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 September 30, 2000
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 Identification No.)
Incorporation or Organization)
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 October 31, 2000
1,463,509
---------
<PAGE>
SALISBURY BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets -September 30, 2000 and December 31, 1999 4
(unaudited)
Consolidated Statements of Income -nine months and three months ended
September 30, 2000 and 1999 5
(unaudited)
Consolidated Statements of Cash Flows -nine months ended
September 30, 2000 and 1999 6
(unaudited)
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 16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE>
Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
3
<PAGE>
SALISBURY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
---- ----
<S> <C> <C>
ASSETS Cash & due from banks:
Non-Interest Bearing $ 5,589 $ 6,478
Interest Bearing 135 268
Federal funds sold 7,280 0
Money Market Mutual Funds 278 970
--------- ---------
Cash and cash equivalents 13,282 7,716
Investment Securities:
Held to maturity securities at amortized cost 481 489
Available-for-sale securities at market value 77,998 75,153
Federal Home Loan Bank stock, at cost 2,930 2,102
Loans:
Commercial, financial and agricultural 7,974 9,025
Real estate-construction and land development 4,070 3,382
Real estate-residential 96,479 86,680
Real estate-commercial 15,408 15,324
Consumer 10,166 10,698
Other 513 364
Allowance for loan losses (1,218) (1,160)
--------- ---------
Net loans 133,392 124,313
Bank premises & equipment 2,447 2,249
Other real estate owned 75 75
Accrued interest receivable 1,403 1,576
Other assets 1,240 1,712
--------- ---------
Total Assets $ 233,248 $ 215,385
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 33,191 $ 28,318
Savings & NOW 31,374 32,735
Money Market 43,762 36,954
Time 54,727 56,351
--------- ---------
Total Deposits 163,054 154,358
Federal Home Loan Bank advances 47,705 39,712
Other liabilities 1,245 1,420
--------- ---------
Total Liabilities 212,004 195,490
--------- ---------
Shareholders' equity:
Common stock, par value $.10 per share;
Authorized 3,000,000 shares
Issued and outstanding shares: 1,467,929 at September 30, 2000 147 150
and 1,504,171 at December 31, 1999
Additional paid-in capital 3,141 3,781
Retained earnings 19,225 17,799
Accumulated other comprehensive income(loss) (1,269) (1,835)
--------- ---------
Total Shareholders' Equity 21,244 19,895
--------- ---------
Total Liabilities and Shareholders' Equity $ 233,248 $ 215,385
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SALISBURY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 7,665 $ 7,164 $ 2,666 $ 2,433
Interest and dividends on securities:
Taxable 3,504 2,808 1,089 1,001
Tax-exempt 489 409 163 152
Dividends on equity securities
141 90 56 34
Other interest 416 290 227 106
------- ------- ------- -------
Total interest and dividend income 12,215 10,761 4,201 3,726
------- ------- ------- -------
Interest expense:
Interest on deposits 3,947 3,636 1,451 1,210
Interest on Federal Home Loan Bank advances 2,147 1,314 737 490
------- ------- ------- -------
Total interest expense 6,094 4,950 2,188 1,700
------- ------- ------- -------
Net interest and dividend income 6,121 5,811 2,013 2,026
Provision for loan losses 100 90 40 30
------- ------- ------- -------
Net interest and dividend income after provision
for loan losses 6,021 5,721 1,973 1,996
------- ------- ------- -------
Other income:
Trust department income 747 803 240 242
Service charges on deposit accounts 249 242 82 77
Other income 416 365 150 140
------- ------- ------- -------
Total other income 1,412 1,410 472 459
------- ------- ------- -------
Other expense:
Salaries and employee benefits 2,495 2,047 828 696
Occupancy expense 179 184 56 60
Equipment expense 312 334 102 109
Data processing 188 224 75 72
Other expense 1,126 1,144 332 373
------- ------- ------- -------
Total other expense 4,300 3,933 1,393 1,310
------- ------- ------- -------
Income before income taxes 3,133 3,198 1,052 1,145
Income taxes 1,129 1,260 394 466
------- ------- ------- -------
Net income $ 2,004 $ 1,938 $ 658 $ 679
======= ======= ======= =======
Earnings per common share outstanding $ 1.35 $ 1.28 $ .45 $ .45
======= ======= ======= =======
Earnings per common share outstanding,
assuming dilution $ 1.35 $ 1.28 $ .45 $ .45
======= ======= ======= =======
Dividends per share $ .39 $ .36 $ .13 $ .12
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SALISBURY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(amounts in thousands)
