Forward-looking Statements

Statements included in this discussion and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases, and in oral statements made with the approval of an authorized executive officer, which are not historical or current facts, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events or circumstances.

General

New Hampshire Thrift Bancshares, Inc. (the "Company"), a Delaware holding company organized on July 5, 1989, is the parent company of Lake Sunapee Bank, fsb (the "Bank"), a federally-chartered savings bank. The Bank is a member of the Federal Deposit Insurance Corporation ("FDIC") and its deposits are insured by the FDIC. The Bank is regulated by the Office of Thrift Supervision ("OTS").

The Company's profitability is derived primarily from the Bank. The Bank's earnings in turn are generated from the net income from the earnings on its loan and investment portfolios less the cost of its deposit accounts and borrowings. These core revenues are supplemented by gain on sales of loans originated for sale, retail banking service fees, gain on the sale of investment securities, and brokerage fees. The Bank passes on its earnings to the Company to the extent allowed by OTS regulations. As of September 30, 2008, the Company had $256,490 in cash available which it plans to use along with its dividends from the Bank to continue its quarterly shareholder dividend of $0.13 per share and pay its subordinated debenture interest payments. On October 9, 2008, the Bank paid a dividend in the amount of $1.6 million to the Company which contributed to a cash balance of $1,866,260 as of October 24, 2008.

Overview:

• Total assets stood at $829,204,025 at September 30, 2008, compared to $834,229,842 at December 31, 2007.

• Net loans outstanding increased to $637,794,843 at September 30, 2008 from $626,274,462 at December 31, 2007.

• The Company's earnings increased $498,805 to $3,896,196, or $0.67 per diluted common share, for the nine months ended September 30, 2008, from $3,397,391, or $0.73 per diluted common share, for the same period in 2007.

• The Company's earnings decreased $187,231 to $1,105,596 or $0.19 per diluted common share, for the quarter ended September 30, 2008, from $1,292,827, or $0.25 per diluted common share, for the same period in 2007.

• During the first nine months of 2008, the Bank originated $192,717,386 in loans, compared to $149,542,811 in loans for the nine months ended September 30, 2007, an increase of $43,174,575, or 28.87%.

• The Bank's loan servicing portfolio increased to $314,299,502 at September 30, 2008, from $303,177,854 at September 30, 2007.

• The Bank's interest rate margin increased to 3.42% at September 30, 2008, from 3.02% at September 30, 2007, as a decrease in short-term interest rates enabled the Bank to reprice its maturing liabilities faster than repricing assets.

• On October 9, 2008, the Company announced a quarterly shareholder dividend in the amount of $0.13 per share payable on October 31, 2008.

Critical Accounting Policies

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

Allowance for Loan Losses

The allowance for loan losses is established through a charge to the provision for loan losses. Provisions are made to reserve for estimated losses in outstanding loan balances. The allowance for loan losses is a significant estimate and is regularly reviewed by the Company for adequacy by assessing such factors as changes in the mix and volume of the loan portfolio; trends in portfolio credit quality, including delinquency and charge-off rates; and current economic conditions that may affect a borrower's ability to repay. The Company's methodology with respect to the assessment of the adequacy of the allowance for loan losses is more fully discussed on pages 12-14 of this report.

Income Taxes

The Company must estimate income tax expense for each period for which a statement of operations is presented. This involves estimating the Company's actual current tax exposure as well as assessing temporary differences resulting from differing treatment of items, such as timing of the deduction of expenses, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company's consolidated balance sheets. The Company must also assess the likelihood that any deferred tax assets will be recovered from future taxable income and to the extent that recovery is not likely, a valuation allowance must be established. Significant management judgment is required in determining income tax expense, and deferred tax assets and liabilities. As of September 30, 2008, there were no valuation allowances established against any deferred tax assets.

Interest Income Recognition

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

Capital Securities

On March 30, 2004, NHTB Capital Trust II ("Trust II"), a Connecticut statutory trust formed by the Company, completed the sale of $10.0 million of 6.06%, 5 Year Fixed-Floating Capital Securities ("Capital Securities II"). Trust II also issued common securities to the Company and used the net proceeds from the offering to purchase a like amount of 6.06% Junior Subordinated Deferrable Interest Debentures ("Debentures II") of the Company. Debentures II are the sole assets of Trust II. The Company used the proceeds to redeem the securities issued by NHTB Capital Trust I ("Trust I"), which were callable on September 30, 2004. Total expenses of $160,402 associated with the offering 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 at an annual rate of 6.06% for the first five years of the stated liquidation amount of $10 per Capital Security. The Company has fully and unconditionally guaranteed all of the obligations of the Trust. The guaranty covers the quarterly distributions and payments on liquidation or redemption of Capital Securities II, but only to the extent that the Trust has funds necessary to make these payments.

