SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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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 [ ]
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents Incorporated by Reference: None
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer"s classes of
common stock, as of April 25, 2002
1,422,358
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SALISBURY BANCORP, INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1. Condensed Financial Statements:
Condensed Consolidated Balance Sheets - March 31, 2002 (unaudited)
and December 31, 2001 4
Condensed Consolidated Statements of Income - three months ended
March 31, 2002 and 2001 5
(unaudited)
Condensed Consolidated Statements of Cash Flows - three months ended
March 31, 2002 and 2001 6
(unaudited)
Notes to Consolidated Financial Statements 8
Item 2. Management"s Discussion and Analysis 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
Part I--FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
3
SALISBURY BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
MARCH 31, DECEMBER 31,
2002 2001
---- ----
(unaudited)
ASSETS Cash & due from banks:
Non-Interest Bearing $ 6,587 $ 7,184
Interest Bearing 712 258
Federal funds sold 3,000 18,150
Money market mutual funds 489 618
Cash and cash equivalents 10,788 26,210
Investment Securities:
Held to maturity securities at amortized cost 329 400
Available-for-sale securities at market value 114,688 102,248
Federal Home Loan Bank stock, at cost 2,945 2,945
Loans:
Commercial, financial and agricultural 9,982 10,797
Real estate-construction and land development 4,286 3,935
Real estate-residential 99,783 102,201
Real estate-commercial 17,444 17,423
Consumer 9,601 10,030
Other 131 125
Allowance for loan losses (1,455) (1,445)
--------- ---------
Net loans 139,772 143,066
Bank premises & equipment 2,665 2,683
Investment in real estate 75 75
Accrued interest receivable 1,901 1,681
Intangible assets on branch acquisition 3,185 3,227
Other assets 1,152 1,067
--------- ---------
Total Assets $ 277,500 $ 283,602
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 33,048 $ 37,702
Savings & NOW 50,630 48,435
Money Market 47,110 48,897
Time 67,801 66,317
--------- ---------
Total Deposits 198,589 201,351
Federal Home Loan Bank advances 52,672 53,004
Due to broker 954 4,204
Other liabilities 1,649 1,680
--------- ---------
Total Liabilities 253,864 260,239
--------- ---------
Shareholders' equity:
Common stock, par value $.10 per share;
Authorized 3,000,000 shares
Issued and outstanding shares: 1,422,358 at March 31, 2002 142 142
and 1,422,358 at December 31, 2001
Additional paid-in capital 2,281 2,281
Retained earnings 21,628 21,219
Accumulated other comprehensive loss (415) (279)
--------- ---------
Total Shareholders' Equity 23,636 23,363
--------- ---------
Total Liabilities and Shareholders' Equity $ 277,500 $ 283,602
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
SALISBURY BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
March 31, 2002 and 2001
(unaudited)
Three Months Ended
March 31
2002 2001
---- ----
Interest and dividend income:
Interest and fees on loans $2,569 $2,886
Interest and dividends on securities:
Taxable 981 1,103
Tax-exempt 434 181
Dividends on equity securities 35 60
Other interest 42 69
------ ------
Total interest and dividend income 4,061 4,299
------ ------
Interest expense:
Interest on deposits 1,088 1,450
Interest on Federal Home Loan Bank advances 710 754
------ ------
Total interest expense 1,798 2,204
------ ------
Net interest and dividend income 2,263 2,095
Provision for loan losses 37 37
------ ------
Net interest and dividend income after provision
for loan losses 2,226 2,058
------ ------
Other income:
Trust department income 253 246
Service charges on deposit accounts 114 105
Gain on sale of available-for-sale securities 15 21
Other income 182 153
------ ------
Total other income 564 525
------ ------
Other expense:
Salaries and employee benefits 1,052 929
Occupancy expense 73 63
Equipment expense 123 124
Data processing 134 135
Other expense 433 361
------ ------
Total other expense 1,815 1,612
------ ------
Income before income taxes 975 971
Income taxes 253 329
------ ------
Net income $ 722 $ 642
====== ======
Earnings per common share outstanding $ .51 $ .44
====== ======