Nine months ended September 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,004 $ 1,938
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on sales of available-for-sale securities, net 61
Provision for loan losses 100 90
Depreciation and amortization 243 264
(Accretion) amortization of securities, net (50) (35)
(Increase) decrease in interest receivable 172 (41)
Increase in interest payable 89 34
Decrease in prepaid expenses 28 42
Increase (decrease) in accrued expenses 56 (26)
Decrease in other assets 0 3
Decrease in other liabilities (20) (325)
Increase in taxes payable 84 113
-------- --------
Net cash provided by operating activities 2,767 2,057
-------- --------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock (828)
Purchases of available-for-sale securities (21,432) (47,435)
Proceeds from sales of available-for-sale securities 6,537 13,192
Proceeds from maturities of available-for-sale securities 12,985 31,348
Proceeds from maturities of held-to-maturity securities 9 67
Net increase in loans (9,198) (4,619)
Capital expenditures (441) (155)
Recoveries of loans previously charged-off 19 21
-------- --------
Net cash used in investing activities (12,349) (7,581)
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SALISBURY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(amounts in thousands)
Nine months ended September 30, 2000 and 1999
(unaudited)
(continued)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits, NOW and
savings accounts 10,320 4,966
Net decrease in time deposits (1,624) (2,987)
Advances from Federal Home Loan Bank 29,000 12,000
Principal payments on advances from Federal Home Loan Bank (21,007) (11,082)
Dividends paid (898) (543)
Net repurchase of common stock (643) (1,068)
-------- --------
Net cash provided by financing activities 15,148 1,286
-------- --------
Net increase (decrease) in cash and cash equivalents 5,566 (4,238)
Cash and cash equivalents at beginning of period 7,716 12,134
-------- --------
Cash and cash equivalents at end of period $ 13,282 $ 7,896
======== ========
Supplemental disclosures:
Interest paid $ 6,005 $ 4,984
Income taxes paid 1,053 929
Transfer of loans to other real estate owned 0 0
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
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 nine months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1999 Annual Report on Form 10-K.
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 loss (gain) on securities.
Comprehensive Income
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 658 $ 679 $ 2,004 $ 1,938
Net change in unrealized holding (losses) gains
on securities during period 643 (468) 566 (1,675)
------- ------- ------- -------
Comprehensive income $ 1,301 $ 211 $ 2,570 $ 263
======= ======= ======= =======
</TABLE>
8
<PAGE>
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:
<TABLE>
<CAPTION>
(amounts in thousands, except per share data)
(unaudited)
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Nine months ended September 30, 2000
Basic EPS
Net income and income available to common stockholders $2,004 1,488 $ 1.35
Effect of dilutive securities, options 0
------ ------
Diluted EPS
Income available to common stockholders and assumed
conversions $2,004 1,488 $ 1.35
====== ======
Nine months ended September 30, 1999
Basic EPS
Net income and income available to common stockholders $1,938 1,515 $ 1.28
Effect of dilutive securities, options 0
====== ======
Diluted EPS
Income available to common stockholders and assumed
conversions $1,938 1,515 $ 1.28
====== ======
</TABLE>
<TABLE>
<CAPTION>
(amounts in thousands, except per share data)
(unaudited)
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Three months ended September 30, 2000
Basic EPS
Net income and income available to common stockholders $ 658 1,471 $ .45
Effect of dilutive securities, options 0
------ ------
Diluted EPS
Income available to common stockholders and assumed
conversions $ 658 1,471 $ .45
====== ======
Three months ended September 30, 1999
Basic EPS
Net income and income available to common stockholders $ 679 1,508 $ .45
Effect of dilutive securities, options 0
------ ------
Diluted EPS
Income available to common stockholders and assumed
conversions $ 679 1,508 $ .45
====== =====
</TABLE>
NOTE 4 - IMPACT OF NEW ACCOUNTING STANDARD
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. In management's opinion, SFAS No. 133 when
adopted will not have a material effect on the Company's consolidated financial
statements.
