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FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarter Ended March 31, 2004

Commission File Number 0-17859

NEW HAMPSHIRE THRIFT BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of each of the issuer’s classes of common stock, $.01 par value per share, as of May 7, 2004 was 2,071,033.

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NEW HAMPSHIRE THRIFT BANCSHARES, INC.

INDEX TO FORM 10-Q

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

March 31, 2004 and December 31, 2003

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

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2004 and 2003

(Unaudited)

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

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2004 and 2003

(Unaudited)

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

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)

For the Three Months Ended March 31, 2004 and 2003

(Unaudited)

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

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2004

Note A - Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and, accordingly, do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The December 31, 2003 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of the management of New Hampshire Thrift Bancshares, Inc., all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

Note B - Accounting Policies

The accounting principles followed by New Hampshire Thrift Bancshares, Inc. and Subsidiaries and the methods of applying these principles which materially affect the determination of financial position, results of operations, or changes in financial position are consistent with those used for the year 2003.

The consolidated financial statements of New Hampshire Thrift Bancshares, Inc. include its wholly owned subsidiaries, NHTB Capital Trust I, NHTB Capital Trust II, NHTB Capital Trust III and Lake Sunapee Bank, fsb, and the Bank’s subsidiaries Lake Sunapee Group, Inc., and Lake Sunapee Financial Services Corp. All significant intercompany balances have been eliminated.

Note C - Impact of New Accounting Standards

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 elaborates on the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 clarifies that a guarantor is required to disclose (a) the nature of the guarantee; (b) the maximum potential amount of future payments under the guarantee; (c) the carrying amount of the liability; (d) the nature and extent of any recourse provisions or available collateral that would enable the guarantor to recover the amounts paid under the guarantee.

The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted the initial recognition and initial measurement provisions of FIN 45 effective as of January 1, 2003 and adopted the disclosure requirements effective as of December 31, 2002. The adoption of this interpretation did not have a material effect on the Company’s financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS Statement No. 123” (“SFAS No. 148”). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition provisions and disclosure provisions are required for financial statements for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 as of December 31, 2002 and currently uses the intrinsic value method of accounting for stock options.

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In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”), which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement (a) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, (b) clarifies when a derivative contains a financing component, (c) amends the definition of an underlying to conform to language used in FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” and (d) amends certain other existing pronouncements. The provisions of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003. There was no substantial impact on the Company’s consolidated financial statements on adoption of this Statement.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that certain financial instruments that were previously classified as equity must be classified as a liability. Most of the guidance in SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This Statement did not have any material effect on the Company’s consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. In December 2003, the FASB revised Interpretation No. 46, also referred to as Interpretation 46 (R) (“FIN 46(R)”). The objective of this interpretation is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. This interpretation changes that, by requiring a variable interest entity to be consolidated by a company only if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The Company is required to apply FIN 46, as revised, to all entities subject to it no later than the end of the first reporting period ending after March 15, 2004. However, prior to the required application of FIN 46, as revised, the Company shall apply FIN 46 or FIN 46 (R) to those entities that are considered to be special-purpose entities as of the end of the first fiscal year or interim period ending after December 15, 2003. The adoption of this interpretation did not have a material effect on the Company’s consolidated financial statements.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits - an amendment of SFAS No. 87, SFAS No. 88 and SFAS No. 106” (“SFAS No. 132 (revised 2003)”). This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” This Statement retains the disclosure requirements contained in SFAS No. 132, “Employers’ Disclosures About Pensions and Other Postretirement Benefits,” which it replaces. It requires additional disclosures to those in the original Statement 132 about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. This Statement is effective for financial statements with fiscal years ending after December 15, 2003 and interim periods beginning after December 15, 2003. Adoption of this Statement did not have a material impact on the Company’s consolidated financial statements.

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Note D – Stock-based Compensation

At March 31, 2004, the Company has two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost has been recognized for its fixed stock option plans. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, to all outstanding and unvested awards in each period.

Note E- Pension Benefits

The following summarizes the net periodic benefit cost for the three months ended March 31:

The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2003 that the Bank expected pension plan contributions to be $500,000 in 2004. During the first quarter 2004, there were no actual cash contributions to the pension plan.

