | - | ---------- | - |  | ------ | -
|                                     |  | 2009             |         |   | 2008       |        |   | 2007   |  
|                                     |  | Amount           |         |   | % of Total |        |   | Amount |   |         | % of Total |  |        | Amount |  |   | % of Total |  
|                                     |  | ($ in thousands) |        
|Real estate loans                    |  |                  |         |   |            |        |   |        |   |         |            |  |        |        |  |   |            |  
|Conventional and Commercial          |  | $                | 469,371 |   |            | 74.84  | % |        | $ | 483,694 |            |  | 75.68  | %      |  | $ | 478,252    |   |  | 76.14  | %
|Construction                         |  |                  | 12,468  |   |            | 1.98   |   |        |   | 13,515  |            |  | 2.11   |        |  |   | 21,704     |   |  | 3.46   |  
|Consumer loans                       |  |                  | 82,982  |   |            | 13.23  |   |        |   | 79,468  |            |  | 12.43  |        |  |   | 75,619     |   |  | 12.04  |  
|Commercial and municipal loans       |  |                  | 62,387  |   |            | 9.95   |   |        |   | 62,491  |            |  | 9.78   |        |  |   | 52,515     |   |  | 8.36   |  
|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |        |  |   |            |   |  |        |  
|Total loans                          |  |                  | 627,208 |   |            | 100.00 | % |        |   | 639,168 |            |  | 100.00 | %      |  |   | 628,090    |   |  | 100.00 | %
|Unamortized adjustment to fair value |  |                  | 1,303   |   |            |        |   |        |   | 1,400   |            |  |        |        |  |   | 1,496      |   |  |        |  
|Allowance for loan losses            |  |                  | (9,519  | ) |            |        |   |        |   | (5,594  | )          |  |        |        |  |   | (5,181     | ) |  |        |  
|Deferred loan origination costs, net |  |                  | 1,342   |   |            |        |   |        |   | 1,746   |            |  |        |        |  |   | 1,869      |   |  |        |  
|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |        |  |   |            |   |  |        |  
|Loans receivable, net                |  | $                | 620,334 |   |            |        |   |        | $ | 636,720 |            |  |        |        |  | $ | 626,274    |   |  |        |  
|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |        |  |   |            |   |  |        |  



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|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |  
|------------------------------------ |  | ---------------- | ------- | - | ---------- | ------ | - | ------ | - | ------- | ---------- |  | ------ | -
|                                     |  | 2006             |         |   | 2005       |       
|                                     |  | Amount           |         |   | % of Total |        |   | Amount |   |         | % of Total | 
|                                     |  | ($ in thousands) |        
|Real estate loans                    |  |                  |         |   |            |        |   |        |   |         |            |  |        |  
|Conventional and Commercial          |  | $                | 385,002 |   |            | 77.79  | % |        | $ | 359,304 |            |  | 77.21  | %
|Construction                         |  |                  | 17,109  |   |            | 3.45   |   |        |   | 13,080  |            |  | 2.81   |  
|Consumer loans                       |  |                  | 63,277  |   |            | 12.79  |   |        |   | 64,393  |            |  | 13.84  |  
|Commercial and municipal loans       |  |                  | 29,522  |   |            | 5.97   |   |        |   | 28,558  |            |  | 6.14   |  
|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |  
|Total loans                          |  |                  | 494,910 |   |            | 100.00 | % |        |   | 465,335 |            |  | 100.00 | %
|Unamortized adjustment to fair value |  |                  | 36      |   |            |        |   |        |   | 48      |            |  |        |  
|Allowance for loan losses            |  |                  | (3,975  | ) |            |        |   |        |   | (4,022  | )          |  |        |  
|Deferred loan origination costs, net |  |                  | 1,741   |   |            |        |   |        |   | 1,790   |            |  |        |  
|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |  
|Loans receivable, net                |  | $                | 492,712 |   |            |        |   |        | $ | 463,151 |            |  |        |  
|                                     |  |                  |         |   |            |        |   |        |   |         |            |  |        |  

The following table sets forth the maturities of the loan portfolio at December 31, 2009, and whether such
loans have fixed or adjustable interest rates:



|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|------------------------------------ |  | --------------- | ---------- | --------------------- | - | --------------- |  | ----- | ----------- |  | - | -----------
|Maturities                           |  | One year orless |            | One throughfive years |   | Over five years |  | Total
|                                     |  |                 |            |                      
|Real Estate Loans with:              |  |                 |            |                       |   |                 |  |       |             |  |   |            
|Predetermined interest rates         |  | $               | 3,873,978  |                       | $ | 9,433,217       |  | $     | 118,274,996 |  | $ | 131,582,191
|Adjustable interest rates            |  |                 | 10,904,943 |                       |   | 7,843,923       |  |       | 331,506,704 |  |   | 350,255,570
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|                                     |  |                 | 14,778,921 |                       |   | 17,277,140      |  |       | 449,781,700 |  |   | 481,837,761
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|                                     |  |                 |            |                      
|Collateral/Consumer Loans with:      |  |                 |            |                       |   |                 |  |       |             |  |   |            
|Predetermined interest rates         |  |                 | 1,523,309  |                       |   | 5,437,883       |  |       | 415,527     |  |   | 7,376,719  
|Adjustable interest rates            |  |                 | 1,023,181  |                       |   | 17,403,404      |  |       | 57,178,385  |  |   | 75,604,970 
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|                                     |  |                 | 2,546,490  |                       |   | 22,841,287      |  |       | 57,593,912  |  |   | 82,981,689 
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|                                     |  |                 |            |                      
|Commercial/Municipal Loans with:     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|Predetermined interest rates         |  |                 | 6,515,435  |                       |   | 9,170,517       |  |       | 16,915,121  |  |   | 32,601,073 
|Adjustable interest rates            |  |                 | 9,848,914  |                       |   | 3,154,897       |  |       | 16,781,942  |  |   | 29,785,753 
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|                                     |  |                 | 16,364,349 |                       |   | 12,325,414      |  |       | 33,697,063  |  |   | 62,386,826 
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|                                     |  |                 |            |                      
|Unamortized adjustment to fair value |  |                 |           |                       |   |                |  |       | 1,303,258   |  |   | 1,303,258  
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            
|Totals                               |  | $               | 33,689,760 |                       | $ | 52,443,841      |  | $     | 542,375,933 |  | $ | 628,509,534
|                                     |  |                 |            |                       |   |                 |  |       |             |  |   |            

The preceding schedule includes $2,754,443 of non-performing loans
categorized within the respective loan types.

Origination, Purchase and Sale of Loans

The primary lending activity of the Bank is the origination of conventional loans (i.e., loans of 80% of value or less that are neither
insured nor partially guaranteed by government agencies) secured by first mortgage liens on residential properties, principally single-family residences, substantially all of which are located in the west-central area of New Hampshire and Rutland
and Windsor counties in Vermont.

The Bank evaluates the security for each new loan made. Appraisals, when required, are made
for the Bank by qualified sub-contracted appraisers. The appraisal of the real property upon which the Bank makes a mortgage loan is of particular significance to the Bank in the event that the loan is foreclosed, since an improper appraisal may
contribute to a loss by, or other financial detriment to, the Bank in the disposition of the loan.



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Detailed applications for mortgage loans are verified through the use of credit reports,
financial statements and confirmations. Depending upon the size of the loan involved, a varying number of senior officers of the Bank must approve the application before the loan can be granted. The Loan Review Committee of the Banks Board of
Directors reviews particularly large loans.

The Bank requires title certification on all first mortgage loans and the
borrower is required to maintain hazard insurance on the security property.

Delinquent Loans, Classified Assets and Other Real Estate
Owned

Reports listing delinquent accounts are generated and reviewed by management and the Board of Directors on a monthly
basis. The procedures taken by the Bank when a loan becomes delinquent vary depending on the nature of the loan. When a borrower fails to make a required loan payment, the Bank takes a number of steps to ensure that the borrower will cure the
delinquency. The Bank generally sends the borrower a notice of non-payment. The Bank then follows-up with telephone and/or written correspondence. When contact is made, the Bank attempts to obtain full payment, work out a repayment schedule, or in
certain instances obtain a deed in lieu of foreclosure. If foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the property securing the loan generally is sold at
foreclosure. If the Bank purchases the property, it becomes other real estate owned.

Federal regulations and the Banks
Assets Classification Policy require that the Bank utilize an internal asset classification system as a means of reporting problem and potential problem assets. The Bank has incorporated the OTS internal asset classifications as part of its credit
monitoring system. The Bank currently classifies problem and potential problem assets as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the
obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiency is not corrected. Assets classified as doubtful
have all the weaknesses inherent in those classified substandard with the additional characteristics that the weaknesses present make collection and liquidation in full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently
expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated special mention.

When an insured institution classifies one or more assets or portions thereof as substandard or doubtful, it is required to establish a
general valuation allowance for loan losses in an amount deemed prudent by management. General valuation allowances represent loss allowances, which have been established to recognize the inherent risk associated with activities, but which, unlike
specific allowances, have not been allocated to particular problem assets. When an insured institution classifies one or more assets or portions thereof as loss, it is required to establish a specific allowance for losses equal to 100% of the amount
of the asset so classified or to charge off such amount.

A savings institutions determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by the OTS, which can order the classification of additional assets and establishment of additional general or specific loss allowances. The OTS, in conjunction with the
other federal banking agencies, has adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment
and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls
to identify, monitor and address asset quality problems; that management has analyzed all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management has established acceptable allowance evaluation
processes that meet the objectives set forth in the policy statement.

Although management believes that, based on information
currently available to it at this time, its allowance for loan losses is adequate, actual losses are dependent upon future events and, as such, further additions to the allowance for loan losses may become necessary.

The Bank classifies assets in accordance with the management guidelines described above. Total classified loans, excluding special mention,
as of December 31, 2009 and 2008 were $11,876,373 and $9,122,365, respectively. For further discussion regarding nonperforming assets, impaired loans and the allowance for loan losses, please see Managements Discussion and Analysis of
Financial Condition and Results of Operations herein.

SUBSIDIARY ACTIVITIES

Service Corporations

The
Bank has an expanded service corporation authority because of its conversion from a state-chartered mutual savings bank to a federal institution in 1980. This authority, grandfathered in that conversion, permits the Bank to invest 15% of its
deposits, plus an amount of approximately $825,000, in service corporation activities permitted by New Hampshire law. However, the first 3% of these activities is subject to federal regulation and the remainder is subject to state law. This permits
a 3% investment in activities not permitted by state law.



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As of December 31, 2009, the Bank owned two service corporations, the Lake Sunapee
Group, Inc., and the Lake Sunapee Financial Services Corporation. The Lake Sunapee Group owns and maintains the Banks buildings and investment properties. The Lake Sunapee Financial Services Corporation sells brokerage, securities, and
insurance products to its customers.

NHTB Capital Trust II and III

NHTB Capital Trust II (Trust II) and NHTB Capital Trust III (Trust III) are statutory business trusts formed under the laws of the State of
Connecticut and are wholly owned subsidiaries of the Company. On March 30, 2004, the Trust III issued $10.0 million of 6.06%, 5-year Fixed-Floating Capital Securities. On March 30, 2004, the Trust II issued $10.0 million of Floating
Capital Securities, adjustable every three months at LIBOR plus 2.79%. On May 1, 2008, the Company entered into an interest rate swap agreement with PNC Bank to convert the floating-rate payments on Trust II to fixed-rate payments. The terms of
the interest rate swap agreement are as follows:



|                     |  |                                      
|-------------------- |  | -------------------------------------
|Notional amount:     |  | $10,000,000                          
|Trade date:          |  | May 1, 2008                          
|Effective date:      |  | June 17, 2008                        
|Termination date:    |  | June 17, 2013                        
|Fixed-rate payer:    |  | New Hampshire Thrift Bancshares, Inc.
|Payment dates:       |  | Quarterly                            
|Fixed-rate:          |  | 6.65%                                
|Floating rate payer: |  | PNC Bank                             
|Payment dates:       |  | Quarterly                            
|Index:               |  | Three-month LIBOR                    

For more information, see Note 2 of the
Consolidated Financial Statements.

