-----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, QGt5I5ToTRfl/CUEn7ZvEykZ1kAPDmjulhf+r3K75hWoRmjIlLov/2nocSohSc+o suVnaO33lC0Kb5Vj3poktw== 0000914317-01-500089.txt : 20010515 0000914317-01-500089.hdr.sgml : 20010515 ACCESSION NUMBER: 0000914317-01-500089 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-24751 FILM NUMBER: 1633421 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 10QSB 1 form10q-39010.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (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, 2001 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 [ ] Transitional Small Business Disclosure Format: Yes [ ] No [ X ] Documents Incorporated by Reference: None APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer"s classes of common stock, as of May 1, 2001 1,435,819 --------- SALISBURY BANCORP, INC. TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Page ---- Item 1. Condensed Financial Statements: Condensed Consolidated Balance Sheets -March 31, 2001 (unaudited) and December 31, 2000 4 Condensed Consolidated Statements of Income -three months ended March 31, 2001 and 2000 (unaudited) 5 Condensed Consolidated Statements of Cash Flows -three months ended March 31, 2001 and 2000 (unaudited) 6 Notes to Consolidated Financial Statements 8 Item 2. Management"s Discussion and Analysis 10 Part II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 2 Part I--FINANCIAL INFORMATION Item 1. Condensed Financial Statements SALISBURY BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (amounts in thousands, except per share data)
MARCH 31, DECEMBER 31, 2001 2000 ---- ---- (unaudited) ASSETS Cash & due from banks: Non-Interest Bearing $ 5,818 $ 7,300 Interest Bearing 305 673 Federal funds sold 0 5,125 Money market mutual funds 311 661 --------- --------- Cash and cash equivalents 6,434 13,759 Investment Securities: Held to maturity securities at amortized cost 408 410 Available-for-sale securities at market value 87,644 88,583 Federal Home Loan Bank stock, at cost 2,945 2,930 Loans: Commercial, financial and agricultural 8,709 8,592 Real estate-construction and land development 5,903 6,275 Real estate-residential 102,934 98,312 Real estate-commercial 16,771 15,463 Consumer 10,128 10,673 Other 262 247 Allowance for loan losses (1,402) (1,292) --------- --------- Net loans 143,305 138,270 Bank premises & equipment 2,484 2,522 Investment in real estate 75 75 Accrued interest receivable 1,362 1,790 Other assets 654 715 --------- --------- Total Assets $ 245,311 $ 249,054 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Demand $ 27,802 $ 32,098 Savings & NOW 30,208 33,083 Money Market 51,251 47,442 Time 53,313 53,813 --------- --------- Total Deposits 162,574 166,436 Federal Home Loan Bank advances 57,798 47,357 Other liabilities 1,826 12,801 --------- --------- Total Liabilities 222,198 226,594 --------- --------- Shareholders' equity: Common stock, par value $.10 per share; Authorized 3,000,000 shares Issued and outstanding shares: 1,440,713 at March 31, 2001 144 146 and 1,458,366 at December 31, 2000 Additional paid-in capital 2,640 2,969 Retained earnings 19,856 19,516 Accumulated other comprehensive income(loss) 473 (171) --------- --------- Total Shareholders' Equity 23,113 22,460 --------- --------- Total Liabilities and Shareholders' Equity $ 245,311 $ 249,054 ========= =========
4 The accompanying notes are an integral part of these condensed consolidated financial statements. SALISBURY BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share data) March 31, 2001 and 2000 (unaudited)
Three Months Ended March 31 -------- 2001 2000 ---- ---- Interest and dividend income: Interest and fees on loans $2,886 $2,442 Interest and dividends on securities: Taxable 1,103 1,238 Tax-exempt 181 163 Dividends on equity securities 60 36 Other interest 69 101 ------ ------ Total interest and dividend income 4,299 3,980 ------ ------ Interest expense: Interest on deposits 1,450 1,223 Interest on Federal Home Loan Bank advances 754 716 ------ ------ Total interest expense 2,204 1,939 ------ ------ Net interest and dividend income 2,095 2,041 Provision for loan losses 37 30 ------ ------ Net interest and dividend income after provision for loan losses 2,058 2,011 ------ ------ Other income: Trust department income 246 243 Service charges on deposit accounts 113 83 Other income 145 114 ------ ------ Total other income 504 440 ------ ------ Other expense: Salaries and employee benefits 929 788 Occupancy expense 63 63 Equipment expense 124 109 Data processing 78 47 Other expense 397 326 ------ ------ Total other expense 1,591 1,333 ------ ------ Income before income taxes 971 1,118 Income taxes 329 405 ------ ------ Net income $ 642 $ 713 ====== ====== Earnings per common share outstanding $ .44 $ .48 ====== ====== Earnings per common share outstanding, assuming dilution $ .44 $ .48 ====== ====== Dividends per share $ .21 $ .19 ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 SALISBURY BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) Three months ended March 31, 2001 and 2000 (unaudited)
