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, 1998March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-14854
Salisbury Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Connecticut 06-1514263
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization)Organization Identification No.)
5 Bissell Street Lakeville Connecticut 06039
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (860) 435-9801
--------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 5, 1998. 1,554,635April 30, 1999 1,509,542
SALISBURY BANCORP, INC.
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page ----No.
Item 1. Financial Statements:
Consolidated Balance Sheets --September 30, 1998--March 31, 1999
(unaudited) and December 31, 19971998 4
Consolidated Statements of Income --nine months and-- three months
ended September 30,March 31, 1999 and 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows --nine-- three months
ended September 30,March 31, 1999 and 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 109
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 1719
Item 2. Changes in Securities and Use of Proceeds 1719
Item 3. Defaults Upon Senior Securities 1719
Item 4. Submission of Matters to a Vote of Security Holders 1719
Item 5. Other Information 1719
Item 6. Exhibits and Reports on Form 8-K 1719
Signatures 1820
2
Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
3
SALISBURY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(amount in thousands, except per share data)
SEPTEMBER 30,MARCH 31 DECEMBER 31
1999 1998 1997
--------- ---------
(unaudited)
ASSETS
Cash & due from banks:
Non-interest bearing ..............................Non-Interest Bearing $ 3,8234,128 $ 7,1815,525
Interest bearing .................................. 66 167Bearing 950 409
Federal funds sold ................................ 8,625 4,3256,100 6,200
--------- ---------
Cash and cash equivalents ......................... 12,514 11,67311,178 12,134
Investment securities:Securities:
Held to maturity securities .............. 696 1,772576 579
Available-for-sale securities ............ 59,579 47,51166,352 78,655
Federal Home Loan Bank stock, at cost ............. 1,175 8332,056 2,056
Loans:
Commercial, financial and agricultural ......... 10,981 11,57510,977 10,692
Real estate-construction and land development .. 3,248 4,2033,780 3,392
Real estate-residential ........................ 78,834 77,33680,181 80,451
Real estate-commercial ......................... 14,665 13,35516,341 14,909
Consumer ....................................... 10,539 10,80510,023 10,430
Other .......................................... 562 655476 535
Allowance for loan losses ..................... (1,259) (1,226)(1,258) (1,260)
Unearned income ................................ (8) (12)(6) (6)
--------- ---------
Net loans .................................. 117,562 116,691120,514 119,143
Bank premises & equipment ......................... 2,548 2,7072,388 2,400
Other real estate owned ........................... 300 205180 180
Accrued interest receivable ....................... 1,318 1,2991,300 1,383
Other assets ...................................... 774 742547 696
--------- ---------
Total Assets ............................. $ 196,466205,091 $ 183,433217,226
========= =========
LIABILITIES
Deposits:
Demand ............................................ $ 27,42926,762 $ 26,49727,435
Savings & NOW ..................................... 62,006 67,44630,165 32,519
Money Market 35,043 32,367
Time .............................................. 60,544 62,23060,483 60,830
--------- ---------
Total deposits .................................... 149,979 156,173Deposits 152,453 153,151
Federal Home Loan Bank advances ................... 23,492 5,49730,741 41,120
Other liabilities ................................. 1,414 1,2801,204 1,400
--------- ---------
Total liabilities ........................ 174,885 162,950
--------- ---------Liabilities $ 184,398 $ 195,671
SALISBURY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(amount in thousands, except per share data)
MARCH 31 DECEMBER 31
1999 1998
--------- ---------
(unaudited)
Shareholders' equity:
Common stock, par value $.10 per share;
Authorized 3,000,000 shares
Issued: 1,554,635 shares ..................... 155
Outstanding: 1,554,635 sharesIssued and outstanding shares: 1,509,792 151
Authorized not issued shares: 1,490,208
Common stock, par value $3.33$.10 per share;
Issued:263,956 shares ........................ 879
Outstanding: 261,398 sharesIssued and outstanding shares: 1,556,286 156
Authorized not issued shares: 1,443,714
Additional paid-in capital ........................ 4,910 4,701
Net unrealized holding gain on AFS securities ..... 475 2973,891 4,882
Retained earnings ................................. 16,041 14,773
Treasury stock: 2,558 shares ...................... (167)16,616 16,160
Accumulated other comprehensive income 35 357
--------- ---------
Total shareholders' equity ............... 21,581 20,483Shareholders' Equity 20,693 21,555
--------- ---------
Total liabilitiesLiabilities and shareholders' equityShareholders' Equity $ 196,466205,091 $ 183,433217,226