Earnings per common share outstanding,
assuming dilution $ .51 $ .44
====== ======
Dividends per share $ .22 $ .21
====== ======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
SALISBURY BANCORP, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(amounts in thousands)
Three months ended March 31, 2002 and 2001
(unaudited)
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 722 $ 642
Adjustments to reconcile net income to net cash provided by
operating activities:
Accretion of securities, net 121 (42)
Gain on sales of available-for-sale securities, net (14) (20)
Provision for loan losses 37 38
Depreciation and amortization 80 84
Amortization of intangible assets from branch acquisition 42 0
Accretion of fair value adjustment on deposits (43) 0
(Increase) decrease in interest receivable (220) 428
Deferred tax benefit 170 0
Increase in prepaid expenses (18) (102)
Increase in other assets (134) (251)
Increase in taxes payable 34 436
Decrease in accrued expenses (164) (164)
Increase (decrease) in interest payable (1) 50
Increase (decrease) in other liabilities 100 (37)
Net cash provided by operating activities 712 1,062
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock (0) (15)
Purchases of available-for-sale securities (29,760) (41,089)
Proceeds from sales of available-for-sale securities 8,634 31,909
Proceeds from maturities of available-for-sale securities 5,076 230
Proceeds from maturities of held-to-maturity securities 71 2
Net (increase) decrease in loans 3,253 (5,165)
Recoveries of loans previously charged-off 4 92
Capital expenditures (62) (46)
Net cash used in investing activities (12,784) (14,082)
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
SALISBURY BANCORP, INC.
-----------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(amounts in thousands)
Three months ended March 31, 2002 and 2001
(unaudited)
(continued)
2002 2001
---- ----
Cash flows from financing activities:
Net decrease in demand deposits, NOW and
savings accounts (4,203) (3,362)
Net increase (decrease) in time deposits 1,484 (500)
Advances from Federal Home Loan Bank 0 10,800
Principal payments on advances from Federal Home Loan Bank (332) (359)
Dividends paid (299) (554)
Net repurchase of common stock 0 (330)
-------- --------
Net cash provided by financing activities (3,350) 5,695
Net decrease in cash and cash equivalents (15,422) (7,325)
Cash and cash equivalents at beginning of year 26,210 13,759
-------- --------
Cash and cash equivalents at end of year $ 10,788 $ 6,434
======== ========
Supplemental disclosures:
Interest paid $ 1,799 $ 2,154
Income taxes paid 49 102
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
SALISBURY BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying condensed interim financial statements are unaudited and
include the accounts of Salisbury Bancorp, Inc. (the "Company"), those of
Salisbury Bank and Trust Company (the "Bank"), its wholly-owned subsidiary and
the Bank"s subsidiary, S.B.T. Realty, Inc. The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to SEC Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America (GAAP)
for complete financial statements. All significant intercompany accounts and
transactions have been eliminated in the consolidation. These financial
statements reflect, in the opinion of Management, all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
Company"s financial position and the results of its operations and its cash
flows for the periods presented. Operating results for the three months ended
March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's 2001 Annual Report on Form 10-KSB.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by GAAP.
NOTE 2 -COMPREHENSIVE INCOME
----------------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" establishes standards for disclosure of comprehensive income, which
includes net income and any changes in equity from non-owner sources that are
not recorded in the income statement (such as changes in the net unrealized
gains (losses) on securities). The purpose of reporting comprehensive income is
to report a measure of all changes in equity that result from recognized
transactions and other economic events of the period other than transactions
with owners in their capacity as owners. The Company's one source of other
comprehensive income is the net unrealized gain (loss) on securities.
