Quarterly Report (10-q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2015

Commission File Number: 000-17859

NEW HAMPSHIRE THRIFT BANCSHARES, INC.

(Exact Name of Registrant as Specified in Its Charter)


State of Delaware		02-0430695
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer I.D. Number)

9 Main Street, P.O. Box 9, Newport, New Hampshire		03773
(Address of Principal Executive Offices)		(Zip Code)

(603) 863-0886

(Registrant’s Telephone Number, Including Area Code)

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 x No ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

The number of shares outstanding of the issuer’s common stock, $.01 par value per share, as of May 6, 2015 was 8,269,521.

NEW HAMPSHIRE THRIFT BANCSHARES, INC.

INDEX


		Page
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			i

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets - March 31, 2015 (unaudited) and December 31, 2014		4

	Condensed Consolidated Statements of Income (unaudited) - For the Three Months Ended March 31, 2015 and 2014		5

	Condensed Consolidated Statements of Comprehensive Income (unaudited) - For the Three Months Ended March 31, 2015 and 2014		6

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) For the Three Months Ended March 31, 2015 and 2014		7

	Condensed Consolidated Statements of Cash Flows (unaudited) - For the Three Months Ended March 31, 2015 and 2014		8

	Notes to Condensed Consolidated Financial Statements (unaudited)		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		40

Item 4.	Controls and Procedures		41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		41

Item 1A.	Risk Factors		41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42

Item 3.	Defaults Upon Senior Securities		42

Item 4.	Mine Safety Disclosures		42

Item 5.	Other Information		42

Item 6.	Exhibits		42

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We may, from time to time, make written or oral “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission (the “SEC”), our reports to stockholders and in other communications by us. This Quarterly Report on Form 10-Q contains “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “would,” “plan,” “estimate,” “potential” and other similar expressions. Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:

•

local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact;

•

continued volatility and disruption in national and international financial markets;

•

changes in the level of non-performing assets and charge-offs;

•

changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

•

adverse conditions in the securities markets that lead to impairment in the value of securities in our investment portfolio;

•

inflation, interest rate, securities market and monetary fluctuations;

•

the timely development and acceptance of new products and services and perceived overall value of these products and services by users;

•

changes in consumer spending, borrowings and savings habits;

•

technological changes;

•

the ability to increase market share and control expenses;

•

changes in the competitive environment among banks, financial holding companies and other financial service providers;

•

the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we must comply;

•

the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) and other accounting standard setters;

•

the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews;

•

difficulties related to the integration of any businesses we may acquire, including Charter Trust Company; and

•

other factors detailed from time to time in our SEC filings.

Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

Throughout this report, the terms “Company,” “we,” “our” and “us” refer to the consolidated entity of New Hampshire Thrift Bancshares, Inc., its wholly owned subsidiary, Lake Sunapee Bank, fsb (the “Bank”), and the Bank’s subsidiaries, McCrillis & Eldredge Insurance, Inc., Lake Sunapee Group, Inc., Lake Sunapee Financial Services Corporation and Charter Holding Corp., which wholly owns Charter Trust Company.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except per share data)	March 31, 2015			December 31, 2014
	(Unaudited)
ASSETS
Cash and due from banks	$	45,608		$	24,957
Overnight deposits		194			26,163

Cash and cash equivalents		45,802			51,120
Interest-bearing time deposits with other banks		747			747
Securities available-for-sale		111,508			115,698
Federal Home Loan Bank stock		10,762			10,762
Loans held-for-sale		4,157			2,000
Loans receivable, net of allowance for loan losses of $9.1 million as of March 31, 2015 and $9.3 million as of December 31, 2014		1,192,647			1,206,845
Accrued interest receivable		3,236			2,576
Bank premises and equipment, net		24,448			24,391
Investments in real estate		3,500			3,533
Other real estate owned		607			251
Goodwill		44,576			44,576
Other intangible assets		8,942			9,332
Bank-owned life insurance		20,342			20,187
Due from broker		4,653			—
Other assets		11,196			11,768

Total assets	$	1,487,123		$	1,503,786

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Noninterest-bearing	$	108,791		$	117,889
Interest-bearing		1,022,434			1,034,825

Total deposits		1,131,225			1,152,714
Federal Home Loan Bank advances		140,994			140,992
Securities sold under agreements to repurchase		16,205			16,756
Subordinated debentures		37,620			37,620
Accrued expenses and other liabilities		19,706			15,868

Total liabilities		1,345,750			1,363,950


STOCKHOLDERS’ EQUITY
Preferred stock, $.01 par value per share: 2,500,000 shares authorized, non-cumulative perpetual Series B; 8,000 shares issued and outstanding at March 31, 2015 and December 31, 2014; liquidation value $1,000 per share		—			—
Common stock, $.01 par value per share: 10,000,000 shares authorized, 8,698,607 shares issued and 8,264,278 shares outstanding at March 31, 2015, and 8,692,360 shares issued and 8,258,031 shares outstanding at December 31, 2014		87			87
Paid-in capital		86,634			86,561
Retained earnings		65,084			63,876
Unearned restricted stock awards		(586	)		(598	)
Accumulated other comprehensive loss		(3,095	)		(3,339	)
Treasury stock, 434,329 shares as of March 31, 2015 and December 31, 2014, at cost		(6,751	)		(6,751	)

Total stockholders’ equity		141,373			139,836

Total liabilities and stockholders’ equity	$	1,487,123		$	1,503,786

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

NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended
(Dollars in thousands, except per share data)	March 31, 2015			March 31, 2014
Interest and dividend income
Interest and fees on loans	$	11,590		$	11,350
Interest on debt securities:
Taxable		313			325
Dividends		48			35
Other		105			170

Total interest and dividend income		12,056			11,880

Interest expense
Interest on deposits		1,066			1,102
Interest on advances and other borrowed money		757			525

Total interest expense		1,823			1,627

Net interest and dividend income		10,233			10,253
Provision for loan losses		205			—

Net interest and dividend income after provision for loan losses		10,028			10,253

Noninterest income
Customer service fees		1,378			1,438
Gain on sales and calls of securities, net		373			8
Mortgage banking activities		128			131
Net loss on sales of other real estate and property owned.		(3	)		(2	)
Net gain on sales of premises and equipment.		—			2
Rental income		169			175
Trust and investment management fee income		2,043			2,076
Insurance commission income		523			484
Bank-owned life insurance income		146			149

Total noninterest income		4,757			4,461

Noninterest expense
Salaries and employee benefits		6,033			5,998
Occupancy and equipment		1,625			1,609
Advertising and promotion		174			161
Depositors’ insurance		238			271
Outside services		611			652
Professional services		282			272
ATM processing fees		188			221
Supplies		110			164
Telephone		269			295
Amortization of intangible assets		390			435
Other expenses		1,494			1,594

Total noninterest expense		11,414			11,672

Income before provision for income taxes		3,371			3,042
Provision for income taxes		1,068			899

Net income	$	2,303		$	2,143

Net income available to common stockholders	$	2,283		$	2,085

Earnings per common share, basic	$	0.28		$	0.25

Weighted average number of shares outstanding, basic		8,261,383			8,218,465
Earnings per common share, assuming dilution	$	0.28		$	0.25

Weighted average number of shares outstanding, assuming dilution		8,275,690			8,231,992
Dividends declared per common share	$	0.13		$	0.13

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

NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


(Dollars in thousands)	Three months ended March 31,
	2015		2014
Net income	$	2,303	$	2,143
Net change in unrealized loss on available-for-sale securities, net of tax effect		244		454
Net change in unrecognized pension plan costs, net of tax effect		—		—

Comprehensive income	$	2,547	$	2,597

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

NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


(Dollars in thousands)	For the three months ended March 31, 2015			For the three months ended March 31, 2014
PREFERRED STOCK
Balance, beginning of year	$	—		$	—
Issuance of preferred stock		—			—
Redemption of preferred stock		—			—

Balance, end of period	$	—		$	—

COMMON STOCK
Balance, beginning of year	$	87		$	87
Issuance of common stock from dividend reinvestment plan		—			—

Balance, end of period	$	87		$	87

PAID-IN CAPITAL
Balance, beginning of year	$	86,561		$	100,961
Increase on issuance of common stock from the exercise of stock options		28			—
Issuance of common stock from dividend reinvestment plan		45			37
Restricted stock awards issued		—			—

Balance, end of period	$	86,634		$	100,998

RETAINED EARNINGS
Balance, beginning of year	$	63,876		$	58,347
Net income		2,303			2,143
Cash dividends declared, preferred stock		(20	)		(58	)
Cash dividends paid, common stock		(1,075	)		(1,069	)

Balance, end of period	$	65,084		$	59,363

UNEARNED RESTRICTED STOCK AWARDS
Balance, beginning of year	$	(598	)	$	(490	)
Shares awarded		—			—
Shares vested		12			12

Balance, end of period	$	(586	)	$	(478	)

ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of year	$	(3,339	)	$	(2,897	)
Net change in accumulated other comprehensive loss, net of tax effect		244			454

Balance, end of period	$	(3,095	)	$	(2,443	)

TREASURY STOCK
Balance, beginning of year	$	(6,751	)	$	(6,751	)
Issuance of restricted stock awards		—			—
Stock options exercised from treasury stock		—			—

Balance, end of period	$	(6,751	)	$	(6,751	)

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

NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the three months ended
(Dollars in thousands)	March 31, 2015			March 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,303		$	2,143
Depreciation and amortization		607			564
Amortization of fair value adjustments, net		67			92
Amortization of deferred expenses related to issuance of capital securities and subordinated debt		18			3
Amortization of securities, net		74			150
Net decrease in mortgage servicing rights		238			80
Loans originated for sale		(20,931	)		(4,400	)
Proceeds from loans sold		18,954			4,726
Increase in cash surrender value of life insurance		(155	)		(158	)
Amortization of intangible assets		390			435
Provision for loan losses		205			—
(Increase) decrease in accrued interest receivable and other assets		(256	)		36
Net loss on sales of premises, equipment, investment in real estate, other real estate owned and other assets		3			7
Write-down of other real estate owned		—			6
Net gain on sales and calls of securities		(373	)		(8	)
Net gain on sales of loans		(180	)		(52	)
Change in deferred loan origination fees and cost, net		48			(110	)
Increase in accrued expenses and other liabilities		3,563			566

Net cash provided by operating activities		4,575			4,080

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures – investments in real estate		(4	)		—
Capital expenditures – premises and equipment		(587	)		(1,217	)
Maturities of interest-bearing time deposits with other banks		—			498
Proceeds from sales and calls of securities available-for-sale		35,555			2,065
Proceeds from maturities of securities available-for-sale		45,993			40,012
Purchases of securities available-for-sale		(81,309	)		(30,349	)
Purchase of Federal Home Loan Bank stock		—			(58	)
Loan originations and principal collections, net		13,441			(15,549	)
Purchase of loans		—			(5,683	)
Recoveries of loans previously charged off		15			243
Proceeds from sales of premises, equipment, investment in real estate, other real estate owned and other assets		53			176

Net cash provided by (used in) investing activities		13,157			(9,862	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, savings and NOW accounts		401			(19,471	)
Net decrease in time deposits		(21,878	)		(391	)
Net decrease in securities sold under agreements to repurchase		(551	)		(5,218	)
Net (decrease) increase in short-term advances from Federal Home Loan Bank		(10,000	)		45,000
Principal advances from Federal Home Loan Bank		20,000			—
Repayment of advances from Federal Home Loan Bank		(10,000	)		(10,750	)
Issuance of common stock from dividend reinvestment plan		9			2
Dividends paid on preferred stock		(20	)		(58	)
Dividends paid on common stock		(1,039	)		(1,034	)
Proceeds from exercise of stock options		28			—

Net cash (used in) provided by financing activities		(23,050	)		8,080

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(5,318	)		2,298
CASH AND CASH EQUIVALENTS, beginning of period		51,120			33,578

CASH AND CASH EQUIVALENTS, end of period	$	45,802		$	35,876


	For the three months ended
(Dollars in thousands)	March 31, 2015		March 31, 2014
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	1,861	$	1,633

Income taxes paid	$	127	$	364

Loans transferred to other real estate owned	$	412	$	54

Due from broker	$	4,653	$	—

Goodwill adjustments, net	$	—	$	70

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

NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

Nature of Operations

New Hampshire Thrift Bancshares, Inc. (the “Company”), a Delaware company organized on July 5, 1989, is the parent company of the Bank, a federally chartered savings bank organized in 1868. The Bank has four wholly owned subsidiaries: Lake Sunapee Financial Services Corporation (“LSFS”); Lake Sunapee Group, Inc., which owns and maintains all buildings and investment properties; McCrillis & Eldredge Insurance, Inc. (“M&E”), a full-line independent insurance agency, which offers a complete range of commercial insurance services and consumer products; and Charter Holding Corp. (“Charter Holding”), which through its subsidiaries, provides trust and wealth management services. The Company’s operations are managed along two reportable segments that represent its core businesses: Banking and Wealth Management. The Banking segment provides a wide array of lending and depository-related products and services to individuals, businesses and municipal enterprises. The Banking segment also provides commercial insurance and consumer products, including life, health, auto and homeowner insurance, through M&E and brokerage services through LSFS. The Wealth Management segment provides trust and investment services through Charter Holding and Charter Trust. The Company, through its direct and indirect subsidiaries, currently operates 27 locations in New Hampshire in Grafton, Hillsborough, Merrimack and Sullivan counties as well as 16 locations in Vermont in Orange, Rutland, and Windsor counties. The Bank is a member of the Federal Deposit Insurance Corporation (“FDIC”) and its deposits are insured by the FDIC. The Company is regulated by the Federal Reserve Board, and the Bank is regulated by the Office of the Comptroller of the Currency.

