-----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, R0yHsKkEUcoNtaSGKp27AA3GI4uv4b1nYil5+ZqjkOiWJCIyn8+RYq+V++dYsgji aIdv0jR0cCI0ZhXppNXjdA== 0000914317-99-000439.txt : 19990812 0000914317-99-000439.hdr.sgml : 19990812 ACCESSION NUMBER: 0000914317-99-000439 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99683530 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 June 30, 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 July 30, 1999 1,509,542 --------- SALISBURY BANCORP, INC. TABLE OF CONTENTS Part I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Consolidated Balance Sheets -- June 30, 1999 (unaudited) and December 31, 1998 4 Consolidated Statements of Income -- six months and three months ended June 30, 1999 and 1998 (unaudited) 5 Consolidated Statements of Cash Flows -- six months ended June 30, 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 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Part II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 2 Part I--FINANCIAL INFORMATION Item 1. Financial Statements 3
SALISBURY BANCORP, INC. CONSOLIDATED BALANCE SHEETS (amounts in thousands, except per share data) June 30 December 31 1999 1998 --------- --------- (unaudited) ASSETS Cash & due from banks: Non-Interest Bearing $ 6,071 $ 5,525 Interest Bearing 602 409 Federal funds sold 9,850 6,200 --------- --------- Cash and cash equivalents 16,523 12,134 Investment Securities: Held to maturity securities 569 579 Available-for-sale securities 68,073 78,655 Federal Home Loan Bank stock, at cost 2,056 2,056 Loans: Commercial, financial and agricultural 9,190 10,692 Real estate-construction and land development 4,984 3,392 Real estate-residential 82,876 80,451 Real estate-commercial 15,901 14,909 Consumer 10,693 10,430 Other 626 535 Allowance for loan losses (1,205) (1,260) Unearned income (6) (6) --------- --------- Net loans 123,059 119,143 Bank premises & equipment 2,327 2,400 Other real estate owned 180 180 Accrued interest receivable 1,115 1,383 Other assets 1,339 696 --------- --------- Total Assets $ 215,241 $ 217,226 ========= ========= LIABILITIES Deposits: Demand $ 30,197 $ 27,435 Savings & NOW 32,951 32,519 Money Market 43,788 32,367 Time 56,873 60,830 --------- --------- Total Deposits 163,809 153,151 Federal Home Loan Bank advances 30,358 41,120 Other liabilities 830 1,400 --------- --------- Total Liabilities 194,997 195,671
June 30 December 31 1999 1998 --------- --------- (unaudited) Shareholders' equity: Common stock, par value $.10 per share; Authorized 3,000,000 shares Issued and outstanding shares: 1,509,542 at June 30,1999 and 1,556,286 at December 31, 1998 151 156 Authorized not issued shares: 1,490,458 at June 30, 1999 and 1,443,714 at December 31, 1998 Additional paid-in capital 3,886 4,882 Retained earnings 17,057 16,160 Accumulated other comprehensive income (850) 357 --------- --------- Total Shareholders' Equity 20,244 21,555 --------- --------- Total Liabilities and Shareholders' Equity $ 215,241 $ 217,226 ========= =========
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SALISBURY BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share data) (unaudited) Six Months Ended Three Months Ended June 30 June 30 1999 1998 1999 1998 ------ ------ ------ ------ Interest and dividend income: Interest and fees on loans $4,731 $4,745 $2,394 $2,374 Interest and dividends on securities: Taxable 1,807 1,389 867 700 Tax-exempt 257 199 132 100 Dividends on equity securities 56 29 34 14 Other interest 184 161 121 69 ------ ------ ------ ------ Total interest and dividend income 7,035 6,523 3,548 3,257 Interest expense: Interest on deposits 2,426 2,555 1,232 1,262 Interest on Federal Home Loan Bank advances 824 260 386 141 ------ ------ ------ ------ Total interest expense 3,250 2,815 1,618 1,403 ------ ------ ------ ------ Net interest and dividend income 3,785 3,708 1,930 1,854 Provision for loan losses 60 60 30 30 ------ ------ ------ ------ Net interest and dividend income after provision for loan losses 3,725 3,648 1,900 1,824 ------ ------ ------ ------ Other income: Trust department income 561 517 261 269 Service charges on deposit accounts 165 177 64 68 Other income 225 155 149 109 ------ ------ ------ ------ Total other income 951 849 474 446