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part I. Item 2 Management’s Discussion and Analysis

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 through the Savings Association Insurance Fund (“SAIF”). The Bank is regulated by the Office of Thrift Supervision (“OTS”).

The Company’s profitability is derived primarily 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 gains on sales of loans originated for sale, retail banking service fees, gains 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 March 31, 2004, the Company had $23,365,890 available, which it plans to use along with its dividends from the Bank to continue its annual dividend payout of $0.90 per share and pay its capital securities interest payments. Also, the Company could elect to redeem the 9.25% Trust Preferred Security in the amount of approximately $16,400,000, upon its redemption date of September 29, 2004.

Overview

Forward-looking Statements

The preceding and following discussion may contain certain forward-looking statements, which are based on management’s current expectations regarding economic, legislative, and regulatory issues that may impact the Company’s earnings in future periods. Factors that could cause future results to vary materially from current management expectations include, but are not limited to: general economic conditions, changes in interest rates, deposit flows, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory and technological factors affecting the Company’s operations, pricing, products and services. In particular, these issues may impact management’s estimates used in evaluating market risk and interest rate risk in its GAP and Net Portfolio Value (NPV) tables, loan loss

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

provisions, classification of assets, accounting estimates and other estimates used throughout this discussion. The Company disclaims any obligation to subsequently revise any forward-looking statements, or to reflect the occurrence of anticipated or unanticipated events.

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 an estimate and is regularly reviewed by the Company for adequacy by assessing such factors as changes in the mix and volume of the loan portfolio; trends in portfolio credit quality, including delinquency and charge-off rates; and current economic conditions that may affect a borrower’s ability to repay. The Company’s methodology with respect to the assessment of the adequacy of the allowance for loan losses is more fully discussed on pages 13-16 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 March 31, 2004, there were no valuation allowances set aside against any deferred tax assets.

Interest Income Recognition

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

Capital Securities

On August 12, 1999, NHTB Capital Trust I (“Trust I”), a Delaware business trust formed by the Company, completed the sale of $16.4 million of 9.25% Capital Securities. Trust I also issued common securities to the Company and used the net proceeds from the offering to purchase a like amount of 9.25% Junior Subordinated Deferrable Interest Debentures (“Debentures I”) of the Company. Debentures I are the sole assets of Trust I and are eliminated, along with the related income statement effects, in the consolidated financial statements. The Company contributed $15.0 million from the sale of Debentures I to the Bank as Tier I Capital to support the acquisition of the three branches of the New London Trust Company (“NLTC”). Total expenses associated with the offering, approximating $900,000, are included in other assets and are being amortized on a straight-line basis over the life of Debentures I.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Capital Securities I accrue and pay distributions quarterly at an annual rate of 9.25% of the stated liquidation amount of $10 per Capital Security. The Company has fully and unconditionally guaranteed all of the obligations of Trust I. The guaranty covers the quarterly distributions and payments on liquidation or redemption of Capital Securities I, but only to the extent that Trust I has funds necessary to make these payments.

Capital Securities I are mandatorily redeemable upon the maturing of Debentures I on September 30, 2029 or upon earlier redemption as provided in the Indenture. The Company has the right to redeem Debentures I, in whole or in part on or after September 30, 2004 at the liquidation amount plus any accrued but unpaid interest to the redemption date.

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 contributed $10.0 million from the sale of Debentures II to the Bank as Tier I Capital. The Company intends to use the proceeds for general corporate purposes, which may include the redemption of the securities issued by Trust I, which are callable on September 29, 2004. Total expenses associated with the offering approximating $150,000 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% 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 3.90%, 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 3.90% Junior Subordinated Deferrable Interest Debentures (“Debentures III”) of the Company. Debentures III are the sole assets of the Trust. The Company contributed $10.0 million from the sale of Debentures III to the Bank as Tier I Capital. The Company intends to use the proceeds for general corporate purposes, which may include the redemption of the securities issued by Trust I, which are callable on September 29, 2004. Total expenses associated with the offering approximating $150,000 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 3.90% of 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.

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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.

Charter Holding Corp.