Note A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and, accordingly, do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed balance sheet data at December 31, 2014 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

In preparing consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the evaluation of goodwill and other intangible assets for impairment, other-than-temporary impairment of securities and the valuation of deferred tax assets.

Note B – Accounting Policies

The condensed consolidated financial statements include the accounts of the Company and its subsidiary, the Bank, and the Bank’s subsidiaries, M&E, Lake Sunapee Group, Inc., LSFC and Charter Holding and its subsidiaries, Charter Trust Company and Charter New England Agency. 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 FASB Accounting Standards Codification (“ASC”) 810-10, “Consolidation-Overall,” these affiliates have not been included in the condensed consolidated financial statements.

Note C – Impact of New Accounting Standards

In May 2014, FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” The objective of this ASU is to clarify principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards. The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently reviewing this ASU to determine if it will have an impact on its condensed consolidated financial statements.

In February 2015, FASB issued ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its condensed consolidated financial statements.

In April 2015, FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The standard is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The guidance should be applied on a retrospective basis. The Company anticipates that the adoption of this ASU will not have a material impact on its condensed consolidated financial statements.

In April 2015, FASB issued ASU 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its condensed consolidated financial statements.

Note D – Fair Value Measurements

In accordance with ASC 820-10, “Fair Value Measurement – Overall,” 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 NASDAQ Stock Market. 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.

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.

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.

The Company’s equity securities are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

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.

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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Securities Available-for-Sale. The fair value of the Company’s available-for-sale securities portfolio is estimated using Level 1 and Level 2 inputs. The Company obtains fair value measurements from an independent pricing service. For Levels 1 and 2, the fair value measurements consider (i) quoted prices in active markets for identical assets and (ii) observable data that may include dealer quotes, market spreads, cash flows, market consensus prepayment speeds, credit information, and a bond’s terms and conditions, among other factors, respectively.

Interest Rate Lock Commitments. The Company enters into interest rate lock commitments (“IRLCs”) for residential mortgage loans intended for sale, which commit the Company to lend funds to a potential borrower at a specific interest rate and within a specified period of time. The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. However, this value is adjusted by a factor which considers the likelihood that the loan in a lock position will ultimately close. The closing ratio is derived from the Company’s internal data and is adjusted using significant management judgment which is not observable. As such, interest rate lock commitments are classified as Level 3 measurements.

Forward Sale Commitments. The Company utilizes forward sale commitments as economic hedges against potential changes in the values of the interest rate lock commitments and loans held for sale. The fair values of the Company’s mandatory delivery loan sale commitments are determined similarly to the IRLCs using quoted prices in the market place that are observable and adjusted for inputs which are not observable, as discussed above. As such, best efforts and mandatory delivery forward sale commitments are classified as Level 3 measurements.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Impaired Loans. Certain impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. Collateral values are estimated using Level 2 inputs based on appraisals of similar properties obtained from a third party valuation service. Fair values are estimated using Level 3 inputs based on appraisals of similar properties obtained from a third party valuation service discounted by management based on historical losses for similar collateral.

Other Real Estate Owned. Other real estate owned (“OREO”) is reported at fair value less costs to sell. Values are estimated using Level 2 inputs based on appraisals of similar properties obtained from a third party valuation service. For Level 3 inputs, fair values are based on management estimates.

The following summarizes assets and liabilities measured at fair value at March 31, 2015 and December 31, 2014.

Assets Measured at Fair Value on a Recurring Basis


	Fair Value Measurements at Reporting Date Using:
(Dollars in thousands)	March 31, 2015		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
U.S. Treasury notes	$	65,268	$	—	$	65,268	$	—
U.S. government-sponsored enterprise bonds		7,321		—		7,321		—
Mortgage-backed securities		28,878		—		28,878		—
Municipal bonds		9,602		—		9,602		—
Other bonds and debentures		125		—		125		—
Equity securities		314		314		—		—
Interest rate lock commitments		128		—		—		128

Totals	$	111,636	$	314	$	111,194	$	128


(Dollars in thousands)	December 31, 2014		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
U.S. Treasury notes	$	40,123	$	—	$	40,123	$	—
U.S. government-sponsored enterprise bonds		7,265		—		7,265		—
Mortgage-backed securities		58,280		—		58,280		—
Municipal bonds		9,596		—		9,596		—
Other bonds and debentures		126		—		126		—
Equity securities		308		308		—		—

Totals	$	115,698	$	308	$	115,390	$	—

Liabilities Measured at Fair Value on a Recurring Basis


	Fair Value Measurements at Reporting Date Using:
(Dollars in thousands)	March 31, 2015		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Forward loan sale commitments	$	128	$	—	$	—	$	128

	$	128	$	—	$	—	$	128

Assets Measured at Fair Value on a Nonrecurring Basis


	Fair Value Measurements at Reporting Date Using:
(Dollars in thousands)	March 31, 2015		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Impaired loans	$	822	$	—	$	—	$	822
Other real estate owned		607		—		—		607

	$	1,429	$	—	$	—	$	1,429


(Dollars in thousands)	December 31, 2014		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Impaired loans	$	997	$	—	$	—	$	997
Other real estate owned		251		—		—		251

	$	1,248	$	—	$	—	$	1,248

There were no loans measured for impairment using the fair value of the underlying collateral at March 31, 2015. Collateral dependent loans are valued using third party appraisals primarily using the sales comparison approach. The appraisals may be discounted between 25-40% to reflect realizable value based on historical losses which represents an unobservable input. Impaired loans measured for impairment, using the net present value of cash flows, had a recorded investment of $975 thousand with a valuation allowance of $153 thousand at March 31, 2015. Loans valued using the net present value of cash flows are calculated using expected future cash flows with a discount rate equal to the effective yield of the loan. At December 31, 2014, impaired loans had a recorded investment of $1.1 million with a valuation allowance of $67 thousand.

The estimated fair values of the Company’s financial instruments at March 31, 2015 and December 31, 2014, all of which are held or issued for purposes other than trading, were as follows:


	Carrying Value		Fair Value Measurements at Reporting Date Using:
(Dollars in thousands) March 31, 2015	Carrying Value		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	45,802	$	45,802	$	—	$	—	$	45,802
Interest-bearing time deposits with other banks		747		—		747		—		747
Securities available-for-sale		111,508		314		111,194		—		111,508
Federal Home Loan Bank stock		10,762		10,762		—		—		10,762
Loans held-for-sale		4,157		—		4,214		—		4,214
Loans, net		1,192,647		—		—		1,197,153		1,197,153
Investment in unconsolidated subsidiaries		620		—		—		414		414
Accrued interest receivable		3,236		3,236		—		—		3,236
Interest rate lock commitments		128		—		—		128		128

Financial liabilities:
Deposits		1,131,225		—		1,133,406		—		1,133,406
Federal Home Loan Bank advances		140,994		—		141,905		—		141,905
Securities sold under agreements to repurchase		16,205		16,205		—		—		16,205
Subordinated debentures		37,620		—		—		30,872		30,872
Forward loan sale commitments		128		—		—		128		128


	Carrying Value		Fair Value Measurements at Reporting Date Using
(Dollars in thousands) December 31, 2014	Carrying Value		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Fair Value
Financial assets:
Cash and cash equivalents	$	51,120	$	51,120	$	—	$	—	$	51,120
Interest-bearing time deposits with other banks		747		—		747		—		747
Securities available-for-sale		115,698		308		115,390		—		115,698
Federal Home Loan Bank stock		10,762		10,762		—		—		10,762
Loans held-for-sale		2,000		—		2,029		—		2,029
Loans, net		1,206,845		—		—		1,205,578		1,205,578
Investment in unconsolidated subsidiaries		620		—		—		400		400


	Carrying Value		Fair Value Measurements at Reporting Date Using
(Dollars in thousands) December 31, 2014	Carrying Value		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Fair Value
Accrued interest receivable		2,576		2,576		—		—		2,576

Financial liabilities:
Deposits		1,152,714		—		1,154,466		—		1,154,466
Federal Home Loan Bank advances		140,992		—		141,746		—		141,746
Securities sold under agreements to repurchase		16,756		16,756		—		—		16,756
Subordinated debentures		37,620		—		—		29,909		29,909

The carrying amounts of financial instruments shown in the above tables are included in the condensed consolidated balance sheets under the indicated captions, except for investment in unconsolidated subsidiaries which is included in other assets and interest rate lock commitments and forward sale commitments, which are included in other assets and other liabilities, respectively.

The Company did not have any significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy during the three months ended March 31, 2015. The Company did not have any significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy during the 12 month period ended December 31, 2014.

Note E – Securities

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

The amortized cost of securities available-for-sale and their approximate fair values at March 31, 2015 and December 31, 2014 are summarized as follows:


(Dollars in thousands) March 31, 2015	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Bonds and notes
U.S. Treasury notes	$	65,405	$	—	$	137	$	65,268
U.S. government-sponsored enterprise bonds		7,354		2		35		7,321
Mortgage-backed securities		28,982		53		157		28,878
Municipal bonds		9,559		125		82		9,602
Other bonds and debentures		112		13		—		125
Equity securities		258		57		1		314

Total available-for-sale	$	111,670	$	250	$	412	$	111,508


(Dollars in thousands) December 31, 2014	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Bonds and notes
U.S. Treasury notes	$	40,512	$	—	$	389	$	40,123
U.S. government-sponsored enterprise bonds		7,361		2		98		7,265
Mortgage-backed securities		58,439		112		271		58,280
Municipal bonds		9,579		103		86		9,596
Other bonds and debentures		114		12		—		126
Equity securities		258		51		1		308

Total available-for-sale	$	116,263	$	280	$	845	$	115,698

Maturities of debt securities, excluding mortgage-backed securities, classified as available-for-sale are as follows as of March 31, 2015:


(Dollars in thousands)	Fair Value

U.S. Treasury notes	$	35,000
Municipal bonds		2,852

Total due in less than one year	$	37,852

U.S. Treasury notes	$	30,268
U.S. government-sponsored enterprise bonds		6,969
Municipal bonds		3,136
Other bonds and debentures		97

Total due after one year through five years	$	40,470

U.S. government-sponsored enterprise bonds	$	184
Municipal bonds		2,404

Total due after five years through ten years	$	2,588

U.S. government-sponsored enterprise bonds	$	168
Municipal bonds		1,210
Other bonds and debentures		28

Total due after ten years	$	1,406

For the three months ended March 31, 2015, the proceeds from sales of securities available-for-sale were $35.6 million. Gross gains of $373 thousand were realized during the same period on these sales. The tax provision applicable to these net realized gains amounted to $148 thousand. For the three months ended March 31, 2014, the proceeds from sales of securities available-for-sale were $96 thousand. Gross gains of $8 thousand were realized during the same period on these sales. The tax provision applicable to these net realized gains amounted to $3 thousand. Securities, carried at $102.9 million and $115.1 million, were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) advances, and securities sold under agreements to repurchase as of March 31, 2015 and December 31, 2014, respectively.