2001 2000 ---- ---- Cash flows from operating activities: Net income $ 642 $ 713 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 38 30 Depreciation and amortization 84 68 Accretion of securities, net (42) (61) Deferred tax expense 0 74 Decrease in interest receivable 428 68 Increase in interest payable 50 59 Increase in prepaid expenses (102) (31) Increase in accrued expenses (decrease) (164) 96 Increase in other assets (251) (3) Decrease in other liabilities (37) (6) Increase in taxes payable 436 328 Securities gains (20) -------- Net cash provided by operating activities 1,062 1,335 -------- -------- Cash flows from investing activities: Purchase of Federal Home Loan Bank stock (15) (828) Purchases of available-for-sale securities (41,089) (20,433) Proceeds from sales of available-for-sale securities 31,909 850 Proceeds from maturities of available-for-sale securities 230 12,500 Proceeds from maturities of held-to-maturity securities 2 3 Net (increase) decrease in loans (5,165) 1,441 Capital expenditures (46) (17) Recoveries of loans previously charged-off 92 10 -------- -------- Net cash used in investing activities (14,082) (6,474) -------- --------
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 SALISBURY BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) Three months ended March 31, 2001 and 2000 (unaudited) (continued)
2001 2000 ---- ---- Cash flows from financing activities: Net increase (decrease) in demand deposits, NOW and savings accounts (3,362) 959 Decrease in time deposits (500) (1,490) Advances from Federal Home Loan Bank 10,800 19,000 Principal payments on advances from Federal Home Loan Bank (359) (10,331) Dividends paid (554) (511) Net repurchase of common stock (330) (147) -------- -------- Net cash provided by financing activities 5,695 7,480 -------- -------- Net increase (decrease) in cash and cash equivalents (7,325) 2,341 Cash and cash equivalents at beginning of period 13,759 7,716 -------- -------- Cash and cash equivalents at end of period $ 6,434 $ 10,057 ======== ======== Supplemental disclosures: Interest paid $ 2,154 $ 1,998 Income taxes paid 102 11
The accompanying notes are an integral part of these condensed consolidated financial statements. 7 SALISBURY BANCORP, INC. NOTES TO CONDENSED 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 principles for interim financial information and with the instructions to SEC Form 10-QSB. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles 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, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 2000 Annual Report on Form 10-KSB. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NOTE 2 -COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" establishes standards for disclosure of comprehensive income, which includes net income and any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in the net unrealized gains (losses) on securities). The purpose of reporting comprehensive income is to report a measure of all changes in equity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. The Company's one source of other comprehensive income is the net unrealized gain (loss) on securities. Comprehensive Income Three months ended March 31, 2001 2000 ---- ---- Net income $ 642 $ 713 Net unrealized (losses) gains on securities during period 644 (49) ------ ------ Comprehensive income $1,286 $ 664 ====== ====== 8 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:
(amounts in thousands, except per share data) (unaudited) Income Shares Per-Share (Numerator) (Denominator) Amount Three months ended March 31, 2001 Basic EPS Net income and income available to common stockholders $ 642 1,447 $ .44 Effect of dilutive securities, options 0 ----- ----- Diluted EPS Income available to common stockholders and assumed conversions $ 642 1,447 $ .44 ===== ===== Three months ended March 31, 2000 Basic EPS Net income and income available to common stockholders $ 713 1,501 $ .48 Effect of dilutive securities, options 0 ----- Diluted EPS Income available to common stockholders and assumed conversions $ 713 1,501 $ .48 ===== =====
NOTE 4 - IMPACT OF NEW ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". Statement No. 133, as amended by SFAS No. 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company adopted this statement as of January 1, 2001. In management's opinion, the adoption of SFAS No. 133 did not have a material effect on the Company's consolidated financial statements. FASB has issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This Statement replaces SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and rescinds SFAS Statement No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125". SFAS No. 140 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001; however, the disclosure provisions are effective for fiscal years ending after December 15, 2000. The Company has not yet quantified the remaining provisions effective in 2001; however, the Company does not expect that the adoption of this statement will have a material impact on its financial position or results of operations. 