On October 2, 2000, the Bank and two other New Hampshire banks acquired Charter Holding Corp. (“CHC”) and Phoenix New England Trust Company (“PNET”) from Phoenix Home Life Mutual Insurance Company of Hartford, Connecticut. Contemporaneous with the acquisition, CHC and PNET merged under the continuing name of Charter Holding Corp. with assets of approximately $1.7 billion under management. As a result of the acquisitions and merger, at a cost of $3,003,337 each, the Bank and each of the other two banks own one-third of CHC. Headquartered in Concord, New Hampshire, CHC provides trust and investment services from more than a dozen offices across New Hampshire, as well as one in Norwich, Vermont. The Bank purchased CHC as a means to provide trust and investments services as well as insurance products to the Bank’s customers. By doing so, the Bank anticipates non-interest income to be enhanced. For the three-month period ended March 31, 2004, the Bank realized $36,882 in an undistributed gain, compared to an undistributed gain of $25,000 for the same period in 2003. The Bank has entered into an agreement with Charter New England Agency (“CNEA”), a subsidiary of CHC, which enables the Bank to sell brokerage, securities, and insurance products. For the three-months ended March 31, 2004, the Bank generated commissions in the amount of $49,837, compared to $31,102, for the same period in 2003.

Financial Condition and Results of Operations

Comparison of Financial Condition at March 31, 2004 and December 31, 2003

During the first three months of 2004, total assets increased by $33,415,884, or 6.35%, from $526,246,231 to $559,662,115. Cash and cash equivalents decreased $8,394,829 from December 31, 2003, as the Bank funded new loans, moved funds into investment securities, and covered a decrease in the amount of $18,453,845 in deposits and repurchase agreements.

Total net loans (including loans held-for-sale) increased $21,104,715 or 6.11% from $345,442,255 to $366,546,970. During the first three months of 2004, the Bank originated $66.3 million in loans, compared to $78.6 million in originated loans ending March 31, 2003. With interest rates continuing to hover at all time lows, many customers refinanced existing mortgage loans. As the Bank originates fixed rate loans, it sells much of this product to the secondary market, retaining the servicing. Selling fixed rate loans to the secondary market helps protect the Bank against interest rate risk and provides the Bank with a consistent fee income stream. The proceeds from the sale of loans are then available to lend back into the Bank’s market area and to purchase investment securities. At March 31, 2004, the Bank had $286,825,447 in its servicing portfolio compared to $265,174,406 at March 31, 2003. 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 March 31, 2004, adjustable rate mortgages comprised approximately 77% of the Bank’s real estate mortgage loan portfolio. This is consistent with prior years.

As of March 31, 2004, securities available-for-sale increased by $18,707,691 to $139,717,443. During the first quarter of 2004, the Company invested the proceeds from the new issuance of the Preferred Securities (“TRUP”) in short-term commercial paper and used advances from the Federal Home Loan Bank (“FHLB”) to fund the increases in loans and investments. The Bank also took advantage of the low interest rate environment by using a portion of the borrowed funds from the FHLB to purchase intermediate-term Government bonds. Total advances from the FHLB stood at $48,000,000 at March 31,

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2004, compared to $0 at March 31, 2003. The Bank purchased short-term commercial paper, which was purchased at intervals matching short-term liabilities. In addition, the Bank continued to build an agency portfolio with issues maturing at regular intervals. This portfolio was created in an effort to protect against interest rate risk. The Bank purchases primarily U.S. Agency securities with maturities of less than six years. As the issues near maturity, the Bank sells and re-invests the proceeds in similar maturity instruments. The Bank’s net unrealized gain (after-tax) on its investment portfolio was $755,369 at March 31, 2004 compared to $73,974 at December 31, 2003. This change was the result of a slight decrease in interest rates, together with the increase in investment securities, which created an increase in the value of the Bank’s investment securities.

Real estate owned (“OREO”) and property acquired in settlement of loans remained at zero. There was no activity in the OREO account during the first quarter of 2004.