Note F – Other-Than-Temporary Impairment Losses

The aggregate fair value and unrealized losses of securities that have been in a continuous unrealized-loss position for less than 12 months and for 12 months or more, and are not other than temporarily impaired, are as follows as of March 31, 2015:


	Less Than 12 Months				12 Months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Bonds and notes
U.S. Treasury notes	$	10,078	$	2	$	20,190	$	135	$	30,268	$	137
U.S. government-sponsored enterprise bonds		—		—		7,137		35		7,137		35
Mortgage-backed securities		741		5		13,308		152		14,049		157
Municipal bonds		1,298		2		2,254		80		3,552		82
Equity securities		34		1		—		—		34		1

Total temporarily impaired securities	$	12,151	$	10	$	42,889	$	402	$	55,040	$	412

The investments in the Company’s investment portfolio that were temporarily impaired as of March 31, 2015 consisted of U.S. Treasury notes, U.S. government-sponsored enterprise bonds, mortgage-backed securities issued by U.S. government-sponsored enterprises, municipal bonds and equity securities. The unrealized losses on these debt securities are primarily attributable to changes in market interest rates and current market inefficiencies. The Company has the ability and intent to hold debt securities until maturity, and therefore, no declines are deemed to be other-than-temporary. The unrealized losses on equity securities have occurred for less than 12 months and the Company does not feel the losses relate to credit quality of the issuers. The Company has the ability and intent to hold these investments until a recovery of cost basis.

Note G – Loan Portfolio

Loans receivable consisted of the following as of the dates indicated:


	March 31, 2015
(Dollars in thousands)	Originated			Acquired		Total
Real estate loans:
Conventional	$	581,688		$	53,801	$	635,489
Home equity		62,796			5,742		68,538
Commercial		241,299			71,226		312,525
Construction		38,436			1,425		39,861

		924,219			132,194		1,056,413
Commercial and municipal loans		120,771			12,257		133,028
Consumer loans		6,790			1,513		8,303

Total loans		1,051,780			145,964		1,197,744
Allowance for loan losses		(9,088	)		—		(9,088	)
Deferred loan origination costs, net		3,991			—		3,991

Loans receivable, net	$	1,046,683		$	145,964	$	1,192,647


	December 31, 2014
(Dollars in thousands)	Originated			Acquired		Total
Real estate loans:
Conventional	$	592,386		$	53,304	$	645,690
Home equity		63,176			6,027		69,203
Commercial		235,640			77,377		313,017
Construction		34,988			1,457		36,445

		926,190			138,165		1,064,355
Commercial and municipal loans		125,161			13,414		138,575
Consumer loans		7,438			1,712		9,150

Total loans		1,058,789			153,291		1,212,080
Allowance for loan losses		(9,269	)		—		(9,269	)
Deferred loan origination costs, net		4,034			—		4,034

Loans receivable, net	$	1,053,554		$	153,291	$	1,206,845

The following tables set forth information regarding the allowance for loan losses by portfolio segment as of and for the periods ending on the dates indicated:


	Real Estate
(Dollars in thousands) March 31, 2015	Conventional and Home Equity			Commercial			Construction		Commercial and Municipal			Consumer			Unallocated		Total
Allowance for loan losses:
Originated:
Beginning balance, December 31, 2014	$	4,763		$	2,724		$	991	$	635		$	86		$	70	$	9,269
Charge-offs		(135	)		—			—		(247	)		(66	)		—		(448	)
Recoveries		5			—			—		6			51			—		62
(Benefit) provision		(52	)		(392	)		113		151			5			380		205

Ending balance, March 31, 2015	$	4,581		$	2,332		$	1,104	$	545		$	76		$	450	$	9,088

Acquired:
Beginning balance, December 31, 2014	$	—		$	—		$	—	$	—		$	—		$	—	$	—
Charge-offs		—			—			—		—			—			—		—
Recoveries		—			—			—		—			—			—		—
Provision (benefit)		—			—			—		—			—			—		—

Ending balance, March 31, 2015	$	—		$	—		$	—	$	—		$	—		$	—	$	—


	Real Estate
(Dollars in thousands) March 31, 2015	Conventional and Home Equity		Commercial		Construction		Commercial and Municipal		Consumer		Unallocated		Total
Originated:
Individually evaluated for impairment	$	150	$	3	$	—	$	—	$	—	$	—	$	153
Collectively evaluated for impairment		4,431		2,329		1,104		545		76		450		8,935
Acquired loans (Discounts related to Credit Quality)		—		—		—		—		—		—		—

Total allowance for loan losses ending balance, March 31, 2015	$	4,581	$	2,332	$	1,104	$	545	$	76	$	450	$	9,088

Loans:
Originated:
Individually evaluated for impairment	$	5,722	$	5,613	$	455	$	661	$	—	$	—	$	12,451
Collectively evaluated for impairment		638,762		235,686		37,981		120,110		6,790		—		1,039,329
Acquired loans (Discounts related to Credit Quality)		59,543		71,226		1,425		12,257		1,513		—		145,964

Total loans ending balance, March 31, 2015	$	704,027	$	312,525	$	39,861	$	133,028	$	8,303	$	—	$	1,197,744


	Real Estate
(Dollars in thousands) December 31, 2014	Conventional and Home Equity			Commercial			Construction		Commercial and Municipal			Consumer			Unallocated			Total
Allowance for loan losses:
Originated:
Beginning balance, December 31, 2013	$	5,385		$	2,143		$	353	$	1,561		$	75		$	240		$	9,757
Charge-offs		(681	)		(533	)		—		(445	)		(219	)		—			(1,878	)
Recoveries		314			1			—		57			113			—			485
(Benefit) provision		(255	)		1,113			638		(538	)		117			(170	)		905

Ending balance, December 31, 2014	$	4,763		$	2,724		$	991	$	635		$	86		$	70		$	9,269

Acquired:
Beginning balance, December 31, 2013	$	—		$	—		$	—	$	—		$	—		$	—		$	—
Charge-offs		—			—			—		—			—			—			—
Recoveries		—			—			—		—			—			—			—
Provision (benefit)		—			—			—		—			—			—			—

Ending balance, December 31, 2014	$	—		$	—		$	—	$	—		$	—		$	—		$	—

Originated:
Individually evaluated for impairment	$	50		$	17		$	—	$	—		$	—		$	—		$	67
Collectively evaluated for impairment		4,713			2,707			991		635			86			70			9,202
Acquired loans (Discounts related to Credit Quality)		—			—			—		—			—			—			—

Total allowance for loan losses ending balance, December 31, 2014	$	4,763		$	2,724		$	991	$	635		$	86		$	70		$	9,269

Loans:
Originated:
Individually evaluated for impairment	$	5,965		$	8,110		$	1,163	$	880		$	—		$	—		$	16,118
Collectively evaluated for impairment		649,597			227,530			33,825		124,281			7,438			—			1,042,671
Acquired loans (Discounts related to Credit Quality)		59,331			77,377			1,457		13,414			1,712			—			153,291

Total loans ending balance, December 31, 2014	$	714,893		$	313,017		$	36,445	$	138,575		$	9,150		$	—		$	1,212,080

The following tables set forth information regarding nonaccrual loans and past-due loans as of the dates indicated:


	March 31, 2015
(Dollars in thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Nonaccrual Loans
Originated:
Real estate:
Conventional	$	3,041	$	241	$	1,225	$	4,507	$	1,993
Home equity		434		59		125		618		125
Commercial		3,064		583		583		4,230		2,089
Construction		27		—		—		27		—
Commercial and municipal		36		83		273		392		324
Consumer		11		2		13		26		—

Total	$	6,613	$	968	$	2,219	$	9,800	$	4,531

Acquired:
Real estate:
Conventional	$	450	$	654	$	922	$	2,026	$	1,046
Commercial		655		236		697		1,588		1,780
Commercial and municipal		—		10		405		415		405
Consumer		27		14		—		41		—

Total	$	1,132	$	914	$	2,024	$	4,070	$	3,231


	December 31, 2014
(Dollars in thousands)	30-59 Days		60-89 Days		90 Days or More		Total Past Due		Nonaccrual Loans
Originated:
Real estate:
Conventional	$	2,639	$	810	$	1,080	$	4,529	$	1,577
Home equity		60		31		181		272		181
Commercial		1,683		365		672		2,720		2,290
Construction		—		28		—		28		—
Commercial and municipal		304		48		330		682		659
Consumer		34		6		—		40		—

Total	$	4,720	$	1,288	$	2,263	$	8,271	$	4,707

Acquired:
Real estate:
Conventional	$	907	$	589	$	352	$	1,848	$	849
Commercial		545		1,107		671		2,323		1,636
Construction		—		—		15		15		15
Commercial and municipal		1		415		—		416		120
Consumer		37		15		—		52		—

Total	$	1,490	$	2,126	$	1,038	$	4,654	$	2,620

Loans past due 90 days or more and still accruing interest was $76 thousand as of March 31, 2015. There were no loans past 90 days and still accruing as of December 31, 2014.

Troubled Debt Restructurings

The following tables present the recorded investment in troubled debt restructured (“TDR”) loans as of March 31, 2015 and December 31, 2014 based on payment performance status:


	March 31, 2015
	Real Estate
(Dollars in thousands)	Conventional		Commercial		Construction		Commercial		Total
Performing	$	3,302	$	2,911	$	455	$	56	$	6,724
Non-performing		1,052		2,019		—		406		3,477

Total	$	4,354	$	4,930	$	455	$	462	$	10,201


	December 31, 2014
	Real Estate
(Dollars in thousands)	Conventional		Commercial		Construction		Commercial		Total
Performing	$	3,359	$	4,183	$	1,148	$	101	$	8,791
Non-performing		882		1,015		—		358		2,255

Total	$	4,241	$	5,198	$	1,148	$	459	$	11,046

TDR loans are considered impaired and are included in the impaired loan disclosures in this footnote.

During the three month period ending March 31, 2015, certain loan modifications were executed that constituted TDRs. Substantially all of these modifications included one or a combination of the following: (1) an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; (2) temporary reduction in the interest rate; or (3) change in scheduled payment amount.

The following table presents pre-modification balance information on how loans were modified as TDRs during the three months ended March 31, 2015:


(Dollars in thousands)	Extended Maturity		Combination of Payments, Rate And Maturity		Combination of Interest Only Payments and Maturity		Interest Rate		Total
Real estate:
Conventional	$	80	$	160	$	243	$	—	$	483
Commercial and municipal		—		—		—		7		7

Total TDRs	$	80	$	160	$	243	$	7	$	490

The following table presents pre-modification balance information on how loans were modified as TDRs during the 12 months ended December 31, 2014:


(Dollars in thousands)	Extended Maturity		Combination of Payments, Rate And Maturity		Combination of Interest Only Payments and Maturity		Combination of Interest Rate, Maturity and Reamortized		Other^(a)		Total
Real estate:
Conventional	$	—	$	516	$	619	$	122	$	—	$	1,257
Commercial		211		210		—		—		570		991
Construction		—		—		95		—		—		95
Commercial and municipal		—		—		—		—		35		35

Total TDRs	$	211	$	726	$	714	$	122	$	605	$	2,378

(a)	Other includes covenant modifications, forbearance and/or other modifications.

The following table summarizes TDRs that occurred during the period indicated:


	For the three months ended March 31, 2015
(Dollars in thousands)	Number of Loans		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
Real estate:
Conventional		3	$	483	$	483
Commercial and municipal		1		7		7

Total		4	$	490	$	490

At March 31, 2015, there were specific loan loss reserves of $4 thousand related to TDRs that occurred during the three month period ended March 31, 2015. There were no TDRs for which there was a payment default during the three month period ending March 31, 2015, which occurred within 12 months following the date of the restructuring. Loans are considered to be in payment default once they are greater than 30 days contractually past due under the modified terms.