COMPETITION

The Bank faces strong competition in the attraction of deposits. Its most direct competition for deposits comes from the other thrifts and
commercial banks as well as credit unions located in its primary market areas. The Bank faces additional significant competition for investors funds from mutual funds and other corporate and government securities.

The Bank competes for deposits principally by offering depositors a wide variety of savings programs, a market rate of return, tax-deferred
retirement programs and other related services. The Bank does not rely upon any individual, group or entity for a material portion of its deposits.

The Banks competition for real estate loans comes from mortgage banking companies, other thrift institutions and commercial banks. The Bank competes for loan originations primarily through the
interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers, real estate brokers and builders. The Banks competition for loans varies from time to time depending upon the general availability of
lendable funds and credit, general and local economic conditions, current interest rate levels, volatility in the mortgage markets and other factors which are not readily predictable. The Bank has six loan originators on staff who call on real
estate agents, follow leads, and are available seven days a week to service the mortgage loan market.

INVESTMENT ACTIVITIES

Federally chartered savings institutions have the authority to invest in various types of liquid assets including United
States Treasury obligations, securities of various federal agencies, certificates of deposit of insured banks and savings institutions, bankers acceptances, repurchase agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper, investment-grade corporate debt securities and mutual funds whose assets conform to the investments that a federally chartered savings institution is otherwise
authorized to make directly.

The Bank categorizes its securities as held-to-maturity, available-for-sale, or held-for-trading
according to management intent. Please refer to Note 3 of the Consolidated Financial Statements for certain information regarding amortized costs, fair values and maturities of securities.



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Maturities of debt securities, excluding mortgage-backed and asset-backed securities, are as follows as of
December 31, 2009:



|                                             |  |            |            |                |   |                      |  |      |  
|-------------------------------------------- |  | ---------- | ---------- | -------------- | - | -------------------- |  | ---- | -
|                                             |  | Fair Value |            | Amortized Cost |   | WeightedAverageYield | 
|                                             |  |            |           
|Available-for-sale securities                |  |            |            |                |   |                      |  |      |  
|U.S. Government, including agencies          |  | $          | 2,049,688  |                | $ | 2,004,184            |  | 4.94 | %
|Other bonds and debentures                   |  |            | 1,054,394  |                |   | 1,033,856            |  | 7.13 |  
|                                             |  |            |            |                |   |                      |  |      |  
|Total due in less than one year              |  |            | 3,104,082  |                |   | 3,038,039            |  | 5.68 |  
|                                             |  |            |            |                |   |                      |  |      |  
|                                             |  |            |           
|Other bonds and debentures                   |  |            | 33,263,057 |                |   | 33,038,876           |  | 4.42 |  
|                                             |  |            |            |                |   |                      |  |      |  
|Total due after one year through five years  |  |            | 33,263,057 |                |   | 33,038,876           |  | 4.42 |  
|                                             |  |            |            |                |   |                      |  |      |  
|                                             |  |            |           
|Other bonds and debentures                   |  |            | 7,801,880  |                |   | 7,875,655            |  | 4.84 |  
|                                             |  |            |            |                |   |                      |  |      |  
|Total due after five years through ten years |  |            | 7,801,880  |                |   | 7,875,655            |  | 4.84 |  
|                                             |  |            |            |                |   |                      |  |      |  
|                                             |  |            |           
|Preferred stock with maturities              |  |            | 4,652,000  |                |   | 5,000,000            |  | 6.35 |  
|Other bonds and debentures                   |  |            | 186,649    |                |   | 235,000              |  | 6.79 |  
|                                             |  |            |            |                |   |                      |  |      |  
|Total due after ten years                    |  |            | 4,838,649  |                |   | 5,235,000            |  | 6.37 |  
|                                             |  |            |            |                |   |                      |  |      |  
|                                             |  | $          | 49,007,668 |                | $ | 49,187,570           |  | 4.79 | %
|                                             |  |            |            |                |   |                      |  |      |  

The amortized cost of securities and their approximate fair values are summarized as follows:



|                                    |  |                |             |                      |   |                       |  |            |           |  |   |            
|----------------------------------- |  | -------------- | ----------- | -------------------- | - | --------------------- |  | ---------- | --------- |  | - | -----------
|December 31, 2009                   |  | Amortized Cost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Available-for-sale:                 |  |                |             |                      |   |                       |  |            |           |  |   |            
|Bonds and notes-                    |  |                |             |                      |   |                       |  |            |           |  |   |            
|U.S. Government, including agencies |  | $              | 2,004,184   |                      | $ | 45,504                |  | $          |          |  | $ | 2,049,688  
|Mortgage-backed securities          |  |                | 169,448,355 |                      |   | 367,048               |  |            | 991,800   |  |   | 168,823,603
|Other bonds and debentures          |  |                | 42,183,387  |                      |   | 285,382               |  |            | 162,789   |  |   | 42,305,980 
|Preferred stock with maturities     |  |                | 5,000,000   |                      |   |                      |  |            | 348,000   |  |   | 4,652,000  
|Equity securities                   |  |                | 494,666     |                      |   | 23,380                |  |            | 56,216    |  |   | 461,830    
|                                    |  |                |             |                      |   |                       |  |            |           |  |   |            
|Total available-for-sale securities |  | $              | 219,130,592 |                      | $ | 721,314               |  | $          | 1,558,805 |  | $ | 218,293,101
|                                    |  |                |             |                      |   |                       |  |            |           |  |   |            
|                                    |  |                |             |                     
|December 31, 2008                   |  | Amortized Cost |             | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Available-for-sale:                 |  |                |             |                      |   |                       |  |            |           |  |   |            
|Bonds and notes-                    |  |                |             |                      |   |                       |  |            |           |  |   |            
|U.S. Government, including agencies |  | $              | 13,015,080  |                      | $ | 157,733               |  | $          |          |  | $ | 13,172,813 
|Mortgage-backed securities          |  |                | 59,209,471  |                      |   | 1,334,771             |  |            | 40,545    |  |   | 60,503,697 
|Asset-backed securities             |  |                | 1,499,732   |                      |   |                      |  |            | 305,642   |  |   | 1,194,090  
|Other bonds and debentures          |  |                | 2,401,098   |                      |   | 71,120                |  |            |          |  |   | 2,472,218  
|Preferred stock with maturities     |  |                | 5,000,000   |                      |   |                      |  |            | 722,000   |  |   | 4,278,000  
|Equity securities                   |  |                | 494,666     |                      |   | 540                   |  |            | 127,536   |  |   | 367,670    
|                                    |  |                |             |                      |   |                       |  |            |           |  |   |            
|Total available-for-sale securities |  | $              | 81,620,047  |                      | $ | 1,564,164             |  | $          | 1,195,723 |  | $ | 81,988,488 
|                                    |  |                |             |                      |   |                       |  |            |           |  |   |            



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|                                    |  |               |            |                      |   |                       |  |            |           |  |   |           
|----------------------------------- |  | ------------- | ---------- | -------------------- | - | --------------------- |  | ---------- | --------- |  | - | ----------
|December 31, 2007                   |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Available-for-sale:                 |  |               |            |                      |   |                       |  |            |           |  |   |           
|Bonds and notes-                    |  |               |            |                      |   |                       |  |            |           |  |   |           
|U.S. Government, including agencies |  | $             | 21,516,957 |                      | $ | 11,632                |  | $          | 13,548    |  | $ | 21,515,041
|Mortgage-backed securities          |  |               | 50,945,486 |                      |   | 130,641               |  |            | 604,756   |  |   | 50,471,371
|Asset-backed securities             |  |               | 1,499,688  |                      |   | 3,403                 |  |            |          |  |   | 1,503,091 
|Other bonds and debentures          |  |               | 8,136,635  |                      |   | 20,628                |  |            | 21,963    |  |   | 8,135,300 
|Preferred stock with maturities     |  |               | 5,000,000  |                      |   |                      |  |            | 950,000   |  |   | 4,050,000 
|Equity securities                   |  |               | 1,374,386  |                      |   | 100,814               |  |            | 340,000   |  |   | 1,135,200 
|                                    |  |               |            |                      |   |                       |  |            |           |  |   |           
|Total available-for-sale securities |  | $             | 88,473,152 |                      | $ | 267,118               |  | $          | 1,930,267 |  | $ | 86,810,003
|                                    |  |               |            |                      |   |                       |  |            |           |  |   |           

DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS

The Bank offers a variety of deposit accounts with a range of interest rates and terms. The Banks deposits consist of
business checking, money market accounts, savings, NOW and certificate accounts. The flow of deposits is influenced by general economic conditions, changes in money market rates, prevailing interest rates and competition. The Banks deposits
are obtained predominantly from within the Banks primary market areas. The Bank uses traditional means to advertise its deposit products, including print media, and generally does not solicit deposits from outside its primary market areas. The
Bank offers negotiated rates on some of its certificate accounts. At December 31, 2009, time deposits represented approximately 46% of total deposits. Time deposits included $149,961,410 of certificates of deposit in excess of $100,000.

The following table presents deposit activity of the Bank for the years ended December 31:



|                                      |  |                  |        |      |   |         |      |  |   |        
|------------------------------------- |  | ---------------- | ------ | ---- | - | ------- | ---- |  | - | -------
|                                      |  | 2009             |        | 2008 |   |         | 2007
|                                      |  | ($ in Thousands)
|Net deposits (withdrawals)            |  | $                | 72,313 |      | $ | (12,537 | )    |  | $ | 22,561 
|Acquired deposits                     |  |                  |       |      |   |        |      |  |   | 151,964
|Interest credited on deposit accounts |  |                  | 8,762  |      |   | 12,938  |      |  |   | 12,941 
|                                      |  |                  |        |      |   |         |      |  |   |        
|Total increase in deposit accounts    |  | $                | 81,075 |      | $ | 401     |      |  | $ | 187,466
|                                      |  |                  |        |      |   |         |      |  |   |        

At December 31, 2009, the Bank had $150.0 million in certificate
of deposit accounts in amounts of $100,000 or more maturing as follows:



|                         |  |                  |         |                       |      |  
|------------------------ |  | ---------------- | ------- | --------------------- | ---- | -
|Maturity Period          |  | Amount           |         | Weighted Average Rate |     
|                         |  | ($ in thousands) |        
|3 months or less         |  | $                | 53,904  |                       | 1.41 | %
|Over 3 through 6 months  |  |                  | 36,380  |                       | 1.65 | %
|Over 6 through 12 months |  |                  | 31,291  |                       | 1.48 | %
|Over 12 months           |  |                  | 28,386  |                       | 2.93 | %
|                         |  |                  |         |                       |      |  
|Total                    |  | $                | 149,961 |                       | 1.77 | %
|                         |  |                  |         |                       |      |  