Deposits decreased by $13,581,155, or 3.17%, to $414,895,392 at March 31, 2004, from $428,476,547 at year-end. Non-interest bearing checking accounts decreased $5,797,847, or 18.53%. Savings and interest-bearing checking accounts decreased $6,078,838, or 2.13%. Time deposits decreased $1,704,470 or 1.53%. Seasonal activity accounted for a portion of the decrease in deposit accounts. A segment of the Bank’s customer base spends the winter months in warmer climate areas which typically has a negative impact upon the Bank’s commercial customers’ deposit balances. In addition, the Bank’s municipal and institutional accounts expend funds during the first quarter. These funds are replenished during the second and third quarters as municipalities and institutions move into their collection cycles.

Securities sold under agreement to repurchase decreased by $4,872,690, or 39.41% to $7,491,434 from $12,364,124, due to the seasonal nature of several commercial banking customers. Repurchase agreements are collateralized by the Bank’s government and agency investment securities.

The Bank had $48,000,000 in short-term advances from the FHLB as of March 31, 2004, an increase of $26,000,000 from December 31, 2003. The Bank used the proceeds from the FHLB advances to fund loan demand and the seasonal run-off of deposits.

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. The Bank considers many factors in determining the appropriate amount of the allowance and tests the adequacy at least quarterly by preparing a worksheet applying loss factors to outstanding loans by type. In determining the loss factors, the Bank considers historical losses, peer group comparisons, industry data, market conditions, and qualitative factors that, in management’s judgment, affect the collectibility of the portfolio. No changes were made to the Bank’s procedures with respect to maintaining the allowance for loan losses as a result of any regulatory examinations.

The allowance for loan losses consists of a specific allowance for identified problem loans and a general allowance to absorb losses inherent in the loan portfolio but not specifically identified. The specific allowance 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

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

contractual terms. Measurement of impairment is based on the present value of anticipated future cash flows, fair value of collateral, or the loan’s observable market price. Measurement of impairment does not apply to large groups of smaller balance homogeneous loans such as residential mortgages, home equity loans, or consumer loans. As of March 31, 2004 the Bank had impaired loans with an aggregate outstanding balance of $50,526 with a specific allowance of $. At December 31, 2003 the balance of impaired loans was $777,632 with a specific allowance of $116,645. The decline comes from the reclassification of loans restructured in 2003. Those performing loans remained on accrual status and collection of all principal and interest is expected.

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, audit and compliance reviews are reported directly to the Audit Committee of the Bank’s Board of Directors.

The allowance for loan losses at March 31, 2004 was $3,923,876 compared to $3,898,650 at December 31, 2003. As of March 31, 2004, the allowance included $3,916,236 in general reserves compared to $3,891,010 at year-end 2003. The total allowance represented 1.07% of total loans at March 31, 2004 versus 1.12% at December 31, 2003. The total allowance was 1,251% of non-performing loans on March 31, 2004 compared to 337% at year-end 2003. During the first three months of 2004, the Bank had net recoveries of $227 compared to net charge-offs of $23,875 during the first three months of 2003.

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

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 March 31, 2004, there were no other loans not included in the tables below 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.

Total classified loans were $3,168,088 on March 31, 2004 compared to $4,046,955 at December 31, 2003. The bank had no OREO at March 31, 2004 or December 31, 2003. Classified loans include non-performing loans and performing loans that have been adversely classified. Non-performing loans consist of impaired loans and loans over 90 days past due. At March 31, 2004 the aggregate balance of impaired loans was $50,526 compared to $777,632 on December 31, 2003. Loans over 90 days past due as of March 31, 2004 and December 31, 2003 were $263,188 and $1,157,957, respectively. At March 31, 2004, loans 30 to 89 days past due were $3,259,190 compared to $3,397,736 at December 31, 2003. Non-performing loans declined because of the reduction in the aggregate balance of loans over 90 days

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

past due. The decline in the over 90 days past due category was primarily due to the repayment of one residential mortgage loan when the property sale was completed in the first quarter of 2004. That transaction did not impact the allowance for loan losses. Loans over 90 days past due are classified, so the repayment of that loan contributed to the reduction of classified loans.