Six Months Ended Three Months Ended June 30 June 30 1999 1998 1999 1998 ------ ------ ------ ------ Other expense: Salaries and employee benefits 1,351 1,282 674 634 Occupancy expense 124 107 53 50 Equipment expense 225 210 107 102 Data processing 152 145 76 68 Legal 60 81 24 31 Other expense 711 731 374 408 ------ ------ ------ ------ Total other expense 2,623 2,556 1,308 1,293 ------ ------ ------ ------ Income before income taxes 2,053 1,941 1,066 977 Income taxes 794 764 444 420 ------ ------ ------ ------ Net income $1,259 $1,177 $ 622 $ 557 ====== ====== ====== ====== Earnings per common share outstanding $ .83 $ .75 $ .41 $ .36 ====== ====== ====== ====== Earnings per common share outstanding, assuming dilution $ .83 $ .75 $ .41 $ .35 ====== ====== ====== ======
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SALISBURY BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) Six months ended June 30, 1999 and 1998 (unaudited) 1999 1998 -------- -------- Cash flows from operating activities: $ 1,259 $ 1,177 Net income Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 60 60 Depreciation and amortization 175 167 (Accretion) amortization of securities, net (20) 23 (Increase) decrease in interest receivable 268 (59) Decrease in interest payable 0 (33) Increase in cash surrender value of insurance policies 0 (6) (Increase) decrease in prepaid expenses 37 (10) Decrease in accrued expenses (110) (62) Increase in other assets (35) (28) Increase (decrease) in other liabilities (221) 188 Change in unearned income 0 (4) Increase (decrease) in taxes payable 148 (328) -------- -------- Net cash provided by operating activities 1,561 1,085 -------- -------- Cash flows from investing activities: Purchase of Federal Home Loan Bank stock 0 (22) Purchases of available-for-sale securities (19,061) (9,515) Proceeds from sales of available-for-sale securities 11,664 4,202 Proceeds from maturities of available-for-sale securities 16,000 3,583 Proceeds from held-to-maturity securities 10 679 Net increase in loans (3,986) (1,038) Capital expenditures (103) (44) Recoveries of loans previously charged-off 10 15 -------- -------- Net cash (used in) provided by investing activities 4,534 (2,140) -------- --------
6
SALISBURY BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) Six months ended June 30, 1999 and 1998 (unaudited) (continued) 1999 1998 -------- -------- Cash flows from financing activities: Net increase (decrease) in demand deposits, NOW and savings accounts 14,616 (4,561) Net (increase) decrease in time deposits (3,958) (3,312) Advances from Federal Home Loan Bank 0 6,000 Principal payments on advances from Federal Home Loan Bank (10,762) (640) Dividends paid (601) (498) Issuance of common stock 62 Net repurchase of common stock (1,001) (110) -------- -------- Net cash (used in) provided by financing activities (1,706) (3,059) -------- -------- Net increase (decrease) in cash and cash equivalents 4,389 (4,114) Cash and cash equivalents at beginning of period 12,134 11,673 -------- -------- Cash and cash equivalents at end of period $ 16,523 $ 7,559 ======== ======== Supplemental disclosures: Interest paid $ 3,250 $ 2,848 Income taxes paid 641 705 Transfer of loans to other real estate owned 0 195
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 principles 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 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 six months ended June 30, 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. 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 ----------- ------------- ------ Six months ended June 30, 1999 Basic EPS Net income and income available to common stockholders $1,259 1,510 $ .83 Effect of dilutive securities, options 8 ------ ------ Diluted EPS Income available to common stockholders and assumed conversions $1,259 1,518 $ .83 ====== ====== ======= Six months ended June 30, 1998 Basic EPS Net income and income available to common stockholders $1,177 1,566 $ .75 Effect of dilutive securities, options -- 12 ------ ------ Diluted EPS Income available to common stockholders and assumed conversions $1,177 1,578 $ .75 ====== ====== ======= (Amounts in thousands, except per share data) (unaudited) Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ------ Three months ended June 30, 1999 Basic EPS Net income and income available to common stockholders $ 622 1,510 $.41 Effect of dilutive securities, options 8 ----- ------ Diluted EPS Income available to common stockholders and assumed conversions $ 622 1,518 $.41 ===== ====== ==== Three months ended June 30, 1998 Basic EPS Net income and income available to common stockholders $ 557 1,567 $.36 Effect of dilutive securities, options 8 ----- ----- Diluted EPS Income available to common stockholders and assumed conversions $ 557 1,575 $.35 ===== ===== ====