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The following table sets forth the distribution of the Banks deposit accounts as of December 31
indicated and the percentage to total deposits:



|                          |  |                  |         |            |       |   |        |      |            |  |       |        |  |            |         |  |       |  
|------------------------- |  | ---------------- | ------- | ---------- | ----- | - | ------ | ---- | ---------- |  | ----- | ------ |  | ---------- | ------- |  | ----- | -
|                          |  | 2009             |         |            | 2008  |   |        | 2007 |           
|                          |  | Amount           |         | % of Total |       |   | Amount |      | % of Total |  |       | Amount |  | % of Total |        
|                          |  | ($ in thousands) |        
|Checking accounts         |  | $                | 48,430  |            | 6.6   | % |        | $    | 45,968     |  | 7.0   | %      |  | $          | 48,260  |  | 7.4   | %
|NOW accounts              |  |                  | 178,049 |            | 24.2  |   |        |      | 155,662    |  | 23.9  |        |  |            | 151,847 |  | 23.3  |  
|Money market accounts     |  |                  | 38,806  |            | 5.3   |   |        |      | 40,424     |  | 6.2   |        |  |            | 41,225  |  | 6.3   |  
|Regular savings accounts  |  |                  | 10,958  |            | 1.5   |   |        |      | 11,063     |  | 1.7   |        |  |            | 12,031  |  | 1.8   |  
|Treasury savings accounts |  |                  | 116,817 |            | 15.9  |   |        |      | 107,110    |  | 16.4  |        |  |            | 104,163 |  | 16.0  |  
|Club deposits             |  |                  | 96      |            |      |   |        |      | 93         |  |      |        |  |            | 94      |  |      |  
|                          |  |                  |         |            |       |   |        |      |            |  |       |        |  |            |         |  |       |  
|Total                     |  |                  | 393,156 |            | 53.5  |   |        |      | 360,320    |  | 55.2  |        |  |            | 357,620 |  | 54.8  |  
|                          |  |                  |         |            |       |   |        |      |            |  |       |        |  |            |         |  |       |  
|Time deposits             |  |                  |         |            |       |   |        |      |            |  |       |        |  |            |         |  |       |  
|Less than 12 months       |  |                  | 268,298 |            | 36.5  |   |        |      | 261,556    |  | 40.0  |        |  |            | 270,586 |  | 41.5  |  
|Over 12 through 36 months |  |                  | 68,686  |            | 9.4   |   |        |      | 29,248     |  | 4.5   |        |  |            | 23,780  |  | 3.6   |  
|Over 36 months            |  |                  | 4,289   |            | 0.6   |   |        |      | 2,229      |  | 0.3   |        |  |            | 966     |  | 0.1   |  
|                          |  |                  |         |            |       |   |        |      |            |  |       |        |  |            |         |  |       |  
|Total time deposits       |  |                  | 341,273 |            | 46.5  |   |        |      | 293,033    |  | 44.8  |        |  |            | 295,332 |  | 45.2  |  
|                          |  |                  |         |            |       |   |        |      |            |  |       |        |  |            |         |  |       |  
|Total Deposits            |  | $                | 734,429 |            | 100.0 | % |        | $    | 653,353    |  | 100.0 | %      |  | $          | 652,952 |  | 100.0 | %
|                          |  |                  |         |            |       |   |        |      |            |  |       |        |  |            |         |  |       |  

The following table presents the average balance of each type of deposit and the average rate paid on each type of deposit
for the year indicated.



|                      |  |                                 |         |                  |      |   |                |      |                  |  |      |                |  |                  |         |  |      |  
|--------------------- |  | ------------------------------- | ------- | ---------------- | ---- | - | -------------- | ---- | ---------------- |  | ---- | -------------- |  | ---------------- | ------- |  | ---- | -
|                      |  | For the Year Ended December 31, |        
|                      |  | 2009                            |         |                  | 2008 |   |                | 2007 |                 
|                      |  | AverageBalance                  |         | AverageRate Paid |      |   | AverageBalance |      | AverageRate Paid |  |      | AverageBalance |  | AverageRate Paid |        
|                      |  | ($ in thousands)                |        
|NOW                   |  | $                               | 170,268 |                  | 0.10 | % |                | $    | 169,835          |  | 0.27 | %              |  | $                | 119,238 |  | 0.67 | %
|Savings deposits      |  |                                 | 126,015 |                  | 0.51 |   |                |      | 122,516          |  | 1.06 |                |  |                  | 104,455 |  | 0.64 |  
|Money market deposits |  |                                 | 37,069  |                  | 0.70 |   |                |      | 39,235           |  | 1.46 |                |  |                  | 32,252  |  | 1.37 |  
|Time deposits         |  |                                 | 310,994 |                  | 2.47 |   |                |      | 290,648          |  | 3.59 |                |  |                  | 226,618 |  | 4.53 |  
|Demand deposits       |  |                                 | 27,917  |                  |     |   |                |      | 29,286           |  |     |                |  |                  | 30,573  |  |     |  
|                      |  |                                 |         |                  |      |   |                |      |                  |  |      |                |  |                  |         |  |      |  
|Total Deposits        |  | $                               | 672,263 |                  |      |   |                | $    | 651,520          |  |      |                |  | $                | 513,136 |  |      |  
|                      |  |                                 |         |                  |      |   |                |      |                  |  |      |                |  |                  |         |  |      |  

The following table presents, by various rate categories, the amount of time deposits as of December 31:



|              |  |                  |         |      |   |         |  |   |        
|------------- |  | ---------------- | ------- | ---- | - | ------- |  | - | -------
|Time Deposits |  | 2009             |         | 2008 |   | 2007   
|              |  | ($ in thousands)
|0.00%  0.99% |  | $                | 3,130   |      | $ | 1,117   |  | $ | 3,447  
|1.00%  1.99% |  |                  | 257,229 |      |   | 18,563  |  |   | 13,364 
|2.00%  2.99% |  |                  | 42,670  |      |   | 118,986 |  |   | 8,229  
|3.00%  3.99% |  |                  | 36,041  |      |   | 134,865 |  |   | 15,781 
|4.00%  4.99% |  |                  | 2,201   |      |   | 19,256  |  |   | 195,714
|5.00%  5.99% |  |                  | 2       |      |   | 246     |  |   | 57,653 
|6.00%  6.99% |  |                  |        |      |   |        |  |   | 1,144  
|              |  |                  |         |      |   |         |  |   |        
|Total         |  | $                | 341,273 |      | $ | 293,033 |  | $ | 295,332
|              |  |                  |         |      |   |         |  |   |        

Borrowings

The Bank utilizes advances from the Federal Home Loan Bank of Boston (FHLB) as a funding source alternative to retail deposits. By utilizing
FHLB advances, the Bank can meet its liquidity needs without otherwise being dependent upon retail deposits. These advances are collateralized primarily by mortgage loans and mortgage-backed securities held by the Bank and secondarily by the
Banks investment in capital stock of the FHLB. The maximum amount that the FHLB will advance to member institutions fluctuates from time-to-time in accordance with the policies of the FHLB. At December 31, 2009, the Bank had outstanding
advances of $96.0 million from FHLB compared to advances outstanding of $66.3 million from FHLB at December 31, 2008.



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The following table represents the balances, average amount outstanding, maximum outstanding, and average
interest rates for short-term borrowings reported in Note 8 of the financial statements for the year indicated:



|                                            |  |                  |        |   |      |   |       |      |  |   |        |  
|------------------------------------------- |  | ---------------- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                            |  | 2009             |        |   | 2008 |   |       | 2007 | 
|                                            |  | ($ in thousands) |       
|Balance at year end                         |  | $                | 40,000 |   |      | $ | 5,000 |      |  | $ |       |  
|Average amount outstanding                  |  |                  | 16,233 |   |      |   | 861   |      |  |   | 32,917 |  
|Maximum amount outstanding at any month-end |  |                  | 50,000 |   |      |   | 5,000 |      |  |   | 55,000 |  
|Average interest rate for the year          |  |                  | 0.40   | % |      |   | 1.28  | %    |  |   | 5.31   | %
|Average interest rate on year-end balance   |  |                  | 0.22   | % |      |   | 1.28  | %    |  |   |       |  

REGULATION

General. NHTB is regulated as a savings and loan holding company by the OTS. NHTB is required to file reports with,
and otherwise comply with the rules and regulations of, the OTS and the SEC under the federal securities laws. The Bank, as a federal savings bank, is subject to regulation, examination and supervision by the OTS, as its primary regulator, and the
Federal Deposit Insurance Corporation (FDIC) as its deposit insurer. The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition.

The following references to the laws and regulations under which NHTB and the Bank are regulated are brief summaries thereof, do not purport
to be complete, and are qualified in their entirety by reference to such laws and regulations. The OTS and the FDIC have significant discretion in connection with their supervisory and enforcement activities and examination policies under the
applicable laws and regulations. Any change in such laws, regulations or policies, whether by the OTS, the FDIC, the SEC or the Congress, could have a material adverse impact on NHTB and the Bank, and their operations and stockholders.

Regulation of Federal Savings Associations

Business Activities. The Bank derives its lending and investment powers from the Home Owners Loan Act, as amended (the HOLA), and the regulations of the OTS. Under these laws and
regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities, and certain other assets. The Bank may also establish service corporations that
may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments. The Banks authority to invest in certain types of loans or other investments is limited by federal law and regulation.

Loans to One Borrower. The Bank is generally subject to the same limits on loans to one borrower as a national bank.
With specified exceptions, the Banks total loans or extensions of credit to a single borrower cannot exceed 15% of the Banks unimpaired capital and surplus which does not include accumulated other comprehensive income. The Bank may lend
additional amounts up to 10% of its unimpaired capital and surplus which does not include accumulated other comprehensive income, if the loans or extensions of credit are fully-secured by readily-marketable collateral. The Bank currently complies
with applicable loans-to-one borrower limitations.

QTL Test. Under federal law, the Bank must comply with the
qualified thrift lender, or QTL test. Under the QTL test, the Bank is required to maintain at least 65% of its portfolio assets in certain qualified thrift investments in at least nine months of the most recent
12-month period. Portfolio assets means, in general, the Banks total assets less the sum of:



| |  |  | specified liquid assets up to 20% of total assets;
| | - |  | --------------------------------------------------



| |  |  | goodwill and other intangible assets; and
| | - |  | -----------------------------------------



| |  |  | the value of property used to conduct the Banks business.
| | - |  | ----------------------------------------------------------

Qualified thrift investments include certain assets that are includable without limit, such as residential and manufactured
housing loans, home equity loans, education loans, small business loans, credit card loans, mortgage backed securities, Federal Home Loan Bank stock and certain U.S. government obligations. The term also includes assets that are includable up to 20%
of portfolio assets, such as certain consumer loans and loans in credit-needy areas.

The Bank may also satisfy
the QTL test by qualifying as a domestic building and loan association as defined in the Internal Revenue Code of 1986. The Bank met the QTL test at December 31, 2009, and in each of the prior 12 months, and, therefore, is a
qualified thrift lender. If the Bank fails the QTL test, and is unable to correct that failure for a period of time, it must either operate under certain restrictions on its activities or convert to a bank charter.



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Capital Requirements. OTS regulations require savings associations to meet three
minimum capital standards:



| | (1) | a tangible capital ratio requirement of 1.5% of total assets as adjusted under the OTS regulations;
| | --- | ---------------------------------------------------------------------------------------------------



| | (2) | a leverage ratio requirement of 3.0% of core capital to such adjusted total assets, if the Bank has been assigned the highest composite rating of 1 (one) under the
Uniform Financial Institutions Rating System; the minimum leverage capital ratio for any other depository institution that does not have a composite rating of 1 (one) will be 4.0%;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | a risk-based capital ratio requirement of 8.0% of core and supplementary capital to total risk-based assets, provided that the amount of supplementary capital used to
satisfy this requirement shall not exceed the amount of core capital.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Higher capital ratios may be required if
warranted by the particular circumstances or risk profile of the depository institution. In determining the amount of risk-weighted assets for purposes of the risk-based capital requirement, a savings association must compute its risk-based assets
by multiplying its assets and certain off-balance sheet items by risk-weights, which range from 0% for cash and obligations issued by the United States Government or its agencies to 100% for consumer, commercial loans, home equity and construction
loans and certain other assets as assigned by the OTS capital regulations based on the risks found by the OTS to be inherent in the type of asset. The risk-weight for certain positions in eligible rated securities ranges from 20% for the highest or
second highest rating category to 200% for one rating category below investment grade.

Tangible capital is defined,
generally, as common stockholders equity (including retained earnings), certain noncumulative perpetual preferred stock and related earnings, minority interests in equity accounts of fully consolidated subsidiaries, less intangible assets
(other than certain servicing rights and nonsecurity financial instruments) and investments in and loans to subsidiaries engaged in activities not permissible for a national bank. Core capital (or tier 1 capital) is defined similarly to tangible
capital, but core capital also includes certain qualifying supervisory goodwill and certain purchased credit card relationships. Supplementary capital (or tier 2 capital) includes cumulative and other preferred stock, mandatory convertible debt
securities, subordinated debt and intermediate preferred stock and the allowance for loan and lease losses. In addition, up to 45% of unrealized gains on available-for-sale equity securities with a readily determinable fair value may be included in
tier 2 capital. The allowance for loan and lease losses includable in tier 2 capital is limited to a maximum of 1.25% of risk-weighted assets.