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

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):

The amount of the valuation allowance increased due to the provisions and there were no loan charge-offs during the three-month period ending March 31, 2004. The allowance as a percentage of total loans declined due to the increase in total loans. Internal adequacy tests showed the level of the allowance to be sufficient as of March 31, 2004. The specific valuation allowance represents an allowance that is specifically for the impaired loans. That allowance remained relatively unchanged from December 31, 2003.

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 that 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. Adjustments to the allowance are charged to income through the provision for loan losses.

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of the Operating Results for the Three Months Ended March 31, 2004 and March 31, 2003

Net income for the three months ended March 31, 2004 was $1,653,929 or $.78 per common share (assuming dilution), compared to $1,236,765, or $.62 per common share (assuming dilution), for the same period in 2003, an increase of $417,164 or 33.73%.

The increase in earnings for the first quarter was driven by the continued low interest rate environment. Total interest income for the three months ended March 31, 2004 increased by $701,834, or 13.19%, to $6,021,021 at March 31, 2004 from $5,319,187 for the same period in 2003. Interest on loans increased $58,731, or 1.26%, for the three-month period ended March 31, 2004. Interest on investments increased $643,103, or 99.83% for the three-month period ended March 31, 2004, which reflects the Bank’s increase in investment securities from the 2003 first quarter. In all instances, the increase in the average balance of loans and investments more than offset the decline in interest rates.

For the three months ended March 31, 2004, total interest expense decreased by $274,274 or 16.73%, to $1,365,323 from $1,639,597 for the same period in 2003. Interest on deposits decreased $395,892, or 32.13%. The decrease in deposit interest was primarily attributable to the continuing low interest rate environment. Interest on advances and other borrowed money increased by $121,618, or 29.86%, to $528,916 due to the increase in the amount of $48,000,000 in FHLB advances, which carry an average weighted rate of 1.14%.

The provision for loan losses totaled $24,999 for the three months ended March 31, 2004 and $24,999 for the three months ended March 31, 2003. The total allowance for loan losses represented 1.07% of total loans at March 31, 2004 compared to 1.20% at March 31, 2003. The lower percentage is a result of loan portfolio growth. The allowance for loan losses was $3,923,876 on March 31, 2004 compared to $3,876,832 on March 31, 2003. The increase is attributable to provisions and recoveries exceeding charge-offs. There were no loan charge-offs during the three-month period ended March 31, 2004. The allowance was 1,251% of non-performing assets on March 31, 2004 compared to 969% on March 31, 2003.

For the three months ended March 31, 2004, total noninterest income decreased by $51,988 or 4.00%, from $1,299,510 in 2003 to $1,247,522 for the same period in 2004. The change was primarily a result of a $540,970 decrease in net gain on the sales of loans. During the first quarter of 2003, the Bank benefited from the high volume of re-financed mortgage loans which were then sold in the secondary market. Net gains on the sales of loans originated for sale totaled $210,552, for the three months ended March 31, 2004, compared to $751,522, for the three months ended March 31, 2003. During the first quarter of 2004, the Bank’s mortgage servicing portfolio, due to the continuing low interest rate environment and customers’ appetite for refinancing, caused the Bank to increase its impairment account in the amount of $13,599, compared to a recapture in the amount of $43,558 for the period ending March 31, 2003, a change of $57,157. Customer service fees increased $71,156, or 17.60%, to $475,526, as fees from overdrafts and ATM surcharges increased. Brokerage service income increased $18,735 to $49,837, or 60.24%, due to commissions generated from improving sales. During the first quarter ended March 31, 2003, equity markets began a mild recovery and customers moved funds into the debt and equity markets. The decline in mortgage banking activities, due to slowing down of refinanced mortgages, was partly offset by net gain on sale of securities as the Bank sold several Government agency bonds and realized gains in the amount of $362,162, compared to losses of $29,097 for the same period in 2003.