Information about loans that meet the definition of an impaired loan in ASC 310-10-35, “Receivables-Overall-Subsequent Measurement,” is as follows as of and for the three months ended March 31, 2015:


(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance For Credit Losses		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate:
Conventional	$	4,775	$	5,252	$	—	$	4,959	$	46
Home equity		174		234		—		181		—
Commercial		5,411		6,187		—		5,741		52
Construction		455		476		—		1,006		13
Commercial and municipal		661		712		—		672		2

Total impaired with no related allowance	$	11,476	$	12,861	$	—	$	12,559	$	113

With an allowance recorded:
Real estate:
Conventional	$	773	$	855	$	150	$	776	$	5
Commercial		202		202		3		203		1

Total impaired with an allowance recorded	$	975	$	1,057	$	153	$	979	$	6

Total:
Real estate:
Conventional	$	5,548	$	6,107	$	150	$	5,735	$	51
Home equity		174		234		—		181		—
Commercial		5,613		6,389		3		5,944		53
Construction		455		476		—		1,006		13
Commercial and municipal		661		712		—		672		2

Total impaired loans	$	12,451	$	13,918	$	153	$	13,538	$	119

Information about loans that meet the definition of an impaired loan in ASC 310-10-35 is as follows as of and for the year ended December 31, 2014:


(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate:
Conventional	$	5,447	$	6,028	$	—	$	5,735	$	342
Home equity		181		264		—		232		5
Commercial		7,383		8,151		—		8,093		379
Construction		1,163		1,185		—		1,233		53
Commercial and municipal		880		1,204		—		1,118		77

Total impaired with no related allowance	$	15,054	$	16,832	$	—	$	16,411	$	856

With an allowance recorded:
Real estate:
Conventional	$	337	$	370	$	50	$	546	$	17
Commercial		727		727		17		1,539		32
Commercial and municipal		—		—		—		350		—

Total impaired with an allowance recorded	$	1,064	$	1,097	$	67	$	2,435	$	49

Total
Real estate:
Conventional	$	5,784	$	6,398	$	50	$	6,281	$	359
Home equity		181		264		—		232		5
Commercial		8,110		8,878		17		9,632		411
Construction		1,163		1,185		—		1,233		53
Commercial and municipal		880		1,204		—		1,468		77

Total impaired loans	$	16,118	$	17,929	$	67	$	18,846	$	905

The following tables present a summary of credit impaired loans acquired through the merger with The Nashua Bank as of:


	March 31, 2015		December 31, 2014
(Dollars in thousands)	Commercial Real Estate and Commercial and Municipal		Commercial Real Estate and Commercial and Municipal
Contractually required payments receivable	$	952	$	971
Nonaccretable difference		—		—

Cash flows expected to be collected		952		971
Accretable yield		—		—

Fair value of purchased credit impaired loans acquired	$	952	$	971

The following tables present a summary of credit impaired loans acquired through the merger with Central Financial Corporation:


	March 31, 2015
(Dollars in thousands)	Commercial Real Estate and Commercial and Municipal		Conventional Real Estate
Contractually required payments receivable	$	970	$	796
Nonaccretable difference		—		—

Cash flows expected to be collected		970		796
Accretable yield		—		—

Fair value of purchased credit impaired loans acquired	$	970	$	796


	December 31, 2014
(Dollars in thousands)	Commercial Real Estate and Commercial and Municipal		Conventional Real Estate
Contractually required payments receivable	$	983	$	800
Nonaccretable difference		—		—

Cash flows expected to be collected		983		800
Accretable yield		—		—

Fair value of purchased credit impaired loans acquired	$	983	$	800

The following tables present the Company’s loans by risk ratings as of the dates indicated:


	March 31, 2015
	Real Estate
(Dollars in thousands)	Conventional and Home Equity		Commercial		Construction		Commercial and Municipal		Consumer		Total
Originated:
Grade:
Pass	$	—	$	200,546	$	22,861	$	96,308	$	—	$	319,715
Special mention		—		8,905		31		916		—		9,852
Substandard		5,469		10,918		1,313		417		—		18,117
Loans not formally rated		639,015		20,930		14,231		23,130		6,790		704,096

Total	$	644,484	$	241,299	$	38,436	$	120,771	$	6,790	$	1,051,780

Acquired:
Grade:
Pass	$	—	$	60,398	$	916	$	10,074	$	—	$	71,388
Special mention		—		1,681		—		—		—		1,681
Substandard		765		7,483		384		1,699		—		10,331
Loans not formally rated		58,778		1,664		125		484		1,513		62,564

Total	$	59,543	$	71,226	$	1,425	$	12,257	$	1,513	$	145,964


	December 31, 2014
	Real Estate:
(Dollars in thousands)	Conventional and Home Equity		Commercial		Construction		Commercial and Municipal		Consumer		Total
Originated:
Grade:
Pass	$	—	$	205,158	$	19,798	$	99,705	$	—	$	324,661
Special mention		—		2,952		35		850		—		3,837
Substandard		4,790		11,944		2,384		359		—		19,477
Loans not formally rated		650,772		15,586		12,771		24,247		7,438		710,814

Total	$	655,562	$	235,640	$	34,988	$	125,161	$	7,438	$	1,058,789

Acquired:
Grade:
Pass	$	—	$	64,441	$	924	$	10,676	$	—	$	76,041
Special mention		—		5,600		—		401		—		6,001
Substandard		863		5,693		389		1,811		—		8,756
Loans not formally rated		58,468		1,643		144		526		1,712		62,493

Total	$	59,331	$	77,377	$	1,457	$	13,414	$	1,712	$	153,291

Credit Quality Information

The Company utilizes a nine grade internal loan rating system for commercial real estate, construction and commercial loans as follows:

•

Loans rated 10-37: Loans in these categories are considered “pass” rated loans with low to average risk.

•

Loans rated 40: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

•

Loans rated 50: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

•

Loans rated 60: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

•

Loans rated 70: Loans in this category are considered uncollectible or a loss, and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, construction and commercial loans over $250 thousand. The assessment of those loans less than $250 thousand is based on the borrower’s ability to pay and not on overall risk. Additionally, the Company monitors the repayment activity for loans less than $250 thousand and if a loan becomes delinquent over 60 days past due, it is reviewed for risk and is subsequently risk rated based on available information such as ability to repay based on current cash flow conditions and workout discussions with the borrower.

Loan Servicing

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.

The balance of capitalized servicing rights, net of valuation allowances, included in other assets at March 31, 2015, was $2.1 million. The fair value of capitalized servicing rights was $3.7 million as of March 31, 2015. Servicing rights of $163 thousand were capitalized during the three months ended March 31, 2015, compared to $49 thousand for the same period in 2014. Amortization of capitalized servicing rights was $357 thousand for the three months ended March 31, 2015, compared to $152 thousand for the same period in 2014.

Following is an analysis of the aggregate changes in the valuation allowance for capitalized servicing rights during the periods indicated:


	Three months ended March 31,
(Dollars in thousands)	2015		2014
Balance, beginning of period	$	19	$	65
Increase (decrease)		44		(23	)

Balance, end of period	$	63	$	42

Note H – Stock-based Compensation

The Company’s 2014 Stock Incentive Plan, which was approved by the stockholders on May 8, 2014, had 410,000 shares remaining available for issuance at March 31, 2015. The Company accounts for the plan under ASC 718-10, “Compensation-Stock Compensation-Overall.” During the three months ended March 31, 2015 and 2014, stock-based compensation expense of $39 thousand and $28 thousand, respectively, was recognized under the Company’s equity plan.

The Company granted a total of 16,500 shares of restricted stock awards to directors of the Company effective May 1, 2014. The restricted stock was granted under the Company’s 2004 Stock Incentive Plan and awarded the directors shares of restricted common stock of the Company. Of the shares granted, 15,000 vest ratably over a five year period beginning on May 1, 2015. The remaining 1,500 shares vested immediately on May 1, 2014.

Note I – Pension Benefits

The following summarizes the net periodic pension cost for the periods indicated:


	Three months ended March 31,
(Dollars in thousands)	2015			2014
Interest cost	$	93		$	85
Expected return on plan assets		(160	)		(134	)
Amortization of unrecognized actuarial loss		89			65

Net periodic pension cost	$	22		$	16

Note J – Derivative Instruments and Hedging Activities

The Company’s mortgage banking activities include interest rate lock commitments (“IRLCs”) and forward sales commitments that result in derivative instruments. IRLCs are provided on applications for residential mortgages intended for resale and are accounted for as non-hedging derivatives. The Company arranges offsetting forward sales commitments for these rate-locks which are designated as economic hedges.

The IRLCs generally terminate once the loan is funded, the lock period expires or the borrower decides not to contract for the loan. The forward commitments generally terminate once the loan is sold, the commitment period expires or the borrower decides not to contract for the loan.

The following summarizes the fair values of derivative instruments in the consolidated balance sheet as of March 31, 2015. There were no derivatives recorded at December 31, 2014.


(Dollars in thousands)	March 31, 2015
	Notional Amount		Fair Value Asset/(Liability)

Interest rate lock commitments	$	15,419	$	128
Forward loan sale commitments	$	15,824	$	(128	)

Note K – Earnings Per Share (“EPS”)

Basic and diluted net income per common share calculations are as follows:


(Dollars in thousands, except per share data)	For the three months ended March 31,
	2015			2014
Basic EPS:
Net income as reported	$	2,303		$	2,143
Cumulative preferred stock dividend earned		(20	)		(58	)

Net income available to common stockholders	$	2,283		$	2,085

Weighted average common shares outstanding		8,261,383			8,218,465
Earnings per common share – basic	$	0.28		$	0.25

Diluted EPS:
Net income available to common stockholders	$	2,283		$	2,085

Weighted average common shares outstanding		8,261,383			8,218,465
Effect of dilutive securities, options		14,307			13,527

Weighted average common shares outstanding – diluted		8,275,690			8,231,992
Earnings per common share – diluted	$	0.28		$	0.25

Note L – Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:


(Dollars in thousands)	As of
(Dollars in thousands)	March 31, 2015			December 31, 2014
Net unrealized holding loss on available-for-sale securities, net of tax	$	(97	)	$	(341	)
Unrecognized net actuarial loss, defined benefit pension plan, net of tax		(2,998	)		(2,998	)

Accumulated other comprehensive loss	$	(3,095	)	$	(3,339	)

Reclassification disclosures for the periods ended March 31, 2015 and 2014 follow:


(Dollars in thousands)	For the three months ended March 31,
(Dollars in thousands)	2015			2014
Net unrealized holding gain on available-for-sale securities	$	777		$	757
Reclassification adjustment for realized gains in net income(1)		(373	)		(8	)

Other comprehensive income before income tax effect		404			749
Income tax expense		(160	)		(295	)

		244			454

Other comprehensive loss – pension plan		—			—
Income tax benefit		—			—

		—			—

Change in fair value of derivatives used for cash flow hedges		—			—
Income tax expense		—			—

		—			—

Other comprehensive income, net of tax effect	$	244		$	454

(1)

Reclassification adjustments are comprised of realized securities gains. The gains have been reclassified out of accumulated other comprehensive loss and have affected certain lines in the condensed consolidated statements of income as follows: the pre-tax amounts are included in gain on sales and calls of securities, net, the tax expense amounts are included in provision for income taxes and the after tax amounts are included in net income.

Note M – Operating Segments

The Company has two reportable operating segments: Banking, which includes the activities of the Bank and its subsidiaries, excluding Charter Holding, and Wealth Management, which includes the activities of Charter Holding and its subsidiaries. The Company operates as the parent company of the Bank and its subsidiaries and all financial activity between them is eliminated.

The accounting policies of each reportable segment are the same as those of the Company. Income tax expense for the individual segments is calculated based on the activity of the segments.