At December 31, 2009, the Bank met each of its capital requirements.The table below presents the Banks regulatory capital as compared to the OTS regulatory capital requirements at
December 31, 2009:



|                   |  |                  |        |                      |   |                |  |   |       
|------------------ |  | ---------------- | ------ | -------------------- | - | -------------- |  | - | ------
|                   |  | Bank             |        | Capital Requirements |   | Excess Capital
|                   |  | ($ in thousands)
|Tangible capital   |  | $                | 78,571 |                      | $ | 13,949         |  | $ | 64,622
|Core capital       |  |                  | 78,571 |                      |   | 37,201         |  |   | 41,370
|Risk-based capital |  |                  | 82,891 |                      |   | 49,964         |  |   | 32,927

Community
Reinvestment Act. Under the Community Reinvestment Act (CRA), as implemented by OTS regulations, the Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for the Bank nor does it limit the Banks discretion to develop the types of products and services that it believes
are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a savings association, to assess the associations record of meeting the credit needs of its community and to
take such record into account in its evaluation of certain applications by such association. The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank received a Satisfactory rating in its most
recent CRA examination, dated March 31, 2009.

The CRA regulations establish an assessment system that bases an
associations rating on its actual performance in meeting community needs. The assessment system for institutions of the Banks size focuses on two tests:



| |  |  | a lending test, to evaluate the institutions record of making loans in its assessment areas;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | a community development test, to evaluate the institutions record of investing in community development projects, affordable housing, and
programs benefiting low or moderate income individuals and businesses in its assessment area or a broader area that includes its assessment area; and to evaluate the institutions delivery of services through its retail banking channels and the
extent and innovativeness of its community development services.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Transactions with Affiliates. The Banks authority to engage in transactions
with its affiliates is limited by the OTS regulations, the Federal Reserve Boards Regulation W and Sections 23A and 23B of the Federal Reserve Act (FRA). In general, these transactions must be on terms which are at least as
favorable to the Bank as comparable transactions with non-affiliates. In addition, certain types of these transactions referred to as covered transactions are subject to quantitative limits based on a percentage of the Banks
capital, thereby restricting the total dollar amount of transactions the Bank may engage in with each individual affiliate and with all affiliates in the aggregate. Affiliates must pledge qualifying collateral in amounts between 100% and 130% of the
covered transaction in order to receive loans from the Bank. In addition, applicable regulations prohibit a savings association from lending to any of its affiliates that engage in activities that are not permissible for bank holding companies and
from purchasing low-quality (e.g., non-performing) assets from an affiliate or purchasing the securities of any affiliate, other than a subsidiary.

Loans to Insiders. The Banks authority to extend credit to its directors, executive officers and principal stockholders, as well as to entities controlled by such persons, is governed by the
requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve Board. Among other things, these provisions require that extensions of credit to insiders:



| |  |  | be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for
comparable transactions with non-insiders and that do not involve more that the normal risk of repayment or present other features that are unfavorable to the Bank; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on
the amount of the Banks capital.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The regulations allow small discounts on fees on residential
mortgages for directors, officers and employees, but, generally, specialized terms must be made widely available to all employees rather than to a select subset of insiders, such as executive officers. In addition, extensions for credit to insiders
in excess of certain limits must be approved by the Banks Board of Directors.

Enforcement. The OTS has primary
enforcement responsibility over savings associations, including the Bank. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers. In
general, these enforcement actions may be initiated in response to violations of laws and regulations and to unsafe or unsound practices.

Prompt Corrective Action Regulations. Under the prompt corrective action (PCA) statute and regulations implemented by the OTS, the OTS is required to take certain, and is authorized to take other,
supervisory actions against savings associations whose capital falls below certain levels. For this purpose, a savings association is placed in one of the following four categories based on the associations capital:



| |  |  | well capitalized;
| | - |  | -----------------



| |  |  | adequately capitalized;
| | - |  | -----------------------



| |  |  | undercapitalized; or
| | - |  | --------------------



| |  |  | critically undercapitalized.
| | - |  | ----------------------------

The PCA statute and regulations provide for progressively more stringent supervisory measures as a savings associations capital category declines. At December 31, 2009, the Bank met the
criteria for being considered well-capitalized.

Standards for Safety and Soundness. Pursuant to the
Federal Deposit Insurance Act, the OTS has adopted a set of guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to areas including internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate systems and practices to identify and
manage the risks and exposures specified in the guidelines.

In addition, the OTS adopted regulations that authorize, but do
not require, the OTS to order an institution that has been given notice that it is not satisfying these safety and soundness standards to submit a compliance plan. If, after being notified, an institution fails to submit an acceptable plan or fails
in any material respect to implement an accepted plan, the OTS must issue an order directing action to correct the deficiency. Further, the OTS may issue an order directing corrective actions and may issue an order directing other actions of the
types to which an undercapitalized association is subject under the prompt corrective action provisions of federal law. If an institution fails to comply with such an order, the OTS may seek to enforce such order in judicial proceedings
and to impose civil money penalties.



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Limitations on Capital Distributions. The OTS imposes various restrictions or
requirements on the Banks ability to make capital distributions, including cash dividends. A savings institution that is the subsidiary of a savings and loan holding company must file a notice with the OTS at least 30 days before making a
capital distribution. The Bank must file an application for prior approval if the total amount of its capital distributions, including the proposed distribution, for the applicable calendar year would exceed an amount equal to the Banks net
income for that year plus the Banks retained net income for the previous two years.

The OTS may disapprove a notice or
application if:



| |  |  | The Bank would be undercapitalized following the distribution;
| | - |  | --------------------------------------------------------------



| |  |  | the proposed capital distribution raises safety and soundness concerns; or
| | - |  | --------------------------------------------------------------------------



| |  |  | the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
| | - |  | -------------------------------------------------------------------------------------------------------

NHTBs ability to pay dividends, service debt obligations and repurchase common stock is dependent upon receipt of dividend payments
from the Bank.

Liquidity. The Bank is required to maintain a sufficient amount of liquid assets to ensure its safe and
sound operation.

Insurance of Deposit Accounts. The Bank is a member of the Deposit Insurance Fund maintained by the
FDIC, and the Bank pays its deposit insurance assessments to the Deposit Insurance Fund. The Deposit Insurance Fund was formed on March 31, 2006, following the merger of the Bank Insurance Fund and the Savings Association Insurance Fund in
accordance with the Federal Deposit Insurance Reform Act of 2005 (DIF Act). In addition to merging the insurance funds, the DIF Act established a statutory minimum and maximum designated reserve ratio for the Deposit Insurance Fund and
granted the FDIC greater flexibility in establishing the required reserve ratio. In its regulations implementing the DIF Act, the FDIC has set the current annual designated reserve ratio for the Deposit Insurance Fund at 1.25%.

In order to maintain the Deposit Insurance Fund, member institutions are assessed an insurance premium. The amount of each
institutions premium is currently based on the balance of insured deposits and the degree of risk the institution poses to the Deposit Insurance Fund. Under the assessment system, the FDIC assigns an institution to one of four risk categories
using a two-step process based first on capital ratios (the capital group assignment) and then on other relevant information (the supervisory subgroup assignment). Each risk category is assigned an assessment rate.

As of January 1, 2009, all insured institutions paid a base rate annual assessment of 12 to 50 basis points (a basis point is $0.01 per
$100 of assessable deposits) for the first quarter of 2009 based on the risk of loss to the Depository Insurance Fund posed by the particular institution. This is a substantial increase from the base rate assessment of 2 to 43 basis points that was
in effect during 2008. The increase in the base rate assessment from 2008 to 2009 is due to the financial crises affecting the banking system and financial markets. For institutions such as the Bank, which do not have a long-term public debt rating,
the individual risk assessment is based on its supervisory ratings and certain financial ratios and other measurements of its financial condition. For institutions that have a long-term public debt rating, the individual risk assessment is based on
its supervisory ratings and its debt rating.

On February 27, 2009, the FDIC issued new rules to take effect
April 1, 2009 that changed the way the FDIC differentiates risk and appropriate assessment rates. Base assessment rates set that took affect on April 1, 2009 ranged from 12 to 45 basis points, but giving effect to certain risk adjustments
in the rule issued by the FDIC on February 27, 2009, assessments range from 7 to 77.5 basis points. In addition, the FDIC also issued an interim rule on February 27, 2009 that imposed an emergency special assessment of 5 basis points on
adjusted assets in addition to its risk-based assessment. This assessment was imposed on June 30, 2009 and collected on September 30, 2009. Due to the systemic increase in deposit insurance assessments, and the special emergency
assessment, the Bank will be subject to increased deposit premium expenses in future periods.

On October 14, 2008, the
FDIC announced a new program, the Temporary Liquidity Guarantee Program (TLGP), that provides unlimited deposit insurance on funds invested in noninterest-bearing transaction deposit accounts in excess of the existing deposit insurance
limit of $250,000. Participating institutions are assessed a $0.10 surcharge per $100 of deposits above the existing deposit insurance limit. The TLGP also provides that the FDIC, for an additional fee, will guarantee qualifying senior unsecured
debt issued prior to October 2009 by participating banks and certain qualifying holding companies. The Bank opted to remain in the transaction account guarantee portion of the TLGP, but opted out of the debt guarantee portion.



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In addition, all FDIC-insured institutions are required to pay a pro rata portion of the
interest due on obligations issued by the Financing Corporation to fund the closing and disposal of failed thrift institutions by the Resolution Trust Corporation. At December 31, 2009, the Federal Deposit Insurance Corporation assessed Deposit
Insurance Fund-insured deposits 1.30 basis points per $100 of deposits to cover those obligations. The Financing Corporation rate is adjusted quarterly to reflect changes in assessment bases of the Deposit Insurance Fund. This obligation will
continue until the Financing Corporation bonds mature in 2017.

Federal Home Loan Bank System. The Bank is a member of
the Federal Home Loan Bank of Boston, which is one of the regional FHLBs comprising the FHLB System. Each FHLB provides a central credit facility primarily for its member institutions. The Bank, as a member of the FHLB of Boston, is required to
acquire and hold shares of capital stock in the FHLB of Boston. While the required percentages of stock ownership are subject to change by the FHLB, the Bank was in compliance with this requirement with an investment in FHLB of Boston stock at
December 31, 2009 of $6.2 million. Any advances from a FHLB must be secured by specified types of collateral, and all long-term advances may be obtained only for the purpose of providing funds for residential housing finance.

The FHLBs are required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs.
These requirements could reduce the amount of earnings that the FHLBs can pay as dividends to their members and could also result in the FHLBs imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on
future FHLB advances increased, the Banks net interest income would be affected.

On January 28, 2009, the FHLB of
Boston notified its members via a letter from its President of its focus on preserving capital in response to ongoing market volatility. The letter outlined that actions taken by the FHLB of Boston included an excess stock repurchase moratorium, an
increased retained earnings target, and quarterly dividend payout restrictions, and indicated that members will likely face quarters where there is little to no dividend payout. The FHLB of Boston also indicated that it could not indicate when
dividends might edge closer to historical levels.

Federal Reserve System.Under regulations of the FRB, the Bank is
required to maintain noninterest-earning reserves against its transaction accounts (primarily NOW and regular checking accounts). The FRB regulations exempt $8,500,000 of otherwise reservable balances from the reserve requirements. A 3% reserve is
required for transaction account balances over $9,300,000 and up to $34,600,000. Transaction account balances over $34,600,000 are subject to a reserve requirement of $1,038,000 plus 10% of any amount over $34,600,000. The Bank is in compliance with
the foregoing reserve requirements. Because required reserves must be maintained in the form of vault cash, a noninterest-bearing account at a Federal Reserve Bank, or a pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Banks interest-earning assets. The balances maintained to meet the reserve requirements imposed by the FRB may be used to satisfy liquidity requirements imposed by the OTS. FHLB System members are also authorized
to borrow from the Federal Reserve discount window.

