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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-14854
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Salisbury Bancorp, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Connecticut 06-1514263
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5 Bissell Street Lakeville, Connecticut 06039
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(Address of principal executive offices) (Zip Code)
Registrant"s Telephone Number, Including Area Code (860) 435-9801
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(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 14, 2000 1,476,943
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<PAGE>
SALISBURY BANCORP, INC.
TABLE OF CONTENTS
<TABLE>
<PAGE>
<S> <C> <C>
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets -June 30, 2000 and December 31, 1999 4
(unaudited)
Consolidated Statements of Income -six months and three months ended
June 30, 2000 and 1999 5
(unaudited)
Consolidated Statements of Cash Flows -six months ended
June 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 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</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>
JUNE 30 DECEMBER 31
2000 1999
---- ----
<S> <C> <C>
ASSETS Cash & due from banks:
Non-Interest Bearing $ 6,345 $ 6,478
Interest Bearing 282 268
Federal funds sold 1,875 0
Money Market Mutual Funds 192 970
--------- ---------
Cash and cash equivalents 8,694 7,716
Investment Securities:
Held to maturity securities at amortized cost 483 489
Available-for-sale securities at market value 78,199 75,153
Federal Home Loan Bank stock, at cost 2,930 2,102
Loans:
Commercial, financial and agricultural 8,830 9,025
Real estate-construction and land development 3,866 3,382
Real estate-residential 91,369 86,680
Real estate-commercial 15,579 15,324
Consumer 10,301 10,698
Other 388 364
Allowance for loan losses (1,174) (1,160)
--------- ---------
Net loans 129,159 124,313
Bank premises & equipment 2,263 2,249
Other real estate owned 75 75
Accrued interest receivable 1,845 1,576
Other assets 1,719 1,712
--------- ---------
Total Assets $ 225,367 $ 215,385
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 31,624 $ 28,318
Savings & NOW 30,679 32,735
Money Market 43,539 36,954
Time 50,067 56,351
--------- ---------
Total Deposits 155,909 154,358
Federal Home Loan Bank advances 48,045 39,712
Other liabilities 1,107 1,420
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Total Liabilities 205,061 195,490
--------- ---------
Shareholders' equity:
Common stock, par value $.10 per share;
Authorized 3,000,000 shares
Issued and outstanding shares: 1,477,741 at June 30, 2000 148 150
and 1,504,171 at December 31, 1999
Additional paid-in capital 3,312 3,781
Retained earnings 18,758 17,799
Accumulated other comprehensive income(loss) (1,912) (1,835)
--------- ---------
Total Shareholders' Equity 20,306 19,895
--------- ---------
Total Liabilities and Shareholders' Equity $ 225,367 $ 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)
June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $4,999 $4,731 $2,557 $2,394
Interest and dividends on securities:
Taxable 2,415 1,807 $1,177 867
Tax-exempt 326 257 163 132
Dividends on equity securities 85 56 49 34
Other interest 189 184 88 121
------ ------ ------ ------
Total interest and dividend income 8,014 7,035 4,034 3,548
------ ------ ------ ------
Interest expense:
Interest on deposits 2,496 2,426 1,273 1,232
Interest on Federal Home Loan Bank advances 1,410 824 694 386
------ ------ ------ ------
Total interest expense 3,906 3,250 1,967 1,618
------ ------ ------ ------
Net interest and dividend income 4,108 3,785 2,067 1,930
Provision for loan losses 60 60 30 30
------ ------ ------ ------
Net interest and dividend income after provision
for loan losses 4,048 3,725 2,037 1,900
------ ------ ------ ------
Other income:
Trust department income 507 561 264 261
Service charges on deposit accounts 167 165 84 86
Other income 266 225 152 127
------ ------ ------ ------
Total other income 940 951 500 474
------ ------ ------ ------
Other expense:
Salaries and employee benefits 1,667 1,351 879 674
Occupancy expense 123 124 60 53
Equipment expense 210 225 101 107
Data processing 113 152 66 76
Other expense 794 771 468 398