9 Part I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis 10 Overview: Salisbury Bancorp, Inc. (the "Company"), a Connecticut corporation, is the holding company for Salisbury Bank and Trust Company, (the "Bank") which is headquartered in Lakeville, Connecticut. The Company's sole subsidiary is the Bank, which has a full service Trust Department and offers commercial banking products and services through three full service offices in the towns of Lakeville, Salisbury and Sharon, Connecticut. The following is Management's discussion of the financial condition and results of operations on a consolidated basis of Salisbury Bancorp, Inc. which includes the accounts of Salisbury Bank and Trust Company. Management's discussion should be read in conjunction with Salisbury Bancorp, Inc.'s Annual Report on Form 10-KSB for the year ended December 31, 2000. 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 its customers. To that end, the Bank installed a new core account processing system during the first quarter of 2001 that was purchased to enhance the abilities of the Bank to better serve the financial needs of its customers. This process has involved some additional operating expense and as a result has impacted first quarter earnings. During the first quarter of 2001, the Company reported net income of $642,000 or $.44 per diluted share, compared to $713,000 or $.48 per diluted share for the three months ended March 31, 2000. During the year 2000, Salisbury Bancorp, Inc. declared a cash dividend each quarter of $.13 per share and a year end special dividend of $.25 per share. Accordingly, total dividends for the year amounted to $.77 per share. The Board of Directors has decided to increase the Company's regular quarterly dividends in lieu of the declaration of a special dividend and as a result voted to increase the regular quarterly dividend to $.21 per share beginning with the first quarter of 2001 that was declared on February 28, 2001. This dividend was paid on April 27, 2001 to shareholders of record as of March 30, 2001. The Company announced on March 28, 2001 that it signed a definitive agreement to purchase People's Bank Canaan, Connecticut branch office. Pending approval by the appropriate banking regulatory agencies, the transaction is expected to be completed mid-year. This additional office will complement the existing branch network which currently includes branches in Lakeville, Salisbury and Sharon, Connecticut. During the first calendar quarter of 2001, the Company's total assets decreased by $3,743,000 or 1.50% and totaled $245,311,000, which compares to $249,054,000 at December 31, 2000. This slight decrease is not considered to be indicative of any trend. Loans increased $5,035,000 or 3.64% to $143,305,000. This compares to total net loans of $138,270,000 at December 31, 2000. This increase was funded primarily by deploying funds from the investment portfolio coupled with the use of cash and due from banks that was on hand for investment. Deposits decreased $3,862,000 or 2.32% to $162,574,000 at March 31, 2001 compared to total deposits of $166,436,000 at December 31, 2000. This decrease represents the traditional seasonal cash flows of the Company's deposit customers. Federal Home Loan Bank advances totaled $57,798,000 at March 31, 2001. This compares to total advances at December 31, 2000 of $47,357,000. This is the result of the timing of a purchase of an investment security, rather than a change in strategy. The commitment to purchase the security was made in December of 2000, however settlement on the purchase was in 2001. Therefore, total investments reflected the purchase at December 31, 2000 and the Company had a due to broker obligation at December 31, 2000 that was satisfied in January 2001 with additional advances from the Federal Home Loan Bank. 11 THREE MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 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 revenue. Net interest and dividend income is the difference between interest and dividends earned on the loan and securities portfolio and interest paid on deposits and advances from the Federal Home Loan Bank. For the following discussion, net 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) Three months ended March 31 2001 2000 ---- ---- Interest and Dividend Income (financial statements) $ 4,299 $ 3,980 Tax Equivalent Adjustment 93 84 ------- ------- Total interest income (on an FTE basis) 4,392 4,064 Interest Expense (2,204) (1,939) ------- ------- Net Interest and Dividend Income-FTE $ 2,188 $ 2,125 ======= ======= Competition in the Company's market area continues to be aggressive, especially in the area of residential mortgage financing. However, total loans increased $5,145,000 or 3.69% to $144,707,000 at March 31, 2001 compared to total loans of $139,562,000 at December 31, 2000. Residential mortgages represent $4,622,000 or 89.83% of the total increase. The year 2000 was active with movements in interest rates generally upward, whereas the first quarter of 2001 is to the contrary, as interest rates have moved downward. Interest and fees on loans have increased, however, in the amount of $444,000 or 18.18% to $2,886,000 at March 31, 2001 compared to $2,442,000 at March 31, 2000. Interest and dividends on taxable securities and other interest for the three months ended March 31, 2001 totaled $1,232,000 as compared to $1,375,000 for the same period in 2000. This decrease is primarily the result of the repricing of investments in the securities portfolio as rates are generally lower. Interest