9 Part I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 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 half 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 six months 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. The Company's net income for the six months ended June 30, 1999 was $1,259,000 as compared to $1,177,000 for the same time period ended June 30, 1998. This represents an increase of $82,000 or 6.9%. Earnings per diluted share increased 10.7% for the first six months of 1999 and amounted to $.83 per share as compared to $.75 earnings per diluted share for the same period a year ago. The improvement in earnings per diluted share was even more substantial during the second calendar quarter of 1999 when compared with the same period of 1998. Earnings per diluted share for the second quarter of 1999 increased 17.1% from the comparable quarter of 1998 and amounted to $.41 as compared with $.35 for the second quarter of 1998. This improvement is substantially attributable to the growth in the Company's base of earning assets, and to repurchases of common stock by the Company, which improved the Company's return on equity from 11.4% for the first six months of 1998 to 12.1% for the first six months of 1999. Total assets at June 30, 1999 were $215,241,000 compared to $181,423,000 at June 30, 1998. While the Company has grown from $181,423,000 at June 30, 1998 to $215,241,000 at June 30, 1999, the Company has carefully monitored the quality of its assets. During this period, nonperforming loans decreased from $1,664,000 to $1,659,000 and total nonperforming assets similarly decreased from $2,064,000 to $1,839,000. As a result, at June 30, 1999, nonperforming assets represented .9% of total assets as compared with 1.1% at June 30, 1998. Although lower interest rates and aggressive competition pressured interest margins for the first six months of the year, the increase in earning assets resulted in an increase in net interest income. Other income increased $102,000 or 12.1%. This additional income in combination with managements continuing efforts to control operating expenses have resulted in the overall increase in earnings when comparing the first six months of 1999 to the same period in 1998. As a result of the Company's financial performance, the Board of Directors declared a second quarter cash dividend of $.12 per common share which compares to an $.11 per common share second quarter dividend a year ago. Year to date cash dividends total $.24 per common share, an increase of 9.1% over the 1998 year to date dividend of $.22 per common share. 11 SIX MONTHS ENDED JUNE 30, 1999 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 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 portfolios 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) Six months ended June 30, 1999 1998 1997 ------- ------- ------- Interest Income $ 7,035 $ 6,523 $ 6,200 (financial statements) Tax Equivalent Adjustment 132 102 60 ------- ------- ------- Total interest income(on an FTE basis) 7,167 6,625 6,260 Interest Expense (3,250) (2,815) (2,813) ------- ------- ------- Net Interest Income-FTE $ 3,917 $ 3,810 $ 3,447 ======= ======= =======
Interest and dividend income on an FTE basis for the six months ended June 30, 1999 totaled $7,167,000 as compared to $6,625,000 for the same time period in 1998 and $6,260,000 in 1997. This is an increase of $542,000 or 8.2% and $365,000 or 5.8% respectively. The increase is primarily the result of a growth in average earning assets of $26,499,000 or 15.1% when June 30, 1999 is compared to June 30, 1998. The increase from 1997 to 1998 was $9,669,000 or 5.8%. Overall the yield on earning assets was 7.08% compared to 7.54% a year ago. Interest expense for the first six months of 1999 totaled $3,250,000 compared to $2,815,000 and $2,813,000 for the same periods in 1998 and 1997. Increased borrowings from the Federal Home Loan Bank resulted in interest expense of $824,000 for 1999 compared to $260,000 for the first six months of 1998. This is an increase of $564,000. Generally, lower rates and a change in deposit mix have resulted in a decrease in interest expense on deposits of $129,000 or 5.1%. Interest rate paid for funds was reduced to 4.06% from 4.14% in 1998 and 4.23% in 1997. Overall net interest income (on an FTE basis) totaled $3,917,000 for 1999, $3,810,000 for 1998 and $3,447,000 for 1997. Although interest margins continue to be pressured by an economy driven by lower interest rates and aggressive competition, increased volumes have resulted in an increase in net interest income of $107,000 or 2.8% when comparing the June 1999 totals to those of June 1998 and $363,000 or 10.5% when comparing 1998 totals to those of 1997. Noninterest Income - ------------------ Noninterest income totaled $951,000 for the six months ended June 30, 1999 as compared to $849,000 for the six months ended June 30, 1998. This is an increase of $102,000 or 12.0%. Trust department income increased $44,000 or 8.5% to $561,000 and other noninterest income increased $58,000 or 17.5% to $390,000. These increases were primarily due to the continuing growth in the Trust department, increasing transactions from deposit accounts and income from a new service offered by the Company- INVEST Financial Services. 