-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gz2fc/5jAr+SCSut3LsRSOLVKPslFtXrBo8SMH0q+bJqxkSxkxGTtzosXom3fvaq iSgvrz4IHjOmqKMycydl6A== 0000914317-99-000291.txt : 19990514 0000914317-99-000291.hdr.sgml : 19990514 ACCESSION NUMBER: 0000914317-99-000291 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALISBURY BANCORP INC CENTRAL INDEX KEY: 0001060219 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 061514263 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24751 FILM NUMBER: 99619527 BUSINESS ADDRESS: STREET 1: 5 BISSELL ST CITY: LAKEVILLE STATE: CT ZIP: 06039-1868 BUSINESS PHONE: 8604359801 MAIL ADDRESS: STREET 1: 5 BISSELL ST CITY: LAKEVILLE STATE: CT ZIP: 06039-1868 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-14854 Salisbury Bancorp, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Connecticut 06-1514263 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization Identification No.) 5 Bissell Street Lakeville Connecticut 06039 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code (860) 435-9801 -------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 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 [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 1999 1,509,542 SALISBURY BANCORP, INC. TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Consolidated Balance Sheets --March 31, 1999 (unaudited) and December 31, 1998 4 Consolidated Statements of Income -- three months ended March 31, 1999 and 1998 (unaudited) 5 Consolidated Statements of Cash Flows -- three months ended March 31, 1999 and 1998 (unaudited) 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Part II. OTHER INFORMATION Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 2 Part I--FINANCIAL INFORMATION Item 1. Financial Statements 3
SALISBURY BANCORP, INC. CONSOLIDATED BALANCE SHEETS (amount in thousands, except per share data) MARCH 31 DECEMBER 31 1999 1998 --------- --------- (unaudited) ASSETS Cash & due from banks: Non-Interest Bearing $ 4,128 $ 5,525 Interest Bearing 950 409 Federal funds sold 6,100 6,200 --------- --------- Cash and cash equivalents 11,178 12,134 Investment Securities: Held to maturity securities 576 579 Available-for-sale securities 66,352 78,655 Federal Home Loan Bank stock, at cost 2,056 2,056 Loans: Commercial, financial and agricultural 10,977 10,692 Real estate-construction and land development 3,780 3,392 Real estate-residential 80,181 80,451 Real estate-commercial 16,341 14,909 Consumer 10,023 10,430 Other 476 535 Allowance for loan losses (1,258) (1,260) Unearned income (6) (6) --------- --------- Net loans 120,514 119,143 Bank premises & equipment 2,388 2,400 Other real estate owned 180 180 Accrued interest receivable 1,300 1,383 Other assets 547 696 --------- --------- Total Assets $ 205,091 $ 217,226 ========= ========= LIABILITIES Deposits: Demand $ 26,762 $ 27,435 Savings & NOW 30,165 32,519 Money Market 35,043 32,367 Time 60,483 60,830 --------- --------- Total Deposits 152,453 153,151 Federal Home Loan Bank advances 30,741 41,120 Other liabilities 1,204 1,400 --------- --------- Total Liabilities $ 184,398 $ 195,671
SALISBURY BANCORP, INC. CONSOLIDATED BALANCE SHEETS (amount in thousands, except per share data) MARCH 31 DECEMBER 31 1999 1998 --------- --------- (unaudited) Shareholders' equity: Common stock, par value $.10 per share; Authorized 3,000,000 shares Issued and outstanding shares: 1,509,792 151 Authorized not issued shares: 1,490,208 Common stock, par value $.10 per share; Issued and outstanding shares: 1,556,286 156 Authorized not issued shares: 1,443,714 Additional paid-in capital 3,891 4,882 Retained earnings 16,616 16,160 Accumulated other comprehensive income 35 357 --------- --------- Total Shareholders' Equity 20,693 21,555 --------- --------- Total Liabilities and Shareholders' Equity $ 205,091 $ 217,226 ========= =========
4
SALISBURY BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (amount in thousands, except per share data) March 31, 1999 and 1998 (unaudited) Three Months Ended March 31 -------------------- 1999 1998 ------- ------- Interest and dividend income: Interest and fees on loans $ 2,337 $ 2,371 Interest and dividends on securities: Taxable 940 689 Tax-exempt 125 99 Dividends on equity securities 22 15 Other interest 63 92 ------- ------- Total interest and dividend income 3,487 3,266 Interest expense: Interest on deposits 1,194 1,293 Interest on Federal Home Loan Bank advances 438 119 ------- ------- Total interest expense 1,632 1,412 ------- ------- Net interest and dividend income 1,855 1,854 Provision for loan losses 30 30 ------- ------- Net interest and dividend income after provision for loan losses 1,825 1,824 ------- ------- Other income: Trust department income 300 248 Service charges on deposit accounts 101 109 Other income 76 46 ------- ------- Total other income 477 403 ------- -------