Total operating expenses increased $201,722, or 6.69%, to $3,216,540 for the three months ended March 31, 2004 compared to the three months ended March 31, 2003. Salaries and benefits increased $170,087, or 11.51%. The majority of the change in salaries and benefits was due to normal salary

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

increases, higher incentive payments, costs related to the Bank’s group health plans, and the recognition of deferred expenses associated with the origination of mortgage loans. The increase in salaries and employee benefits was partially offset by a decrease in amortization of mortgage service rights in the amount of $82,530. Outside services increased in the amount of $34,918, or 20.70%, due to the employment of financial advisors for the Bank’s asset-liability and investment management. Other expenses increased by $74,545, or 12.82%, primarily due to expenses associated with the Bank’s data processing services and an increase in the Bank’s mortgage servicing portfolio impairment reserve.

Interest Rate Sensitivity

The principal objective of the Bank’s interest rate management function is to evaluate the interest rate risk inherent in certain balance sheet accounts and determine the appropriate level of risk given the Bank’s business strategies, operating environment, capital and liquidity requirements and performance objectives and to manage the risk consistent with the Board of Directors’ approved guidelines.

The Bank’s Board of Directors has established an Asset/Liability Committee (“ALCO”) to review its asset/liability policies and interest rate position. Trends and interest rate positions are reported to the Board of Directors monthly.

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

The Bank’s one-year gap at March 31, 2004, was negative 4%, compared to the December 31, 2003 gap of negative 7%. The Bank continues to hold in portfolio many adjustable rate mortgages, which reprice at one, three, and five-year intervals. The Bank sells certain fixed-rate mortgages into the secondary market in order to minimize interest rate risk. The Bank’s gap, of approximately negative four percent at March 31, 2004, means net interest income would increase if interest rates trended downward. The opposite would occur if interest rates were to rise. Management feels that maintaining the gap within ten points of the parity line provides adequate protection against severe interest rate swings. In an effort to maintain the gap within ten points of parity, the Bank may utilize the FHLB advance program to control the repricing of a segment of liabilities.

As another part of its interest rate risk analysis, the Bank uses an interest rate sensitivity model, which generates estimates of the change in the Bank’s net portfolio value (“NPV”) over a range of interest rate scenarios. The OTS produces the data quarterly using its own model and data submitted by the Bank. In addition, the Bank employs outside consultants in an effort to measure and monitor interest rate risk.

NPV is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The NPV ratio, under any rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. Modeling changes require making certain assumptions, which may or may not reflect the manner in which actual yields and costs respond to the changes in market interest rates. In this regard, the NPV model assumes that the composition of the Bank’s interest sensitive assets and liabilities existing at the beginning of a period remain constant over the period being measured and that a particular change in interest rates is reflected uniformly across the yield curve.

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Accordingly, although the NPV measurements and net interest income models provide an indication of the Bank’s interest rate risk exposure at a particular point in time, such measurements are not intended to, and do not, provide a precise forecast of the effect of changes in market rates on the Bank’s net interest income and will likely differ from actual results.

The following table sets forth the Bank’s NPV as of December 31, 2003 (the latest NPV analysis prepared by the OTS), as calculated by the OTS.

For the current reporting cycle, the OTS has suppressed all model outputs associated with the –300 and – 200 bps scenarios because of the abnormally low prevailing interest rate environment.

Liquidity and Capital Resources

The Bank is required to maintain sufficient liquidity for safe and sound operations. The Bank’s source of funds comes primarily from net deposit inflows, loan amortizations, principal paydowns from loans, sold loan proceeds, and advances from the FHLB. At March 31, 2004, the Bank had approximately $100,000,000 in borrowing capacity from the FHLB.

At March 31, 2004, the Company’s shareholders’ equity totaled $41,885,475, or 7.48% of total assets, compared to $39,124,596, or 7.43% of total assets at year-end 2003. The Company’s Tier I core capital was 7.48% at March 31, 2004 compared to 7.56% at year-end 2003. The increase in shareholders’ equity of $2,760,879 reflects net income of $1,653,929, the payment of $456,703 in common stock dividends, proceeds of $882,258 from the exercise of stock options and the change of $681,395 in accumulated other comprehensive income. The change in other comprehensive income reflects a slight decrease in interest rates during the first quarter of 2004 and the corresponding rise in investment security market values. On February 22, 2001, the Company announced a stock repurchase program. Repurchases will be made from time to time at the discretion of management. The stock repurchase program will continue until the repurchase of 124,000 shares is complete. As of March 31, 2004, 59,500 shares of common stock had been repurchased. During the first quarter of 2004, no shares were repurchased. The Board has determined that a share buyback is appropriate to enhance shareholder value; such repurchases generally increase earnings per share, return on average assets and on average equity, three performing benchmarks against which bank and thrift holding companies are often measured. The Company buys stock in the open market whenever the price of the stock is deemed reasonable and the Company has funds available for the purchase.

