LEDYARD NATIONAL BANK. COMMITTED TO THE COMMUNITIES WE SERVE. 5 0 0 2 Annual Report LEDYARD NATIONAL BANK’S SENIOR MANAGEMENT TEAM Seated, from left: Martha P. Candon, Senior Vice President and Senior Retail Banking Officer; Kathryn G. Underwood, President and CEO; Darcy D. Rogers, Senior Vice President and Chief Operations Officer. Standing, from left: D. Rodman Thomas, Senior Vice President and Senior Trust Officer; Daryl J. Cady, Executive Vice President and Chief Financial Officer; William B. Hamilton, Jr., President, Investment and Trust Services Division; Jeffrey Goff, Vice President, Sales Development and Marketing. Not pictured: Mark S. Clough, Senior Vice President and Senior Loan Officer; Darlene E. Romano, Vice President, Finance and Human Resources. TABLE OF CONTENTS 2 4 8 10 13 14 15 18 34 Letter from President & Chair Banking & Community Investment & Trust Services Financial Discussion Auditor’s Report Balance Sheets Statements of Income Notes to Financial Statements Directors, Officers, Boards & Staff FINANCIAL HIGHLIGHTS YEARS-ENDED DECEMBER 31, (dollars in thousands, except per share data) Financial Condition Data Assets Investments Net Loans, including loans held for sale Deposits Federal Home Loan Bank Advances Shareholders’ Equity Operating Data Net Interest Income Provision for Loan Loss Non-interest Income Non-interest Expense Income Taxes Net Income Other Data Earnings per Share, basic Dividends per Share Dividend Payout Ratio Book Value per Share Shares Outstanding Return on Average Assets Return on Average Equity Equity to Asset Ratio Allowance for Loan Losses to Total Loans MISSION STATEMENT: 2005 2004 2003 2002 2001 $ 285,495 60,601 194,893 240,828 8,857 24,391 $ 11,486 780 5,834 11,354 1,748 3,439 $ $ $ 3.41 0.98 29% 24.16 1,009,746 1.25% 14.85% 8.54% 1.22% $ 268,869 65,467 175,189 227,614 11,981 21,849 $ $ $ $ 10,053 325 5,330 10,452 1,593 3,013 3.03 0.91 30% 21.96 994,895 1.20% 14.56% 8.13% 1.35% $ 242,761 61,005 157,406 205,710 10,493 19,716 $ $ $ $ 9,631 340 4,864 9,767 1,578 2,810 2.84 0.85 30% 19.92 990,679 1.17% 14.90% 8.12% 1.31% $ 233,203 43,030 157,047 203,008 5,000 17,840 $ $ $ $ 9,409 525 4,067 9,237 1,384 2,330 2.37 0.73 31% 18.15 983,519 1.06% 13.58% 7.66% 1.53% $ 209,037 38,207 141,798 179,216 5,000 16,055 $ $ $ $ 8,784 797 3,482 8,478 1,106 1,885 1.93 0.56 29% 16.47 976,269 0.93% 12.27% 7.69% 1.48% We at Ledyard National Bank are committed to being the financial services institution of choice in each of the markets we serve by providing our customers with outstanding products and services. In order to accomplish this, we must have dedicated and capable employees for whom we will provide a challenging and rewarding work environment. As a direct result, we will provide our shareholders with consistent and superior returns over the long term. COVER PHOTO: by Jon Gilbert Fox This aerial view was photographed from a hot air balloon over the Lyme, New Hampshire, area. ALL OTHER PHOTOS: by Jon Gilbert Fox JON GILBERT FOX has been taking photographs professionally for over 30 years. His work has appeared in numerous corporate reports, brochures, publications and advertisements as well as such diverse periodicals as U.S. News & World Report, the New York Times, House and Garden, Vogue, Der Stern, Scholastic Magazine, Mandate, Vermont Life, Scientific American, Der Spiegel, Focus Magazine, the Washington Post, Conde Nast Traveler, along with many other American and worldwide publications. He is presently working on a book of New Hampshire photographs. PAGE 1 Kathryn G. Underwood President & CEO, Ledyard National Bank Dennis E. Logue Chair, Ledyard National Bank F ELLOW OWNERS: We are pleased to present Ledyard National Bank’s Annual Report for 2005, a year of growth and progress. The year 2005 was, first of all, a period of strong financial performance. Our net income in 2005 was $3.4 million or $3.41 per share, an increase of 14.1% over 2004. Total assets were $285.5 million at the end of 2005, a one-year increase of 6.2%. In addition, Investment and Trust Services’ assets rose to $585.4 million at year-end, an increase of 7.7% over a year earlier. This year witnessed changes in bank leadership with both of us joining Ledyard. Dennis, one of the bank’s founding directors, returned to our Board of Directors as Chair in August after serving as Dean of the Price College of Business at the University of Oklahoma. Kathy joined Ledyard as its President and Chief Executive Officer in September from her previous position as District President of Key Bank in Maine. Prior to our arrivals, Cary Clark, another of the bank’s founding directors, did a fine job as our Chair and Acting President, and he remains fully engaged in the important ongoing work of our board. The two of us, along with the other directors and senior managers of your bank, remain firmly committed to continuing and enhancing Ledyard’s role as a leading independent community bank in the region. Given the strength of our management team and the expertise, loyalty, and diligence of our staff, we should be able to achieve this objective. Our strategy for doing so is focused upon our offering enhanced financial services and continuing the growth of the banking and trust areas. Toward that end, we are very pleased to mention several important recent developments. We have strengthened our top management team with the hiring of Mark Clough as our Senior Loan Officer and Jeffrey Goff as our top marketing executive; also, our Investment and Trust Division has been strengthened with the addition of J.T. Underwood in the investment area. In addition, early this year we increased our quarterly dividend by 8%. Lastly, we have arranged to have Ledyard’s stock listed for trading on the “Pink Sheets” (ticker symbol: LYNA), a step we feel will make our stock more liquid and the market for our stock more continuous and transparent. On behalf of all of us at Ledyard, we thank you for your support. We celebrate our bank’s fifteenth birthday this May, and we hope we will continue to be worthy of your trust and confidence as we move forward in the months and years ahead providing “banking the way it should be.” DENNIS E. LOGUE Chair KATHRYN G. UNDERWOOD President and Chief Executive Officer PAGE 2 LEDYARD’S DEDICATION TO THE COMMUNITY THE UPPER VALLEY HAVEN The Upper Valley Haven is a non-profit ▲ human services organization offering emergency shelter for families, a food shelf, clothing room and educational programming to those struggling to meet their basic needs. Through the generosity of Ledyard National Bank & others, all Haven services can be provided free of charge to those in need. ▲ LYME NURSERY SCHOOL Support of the Lyme Nursery School, whose purpose is to promote the social, emotional, physical and artistic growth of young children, demonstrates Ledyard’s dedication to every community’s most important asset: it’s children. ▲ THE UPPER VALLEY HUMANE SOCIETY Ledyard National Bank supports the Upper Valley Humane Society’s dedication to promoting a humane community by inspiring compassion for all living creatures and strengthening the bond between animals and humans. PAGE 3 B ANKING AND COMMUNITY Since our founding fifteen years ago as a community bank with a single office in Hanover, New Hampshire, Ledyard National Bank has certainly grown. Today we serve thousands of customers in the Dartmouth-Lake Sunapee Region with seven offices that provide the very best in personal and business banking. Ledyard’s Investment and Trust Services division has clients around the globe. Our growth, however, is not simply measured in numbers. Our commitment to our customers and to the communities we serve has also grown. That is because the phrase, “banking the way it should be,” is much more than a slogan to us. It has become the mission of everyone here at Ledyard to live up to those words and to deliver a level of service and personal attention to our customers that far exceeds what is expected. People who live and work in the area count on Ledyard for full-service banking convenience that fits their busy lifestyles. We have two offices in Hanover and offices in Lebanon, Lyme, New London and West Lebanon, New Hampshire, and in Norwich, Vermont. Customers also have access to their accounts 24 hours a day through Ledyard’s no-fee ATMs and with our KwikNet online banking and KwikTel telephone banking services. Ledyard provides the extensive services found at much larger financial institutions, but with the focus and attention of a true community bank. We know our customers, and our customers know us. From that knowledge, we are able to tailor our products and services to meet the specific needs of the people we serve. From mortgages and home-equity loans to flexible deposit accounts and high-yield savings products, Ledyard customers have access to a full complement of personal banking services. Businesses rely on Ledyard to work with them as a trusted advisor to help their growth plans with a full range of deposit accounts, customized lending products, credit lines, full-service cash management and financing programs for business expansion. PAGE 4 BANKING AND COMMUNITY (continued) We are customer-focused, but we are