A summary of the Company’s operating segments is as follows:


(Dollars in thousands)	Banking		Wealth Management		Holding Company			Eliminations			Total Consolidated
Quarter Ended March 31, 2015
Net interest and dividend income (expense)	$	10,683	$	7	$	(457	)	$	—		$	10,233
Provision for loan losses		205		—		—			—			205
Non-interest income		2,696		2,061		734			(734	)		4,757
Non-interest expense		9,398		1,780		236			—			11,414

Income before provision for income taxes		3,776		288		41			(734	)		3,371
Provision (benefit) for income taxes		1,223		107		(262	)		—			1,068

Net income	$	2,553	$	181	$	303		$	(734	)	$	2,303

Total Assets	$	1,466,835	$	18,811	$	175,186		$	(173,709	)	$	1,487,123


(Dollars in thousands)	Banking		Wealth Management		Holding Company			Eliminations			Total Consolidated
Year Ended December 31, 2014
Net interest and dividend income (expense)	$	42,757	$	7	$	(835	)	$	—		$	41,929
Provision for loan losses		905		—		—			—			905
Non-interest income		10,810		8,416		6,993			(6,993	)		19,226
Non-interest expense		38,865		7,035		746			—			46,646

Income before provision for income taxes		13,797		1,388		5,412			(6,993	)		13,604
Provision (benefit) for income taxes		3,704		488		(628	)		—			3,564

Net income	$	10,093	$	900	$	6,040		$	(6,993	)	$	10,040

Total Assets	$	1,480,357	$	18,325	$	177,837		$	(172,733	)	$	1,503,786

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Highlights and Overview

Our profitability is derived from our two operating segments, Banking and Wealth Management. The following is a summary of key financial results for the three months ended March 31, 2015:

•

Total assets decreased $16.7 million, or 1.11%, to $1.5 billion.

•

Loans decreased $14.2 million, or 1.18%, to $1.2 billion as of March 31, 2015.

•

Loans totaling $60.1 million were originated.

•

Our loan servicing portfolio increased $7.1 million to $418.7 million.

•

As a percentage of total loans, non-performing loans decreased to 0.57% at March 31, 2015.

•

Net loan charge-offs were $376 thousand, or 0.12% annualized, of average loans, for the quarter ended March 31, 2015.

•

Deposits decreased $21.5 million, or 1.86%, to $1.1 billion.

•

Return on average common equity of 7.02% and return on average assets of 0.62%.

•

Book value per common share increased 1.06% to $16.14 as of March 31, 2015.

•

Noninterest expense decreased 1.54% to $11.4 million compared to the fourth quarter of 2014.

The following discussion is intended to assist in understanding our financial condition and results of operations. This discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes contained elsewhere in this report.

Critical Accounting Policies

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP and practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in our consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ from those estimates.

Critical accounting estimates are necessary in the application of certain accounting policies and procedures, and are particularly susceptible to significant change. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. There have been no material changes to our critical accounting policies during the three months ended March 31, 2015. For additional information on our critical accounting policies, please refer to the information contained in Notes A, B and C of the unaudited condensed consolidated financial statements located elsewhere within this report and Note 1 of the consolidated financial statements included in our 2014 Annual Report on Form 10-K (“Annual Report”).

Operating Segments

Our operations are managed along two reportable segments that represent our core businesses: Banking and Wealth Management. The Banking segment provides a wide array of lending and depository-related products and services to individuals, businesses and municipal enterprises. The Banking segment also provides commercial insurance and consumer products, including life, health, auto and homeowner insurance, through McCrillis & Eldredge and brokerage services through Lake Sunapee Financial Services Corporation. The Wealth Management segment provides trust and investment services through Charter Holding Corp. and Charter Trust Company. A summary of the financial results for each of our segments is included in Note M – Operating Segments in the notes to our unaudited condensed consolidated financial statements located elsewhere within this report.

Comparison of Financial Condition at March 31, 2015 (unaudited) and December 31, 2014

Assets. Total assets were $1.5 billion at March 31, 2015, compared to $1.5 billion at December 31, 2014, a decrease of $16.7 million, or 1.11%.

Securities Portfolio. Securities available-for-sale decreased $4.2 million, or 3.62%, to $111.5 million at March 31, 2015 from $115.7 million at December 31, 2014. Net unrealized losses on securities available-for-sale were $162 thousand at March 31, 2015 compared to net unrealized losses of $565 thousand at December 31, 2014. During the three months ended March 31, 2015, we sold securities with a total book value of $39.8 million for a net gain on sales of $373 thousand, and $44.1 million of short-term U.S. Treasury notes matured. During the same period, we purchased securities totaling $81.3 million including U.S. Treasury notes and mortgage-backed securities. Our net unrealized loss (after tax) on our investment portfolio was $97 thousand at March 31, 2015 compared to an unrealized loss (after tax) of $341 thousand at December 31, 2014. The investments in our investment portfolio that were temporarily impaired as of March 31, 2015 consisted of U.S. Treasury notes, U.S. government-sponsored enterprise bonds, mortgage-backed securities issued by U.S. government-sponsored enterprises, municipal bonds and equity securities. The unrealized losses on debt securities are primarily attributable to changes in market interest rates and current market inefficiencies. We have the ability and intent to hold debt securities until maturity, and therefore, no declines are deemed to be other-than-temporary. The unrealized losses on equity securities have occurred for less than 12 months and we do not feel the losses relate to credit quality of the issuers. We have the ability and intent to hold these investments until a recovery of cost basis.

Loans. Net loans held in portfolio decreased $14.2 million, or 1.18%, to $1.2 billion at March 31, 2015 from $1.2 billion at December 31, 2014. The decrease of loans held in portfolio was primarily due to decreases in conventional real estate loans of $10.2 million, commercial real estate loans of $492 thousand, commercial loans of $5.6 million, offset in part by an increase in construction loans of $3.4 million. As a percentage of total loans, impaired loans decreased to 1.04% at March 31, 2015 from 1.34% at December 31, 2014. During the three months ended March 31, 2015, we originated $60.1 million in loans, a decrease of 24.8%, compared to $79.9 million during the same period in 2014. At March 31, 2015, our mortgage servicing loan portfolio was $418.7 million, compared to $411.6 million at December 31, 2014. We expect to continue to sell long-term fixed-rate loans with terms of more than 15 years into the secondary market in order to manage interest rate risk. Market risk exposure during the production cycle is managed through the use of secondary market forward commitments. At March 31, 2015, adjustable-rate mortgages comprised approximately 60.47% of our real estate mortgage loan portfolio, which represents a higher percentage compared to the mix at December 31, 2014 of 59.96%, due in part to increases in commercial real estate loans and increased origination of adjustable-rate residential loans.

Allowance and Provision for Loan Losses. We maintain 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. We test 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, we consider historical losses and market conditions. Loss factors may be adjusted for qualitative factors that, in management’s judgment, affect the collectability of the portfolio.

The allowance for loan losses incorporates the results of measuring impairment for specifically identified non-homogeneous problem loans in accordance with ASC 310-10-35, “Receivables-Overall-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 is not collectible in accordance with the contractual terms of the loan. Measurement of impairment can be based on the present value of expected cash flows discounted at the loan’s 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 homogeneous loans such as residential mortgage, home equity, or installment loans that are collectively evaluated for impairment.

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

The allowance for loan losses (not including allowance for losses from the overdraft program described below) at March 31, 2015 was $9.1 million and at December 31, 2014 was $9.2 million. The allowance for loan losses represents 0.76% of total loans held at March 31, 2015 and December 31, 2014. Total impaired loans and non-performing assets at March 31, 2015 were approximately $13.1 million, representing 143.92% of the allowance for loan losses. Despite modestly improving economic and market conditions, charge-off experience during the period resulted in us making $200 thousand in provisions to the allowance for loan losses during the three months ended March 31, 2015, compared to no provisions made for the same period in 2014. Loan charge-offs (excluding the overdraft program) were $391 thousand during the three month period ended March 31, 2015, compared to $223 thousand for the same period in 2014. Recoveries were $15 thousand during the three month period ended March 31, 2015, compared to $243 thousand for the same period in 2014. This activity resulted in net charge-offs of $376 thousand for the three month period ended March 31, 2015, compared to net recoveries of $20 thousand for the same period in 2014. One-to-four family residential mortgages, and commercial and consumer loans accounted for 35%, 63% and 2%, respectively, of the amounts charged-off during the three month period ended March 31, 2015.

The effects of national economic issues that continue to be felt in our local communities and the national economic outlook as well as portfolio performance and charge-offs influenced our decision to maintain our allowance for loan losses of $9.1 million. The growth in the portfolio has been offset by a reduction in non-performing loans and modestly improving economic conditions that affect the risk of loss inherent in the loan portfolio. Management anticipates making additional provisions during the remainder of 2015 to maintain the allowance at an adequate level.

In addition to the allowance for loan losses, there is an allowance for losses from the fee for service overdraft program. Our policy is 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. At March 31, 2015, the overdraft allowance was $15 thousand, compared to $20 thousand at December 31, 2014. There were provisions of $5 thousand for overdraft losses recorded during the three month period ended March 31, 2015, compared to no provisions for the same period during 2014. Ongoing provisions are anticipated as overdraft charge-offs continue and we adhere to our policy to maintain an allowance for overdraft losses equal to 100% of the aggregate negative balance of accounts remaining negative for 30 days or more.

The following is a summary of activity in the allowance for loan losses account (excluding overdraft allowances) for the periods indicated:


(Dollars in thousands)	Three months ended March 31, 2015
	Originated			Acquired		Total
Balance, beginning of year	$	9,249		$	—	$	9,249

Charge-offs:
Conventional		(135	)		—		(135	)
Commercial real estate		—			—		—
Construction		—			—		—
Consumer loans		(9	)		—		(9	)
Commercial and municipal loans		(247	)		—		(247	)

Total charged-off loans		(391	)		—		(391	)

Recoveries:
Conventional		5			—		5
Commercial real estate		—			—		—
Construction		—			—		—
Consumer loans		4			—		4
Commercial and municipal loans		6			—		6

Total recoveries		15			—		15

Net charge-offs:		(376	)		—		(376	)

Provision (benefit) for loan loss charged to income:
Conventional		(52	)		—		(52	)
Commercial real estate		(392	)		—		(392	)
Construction		113			—		113
Consumer loans		—			—		—
Commercial and municipal loans		151			—		151
Unallocated		380			—		380

Total provision		200			—		200

Ending balance	$	9,073		$	—	$	9,073


(Dollars in thousands)	Three months ended March 31, 2014
	Originated			Acquired		Total
Balance, beginning of year	$	9,733		$	—	$	9,733

Charge-offs:
Conventional		(65	)		—		(65	)
Commercial real estate		(132	)		—		(132	)
Construction		—			—		—
Consumer loans		(13	)		—		(13	)
Commercial and municipal loans		(13	)		—		(13	)

Total charged-off loans		(223	)		—		(223	)

Recoveries
Conventional		241			—		241
Commercial real estate		—			—		—
Construction		—			—		—
Consumer loans		—			—		—
Commercial and municipal loans		2			—		2

Total recoveries		243			—		243

Net recoveries		20			—		20

Provision for loan loss charged to income:
Conventional		(592	)		—		(592	)
Commercial real estate		557			—		557
Construction		65			—		65
Consumer loans		21			—		21
Commercial and municipal loans		(30	)		—		(30	)
Unallocated		(21	)		—		(21	)

Total provision		—			—		—

Ending balance	$	9,753		$	—	$	9,753

The following is a summary of activity in the allowance for overdraft privilege accounts for the periods indicated:


	Three months ended March 31,
(Dollars in thousands)	2015			2014
Beginning balance	$	20		$	24

Overdraft charge-offs		(57	)		(41	)
Overdraft recoveries		47			38

Net overdraft charge-offs		(10	)		(3	)

Provision for overdraft losses		5			—

Ending balance	$	15		$	21

The following table sets forth the allocation of the allowance for loan losses (excluding overdraft allowances), the percentage of allowance to the total allowance, and the percentage of loans in each category to total loans as of the dates indicated:


(Dollars in thousands)	March 31, 2015								December 31, 2014
			% of Allowance			% of Loans					% of Allowance			% of Loans
Real estate loans
Conventional, 1-4 family and home equity loans	$	4,431		49	%		59	%	$	4,713		51	%		58	%
Commercial		2,329		26	%		26	%		2,707		29	%		26	%
Land and construction		1,104		12	%		3	%		991		11	%		3	%
Collateral and consumer loans		61		—			1	%		66		—			1	%
Commercial and municipal loans		545		6	%		11	%		635		7	%		12	%
Unallocated		450		5	%		—			70		1	%		—
Impaired loans		153		2	%		—			67		1	%		—

Allowance	$	9,073		100	%		100	%	$	9,249		100	%		100	%

Allowance as a percentage of originated loans				0.86	%							0.87	%
Impaired loans as a percentage of allowance				137.23	%							174.27	%

The following table shows total allowances including overdraft allowances:


(Dollars in thousands)	March 31, 2015		December 31, 2014
Allowance for loan losses	$	9,073	$	9,249
Overdraft allowance		15		20

Total allowance	$	9,088	$	9,269

Asset Quality. Classified loans include non-performing loans and performing loans that have been adversely classified, net of specific reserves. Total classified loans were $28.5 million at March 31, 2015, compared to $28.6 million at December 31, 2014. OREO was $607 thousand at March 31, 2015, compared to $251 thousand at December 31, 2014. Losses have occurred in the liquidation process and our loss experience suggests it is prudent for us to continue funding provisions to build the allowance for loan losses. While, for the most part, quantifiable loss amounts have not been identified with individual credits, we anticipate more charge-offs as loan issues are resolved. The impaired loans meet the criteria established under ASC 310-10-35. Six loans considered to be impaired loans at March 31, 2015 have specific allowances identified and assigned. The six loans are secured by real estate, business assets or a combination of both. At March 31, 2015, the allowance included $153 thousand allocated to impaired loans. The portion of the allowance allocated to impaired loans at December 31, 2014 was $67 thousand.