As of March 31, 2004, the Company had $23,365,890 available, which it plans to use to continue its annual dividend payout of $.90 per share and pay the interest on its capital securities interest. Also, the Company could elect to redeem the 9.25% Trust Preferred Securities issued by Trust I in the amount of approximately $16,400,000, upon its redemption date of September 29, 2004. The interest and dividend payments are approximately $4.5 million per year. The Company’s obligations increased with the issuance of the two Trust Preferred Securities in the amount of $20,000,000. If the Company elects to redeem the 9.25% Trust Preferred Securities issued by Trust I on September 29, 2004, the required annual cash payments would decrease by $1.5 million. The Bank pays dividends to the Company as its sole

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

stockholder within guidelines set forth by the OTS. Since the Bank is well-capitalized and has capital in excess of regulatory requirements, funds will be available to cover the Company’s future dividend, interest, and stock re-purchase needs.

For the three months ended March 31, 2004, net cash provided by operating activities was $2,484,077, versus $345,352 for the same period in 2003. A net change of $2,787,002 in accrued expenses and other liabilities was responsible for most of the increase. Net cash used in investing activities amounted to $39,470,616 for the three months ended March 31, 2004, compared to net cash used in investing activities of $27,129,337 for the same period in 2003, a change of $12,341,279. Proceeds generated from the sale of debt securities in the amount of $19,787,225 were used to fund loans and purchase investment securities. For the three months ended March 31, 2004, net cash flows provided by financing activities amounted to $28,591,710 compared to $10,596,073 of cash flows used in financing activities for the same period in 2003. Proceeds generated from the issuance of the Trust Preferred securities in the amount of $20,620,000 and advances from the FHLB in the amount of $26,000,000 were used to cover a net decrease in deposits in the amount of $13,581,155 and a net decrease in repurchase agreements in the amount of $4,872,690. The balance of the proceeds was used to fund loan demand.

The Bank expects to be able to fund loan demand and other investing during 2004 by continuing to use funds provided from customer deposits and the FHLB’s advance program. At March 31, 2004, the Bank had approximately $45,000,000 in loan commitments. Of these commitments, approximately $25,000,000 were fixed rate mortgages scheduled to be sold to the secondary market. Management is not aware of any trends, events, or uncertainties that will have or that are reasonably likely to have a material effect in the Company’s liquidity, capital resources or results of operations.

Banks are required to maintain tangible capital, core leverage capital, and total risk based capital of 1.50%, 4.00%, and 8.00%, respectively. As of March 31, 2004, the Bank’s ratios were 7.48%, 7.48%, and 11.51%, respectively, well in excess of the regulators’ requirements.

Book value per share was $20.31 at March 31, 2004, versus $17.76 per share at March 31, 2003.

Off Balance Arrangements

The Company does not have any off-balance arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Part I. Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In management’s opinion, there has been no material change in market risk since disclosure in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part I. Item 4.

CONTROLS AND PROCEDURES

Management, including the Company’s President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Company’s President and Chief Executive Officer and Chief Financial Officer and Treasurer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

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

The following table provides information with respect to purchases made by or on behalf of the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended March 31, 2004.

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Part II.

NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

OTHER INFORMATION

Item 1. Legal Proceedings

There is no material litigation pending to which the Company or its subsidiaries are a party or to which the property of the Company or its subsidiaries are subject.

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Common Shareholders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

     A.) Exhibits:

11.0 Computation of per share earnings

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act

32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act

     B.) Reports on Form 8-K:

On April 15, 2004, the Company filed a current report on Form 8-K announcing earnings for the quarter ended March 31, 2004.

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NEW HAMPSHIRE THRIFT BANCSHARES, INC. AND SUBSIDIARIES

SIGNATURES

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

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