also community-minded. We are keenly aware that our acceptance and growth in the area is a direct result of the support we receive from the community. We are grateful for this support, and we take the greatest pride in being able to reciprocate. Everyone at Ledyard National Bank is dedicated to serving the many individuals and organizations that make this area of the state the best place to live. Winston Churchill once said “We make a living by what we get, but we make a life by what we give.” Few embody this spirit more than the people who work at Ledyard. Whether it is in the form of corporate contributions or the individual efforts of our staff, we strive to make a difference. From selling daffodils for the American Cancer Society to leading the United Way campaign in our communities or donating time at the soup kitchen, we try to do our part… and dare to believe we can do more. DAVID’S HOUSE A non-profit organization, ▲ David’s House offers a comfortable home-away-from home for children receiving specialized care through Children’s Hospital at Dartmouth. Ledyard National Bank wants to ensure that no family is ever turned away because of financial hardship. ▲ MONTSHIRE MUSEUM OF SCIENCE. Ledyard supports the need for a hands-on museum so everyone in the community can experience what goes on in the world of natural, ecological and physical sciences. PAGE 5 BANKING AND COMMUNITY (continued) At Ledyard we also recognize and respect the rich cultural heritage of our area. It is a proud history of a proud people, many of whom we are honored to call friends, colleagues and clients. We also believe in the future of our communities… a future that promises to be bright, prosperous and more important, rooted in the values and work ethic that have made this area the great place to live and work that it has always been. Music, dance, theatre and other forms of celebration enrich our lives every day. They inspire creativity in our younger generation and imagination in those who have preceded them. Ledyard is proud to support these efforts including the underwriting of Opera North’s performance of “The Gondoliers,” Northern Stage’s production of “The Lion in Winter,” and the Hopkins Center’s performance of “The Wayne Shorter Quartet.” More than anything, these efforts introduce all of us to diverse forms of expression, expand our understanding of other cultures and connect us to the larger world. In the community, Ledyard supports numerous family-friendly events and festivals. In August we participated in New London’s Hospital Days, in the fall we were active in Lyme’s “Pumpkin Festival” and in the winter we are strong supporters of Dartmouth Athletic events, just to name a few. ▲ LEDYARD GALLERY AT THE HOWE The arts are an integral part of every community. PAGE 6 BANKING AND COMMUNITY (concluded) THETFORD HISTORICAL SOCIETY ▲ Ledyard recognizes the importance of a community’s past. Museums, libraries and land conservation groups also benefit from Ledyard’s contributions. In 2005 we continued our support of the Howe Library capital campaign that contributed to the opening of the “Ledyard Gallery.” Several healthcare and outreach programs directly aimed at assisting individuals in our community were also beneficiaries of our financial support. The stories and pictures in this report are a testament to and acknowledgement of the many small groups of committed citizens who dare to think big and who give all they have to transform our community every day. Ledyard National Bank is proud to work with them in making our neighborhoods better places to live, work and raise families. PAGE 7 William B. Hamilton, Jr. President, Investment & Trust Services Division After a breakthrough year in 2004, To Our Shareholders: INVESTMENT & TRUST SERVICES Ledyard’s Investment and Trust Services Division had yet another strong year in 2005. On December 31, 2005, the Division held assets with an aggregate market value of $585 million (Chart, top right). This represents an increase of $42 million or 7.7% over the end of 2004. This increase was largely due to a strong flow of new accounts. Division revenue was 12% greater than revenue in 2004 (Chart, bottom right), and net pre-tax profit was 3% greater than net pre-tax profit in 2004. Two highlights for the Investment and Trust Services Division in 2005 were investment performance and client satisfaction. During 2005, our common stocks outperformed their indexes in every investment sector. Our strong performance was led by the international sector with our developed international common stocks (largely Europe and Japan) generating a total return (dividends plus appreciation) of 16.82% and our emerging international common stocks (largely Asia, Eastern Europe and South America) generating a total return of 37.75%. Approximately 17% of our typical portfolio was invested in international common stocks during 2005. With regard to client satisfaction, we ask our current clients to complete a satisfaction survey annually. In 2005, 98.1% of respondents to our survey stated that they would recommend our services to a friend. We are very proud of this endorsement. Our Division currently employs a staff of 21 people and we have clients in 35 states and 7 foreign countries. We are the dominant investment and trust organization within the Dartmouth-Lake Sunapee Region and we are very pleased to contribute to Ledyard’s continued success. Thank you for your support. WILLIAM B. HAMILTON, JR. President, Investment & Trust Services Division PAGE 8 $600,000 525,000 450,000 375,000 300,000 225,000 150,000 75,000 $4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 INVESTMENT & TRUST SERVICES (concluded) ASSETS UNDER MANAGEMENT OR CUSTODY (dollars in thousands) Ledyard’s Investment and Trust Services Division offers a full complement of investment management, fiduciary and custody services. As investment managers, we help our clients define their investment goals, risk tolerance and time horizon. We help establish investment strategy, portfolio design and asset allocation. We provide continuing portfolio management, includ- ing periodic meetings with account officers. Our services include safekeeping of securities, the collection and distribution of income, periodic statements, and an annual summary of income tax information. We also provide optional bill paying. As corporate fiduciary, we serve as trustee or co-trustee for revocable trusts, 01 02 03 04 05 irrevocable trusts and Individual Retirement Accounts. GROSS REVENUE (dollars in thousands) As custodian, we provide securities safekeeping, accurate and comprehensive record keeping, periodic statements, and a comprehensive annual summary of tax information. We also purchase and sell securities within our custody accounts according to our clients’ instructions. Again, bill paying is optional. In addition to the services listed above, we offer both prospective and current clients an unusual and powerful investment tool. We have the ability to prepare a comprehensive review of a prospective or current client’s total investment picture. Our reviews cover everything – from retirement accounts and IRA rollovers, to mutual funds, common stocks, Treasuries, certificates of deposit and money market funds. We cover asset allocation, sector weightings, diversification, risk tolerance and past performance. For the prospective client, this review represents an excellent first step towards establishing a successful working partnership with 01 02 03 04 05 our organization. For the current client, this review represents a basis for careful, strategic coordination across multiple investment accounts – some with Ledyard and some with other organizations. These reviews are complimentary and without obligation. PAGE 9 Daryl J. Cady, Executive Vice President, & Chief Financial Officer The discussion and analysis, which ANAGEMENT’S FINANCIAL DISCUSSIONM Review of Financial Statements the Bank’s financial condition at results of operations for the years Financial Condition December 31, 2005 and 2004 and its follows focuses on the factors affecting ended December 31, 2005 and 2004. The Financial Statements and Notes to the Financial Statements should be read in conjunction with this review. At year-end, total assets were $285,495,434 compared to $268,868,655 at December 31, $300,000 250,000 200,000 150,000 100,000 50,000 $200,000 175,000 150,000 125,000 100,000 75,000 50,000 25,000 TOTAL ASSETS (dollars in thousands) 2004, an increase of $16,626,779, or 6.18%. The change in assets consisted primarily of an increase of $19,703,831 in net loans, including loans held for sale offset by a $4,865,547 decrease in investment securities. The Bank maintains an investment portfolio consisting of various securities in order to diversify its revenue, as well as to provide interest rate and credit risk diversification. The portfolio also provides for liquidity and funding needs. As mentioned above, total investment securities decreased $4,865,547, or 7.43% from $65,466,672 to $60,601,125, as cash flows from mortgage-backed securities and proceeds from various maturing securities were used to fund loans. During 2005, the bank purchased $17,934,403 of