At March 31, 2015, we had 56 loans totaling $10.2 million considered to be TDRs as defined in ASC 310-40, “Receivables-Troubled Debt Restructurings by Creditors,” included in impaired loans. At March 31, 2015, 36 of the TDRs were performing under contractual terms. Of the loans classified as TDRs, 20 were more than 30 days past due at March 31, 2015. The balances of these past due loans were $3.5 million. At December 31, 2014, we had 59 loans totaling $11.0 million considered to be TDRs.

Loans over 90 days past due were $4.2 million at March 31, 2015, compared to $3.3 million at December 31, 2014. Loans 30 to 89 days past due were $9.6 million at March 31, 2015, compared to $9.6 million at December 31, 2014. As a percentage of assets, the recorded investment in non-performing loans increased from 0.49% at December 31, 2014 to 0.52% at March 31, 2015 and, as a percentage of total loans, increased from 0.60% at December 31, 2014 to 0.65% at March 31, 2015.

Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention do not reflect trends or uncertainties which we reasonably expect will materially impact future operating results, liquidity, or capital resources. For the period ended March 31, 2015, all loans about which management possesses information regarding possible borrower credit problems and doubts as to borrowers’ ability to comply with present loan repayment terms or to repay a loan through liquidation of collateral are included in the tables below or discussed herein.

At March 31, 2015, there were no other loans excluded from the tables below or not discussed above where known information about possible credit problems of the borrowers caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in disclosure of such loans in the future.

The following table shows the breakdown of the amount of non-performing assets and non-performing assets as a percentage of the total allowance and total assets as of the dates indicated:


	March 31, 2015								December 31, 2014
(Dollars in thousands)	Amount		Percentage of Total Allowance			Percentage of Total Assets			Amount		Percentage of Total Allowance			Percentage of Total Assets
Non-accrual loans⁽¹⁾	$	7,762		85.41	%		0.52	%	$	7,327		79.05	%		0.49	%
Other real estate owned and chattel		607		6.68	%		0.04	%		251		2.71	%		0.02	%

Total non-performing assets	$	8,369		92.09	%		0.56	%	$	7,578		81.76	%		0.51	%

(1)	All loans 90 days or more delinquent are placed on non-accruing status.

The following table sets forth the recorded investment in nonaccrual loans by category at the dates indicated:


(Dollars in thousands)	March 31, 2015		December 31, 2014
Real estate:
Conventional	$	3,039	$	2,426
Home equity		125		181
Commercial		3,869		3,926
Construction		—		15
Consumer		—		—
Commercial and municipal		729		779

Total	$	7,762	$	7,327

We believe the allowance for loan losses is at a level sufficient to cover inherent losses, given the current level of risk in the loan portfolio. At the same time, we recognize that the determination of future loss potential is intrinsically uncertain. Future adjustments to the allowance may be necessary due to increases in the loan portfolio, or if economic, real estate and other conditions differ substantially from the current operating environment and result in increased levels of non-performing loans and substantial differences between estimated and actual losses. Adjustments to the allowance are charged to income through the provision for loan losses.

Goodwill. Goodwill amounted to $44.6 million, or 3.00% of total assets, as of March 31, 2015, compared to $44.6 million, or 2.96% of total assets, as of December 31, 2014.

Other Intangible Assets. Other intangible assets were $8.9 million, or 0.60% of total assets, as of March 31, 2015, compared to $9.3 million, or 0.62% of total assets, as of December 31, 2014. The decrease was due to normal amortization of core deposit intangible and customer list assets.

Other Real Estate Owned. OREO was $607 thousand, representing three properties, at March 31, 2015, compared to $251 thousand, representing two properties, of OREO and property acquired in settlement of loans at December 31, 2014. During the first quarter of 2015, one property was sold while two additional properties were added.

Deposits. Total deposits decreased $21.5 million, or 1.86%, to $1.1 billion at March 31, 2015 compared to $1.2 billion at December 31, 2014. The historically consistent first quarter decrease was primarily due to decreases of $9.1 million in noninterest bearing accounts and $21.9 million in time deposits, partially offset by an increase of $9.7 million in savings and money market accounts. At March 31, 2015, our noninterest-bearing deposits decreased $9.1 million, or 7.72%, and interest-bearing deposits decreased $12.4 million, or 1.20%, compared to balances at December 31, 2014.

Borrowings. We had outstanding balances of $141.0 million in advances from the FHLB at March 31, 2015, representing no change in outstanding balances since December 31, 2014. In addition to advances, we had 10 letters of credit totaling $46.7 million with the FHLB to secure customer deposits under pledge agreements. These letters of credit are factored against borrowing capacity with the FHLB. Securities sold under agreements to repurchase decreased $551 thousand, or 3.29%, to $16.2 million at March 31, 2015 from $16.8 million at December 31, 2014. Repurchase agreements are collateralized by some of our U.S. government and agency investment securities.

Comparison of the Operating Results for the Three Months Ended March 31, 2015 and March 31, 2014 (unaudited)

Overview. Consolidated net income for the three months ended March 31, 2015 was $2.3 million, or $0.28 per diluted common share, compared to $2.1 million, or $0.25 per diluted common share, for the same period in 2014, an increase of $160 thousand, or 7.47%. Our net interest margin decreased to 2.99% at March 31, 2015 from 3.12% at March 31, 2014. Our return on average assets and average stockholders’ equity for the three months ended March 31, 2015 were 0.62% and 7.02%, respectively, compared to 0.60% and 6.81%, respectively, for the same period in 2014.

Net Interest and Dividend Income. Net interest and dividend income decreased $20 thousand, or 0.20%, to $10.2 million for the three month period ended March 31, 2015, compared to $10.3 million for the three month period ended March 31, 2014, due to the additional expense of $302 thousand related to $17.0 million of subordinated debt issued in the fourth quarter of 2014, offset in part by an increase of $240 thousand, or 2.11%, of interest and fee income on loans.

The following table sets forth information concerning average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the three month periods indicated.


	Three month period ended March 31,
	2015							2014
(Dollars in thousands)	Average Balance⁽¹⁾		Interest		Yield/ Cost			Average Balance⁽¹⁾		Interest		Yield/ Cost
Assets:
Interest-earning assets:
Loans⁽²⁾	$	1,212,177	$	11,590		3.82	%	$	1,154,224	$	11,350		3.93	%
Investment securities and other		157,560		466		1.18	%		162,135		530		1.31	%

Total interest-earning assets		1,369,737		12,056		3.52	%		1,316,359		11,880		3.61	%

Noninterest-earning assets:
Cash		16,171							9,857
Other noninterest-earning assets ⁽³⁾		102,446							102,259

Total noninterest-earning assets		118,617							112,116

Total	$	1,488,354						$	1,428,475

Interest-bearing liabilities:
Savings, NOW and MMAs	$	741,490	$	206		0.11	%	$	676,290	$	196		0.12	%
Time deposits		355,189		860		0.97	%		370,672		906		0.98	%
Repurchase agreements		15,377		14		0.36	%		22,682		14		0.25	%
Subordinated debentures and other borrowed funds		171,213		743		1.73	%		149,276		511		1.37	%

Total interest-bearing liabilities		1,283,269		1,823		0.57	%		1,218,920		1,627		0.53	%

Noninterest-bearing liabilities:
Demand deposits		50,431							44,712
Other		15,433							16,663

Total noninterest-bearing liabilities		65,864							61,375

Stockholders’ equity		139,221							148,180

Total	$	1,488,354						$	1,428,475

Net interest and dividend income/Net interest rate spread			$	10,233		2.95	%			$	10,253		3.08	%

Net interest margin						2.99	%						3.12	%

Percentage of interest-earning assets to interest-bearing liabilities						106.74	%						107.99	%

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

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

(3)	Other noninterest-earning assets include non-earning assets and OREO.

The following table sets forth the dollar volume of increase (decrease) in interest income and interest expense resulting from changes in the volume of earning assets and interest-bearing liabilities, and from changes in rates for the three month periods indicated. Volume changes are computed by multiplying the volume difference by the prior period’s rate. Rate changes are computed by multiplying the rate difference by the prior period’s balance. The change in interest income and expense due to both rate and volume has been allocated proportionally between the volume and rate variances (in thousands).


	Three Months Ended March 31, 2015 vs. 2014 Increase (Decrease) Due to
	Volume			Rate			Total
	(Dollars in thousands)
Interest income on loans	$	1,775		$	(1,535	)	$	240
Interest income on investments		(15	)		(49	)		(64	)

Total interest income		1,760			(1,584	)		176

Interest expense on savings, NOW and MMAs		10			—			10
Interest expense on time deposits		(68	)		22			(46	)
Interest expense on repurchase agreements		(45	)		45			—
Interest expense on capital securities and other borrowed funds		45			187			232

Total interest expense		(58	)		254			196

Net interest income	$	1,818		$	(1,838	)	$	(20	)

Interest and Dividend Income. For the three months ended March 31, 2015, total interest and dividend income increased $176 thousand, or 1.48%, to $12.1 million, compared to $11.9 million for the same period in 2014. Interest and fees on loans increased $240 thousand, or 2.11%, to $11.6 million for the three month period ended March 31, 2015, compared to $11.4 million for the same period in 2014 due primarily to increased portfolio balances, offset in part by loans repricing to lower rates. Interest and dividends on investments and other interest decreased $64 thousand, or 12.08%, for the three month period ended March 31, 2015 compared to the same period in 2014.

Interest Expense. For the three months ended March 31, 2015, total interest expense increased $196 thousand, or 12.05%, to $1.8 million, compared to $1.6 million for the same period in 2014. Interest on deposits decreased $36 thousand, or 3.27%, to $1.1 million for the three month period ended March 31, 2015 compared to the same period in 2014, due in part to the migration from time deposits to lower cost deposit products. For the three months ended March 31, 2015, interest on advances and other borrowed money increased $232 thousand, or 44.19%, to $757 thousand from $525 thousand for the same period in 2014, due in part to the issuance of $17.0 million of subordinated debt in the fourth quarter of 2014 which resulted in $302 thousand of additional interest expense.

Provision for Loan Losses. The provision for loan losses (not including overdraft allowances) was $200 thousand for the three months ended March 31, 2015, compared to no provisions during the same period in 2014. The amount of the provision is consistent with activity in the portfolio during the related periods and allowance adequacy models. We recorded $5 thousand in provisions for overdraft losses in the three months ended March 31, 2015, compared to no provisions during the same period in 2014. For additional information on provisions and adequacy, please refer to the section herein on the Allowances for Loan Losses.

Noninterest Income and Expense. For the three months ended March 31, 2015, total noninterest income increased $296 thousand, or 6.64%, to $4.8 million, compared to $4.5 million for the same period in 2014.