------ ------ ------ ------
Total other expense 2,907 2,623 1,574 1,308
------ ------ ------ ------
Income before income taxes 2,081 2,053 963 1,066
Income taxes 735 794 330 444
------ ------ ------ ------
Net income $1,346 $1,259 $ 633 $ 622
====== ====== ====== ======
Earnings per common share outstanding $ .90 $ .83 $ .42 $ .41
====== ====== ====== ======
Earnings per common share outstanding,
assuming dilution $ .90 $ .83 $ .42 $ .41
====== ====== ====== ======
Dividends per share $ .26 $ .24 $ .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)
Six months ended June 30, 2000 and 1999
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,346 $ 1,259
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 60 60
Depreciation and amortization 141 175
(Accretion) amortization of securities, net (55) (20)
(Increase) decrease in interest receivable (269) 41
Increase in interest payable 62 0
Decrease in prepaid expenses 22 37
Decrease in accrued expenses (60) (110)
Decrease in other assets 4 192
Decrease in other liabilities (13) (221)
Change in unearned income 0 0
Increase in taxes payable 16 148
-------- --------
Net cash provided by operating activities 1,315 1,561
-------- --------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock (828) 0
Purchases of available-for-sale securities (21,430) (18,130)
Proceeds from sales of available-for-sale securities 4,787 11,447
Proceeds from maturities of available-for-sale securities 13,483 16,000
Proceeds from maturities of held-to-maturity securities 6 10
Net increase in loans (4,922) (3,986)
Capital expenditures (156) (103)
Recoveries of loans previously charged-off 16 10
-------- --------
Net cash (used in) provided by investing activities (9,044) 5,248
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</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)
Six months ended June 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 7,875 14,616
Net decrease in time deposits (6,284) (3,958)
Advances from Federal Home Loan Bank 19,000 0
Principal payments on advances from Federal Home Loan Bank (10,667) (10,762)
Dividends paid (706) (601)
Issuance of common stock 0 0
Net repurchase of common stock (471) (1,001)
-------- --------
Net cash (used in) provided by financing activities 8,707 (1,706)
-------- --------
Net increase in cash and cash equivalents 978 5,103
Cash and cash equivalents at beginning of period 7,716 12,134
-------- --------
Cash and cash equivalents at end of period $ 8,694 $ 17,237
======== ========
Supplemental disclosures:
Interest paid $ 3,844 $ 3,250
Income taxes paid 706 641
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 six months ended June 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 (LOSS)
-----------------------------------
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 Six months ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 633 $ 622 $ 1,346 $ 1,259
Net change in unrealized holding (losses) gains
on securities during period ( 28) (885) (77) (1,207)
------ ------- ------- -------
Comprehensive income (loss) $ 605 ($ 263) $ 1,269 $ 52
======= ======= ======= =======
</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>
Six months ended June 30, 2000
Basic EPS
Net income and income available to common stockholders $1,346 1,496 $.90
Effect of dilutive securities, options -- 0 --
------ ------
Diluted EPS
Income available to common stockholders and assumed
conversions $1,346 1,496 $.90
====== =====
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
====== ======
</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 June 30, 2000
Basic EPS
Net income and income available to common stockholders $633 1,491 $.42
Effect of dilutive securities, options 0 --
----- ------
Diluted EPS
Income available to common stockholders and assumed
conversions $633 1,491 $.42
==== =====
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
==== ======
</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 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 2000 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 second calendar
quarter of the Year 2000 of Salisbury Bancorp, Inc., which includes the accounts
of Salisbury Bank and Trust Company, its sole subsidiary. 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.