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

On March 30, 2004, NHTB Capital Trust III ("Trust III"), a Connecticut statutory trust formed by the Company, completed the sale of $10.0 million of Floating Capital Securities, adjustable every three months at LIBOR plus 2.79% ("Capital Securities III"). Trust III also issued common securities to the Company and used the net proceeds from the offering to purchase a like amount of Junior Subordinated Deferrable Interest Debentures ("Debentures III") of the Company. Debentures III are the sole assets of Trust III. The Company used a portion of the proceeds to redeem the balance of securities issued by Trust I, which were callable on September 30, 2004. The balance of the proceeds of Trust III was used for general corporate purposes. Total expenses of $160,402 associated with the offering 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 based on the stated liquidation amount of $10 per Capital Security. The Company has 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. The Company has the right to redeem Debentures III, in whole or in part on or after March 30, 2009, at the liquidation amount plus any accrued but unpaid interest to the redemption date.

Debentures II and III are included on the Company's consolidated balance sheet as "Subordinated debentures."

Interest Rate Swap Agreement

On May 19, 2008, the Company entered into an interest rate swap agreement with PNC Bank, effective on September 17, 2008. The interest rate agreement converts Trust III's interest rate from a floating rate to a fixed rate basis. The interest rate swap agreement has a notional amount of $10 million

maturing September 17, 2013. Under the swap agreement, the Company is to receive quarterly interest payments at a floating rate based on three month LIBOR plus 2.79% and is obligated to make quarterly interest payments at a fixed rate of 6.65%.

First Brandon Acquisition

On December 14, 2006, the Company entered into a definitive agreement to acquire First Brandon Financial Corporation, Brandon, VT, ("First Brandon") for approximately $21.2 million in cash and stock. Immediately following the closing of the transaction on June 1, 2007, which carried a final closing price of $20.9 million, First Brandon's subsidiary bank, First Brandon National Bank, merged with and into the Bank, but operates under the name "First Brandon Bank, a division of Lake Sunapee Bank, fsb" (hereinafter referred to as the "First Brandon Division").

First Community Acquisition

On April 16, 2007, the Company announced that it had entered into a definitive agreement to acquire First Community Bank, Woodstock, VT ("First Community") for approximately $15.5 million in cash and stock, which further expanded the Company's banking franchise into the State of Vermont. First Community merged with and into the Bank on October 1, 2007 and carried a final closing cost of $14.6 million.

During the nine months ended September 30, 2008, total assets decreased $5,025,817 from $834,229,842 at December 31, 2007 to $829,204,025 at September 30, 2008. Total net loans increased $11,520,381 from $626,274,462 at December 31, 2007 to $637,794,843 at September 30, 2008. During the nine months ended September 30, 2008, the Bank originated $192,717,386 in loans, compared to $149,542,811 for the same period in 2007, due in part to market conditions and a broadened footprint from the First Brandon and First Community acquisitions. Total loans sold into the secondary market amounted to $39,655,183 for the nine months ended September 30, 2008, compared to $36,463,380 for the same period in 2007. Selling fixed-rate loans into the secondary market helps protect the Bank against interest rate fluctuations and provides the Bank with fee income. At September 30, 2008, the Bank's mortgage loan servicing portfolio amounted to $314,299,502, compared to $303,177,854 as of September 30, 2007. The Bank expects to continue to sell fixed-rate loans 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 September 30, 2008, adjustable-rate mortgages comprised approximately 78% of the Bank's real estate mortgage loan portfolio. This is consistent with prior years.

For the nine months ended September 30, 2008, securities available-for-sale decreased by $568,281, to $86,891,722. The Bank's net unrealized loss (after-tax) on its investment portfolio amounted to $1,588,363 at September 30, 2008, compared to a net unrealized loss (after-tax) of $1,004,376 at December 31, 2007. At September 30, 2008, one investment held in the Company's portfolio as available-for-sale, U.S. Bank Capital Trust Preferred VIII had an unrealized market loss of $1,344,000. The unrealized loss is primarily attributable to changes in market interest rates. Management does not intend to sell these securities in the near term. As management has the ability to hold debt securities until maturity and equity securities for the foreseeable future, no declines are deemed to be other than temporary.

Other real estate owned ("OREO") and property acquired in settlement of loans amounted to $219,000 as of September 30, 2008, as compared to $240,802 as of December 31, 2007.