9
<PAGE>
Part I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
10
<PAGE>
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 including a Trust Department 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-K
for the year ended December 31, 1999.
Net income for the nine months ended September 30, 2000 increased 3.4% to
$2,004,000 or $ 1.35 per diluted share as compared to net income of $1,938,000
or $ 1.28 per diluted share for the nine months ended September 30, 1999. This
5.5% increase in earnings per diluted share is attributable to the growth in the
Company's base of earning assets and to repurchases of common stock by the
Company. The annualized return on equity for the nine month period ended
September 30, 2000 increased to 13.01% as compared to 12.5% for the same nine
month period in 1999.
Total assets at September 30, 2000 were $233,248,000 compared to $215,385,000 at
December 31, 1999. Although Management is pleased that the Company's asset size
has grown 8.3% during the first nine months of the year 2000, Management is ever
more pleased that it is achieving growth without compromising asset quality.
During this nine month period, nonperforming loans decreased to $284,000 from
$1,090,000. This is a 73.9% decrease. Nonperforming assets similarly were
reduced $911,000 or 71.7% to $359,000 from the previous year total of
$1,270,000. As a result, at September 30, 2000 nonperforming assets represented
0.2% of total assets as compared with 0.6% at September 30, 1999. The increase
in quality earning assets in combination with management's continuing efforts to
control operating expenses have resulted in the overall increase in earnings
when comparing the first nine months of 2000 to the same period in 1999.
As a result of the Company's financial performance during the year 2000, the
Board of Directors increased the Company's quarterly dividend from $.12 to $.13
per common share. Year to date cash dividends total $.39 per common share, an
increase of 8.3% over the 1999 year to date dividend of $.36 per common share at
September 30, 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000
AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999
Results of Operations
Net Interest Income
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) (unaudited)
Nine months ended September 30, 2000 1999
---- ----
Interest and Dividend Income $ 12,215 $ 10,761
(financial statements)
Tax Equivalent Adjustment 252 211
-------- --------
Total Interest and Dividend Income (on an FTE basis) 12,467 10,972
Interest Expense (6,094) (4,950)
-------- --------
Net Interest and Dividend Income-FTE $ 6,373 $ 6,022
======== ========
11
<PAGE>
Net interest and dividend income (interest and dividend income less interest
expense) on an FTE basis before the provision for loan losses for the nine
months ended September 30, 2000 increased by $351,000 or 5.8% when comparing the
same period in 1999. This increase is primarily the result of an increase in
earning assets, particularly loans outstanding, which have increased to an all
time high of $133,392,000 at September 30, 2000. This compares to total net
loans outstanding at September 30, 1999 of $123,651,000. The increase in new
business is the result of the expansion of the Company's "Mortgage Makers"
program which began earlier in the year.
Interest expense for the first nine months of 2000 totaled $6,094,000 compared
to $4,950,000 for the comparable period in 1999. Interest expense for deposits
has increased $311,000. This is a combination of the result of generally higher
interest rates as well as an increase in interest bearing deposits. Interest
paid on borrowings from the Federal Home Loan Bank had the most significant
impact as total interest expense increased $833,000 to $2,147,000 for the first
nine months of 2000 compared to $1,314,000 for the same period in 1999. This is
the result of increased borrowings as well as higher rates at the time of
repricing borrowings during the year.
Although interest margins continue to be pressured by aggressive competition,
increased volumes of deposits and borrowings have resulted in an increase in net
interest and dividend income on a fully taxable equivalent basis to $6,373,000
in 2000 compared to $6,022,000 for the same nine month period in 1999.