The Company's net income for the six months ended June 30, 2000 was
$1,346,000 as compared to $1,259,000 for the same time period ended June 30,
1999. This represents an increase of $ 87,000 or 6.9%. Earnings per diluted
share increased 8.4% for the first six months of 2000 and amounted to $.90 per
diluted share as compared to $.83 earnings per diluted share for the same period
a year ago. The increase in earnings is primarily the result of growth in
interest income and reflects repurchases of common stock by the Company, which
combined to improve the Company's return on equity from 12.1% for the first six
months of 1999 to 13.3% for the first six months of 2000. Total assets at June
30, 2000 were $225,367,000 compared to $215,241,000 at June 30, 1999. While the
Company has grown in asset size, the Company has carefully monitored the quality
of its assets. During this period, nonperforming loans decreased from $1,659,000
to $493,000 or 70.3% and total nonperforming assets decreased from $1,839,000 to
$568,000, a decrease of 69.1%. The Company's asset mix has also experienced a
change during this period which has contributed to the increase in interest
income as new loan demand has resulted in total outstanding net loans increasing
to an all time high of $ 129,159,000. This compares to total net loans
outstanding at June 30, 1999 of $123,059,000. The increase in income coupled
with management's continuing efforts to control operating expenses have resulted
in the overall increase in earnings when comparing the first six months of 2000
to the same period in 1999.
As a result of the Company's financial performance, the Board of
Directors declared a second quarter cash dividend of $.13 per common share which
compares to a $.12 per common share second quarter dividend a year ago. Year to
date cash dividends total $.26 per common share, an increase of 8.3% over the
1999 year to date cash dividend of $.24 per common share.
11
<PAGE>
SIX MONTHS ENDED JUNE 30,2000
AS COMPARED TO SIX MONTHS ENDED JUNE 30,1999
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 securities 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 tax rate of 34% for all
periods presented.
(amounts in thousands) (unaudited)
Six months ended June 30, 2000 1999
---- ----
Interest Income $ 8,014 $ 7,035
(financial statements)
Tax Equivalent Adjustment 168 132
------- -------
Total Interest Income (on an FTE basis) 8,182 7,167
Interest Expense (3,906) (3,250)
------- -------
Net Interest Income-FTE $ 4,276 $ 3,917
====== ======
Interest and dividend income on a FTE basis for the six months ended
June 30, 2000 totaled $8,182,000 as compared to $7,167,000 for the same time
period in 1999. This is an increase of $1,015,000 or14.2%. The increase is
primarily the result of a growth in average earning assets of $19,919,000 or
9.8% when the six month period ended June 30, 2000 is compared to the six month
period ended June 30, 1999, as well as a general economic environment of rising
interest rates. Overall the yield on earning assets was 7.37% compared to 7.08%
a year ago.
Interest expense for the first six months of 2000 totaled $3,906,000
compared to $3,250,000 for the same period in 1999. Interest paid on deposits
increased $70,000. This is primarily the result of a rising rate environment, as
deposit levels remained consistent when comparing 2000 to 1999. Increased
borrowings from the Federal Home Loan Bank had the most significant impact as
total interest expense increased $656,000 or 20.2% to $3,906,000 for the first
six months of 2000 compared to $3,250,000 for the comparable period in 1999.
Generally, higher interest rates and the increased borrowings have
resulted in an increase in the cost of funds of 36 basis points to 4.42%
compared to 4.06% a year ago. Overall net interest income (on an FTE basis)
totaled $4,276,000 for 2000 and $3,917,000 for 1999. Although interest margins
continue to be pressured by aggressive competition, increased volumes of
deposits and borrowings have resulted in an increase in net interest income of
$359,000 or 9.2% when comparing the June 2000 totals to those of June 1999.
Noninterest Income
------------------
Noninterest income totaled $940,000 for the six months ended June 30,
2000 as compared to $951,000 for the six months ended June 30, 1999. A decrease
in Trust Department income of $54,000 accounts for most of the difference. The
timing of estate settlement fees taken into income fluctuates and is difficult
to predict. The first six 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 have
increased to $433,000 which represents an increase of 11.0%. 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 began
early in 2000.
12
<PAGE>
Noninterest Expense
-------------------
Noninterest expense totaled $2,907,000 for the first six months of
2000 as compared to $2,623,000 for the same period in 1999. This is an increase
of $284,000 or 10.8%. Salaries and employee benefits totaled $1,667,000 for the
six month period ended June 30, 2000 compared to $1,351,000 for the
corresponding period in 1999. Earlier this year the Company expanded its
"Mortgage Makers" menu of mortgage products. This expansion program has been
instrumental in increasing the loan portfolio to its current level of
$129,159,000. This has resulted in the need to increase the staff to 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 this
increase of $316,000 of 23.4%. Equipment expense totaled $210,000 at June 30,
2000 a decrease of $15,000 or 6.7%. On a combined basis, the aggregate of
occupancy expense, data processing, legal and all other expenses decreased 1.6%
to $1,030,000 for the first six months of 2000 compared to $1,047,000 for the
comparable period in 1999. This is a reflection of management's continuing
efforts to control operating expenses.