held-to-maturity and available-for-sale securities and realized proceeds from maturities 01 02 03 04 05 and paydowns of the same totaling $22,590,226. NET LOANS including loans held for sale (dollars in thousands) The Bank provides loans to customers primarily located within its geographic market area. Net loans, including loans held for sale, totaled $194,892,597 at December 31, 2005, a $19,703,831, or 11.25% increase from a year ago. This reflects the strong loan growth experienced in the commercial and residential real estate loan portfolios. Commercial loans consist of (i) loans secured by various corporate assets, (ii) loans to provide working capital in the form of secured and unsecured lines of credit, and (iii) commercial real estate loans secured by income-producing commercial real estate. The Bank focuses on lending to financially sound small- and medium-sized business customers within its geographic marketplace. Total commercial loans increased by $4,880,275, or 4.15%, during 2005. Residential real estate loans consist of loans secured by one-to-four family residences. The Bank usually retains adjustable-rate mortgages in its portfolio and will generally 01 02 03 04 05 sell fixed-rate mortgages. Residential real estate loans increased by $16,568,645, or 32.63%, in 2005. During 2005, the Bank sold approximately $17 million of fixed-rate residential mortgage loans into the secondary market. PAGE 10 MANAGEMENT’S FINANCIAL DISCUSSION (continued) TOTAL DEPOSITS (dollars in thousands) Consumer loans are originated by the Bank for a wide variety of purposes designed to meet the needs of its customers. Consumer loans include overdraft protection, automobile, boat, recreation vehicles, home equity, and secured and unsecured personal loans. Consumer loans decreased by $922,067, or 12.12%, in 2005. In determining the adequacy of the allowance for loan losses (the “allowance”), management reviews the loan portfolio to ascertain whether there are specific loans which require additional reserves and to assess the collectibility of the loan portfolio in the aggregate. Non-performing loans are examined on an individual basis to determine the estimated probable loss on these loans. In addition, the ongoing evaluation 01 02 03 04 05 process includes a formal analysis of the allowance each quarter. During 2005, the BOOK VALUE PER SHARE (in dollars) Bank added $780,000 to its provision for loan losses and realized net charge-offs of $787,828 resulting in an allowance for loan losses totaling $2,383,359, or 1.22%, of total loans outstanding at December 31, 2005. Management believes that the allowance at December 31, 2005 was appropriate given the current economic conditions in the Bank’s service area. Premises and equipment totaled $8,878,154 at December 31, 2005 as compared to $9,332,902 at December 31, 2004. The net decrease of $454,748, or 4.87%, can be attributed to depreciation during 2005. Deposits continue to represent the Bank’s primary source of funds. In 2005, total deposits increased by $13,213,954, or 5.81% over 2004, ending the year at $240,827,605. Comparing year-end balances in 2005 to 2004, demand deposits and NOW accounts, increased by $742,828, and certificates of deposit increased by $15,071,666, while 01 02 03 04 05 money market and savings accounts decreased by $2,600,540. Borrowings supplement deposits as a source of liquidity. In addition to borrowings from the FHLB, the Bank $250,000 200,000 150,000 100,000 50,000 $25 20 15 10 5 purchases federal funds, and sells securities under agreements to repurchase. Total borrowings were $19,116,913 at December 31, 2005 compared to $18,251,062 at December 31, 2004, an increase of $865,851. The majority of the borrowings were related to securities sold under agreements to repurchase followed by advances from the Federal Home Loan Bank. These advances remain the largest non-deposit-related, interest-bearing funding source for the Bank. In addition to the liquidity sources dis- cussed above, the Bank believes the investment portfolio and residential loan portfolio provide a significant amount of contingent liquidity that could be accessed in a rea- sonable time period through sales if needed. Shareholders’ equity was $24,391,136 on December 31, 2005 compared to $21,848,657 on December 31, 2004, and increase of $2,542,479. The increase was primarily attributable to net income of $3,438,532 less $984,528 in cash dividends to the Bank’s shareholders. The Bank’s book value on December 31, 2005 was $24.16 per share based on 1,009,746 shares outstanding, an increase of $2.20 per share, or 10.02% from a year earlier. PAGE 11 NET INCOME (dollars in thousands) 01 02 03 04 05 EARNINGS PER SHARE (in dollars) $3,500 3,000 2,500 2,000 1,500 1,000 500 $3.50 3.00 2.50 2.00 1.50 1.00 0.50 MANAGEMENT’S FINANCIAL DISCUSSION (concluded) Statement of Income Net income was $3,438,532, or $3.41 per share for the twelve months ended 2005 as compared to $3,012,858, or $3.03 per share for 2004, an increase of $425,674, or 14.13%. Increased net interest income and higher Investment and Trust Division revenue accounted for the majority of the change. Net interest income before the provision for loan loss totaled $11,486,166 for the year ended December 31, 2005, as compared to $10,053,061 for the year ended December 31, 2004. The increase of $1,433,105 or 14.26% was primarily attributable to an increase in interest income on loans. Interest and fees on loans totaled $11,523,247 for the year ended December 31, 2005, as compared to $9,380,198 for 2004. This increase of $2,143,049, or 22.85%, was attributable to both an increase in interest rates and loan volume. Investment securities income for the year ended December 31, 2005, totaled $2,348,439 as compared to $2,289,693 for 2004, an increase of $58,746, or 2.57%. Higher average balances in mortgage-backed securities accounted for the majority of the change. Other interest- earning assets income increased $145,387 in 2005, totaling $232,071 in 2005 as compared to $86,684 for 2004. This increase was primarily attributable to a higher average balance in Federal Funds. While the Bank continued to have core deposit growth during 2005, it also saw an increase in time deposits. These deposits tend to be higher-costing resulting in interest expense on deposits totaling $1,918,102 for the year ended December 31, 2005, as compared to $1,294,957 for the year ended December 31, 2004, an increase of $623,145, 01 02 03 04 05 or 48.12%. Interest expense on borrowed funds increased $290,932, or 71.21% for the year ended December 31, 2005 totaling $699,489 as compared to $408,557 at December 31, 2004. The increase was primarily due to the Bank utilizing the Federal Home Loan Bank to supplement its other funding sources. Non-interest income totaled $5,834,064 in 2005 as compared to $5,329,587 in 2004, an increase of $504,477, or 9.47%. Income from the Bank’s Investment and Trust Services Division totaled $3,821,071 up from $3,411,978 in 2004, an increase of $409,093, or 11.99%. This increase was primarily attributable to increased asset volume and market conditions. Service fees increased slightly by $4,472 as the Bank realized additional fees associated with an increase in deposit accounts. Other non- interest income increased $90,912, or 19.10% due primarily to an increase in sold loan related fees. During 2005, mortgage volume increased as did the resultant fees. Non-interest expense totaled $11,353,708 for 2005 as compared to $10,451,663 in 2004, an increase of $902,045, or 8.63%. Salaries and benefits expense increased as the Bank realized expenses associated with its management reorganization. Occupancy and equipment increased due to higher energy costs and expenses associated with outsourcing certain back-office functions. Other general and administrative expenses PAGE 12 increased by 1.01% due to various third-party expenses. INDEPENDENT AUDITORS’ REPORT BOARD OF DIRECTORS AND SHAREHOLDERS Ledyard National Bank We have audited the accompanying balance sheets of Ledyard National Bank as of December 31, 2005 and 2004, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ledyard National Bank as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Portland, Maine January 13, 2006 PAGE 13 December 31, 2005 and 2004 BALANCE SHEETS ASSETS Cash and due from banks Federal funds sold Total cash and cash equivalents Securities available-for-sale Securities held-to-maturity Nonmarketable equity securities Loans held for sale 2005 2004 $ 8,735,319 9,504,782 $ 11,579,612 5,145,886 18,240,101 16,725,498 12,997,261 45,886,014 10,547,831 53,208,140 1,717,850 1,710,701 862,750 1,694,968 Loans receivable, net of allowance for loan losses of $2,383,359 in 2005 and $2,391,187 in 2004 194,029,847 173,493,798 Accrued interest receivable Bank premises and equipment, net Other assets LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits Demand NOW accounts Money market accounts Savings Time, $100,000 and over Other time Total deposits Securities sold under agreements to repurchase Advances from Federal Home Loan Bank Accrued expenses and other liabilities 1,099,791 942,544 8,878,154 9,332,902 1,783,666 1,212,273 $ 285,495,434 $ 268,868,655 $ 