Goodwill and other intangible assets amounted to $29,995,870, or 3.62% of total assets, as of September 30, 2008, as compared to $30,453,773, or 3.65% of total assets, as of December 31, 2007 due to normal amortization of core deposit intangible assets.

During the first nine months of 2008, deposits decreased $8,889,347 to $644,082,670 as of September 30, 2008, from $652,972,017 as of December 31, 2007. Non-interest bearing checking accounts increased $3,355,110, or 6.95%, to $51,615,006 as of September 30, 2008, from $48,259,896 as of December 31, 2007. Savings and interest-bearing checking accounts decreased $5,620,765, or 1.82%, to $303,758,868 at September 30, 2008, from $309,379,633 at December 31, 2007. Time deposits decreased $6,623,692, or 2.24%, to $288,708,796 at September 30, 2008, from $295,332,488 at December 31, 2007, as maturing time deposits were transferred into savings and interest-bearing checking accounts.

Securities sold under agreement to repurchase decreased $2,562,793, or 16.60%, to $12,878,200 during the nine months ended September 30, 2008, from $15,440,993 as of December 31, 2007. Repurchase agreements are collateralized by some of the Bank's government and agency investment securities.

The Bank had balances of $62,432,246 in advances from the Federal Home Loan Bank of Boston ("FHLBB") as of September 30, 2008, a decrease of $954,628 from December 31, 2007.

Other borrowings increased $1,920,000 to $2,157,500 during the first nine months of 2008 as a result of a loan for general corporate purposes from PNC Bank to the Company in the amount of $2,000,000 and the paydown of $80,000 on an existing loan.

Allowance for Loan Losses

The Bank maintains an allowance for loan losses to absorb losses inherent in the loan portfolio. Adjustments to the allowance are charged to income through the provision for loan losses, a direct charge to earnings.

The allowance for loan losses incorporates the results of measuring impairment for specifically identified non-homogeneous problem loans in accordance with SFAS No. 114 "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." In accordance with SFAS No.'s 114 and 118, the specific allowance reduces the carrying amount of the impaired loans to their estimated fair value. A loan is recognized as impaired when it is probable that principal and/or interest are not collectible in accordance with the loan's contractual terms. Measurement of impairment is based on the present value of expected cash flows, market price of the loan, or the fair value of collateral. Measurement of impairment does not apply to large groups of smaller balance homogeneous loans such as residential mortgages, home equity loans, or consumer loans.

The allowance for loan losses includes amounts accounted for in accordance with SFAS No. 5 "Accounting for Contingencies." This portion of the allowance accounts for estimated losses in the loan portfolio even though the particular loans that are uncollectible may not be identifiable. The loan portfolio is stratified by loan type, and loss factors are applied to each type to determine the appropriate amount for the allowance. In determining the loss factors, the Bank considers historical losses, market conditions, and qualitative factors that, in management's judgment, affect the collectability of the

portfolio. The allowance for loan loss also includes an allowance for overdraft losses. This segment of the allowance considers the aggregate negative balance of all deposit accounts that have remained negative for more than 30 consecutive days.

The Bank's commercial loan officers review the financial condition of commercial loan customers on a regular basis and perform visual inspections of facilities and inventories. The Bank also has an internal loan review, audit, and compliance program. Results of the internal loan reviews, audits, and compliance reviews are reported directly to the Audit Committee of the Bank's Board of Directors.

The allowance for loan losses at September 30, 2008 was $5,077,447 compared to $5,181,471 at December 31, 2007. The decrease is a result of $622,184 of charge-offs, $157,560 of recoveries, and $360,600 of provisions during the first nine months of 2008. The fee for service overdraft program accounted for 44% of the charge-offs, 89% of the recoveries, and 42% of the provisions. At September 30, 2008, the portion of the allowance allocated to overdrafts was $35,547, an amount equal to 113% of the aggregate negative balance of deposits accounts that have remained overdrawn for 30 days or more. In addition to the provision for overdraft losses, the Bank made provisions of $210,000 as loss factors were adjusted in response to weaker economic and market conditions, the increase in loans over 90 days past due, and loan charge-offs in 2008. At September 30, 2008 and December 31, 2007, the total allowance for loan losses represented 0.80% and 0.83% of net loans receivable, respectively.