SALISBURY BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (amount in thousands, except per share data) March 31, 1999 and 1998 (unaudited) (continued) Three Months Ended March 31 -------------------- 1999 1998 ------- ------- Other expense: Salaries and employee benefits 677 648 Occupancy expense 71 57 Equipment expense 118 108 Data processing 76 77 Legal 36 50 Net cost of operation of other real estate owned (1) 2 Other expense 338 321 ------- ------- Total other expense 1,315 1,263 ------- ------- Income before income taxes 987 964 Income taxes 350 344 ------- ------- Net income $ 637 $ 620 ======= ======= Earnings per common share outstanding $ .42 $ .40 ======= ======= Earnings per common share outstanding, assuming dilution $ .42 $ .39 ======= =======
5
SALISBURY BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Three months ended March 31, 1999 and 1998 (unaudited) 1999 1998 -------- -------- Cash flows from operating activities: Net income $ 637 $ 620 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 30 30 Depreciation and amortization 38 132 (Accretion) amortization of securities, net (37) 7 (Increase) decrease in interest receivable 83 (31) Increase (decrease) in interest payable 108 (9) Increase in cash surrender value of insurance policie 0 (3) Increase in prepaid expenses (12) (52) Increase in accrued expenses 93 110 Decrease in other assets 161 2 Increase in other liabilities 53 4 Change in unearned income (2) Increase in taxes payable 0 310 -------- -------- Net cash provided by operating activities 1,154 1,118 -------- -------- Cash flows from investing activities: Purchase of Federal Home Loan Bank stock 0 (21) Purchase of available-for-sale securities (8,336) (4,493) Proceeds from sales of available-for-sale securities 4,795 Proceeds from maturities of available-for-sale securities 15,348 2,818 Proceeds from held-to-maturity securities 2 419 Net (increase) decrease in loans (1,406) 144 Capital expenditures (26) (96) Recoveries of loans previously charged-off 5 10 -------- -------- Net cash (used in) provided by investing activities 10,382 (1,219) -------- --------
6
SALISBURY BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Three months ended March 31, 1999 and 1998 (unaudited) (continued) 1999 1998 -------- -------- Cash flows from financing activities: Net decrease in demand deposits, NOW and savings accounts (349) (7,242) Net (increase) decrease in time deposits (348) 575 Advances from Federal Home Loan Bank 0 4,000 Principal payments on advances from Federal Home Loan Bank (10,379) (261) Dividends paid (420) (329) Issuance of common stock 0 13 Net repurchase of common stock (996) (108) -------- -------- Net cash provided by financing activities (12,492) (3,352) -------- -------- Net decrease in cash and cash equivalents (956) (3,453) Cash and cash equivalents at beginning of period 12,134 11,673 -------- -------- Cash and cash equivalents at end of period $ 11,178 $ 8,220 ======== ======== Supplemental disclosures: Interest paid $ 1,524 $ 1,422 Income taxes paid 190 34 Transfer of loans to other real estate owned 0 100
7 SALISBURY BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying condensed interim financial statements are unaudited and include the accounts of Salisbury Bancorp, Inc. ("the Company"), those of Salisbury Bank and Trust Company (the "Bank"), its wholly-owned subsidiary and the Bank's subsidiary, S.B.T. Realty, Inc. The consolidated financial statements have been prepared in accordance with generally accepted accounting principals for interim financial information and with the instructions to SEC Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principals for complete financial statements. All significant intercompany accounts and transactions have been eliminated in the consolidation. These financial statements reflect, in the opinion of Management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company's financial position and the results of its operations and its cash flows for the periods presented. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1998 Annual Report on Form 10-K. NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS - -------------------------------------- In June 1997, the FASB issued SFAS 130 "Reporting Comprehensive Income" which establishes standards for disclosure of comprehensive income. Comprehensive income represents net income for a period plus the change in equity of a business during a period from non-shareholder sources. Excluding net income, the Company's only other source of comprehensive income is its unrealized gain (loss) on investment securities available for sale, net of tax. SFAS 130 requires the restatement of prior periods for comparative purposes. The Company adopted SFAS 130 for the fiscal year beginning January 1, 1998. Adoption of this Statement did not have material impact on the Company's financial position. NOTE 3 - COMPUTATION OF EARNINGS PER SHARE - ------------------------------------------ The Company has computed and presented earnings per share ("EPS") in accordance with Statement of Financial Accounting Standards No. 128. Reconciliation of the numerators and the denominators of the basic and diluted per share computation for net income are as follows: 8