Comprehensive Income
Three months ended
March 31,
2002 2001
---- ----
Net income $ 722 $ 642
Net unrealized (losses) gains
on securities during period (136) 642
------ -- ---
Comprehensive income $ 586 $1,286
====== ======
8
NOTE 3 - COMPUTATION OF EARNINGS PER SHARE
The Company has computed and presented earnings per share ("EPS") in accordance
with Statement of Financial Accounting Standards No. 128. Reconciliation of the
numerators and the denominators of the basic and diluted per share computation
for net income are as follows:
(amounts in thousands, except per share data)
(unaudited)
Income Shares Per-Share
(Numerator) (Denominator) Amount
Three months ended March 31, 2002
Basic EPS
Net income and income available to common stockholders $ 722 1,422 $ .51
Effect of dilutive securities, options 0
----- -----
Diluted EPS
Income available to common stockholders and assumed
conversions $ 722 1,422 $ .51
===== =====
Three months ended March 31, 2001
Basic EPS
Net income and income available to common stockholders $ 642 1,447 $ .44
Effect of dilutive securities, options 0
----- -----
Diluted EPS
Income available to common stockholders and assumed
conversions $ 642 1,447 $ .44
===== =====
NOTE 4 - IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133, as amended by SFAS No.
138, establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. The Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company adopted this statement as of
January 1, 2001. In management's opinion, the adoption of SFAS No. 133 did not
have a material effect on the Company's consolidated financial statements.
FASB has issued SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement replaces
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and rescinds SFAS Statement No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No. 125". SFAS No.
140 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. This statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. This statement is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001; however, the disclosure provisions
are effective for fiscal years ending after December 15, 2000. In management's
opinion, the adoption of SFAS No. 140 did not have a material effect on the
Company's consolidated financial statements.
Statement of Financial Accounting Standards No. 141 improves the consistency of
the accounting and reporting for business combinations by requiring that all
business combinations be accounted for under a single method - the purchase
method. Use of the pooling-of-interests method is no longer permitted. Statement
No. 141 requires that the purchase method be used for business combinations
initiated after June 30, 2001. The impact of adopting this Statement on the
consolidated financial statements was not material.
Statement of Financial Accounting Standards No. 142 requires that goodwill no
longer be amortized to earnings, but instead be reviewed for impairment. The
amortization of goodwill ceases upon adoption of the Statement, which for most
companies, was January 1, 2002. The impact of adopting this Statement on the
consolidated financial statements was not material.
9
Part I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
10
Overview:
---------
Salisbury Bancorp, Inc. (the "Company"), a Connecticut corporation, is the
holding company for Salisbury Bank and Trust Company, (the "Bank") which is
headquartered in Lakeville, Connecticut. The Company's sole subsidiary is the
Bank, which has a full service Trust Department and offers commercial banking
products and services through four full service offices in the towns of Canaan,
Lakeville, Salisbury and Sharon, Connecticut.
The following is Management's discussion of the financial condition and results
of operations on a consolidated basis of Salisbury Bancorp, Inc. which includes
the accounts of Salisbury Bank and Trust Company. Management's discussion should
be read in conjunction with Salisbury Bancorp, Inc.'s Annual Report on Form
10-KSB for the year ended December 31, 2001.
In order to provide a strong foundation for building shareholder value and
serving its customers, the Company remains committed to investing in the
technological and human resources necessary to implement new personalized
financial products and to deliver them with the highest quality of service.
During 2001, the Bank introduced a new Internet banking product called "SBTNET".
It now has over 1000 customers signed up and using the product. Just recently,
the Bank's home page of the website was remodeled to accommodate the expansion
of its new "free" online services "SBT VCARD" and "SBT PAL". Future enhancements
are planned as the Bank continues to develop additional Internet banking
products for its customers.
Net Income for the three months ended March 31, 2002 increased $80,000 or 12.46%
to $722,000 or $.51 per diluted share as compared to net income of $642,000 or
$.44 per diluted share for the three months ended March 31, 2001. The
improvement in net income is primarily the result of improved net interest and
dividend income, reductions in interest expense, as well as a reduction in
income taxes which resulted from increased income from tax exempt securities.