Income Taxes
------------
The income tax provision for the six months ended June 30, 2000
totaled $735,000 in comparison to $794,000 a year ago. The decrease reflects the
increase in tax exempt interest income earned from the securities portfolio and
the reduction of state income tax to 7.50%.
THREE MONTHS ENDED JUNE 30, 2000
AS COMPARED TO THREE MONTHS ENDED JUNE 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 June 30, 2000 1999
---- ----
Interest Income $ 4,034 $ 3,548
(financial statements)
Tax Equivalent Adjustment 84 68
------- -------
Total interest income (on an FTE basis) 4,118 3,616
Interest Expense (1,967) (1,618)
------- -------
Net Interest Income-FTE $ 2,151 $ 1,998
======= =======
Net Interest Income
-------------------
Total interest and dividend income on a FTE basis equaled $ 4,118,000
for the three months ended June 30, 2000 as compared to $3,616,000 for the same
period in 1999, an increase of $502,000 or 13.9%. Although a rising rate
environment influenced interest income, the primary growth resulted from the
loan portfolio which, compared to June 30, 1999, increased a net of $6,100,000
or 5.0% to $129,159,000 at June 30, 2000 and the securities portfolio which,
compared to June 30, 1999, increased $11,628,000 or 16.6% to $81,612,000 at June
30, 2000. At June 30, 1999, the loan portfolio totaled $123,059,000 and the
securities portfolio totaled $69,984,000.
Interest expense on deposits increased $41,000 for the quarter to
$1,273,000 compared to $1,232,000 for the same quarter in 1999. This increase is
primarily the result of a rising rate environment. However, interest expense on
Federal Home Loan Bank advances increased to $694,000 in 2000 as compared to
$386,000 for the same period in 1999 as borrowings increased $17,687,000 to
$48,045,000 at June 30,2000 compared to $30,358,000 at June 30, 1999. This is a
reflection of the Company's utilization of these borrowings as a component of
its funding strategy.
13
<PAGE>
As a result, net interest and dividend income on an FTE basis for the
three months ended June 30, 2000 totaled $2,151,000 as compared to $1,998,000
for the same period in 1999. The increase was $153,000 or 7.7%.
Noninterest Income
------------------
Noninterest income totaled $500,000 for the three months ended June
30, 2000 as compared to $474,000 for the three months ended June 30, 1999. This
is an increase of $26,000 or 5.5%. This is primarily the result of increased
transaction volume from deposit accounts.
Noninterest Expense
-------------------
Noninterest expense totaled $1,574,000 for the three months ended
June 30, 2000 as compared to $1,308,000 for the same period in 1999. This
represents an increase of $266,000 or 20.3%. Salaries and benefits increased $
205,000 to $879,000. There is some increase caused by the addition of staff.
Primarily however, the increase is the result of salary increases and increased
cost of employee benefits. In the aggregate, occupancy, equipment, legal and
data processing expenses decreased to $258,000 from $260,000. This decrease is
primarily the result of planned strategy to enhance control of operating
expenses. Securities sold at a loss of $61,000 accounts for the increase in
other expenses to $755,000, which compares to $711,000 a year ago.
Income Taxes
------------
The income tax provision for the three months ended June 30, 2000
totaled $330,000 in comparison to an income tax provision of $444,000 for the
same period in 1999. The decrease reflects both an increase in tax exempt income
and a reduction of the state income tax rate paid by the Company.
Net Income
----------
Overall net income totaled $633,000 for the second quarter of 2000
compared to $622,000 for the comparable period of 1999. This increase of $11,000
can be attributed to an increase in earning assets, a modest increase in
noninterest income as well as management's continuing efforts to control
operating expenses.