(Dollars in thousands, except per share data) (unaudited) Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Three months ended March 31, 1999 Basic EPS Net income and income available to common stockholders $ 637 1,510 $ .42 Effect of dilutive securities, options -- 16 ----- ----- Diluted EPS Income available to common stockholders and assumed conversions $ 637 1,526 $ .42 ===== ===== ======= Three months ended March 31, 1998 Basic EPS Net income and income available to common stockholders $ 620 1,563 $ .40 Effect of dilutive securities, options -- 14 ----- ----- Diluted EPS Income available to common stockholders and assumed conversions $ 620 1,577 $ .39 ===== ===== =======
9 Part I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview: - --------- Salisbury Bancorp, Inc. (the "Company"), a Connecticut corporation, is the holding company for Salisbury Bank and Trust Company (the "Bank") which is located in Lakeville, Connecticut. The Company's sole business is the Bank which has three full service offices in the towns of Lakeville, Salisbury and Sharon, Connecticut. The Mission Statement of Salisbury Bancorp, Inc. and Salisbury Bank and Trust Company provides a standard against which the Company's performance should be measured as follows: o We strive to make Salisbury Bank and Trust Company the leading community bank in the tri-state area. o We are committed to providing professional financial services in a friendly and responsive manner. o We are dedicated to being an active corporate citizen in the communities we serve. o We will inspire our staff to grow personally and professionally. o Our achievement of these goals will continue to assure customer satisfaction, profitability and enhanced shareholder value. Management is pleased with the continuing progress made by the Company during the first quarter of 1999 towards fulfilling its Mission Statement. Improvements in earnings and asset quality have resulted in an increase in both earnings per share and dividends per share. Continued prudent management is essential to maintaining the quality and sustainability of the Company's earnings. In order to provide a strong foundation for building shareholder value and serving our customers, the Company remains committed to investing in the technological and human resources necessary to developing new personalized financial products and services to meet the needs of our customers. The following is Management's discussion of the financial condition and results of operations on a consolidated basis for the first quarter of 1999 and 1998, of Salisbury Bancorp, Inc. which includes the accounts of Salisbury Bank and Trust Company, its sole subsidiary. Earnings per share and dividends per share computations for 1998 have been restated to reflect the six for one stock exchange when the Company acquired all of the capital stock of the Bank on August 24, 1998. Management's discussion should be read in conjunction with Salisbury Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. During the first quarter of 1999, the Company reported net income of $637,000 or $.42 per diluted share. This represents an increase of 2.74% when comparing first quarter 1998 earnings of $620,000 or $.39 per diluted share. Total assets at the end of the first quarter of 1999 reflect an increase of approximately $24,020,000 to $205,091,000 when comparing the same quarter in 1998. Although lower interest rates and competition continue to pressure interest margins, the increase in earnings assets resulted in net interest income consistent with that of the first quarter of 1998. The increase in 11 earnings is primarily the result of an increase in other income coupled with management's continuing efforts to control operating expenses. A major component of other income is Trust Department income which as a result of increased business increased 20.97% to $300,000 for the first quarter of 1999 compared to $248,000 for the same period in 1998. The Company's risk-based capital ratios, which include the risk-weighted assets and capital of Salisbury Bank and Trust Company were 20.27% for Tier 1 capital and 21.56% for total capital at March 31, 1999. These ratios substantially exceeded the regulatory minimums for bank holding companies of 4% for Tier 1 capital and 8% for total capital. As a result of the Company's financial performance, the Board of Directors declared a cash dividend of $.12 per common share. This compares to an $.11 per share cash dividend from a year ago, an increase of 9.09%. THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 