During the first calendar quarter of 2002, the Company's total assets decreased
by $6,102,000 or 2.15% and totaled $277,500,000, which compares to $283,602,000
at December 31, 2001. This decrease is not considered to be indicative of any
trend. During the first quarter of 2002, the asset mix has changed resulting in
an increase in interest income. Federal funds sold totaled $18,150,000 at
December 31, 2001. This total is somewhat higher than the Bank's normal
operating range of funds and was primarily the result of the cash received from
the acquisition of the Canaan branch. During the first quarter of 2002 a
significant amount of these funds were invested in the securities portfolio of
the Bank which increased 12.05% to $115,017,000 at March 31, 2002 compared to
$102,648,000 at December 31, 2001. Competition for loans remains aggressive in
the Bank's market area. This is coupled with an economic environment of
generally lower interest rates that promote refinancing to longer term fixed
rate products and has resulted in a decrease in the loan portfolio to $
139,772,000 at March 31, 2002 as compared to $143,066,000 at December 31, 2001.
The Company continues to carefully monitor the quality of its assets. During
this period, nonperforming loans increased from $587,000 at December 31, 2001 to
$1,022,000 at March 31, 2002 which continues to represent approximately one
percent of total loans. Presently, the Company does not have any assets
classified as Other Real Estate Owned; therefore, total nonperforming loans
represent total nonerforming assets as well. Deposits decreased to $198,589,000
at March 31, 2002. This compares to total deposits of $201,351,000 at December
31, 2001. This decrease represents the traditional seasonal cash flows of the
Company's deposit customers.
As a result of the Company's first quarter financial performance, the Board of
Directors declared a first quarter cash dividend of $.22 per common share. This
compares to a cash dividend of $.21 per common share that was paid for the first
quarter of 2001. The dividend was paid on April 26, 2002 to shareholders of
record as of March 29, 2002. This represents a dividend payout ratio of 43.14%.
The Company's risk-based capital ratios at March 31, 2002, which included the
risk weighted assets and capital of the Salisbury Bank and Trust Company were
15.34% for Tier 1 capital and 16.45% for total capital. The Company's leverage
ratio was 7.58% at March 31, 2002.
11
THREE MONTHS ENDED MARCH 31, 2002
AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Net Interest Income
-------------------
The Company's earnings are primarily dependent upon net interest income and
noninterest income from its community banking operations with net interest
income being the largest component of the Company's revenue. Net interest and
dividend income is the difference between interest and dividends earned on the
loan and securities portfolios and interest paid on deposits and advances from
the Federal Home Loan Bank. For the following discussion, net interest income is
presented on a fully taxable-equivalent ("FTE") basis. FTE interest income
restates reported interest income on tax exempt loans and securities as if such
interest were taxed at the Company's federal income tax rate of 34% for all
periods presented.
(amounts in thousands)
Three months ended March 31 2002 2001
--------------------------- ---- ----
Interest and Dividend Income
----------------------------
(financial statements) $4,061 $4,299
Tax Equivalent Adjustment 224 93
------ ------
Total interest income (on an FTE basis) 4,285 4,392
Interest Expense 1,798 2,204
------ ------
Net Interest and Dividend Income-FTE $2,487 $2,188
====== ======
Interest and dividend income on an FTE basis for the three months ended March
31, 2002 totaled $4,285,000 as compared to $4,392,000 for the same time period
in 2001. Although there is an increase in earning assets, this decrease of
$107,000 or 2.44% in interest and dividend income is primarily the result of an
economic environment of generally lower interest rates. This is coupled with a
change in the asset mix of earning assets, which now includes an increased
portfolio of tax exempt securities, and results in a significant increase in the
tax equivalent adjustment to $224,000 in 2002 compared to $93,000 a year ago.
This is an increase of $131,000 or 141%.
During the first quarter of 2002, interest expense on deposits amounted to
$1,088,000 as compared with $1,450,000 for the same period in 2001. Although
deposits increased, primarily as the result of the Canaan Branch acquisition
during the fourth quarter of 2001, generally lower interest rates resulted in
the decrease in interest expense. Interest on Federal Home Loan Bank advances
decreased to $710,000 in 2002 from $754,000 for the same period in 2001. This is
the result of a decrease in funds borrowed to $52,672,000 in 2002 from
$53,004,000 in 2001.