12 Noninterest Expense - ------------------- Noninterest expense totaled $2,623,000 for the first six months of 1999 as compared to $2,556,000 for the same period in 1998. This is an increase of $67,000 or 2.6%. Salaries and employee benefits totaled $1,351,000 for the six month period ended June 30, 1999 compared to $1,282,000 for the corresponding period in 1998. This increase of $69,000 or 5.4% can be attributed to an increase in staff and cost of benefits. Occupancy expense totaled $124,000 at June 30, 1999, an increase of $17,000 or 15.8%. This is attributable to additional costs of winter maintenance this past winter. Equipment expense and data processing expenses increased $15,000 or 7.1% and $7,000 or 4.8% respectively when comparing 1999 to 1998. These increases are the result of planned technology enhancement which is important to meeting the future needs of our customers. Legal expense decreased $21,000 or 25.9% while other operating expenses decreased $20,000 to $711,000. These decreases are primarily the result of managements continuing efforts to control operating expenses. Income Taxes - ------------ The income tax provision for the six months ended June 30, 1999 totaled $794,000 in comparison to $764,000 a year ago. This increase reflects an increase in taxable income. THREE MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 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 June 30, 1999 1998 1997 ------- ------- ------- Interest Income $ 3,548 $ 3,257 $ 3,132 (financial statements) Tax Equivalent Adjustment 68 52 31 ------- ------- ------- Total interest income(on an FTE basis) 3,616 3,309 3,163 Interest Expense (1,618) (1,403) (1,444) ------- ------- ------- Net Interest Income-FTE $ 1,998 $ 1,906 $ 1,719 ======= ======= =======
Net Interest Income - ------------------- Net interest and dividend income on an FTE basis for the three months ended June 30, 1999 totaled $1,998,000 as compared to $1,906,000 for the same period in 1998. The increase was $92,000 or 4.8%. Total interest and dividend income equaled $3,616,000 for the three months ended June 30, 1999 as compared to $3,309,000 for the same period in 1998, an increase of $307,000 or 9.3%. Although the interest rate environment has remained consistent with lower rates, the loan portfolio increased moderately to $123,059,000 from its June 30, 1998 level of $117,463,000 resulting in a small increase in loan interest income. The securities portfolio however has experienced growth of $19,425,000 to $70,698,000 at June 30, 1999 compared to June 30, 1998. This increase has resulted in an increase in securities income of approximately $235,000 or 27.1%. Interest expense on deposits remained consistent for the quarter at $1,232,000 compared to $1,262,000 for the same quarter in 1998. Interest expense on Federal Home Loan Bank advances however totaled $386,000 in 1999 compared to $141,000 for the same period in 1998 - the result of increased borrowings. Overall interest expense increased 15.3% to $1,618,000 in 1999 compared to the same period in 1998. 13 Noninterest Income - ------------------ Noninterest income totaled $474,000 for the three months ended June 30, 1999 as compared to $446,000 for the three months ended June 30, 1998. This is an increase of $28,000 or 6.3%. This is primarily the result of increased transaction volume from deposit accounts. Noninterest Expense - ------------------- Noninterest expense totaled $1,308,000 for the three months ended June 30, 1999 as compared to $1,293,000 for the same period in 1998. This represents an increase of $15,000 or 1.2%. Salaries and benefits increased $40,000 to $674,000 primarily the result of salary increases and increased cost for employee benefits. Occupancy expense increased $3,000 to $53,000 for the same three month period of 1999. Equipment and data processing expenses increased $13,000 to $183,000 and are consistent with planned strategy to enhance product delivery to customers. Legal and other operating expenses decreased $41,000. Income Taxes - ------------ The income tax