Prohibitions Against Tying Arrangements. The Bank is subject to
prohibitions on certain tying arrangements. A depository institution is prohibited, subject to certain exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or
service, on the condition that the customer obtain some additional product or service from the institution or its affiliates or not obtain services of a competitor of the institution.

The Bank Secrecy Act. The Bank and NHTB are subject to the Bank Secrecy Act, as amended by the USA PATRIOT Act, which gives the
federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers, and mandatory transaction reporting obligations. By way of example, the Bank Secrecy Act imposes
an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious.

Title III of the USA PATRIOT Act takes measures intended to encourage information sharing among financial institutions, bank regulatory agencies and law enforcement bodies. Further, certain provisions of
Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the Commodity Exchange Act. Among other requirements,
the USA PATRIOT Act imposes the following obligations on financial institutions:



| |  |  | financial institutions must establish anti-money laundering programs that include, at minimum: (i) internal policies, procedures, and controls,
(ii) specific designation of an anti-money laundering compliance officer, (iii) ongoing employee training programs, and (iv) an independent audit function to test the anti-money laundering program;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | financial institutions must establish and meet minimum standards for customer due diligence, identification and verification;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | financial institutions that establish, maintain, administer, or manage private banking accounts or correspondent
| | - |  | ----------------------------------------------------------------------------------------------------------------



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| | accounts in the United States for non-United States persons or their representatives (including foreign individuals visiting the United States) must establish appropriate, specific, and, where
necessary, enhanced due diligence policies, procedures, and controls designed to detect and report money laundering through those accounts;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | financial institutions are prohibited from establishing, maintaining, administering or managing correspondent accounts for foreign shell banks (foreign
banks that do not have a physical presence in any country), and are subject to certain recordkeeping obligations with respect to correspondent accounts of foreign banks; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | bank regulators are directed to consider a banks or holding companys effectiveness in combating money laundering when ruling on Federal
Reserve Act and Bank Merger Act applications.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Office of Foreign Asset Control. The Bank and NHTB,
like all United States companies and individuals, are prohibited from transacting business with certain individuals and entities named on the Office of Foreign Asset Controls list of Specially Designated Nationals and Blocked Persons. Failure
to comply may result in fines and other penalties. The Office of Foreign Asset Control issued guidance directed at financial institutions in which it asserted that it may, in its discretion, examine institutions determined to be high-risk or to be
lacking in their efforts to comply with these prohibitions.

Holding Company Regulation

NHTB is a savings and loan holding company regulated by the OTS. As such, NHTB is registered with and subject to OTS examination and
supervision, as well as certain reporting requirements. In addition, the OTS has enforcement authority over NHTB and any of its non-savings institution subsidiaries. Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary savings institution. Unlike bank holding companies, federal savings and loan holding companies are not subject to regulatory capital
requirements or to supervision by the FRB.

HOLA prohibits a savings and loan holding company, directly or indirectly, or
through one or more subsidiaries, from acquiring control (as defined under HOLA) of another savings institution without prior OTS approval. In addition, a savings and loan holding company is prohibited from directly or indirectly acquiring,
(i) through mergers, consolidation or purchase of assets, another savings association or a holding company thereof, or acquiring all or substantially all of the assets of such association or company without prior OTS approval; and
(ii) control of any depository institution not insured by the FDIC (except through a merger with and into the holding companys savings institution association that is approved by the OTS).

A savings and loan holding company may not acquire as a separate subsidiary an insured institution that has a principal office outside of
the state where the principal office of its subsidiary institution in located, except, (i) in the case of certain emergency acquisitions approved by the FDIC; (ii) if the holding company controls a savings institution subsidiary that
operated a home or branch office in such additional state as of March 5, 1987; or (iii) if the laws of the home state of the savings institution to be acquired specifically authorize a savings institution chartered by that state to be
acquired by a savings institution chartered by the state where the acquiring savings institution or savings and loan holding company is located or by a holding company that controls such a state chartered association.

Laws governing savings and loan holding companies historically have classified such entities based upon the number of thrift institutions
which they control. NHTB is classified as a unitary savings and loan holding company because it controls only one thrift, the Bank. Under the Gramm Leach Bliley Act of 1999 (GLB Act), any company which becomes a unitary savings and loan holding
company pursuant to a charter application filed with the OTS after May 4, 1999, is prohibited from engaging in non-financial activities or affiliating with non-financial companies. All unitary savings and loan holding companies in existence
prior to May 4, 1999, such as NHTB, are grandfathered under the GLB Act and may continue to operate as unitary savings and loan holding companies without any limitations in the types of businesses with which they may engage at the
holding company level, provided that the thrift subsidiary of the holding company continues to satisfy the QTL test.

Transactions between the Bank and NHTB and its other subsidiaries are subject to various conditions and limitations. See Regulation of Federal Savings Associations - Transactions with Affiliates and Regulation of Federal
Savings Associations - Limitation on Capital Distributions.

The Sarbanes-Oxley Act. As a public company, NHTB is
subject to the Sarbanes-Oxley Act. The Sarbanes-Oxley Acts principal legislation and the derivative regulation and rule making promulgated by the SEC includes:



| |  |  | the creation of an independent accounting oversight board;
| | - |  | ----------------------------------------------------------



79



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| |  |  | auditor independence provisions which restrict non-audit services that accountants may provide to their audit clients;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | additional corporate governance and responsibility measures, including the requirement that the chief executive officer and chief financial officer
certify financial statements;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a requirement that companies establish and maintain a system of internal control over financial reporting and that a companys management provide
an annual report regarding its assessment of the effectiveness of such internal control over financial reporting to the companys independent accountants and that such accountants provide an attestation report with respect to managements
assessment of the effectiveness of the companys internal control over financial reporting;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuers securities by directors and senior
officers in the twelve month period following initial publication of any financial statements that later require restatement;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in the oversight of, and enhancement of certain requirements relating to audit committees of public companies and how they interact with
the companys independent auditors;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the requirement that audit committee members must be independent and are absolutely barred from accepting consulting, advisory or other compensatory
fees from the issuer;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the requirement that companies disclose whether at least one member of the committee is a financial expert (as such term is defined by the
Securities and Exchange Commission) and if not, why not;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expanded disclosure requirements for corporate insiders, including accelerated reporting of stock transactions by insiders and a prohibition on insider
trading during pension blackout periods;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | mandatory disclosure by analysts of potential conflicts of interest; and
| | - |  | ------------------------------------------------------------------------



| |  |  | a range of enhanced penalties for fraud and other violations.
| | - |  | -------------------------------------------------------------

Section 402 of the Sarbanes-Oxley Act of 2002 prohibits the extension of personal loans to directors and executive officers of issuers
(as defined in Sarbanes-Oxley). The prohibition, however, does not apply to mortgages advanced by an insured depository institution, such as the Bank, that are subject to the insider lending restrictions of Section 22(h) of the Federal Reserve
Act.

Although NHTB anticipates that it will incur additional expense in complying with the provisions of the Sarbanes-Oxley
Act and the resulting regulations, management does not expect that such compliance will have a material impact on its results of operations or financial condition.

Federal Securities Laws. NHTBs common stock is registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (Exchange Act). NHTB is subject to
information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Quotation on
Nasdaq. NHTBs common stock is quoted on The Nasdaq Stock Market (NASDAQ). In order to maintain such quotation, NHTB is subject to certain corporate governance requirements, including:



| |  |  | a majority of its board must be composed of independent directors;
| | - |  | ------------------------------------------------------------------



| |  |  | the requirement to have an audit committee composed of at least three directors, each of whom is an independent director, as such term is defined by
both the rules of the NASDAQ and by the Exchange Act, as amended, regulations promulgated thereunder;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | that the nominating committee and compensation committee must also be composed entirely of independent directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



80



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| |  |  | that the audit committee and nominating committee must each have a publicly available written charter.
| | - |  | ------------------------------------------------------------------------------------------------------

Taxation

A thrift
institution organized in stock form which utilizes the bad debt reserve method for bad debt will be subject to certain recapture taxes on such reserves in the event it makes certain types of distributions to its stockholders. Dividends may be paid
out of appropriated retained income without the imposition of any tax on an institution to the extent that the amounts paid as dividends do not exceed such current and accumulated earnings and profits as calculated for federal income tax purposes.
Stock redemptions, dividends paid in excess of an institutions current and accumulated earnings and profits as calculated for tax purposes, and partial or complete liquidation distributions made with respect to an institutions stock,
however, are deemed under applicable provisions of the Code to be made from the institutions bad debt reserve, to the extent that such reserve exceeds the amount that could have been accumulated under the actual experience method. In the event
a thrift institution makes a distribution that is treated as having been made from the tax bad debt reserve, the distribution is treated as an after tax distribution and the institution will be liable for tax on the gross amount before tax at the
then current tax rate. Amounts added to the bad debt reserves for federal income tax purposes are also used by the Bank to meet the OTS reserve requirements described under Regulation-Insurance of Accounts.

The Banks tax returns have been audited and accepted through December 31, 1996 by the Internal Revenue Service.

State Income Tax

The Bank
is subject to an annual Business Profits Tax imposed by the State of New Hampshire at the rate of 8.50% of the total amount of federal taxable income, less deductions for interest earned on United States government securities. The State of New
Hampshire has also instituted a Business Enterprise Tax, which places a tax on certain expense items. Interest, dividends, wages, benefits and pensions are taxed at a rate of 0.50%. Business Enterprise Taxes are allowed as a credit against the
Business Profits Tax.

Upon conversion to a holding company, NHTB became subject to a state franchise tax imposed by Delaware.
For the year ended 2009, the Delaware franchise tax amounted to $43,323.

EMPLOYEES

At December 31, 2009, Lake Sunapee Bank had a total of 219 full-time employees, 21 part-time employees and 9 per-diem employees.
These employees are not represented by collective bargaining agents. The Bank believes that its relationship with its employees is good.



|Item 2. | Properties
|------- | ----------

The following table sets
forth the location of the Banks offices and certain additional information relating to these offices at December 31, 2009:



|                     |  |            |  |                |  |                         |           |                     |  |  | 
|-------------------- |  | ---------- |  | -------------- |  | ----------------------- | --------- | ------------------- |  |  | 
|Location             |  | YearOpened |  | Net Book Value |  | ExpirationDate of Lease |           | Lease RenewalOption
|                     |  | Leased     |  | Owned          |  |                        
|                     |  |            |  |                | 
|9 Main Street        |  |            |  |                |  |                         |           |                     |  |  | 
|Newport, NH          |  | 1868       |  |                |  | $                       | 1,658,367 |                     |  |  | 
|                     |  |            |  |                | 
|565 Route 11         |  |            |  |                |  |                         |           |                     |  |  | 
|Sunapee, NH          |  | 1965       |  |                |  | $                       | 55,443    |                     |  |  | 
|                     |  |            |  |                | 
|115 East Main Street |  |            |  |                |  |                         |           |                     |  |  | 
|Bradford, NH         |  | 1975       |  |                |  | $                       | 383,708   |                     |  |  | 
|                     |  |            |  |                | 
|300 Sunapee Street   |  |            |  |                |  |                         |           |                     |  |  | 
|Newport, NH          |  | 1978       |  |                |  | $                       | 61,505    |                     |  |  | 
|                     |  |            |  |                | 
|165 Route 10 South   |  |            |  |                |  |                         |           |                     |  |  | 
|Grantham, NH         |  | 1980       |  |                |  | $                       | 293,072   |                     |  |  | 
|                     |  |            |  |                | 
|116 Newport Road     |  |            |  |                |  |                         |           |                     |  |  | 
|New London, NH       |  | 1981       |  |                |  | $                       | 752,908   |                     |  |  | 
|                     |  |            |  |                | 
|200 Heater Road      |  |            |  |                |  |                         |           |                     |  |  | 
|Lebanon, NH          |  | 1986       |  |                |  | $                       | 418,625   |                     |  |  | 
|                     |  |            |  |                | 
|106 Hanover Street   |  |            |  |                |  |                         |           |                     |  |  | 
|Lebanon, NH          |  | 1997       |  |                |  | $                       | 1,659,836 |                     |  |  | 
|                     |  |            |  |                | 
|15 Antrim Road       |  |            |  |                |  |                         |           |                     |  |  | 
|Hillsboro, NH        |  | 1994       |  |                |  | $                       | 719,754   |                     |  |  | 
|                     |  |            |  |                | 
|321 Main Street      |  |            |  |                |  |                         |           |                     |  |  | 
|New London, NH       |  | 1999       |  |                |  | $                       | 1,072,244 |                     |  |  | 
|                     |  |            |  |                | 
|32 Elm Street        |  |            |  |                |  |                         |           |                     |  |  | 
|Milford, NH          |  | 2006       |  |                |  | $                       | 1,126,904 |                     |  |  | 