41,190,167 55,976,383 76,624,027 16,182,940 3,271,614 47,582,474 240,827,605 10,259,834 8,857,079 1,159,780 $ 44,018,183 52,405,539 78,804,219 16,603,288 6,991,499 28,790,923 227,613,651 6,270,211 11,980,851 1,155,285 Total liabilities 261,104,298 247,019,998 Commitments and contingencies (Notes 5, 10, 12, 13, 14 and 15) Shareholders’ equity Common stock, $1.00 par value; 5,500,000 shares authorized; 1,009,746 and 994,895 shares issued and outstanding in 2005 and 2004, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders’ equity The accompanying notes are an integral part of these financial statements. PAGE 14 1,009,746 9,214,466 14,370,371 (203,447) 994,895 8,951,476 11,916,367 (14,081) 24,391,136 21,848,657 $ 285,495,434 $ 268,868,655 Years Ended December 31, 2005 and 2004 STATEMENTS OF INCOME Interest and dividend income Interest and fees on loans Investment securities Other interest-earning assets 2005 2004 $ 11,523,247 2,348,439 232,071 $ 9,380,198 2,289,693 86,684 Total interest and dividend income 14,103,757 11,756,575 Interest expense Deposits Borrowed funds Total interest expense Net interest income Provision for loan losses 1,918,102 699,489 1,294,957 408,557 2,617,591 1,703,514 11,486,166 10,053,061 780,000 325,000 Net interest income after provision for loan losses 10,706,166 9,728,061 Noninterest income Trust department income Service fees Other Total noninterest income Noninterest expense Salaries and employee benefits Occupancy and equipment Other general and administrative Total noninterest expense Income before income taxes Income tax expense Net income The accompanying notes are an integral part of these financial statements. 3,821,071 1,445,995 566,998 3,411,978 1,441,523 476,086 5,834,064 5,329,587 5,969,382 1,888,213 3,496,113 5,149,934 1,843,370 3,458,359 11,353,708 10,451,663 5,186,522 4,605,985 1,747,990 1,593,127 $ 3,438,532 $ 3,012,858 PAGE 15 Years Ended December 31, 2005 and 2004 STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY BALANCE, DECEMBER 31, 2003 $ 990,679 $ 8,883,845 $ 9,806,972 $ 34,937 $ 19,716,433 COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) RETAINED EARNINGS TOTAL Stock warrants exercised, 4,216 shares 4,216 67,631 – BALANCE, DECEMBER 31, 2004 994,895 8,951,476 11,916,367 (14,081) 21,848,657 Comprehensive income Net income Change in net unrealized appreciation on securities available-for-sale, net of tax of $25,250 Total comprehensive income Cash dividends paid, $0.91 per share – – – – Comprehensive income Net income Change in unrealized loss on interest rate protection agreement, net of tax of $10,371 Change in net unrealized depreciation on securities available-for-sale, net of tax of $107,923 Total comprehensive income Cash dividends paid, $0.98 per share – – – – – – 3,012,858 – 3,012,858 – (49,018) (49,018) 3,012,858 (49,018) 2,963,840 (903,463) – – (903,463) 71,847 – 3,438,532 – 3,438,532 – – 20,131 20,131 (209,497) (209,497) 3,438,532 (189,366) 3,249,166 (984,528) – – ( 984,528) 277,841 – – – – – – – Stock warrants exercised, 14,851 shares 14,851 262,990 – BALANCE, DECEMBER 31, 2005 $ 1,009,746 $ 9,214,466 $ 14,370,371 $ (203,447) $ 24,391,136 The accompanying notes are an integral part of these financial statements. PAGE 16 Years Ended December 31, 2005 and 2004 STATEMENTS OF CASH FLOWS Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Provision for loan losses Deferred income tax expense (benefit) Increase in accrued income receivable Increase in accrued expenses and other liabilities Increase (decrease) in other assets Net decrease in loans held for sale Net cash provided by operating activities Cash flows from investing activities Proceeds from maturities of securities available-for-sale Proceeds from maturities and paydowns of securities held-to-maturity Purchase of securities held-to-maturity Purchase of nonmarketable equity securities Purchase of securities available-for-sale Net increase in loans to customers Purchase of bank premises and equipment Net cash used by investing activities Cash flows from financing activities Net increase in deposits Proceeds from long-term FHLB borrowings Repayment of long-term FHLB borrowings Net increase in securities sold under agreements to repurchase Proceeds from exercise of stock warrants Cash dividends paid on common stock Net cash provided by financing activities 2005 2004 $ 3,438,532 $ 3,012,858 554,223 780,000 53,900 (157,247) 4,495 (497,238) 832,218 5,008,883 895,697 325,000 (108,600) (94,028) 287,341 91,932 1,308,304 5,718,504 2,156,552 8,229,230 20,433,674 (12,960,555) (7,149) (4,973,848) (21,316,049) (200,024) (16,867,399) 13,213,955 2,000,000 (5,123,772) 3,989,623 277,841 (984,528) 13,373,119 14,063,792 ( 21,172,388) ( 300,851) ( 5,585,580) ( 19,416,482) ( 184,069) ( 24,366,348) 21,903,780 6,528,487 ( 5,040,980) 297,260 71,847 ( 903,463) 22,856,931 Net increase in cash and cash equivalents 1,514,603 4,209,087 Cash and cash equivalents, beginning of year 16,725,498 12,516,411 Cash and cash equivalents, end of year Supplementary cash flow information: Interest paid on deposits and borrowed funds Income taxes paid $ 18,240,101 $ $ 2,579,413 1,326,000 $ $ $ 16,725,498 1,687,805 1,432,871 The accompanying notes are an integral part of these financial statements. PAGE 17 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS NATURE OF BUSINESS The Bank is headquartered in Norwich, Vermont and provides a variety of financial services to individual and business customers through its office locations in central New Hampshire and Vermont. The Bank’s primary deposit products are checking and sav- ings accounts and certificates of deposit. Its primary lending products are commercial, real estate and consumer loans. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of Ledyard National Bank (the Bank) are in conformity with U.S. generally accepted accounting principles and general practices within the banking industry. The following is a description of the more significant policies. Use of Estimates In preparing financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate owned. In connection with the determination of the allowance, management obtains independent appraisals for collateral securing significant loans. Accordingly, the ultimate collectibility of a substantial portion of the Bank’s loan portfolio is susceptible to changes in local market conditions. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for losses on loans. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Significant Group Concentrations of Credit Risk The Bank’s operations are affected by various risk factors, including interest rate risk, credit risk, and risk from geographic concentration of lending activities. Management attempts to manage interest rate risk through various asset/liability management techniques designed to match maturities of assets and liabilities. Loan policies and administration are designed to provide assur- ance that loans will only be granted to creditworthy borrowers, although credit losses are expected to occur because of subjective factors beyond the control of the Bank. Although the Bank has a diversified loan portfolio and economic conditions are stable, most of its lending activities are conducted within the geographic area where it is located. As a result, the Bank and its borrowers may be especially vulnerable to the consequences of changes in the local economy. In addition, a substantial portion of the Bank’s loans are secured by real estate. Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. The Bank’s due from bank accounts, at times, may exceed federally insured limits. The Bank has not experienced any losses in such accounts. The Bank believes it is not exposed to any significant risk on cash and cash equivalents. Investment Securities Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts over the period to call or maturity using methods approximating the interest method. Securities not classified as held-to-maturity, including equity securities with readily deter- minable fair values, are classified as available-for-sale and are carried at fair value. Nonmarketable equity securities, consisting of PAGE 18 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investment Securities (concluded) stock in the Federal Home Loan Bank, are carried at cost and have not been evaluated for impairment. Unrealized gains and losses on securities available-for-sale are reported as a net amount in other comprehensive income, net of tax. Cost of securities is recognized using the specific identification method. Loans Held for Sale Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the amount of unpaid principal, reduced by deferred loan fees and an allowance for loan losses. Loans past due 30 days or more are considered delinquent. Management is responsible to initiate immediate collection efforts to minimize delinquency and any eventual adverse impact on the Bank. In general, consumer loans will be charged off if the loan is delinquent for 120 consecutive days. Commercial and real estate loans are charged off in part or in full if they are considered uncollectible. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require an increase, such increase is reported as provision for loan losses. Small balance homogeneous loans are collectively eval- uated for impairment. Loan interest income is accrued daily on the outstanding balances. Accrual of interest is discontinued when a loan is specifically determined to be impaired or management believes, after considering collection efforts and other factors, that the borrower’s financial condition is such that collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is generally not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are generally applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loan origination and commitment fees and certain direct origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield. The Bank is generally amortizing these amounts over the contractual life. Allowance for Loan Losses The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. Credit Related Financial Instruments In the ordinary course of business, the Bank has entered into commitments to extend credit, including commitments under credit card arrangements, commercial letters-of-credit and standby letters-of-credit. Such financial instruments are recorded when they are funded. PAGE 19 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Other Real Estate Owned Real estate properties acquired through or in lieu of loan foreclosure are initially recorded at the lower of the Bank’s carrying amount or fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, these assets are carried at the lower of their new cost basis or fair value less cost to sell. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. Valuations are periodically performed by management, and any subsequent write downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell. Bank Premises and Equipment Land is carried at cost. Bank premises and equipment are stated at cost, less accumulated depreciation. The provision for depreci- ation is computed over the estimated useful life of the related asset, principally by the straight-line method. Improvements to leased property are amortized over the lesser of the term of the lease or life of the improvements. Income Taxes The Bank recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the book bases and the tax bases of the Bank’s assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled. Adjustments to the Bank’s deferred tax assets are recognized as deferred income tax expense or benefit based on management’s judgment relating to the realizability of such assets. Stock Warrant Plans Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value-based method of accounting for employee stock warrant compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock warrants issued under the Bank’s stock warrant option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Bank has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income as if the fair value-based method of accounting had been applied. The pro forma disclosures include the effects of all awards granted on or after January 1, 1995. Had compensation cost been determined on the basis of fair value pursuant to SFAS No. 123, net income would have been reduced as follows: Years Ended December 31, As reported Total stock warrant expense determined under fair value based method for all warrants, net of related tax Pro forma PAGE 20 2005 2004 $ 3,438,532 $ 3,012,858 (30,077) (65,936) $ 3,408,455 $ 2,946,922 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded) Stock Warrant Plans (concluded) In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), Share Based Payment. SFAS No. 123 requires entities issuing stock options in exchange for services to recognize the fair value of those options as expense, generally over the period in which they vest. SFAS No. 123 applies to options granted or modified in periods beginning after December 15, 2005. Management does not expect implementation of SFAS No. 123 to have a material impact on the Bank’s finan- cial position or results of operations. Trust Assets and Fees Assets held by the trust department, other than trust cash on deposit at the Bank, are not included in these financial statements because they are not assets of the Bank. Trust fees are recorded on the accrual basis. Derivative Financial Instruments The Bank uses an interest rate protection agreement (cap) as a cash flow hedge to eliminate the cash flow exposure of interest rate movements on borrowings. The premium paid for the cap is amortized over its life. Any cash payments received are recorded as an adjustment to net interest income. The Bank documents its risk management strategy and hedge effectiveness at the inception of and during the term of the hedge. The cap is designated and qualifies as a cash flow hedge, and thus is recorded at fair value. SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, provides that a cash flow hedge is effective to the extent the variability in its cash flows offsets the variability in the cash flows of the hedged item, in this case term borrowings. Management has determined that the hedge relationship is 100 percent effective. The fair value of the derivative is $0 at December 31, 2005 and 2004. Comprehensive Income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities and the interest rate protection agreement, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. Reclassifications Certain amounts in the 2004 financial statements have been reclassified to conform to the 2005 presentation. 2. CASH AND DUE FROM BANKS The Bank is required to maintain certain reserves of vault cash or deposits with the Federal Reserve Bank. The amount of this reserve requirement, included in cash and due from banks, was approximately $385,000 and $3,879,000 as of December 31, 2005 and 2004, respectively. PAGE 21 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 3. SECURITIES The amortized cost and fair value of securities, with gross unrealized gains and losses, follow: 2005 AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES FAIR VALUE Securities Available-for-Sale U.S. Government agencies and corporations Mortgage-backed securities $ 4,981,879 8,323,634 Total securities available-for-sale $ 13,305,513 Securities Held-to-Maturity U.S. Government agencies and corporations State and municipal Collateralized mortgage obligations Mortgage-backed securities $ 14,455,872 3,140,986 1,030,747 27,258,409 $ $ $ – – – – 15,022 – 19,901 $ $ $ (55,779) (252,473) $ 4,926,100 8,071,161 (308,252) $ 12,997,261 (95,261) (9,763) (28,616) (765,364) $ 14,360,611 3,146,245 1,002,131 26,512,946 Total securities held-to-maturity $ 45,886,014 $ 34,923 $ (899,004) $ 45,021,933 2004 AMORTIZED COST GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES FAIR VALUE Securities Available-for-Sale Mortgage-backed securities $ 10,538,663 Total securities available-for-sale $ 10,538,663 Securities Held-to-Maturity U.S. Government agencies and corporations State and municipal Collateralized mortgage obligations Mortgage-backed securities $ 16,987,922 3,156,308 1,456,228 31,607,682 $ $ $ $ $ $ 19,377 19,377 61,678 69,226 5,749 103,775 (10,209) $ 10,547,831 (10,209) $ 10,547,831 (101,887) (2,436) – (240,818) $ 16,947,713 3,223,098 1,461,977 31,470,639 Total securities held-to-maturity $ 53,208,140 $ 240,428 $ (345,141) $ 53,103,427 At December 31, 2005 and 2004, securities with a carrying value of $18,616,355 and $15,570,107, respectively, were pledged to secure public deposits and for other purposes required or permitted by law. The amortized cost and fair value of debt securities by contractual maturity at December 31, 2005 follow: Within one year Over one year through five years Over ten years Collateralized mortgage obligations and AVAILABLE-FOR-SALE HELD-TO-MATURITY AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE $ – 4,981,879 – 4,981,879 $ – 4,926,100 – 4,926,100 $ 12,969,943 3,887,225 739,690 17,596,858 $ 12,894,750 3,882,179 729,927 17,506,856 mortgage-backed securities 8,323,634 8,071,161 28,289,156 27,515,077 $ 13,305,513 $ 12,997,261 $ 45,886,014 $ 45,021,933 PAGE 22 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 3. SECURITIES (concluded) There were no sales of securities available-for-sale or securities held-to-maturity during 2005 and 2004. Information pertaining to securities with gross unrealized losses at December 31, 2005, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows: LESS THAN 12 MONTHS 12 MONTHS OR GREATER TOTAL FAIR VALUE GROSS UNREALIZED LOSSES FAIR VALUE GROSS UNREALIZED LOSSES FAIR VALUE GROSS UNREALIZED LOSSES U.S. Government agencies and corporations State and municipal Collateralized mortgage obligations Mortgage-backed securities $ 14,360,464 $ 729,928 (85,138) $ (9,763) 4,926,247 – $ (65,902) $ 19,286,711 $ – 729,928 (151,040) (9,763) 1,002,131 9,511,176 (28,616) (208,789) – 21,558,237 – (809,048) 1,002,131 31,069,413 (28,616) (1,017,837) Total $ 25,603,699 $ (332,306) $ 26,484,484 $ (874,950) $ 52,088,183 $ (1,207,256) All investments with unrealized losses at December 31, 2004 have been in a continuous loss position less than twelve months. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether down- grades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary. PAGE 23 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 4. LOANS The composition of net loans at December 31 is as follows: Commercial Commercial real estate Residential real estate Consumer Subtotal Allowance for loan losses Net deferred loan fees Loans, net 2005 2004 $ 51,823,665 70,568,854 67,352,177 6,683,906 $ 48,135,795 69,376,449 50,783,532 7,605,973 196,428,602 175,901,749 (2,383,359) (15,396) ( 2,391,187) ( 16,764) $ 194,029,847 $ 173,493,798 At December 31, 2005 and 2004, nonaccrual loans were $343,061 and $627,106, respectively. There were no loans 90 days past due and still accruing interest at December 31, 2005 and 2004. An analysis of the allowance for loan losses follows: Years Ended December 31, 2005 2004 Balance at beginning of year Provision for loan losses Loans charged off Recoveries of loans previously charged off Balance at end of year The following is a summary of information pertaining to impaired loans: Impaired loans with a valuation allowance Total impaired loans Valuation allowance related to impaired loans $ $ 2,391,187 780,000 (831,260) 43,432 2,092,783 325,000 ( 62,131) 35,535 $ 2,383,359 $ 2,391,187 2005 2004 $ $ $ 343,061 343,061 171,530 $ $ $ 627,106 627,106 105,857 Years Ended December 31, 2005 2004 Average investment in impaired loans $ 304,387 $ 637,883 No interest income was recognized on impaired loans during 2005 and 2004. No additional funds are committed to be advanced in connection with impaired loans. PAGE 24 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 5. BANK PREMISES AND EQUIPMENT A summary of the cost and accumulated depreciation of premises and equipment follows: Land and improvements Buildings and improvements Equipment Accumulated depreciation 2005 2004 $ 1,922,993 7,224,431 4,578,202 $ 1,922,993 7,211,865 4,389,047 13,725,626 (4,847,472) 13,523,905 ( 4,191,003) $ 8,878,154 $ 9,332,902 Depreciation, included in occupancy and equipment expense, amounted to $656,469 and $666,457 for the years ended December 31, 2005 and 2004, respectively. Pursuant to the terms of noncancelable lease agreements in effect at December 31, 2005, pertaining to premises and equipment, future minimum rent commitments under various operating leases are as follows: 2006 2007 2008 2009 2010 Thereafter $ 151,170 151,170 116,670 115,170 106,370 20,790 $ 661,340 The leases contain options to extend for periods from three to ten years. The cost of such extensions is not included above. Total rent expense for the years ended December 31, 2005 and 2004 amounted to $155,741 and $163,907, respectively. PAGE 25 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 6. DEPOSITS The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2005 and 2004 was $3,271,614 and $6,991,499, respectively. At December 31, 2005, the scheduled maturities of time deposits are as follows: 2006 2007 2008 2009 2010 $ 42,478,751 7,458,487 178,333 153,599 584,918 $ 50,854,088 Deposit accounts with related parties were $4,866,197 and $4,426,566 at December 31, 2005 and 2004, respectively. 7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities sold under repurchase agreements mature within twelve months and are collateralized by securities in the Bank’s investment portfolio. The maximum amount of repurchase agreements outstanding at any month-end during 2005 and 2004 was $21,803,899 and $6,357,127, respectively. The average amount of repurchase agreements outstanding during 2005 and 2004 was $8,130,256 and $5,035,932, respectively. The weighted average interest rate on repurchase agreements outstanding at December 31, 2005 and 2004 was 2.62% and 1.16%, respectively. All securities collateralizing the repurchase agreements are under the Bank’s control. 8. ADVANCES FROM FEDERAL HOME LOAN BANK The Bank’s fixed-rate advances with the Federal Home Loan Bank (FHLB) of $8,857,079 at December 31, 2005 mature through 2013. At December 31, 2005, interest rates of fixed-rate advances ranged from 2.90% to 4.33%. At December 31, 2004, the interest rates ranged from 1.57% to 4.33%. Outstanding FHLB borrowings are secured by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by one to four family properties, certain unencumbered investment securities, and other qualified assets. The contractual maturities of advances are as follows: 2005 2006 2007 2008 2009 2013 Total PAGE 26 2005 2004 $ – 5,000,000 1,000,000 500,000 1,947,592 409,487 $ 2,500,000 5,000,000 1,000,000 500,000 2,528,487 452,364 $ 8,857,079 $ 11,980,851 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 9. INCOME TAXES Allocation of federal and state income taxes between current and deferred portions is as follows: Current tax provision Federal State Deferred federal tax expense (benefit) 2005 2004 $ 1,574,090 120,000 1,694,090 53,900 $ 1,593,727 108,000 1,701,727 (108,600) $ 1,747,990 $ 1,593,127 The income tax provision differs from the expense that would result from applying federal statutory rates to income before income taxes principally because of state income taxes. The components of the net deferred tax asset, included in other assets, are as follows: Deferred tax assets Net unrealized loss on securities available-for-sale Allowance for loan losses Employee benefit plans Net unrealized loss on interest rate protection agreement Other Deferred tax liabilities Depreciation Net unrealized gain on securities available-for-sale Other 2005 2004 $ $ 104,800 731,000 261,300 – 30,200 – 794,600 223,500 10,000 100,900 1,127,300 1,129,000 291,400 – 126,300 417,700 334,000 3,100 126,300 463,400 Net deferred tax asset $ 709,600 $ 665,600 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby and commercial letters-of-credit, and interest rate caps and floors written on adjustable rate loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters-of-credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. For interest rate caps and floors written on adjustable rate loans, the contract or notional amounts do not represent exposure to credit losses. PAGE 27 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (concluded) The Bank generally requires collateral or other security to support financial instruments with credit risk. At December 31, 2005 and 2004, the following financial instruments were outstanding whose contract amounts represent credit risk: CONTRACT AMOUNT 2005 2004 Commitments to grant loans Commercial and standby letters-of-credit $ $ 41,462,409 11,165,024 $ $ 34,645,452 3,402,471 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines-of-credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Bank, is based on management’s credit evaluation of the customer. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial property. Standby letters-of-credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters-of-credit is essentially the same as that involved in extending loan facilities to customers. At times, the Bank places interest rate caps and floors on loans written by the Bank to enable customers to transfer, modify, or reduce their interest rate risk. 11. DERIVATIVE INSTRUMENTS The Bank may enter into a variety of interest rate protection agreements, including interest rate caps, in managing its interest rate exposure. The notional amount of the Bank’s interest rate cap agreement was $5,000,000 at December 31, 2005 and 2004. The agreement has a strike rate of 6.75% and matures in 2006. The Bank controls the risk of interest rate cap agreements through credit approvals, limits and monitoring procedures. 12. LEGAL CONTINGENCIES Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Bank’s financial statements. PAGE 28 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 13. MINIMUM REGULATORY CAPITAL REQUIREMENTS The Bank is restricted as to the amount of dividends which can be paid. Dividends declared by national banks that exceed the net income (as defined) for the current year plus retained net income for the preceding two years must be approved by the Office of the Comptroller of the Currency (OCC). Regardless of formal regulatory restrictions, the Bank may not pay dividends that would result in its capital levels being reduced below the minimum requirements discussed below. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory frame- work for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table, dollars in thousands) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2005 and 2004, that the Bank met all capital adequacy requirements to which it is subject. As of December 31, 2005, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since the notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios as of December 31, 2005 and 2004 are also presented in the table. ACTUAL MINIMUM CAPITAL REQUIREMENT MINIMUM TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS AMOUNT RATIO AMOUNT > RATIO > AMOUNT > RATIO > (dollars in thousands) 26,976 13.0% $ 16,602 8.0% $ 20,752 10.0% 24,594 11.9% $ 8,301 4.0% $ 12,451 6.0% 24,594 8.8% $ 11,124 4.0% $ 13,905 5.0% 24,196 13.0% $ 14,931 8.0% $ 18,664 10.0% 21,862 11.7% $ 7,465 4.0% $ 11,198 6.0% 21,862 8.5% $ 10,294 4.0% $ 12,867 5.0% December 31, 2005 Total Capital to Risk Weighted Assets Tier 1 Capital to Risk Weighted Assets Tier 1 Capital to Average Assets December 31, 2004 Total Capital to Risk Weighted Assets Tier 1 Capital to Risk Weighted Assets Tier 1 Capital to Average Assets $ $ $ $ $ $ PAGE 29 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 14. EMPLOYEE BENEFITS The Bank sponsors a 401(k) profit sharing plan which covers all employees who are at least 21 years of age and who have completed one year of employment. Eligible employees contribute a percentage of their annual compensation to the 401(k) plan and the Bank matches a certain portion of employee contributions. In addition, the Bank may make discretionary contributions on behalf of employees under the plan. For the years ended December 31, 2005 and 2004, expense attributable to the plan amounted to $427,284 and $443,364, respectively. Included in accrued expenses and other liabilities in the balance sheets at December 31, 2005 and 2004 are liabilities established pursuant to deferred compensation agreements with certain officers of the Bank of $659,738 and $564,144, respectively. Deferred compensation expense related to these plans amounted to $95,593 and $85,032 for the years ended December 31, 2005 and 2004, respectively. 15. WARRANTS Warrants to purchase shares of the Bank’s common stock at various exercise prices have been granted to certain members of the organizing group, key management, and employees of the Bank. The warrants vest in three years and expire ten years from the date the warrant was granted. A summary of warrants outstanding for the years ended December 31 is as follows: Outstanding at beginning of year Granted Exercised Retired Outstanding at end of year Warrants exercisable at year end 2005 2004 WEIGHTED AVERAGE EXERCISE PRICE 33.08 41.84 30.59 34.22 35.98 35.53 SHARES 86,156 13,000 (28,101) (12,389) 58,666 35,499 $ $ $ WEIGHTED AVERAGE EXERCISE PRICE 29.68 35.25 16.43 – 33.08 32.42 SHARES 69,372 21,000 ( 4,216) – 86,156 59,823 $ $ $ PAGE 30 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 15. WARRANTS (concluded) Information pertaining to options outstanding at December 31, 2005 is as follows: WARRANTS OUTSTANDING WARRANTS EXERCISABLE RANGE OF EXERCISE PRICES NUMBER OUTSTANDING WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE 3,416 55,250 0.8 years 6.1 years $17.85 $32.00 - $41.84 Outstanding at end of year WEIGHTED AVERAGE EXERCISE PRICE 17.85 37.10 NUMBER EXERCISABLE 1,916 33,583 WEIGHTED AVERAGE EXERCISE PRICE 17.85 35.74 58,666 5.8 years $ 35.98 35,499 $ 35.53 The remaining number of warrants available to be granted was 699 and 13,699 at December 31, 2005 and 2004, respectively. The warrants are valid for a period of ten years. The fair value of warrants granted during 2005 and 2004, was $6.56 and $4.84, respectively. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions: Dividend yield Risk-free interest rate Expected life 2005 2004 2.30% 4.50% 10 years 2.28% 4.19% 10 years 16. OTHER NONINTEREST INCOME AND EXPENSES The components of other noninterest income and expenses which are in excess of 1% of total revenues (total interest and dividend income and noninterest income) and not shown separately in the statements of income are as follows for the years ended December 31: Income Gain on sale of loans Expenses Credit card charges Advertising Consulting 2005 2004 $ $ $ $ 204,038 678,445 335,816 142,654 231,635 617,704 347,409 193,961 $ 1,156,915 $ 1,159,074 PAGE 31 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 17. RELATED PARTY TRANSACTIONS The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, principal officers, their immediate families and affiliated companies in which they are principal shareholders (commonly referred to as related parties), all of which have been, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. Loans granted to related parties amounted to $1,614,808 and $1,882,028 at December 31, 2005 and 2004, respectively. 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS No. 107, Disclosure About Fair Value of Financial Instruments, which prescribes fair value disclosures, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Bank. The following methods and assumptions were used by the Bank in estimating fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts of cash and short-term instruments approximate fair values. Securities: Fair values for securities, excluding Federal Home Loan Bank stock and Federal Reserve Bank stock, are based on quot- ed market prices. The carrying value of Federal Home Loan Bank Stock and Federal Reserve Bank stock approximate fair value based on the redemption provisions of the Federal Home Loan Bank and Federal Reserve Bank. Loans held for sale: Fair values of loans held for sale are based on commitments on hand from investors or prevailing mar- ket prices. Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and non interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregate expected monthly maturities on time deposits. PAGE 32 December 31, 2005 and 2004 NOTES TO FINANCIAL STATEMENTS 18. FAIR VALUE OF FINANCIAL INSTRUMENTS (concluded) Securities sold under agreements to repurchase: The carrying amounts of borrowings under repurchase agreements maturing within ninety days approximate their fair values. Advances from Federal Home Loan Bank: The fair values of these borrowings are estimated using discounted cash flow analyses based on the Bank’s current incremental borrowing rates for similar types of borrowing arrangements. Accrued interest: The carrying amounts of accrued interest approximate fair value. Off-balance-sheet instruments: The Bank’s off-balance-sheet instruments consist of loan commitments. Fair values for loan commitments have not been presented as the future revenue derived from such financial instruments is not significant. Derivative financial instruments: Fair value for the interest rate protection agreement is based on quoted market prices. The estimated fair values, and related carrying or notional amounts, of the Bank’s financial instruments are as follows: Financial assets Cash and cash equivalents Securities available-for-sale Securities held-to-maturity Federal Home Loan Bank and Federal Reserve Bank stock Loans and loans held for sale, net Accrued interest receivable Financial liabilities Deposits Repurchase agreements Advances from Federal Home Loan Bank Accrued interest payable 2005 2004 CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE $ 18,240,101 12,997,261 45,886,014 $ 18,240,101 12,997,261 45,021,933 $ 16,725,498 10,547,831 53,208,140 $ 16,725,498 10,547,831 53,103,427 1,717,850 194,892,597 1,099,791 1,717,850 195,709,366 1,099,791 1,710,701 175,188,766 942,544 1,710,701 177,481,329 942,544 240,827,605 10,259,834 241,301,815 10,259,834 227,613,651 6,270,211 227,242,453 6,270,211 8,857,079 120,019 8,817,962 120,019 11,980,851 81,842 9,923,785 81,842 PAGE 33 Ledyard National Bank BOARD OF DIRECTORS, SENIOR MANAGEMENT and OFFICERS BOARD OF DIRECTORS Douglas G. Britton President, Britton Lumber Co., Inc. Cary P. Clark General Counsel and Director of External Relations Emeritus, Dartmouth College Cotton M. Cleveland President, Mather Associates Richard W. Couch, Jr. Chairman, President and Chief Executive Officer, Hypertherm, Inc. William B. Hamilton, Jr. President, Investment & Trust Services Division, Ledyard National Bank SENIOR MANAGEMENT Kathryn G. Underwood President and Chief Executive Officer William B. Hamilton, Jr. President, Investment & Trust Services Division Daryl J. Cady Executive Vice President and Chief Financial Officer OFFICERS Constance B. Aldrich Assistant Trust Officer and Investment Support Manager Margie L. Arbuckle-Morrill Vice President and Trust Officer Donna L. Batchelder Assistant Trust Operations Officer Betty J. Benson Assistant Vice President and Central Operations Officer Gail M. Broughton Assistant Vice President and Regional Office Manager, Lyme & Norwich Alison A. Bruce Compliance Administration Officer Terri L. Crate Assistant Vice President and Loan Administration Officer Debra J. Curtis Personal Banking Officer and Office Manager, West Lebanon L. Joyce Hampers Attorney, Former U.S. Assistant Secretary of Commerce and President, Giuliano Day Spa Deirdre Sheerr-Gross, AIA Principal, Sheerr and White Residential Architecture Adam M. Keller Executive Vice President, Finance and Administration, Dartmouth College Dennis E. Logue Professor Emeritus, Tuck School of Business, Dartmouth College and Chair, Ledyard National Bank Frederick A. Roesch Retired, Senior Vice President, Citigroup/Citibank Bayne Stevenson President, Bayson Company Kathryn G. Underwood President and Chief Executive Officer, Ledyard National Bank James W. Varnum President, Dartmouth-Hitchcock Alliance and Mary Hitchcock Memorial Hospital Martha P. Candon Senior Vice President and Senior Retail Banking Officer Mark S. Clough Senior Vice President and Senior Loan Officer Darcy D. Rogers Senior Vice President and Chief Operations Officer D. Rodman Thomas Senior Vice President and Senior Trust Officer Darlene E. Romano Vice President, Finance and Human Resources Jeffrey E. Goff Vice President, Sales Development and Marketing Claudette M. Duhamel Assistant Vice President and Office Manager, New London Kimberly A. Fedolfi Trust