Customer service fees decreased $60 thousand, or 4.17%, to $1.4 million from $1.4 million for the three months ended March 31, 2014. This decrease includes decreases of $43 thousand in fees related to overdraft processing and $17 thousand of recoveries related to deposit accounts. Gain on sales of securities increased $365 thousand to $373 thousand from $8 thousand for the three months ended March 31, 2014. This increase is due to the increased volume of sales of securities with $35.6 million sold during the three months ended March 31, 2015, compared to $2.1 million for the same period in 2014.

Mortgage banking activities, net decreased $3 thousand to $128 thousand from $131 thousand for the three months ended March 31, 2014. The change represents increases of $152 thousand in gains on sales of loans, $114 thousand for capitalized mortgage servicing rights, $205 thousand for the amortization of mortgage servicing rights, and $67 thousand for the valuation of net periodic impairment on the servicing portfolio. These changes reflect changes in pipelines, market rates, and shifts in consumer demand for long-term fixed rate products.

Insurance commission income increased $39 thousand, or 8.06%, to $523 thousand from $484 thousand for the three months ended March 31, 2014. This increase includes an increase of $69 thousand in premium commissions offset by a decrease of $31 thousand in contingency commissions.

Bank-owned life insurance income decreased $3 thousand to $146 thousand from $149 thousand for the three months ended March 31, 2014. Trust and investment management fee income decreased $33 thousand, or 1.59%, to $2.0 million from $2.1 million for the three months ended March 31, 2014.

Total noninterest expenses decreased $258 thousand, or 2.21%, to $11.4 million for the three months ended March 31, 2015, compared to $11.7 million for the same period in 2014, as discussed below.

Salaries and employee benefits increased $35 thousand, or 0.58%, to $6.0 million from $6.0 million for the three months ended March 31, 2014. Gross salaries and benefits paid, which excludes the deferral of expenses associated with the origination of loans, increased $134 thousand, or 2.13%, to $6.4 million from $6.3 million for the three months ended March 31, 2014. Salary expense increased $132 thousand, or 2.83%, to $4.7 million from $4.5 million for the same period in 2014, reflecting ordinary cost-of-living adjustments, staffing additions, and promotional increases. The deferral of expenses in conjunction with the origination of loans increased $99 thousand, or 34.62%, to $385 thousand from $286 thousand for the same period in 2014.

Occupancy and equipment increased $16 thousand, or 0.99%, to $1.6 million from $1.6 million for the same period in 2014. Advertising and promotion increased $13 thousand, or 8.07%, to $174 thousand from $161 thousand for the same period in 2014. This increase was primarily a result of increased in-branch and collateral sales materials. Depositors’ insurance recorded decreased $33 thousand, or 12.18%, to $238 thousand from $271 thousand for the same period in 2014.

Outside services decreased $41 thousand, or 6.29%, to $611 thousand from $652 thousand for the same period in 2014. This decrease includes decreases of $36 thousand related to Charter Trust Company’s expenses that were eliminated due to redundancy with the Bank’s expenses and $43 thousand of other outside fees including non-recurring placement consulting fees during the first quarter of 2014. Professional services increased $10 thousand, or 3.68%, to $282 thousand from $272 thousand for the same period in 2014. This increase includes increases of $15 thousand in exam and assessment fees, $20 thousand in legal fees, and $3 thousand in audit fees, partially offset by a decrease of $21 thousand in consulting fees.

ATM processing fees decreased $33 thousand, or 14.93%, to $188 thousand from $221 thousand for the same period in 2014. This decrease is related to renegotiated rates subsequent to the first quarter of 2014. Supplies decreased $54 thousand to $110 thousand from $164 thousand for the same period in 2014. Telephone expense decreased $26 thousand, or 8.81%, to $269 thousand from $295 thousand for the same period in 2014 as we continued to consolidate expenses.

Amortization of intangible assets decreased $45 thousand, or 10.34%, to $390 thousand from $435 thousand for the same period in 2014 as our intangible assets are on sum-of-the-years-digits declining amortization method, resulting in a reduction to year-over-year amortization.

Other expenses decreased $100 thousand, or 6.27%, to $1.5 million from $1.6 million for the same period in 2014. This decrease includes decreases of $42 thousand related to Charter Trust Company’s expenses that were eliminated due to redundancy with the Bank’s expenses, $64 thousand in non-recurring Charter Trust Company’s expenses, $33 thousand in expenses related to non-performing assets, and $114 thousand in contributions, partially offset by an increase of $65 thousand in holding company expenses.

Contractual Obligations and Contingent Liabilities

During the three months ended March 31, 2015, there were no material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report.

Liquidity and Capital Resources

Liquidity

The term “liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loan purchases, deposit withdrawals and operating expenses. At March 31, 2015, our liquidity was sufficient to cover our anticipated needs for funding new loan commitments of approximately $71.6 million. Our 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 March 31, 2015, we had approximately $228.1 million in additional borrowing capacity from the FHLB.

At March 31, 2015, stockholders’ equity totaled $141.4 million, compared to $139.8 million at December 31, 2014. This increase reflects net income of $2.3 million, the declaration and payment of $1.1 million in common stock dividends, the declaration of $20 thousand in preferred stock dividends, contributions and reinvestments in the dividend reinvestment program of $45 thousand, vesting of stock awards of $12 thousand, exercise of common stock options of $28 thousand and $244 thousand in other comprehensive income.

At March 31, 2015, we had unrestricted funds available in the amount of $3.7 million. As of March 31, 2015, our total cash needs for the remainder of 2015 are estimated to be approximately $5.0 million with $3.1 million projected to be used to pay cash dividends on our common stock, $861 thousand to pay interest on our subordinated debt, $450 thousand to pay interest on our capital securities, $60 thousand to pay dividends on our Series B Preferred Stock (as defined below), and approximately $577 thousand for ordinary operating expenses. The Bank pays dividends to the Company as its sole stockholder, within guidelines set forth by the Office of the Comptroller of the Currency and the Federal Reserve Board. 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 additional Company cash requirements for 2015, as needed, as long as earnings at the Bank are sufficient to maintain adequate Tier I Capital.

For the three months ended March 31, 2015, net cash provided by operating activities increased $495 thousand to $4.6 million, compared to cash provided of $4.1 million for the same period in 2014. Cash provided by loans sold increased $14.2 million for the three months ended March 31, 2015, compared to the same period in 2014. Net gain on sales of loans increased $128 thousand for the three months ended March 31, 2015, compared to the same period in 2014. Net gain on sales and calls of securities increased $365 thousand for the three months ended March 31, 2015, compared to the same period in 2014, as a result of $35.6 million of securities sold and called during the three months ended March 31, 2015, compared to approximately $2.1 million of securities sold and called during the same period in 2014. The provision for loan losses increased $205 thousand for the three months ended March 31, 2015, compared to the same period in 2014. The change in accrued interest receivable and other assets increased $292 thousand for the three months ended March 31, 2015, compared to the same period in 2014. The change in accrued expenses and liabilities increased $3.0 million.

Net cash provided by investing activities was $13.2 million for the three months ended March 31, 2015, compared to cash used of $9.9 million for the same period in 2014, a change of $23.0 million. The cash provided by net securities activities was $239 thousand for the three months ended March 31, 2015, compared to cash provided by net securities activities of $11.7 million for the same period in 2014. There was no cash used to purchase loans for the three months ended March 31, 2015, compared to cash used of $5.7 million for the same period in 2014. Cash provided by loan originations and principal collections, net, was $13.4 million for the three months ended March 31, 2015, an increase of $29.0 million, compared to cash used of $15.6 million for the same period in 2014.

For the three months ended March 31, 2015, net cash flows used by financing activities increased $31.1 million to $23.1 million, compared to net cash provided by financing activities of $8.1 million for the three months ended March 31, 2014. For the three months ended March 31, 2015, we experienced a net decrease of $3.1 million in cash used in deposits and securities sold under agreements to repurchase comparing cash used of $22.0 million in 2015 to cash used of $25.1 million for the same period in 2014. For the three months ended March 31, 2015, we had a decrease of $34.3 million of cash provided by FHLB advances and other borrowings, comparing no cash provided for the three months ended March 31, 2015 to cash provided of $34.3 million for the same period in 2014.

U.S. Treasury’s Small Business Lending Fund Program

On August 25, 2011, as part of the U.S. Treasury’s Small Business Lending Fund (“SBLF”) program, we entered into a Purchase Agreement with Treasury pursuant to which we issued and sold to the U.S. Department of Treasury (“Treasury”) 20,000 shares of our Series B Preferred Stock. We used $10.0 million of the SBLF proceeds to repurchase the Series A Preferred Stock previously issued under Treasury’s Capital Purchase Program. With the acquisition of TNB in 2013, we assumed $3.0 million of preferred stock issued to Treasury. We used a portion of the net proceeds from the sale of the subordinated notes (as discussed below) to redeem a portion of our outstanding shares of Series B Preferred Stock. At December 31, 2014 and 2013, we had 8,000 shares and 23,000 shares, respectively, of Non-Cumulative Perpetual Preferred Stock, Series B, par value $0.01 per preferred share, issued and outstanding to the Treasury.

The initial rate payable on SBLF capital is, at most, 5%, and the rate falls to 1% if a bank’s small business lending increases by 10% or more. Banks that increase their lending by less than 10% pay rates between 2% and 4%. If a bank’s lending does not increase in the first two years, however, the rate increases to 7%, and after 4.5 years total, the rate for all banks increases to 9% (if the bank has not already repaid the SBLF funding). The dividend will be paid only when declared by our Board of Directors.

Subordinated Notes

On October 29, 2014, we entered into a Subordinated Note Purchase Agreement with certain accredited investors under which we issued an aggregate of $17.0 million of subordinated notes to the accredited investors. The Notes have a maturity date of November 1, 2024, and bear interest at a fixed rate of 6.75% per annum. We may, at our option, beginning with the interest payment date of November 1, 2019, and on any interest payment date thereafter, redeem the notes, in whole or in part, at par plus accrued and unpaid interest to the date of redemption. Any partial redemption will be made pro rata among all of the noteholders. The notes are not subject to repayment at the option of the noteholders. The notes are unsecured, subordinated obligations of the Company and rank junior in right of payment to our senior indebtedness and to our obligations to our general creditors.

The notes are intended to qualify as Tier 2 capital for regulatory purposes. We used a portion of the net proceeds from the sale of the notes to redeem a portion of our Series B Preferred Stock and we plan to use the remainder of the net proceeds for general corporate purposes. The notes were offered and sold in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D there under.

Capital Ratios

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the agencies that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Effective January 1, 2015 (with a phase-in period of two to four years for certain components), the Company and the Bank became subject to new capital regulations adopted by the Board of Governors of the Federal Reserve System (“FRB”) and the OCC, which implement the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act. The new regulations require a new common equity Tier 1 (“CETI”) capital ratio of 4.5%, increase the minimum Tier 1 capital to risk-weighted assets ratio to 6.0% from 4.0%, require a minimum total capital to risk-weighted assets ratio of 8.0% and require a minimum Tier 1 leverage ratio of 4.0%. CETI generally consists of common stock and retained earnings, subject to applicable adjustments and deductions. Under new prompt corrective action regulations, in order to be considered “well capitalized,” the Bank must maintain a CETI capital ratio of 6.5% (new) and a Tier 1 ratio of 8.0% (increased from 6.0%), a total risk based capital ratio of 10.0% (unchanged) and a Tier 1 leverage ratio of 5.0% (unchanged). In addition, the regulations establish a capital conservation buffer above the required capital ratios that phases in beginning January 1, 2016, at 0.625% of risk-weighted assets and increases each year by 0.625% until it is fully phased in at 2.5% effective January 1, 2019. Beginning January 1, 2016, failure to maintain the capital conservation buffer will limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses to executive officers and similar employees.

The new regulations implemented changes to what constitutes regulatory capital. Certain instruments will no longer constitute qualifying capital, subject to phase-out periods. In addition, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of CETI will be deducted from capital. The Company and the Bank have elected to permanently opt out of the inclusion of accumulated other comprehensive income in capital calculations, as permitted by the regulations. This opt-out will reduce the impact of market volatility on our regulatory capital ratios.