Overall, net interest and dividend income (on an FTE basis) amounted to
$2,487,000 for the three months ended March 31, 2002 as compared with $2,188,000
for the same period in 2001. This increase of $299,000 represents a 13.67%
increase in net interest and dividend income.
Noninterest Income
------------------
Noninterest income totaled $564,000 for the quarter ended March 31, 2002. This
compares to $525,000 for the comparable quarter in 2001. Trust Department income
increased $7,000 to $253,000 from $246,000 a year ago. Service charges on
deposit accounts have increased $9,000 to $114,000 during the first quarter of
2002 compared to $105,000 for the same period last year. This is primarily the
result of an increase of deposit accounts transactions. Gains on sales of
available-for-sale securities totaled $15,000, a slight decrease from gains of
$21,000 in 2001. Other noninterest income increased $29,000 or 18.95% to
$182,000 for the three months ended March 31, 2002 from $153,000 for the
corresponding period in 2001. This is primarily the result of an increase in
fees earned from sales of mortgages in the secondary mortgage market.
12
Noninterest Expense
-------------------
Noninterest expense amounted to $1,815,000 for the first quarter of 2002. This
is an increase of $203,000 or 12.59% over the $1,612,000 reported for the same
period of 2001. Salaries and employee benefits increased $123,000 or 13.24%.
This is primarily the result of the additional staff hired to service the
increase in new business coupled with annual pay increases and increasing costs
of employee benefits. Occupancy and equipment expenses remained consistent when
comparing the two periods. Data processing costs also remained generally
unchanged when comparing the first quarter of 2002 to the first quarter of 2001.
Other operating expenses increased $72,000 or 19.94% to $447,000 for the three
months period ended March 31, 2002. This increase is primarily the result of the
amortization of intangible assets from the Canaan branch acquisition that
occurred during the last quarter of 2001. First quarter amortization expense for
2002 amounted to $41,000. The balance of the increase represents increases
normally associated with the operations of the Company. Total other operating
expenses amounted to $361,000 for the same period on 2001.
Income Taxes
------------
The income tax provision for the first three months of 2002 totaled $253,000 in
comparison to $329,000 for the same period in 2001. The decrease is primarily
the result of the impact of an increase in tax exempt interest income earned
from the securities portfolio.
Net Income
----------
Overall, net income totaled $722,000 for the three months period ended March 31,
2002. This compares to net income of $642,000 for the corresponding period in
2001. This is an increase of $80,000 or 12.46% and represents earnings per share
of $.51 per diluted share. This compares to earnings per diluted share of $.44
for the same period in 2001. The improvement in net income is primarily a
reflection of an increase in interest earning assets, which has resulted in an
increase in total net interest income.
Provisions and Allowances for Loan Losses
-----------------------------------------
Total loans at March 31, 2002 were $141,227,000 which compares to total loans of
$144,511,000 at December 31, 2001. This is a decrease of $3,284,000 or 2.27%. At
March 31, 2002 approximately 86% of the Bank's loan portfolio was related to
real estate products and although the portfolio decreased during the first
quarter of 2002, the concentration remained consistent as approximately 86% of
the portfolio was related to real estate. There were no material changes in the
composition of the loan portfolio during this period.
Credit risk is inherent in the business of extending loans. The Company
maintains an allowance or reserve for credit losses through charges to earnings.
The loan loss provision for the period ended March 31, 2002 was $37,000 and was
the same as the corresponding period of 2001.
The Bank formally determines the adequacy of the allowance on a monthly basis.
No material changes have been made in the estimation methods or assumptions that
the Bank uses in making this determination during the period ended March 31,
2002. This determination is based on assessment of credit quality or "risk
rating" of loans by senior management, which is submitted to the Board of
Directors for approval. Loans are initially risk rated when originated. If there
is deterioration in the credit, the risk rating is adjusted accordingly.