provision for the three months ended June 30, 1999 totaled $444,000 in comparison to an income tax provision of $420,000 for the same period in 1998. The increase reflects an increase in taxable income. Net Income - ---------- Overall net income (on an FTE basis) totaled $690,000 for the second quarter of 1999 compared to $609,000 for the comparable period in 1998. This increase of $81,000 or 13.3% can be attributed to an increase in earning assets, a modest increase in noninterest income as well as managements continuing efforts to control operating expenses. Financial Condition ------------------- The Company's assets at December 31, 1998 totaled $217,226,000. During the first quarter of 1999, securities that were part of an interest rate risk strategy matured, resulting in a decrease in assets and borrowings of approximately $10,000,000. Deposits increased to $164,000,000 during the first six months of 1999. Although the mix of liabilities (deposits vs borrowings) has changed, total footings have changed only $1,985,000 at June 30, 1999 compared to December 31, 1998 and total $215,241,000. This compares to total assets of $181,423,000 at June 30, 1998. This growth in assets has enhanced the earnings opportunities for the Company. Securities - ---------- As of June 30, 1999, the securities portfolio totaled $70,698,000. This represents a decrease from December 31, 1998 of $10,592,000 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. At June 30, 1999, $569,000 of the investment securities portfolio was classified as held-tomaturity with the balance of the investment securities portfolio, excluding Federal Home Loan Bank stock, was classified as available-for-sale. The net unrealized loss on securities available-for-sale, net of tax effect totaled ($850,000) at June 30, 1999 compared to a gain of $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 June 30, 1999 and December 31, 1998. 14
June 30, 1999 December 31, 1998 ------------- ----------------- (amounts in thousands) Available-for-sale securities: Equity securities $ 144 $ 116 Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies 27,092 43,578 Debt securities issued by states of the United States and political subdivisions of the states 11,273 9,553 Mortgage-backed securities 29,564 25,408 Held-to-maturity securities: Debt securities issued by states of the United States and political subdivisions of the states 20 25 Mortgage-backed securities 549 554 Federal Home Loan Bank stock 2,056 2,056 ------- ------- Total Securities $70,698 $81,290 ======= =======
Loans - ----- Competition for loans remains very aggressive in the market area of the Company. The Company's continuing efforts on new business development have resulted in the introduction of several new mortgage products. Total loans outstanding have increased to $124,270,000 at June 30, 1999 compared to $120,409,000 at December 31, 1998. This is an increase of $3,861,000. The following table represents the various categories of the loan portfolio comparing June 30, 1999 to December 31, 1998.
June 30, 1999 December 31, 1998 ------------- ----------------- (amountss in thousands) Commercial, financial and agricultural $ 9,190 $ 10,692 Real Estate-construction and land development 4,984 3,392 Real Estate-residential 82,876 80,451 Real Estate-commercial 15,901 14,909 Consumer 10,693 10,430 Other 626 535 -------- -------- Loans outstanding $124,270 $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 $60,000 provision to the allowance for possible loan losses was made during the first six months of 1999, the same as the comparable period of 1998. Nonaccrual loans were $794,000 at June 30, 1999 compared to $1,208,000 at December 31, 1998. Accruing loans past due 90 days or more were $74,000 at June 30, 1999 compared to $109,000 at December 31, 1998. Restructured loans were $791,000 at June 30, 1999 compared to $547,000 at December 31, 1998. The allowance for loan losses at December 31, 1998 was $1,260,000 or 1.05% of total loans outstanding. At 15 June 30, 1999, the allowance totaled $1,205,000 or .96% of the total loans outstanding. In management's judgement, the allowance for loan losses at June 30, 1999 is adequate to absorb probable losses in the existing portfolio. Deposits - -------- Deposits at June 30, 1999 totaled $164,000,000, up from the year to date average of $156,000,000. This is primarily the result of various business activities in the community which historically increase deposits during this time of year. The following table illustrates the composition of the Company's deposits at June 30, 1999 and December 31, 1998.