Financial Condition
-------------------
The Company's assets at June 30, 2000 totaled $225,367,000 compared
to $215,385,000 at December 31,1999. This is an increase of $9,982,000 or 4.6%.
During this six month period net loans increased $4,846,000 or 3.9% and the
securities portfolio increased $3,868,000 or 5.0%. This increase in earning
assets was funded primarily by an increase in Federal Home Loan Bank advances
and by growth in deposits. When comparing total assets at June 30, 2000 to total
assets at June 30, 1999, there is an increase of $10,126,000. This growth in
assets has enhanced the earnings opportunities for the Company.
Securities
----------
As of June 30, 2000, the securities portfolio totaled $ 81,612,000,
which compares to a total portfolio of $77,744,000 at December 31, 1999. The
following table presents the carrying values of the securities portfolio at June
30, 2000 and December 31, 1999.
14
<PAGE>
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
(amounts in thousands)
<S> <C> <C>
Available-for-sale securities:
Equity securities $ 127 $ 137
Debt securities issued by the U.S. Treasury and
Other U.S. government corporations and agencies 37,994 33,290
Debt securities issued by states of the United States
And political subdivisions of the states 12,625 12,379
Mortgage-backed securities 27,453 29,347
Held-to-maturity securities:
Mortgage-backed securities 483 489
Federal Home Loan Bank stock 2,930 2,102
------- -------
Total Securities $81,612 $77,744
======= =======
</TABLE>
At June 30, 2000, $483,000 of the securities portfolio was classified
as held-to-maturity 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 ($1,912,000) at June
30, 2000 compared to ($1,835,000) at December 31, 1999. The decrease is
attributable to continuing movement in interest rates and activity in the
securities markets.
Loans
-----
During the first quarter of 2000 the Company expanded its menu of
mortgage products. This expansion program has been instrumental in increasing
the loan portfolio. Net loans outstanding amounted to $129,159,000 at June 30,
2000. This is an increase of $4,846,000 or 3.9% when compared to net loans
outstanding of $124,313,000 at December 31, 1999. Company efforts continue to
develop new lending business. The residential mortgages portfolio increased
$4,689,000 or 5.4% from $86,680,000 at December 31, 1999 to $91,369,000 at June
30, 2000.
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 loan losses was made during the first six months of 2000, the same as the
comparable period in 1999. Nonaccrual loans were $245,000 at June 30, 2000
compared to $473,000 at December 31, 1999. Accruing loans past due 90 days or
more were $236,000 at June 30, 2000 compared to $10,000 at December 31, 1999.
Management believes this to be an isolated situation and does not represent any
trend towards increased delinquency of loans. Restructured loans remained
unchanged at $11,000. Overall nonperforming loans represent 0.38% of total loans
outstanding at June 30, 2000.
Loans totaling $61,000 were charged off by the Company during the
first six months of 2000 compared to $125,000 for the comparable period in 1999.
These chargeoffs consisted primarily of loans to consumers. A total of $16,000
of previously charged off loans was recovered during the first six months of
2000 compared to $10,000 in 1999. The allowance for loan losses at December
31,1999 was $1,160,000 or 0.93% of total loans outstanding. At June 30, 2000 the
allowance totaled $1,174,000 or 0.90% of total loans outstanding. The decrease
in percentage reflects the growth in the loan portfolio despite an increase in
the amount of the allowance for loan losses. At June 30, 2000 the allowance for
loan losses represented 244% of nonaccrual loans and loans which were past due
90 days and still accruing as compared to 240% at December 31, 1999.
15
<PAGE>
Deposits
--------
Total deposits, which constitute the principal funding source of the
Company's assets, have increased slightly since December 31, 1999 from
$154,358,000 to $155,909,000 at June 30, 2000. While there occasionally may be
slight increases and decreases in average deposits from one quarter to the next,
the overall trend is generally one of controlled growth. By adjusting the rates
of interest paid on deposits management can control such growth. Borrowings from
the Federal Home Loan Bank provides the Bank with alternative funding.