Officer J. R. Peter Gamble Vice President and Mortgage Loan Officer Jennifer J. Goin Trust Officer William R. Hatch Vice President and Commercial Loan Officer Michelle M. LeClair Commercial Loan Officer Christopher C. Ng Trust Investment Officer and Portfolio Manager Kevin J. Raleigh Vice President and Senior Commercial Loan Officer Michael K. Sandoe Vice President and Commercial Loan Officer Debra W. Sias Vice President and Commercial Loan Officer David C. Skewes Mortgage Loan Officer Donna J. St. Peter Personal Banking Officer Katherine J. Lucier Assistant Vice President and Regional Office Manager, Lebanon & West Lebanon Jon E. Molesworth Vice President and Trust Investment Officer Catherine E. Murray Vice President and Mortgage Loan Officer Edmund R. Taylor Senior Vice President and Chief Investment Officer Gail E. Trottier Assistant Vice President and Personal Banking Officer Joel T. Underwood Senior Vice President and Trust Investment Officer Judith B. Dionne Vice President and Trust Operations Officer Valerie J. Nevel Vice President and Trust Officer As of March 15, 2006 PAGE 34 Ledyard National Bank STAFF FULL-TIME STAFF Stacey A. Alexander Customer Service Representative Karrie L. Longley Head Teller Thomas M. Berry Data Processing and Information Systems Manager Vicky C. Lorden Customer Service Representative Robin M. Cantlin Commercial Loan Processor Stephanie J. Chase Office Supervisor Julie A. Courtemanche Investment Assistant II Cara Dyke Branch Supervisor Amy L. Martin Customer Service Representative Deborah J. McDanolds Customer Service Representative Cynthia L. McSpadden Head Teller Gregory J. Monmaney Customer Service Representative Deborah J. Farnsworth Finance Specialist and Training Coordinator Michelle S. Morgan Customer Service Representative Lisa K. Murch Mortgage Loan Processor Patricia M. Neily Head Teller Rebecca L. Newhall Customer Service Representative Tammy L. Norway Trust Operations Assistant II Lillian R. Olsen Customer Service Representative Robin L. Olsen Customer Service Representative Erica C. Paronto Proof Operations Assistant Victoria L. Peiffer Trust Administrator Michelle J. Fellows Mortgage Loan Processor Anna M. Gayhart Customer Service Representative Karen A. Goings Customer Service Representative Stephanie Gordon Customer Service Representative Carrie A. Hamel Customer Service Receptionist Eileen A. Hard Assistant to the President and Chair Doreen J. Holmes Customer Service Representative Jennifer S. Jones Customer Service Representative Jeanine M. Leathe Trust Administrative Assistant I Sarah E. Leete Customer Service Representative Staci R. Sargent Customer Service Representative Victoria L. Schettino Deposit Operations Assistant Brett A. Smith Payroll and Finance Specialist Michelle R. Stewart Technical Support Manager Alexis L. Swain Loan Operations Assistant Jessica L. Taylor Customer Service Representative Monica M. Tuckerman Operations and Administrative Assistant Michelle L. Whitcomb-Brannen Office Supervisor Loretta V. Zuger Trust Administrative Assistant I PART-TIME STAFF Roxanne M. Russell Trust Operations Assistant I Kathryn S. Walker Trust Administrative Assistant II Betty J. Renault Wire Transfer and Operations Assistant Sarah S. Salo Administrative Assistant and Office Manager As of March 15, 2006 PAGE 35 Ledyard National Bank ADVISORY BOARDS FOUNDING ADVISORS Richard W. Birnie Professor of Earth Sciences, Dartmouth College Douglas G. Britton President, Britton Lumber Co., Inc. Dorothy M. Byrne President, The Byrne Foundation Robert L. Callender Private Investor Fred P. Carleton Real Estate Management Brian H. Cole Owner/President, Cole Electric, Inc. and Owner, Vermont Alpaca Company Paul Danos Dean, Tuck School of Business at Dartmouth and Laurence F. Whittemore Professor of Business Administration Joseph F. Daschbach, Esq. Daschbach, Cooper, Hotchkiss & Csatari, P.A. Bradley Dewey, Jr. Retired INVESTMENT ADVISORY BOARD S. Whitney Dickey Retired Banker Donald Carpenter Goss Retired Advertising Agency Partner John S. North Retired Chief Operating Officer, New England Telephone James E. Porath, C.P.A. Partner, Tonneson and Co. Charles M. Hebble, Jr. Retired Chairman and Chief Executive Officer, Creonics, Inc. Dennis E. Logue, M.B.A., Ph.D. Professor Emeritus, Tuck School of Business, Dartmouth College and Chair, Ledyard National Bank Alfred T. Quirk Dean of Admissions and Financial Aid, Emeritus, Dartmouth College Frank E. Sands II Chairman, King Arthur Flour Co., Inc. Mado R. Macdonald Executive Officer, Emerita, Tuck School of Business, Dartmouth College Edward M. Scheu, Jr. Retired Chairman and Chief Executive Officer, Luminescent Systems, Inc. J. Jeffrey Maloney, CLU, ChFC Abacus Consulting, LLC Geraldine Searles President, Ruggles Mine, Inc. Ann D. McLaughry Vice President, McLaughry Associates, Inc. and President, Upper Valley Real Estate Services Robert D. McLaughry Chairman, McLaughry Associates, Inc. Nancy Hayward Mitchell Retired Chairman, Dartmouth Travel Richard H. Showalter, Jr., C.P.A. Chief Financial Officer, Dartmouth-Hitchcock Richard S. Shreve, M.B.A. Former Investment Banker, Adjunct Professor of Business Ethics, Tuck School of Business, Dartmouth College Joseph C. Stevens, M.D. Robert Z. Aliber, Ph.D. Professor Emeritus, Graduate School of Business, University of Chicago Dennis E. Logue, M.B.A., Ph.D. Professor Emeritus, Tuck School of Business, Dartmouth College and Chair, Ledyard National Bank Edmund R. Taylor, C.F.A. Senior Vice President and Chief Investment Officer, Ledyard National Bank Bruce M. Dresner, C.F.A., M.B.A. Principal, Quellos Capital Management, L.P. William B. Hamilton, Jr., J.D. President, Investment & Trust Services Division, Ledyard National Bank L. Joyce Hampers, J.D., L.L.M. Attorney, Former U.S. Assistant Secretary of Commerce and President, Giuliano Day Spa Deirdre Sheerr-Gross, AIA Principal, Sheerr and White Residential Architecture Richard S. Shreve, M.B.A. Former Investment Banker, Adjunct Professor of Business Ethics, Tuck School of Business, Dartmouth College D. Rodman Thomas, J.D. Senior Vice President and Senior Trust Officer, Ledyard National Bank As of March 15, 2006 PAGE 36 Ledyard National Bank COMMUNITY BOARDS HANOVER COMMUNITY BOARD Clint Bean President and Chief Executive Officer, Hanover Area Chamber of Commerce, Retired Julia N. Griffin Town Manager, Town of Hanover David Laurin President, Banwell Architects Bruce Pacht Executive Director, United Developmental Services Terri M. Paré Controller, Johnson & Dix Fuel Corporation Barry C. Schuster, Esq. Schuster, Buttrey & Wing, P.A. LEBANON COMMUNITY BOARD William Babineau Managing Member, Vermont Mailing Systems, LLC Terri Dudley City Councilor, Talk Show Host, Former Mayor and N.H. House Representative Patrick E. Flanagan Patrick E. Flanagan Real Estate Broker Richard B. Logan, AAI President, Goss-Logan Insurance Agency, Inc. Todd Miller President, New Hampshire Industries, Inc. Barry C. Schuster, Esq. Schuster, Buttrey & Wing, P.A. Bruce M. Waters, CCIM McLaughry Commercial Associates, Inc. NORWICH COMMUNITY BOARD Terry P. Appleby General Manager, Hanover Cooperative Society, Inc. Gary T. Brooks, Esq. Partner, Stebbins Bradley Harvey Miller & Brooks, P.A. Perrine McConnell Co-owner, Norwich Bookstore, Inc. Bruce “Buff” McLaughry President, McLaughry Associates, Inc. Steve Richardson President, Chief Tormentor, Stave Puzzles, Inc. Sally J. Wilson Owner, The Norwich Inn LYME COMMUNITY BOARD Martha E. Diebold Martha E. Diebold Real Estate Robert Doorly Retired Nancy S. Dwight Chairman, Dwight Partners, Inc. Lloyd G. Nichols Nichols Hardware, Inc. John S. North Retired Chief Operations Officer, New England Telephone Wayne Pike Owner, A.W. Pike, Inc. General Contractors David M. Roby Partner, The Lyme Timber Company Norman C. Wakely Co-Director, Grant Brook Educational Services NEW LONDON COMMUNITY BOARD Thomas J. Brennan Superintendent, Kearsarge Regional School District Laurie T. DiClerico Diana Doheny Realtor, Gale & Associates Lawrence Dufault, Esq. Dufault & Dufault Bruce P. King Chief Executive Officer, New London Hospital Gail Matthews Jeff Milne Principal, Milne/Currier Associates Andrea F. Steel President and CEO, Lake Sunapee Region Visiting Nurse Association Ellen D. Winkler Principal Designer, Chief Executive Officer, Ellen’s Interiors As of March 15, 2006 LEDYARD OFFICES HANOVER 38 Main Street | 603-643-2244 Lobby, Walk-Up and ATM Investment & Trust Services | 603-643-0044 Lebanon Street at Park Street | 603-643-7457 Lobby, Drive-Up and ATM Dartmouth College | Collis Center ATM LEBANON Route 120 at Old Etna Road | 603-448-2220 Lobby, Drive-Up and ATM Centerra Park/River Valley Club ATM LYME On The Green | 603-795-2288 Lobby and ATM NEW LONDON 178 County Road | 603-526-7725 Lobby, Drive-Up and ATM Investment & Trust Services | 603-526-9251 NORWICH, VERMONT 320 Main Street | 802-649-2050 Lobby, Drive-Up and ATM WEST LEBANON 67 Main Street | 603-298-9444 Lobby, Drive-Up and ATM Powerhouse Mall ATM WHITE RIVER JUNCTION, VERMONT Gateway Motors | Sykes Avenue ATM KWIKNET INTERNET BANKING www.ledyardbank.com KWIKTEL TELEPHONE BANKING 1 . 8 8 8 . K W I K T E L 1 . 8 8 8 . 5 9 4 . 5 8 3 5 M E M B E R F D I C