June 30, 1999 December 31, 1998 (amounts in thousands) Demand $ 30,197 $ 27,435 NOW 17,240 17,700 Money Market 43,788 32,367 Savings 15,711 14,819 Time 56,873 60,830 -------- -------- Total Deposits $163,809 $153,151 ======== ========
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 June 30, 1999, total borrowings had decreased $10,762,000 to $30,358,000 when compared to December 31, 1998 as 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 strategy. 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 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. The Company is slightly asset sensitive. The extent of the Company's asset sensitivity is consistent with parameters established by the Asset Liability Management Committee of the Board of Directors and is monitored by Management. 16 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 June 30, 1999, the Company had approximately $23,486,000 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 - ------- The Company's capital at June 30, 1999 totaled $20,244,000. This represents a decrease of $1,311,000 from the December 31, 1998 total capital of $21,555,000. Several items made up the net change since December 1998. Year to date earnings of $1,259,000 have been added to capital. Market conditions have resulted in a negative adjustment to unrealized holding gain/losses on available-for-sale securities of $1,207,000. Two quarterly dividends in 1999 have decreased capital $362,000. Lastly, in November 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 49,644 shares of stock which has resulted in a decrease in equity of $1,001,000. The capital ratios of the Company and the Bank exceed all applicable regulatory requirements and are adequate to continue to meet the foreseeable capital needs of the institution. Prudent and effective utilization of capital resources is likely to result in continued growth of the Company's base of earning assets and result in additional repurchases of common stock designed to improve returns on equity and per share earnings performance. The following reflects the Company's capital ratios at June 30, 1999, 1998 and 1997: (unaudited)
Actual Actual Actual June 1999 June 1998 June 1997 --------- --------- --------- Total Risk-Based Capital 21.14% 22.92% 20.81% Tier 1 Risk-Based Capital 19.95% 21.67% 19.59% Leverage ratio 9.96% 11.44% 11.13%
17 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 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. Ensuring the continuing integrity of all technical systems and business processes into the Year 2000 is a top priority for the Company. Upgrades to all of the Company's business-critical systems have been completed and all business-critical applications have tested satisfactorily. 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 has been replaced with a "Y2K" compliant server. 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 have been validated by an independent party contracted by the Company. The Company notes that it is 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. 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 counter parties. 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 18 Markets Counter parties (trading counter parties and fiduciary relationships). The Company continues 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 June 30, 1999 the Bank has expended $29,096. 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 Company has developed a business resumption plan, contingency plans and procedures to address foreseeable contingencies which may result from Year 2000 related risks. The Company has substantially completed its business resumption contingency planning efforts. The Company plans on validating its contingency plans throughout the third quarter of 1999 and will update its plans as necessary throughout the remainder of 1999. 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. To strengthen the contingency initiative, the Company has an auxiliary power generator at our branch office in Sharon, Connecticut. Management anticipates using this location as a provisional operations center for the duration of Year 2000 failure scenarios, if any. Management plans to re-deploy staff resources, as necessary during this period, to help assure manual completion of critical operational activities. 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. 19 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. 20 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 Holder The Annual Meeting of Shareholders of Salisbury Bancorp, Inc. (The "Company"), the holding company for Salisbury Bank and Trust Company (the "Bank") was held on Saturday, May 22, 1999. Shareholders voted on the election of directors and the ratification of the appointment of independent auditors. The results of the votes of shareholders regarding each proposal are set forth below: PROPOSAL 1 ELECTION OF DIRECTORS Each of the two nominees received in excess of a plurality of the votes cast at the meeting and were elected to serve a three (3) year term until their successors are elected and qualified. The vote for electing nominees as directors was as follows: Withholding For Authority John R. H. Blum Number of Shares: 1,255,165 14,076 Percentage of Shares Voted: 98.9% 1.1% Percentage of Shares Entitled to Vote: 83.1% 1.0% Withholding For Authority Louise F. Brown Number of Shares: 1,254,397 14,844 Percentage of Shares Voted: 98.8% 1.2% Percentage of Shares Entitled to Vote: 83.1% 1.0% PROPOSAL 2 RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS The appointment of Shatswell, MacLeod & Company, P.C. as independent auditors for the Bank for the year ending December 31, 1999 was approved because the votes for such appointment exceeded the votes against such appointment. The votes to ratify the appointment by the Board of Directors of Shatswell, 21 MacLeod & Company, P.C. as independent auditors for the year ending December 31, 1999 was a follows:
For Against Abstain Number of Votes: 1,253,875 0 15,366 Percentage of Shares Voted: 98.8% 0 1.2% Percentage of Shares Entitled to Vote: 83.0% 0 1.0%
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 May 25, 1999 to report the events and results of the Company's Annual Meeting of Shareholders that was held on Saturday, May 22, 1999. The Form 8-K also reported that the Company's Board of Directors declared a quarterly cash dividend of $.12 per share to be paid on July 30, 1999 to shareholders of record as of June 30, 1999. 22 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: August 10, 1999 by /s/ John F. Perotti --------------- ------------------------ John F. Perotti President / Chief Executive Officer Date: August 10, 1999 by: /s/ John F. Foley --------------- ---------------------- John F. Foley Chief Financial Officer 23 EX-27 2
9 1,000 6-MOS DEC-31-1999 JUN-30-1999 6,071 602 9,850 0 70,129 569 547 124,264 1,205 215,241 163,809 0 830 30,358 0 0 151 20,093 215,241 4,731 2,120 184 7,035 2,426 3,250 3,785 60 0 2,623 2,053 2,053 0 0 1,259 .83 .83 6.99 794 74 791 0 1,260 125 10 1,205 1,205 0 0
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