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, 2000, total
borrowings had increased $8,333,000 to $48,045,000 when compared to December 31,
1999. Management expects that it will continue to employ this type of arbitrage,
which is part of an interest rate strategy.
Capital
-------
The Company's capital at June 30, 2000 totaled $20,306,000. This
represents an increase of $411,000 or 2.1% from the December 31, 1999 total
capital of $19,895,000. The increase in equity resulted from the net income of
$1,346,000 or $0.90 per diluted share, offset in part, by a decrease in net
unrealized losses on securities (net of taxes) during the period of $77,000,
dividends declared of $387,000 and stock repurchases totaling $471,000. The
stock repurchase program began in November 1998 to acquire up to approximately
10% of the outstanding common stock of the Company. To date, 81,445 shares have
been repurchased which represents approximately 5.2%. 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 involve
efforts to continue to grow the Company's base of earning assets and involve
additional repurchases of common stock on terms designed to improve returns on
equity and per share earnings performance.
The following reflects the Company's capital ratios at June 30, 2000 and
1999: (unaudited)
Actual Actual
June 2000 June 1999
--------- ---------
Total Risk-Based Capital 21.02% 21.14%
Tier 1 Risk-Based Capital 19.93% 19.95%
Leverage Ratio 9.72% 9.96%
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 measures the sensitivity of the
Company's income to short and long term changes in interest rates. One of the
primary objectives of the Committee is to manage the Company's interest rate
risk and control the sensitivity of earnings to changes in interest rates in
order to improve net interest income and interest rate margins and to manage the
maturities and interest rate sensitivities of assets and liabilities. At June
30, 2000 the Company's interest rate position was slightly asset sensitive which
16
<PAGE>
would tend to result in increased earnings should interest rates rise.
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.
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 June 30, 2000, the Company had approximately $26,531,000 in loan commitments
and unadvanced funds outstanding. The Company maintains ample liquidity to meet
its 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 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 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.
17
<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
The Annual Meeting of Shareholders of Salisbury Bancorp, Inc., the
holding company for Salisbury Bank and Trust Company, was held on Saturday,
April 29, 2000. 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 four 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Withholding
For Authority
Gordon C. Johnson Number of Shares: 1,250,110 2,964
Percentage of
Shares Voted: 99.8% .2%
Percentage of Shares
Entitled to Vote: 83.4% .2%
Withholding
For Authority
Holly J. Nelson Number of Shares: 1,232,398 20,676
Percentage of
Shares Voted: 98.3% 1.7%
Percentage of Shares
Entitled to Vote: 82.3% 1.3%
Withholding
For Authority
John E. Rogers Number of Shares: 1,250,140 2,934
Percentage of
Shares Voted: 99.8% .2%
Percentage of Shares
Entitled to Vote: 83.4% .2%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Withholding
For Authority
Walter C. Shannon, Jr. Number of Shares: 1,248,898 4,176
Percentage of
Shares Voted: 99.7% .3%
Percentage of Shares
Entitled to Vote: 83.4% .2%
</TABLE>
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The appointment of Shatswell, MacLeod & Company, P.C. as independent
auditors for the Company for the year ending December 31, 2000 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, MacLeod & Company, P.C. as independent auditors for the year ending
December 31, 2000 was a follows:
For Against Abstain
Number of Votes: 1,235,967 1,861 15,246
Percentage of Shares Voted: 98.6% .1% 1.3%
Percentage of Shares
Entitled to Vote: 82.5% .1% 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 5, 2000 to report the events
and results of the Company's Annual Meeting of Shareholders that
was held on Saturday, April 29, 2000.
The Company filed a Form 8-K on May 23, 2000 to report that the
Company's Board of Directors declared a quarterly cash dividend
of $.13 per share to be paid on July 28, 2000 to shareholders of
record as of June 30, 2000.
19
<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: August 10, 2000 by: /s/ John F. Perotti
---------------- ------------------------
John F. Perotti
President/Chief Executive Officer
Date: August 10, 2000 by: /s/ John F. Foley
---------------- ------------------------
John F. Foley
Chief Financial Officer
20