81



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|                             |  |            |  |                |         |                         |   |                     |  |      |  |         
|---------------------------- |  | ---------- |  | -------------- | ------- | ----------------------- | - | ------------------- |  | ---- |  | --------
|(Continued) Location         |  | YearOpened |  | Net Book Value |         | ExpirationDate of Lease |   | Lease RenewalOption
|                             |  | Leased     |  | Owned          |         |                        
|2 Park Street                |  |            |  |                |         |                         |   |                     |  |      |  |         
|Brandon, VT                  |  | 2007       |  |                |         |                         | $ | 1,061,653           |  |      |  |         
|                             |  |            |  |                |        
|Route 4 and Depot Hill Road. |  |            |  |                |         |                         |   |                     |  |      |  |         
|Pittsford, VT                |  | 2007       |  |                |         |                         | $ | 319,849             |  |      |  |         
|                             |  |            |  |                |        
|484 Main Street              |  |            |  |                |         |                         |   |                     |  |      |  |         
|West Rutland, VT             |  | 2007       |  |                |         |                         | $ | 377,814             |  |      |  |         
|                             |  |            |  |                |        
|1340 Franklin Street         |  |            |  |                |         |                         |   |                     |  |      |  |         
|Brandon, VT                  |  | 2007       |  |                |         |                         | $ | 740,451             |  |      |  |         
|                             |  |            |  |                |        
|No. One Bond Street          |  |            |  |                |         |                         |   |                     |  |      |  |         
|Woodstock, VT                |  | 2007       |  |                |         |                         | $ | 969,521             |  |      |  |         
|                             |  |            |  |                |        
|Route 4 West                 |  |            |  |                |         |                         |   |                     |  |      |  |         
|Woodstock, VT                |  | 2007       |  |                |         |                         | $ | 180,814             |  |      |  |         
|                             |  |            |  |                |        
|100 Woodstock Avenue         |  |            |  |                |         |                         |   |                     |  |      |  |         
|Rutland, VT                  |  | 2007       |  |                |         |                         | $ | 487,697             |  |      |  |         
|                             |  |            |  |                |        
|2997 Franklin Street(1)      |  |            |  |                |         |                         |   |                     |  |      |  |         
|Brandon, VT                  |  | 2007       |  |                |         |                         | $ | 740,451             |  |      |  |         
|                             |  |            |  |                |        
|83 Main Street(1)            |  |            |  |                |         |                         |   |                     |  |      |  |         
|West Lebanon, NH             |  | 1994       |  | $              | 105,534 |                         |   |                     |  | 2014 |  | 5 Years 
|                             |  |            |  |                |        
|12 Centerra Pkwy.(1)         |  |            |  |                |         |                         |   |                     |  |      |  |         
|Lebanon, NH                  |  | 1997       |  | $              | 49,471  |                         |   |                     |  | 2012 |  | 10 Years
|                             |  |            |  |                |        
|Route 103(1)                 |  |            |  |                |         |                         |   |                     |  |      |  |         
|Newbury, NH                  |  | 1999       |  | $              | 128,913 |                         |   |                     |  | 2011 |  | 10 Years
|                             |  |            |  |                |        
|7 Lawrence Street(1)         |  |            |  |                |         |                         |   |                     |  |      |  |         
|Andover, NH                  |  | 2003       |  | $              | 296,533 |                         |   |                     |  | 2012 |  | 15 Years
|                             |  |            |  |                |        
|2-4 Main Street(1)           |  |            |  |                |         |                         |   |                     |  |      |  |         
|Peterborough, NH             |  | 2004       |  | $              | 621,918 |                         |   |                     |  | 2014 |  | 25 Years
|                             |  |            |  |                |        
|468 US Route 4(1)            |  |            |  |                |         |                         |   |                     |  |      |  |         
|Enfield, NH                  |  | 2005       |  | $              | 365,583 |                         |   |                     |  | 2014 |  | 15 Years
|                             |  |            |  |                |        
|345 Washington Street(1)     |  |            |  |                |         |                         |   |                     |  |      |  |         
|Claremont, NH                |  | 2005       |  | $              | 271,030 |                         |   |                     |  | 2014 |  | 5 Years 
|                             |  |            |  |                |        
|12 South Street(1)           |  |            |  |                |         |                         |   |                     |  |      |  |         
|Hanover, NH                  |  | 2007       |  | $              | 168,845 |                         |   |                     |  | 2016 |  | 10 Years
|                             |  |            |  |                |        
|104-110 Merchants Row(1)     |  |            |  |                |         |                         |   |                     |  |      |  |         
|Rutland, VT                  |  | 2007       |  | $              | 20,676  |                         |   |                     |  | 2011 |  | 12 Years



|(1) | Operating lease, value of improvements.
|--- | ---------------------------------------



|Item 3. | Legal Proceedings
|------- | -----------------

There is no material
litigation pending in which the Company is a party or to which the property of the Company is subject, other than ordinary routine litigation incidental to the Companys business.



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|Item 4. | Reserved
|------- | --------



83



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##### Table of Contents

PART II.



|Item 5. | Market for the Registrants Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ---------------------------------------------------------------------------------------------------------------

The following table shows the market range for the Companys common stock based on reported sales prices on the NASDAQ Global Market. New Hampshire
Thrift Bancshares, Inc. is traded under the symbol NHTB.



|     |  |                |  |      |        |     |   |       
|---- |  | -------------- |  | ---- | ------ | --- | - | ------
|     |  | Period         |  | High |        | Low
|2009 |  | First Quarter  |  | $    | 8.300  |     | $ | 6.400 
|     |  | Second Quarter |  |      | 10.400 |     |   | 6.950 
|     |  | Third Quarter  |  |      | 10.380 |     |   | 9.210 
|     |  | Fourth Quarter |  |      | 9.990  |     |   | 8.770 
|2008 |  | First Quarter  |  | $    | 13.400 |     | $ | 11.450
|     |  | Second Quarter |  |      | 12.490 |     |   | 10.350
|     |  | Third Quarter  |  |      | 10.706 |     |   | 8.510 
|     |  | Fourth Quarter |  |      | 9.700  |     |   | 6.250 

The bid quotations set forth above
represent prices between dealers and do not include retail mark-ups, mark-downs or commissions and may not represent actual transactions. As of March 17, 2010, the Company had approximately 761 stockholders of record. The number of stockholders
does not reflect the number of persons or entities who held their stock in nominee or street name through various brokerage firms.

The following table sets forth certain information regarding per share dividends declared on the Companys common stock:



|               |  |      |        |      |   |       
|-------------- |  | ---- | ------ | ---- | - | ------
|               |  | 2009 |        | 2008
|First Quarter  |  | $    | 0.1300 |      | $ | 0.1300
|Second Quarter |  |      | 0.1300 |      |   | 0.1300
|Third Quarter  |  |      | 0.1300 |      |   | 0.1300
|Fourth Quarter |  |      | 0.1300 |      |   | 0.1300

For information regarding
limitations on the declaration and payment of dividends by New Hampshire Thrift Bancshares, Inc., see Note 16 of the Consolidated Financial Statements.

On January 11, 2007, the Company reactivated a previously adopted but uncompleted stock repurchase program. Repurchases will be made from time to time at the discretion of management. The stock
repurchase program continued until 214,679 shares were repurchased. On June 20, 2007, the Company reactivated a previously adopted but uncompleted stock repurchase program. Repurchases were made from time to time at the discretion of
management. The stock repurchase program will continue until 253,776 shares are repurchased. As of December 31, 2009, 237,500 shares of common stock had been repurchased. During 2009, no shares were repurchased.

The following table provides information regarding repurchases of our common stock in each month of the quarter ended December 31,
2009:



|                                    |  |                                  |  |                            |  |                                                                                 |  |                                                                              
|----------------------------------- |  | -------------------------------- |  | -------------------------- |  | ------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------
|Period                              |  | Total numberof sharesrepurchased |  | Averageprice paidper share |  | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms(1) |  | Maximum Number ofShares that may yetbe Purchased underthe Plans orPrograms(1)
|October 1, 2009  December 31, 2009 |  |                                 |  |                           |  |                                                                                |  | 148,088                                                                      
|Total                               |  |                                 |  |                           |  |                                                                                |  | 148,088                                                                      



|(1) | The Company
announced a stock repurchase program on June 20, 2007. The program will continue until the repurchase of 253,776 shares is complete.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The information called for by this item is contained on pages 5 through 24 of this document.



|Item 7A. | Quantitative and Qualitative Disclosures about Market Risk
|-------- | ----------------------------------------------------------

The information called for by this item is contained on pages 5 through 24 of this document.



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##### Table of Contents

|Item 8. | Financial Statements
|------- | --------------------

The report of
independent registered public accounting firm and the financial information called for by this item are contained on pages 25 through 63 of this document.



|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None.



|Item 9A(T). | Controls and Procedures
|----------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Management, including the Companys President and Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon
that evaluation, the Companys President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports the Company
files and submits under the Exchange Act is (i) recorded, processed, summarized and reported as and when required, and (ii) accumulated and communicated to the Companys management, including the Companys President and Chief
Executive Officer and the Companys Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Companys internal control over financial reporting identified in connection with the evaluation that occurred during the Companys last fiscal quarter that has materially affected, or that is
reasonably likely to materially affect, the Companys internal control over financial reporting.

Management Report
on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) of the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2009. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework. Based on our assessment we believe that, as of December 31, 2009, the Companys internal control over financial reporting is
effective based on those criteria.

This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.



|Item 9B. | Other Information
|-------- | -----------------

None.

PART III.



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and
related transactions is incorporated by reference herein from the Companys definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on May 13, 2010, which definitive proxy statement will be filed with
the Securities and Exchange Commission as part of the proxy statement to be filed on or about March 29, 2010.



85



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Code of Ethics. The Company has adopted a Code of Ethics Policy, which applies to all employees,
directors and officers of the Company and Lake Sunapee Bank. The Company has also adopted a Code of Ethics for Senior Financial Officers of the Company, which applies to the Companys principal executive officer, principal financial officer,
principal accounting officer or controller or person performing similar functions for the Company and Lake Sunapee Bank, and which requires compliance with the Conflict of Interest Policy and Code of Conduct. The Code of Ethics for Senior Financial
Officers of the Company meets the requirements of a code of ethics as defined by Item 406 of Regulation S-K. The Code of Ethics for Senior Financial Officers was filed as Exhibit 14.1 to the Form 10-K for the year ended
December 31, 2003.

You may obtain a copy of the Code of Ethics for Senior Financial Officers, free of charge, by sending a request in
writing to Laura Jacobi at the following address:

Laura Jacobi

Corporate Secretary

New Hampshire Thrift Bancshares, Inc.