Noninterest Income
Noninterest income totaled $1,412,000 for the nine months ended September 30,
2000 as compared to $1,410,000 for the nine months ended September 30, 1999
despite a decrease in Trust Department income of $56,000. This difference
reflects the timing of estate settlement fees and is difficult to predict. The
first nine months of 2000 differs from 1999 when there were more estates settled
earlier in the year. However this difference is not considered by management to
be indicative of any trend in the volume of estate settlement work performed by
the Trust Department. Service charges and other income in the aggregate have
increased $58,000 to $665,000 from $607,000 which represents an increase of
9.6%. This is primarily due to increasing transactions from deposit accounts and
fees generated from the sale of mortgages to the secondary market, a new
business activity that is part of the Company's expanded "Mortgage Makers"
program that began early in 2000.
Noninterest Expense
Noninterest expense increased 9.3% to $4,300,000 for the nine months ended
September 30, 2000 compared to $3,933,000 for the corresponding period in 1999.
Salaries and employee benefits totaled $2,495,000 for the nine month period
ended September 30, 2000 compared to $2,047,000 for the same period in 1999.
Earlier this year the Company expanded its "Mortgage Makers" program. As
mentioned previously, this program has been instrumental in increasing the loan
portfolio to its current level of $133,392,000. This has resulted in the need to
increase staff to process and service the increase in volume of new mortgage
loans. This coupled with annual staff pay increases and increasing costs of
employee benefits, has resulted in the increase of $448,000 or 21.9%. Occupancy
and equipment expenses decreased 5.2% to $491,000 from $ 518,000. Data
processing expenses have decreased $36,000 to $188,000. This is partially due to
the timing of invoice payments as well as negotiations of data processing fees
with service providers. Other operating expenses decreased $18,000 to $1,126,000
for the nine month period ended September 30, 2000 from $1,144,000 for the same
period in 1999. This decrease represents management's continuing efforts to
control operating expenses.
Income Taxes
The income tax provision for the nine months ended September 30, 2000 totaled
$1,129,000 in comparison to $1,260,000 for the same period in 1999. The decrease
reflects a decrease in taxable income.
12
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000
AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999
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 September 30, 2000 1999
---- ----
Interest and Dividend Income $ 4,201 $ 3,726
(financial statements)
Tax Equivalent Adjustment 84 78
------- -------
Total Interest and Dividend Income (on an FTE basis) 4,285 3,804
Interest Expense (2,188) (1,700)
------- -------
Net Interest and Dividend Income-FTE $ 2,097 $ 2,104
======= =======
Net Interest Income
Net interest and dividend income on an FTE basis equaled $2,097,000 for the
three months ended September 30,2000 as compared to $2,104,000 for the same
period in 1999. Loan growth during the third quarter of 2000 was approximately
$4,000,000 while there was very little growth in loans for the same period in
1999. The securities portfolio increased approximately $11,000,000 during the
third quarter of 1999 as a result of the Company's strategy to increase interest
income by leveraging additional borrowings from the Federal Home Loan Bank.
There was no additional arbitrage activity during this period in 2000. However,
interest expense for the third quarter of 2000 increased as a result of
increased borrowing costs. Deposits during the third quarter of 2000 increased
approximately $7,000,000 from the same period in 1999. This resulted in an
increase in interest expense in 2000. Overall however, net interest and dividend
income remained consistent for the three month period ended September 30, 2000
when comparing it to the same period in 1999.
Noninterest Income
Noninterest income totaled $472,000 for the three months ended September 30,
2000 as compared to $459,000 for the three months ended September 30, 1999. This
increase of $13,000 was primarily the result of fees associated with increased
transaction volume from deposit accounts.
Noninterest Expense
Noninterest expense totaled $1,393,000 for the three months ended September 30,
2000 as compared to $1,310,000 for the same period in 1999. This is an increase
of $ 83,000 or 6.3%. Salaries and benefits increased $132,000 to $828,000. While
some of this increase resulted from the addition of staff, the primary increase
was the result of salary increases and increased cost of benefits. For the three
months ended September 30, 2000, occupancy, equipment, data processing, and
other operating expenses decreased in the aggregate to $565,000 from $614,000
for the calendar quarter ended September 30, 1999. This decrease was primarily
the result of management's continuing efforts to control operating expenses.