Results of Operations Net Interest Income - ------------------- The Company's earnings are primarily dependent upon net interest income and noninterest income from its community banking operations with net interest income being the largest component of the Company's revenues. Net interest and dividend income is the difference between interest and dividends earned on the loan and investment portfolio and interest paid on deposits and advances from the Federal Home Loan Bank. Noninterest income is primarily derived from the Trust Department and from service charges and other fees related to deposit and loan accounts. For the following discussion, interest income is presented on a fully taxable-equivalent ("FTE") basis. FTE interest income restates reported interest income on tax exempt loans and securities as if such interest were taxed at the Company's federal income tax rate of 34% for all periods presented.
(amounts in thousands) (unaudited) Three months ended March 31, 1999 1998 1997 ---- ---- ---- Interest Income $ 3,487 $ 3,266 $ 3,068 (financial statements) Tax Equivalent Adjustment 64 51 29 ------- ------- ------- Total interest income(on an FTE basis) 3,551 3,317 3,097 Interest Expense (1,632) (1,412) (1,369) ------- ------- ------- Net Interest Income-FTE $ 1,919 $ 1,905 $ 1,728 ======= ======= =======
12 Competition and a decline in market interest rates over the past year continue to pressure interest margins. At March 31, 1999, net interest income on a FTE basis was $1,919,000 compared to $1,905,000 for the same period in 1998 and $1,728,000 in 1997. A 14.29% increase in average earning assets at March 31, 1999 when compared to the same period in 1998 helped offset an overall decrease in the net interest margin to 3.83% from 4.22%. The yield on earning assets was reduced by approximately 63 basis points to 7.08%. Generally lower interest rates coupled with a decrease in deposits resulted in a 7.66% or $99,000 decrease in interest expense paid on deposits. An increase in Federal Home Loan Bank borrowings has resulted in an increase in interest expense on Federal Home Loan Bank advances of $319,000 or 268.07% to $438,000. The overall result is a decrease in interest expense yield to 4.07% from 4.10% when comparing the first quarter of 1999 to the corresponding period in 1998. Noninterest Income - ------------------ For the quarter ended March 31, 1999, noninterest income increased $74,000 or 18.36% from 1998 and totaled $477,000. The increase is primarily the result of increased business in the Trust Department which resulted in increased income of 20.97% to $300,000 compared to $248,000 for the same period in 1998. A new addition to services offered, INVEST Financial Services resulted in $20,000 additional noninterest income during the first quarter of 1999. Another contribution to the increase in noninterest income is VISA and MasterMoney interchange fees which have increased 68.75% to $27,000 in 1999 compared to $16,000 in 1998. Noninterest Expense - ------------------- Noninterest expenses amounted to $1,315,000 for the first quarter of 1999. This is a $52,000 increase or 4.12% over the $1,263,000 reported for the same period of 1998. Salaries and employee benefits increased 4.48% or $29,000. This is primarily due to salary increases and increased cost in employee benefits. Occupancy expense increased 24.56% to $71,000 during the first quarter of 1999 compared to the corresponding period in 1998. This is primarily the result of additional costs of winter maintenance. Equipment expense increased 9.26% to $118,000 in 1999. This increase is largely due to the Company's commitment to continuing enhancement of technology that is needed to meet the financial needs of customers. The increase in other operating expenses resulted from normal operating activities. Income Taxes - ------------ The first quarter 1999 income tax provision was $350,000 compared to $344,000 for the same quarter of 1998. This increase reflects an increase in taxable income. Financial Condition ------------------- Total assets at March 31, 1999 were $205,091,000, a decrease of $12,135,000 from $217,226,000 at December 31, 1998. This is primarily from maturities of borrowings that were part of an interest rate risk strategy implemented during 1998 that was designed to prevent loss of income primarily in a falling rate environment. When comparing total assets at March 31, 1999 to total assets at March 31, 1998, there is an increase of $24,020,000 which reflects the strategy which resulted in an increase in interest income. 13 Loans - ----- Although loan demand was not strong during the first quarter, competition for loans, especially residential mortgage loans, remains very aggressive in the market area of the Company. New business development and new home construction loans have contributed to the growth of commercial and real estate construction loans. Total loans outstanding have increased to $121,778,000 at March 31, 1999 compared to $120,409,000 at December 31, 1998. The following table represents the composition of the loan portfolio comparing March 31, 1999 to December 31, 1998:
March 31, 1999 December 31, 1998 -------------- ----------------- (dollars in thousands) Commercial, financial and agricultural $ 10,977 $ 10,692 Real Estate-construction and land development 3,780 3,392 Real Estate-residential 80,181 80,451 Real Estate-commercial 16,341 14,909 Consumer 10,023 10,430 Other 476 535 -------- -------- Loans outstanding $121,778 $120,409 ======== ========
Provisions and Allowance for Loan Losses - ---------------------------------------- The Company's allowance for loan losses represents amounts available to absorb potential losses in the existing portfolio. Management continually assesses the adequacy of the allowance in response to current and anticipated economic conditions, specific problem loans, historical net charge offs and the overall risk profile of the loan portfolio. A $30,000 provision to the allowance for possible loan losses was made during the first quarter of 1999, the same as the first quarter of 1998. Nonaccrual loans were $814,000 at March 31, 1999 compared to $1,208,000 at December 31, 1998. Accruing loans past due 90 days or more were $22,000 at March 31, 1999 compared to $109,000 at December 31, 1998. Restructured loans were $899,000 at March 31, 1999 compared to $547,000 at December 31, 1998. The allowance for loan losses was $1,258,000 or 1.03% of total loans at March 31, 1999 compared to $1,260,000 or 1.05% of total loans at December 31, 1998. A total of $37,000 in loans was charged off during the quarter ended March 31, 1999 compared to $14,000 charged off during the corresponding period in 1998. A total of $5,000 of previously charged off loans was recovered during the quarter ended March 31, 1999 compared to $10,000 for the corresponding period in 1998. 14 Determining the proper level of allowance requires management to make estimates using assumptions and information which is often subjective and changing. In management's judgement, the allowance for loan losses is adequate to absorb probable losses in the existing portfolio. Securities - ---------- As of March 31, 1999, the securities portfolio totaled $68,984,000. This represents a decrease from December 31, 1998 of $12,306,000 when the portfolio totaled $81,290,000. The decrease is primarily due to maturing securities that were part of an arbitrage strategy of borrowing funds and investing them at a higher rate of return than the borrowing cost. Management expects that it will continue to employ this arbitrage strategy as efforts continue to increase earning assets. Presently, $576,000 of the investment securities portfolio is classified as held-to-maturity with the balance of the investment securities portfolio being classified as available-for-sale. The net unrealized gain on securities available-for-sale, net of tax effect totaled $35,000 at March 31, 1999 compared to $357,000 at December 31, 1998. The decrease is attributable to a movement in interest rates, the activity in the stock market and a decrease in the total portfolio. The following table presents the carrying values of the securities portfolio at March 31, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998 (dollars in thousands) Available-for-sale securities: Equity securities $ 136 $ 116 Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies 30,195 43,578 Debt securities issued by states of the United States and political subdivisions of the states 10,565 9,553 Mortgage-backed securities 25,456 25,408 Held-to-maturity securities: Debt securities issued by states of the United States and political subdivisions of the states 24 25 Mortgage-backed securities 552 554 Federal Home Loan Bank Stock 2,056 2,056 ------- ------- Total Securities $68,984 $81,290 ======= =======
15 Deposits - -------- The following table illustrates the composition of the Company's deposits at March 31, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998 (dollars in thousands) Demand $ 26,762 $ 27,435 NOW 15,432 17,700 Money Market 35,043 32,367 Savings 14,733 14,819 Time 60,483 60,830 -------- -------- Total Deposits $152,453 $153,151 ======== ========