9 Main Street

P.O. Box 9

Newport, New Hampshire 03773-0009



|Item 11. | Executive Compensation
|-------- | ----------------------

Certain
information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein
from the Companys definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on May 13, 2010, which definitive proxy statement will be filed with the Securities and Exchange Commission as part of the proxy
statement to be filed on or about March 29, 2010.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
|-------- | -----------------------------------------------------------------------------------------------

Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and
management, and certain relationships and related transactions is incorporated by reference herein from the Companys definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on May 13, 2010 which
definitive proxy statement will be filed with the Securities and Exchange Commission as part of the proxy statement to be filed on or about March 29, 2010.



86



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The following table sets forth the aggregate information of our equity compensation plans in
effect as of December 31, 2009.



|                                                           |  |                                                                                         |  |                                                                           |       |                                                                                                                                        |  
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------- | ----- | -------------------------------------------------------------------------------------------------------------------------------------- | -
|Plan category                                              |  | Number of securitiesto be
issuedupon exercise ofoutstanding options,warrants and rights |  | Weighted-average exerciseprice of outstandingoptions, warrants and rights |       | Number of securitiesremaining available for futureissuance under equitycompensation
plans(excluding securitiesreflected in column (a))
|                                                           |  | (a)                                                                                     |  | (b)                                                                       |       | (c)                                                                                                                                   
|Equity compensation plans approved by security holders     |  | 308,042                                                                                 |  | $                                                                         | 12.64 |                                                                                                                                        | 
|                                                           |  |                                                                                         | 
|Equity compensation plans not approved by security holders |  |                                                                                        |  |                                                                           |      |                                                                                                                                        | 
|                                                           |  |                                                                                         |  |                                                                           |       |                                                                                                                                        |  
|Total                                                      |  | 308,042                                                                                 |  | $                                                                         | 12.64 |                                                                                                                                        | 
|                                                           |  |                                                                                         |  |                                                                           |       |                                                                                                                                        |  



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and
related transactions is incorporated by reference herein from the Companys definitive proxy statement in connection with its Annual Meeting of Stockholders to be held on May 13, 2010 which definitive proxy statement will be filed with the
Securities and Exchange Commission as part of the proxy statement to be filed on or about March 29, 2010.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

Information regarding the aggregate fees billed for each of the last two fiscal years by NHTBs principal accountant is incorporated by reference herein from NHTBs definitive proxy statement in connection with its Annual Meeting
of Stockholders to be held on May 13, 2010 which definitive proxy statement will be filed with the Securities and Exchange Commission as part of the proxy statement to be filed on or about March 29, 2010.

PART IV.



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------

The exhibits filed as a part of this Registration Statement are as follows:

(a) Listed below are all financial
statements filed as part of this report:



| | (1) | The consolidated balance sheets of New Hampshire Thrift Bancshares, Inc. and Subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements
of income, changes in stockholders equity, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009, together with the related notes and the report of independent registered public
accounting firm of Shatswell, MacLeod & Company, P.C. independent public accountants.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Schedules omitted as they are not applicable.
| | --- | ---------------------------------------------

(b) List of Exhibits. (Filed herewith unless otherwise noted.)



|           |  |                                                                                                                                                                                                                                                                        
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNo. |  | Description                                                                                                                                                                                                                                                            
|           | 
|2.1        |  | Agreement and Plan of Merger by and between NHTB and First Brandon Financial Corporation dated as of December 14, 2006 (filed as Exhibit 2.5 to NHTBs Current Report on Form 8-K filed with the Commission on December 15,
2006 and incorporated by reference herein).
|           | 
|2.2        |  | Agreement and Plan of Merger by and between NHTB and First Community Bank dated as of April 16, 2007 (filed as Exhibit 2.6 to NHTBs Current Report on Form 8-K filed with
Commission on April 16, 2007 and incorporated by reference herein).                         
|           | 
|3.1.1      |  | Amended and Restated Certificate of Incorporation of NHTB (filed as Exhibit 3.1 to NHTBs Registration Statement on Form S-4, as amended, filed with the Commission on
November 5, 1996 and incorporated herein by reference).                                         



87



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|3.1.2 |  | Certificate of Amendment of the Certificate of Incorporation of NHTB (filed as Exhibit 3.1 to NHTBs Form 10-Q for the quarter ended June 30, 2005 filed with the
Commission on August 15, 2005 and incorporated herein by reference).                                                                                                                                          
|      | 
|3.1.3 |  | Certificate of Designations establishing the rights of NHTBs Fixed Rate Cumulative Perpetual Preferred Stock, Series A (filed as Exhibit 3.1 to NHTBs Current Report on
Form 8-K filed with the Commission on January 22, 2009 and incorporated herein by reference).                                                                                                         
|      | 
|3.2.1 |  | Amended and Restated Bylaws of NHTB (filed as Exhibit 3.2.3 NHTBs Annual Report on Form 10-KSB for the year ended December 31, 1997 filed with the Commission on
March 5, 1998 and incorporated herein by reference).                                                                                                                                                          
|      | 
|3.2.2 |  | Amendment to Bylaws of NHTB (filed as an Exhibit 3.2(a) to NHTBs Current Report on Form 8-K filed with the Commission on March 11, 2005 and incorporated herein by
reference).                                                                                                                                                                                                 
|      | 
|3.2.3 |  | Amendment to Bylaws of NHTB (filed as an Exhibit 3.2.2 to NHTBs Current Report on Form 8-K filed with the Commission on October 1, 2007 and incorporated herein by
reference).                                                                                                                                                                                                 
|      | 
|4.1   |  | Stock Certificate of NHTB (filed as Exhibit to NHTBs Registration Statement on Form S-4 filed with the Commission on March 1, 1989 and incorporated herein by reference).                                                                                                                                                                                                      
|      | 
|4.2   |  | Indenture by and between NHTB, as Issuer, and U.S. Bank National Association, as Trustee, dated March 30, 2004 for Floating Rate Junior Subordinated Deferrable Interest Debentures (filed as Exhibit 4.2 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Commission on March 29, 2005 and incorporated herein by
reference).          
|      | 
|4.3   |  | Form of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by NHTB to U.S. Bank National Association dated March 30, 2004 (filed as Exhibit A to Exhibit
4.2 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Commission on March 29, 2004 and incorporated herein by reference).                                  
|      | 
|4.4   |  | Indenture by and between New NHTB, as Issuer, and U.S. Bank National Association, as Trustee, dated March 30, 2004 for Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (filed as Exhibit 4.4 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Commission on March 29, 2005 and incorporated herein by
reference).
|      | 
|4.5   |  | Form of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures issued by NHTB to U.S. Bank National Association dated March 30, 2004 (filed as Exhibit A to Exhibit 4.4 to NHTBs Annual Report on Form 10-K for the year
ended December 31, 2004 filed with the Commission on March 29, 2005 and incorporated herein by reference).                            
|      | 
|4.6   |  | Form of specimen stock certificate for NHTBs Fixed Rate Cumulative Perpetual Preferred Stock, Series A (filed as Exhibit 4.1 to NHTBs Current Report on Form 8-K
filed with the Commission on January 22, 2009 and incorporated herein by reference).                                                                                                                         
|      | 
|4.7   |  | Warrant to purchase shares of NHTB common stock (filed as Exhibit 4.2 to NHTBs Current Report on Form 8-K filed with the Commission on January 22, 2009 and incorporated
herein by reference).                                                                                                                                                                                 
|      | 
|10.1  |  | Profit Sharing-Stock Ownership Plan of Lake Sunapee Bank, fsb (filed as Exhibit 10.1 to NHTBs Registration Statement on Form S-4, as amended, filed with the Commission on
November 5, 1996 and incorporated herein by reference).                                                                                                                                             
|      | 
|10.2  |  | New Hampshire Thrift Bancshares, Inc. 1996 Stock Option Plan (filed as Exhibit 10.2 to NHTBs Registration Statement on Form S-4, as amended, filed with the Commission on
November 5, 1996 and incorporated herein by reference).                                                                                                                                              
|      | 
|10.3  |  | Employment Agreement between NHTB and Stephen W. Ensign (filed as Exhibit 10.5 to NHTBs Registration Statement on Form S-4, as amended, filed with the Commission on
November 5, 1996 and incorporated herein by reference).                                                                                                                                                   



88



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|      |  |                                                                                                                                                                                                                                                                                                                                                                         
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.4  |  | Employment Agreement between Lake Sunapee Bank, fsb and Steven R. Theroux (filed as Exhibit 10.6 to NHTBs Registration Statement on Form S-4, as amended, filed with the
Commission on November 5, 1996 and incorporated herein by reference).                                                                                                                         
|      | 
|10.5  |  | Guarantee Agreement by and between NHTB and U.S. Bank National Association dated March 30, 2004 (filed as Exhibit 10.7 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Commission on
March 29, 2005 and incorporated herein by reference).                                                                                     
|      | 
|10.6  |  | Guarantee Agreement by and between New NHTB and U.S. Bank National Association dated March 30, 2004 (filed as Exhibit 10.8 to NHTBs Annual Report on Form 10-K for the
year ended December 31, 2004 filed with the Commission on March 29, 2005 and incorporated herein by reference).                                                                                 
|      | 
|10.7  |  | NHTBs 1998 Stock Option Plan (filed as Appendix A to NHTBs Definitive Proxy Statement filed with the Commission on March 6, 1998 and incorporated herein by
reference).                                                                                                                                                                                               
|      | 
|10.8  |  | NHTBs 2004 Stock Incentive Plan (filed as Appendix B to NHTBs Definitive Proxy Statement filed with the Commission on April 8, 2004 and incorporated herein by
reference).                                                                                                                                                                                            
|      | 
|10.9  |  | Amended and Restated Supplemental Executive Retirement Plan of New Hampshire Thrift Bancshares, Inc. (filed as Exhibit 10.9 to NHTBs Current Report on Form 8-K filed with Commission on December 14, 2005 and incorporated herein by
reference).                                                                                                                      
|      | 
|10.10 |  | Amendment to the Supplemental Executive Retirement Plan of New Hampshire Thrift Bancshares, Inc. (filed as Exhibit 10.9 to NHTBs Current Report on Form 8-K filed with Commission on March 14, 2006 and incorporated herein by
reference).                                                                                                                             
|      | 
|10.11 |  | Amendment to the Supplemental Executive Retirement Plan of New Hampshire Thrift Bancshares, Inc. (filed as Exhibit 10.13 to NHTBs Current Report on Form 8-K filed with Commission on March 14, 2006 and incorporated herein by
reference).                                                                                                                            
|      | 
|10.12 |  | Forms of Executive Salary Continuation Agreement among NHTB, Lake Sunapee Bank, fsb and Stephen W. Ensign and Stephen R. Theroux (filed as Exhibit 10.14 to NHTBs Current
Report on Form 8-K filed with Commission on March 14, 2006 and incorporated herein by reference).                                                                                            
|      | 
|10.13 |  | Letter Agreement, dated as of January 16, 2009, between New Hampshire Thrift Bancshares, Inc. and the United States Department of the Treasury, and the Securities Purchase
Agreement  Standard Terms attached thereto (filed as Exhibit 10.1 to NHTBs Current Report on Form 8-K filed with the Commission on January 22, 2009 and incorporated herein by reference).
|      | 
|13.1  |  | Annual Report to Stockholders for the year ended December 31, 2009.                                                                                                                                                                                                                                                                                                     
|      | 
|14.1  |  | Code of Ethics (filed as Exhibit 14.1 to NHTBs Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Commission on March 30, 2004 and
incorporated herein by reference).                                                                                                                                                                      
|      | 
|21.1  |  | Subsidiaries of NHTB.                                                                                                                                                                                                                                                                                                                                                   
|      | 
|23.1  |  | Consent of Shatswell, MacLeoad & Company, P.C.                                                                                                                                                                                                                                                                                                                          
|      | 
|31.1  |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by the Principal Executive Officer.                                                                                                                                                                                                                                                     
|      | 
|31.2  |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by the Principal Financial Officer.                                                                                                                                                                                                                                                     
|      | 
|32.1  |  | Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Principal Executive Officer.                                                                                                                                                                                                                                                 
|      | 
|32.2  |  | Written statement pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by the Principal Financial Officer.                                                                                                                                                                                                                                                 