The new regulations also changed the risk weights of certain assets, including an increase in the risk weight of certain high volatility commercial real estate acquisition, development and construction loans and non-residential mortgage loans that are 90 days past due or on non-accrual status to 150% from 100%, a credit conversion factor for the unused portion of commitments with maturities of less than one year that are not cancellable to 20% from 0%, an increase in the risk weight for mortgage servicing and deferred tax assets that are not deducted from capital to 250% from 100%, and an increase in the risk weight for equity exposures to 600% from 0%.

As of March 31, 2015 (unaudited), the Company and the Bank met each of their capital requirements and were considered “well-capitalized.”

The Company’s and the Bank’s actual capital amounts and ratios are presented in the table below.


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
New Hampshire Thrift Bancshares, Inc.:
Tier 1 Leverage Capital	$	120,929		8.41	%	$	57,501		4.0	%		N/A		N/A
Tier 1 Risk-Based Capital		120,929		12.10			59,972		6.0			N/A		N/A
Total Risk-Based Capital		130,192		13.03			79,962		8.0			N/A		N/A
Common Equity Tier 1 Capital		92,929		9.30			44,979		4.5			N/A		N/A

Lake Sunapee Bank, fsb:
Tier 1 Leverage Capital	$	133,264		9.28	%	$	57,468		4.0	%	$	71,835		5.0	%
Tier 1 Risk-Based Capital		133,264		13.34			59,918		6.0			79,891		8.0
Total Risk-Based Capital		142,527		14.27			79,891		8.0			99,863		10.0
Common Equity Tier 1 Capital		133,264		13.34			44,938		4.5			64,911		6.5

Tangible Book Value

Book value per common share was $16.14 at March 31, 2015, compared to $15.97 per common share at December 31, 2014. Tangible book value per common share was $9.67 at March 31, 2015, compared to $9.44 per common share at December 31, 2014. Tangible book value per common share is a non-U.S. GAAP financial measure calculated using U.S. GAAP amounts. Tangible book value per common share is calculated by dividing tangible common equity by the total number of shares outstanding at a point in time. Tangible common equity is calculated by excluding the balance of goodwill, other intangible assets and preferred stock from the calculation of stockholders’ equity. We believe that tangible book value per common share provides information to investors that may be useful in understanding our financial condition. Because not all companies use the same calculation of tangible common equity and tangible book value per common share, this presentation may not be comparable to other similarly titled measures calculated by other companies.

A reconciliation of these non-U.S. GAAP financial measures is provided below:


(Dollars in thousands, except per share data)	March 31, 2015		December 31, 2014
Stockholders’ equity	$	141,373	$	139,836
Less goodwill⁽¹⁾		40,847		44,576
Less other intangible assets⁽¹⁾		6,730		9,332
Less preferred stock		8,000		8,000

Tangible common equity	$	85,796	$	77,928

Ending common shares outstanding		8,264,278		8,258,031
Tangible book value per common share	$	10.38	$	9.44

⁽¹⁾

Net of related deferred tax liability for periods beginning after January 1, 2015.

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 us and used the net proceeds from the offering to purchase a like amount of our Junior Subordinated Deferrable Interest Debentures (“Debentures II”). Debentures II are the sole assets of Trust II. Total expenses associated with the offering of $160 thousand 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. We have 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. We have the right to redeem Debentures II, in whole or in part, 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 us and used the net proceeds from the offering to purchase a like amount of our 6.06% Junior Subordinated Deferrable Interest Debentures (“Debentures III”). Debentures III are the sole assets of Trust III. Total expenses associated with the offering of $160 thousand 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 five years of the stated liquidation amount of $10 per capital security. We have fully and unconditionally guaranteed all of the obligations of Trust III. The guaranty covers the quarterly distributions and payments on liquidation or redemption of Capital Securities III, but only to the extent that Trust III 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. We have the right to redeem Debentures III, in whole or in part, at the liquidation amount plus any accrued but unpaid interest to the redemption date.

Stock Repurchase Plan

The Board of Directors 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. On June 12, 2007, the Board of Directors reactivated a previously adopted but incomplete stock repurchase program to repurchase up to 253,776 shares of common stock. We buy stock in the open market whenever the price of the stock is deemed reasonable and we have funds available for the purchase. At March 31, 2015, 148,088 shares remained to be repurchased under the repurchase plan previously approved by the Board of Directors. During the three months ended March 31, 2015, no shares were repurchased.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Asset-Liability Management

Market risk and interest rate risk management is governed by the Asset/Liability Committee (“ALCO”). The ALCO establishes exposure limits that define our tolerance for interest rate risk. The ALCO manages the composition of the balance sheet over a range of potential fluctuations in interest rates while responding, as appropriate, to market demand for loan and deposit products. Current exposures versus limits are reported to the Board of Directors at least quarterly. The policy limits and guidelines serve as benchmarks for measuring interest rate risk and for providing a framework for evaluation and interest rate risk-management decision-making.

Market Risk

Market risk is the risk that the market value or estimated fair value of our assets, liabilities, and derivative financial instruments will decline as a result of changes in interest rates or financial market volatility, or that our net income will be significantly reduced by interest rate changes.

Interest Rate Risk

The principal market risk facing us is interest rate risk, which may include repricing risk, yield-curve risk, basis risk, and prepayment risk. Repricing risk exists when the change in the average yield of either interest-earning assets or interest-bearing liabilities is more sensitive than the other to changes in market interest rates. A change in sensitivity could reflect an imbalance in the repricing opportunities of our assets and liabilities. Yield curve risk reflects the possibility that the changes in the shape of the yield curve could have different effects on our assets and liabilities. Basis risk exists when different parts of the balance sheet are subject to varying base rates reflecting the possibility that the spread from those base rates will deviate. Prepayment risk is associated with financial instruments with an option to prepay before the stated maturity often at a time of disadvantage to the person selling the option; this risk is most often associated with the prepayment of loans, callable investments, and callable borrowings.

Interest rate risk can be measured by analyzing the extent to which the repricing of assets and liabilities are mismatched to create an interest rate sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds the amount of interest rate-sensitive assets. During a period of falling interest rates, therefore, a positive gap would tend to adversely affect net interest income. Conversely, during a period of rising interest rates, a positive gap position would tend to result in an increase in net interest income.

Income simulation is the primary tool for measuring the interest rate risk inherent in our balance sheet at a given point in time by showing the effect on net interest income, over a 12-month period, of a variety of interest rate shocks. These simulations take into account repricing, maturity and prepayment characteristics of individual products. The ALCO reviews simulation results to determine whether the exposure resulting from changes in market interest rates remains within established tolerance levels over a 12-month horizon, and develops appropriate strategies to manage this exposure.

Our one-year cumulative interest rate gap at March 31, 2015 was positive 2.67%, compared to the December 31, 2014 gap of negative 2.34%. With an asset sensitive positive gap, if rates were to rise, net interest margin would likely increase and if rates were to fall, the net interest margin would likely decrease. Over the next 12 months, $10.2 million more assets are subject to repricing than liabilities.

As another part of interest rate risk analysis, we use an interest rate sensitivity model, which generates estimates of the change in our economic value of equity (“EVE”) over a range of interest rate scenarios. EVE is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The EVE ratio, under any rate scenario, is defined as the EVE 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 EVE model assumes that the composition of our 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 EVE measurements and net interest income models provide an indication of our 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 our net interest income and will likely differ from actual results.

The following table sets forth our EVE at March 31, 2015, as calculated by an independent third party agent:


(Dollars in thousands)	Book Value		-100 bp			0 bp			+100 bp			+200 bp			+300 bp			+400 bp
EVE:
Amount	$	173,670	$	133,332		$	137,941		$	127,841		$	117,963		$	106,928		$	96,113
Percent of change				-3.3	%					-7.3	%		-14.5	%		-22.5	%		-30.3	%
EVE Ratio:
Ratio				9.15	%		9.66	%		9.19	%		8.70	%		8.09	%		7.45	%
Change in basis points				-51						-47			-96			-157			-221

Management controls the Company’s interest rate exposure using several strategies, which include adjusting the maturities of securities in the Company’s investment portfolio, limiting or expanding the terms of loans originated, monitoring and limiting, as appropriate, long-term fixed rate deposits, and laddering maturities of FHLB advances. The Company limits this risk by monitoring and limiting, as appropriate, securities it invests in to those with limited average life changes under certain interest rate shock scenarios, or securities with embedded prepayment penalties. The Company also may use derivative instruments, principally interest rate swaps, to manage its interest rate risk. The Company had no derivative fair value hedges or derivative cash flow hedges at March 31, 2015 or December 31, 2014.

Item 4. Controls and Procedures

Management, including our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our 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, our President and Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our President and Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There is no material litigation pending to which we or any of our subsidiaries are a party or to which our property or the property of any of our subsidiaries is subject, other than ordinary routine litigation incidental to our business.

Item 1A. Risk Factors

There are risks inherent to our business. As of March 31, 2015, the risk factors of the Company have not changed materially from those disclosed within Part I, Item 1A, “Risk Factors” of our 2014 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index attached hereto and are incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 11, 2015.

NEW HAMPSHIRE THRIFT BANCSHARES, INC.

(Registrant)

/s/ Stephen R. Theroux

Stephen R. Theroux

President and Chief Executive Officer

(Principal Executive Officer)

/s/ Laura Jacobi

Laura Jacobi

First Senior Vice President, Chief Financial Officer and Chief Accounting Officer

(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 filed with the SEC on January 9, 2015).

3.2		Certificate of Designations establishing the rights of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 22, 2009).

3.3		Amended and Restated Certificate of Designations establishing the rights of the Company’s Non-Cumulative Perpetual Preferred Stock, Series B (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 25, 2013).

3.4		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 16, 2014).

4.1		Stock Certificate (incorporated by reference to an exhibit to the Company’s Registration Statement on Form S-4 filed with the SEC on March 1, 1989).

4.2		Indenture by and between the Company, as Issuer, and U.S. Bank National Association, as Trustee, dated March 30, 2004, for Floating Rate Junior Subordinated Deferrable Interest Debentures (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 29, 2005).

4.3		Form of Floating Rate Junior Subordinated Deferrable Interest Debentures issued by the Company to U.S. Bank National Association, dated March 30, 2004 (incorporated by reference to Exhibit A to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 29, 2005).

4.4		Indenture by and between the Company, as Issuer, and U.S. Bank National Association, as Trustee, dated March 30, 2004, for Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 29, 2005).

4.5		Form of Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures issued by the Company to U.S. Bank National Association, dated March 30, 2004 (incorporated by reference to Exhibit A to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 29, 2005).

4.6		Form of Subordinated Note issued by the Company to certain noteholders, dated October 24, 2014 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 29, 2014).

31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

32.1 *		Section 1350 Certification of the Chief Executive Officer.

32.2 *		Section 1350 Certification of the Chief Financial Officer.

101		Financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Changes in Stockholders’ Equity and (v) the Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Condensed Consolidated Financial Statements.

*	Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Stephen R. Theroux, certify that:

I have reviewed this quarterly report on Form 10-Q of New Hampshire Thrift Bancshares, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Laura Jacobi, certify that:

I have reviewed this quarterly report on Form 10-Q of New Hampshire Thrift Bancshares, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Stephen R. Theroux, is the President and Chief Executive Officer of New Hampshire Thrift Bancshares, Inc. (the “Company”). This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (the “Report”).

By execution of this statement, I certify that:

the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.

This statement is authorized to be attached as an exhibit to the Report so that this statement will accompany the Report at such time as the Report is filed with the Securities and Exchange Commission, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. Pursuant to Securities and Exchange Commission Release 33-8238, dated June 5, 2003, this certification is being furnished and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any registration statement of the Company filed under the Securities Act of 1933, as amended, except to the extent that the Company specifically incorporates it by reference. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Laura Jacobi, is the First Senior Vice President, Chief Financial Officer and Chief Accounting Officer of New Hampshire Thrift Bancshares, Inc. (the “Company”). This statement is being furnished in connection with the filing by the Company of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 (the “Report”).

By execution of this statement, I certify that:

the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and