Total deposits, which constitute the principal funding source of the Company's assets have remained consistent during the first quarter of 1999 when compared to year end 1998. The slight decrease represents the traditional seasonal cash flows of the Company's deposit customers. Borrowings - ---------- The Company uses arbitrage strategy to generate additional interest income. Funds are borrowed from the Federal Home Loan Bank and then invested at a rate of return higher than the borrowing cost. At March 31, 1999, total borrowings had decreased $10,379,000 to $30,741,000-the result of a matured arbitrage. Management expects that it will continue to employ this type of arbitrage which is part of an interest rate risk strategy designed to provide funds to grow interest earning assets. Asset/Liability Management - -------------------------- The Bank's assets and liabilities are managed in accordance with policies established and reviewed by the Bank's Board of Directors. The Bank's Asset/Liability Management Committee implements and monitors compliance with these policies regarding the Bank's asset and liability management practices with regard to interest rate risk, liquidity and capital. Interest Rate Risk - ------------------ Interest rate risk is defined as the sensitivity of the Company's income to short and long term changes in interest rates. One of the primary financial objectives of the Company is to manage its interest rate risk and control the sensitivity of the Company's earnings to changes in interest rates in order to prudently improve net interest income and the Company's interest rate margins and manage the maturities and interest rate sensitivities of assets and liabilities. One method of monitoring interest rate risk is a gap analysis which identifies the differences between the amount of assets and the amount of 16 liabilities which mature or reprice during specific time frames and the potential effect on earnings of such maturities or repricing opportunities. Model simulation is used to evaluate the impact on earnings of potential changes in interest rates. "Rate shock" is also used to measure earnings volatility due to immediate increase or decrease in market rates up to 200 basis points. To this end, because the Company is asset sensitive, strategy is being developed to protect against negative earnings should interest rates decline any further. Conversely, current structure would result in increased earnings should interest rates rise. Liquidity Risk - -------------- Management of liquidity is designed to provide for the Bank's cash needs at a reasonable cost. These needs include the withdrawal of deposits on demand or at maturity, the repayment of borrowings as they mature and lending opportunities. Asset liquidity is achieved through the management of readily marketable investment securities as well as managing asset maturities and pricing of loan and deposit products. The Company's subsidiary, Salisbury Bank and Trust Company, is a member of the Federal Home Loan Bank System which provides credit to its member banks. This enhances the liquidity position by providing a source of available borrowings. Additionally, federal funds and borrowings on repurchase agreements are available to fund short term cash needs. At March 31, 1999, the Company had approximately $24,380,000 in loan commitments and unadvanced funds outstanding. It is expected that these commitments will be funded primarily by deposits, loan repayments and maturing investments. The Company has ample liquidity to meet its present and foreseeable needs. Capital - ------- At March 31, 1999, the Company had $20,693,000 in shareholder equity compared with $20,816,000 at March 31, 1998 and $19,022,000 at March 31, 1997. The change in accounts resulted from first quarter earnings of $637,000, a decrease of $322,000 in the adjustment for net unrealized holding gains on securities and a quarterly dividend declared of $181,000. In November of 1998, the Company announced a stock repurchase program to acquire up to approximately 10% of the outstanding common stock of the Company. To date, the Company has repurchased 49,394 shares of stock. Since December 31, 1998, the buy back program has resulted in a decrease in equity of $996,000. The various capital ratios of the Company at March 31, 1999, 1998 and 1997 were: (unaudited)
Actual Actual Actual March 1999 March 1998 March 1997 ---------- ---------- ---------- Total Risk-Based Capital 21.56% 21.81% 21.74% Tier 1 Risk-Based Capital 20.27% 20.56% 20.49% Leverage ratio 9.86% 11.11% 11.03%
17 From a regulatory standpoint, the Company has capital ratios which place it in the "well-capitalized" category. Year 2000 --------- Disclosure relating to "Year 2000" The "Year 2000 issue" refers to a wide variety of potential computer issues that may arise from the inability of computer programs to properly process date-sensitive information relating to the Year 2000, years thereafter and to a lesser degree the Year 1999. The State of the Company's Readiness The Year 2000 issue creates risk for the Company from unforeseen problems in its computer systems and from Year 2000 issues with the Company's vendors, service providers and customers. A company-wide Year 2000 ("Y2K") program that includes a formal Y2K project plan continues to be utilized in addressing Y2K issues. The Company continues to use a multi-phase approach to the Year 2000, which includes awareness, inventory, assessment, renovation, validation, implementation