89



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Signatures

Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                                      |  |                          |  |                                       |  |               
|------------------------------------- |  | ------------------------ |  | ------------------------------------- |  | --------------
|New Hampshire Thrift Bancshares, Inc. |  |                          |  |                                      
|                                      |  |                          | 
|By:                                   |  | /S/    STEPHEN W.
ENSIGN |  | Chairman of the Board                 |  | March 29, 2010
|                                      |  | (Stephen W. Ensign)      |  | President and Chief Executive Officer |  |               
|                                      |  |                          |  | (Principal Executive Officer)         |  |               

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                            |  |                                                                           |  |               
|--------------------------- |  | ------------------------------------------------------------------------- |  | --------------
|Name                        |  | Title                                                                     |  | Date          
|                            |  |                                                                          
|/S/    STEPHEN W.
ENSIGN    |  | Chairman of the Board                                                     |  | March 29, 2010
|(Stephen W. Ensign)         |  | and Chief Executive Officer                                               |  |               
|                            |  | (Principal Executive Officer)                                             |  |               
|                            |  |                                                                          
|/S/    STEPHEN R.
THEROUX   |  | Vice Chairman of the Board,                                               |  | March 29, 2010
|(Stephen R. Theroux)        |  | President, Chief Operating Officer, Chief Financial Officer and Secretary |  |               
|                            |  | (Principal Accounting Officer)                                            |  |               
|                            |  |                                                                          
|/S/    LEONARD R.
CASHMAN   |  | Director                                                                  |  |               
|(Leonard R. Cashman)        |  |                                                                           |  | March 29, 2010
|                            |  |                                                                          
|/S/    WILLIAM C.
HORN      |  | Director                                                                  |  | March 29, 2010
|(William C. Horn)           |  |                                                                           |  |               
|                            |  |                                                                          
|/S/    PETER R.
LOVELY      |  | Director                                                                  |  | March 29, 2010
|(Peter R. Lovely)           |  |                                                                           |  |               
|                            |  |                                                                          
|/S/    JACK H.
NELSON       |  | Director                                                                  |  | March 29, 2010
|(Jack H. Nelson)            |  |                                                                           |  |               
|                            |  |                                                                          
|/S/    MICHAEL T.
PUTZIGER  |  | Director                                                                  |  | March 29, 2010
|(Michael T. Putziger)       |  |                                                                           |  |               
|                            |  |                                                                          
|/S/    PETER D.
TERWILLIGER |  | Director                                                                  |  | March 29, 2010
|(Peter D. Terwilliger)      |  |                                                                           |  |               
|                            |  |                                                                          
|/S/    JOSEPH B.
WILLEY     |  | Director                                                                  |  | March 29, 2010
|(Joseph B. Willey)          |  |                                                                           |  |               



90



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|                                      |  |  |  |  |  | 
|------------------------------------- |  |  |  |  |  | 
|New Hampshire Thrift Bancshares, Inc. |  | 



|                                  |  |                                       |  |                              
|--------------------------------- |  | ------------------------------------- |  | -----------------------------
|Directors                         |  | Officers                              |  |                              
|Stephen W. Ensign, Chairman       |  | Stephen W. Ensign                     |  | William J. McIver            
|Stephen R. Theroux, Vice Chairman |  | Chairman of the Board                 |  | Executive Vice President     
|Leonard R. Cashman                |  | and Chief Executive Officer           |  |                              
|William C. Horn                   |  |                                       |  | Laura Jacobi                 
|Peter R. Lovely                   |  | Stephen R. Theroux                    |  | Corporate Secretary          
|Jack H. Nelson                    |  | Vice Chairman of the Board            |  |                              
|Michael T. Putziger               |  | President and Chief Financial Officer |  | Maryanne E. Petrin           
|Peter D. Terwilliger              |  |                                       |  | Assistant Corporate Secretary
|Joseph B. Willey                  |  |                                       |  |                              



|                       |  |  |  |  |  | 
|---------------------- |  |  |  |  |  | 
|Lake Sunapee Bank, fsb |  | 



|                                    |  |                        |  |                          |  |                          
|----------------------------------- |  | ---------------------- |  | ------------------------ |  | -------------------------
|Directors                           |  | Angie L. Deschenes     |  | Albert S. Freeman III    |  | Paul W. St. Martin       
|Stephen W. Ensign, Chairman         |  | Retail Banking         |  | Commercial Lending       |  | Information Technology   
|Stephen R. Theroux                  |  |                        |  |                          |  |                          
|Leonard R. Cashman                  |  | Paul Faber             |  | Marlene H. Gardner       |  | Janet L. Zutell          
|William C. Horn                     |  | Commercial Lending     |  | BSA and Security Officer |  | Consumer Lending         
|John A. Kelley, Jr.                 |  |                        |  |                          |  |                          
|Peter R. Lovely                     |  | Kenneth E. Howe        |  | David W. Green           |  | Assistant Vice Presidents
|Jack H. Nelson                      |  | Commercial Lending     |  | Retail Banking           |  | Nancy Barthol            
|Michael T. Putziger                 |  |                        |  |                          |  | Retail Banking           
|Peter D. Terwilliger                |  | Jodi L. Hoyt           |  | Debora S. Henderson      |  |                          
|Joseph B. Willey                    |  | Human Resources        |  | Retail Banking           |  | Sue L. Bryan             
|                                    |  |                        |  |                          |  | Retail Banking           
|Executive Officers                  |  | Laura Jacobi           |  | Peter N. Jennings        |  |                          
|Stephen W. Ensign                   |  | Chief Risk Officer and |  | Loan Origination         |  | Dean Cashman             
|Chairman of the Board               |  | Accounting and Finance |  |                          |  | Business Banking         
|and Chief Executive Officer         |  |                        |  | Suzanne Johnson          |  |                          
|                                    |  | Karen D. Lynch         |  | Loan Servicing           |  | Andrea K. Coppola        
|Stephen R. Theroux                  |  | Commercial Lending     |  |                          |  | Retail Banking           
|President, Chief Operating Officer, |  |                        |  | James H. Miller          |  |                          
|and Chief Financial Officer         |  | Robert C. OBrien      |  | Control Officer          |  | Dennis J. Driscoll, Jr.  
|                                    |  | Business Development   |  |                          |  | Commercial Lending       
|William J. McIver                   |  |                        |  | Dianne E. Nicol          |  |                          
|Executive Vice President,           |  | Vice Presidents        |  | Retail Banking           |  | Vicki M. Lewis           
|Chief Information Officer and       |  | Brandy L. Blackinton   |  |                          |  | Consumer Lending         
|Chief Administrative Officer        |  | Retail Banking         |  | Marie A. Pelletier       |  |                          
|                                    |  |                        |  | Commercial Lending       |  | Donald J. Pasini         
|First Vice Presidents               |  | Erik C. Cinquemani     |  |                          |  | Loan Origination         
|Scott W. Laughinghouse              |  | Loan Review            |  | Francetta Raymond        |  |                          
|Commercial Lending                  |  |                        |  | Loan Operations          |  | Maryanne E. Petrin       
|                                    |  | Stephen DeClue         |  |                          |  | Accounting and Finance   
|Sharon L. Whitaker                  |  | Commercial Lending     |  | Dorisann D. Ross         |  |                          
|Mortgage Lending                    |  |                        |  | Retail Banking           |  | Pellegrino A. Rossi      
|                                    |  | Juanita A. Dupont      |  |                          |  | Lake Sunapee Group       
|Senior Vice Presidents              |  | Loan Processing        |  | Terri G. Spanos          |  |                          
|H. Bliss Dayton                     |  |                        |  | Retail Banking           |  | Dena L. Sclafani         
|Chief Compliance Officer            |  | Thomas B. Evans        |  |                          |  | Loan Origination         
|                                    |  | Commercial Lending     |  | Sue G. Shaw              |  |                          
|Colin S. Campbell                   |  |                        |  | Commercial Lending       |  | Roxanne M. Shedd         
|Commercial Lending                  |  | Susan Fernald          |  |                          |  | Retail Banking           
|                                    |  | Retail Operations      |  |                          |  |                          
|                                    |  |                        |  |                          |  | Christine Waite          
|                                    |  |                        |  |                          |  | Retail Banking           



---

##### Table of Contents

|                        |  |                      |  | 
|----------------------- |  | -------------------- |  | 
|Board of Advisors      
|                        |  |                     
|Benjamin K. Barton      |  | Paul J. Linehan      |  | 
|Douglas S. Baxter       |  | Robert MacNeil       |  | 
|William S. Berger       |  | Elizabeth W. Maiola  |  | 
|William A. Bittinger    |  | Thomas F. McCormick  |  | 
|Phillip C. Camp, Sr.    |  | J. David McCrillis   |  | 
|Paul R. Boucher         |  | John C. McCrillis    |  | 
|Ruth I. Clough          |  | F. Graham McSwiney   |  | 
|J. D. Colcord           |  | Charles Memoe        |  | 
|Jacqueline C. Cote      |  | Kenneth Miller       |  | 
|Ernest G. Dennis, Jr.   |  | Thomas J. Mills      |  | 
|William J. Faccone, Sr. |  | Linda L. Oldham      |  | 
|John W. Flynn, Jr.      |  | Daniel P. ONeill    |  | 
|John W. Flynn, Sr.      |  | Betty H. Ramspott    |  | 
|James J. Ford, Jr.      |  | Robert F. Sennott    |  | 
|Sheffield J. Halsey     |  | William J. Simms     |  | 
|Thomas Hayes            |  | Charles Smid         |  | 
|Douglas J. Homan        |  | Fredric M. Smith     |  | 
|Curtis A. Jacques       |  | Earl F. Strout       |  | 
|Sharon J. Jacques       |  | James R. Therrien    |  | 
|Charles S. Jakiela      |  | Stefan Timbrell      |  | 
|Michael D. Johnson      |  | Janis H. Wallace     |  | 
|David H. Kidder         |  | James P. Wheeler     |  | 
|Janet R. Kidder         |  | Carolyn B. Whittaker |  | 
|John J. Kiernan, Jr.    |  | John W. Wiggins, Sr. |  | 
|John J. Kiernan, Sr.    |  | Bruce Williamson     |  | 
|Victor W. Laro          |  | Thomas B. Woodger    |  | 
|                        |  | Michael J. Work      |  | 



|                        |  |  |  | 
|----------------------- |  |  |  | 
|Stockholder Information

Corporate Headquarters

New Hampshire Thrift Bancshares, Inc.

9 Main Street

PO Box 9

Newport, NH 03773-0009

Tel: 1-603-863-0886

Fax: 1-603-863-9571

Transfer
Agent

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016

Tel: Investor Relations 1-800-368-5948

Website: www.rtco.com

Independent Auditors

Shatswell,
MacLeod & Company, P.C.

83 Pine Street

West Peabody, MA 01960-3635

Legal Counsel

Hogan & Hartson, LLP

555 Thirteenth
Street, NW

Washington, DC 20004



|                            |  |  |  | 
|--------------------------- |  |  |  | 
|Information on Common Stock

The common stock is traded over-the-counter and quoted on the NASDAQ Global Market under the symbol NHTB. There were
approximately 761 stockholders of record on March 17, 2010. The number of stockholders does not reflect the number of persons or entities who held their stock in nominee or street name through various brokerage firms.

The following table sets forth the Companys high and low prices for the common stock as reported by NASDAQ for the periods indicated:



|               |  |      |        |     |   |      
|-------------- |  | ---- | ------ | --- | - | -----
|2009           |  | High |        | Low
|First Quarter  |  | $    | 8.300  |     | $ | 6.400
|Second Quarter |  |      | 10.400 |     |   | 6.950
|Third Quarter  |  |      | 10.380 |     |   | 9.210
|Fourth Quarter |  |      | 9.990  |     |   | 8.770