The allowance also includes a component resulting from the application of the
measurement criteria of Statements of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS114"). Impaired loans
receive individual evaluation of the allowance necessary on a monthly basis.
Impaired loans are defined in the Bank's Loan Policy as residential real estate
mortgages with balances of $300,000 or more and commercial loans of $100,000 or
more when it is probable that the Bank will not be able to collect all principal
and interest due according to the terms of the note. Such commercial loans and
residential mortgages will be considered impaired under any of the following
circumstances:
13
1. Non-accrual status;
2. Loans over 90 days delinquent;
3. Troubled debt restructures consummated after December 31, 1994; or
4. Loans classified as "doubtful", meaning that they have weaknesses,
which make collection or liquidation in full, on the basis of
currently existing facts, conditions, and values, highly questionable
and improbable.
The individual allowance for each impaired loan is based upon the present value
of expected future cash flows discounted at the loan's effective interest rate
or the fair value of the collateral if the loan is collateral dependent.
Specifically identifiable and quantifiable losses are immediately charged off
against the allowance.
In addition, a risk of loss factor is applied in evaluating categories of loans
generally as part of the periodic analysis of the allowance for loan losses.
This analysis reviews the allocations of the different categories of loans
within the portfolio and it considers historical loan losses and delinquency
figures as well as any recent delinquency trends.
The credit card delinquency and loss history is evaluated and given a special
loan loss factor because management recognizes the higher risk involved in such
loans. Concentrations of credit and local economic factors are also evaluated on
a periodic basis. Historical average net losses by loan type are examined as
well as trends by type. The Bank's loan mix over the same period of time is also
analyzed. A loan loss allocation is made for each type of loan multiplied by the
loan mix percentage for each loan type to produce a weighted average factor.
There have been no reallocations within the allowance during the period ended
March 31, 2002.
At March 31, 2002, the allowance for loan losses totaled $1,455,000 representing
142.37% of nonperforming loans which totaled $1,022,000 and 1.03% of total loans
of $141,227,000. This compares to $1,445,000 representing 246.17% of
nonperforming loans which totaled $587,000 and 1.00% of total loans of
$144,511,000 at December 31, 2001. Management does not believe that this
increase of $435,000 in nonperforming loans represents any trend towards
increased delinquency of loans, which would be likely to have an effect on the
level of the allowance for loan losses. A total of $32,000 loans were charged
off by the Company during the three month period ended March 31, 2002 as
compared to $19,000 charged off during the corresponding period in 2001. These
charged off loans consisted primarily of loans to individuals. A total of $4,000
of previously charged off loans was recovered during the three month period
ended March 31, 2002. Recoveries for the corresponding period in 2001 totaled
$92,000. When comparing the two periods, and excluding the one large recovery in
2001 of $82,000, net charge-offs were $28,000 for the period ended March 31,
2002 and $10,000 for the same period in 2001, neither of which significantly
impacted the level of the allowance for loan losses. Management believes that
the allowance for loan losses is adequate. While management estimates loan
losses using the best available information, no assurances can be given that
future additions to the allowance will not be necessary based on changes in
economic and real estate market conditions, further information obtained
regarding problem loans, identification of additional problem loans and other
factors, both within and outside of management's control. Additionally, with
expectations of the Company to grow its existing portfolio, future additions to
the allowance may be necessary to maintain adequate coverage ratios.
Capital
-------
At March 31, 2002, the Company had $23,636,000 in shareholder equity compared to
$23,363,000 at December 31, 2001. This represents an increase of $273,000 or
1.17%. Several components contributed to the change since December 2001.
Earnings year to date totaled $722,000. Market conditions have resulted in a
negative adjustment to unrealized comprehensive income of $136,000. The Company
also declared a first quarter cash dividend in 2002 resulting in a decrease in
capital of $313,000. Under current regulatory definitions, the Bank is "well
capitalized", the highest rating defined under the Federal Deposit Insurance
Corporation Improvement Act. As a result, the Bank pays the lowest deposit
premiums possible. One primary measure of capital adequacy for regulatory
purposes is based on the ratio of risk-based capital to risk weighted assets.