and post-implementation. The program as it relates to awareness, inventory and assessment is completed. The Plan is effectively supplemented by a Y2K budget, investment portfolio review, customer awareness plan, commercial loan plan, test plans and scripts, and Y2K contingency plans. The Company has substantially completed the remediation of its network hardware, personal computers and operating systems. The server located in our branch in Salisbury, Connecticut is scheduled to be upgraded during the second quarter of 1999. The Bank's two ATM's have been upgraded and are Y2K compliant. The Company continues to upgrade and test application software as vendors provide new releases. The Company's mission critical service providers and software vendors have provided remediated products, allowing the Company to substantially complete the validation process. The majority of non-mission critical software vendors have also delivered remediated products, allowing the Company to substantially complete its testing. The testing results of our mission critical service providers and software vendors are currently being validated by an independent party contracted by the Company. The Company notes that it is critically dependent on certain unrelated third parties for the conduct of its business, such as telecommunications, energy providers, the Federal Reserve payment system and the automated clearinghouse system. Although the Company is monitoring these parties' progress and Year 2000 readiness, there are few, if any, alternatives for obtaining these services. The Company utilizes several third-party service providers for its core applications. The service providers continue making adequate progress in meeting their established goals for Year 2000 qualifications of their system and related products utilized by the Company. 17 The Risks of the Company's Year 2000 Issues The Company recognizes that a failure to resolve a material Year 2000 issue could result in the interruption in, or a failure of, certain normal business activities or operations such as servicing depositors, processing transactions or originating and servicing loans. The Company has determined that a company-wide business risk-assessment approach is most appropriate for addressing and remediating Year 2000 problems. This includes an assessment of the information technology resources of each of the functional areas of the Company, as well as separate assessments of information technology vendors and suppliers, and non-information technology and facilities risks. There can be no assurance that the computer systems of others on which the Company relies will be Year 2000 ready on a timely basis. In addition, failure to resolve Year 2000 issues by another party, or remediation or conversion that is incompatible with the Company's computer system could have a material adverse effect on the Company. The Company has reviewed the risks created by potential business interruptions suffered by the Company's major business counterparties. An adequate process has been established and implemented to evaluate and assess Year 2000 efforts of Funds Takers (primarily borrowers), Funds Providers (depositors and other funding sources), and Capital Markets Counterparties (trading counter parties and fiduciary relationships). The Company will continue to monitor these risks through the year 1999. Management recognizes the Company's exposure to the risk of a liquidity crisis or financial losses stemming from the withdrawal of significant deposits or other sources of funds as the Year 2000 approaches. The Company has a Contingency Plan to identify and prioritize sources of liquidity. Based on the Company's analysis and given the Company's strong earnings record, high liquidity and strong capital position, management is of the opinion that Y2K liquidity risk should not have a significant impact on the Company. The Company and the Bank are subject to examination and supervision by the Board of Governors of the Federal Reserve System, and both the FDIC and Connecticut Department of Banking, respectively. These agencies are actively examining the status of preparation of the institutions which they supervise for compliance with applicable laws and prudent industry practices, including those associated with preparation of the Year 2000. As regulated institutions, the Company and the Bank could be subject to formal and informal supervisory actions if preparation for the Year 2000 failed to satisfy regulatory requirements or prudent industry standards. As regulated institutions, banks and holding companies face greater regulatory and litigation risks for failure to adequately prepare for the Year 2000 than many companies in other industries. However, such risks are not considered by Management to be probable based upon the current level of preparation for the Year 2000 and the Company's plans to prepare for the Year 2000. The Costs to Address the Company's Year 2000 Issues Costs to modify computer systems have been, and will continue to be expended as incurred and are not expected to have a material impact on the Company's future financial results or condition. The Company's budget for Y2K related expenses in 1999 is $50,000. As of March 31, 1999 the Bank has expended $7,162. 