on tax exempt securities increased $18,000 for the first quarter of 2001 compared with the same quarter of 2000. This is the result of an increase in tax exempt securities as part of a strategy to reduce taxes. Interest earned from federal funds sold and other interest income decreased slightly during the periods being compared and this was attributable to a slight decrease in interest rates as well as in the volume of federal funds sold when comparing March 31, 2001 to March 31, 2000. During the first quarter of 2001, interest expense on deposits amounted to $1,450,000 as compared with $1,223,000 for the same period in 2000. This is primarily the result of generally higher interest rates that the Company was paying for deposits during the latter months of 2000 as well as an increase in total deposits of $8,747,000 or 5.69% to $162,574,000 at March 31, 2001 as compared to total deposits at March 31, 2000 of $153,827,000. Interest on Federal Home Loan Bank advances increased slightly to $754,000 in 2001 from $716,000 for the same period in 2000. As a result, net interest and dividend income (on a FTE basis) amounted to $2,188,000 for the three months ended March 31, 2001 as compared with $2,125,000 for the same period in 2000. This increase of $63,000 represents a 2.97% increase of net interest and dividend income. 12 Noninterest Income Noninterest income totaled $504,000 for the quarter ended March 31, 2001. This compares to $440,000 for the comparable quarter in 2000. Service charges and other income have increased $61,000 which represents an increase of 30.97%. This is primarily the result of an increase of deposit accounts transactions and increased activity in the secondary mortgage market. Noninterest Expense Noninterest expense amounted to $1,591,000 for the first quarter of 2001. This is an increase of $258,000 or 19.36% over the $1,333,000 reported for the same period of 2000. Salaries and employee benefits increased $141,000 or 17.89%. This is primarily due to salary increases, increased cost in employee benefits and employee overtime related to the installation of the new core account processing system during the first quarter. Occupancy expense remained the same for the two periods being compared. Equipment expense increased 13.76% or $15,000. Data processing expense increased to $78,000 in the first quarter of 2001 from $47,000 in the first quarter of 2000 and other operating expenses increased 21.78% or $71,000 for the first three months of 2001 as compared to the first three months of 2000. These increases are primarily the reflection of additional operating costs associated with the installation of the new core account processing system. Income Taxes The first quarter income tax provision was $329,000 compared to $405,000 for the same quarter of 2000. This decrease reflects a decrease in taxable income. Net Income Overall, net income totaled $642,000 for the three months ended March 31, 2001 as compared to net income $713,000 for the same period in 2000. This is a decrease of $71,000 or 9.96% and represents earnings of $.44 per share. This compares to earnings per share of $.48 for the same period in 2000. The decrease is primarily the result of additional operating expenses associated with the installation of a new core account processing system during the first quarter of 2001. Provisions and Allowance for Loan Losses Credit risk is inherent in the business of extending loans. The Bank maintains an allowance or reserve for credit losses through charges to earnings. The loan loss provision for the three months ended March 31, 2001 was $37,000 as compared to $30,000 for the same period in 2000. The increase is primarily the result of the significant growth in the loan portfolio. Specifically identifiable and quantifiable losses are immediately charged off against the allowance. The Bank formally determines the adequacy of the allowance on a monthly basis. This determination is based on assessment of credit quality or "risk rating" of loans by senior management which is submitted to the Board of Directors for approval. Loans are initially risk rated when originated. If there is a deterioration in the credit, the risk rating is adjusted accordingly. The allowance also includes a component resulting from the application of the measurement criteria of Statements of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS114"). Impaired loans receive individual evaluation of the allowance necessary on a monthly basis. Impaired loans are defined in the Bank's Loan Policy as residential real estate mortgages with balances of $300,000 or more and commercial loans of $100,000 when it is probable that the Bank will not be able to collect all principal and interest due according to the terms of the note. 13 These commercial loans and residential mortgages will then be considered impaired under any one of the following circumstances: 1. Non-accrual status; 2. Loans over 90 days delinquent; 3. Troubled debt restructures consummated after December 31, 1994; or 4. Loans classified as "doubtful", meaning that they have weaknesses which make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The individual allowance for each impaired loan is based upon