This method of measuring capital adequacy helps to establish capital
requirements that are more sensitive to the differences in risk associated with
various assets. It takes in account off-
14
balance sheet exposure in assessing capital adequacy and it minimizes
disincentives to holding liquid, low risk assets. At March 31, 2002, the Company
had a total risk-based capital ratio of 16.45% compared to 16.21% at December
31, 2001. The leverage ratio at March 31, 2002 was 7.58% which compares to 7.87%
at December 31, 2001. These capital ratios substantially exceed all applicable
requirements for "well capitalized" institutions as established by Federal Bank
supervisory standards.
Maintaining strong capital is essential to bank safety and soundness which
influence customer confidence, potential investors, regulators and shareholders.
However, the effective management of capital resources requires generating
attractive returns on equity to build value for shareholders while maintaining
appropriate levels of capital to fund growth, meeting regulatory requirements
and being consistent with prudent industry practices. Management believes that
the capital ratios of the Company and Bank are adequate to continue to meet the
foreseeable capital needs of the institution.
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 March
31, 2002, the Company's interest rate position was "asset sensitive". Therefore,
an increase in interest rates would generally have the effect of increasing
income as the Bank's assets reprice more quickly than its liabilities.
Alternatively, a decrease in interest rates would likely have a somewhat
detrimental effect on income as assets reprice to such rates more quickly than
liabilities. However, the level of interest rate risk is within the limits
approved by the Board of Directors. 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 March 31, 2002, the Company had
approximately $26,130,000 in loan commitments and unadvanced funds outstanding.
Management believes that the Company has ample liquidity to meet its present and
foreseeable needs.
Forward Looking Statements
--------------------------
This Form 10-QSB and future filings made by the Company with the Securities and
Exchange Commission, as well as other filings, reports and press releases made
or issued by the Company and the Bank, and oral statements made by executive
officers of the Company and the Bank, may include forward-looking statements
relating to such matters as:
(a) assumptions concerning future economic and business conditions and there
effect on the economy in general and on the markets in which the Company
and the Bank do business, and
(b) expectations for increased revenues and earnings for the Company and Bank
through growth resulting from acquisitions, attraction of new deposit and
loan customers and the introduction of new products and services.
Such forward-looking statements are based on assumptions rather than historical
or current facts and, therefore, are inherently uncertain and subject to risk.
Forth those statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Act of
1995.
The Company notes that a variety of factors could cause the actual results or
experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may effect the operation, performance, development and
results of the Company's and Bank's business include the following:
15
(a) the risk of adverse changes in business conditions in the banking industry
generally and in the specific markets in which the Bank operates;
(b) changes in the legislative an regulatory environment that negatively impact
the Company and Bank through increased operating expenses;
(c) increased competition from other financial and non-financial institutions;
(d) the impact of technological advances; and
(e) other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
Such developments could have an adverse impact on the Company's and the Bank's
financial position and results of operations.
Part II - OTHER INFORMATION
Item 1. - Legal Proceedings-Not applicable
Item 2. - Changes in Securities and Use of Proceeds-Not applicable
Item 3. - Defaults Upon Senior Securities-Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders-Not applicable
Item 5. - Other Information - Not applicable
Item 6. - Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Reports on Form 8-K:
The Company filed a Form 8-K on February 28, 2002 to report that the
Company's Board of Directors declared a quarterly cash dividend of $.22
per share to be paid on April 26, 2002 to shareholders of record as of
March 29, 2002.
16
SALISBURY BANCORP, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Salisbury Bancorp, Inc.
Date: May 13, 2002 by: /s/ John F. Perotti
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John F. Perotti
President/Chief Executive Officer
Date: May 13, 2002 by: /s/ John F. Foley
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John F. Foley
Chief Financial Officer