18 Although the Company does not specifically monitor the cost of internal resources diverted to the Year 2000 project, these costs have consumed, and can be expected to continue to consume, a substantial amount of time of key staff. Management will fund these Year 2000 costs from normal cash flow. The Company's Contingency Plans The Company has a Year 2000 business resumption plan that helps supplement the Company's comprehensive Disaster Recovery Policy and Program as a part of the Company's contingency planning. The business resumption plan addresses how the Company will continue operations in the event a Year 2000 related interruption occurs. The Organizational Planning and Business Impact Analysis phases of the business resumption contingency plan has been completed. Development of the detailed resumption contingency plans is ongoing. While implementation of the business resumption plan is not expected to be necessary, it will ensure the Company provides a minimum level of acceptable service and has the ability to process transactions and service its customers, under circumstances in which a Year 2000 problem actually occurs. The Company has an auxiliary power generator in one of its branch locations. If necessary, Management would use this location as a provisional operations center during the duration of any Year 2000 failure scenarios. Management plans to re-deploy staff resources, as necessary during this period, to help assure manual completion of critical operational activities. The Company is in the process of testing the business resumption plan and expects to complete testing prior to June 30, 1999. There can be no assurance that the Company's remediation efforts and contingency plans will be sufficient to avoid unforeseen business disruptions or other problems resulting from the Year 2000 issue. Forward Looking Statements -------------------------- Certain statements contained in this quarterly report, including those contained in Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are thus prospective. Such forward looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such statements. Such factors include, but are not limited to changes in interest rates, regulation, competition and the local and regional economy. Item 3. Quantitative and Qualitative Disclosures About Market Risk The main components of market risk for the Company are equity price risk, interest rate risk and liquidity risk. The Company's stock is traded on the American Stock Exchange and as a result the value of its common stock may change with market movements. The Company manages interest rate risk and liquidity risk through an ALCO Committee comprised of outside Directors and senior management. The committee monitors compliance with the Bank's Asset/Liability Policy which provides guidelines to analyze and manage gap which is the difference between the amount of assets and the amounts of liabilities which mature or reprice during specific time frames. Model simulation is used to measure earnings volatility under both rising and falling rate scenarios. The Company's interest rate risk and liquidity position has not significantly changed from year end 1998. 19 Part II--OTHER INFORMATION Item 1. - Legal Proceedings-Not applicable Item 2. - Changes in Securities and Use of Proceeds- Not applicable Item 3. - Defaults Upon Senior Securities - Not applicable Item 4. - Submission of Matters to a Vote of Security Holders - Not applicable Item 5. - Other Information - Not applicable Item 6. - Exhibits and Reports on Form 8-K A. Exhibits: Exhibit 27 - Financial Data Schedule B. Reports on Form 8-K: The Company filed a Form 8-K on March 5, 1999 to report that the Company's Board of Directors declared a quarterly cash dividend of $.12 per share to be paid on April 30, 1999 to shareholders of record as of March 31, 1999 20 SALISBURY BANCORP, INC. Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Salisbury Bancorp, Inc. Date: May 11, 1999 by /s/ John F. Perotti ------------ ------------------- John F. Perotti President / Chief Executive Officer Date: May 11, 1999 by: /s/ John F. Foley ------------ ---------------------- John F. Foley Chief Financial Officer EX-27 2
9 1,000 3-MOS DEC-31-1999 MAR-31-1999 4,128 950 6,100 0 67,218 577 577 121,778 1,258 205,091 152,453 68 1,204 30,673 0 0 151 20,542 205,091 2,337 1,087 63 3,487 1,194 1,632 1,855 30 0 1,315 987 987 0 0 637 .42 .42 6.97 814 22 899 0 1,260 37 5 1,258 1,258 0 0
-----END PRIVACY-ENHANCED MESSAGE-----