The following is a summary of activity in the allowance for loan losses account for the periods indicated:

                                 For the Nine
                                 Months Ended
                                  Sept. 30,                              For the year ended December 31,
                                     2008             2007            2006            2005            2004            2003
Balance, beginning of period    $    5,181,471     $ 3,975,122       4,022,341     $ 4,019,450     $ 3,898,650     $ 3,875,708
Charged-off loans                     (622,184 )      (402,438 )      (467,018 )      (123,885 )       (14,737 )       (86,642 )
Recoveries                             157,560         182,926         189,788          38,276          60,540           9,588
Balance from acquisition                    -        1,303,361              -               -               -               -
Provision charged to income            360,600         122,500         230,011          88,500          74,997          99,996

Balance, end of period          $    5,077,447     $ 5,181,471     $ 3,975,122     $ 4,022,341     $ 4,019,450     $ 3,898,650

Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention do not result from trends or uncertainties, which the Bank reasonably expects will materially impact future operating results, liquidity, or capital resources. As of September 30, 2008, there were no other loans not included in the tables on page 14 or discussed where known information about the possible credit problems of the borrowers caused management to have doubts as to the ability of the borrower to comply with present loan repayment terms, or to repay the loan through liquidation of collateral, which may result in disclosure of such loans in the future.

Classified loans include non-performing loans and performing loans that have been adversely classified. Total classified loans were $8,494,819 on September 30, 2008 compared to $6,172,310 at December 31, 2007. In addition, the Bank had $219,000 of OREO at September 30, 2008 compared to $240,802 at December 31, 2007. The increase in classified loans is the result of an increase in loans over 90 days past due as well as internal classification changes on some loans. The decrease in OREO is due to valuation adjustments as $53,741 was charged against 2008 earnings to reduce the book value of OREO, in response to market conditions resulting in a reduction of list prices. Loans over 90 days past due and other non-accrual loans were $6,745,178 at September 30, 2008 compared to $4,744,729 at December 31, 2007. Loans 30 to 89 days past due were $6,736,431 at September 30, 2008 compared to $8,291,466 at December 31, 2007. The increase in loans over 90 days past due is primarily attributable to

one residential mortgage loan. No loss is expected on that loan. On-going provisions are anticipated as overdraft charge-offs continue, and the Bank seeks to maintain an allowance for overdraft losses equal to 100% of the aggregate negative balance of accounts remaining overdrawn for 30 days or more. Additional provisions may be made if weaker economic conditions have an adverse impact on borrowers' repayment ability and past due loan balances continue to trend upward.

The following table shows the breakdown of non-performing assets and non-performing assets as a percentage of total assets (dollars in thousands):

                                           September 30,        December 31,
                                                2008                2007
            90-day delinquent loans (1)   $   3,604   0.43 %   $    949   0.11 %
            Non-accrual impaired loans        3,141   0.38 %      3,796   0.46 %
            Other real estate owned             219   0.03 %        241   0.03 %

            Total non-performing loans    $   6,964   0.84 %   $  4,986   0.60 %

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

The following table sets forth the allocation of the loan loss valuation allowance and the percentage of loans in each category to total loans (dollars in thousands):

                                                            September 30,           December 31,
                                                                 2008                   2007
Real estate loans-
Conventional                                              $   3,271       83 %    $  3,023       77 %
Construction                                                    237        5 %         501        3 %
Collateral and consumer                                         155        3 %         199       12 %
Commercial and municipal                                      1,414        9 %       1,413        8 %
Impaired Loans                                                    0        0 %          45        0 %

Total valuation allowance                                 $   5,077      100 %    $  5,181      100 %

Total valuation allowance as percentage of total loans         0.80 %                 0.83 %

The Bank believes 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, the Bank recognizes the determination of future loss potential is intrinsically uncertain. Future adjustments to the allowance may be necessary if economic, real estate, and other conditions differ substantially from the current operating environment resulting in increased levels of non-performing loans and substantial differences between estimated and actual losses.

Comparison of the Operating Results for the Nine Months and the Three Months Ended September 30, 2008 and September 30, 2007

Consolidated net income for the nine months ended September 30, 2008 was $3,896,196, or $0.67 per share (assuming dilution), compared to $3,397,391, or $0.73 per share (assuming dilution), for the first nine months of 2007, an increase of 14.68%. For the third quarter ended September 30, 2008, net income totaled $1,105,596, or $0.19 per share (assuming dilution) compared to $1,292,827, or $0.25 per share (assuming dilution) for the same period in 2007, a decrease of 14.48%. The Company's return on average assets and equity for the nine months ended September 30, 2008 were 0.61% and 6.89%, respectively, compared to 0.65% and 9.15%, respectively, for the same period in 2007.

The $498,805 increase in net income for the nine months ended September 30, 2008 reflects an increase of $4,547,240 in net interest and dividend income, due primarily to additional net interest income

. . .