the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the collateral if the loan is collateral dependent. The loss factor applied as a general allowance is determined by a periodic analysis of the Allowance for Loan Losses. This analysis considers historical loan losses and delinquency figures for the last three years. It also looks at delinquency trends over the most recent quarter. The credit card delinquency and loss history is evaluated separately and given a special loan loss factor because management recognizes the higher risk involved in such loans. Concentrations of credit and local economic factors are also evaluated on a periodic basis. Average net losses for the last three years by loan type are examined as well as trends by type for the last three years. The Bank's loan mix over that same period of time is also analyzed. A loan loss allocation is made for each type of loan and multiplied by the loan mix percentage for each loan type to produce a weighted average factor. At March 31, 2001, the allowance for loan losses totaled $1,402,000 representing 203.48% of nonperforming loans which totaled $689,000 and .97% of total loans of $144,707,000. This compared to $1,292,000 representing 247.99% of nonperforming loans which totaled $521,000 and .93% of total loans of $139,562,000 at December 31, 2000. A total of $19,000 loans were charged off by the Company during the quarter ended March 31, 2001 as compared to $53,000 charged off during the corresponding period in 2000. These charged off loans consisted primarily of loans to individuals. A total of $91,000 was recovered of previously charged off loans during the quarter ended March 31, 2001, compared to $10,000 recovered during the corresponding period of 2000. Management believes that the allowance for loan losses is adequate. While management estimates loan losses using the best available information, no assurances can be given that future additions to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding problem loans, identification of additional problem loans and other factors, both within and outside of management's control. Additionally, with expectations of the Company to grow its existing portfolio, future additions to the allowance may be necessary to maintain adequate coverage ratios. Capital At March 31, 2001, the Company had $23,113,000 in shareholders' equity compared to $22,460,000 at December 31, 2000 which represents an increase of $653,000 or 2.91%. The change in capital accounts resulted from first quarter earnings of $642,000, an increase of $644,000 in the adjustment for net unrealized holding losses on securities, a quarterly dividend declared of $303,000 and a decrease in equity of $330,000 resulting from the stock buy back program. The program has repurchased 118,473 shares since its inception in November 1998, which represents approximately 8.22% of shares issued and outstanding. The various capital ratios of the Company at March 31, 2001 and 2000 were: (unaudited) March 31, 2001 March 31, 2000 Total Risk-Based Capital 19.04% 21.71% Tier 1 Risk-Based Capital 17.87% 20.58% Leverage ratio 9.20% 9.61% 14 The capital ratios of the Company and Bank are adequate to continue to meet the foreseeable capital needs of the institution. Prudent and effective utilization of capital resources is likely to involve growth of the Company's base earning assets and additional repurchases of common stock designed to improve returns on equity and per share earnings performance. Liquidity 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 liability management practices with regard to interest rate risk, liquidity and capital. 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 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 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. At March 31, 2001, the Company's interest rate position was slightly asset sensitive; however, the level of interest rate risk is well within the limits approved by the Board of Directors. Forward Looking Statements Certain statements contained in this quarterly report, including those contained in Management's Discussion and Analysis 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 local and regional economic conditions. 15 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 - None b. Reports on Form 8-K: The Company filed a Form 8-K on January 8, 2001 to announce that Nancy F. Humphreys had joined the Boards of Salisbury Bancorp, Inc. and Salisbury Bank and Trust Company. The Company filed a Form 8-K on February 28, 2001 to report that the Company's Board of Directors declared a quarterly cash dividend of $.21 per share to be paid on April 27, 2001 to shareholders of record as of March 30, 2001. The Company filed a Form 8-K on March 28, 2001 to report that it had signed a definitive agreement for Salisbury Bank and Trust Company to purchase People's Canaan, Connecticut banking office. 16 SALISBURY BANCORP, INC. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Salisbury Bancorp, Inc. Date: May 11, 2001 by: /s/ John F. Perotti ------------- -------------------- John F. Perotti President/Chief Executive Officer Date: May 11, 2001 by: /s/ John F. Foley ------------ ------------------ John F. Foley Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----