Income Taxes
The income tax provision for the three months ended September 30, 2000 totaled
$394,000 in comparison to an income tax provision of $466,000 for the same
period in 1999. The decrease reflects a decrease in taxable income.
13
<PAGE>
Net Income
While income for the three months ended September 30, 2000 totaled $ 658,000 as
compared with $679,000 for the same period in 1999, on a per share basis net
income was unchanged.
FINANCIAL CONDITION
Total assets increased from $215,385,000 at December 31, 1999 to $233,248,000 at
September 30, 2000. This is an increase of $17,863,000 or 8.3%. During this nine
month period net loans increased $9,079,000 or 7.3% and the securities portfolio
increased $3,665,000 or 4.7%. This increase in earning assets was funded
primarily by growth in deposits which totaled $163,054,000 at September 30, 2000
compared to $154,358,000 at December 31, 1999 and by an increase in Federal Home
Loan advances. This compares to total assets of $218,458,000 at September 30,
1999. This growth in earning assets has enhanced the earnings opportunities for
the Company.
Securities
As of September 30, 2000, the Company's total securities portfolio amounted to
$81,409,000 for an increase of $3,665,000 from December 31, 1999. At September
30, 2000 securities classified as held-to-maturity totaled $481,000 with the
balance of the portfolio, excluding Federal Home Loan Bank stock being
classified as available-for-sale. The net unrealized loss on securities
available-for-sale, net of tax effect totaled ($1,269,000) at September 30, 2000
compared to ($1,835,000) at December 31, 1999. The decrease is attributable to
movement in interest rates and the activity in the securities markets. The
following table presents the carrying value of the portfolio at September 30,
2000 and December 31, 1999.
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
(amounts in thousands)
<S> <C> <C>
Available-for-sale securities: $ 173 $ 137
Equity securities
Debt securities issued by the U.S. Treasury and
Other U.S. government corporations and agencies 38,132 33,290
Debt securities issued by states of the United States
And political subdivisions of the states 12,807 12,379
Mortgage-backed securities 26,886 29,347
Held-to-maturity securities:
Mortgage-backed securities 481 489
Federal Home Loan Bank stock 2,930 2,102
------- -------
Total Securities $81,409 $77,744
======= =======
</TABLE>
Loans
During the first quarter of 2000 the Company expanded its "Mortgage Makers" menu
of products. This program has been instrumental in increasing the loan
portfolio. At September 30, 2000 net loans outstanding increased to
$133,392,000. This is an increase of $9,079,000 or 7.3% when compared to net
loans outstanding of $124,313,000 at December 31, 1999. The most significant
increase is in residential mortgages, which totaled $96,479,000 at September 30,
2000. This represents an increase of $9,799,000 or 11.3% when comparing the
residential mortgage portfolio to that of December 31, 1999 which totaled
$86,680,000. Company efforts continue to develop new lending business.
14
<PAGE>
Provision and Allowance for Loan Losses
The provision for loan losses for the nine months ended September 30, 2000 was
$100,000, which compares to a provision of $90,000 for the same period in 1999.
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. The increase
in the provision is attributable to the increase in the size of the loan
portfolio. At September 30, 2000, the allowance for loan losses was $1,218,000
representing .9% of total loans as compared to $1,160,000 at December 31, 1999,
which also represented .9% of total loans. Nonaccrual loans were $244,000 at
September 30, 2000 compared to $473,000 at December 31, 1999. Accruing loans
past due 90 days or more totaled $236,000 at June 30, 2000 and management
reported this as being an isolated situation. At September 30, 2000 accruing
loans past due 90 days or more totaled $28,000. Restructured loans remained
unchanged at $12,000. At September 30, 2000, the allowance for loan losses was
$1,218,000 or 428.9% of nonperforming loans, which totaled $284,000. At December
31, 1999, the allowance for loan losses was $1,160,000 or 106.4% of
nonperforming loans, which totaled $1,090,000.
During the first nine months of 2000, a total of $61,000 of loans were charged
off compared to $262,000 charged off during the corresponding period in 1999.
Recoveries of previously charged off loans totaled $19,000 for the first nine
months of 2000 compared to $21,000 for the same period in 1999.
Deposits
Deposits constitute the principal funding source of the Company's assets. Total
deposits increased $8,696,000 or 5.6% to $163,054,000 at September 30, 2000 from
$154,358,000 at December 31, 1999. The most significant increase was in the
Company's money market product, which increased $6,808,000 or 18.4% to
$43,762,000 at September 30, 2000 from $36,954,000 at year end 1999. Demand
deposits also increased $4,873,000 or 17.2% to $ 33,191,000 at September 30,
2000 when comparing demand deposits of $28,318,000 at December 31, 1999. While
there may be fluctuations in average deposits from one quarter to the next, the
overall trend reflects a strategy of controlled growth. By adjusting the rates
of interest paid on deposits management can influence such growth. Borrowings
from the Federal Home Loan Bank provide the Bank with alternative funding.
Borrowings
At September 30, 2000, Federal Home Loan Bank borrowings were at $47,705,000. In
order to enhance earnings opportunities, the Company funded growth in total
assets by increasing Federal Home Loan Bank borrowings from $39,712,000 at
December 31, 1999. This is the result of a strategy designed to increase
interest income.
Capital
At September 30, 2000, the Company had $21,244,000 in shareholder equity
compared to $19,895,000 at December 31, 1999. This represents an increase of
$1,349,000 or 6.8%. Several components made up the change since December 1999.
Year- to- date earnings of $2,004,000 have increased capital. Market conditions
have resulted in a positive adjustment to unrealized comprehensive income of
$566,000. The Company has declared three quarterly cash dividends in 2000,
resulting in a decrease in capital of $578,000. In November 1998 the Company
announced a stock repurchase plan to acquire up to approximately 10% of the
outstanding common stock of the Company. On October 24, 2000 the Board of
Directors announced the continuation such repurchase program which to date has
resulted in the repurchase of 91,257 shares of stock. During the first nine
months of 2000 this program has resulted in a decrease in capital of $643,000.
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 performance.
15
<PAGE>
The capital ratios of the Company and Bank are adequate to continue to meet the
foreseeable capital needs of the institution. The following reflects the
Company's capital ratios at September 30, 2000 and 1999: (unaudited)
Actual Actual
September 2000 September 1999
-------------- --------------
Total Risk-Based Capital 20.97% 21.38%
Tier 1 Risk-Based Capital 19.83% 20.28%
Leverage Ratio 9.52% 9.80%
Liquidity
The Bank's Asset/Liability Management Committee which operates in accordance
with policies established and reviewed by the Bank's Board of Directors,
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 the Company's
interest rate margins and manage the maturities and interest rate sensitivities
of assets and liabilities. At September 30, 2000 the Company's interest rate
position was slightly asset sensitive. The extent of the position is consistent
with parameters established by the Asset Liability Policy. 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 investment securities, asset
maturities as well as 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 members. This enhances the
liquidity position by providing a source of available borrowings. At September
30, 2000 the Bank had approximately $25,987,000 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 and Bank maintain ample liquidity to meet their present and foreseeable
needs.
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 thus are 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 risk and liquidity risk. The Company's stock is traded on the American
Stock Exchange and as a result the market price 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
1999.
16
<PAGE>
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 September 5, 2000 to report that
the Company's Board of Directors declared a quarterly cash
dividend of $.13 per share to be paid on October 27, 2000 to
shareholders of record as of September 29, 2000.
17
<PAGE>
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: November 9, 2000 by: /s/ John F. Perotti
----------------- ------------------------
John F. Perotti
President/Chief Executive Officer
Date: November 9, 2000 by: /s/ John F. Foley
----------------- ------------------------
John F. Foley
Chief Financial Officer