========= =========
4
SALISBURY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts(amount in thousands, except per share data)
September 30,March 31, 1999 and 1998
and 1997
(unaudited)
Nine Months Ended
Three Months Ended
September 30 September 30March 31
--------------------
--------------------1999 1998
1997 1998 1997
------ ------ ------ ------------- -------
Interest and dividend income:
Interest and fees on loans .............................. $7,112 $7,076 $2,367 $2,379$ 2,337 $ 2,371
Interest and dividends on securities:
Taxable .............................................. 2,133 1,791 744 597940 689
Tax-exempt ........................................... 296 192 97 75125 99
Dividends on equity securities ............................ 44 41 1522 15
Other interest ............................................. 306 296 145 130
------ ------ ------ ------63 92
------- -------
Total interest and dividend income ............. 9,891 9,396 3,368 3,196
------ ------ ------ ------3,487 3,266
Interest expense:
Interest on deposits .................................... 3,863 3,972 1,308 1,3331,194 1,293
Interest on Federal Home Loan Bank advances ............. 426 248 166 74
------ ------ ------ ------438 119
------- -------
Total interest expense ......................... 4,289 4,220 1,474 1,407
------ ------ ------ ------1,632 1,412
------- -------
Net interest and dividend income ............... 5,602 5,176 1,894 1,7891,855 1,854
Provision for loan losses .................................. 90 20 30 20
------ ------ ------ ------30
------- -------
Net interest and dividend income after provision
for loan losses ............................. 5,512 5,156 1,864 1,769
------ ------ ------ ------1,825 1,824
------- -------
Other income:
Trust department income ................................. 763 667 246 255300 248
Service charges on deposit accounts ..................... 338 234 110 79101 109
Other income ............................................ 158 131 54 42
------ ------ ------ ------76 46
------- -------
Total other income ............................. 1,259 1,032 410 376
------ ------ ------ ------477 403
------- -------
SALISBURY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amount in thousands, except per share data)
March 31, 1999 and 1998
(unaudited)
(continued)
Three Months Ended
March 31
--------------------
1999 1998
------- -------
Other expense:
Salaries and employee benefits .......................... 1,938 1,797 656 597677 648
Occupancy expense ....................................... 163 151 56 5471 57
Equipment expense ....................................... 310 268 100 94118 108
Data processing ......................................... 261 234 116 7376 77
Legal ................................................... 89 96 8 36 Formation expense ....................................... 133 -- 133 --50
Net cost of operation of other real estate owned ........ 1 23 1 1(1) 2
Other expense ........................................... 959 924 228 327
------ ------ ------ ------338 321
------- -------
Total other expense ............................ 3,854 3,493 1,298 1,182
------ ------ ------ ------1,315 1,263
------- -------
Income before income taxes ..................... 2,917 2,695 976 963987 964
Income taxes ............................................... 1,139 1,068 375 373
------ ------ ------ ------350 344
------- -------
Net income ..................................... $1,778 $1,627 $ 601637 $ 590
====== ====== ====== ======620
======= =======
Earnings per common share outstanding ...................... $ 1.14.42 $ 1.05 $ .39 $ .38.40
======= =======
Earnings per common share outstanding,
assuming dilution ......................................... $ 1.13.42 $ 1.04 $ .38 $ .38.39
======= =======
5
SALISBURY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts(dollars in thousands)
NineThree months ended September 30,March 31, 1999 and 1998
and 1997
(unaudited)
1999 1998 1997
-------- --------
Cash flows from operating activities:
Net income ............................................................ $ 1,778637 $ 1,627620
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ....................................... 90 2030 30
Depreciation and amortization ................................... 229 152
Amortization, net of accretion38 132
(Accretion) amortization of securities, .................... 19 11
Securities gains, net ........................................... 0 (1)
Increase(37) 7
(Increase) decrease in interest receivable ................................. (19) (206)
Decrease83 (31)
Increase (decrease) in interest payable .................................... (5) (17)
(Increase) decrease108 (9)
Increase in cash surrender value of insurance policies (9) 61
(Increase) decreasepolicie 0 (3)
Increase in prepaid expenses ......................... (21) 40(12) (52)
Increase (decrease)in accrued expenses .......................... (52) 549
(Increase) decrease93 110
Decrease in other assets ............................. (304) 5161 2
Increase (decrease) in other liabilities ........................ 191 (669)53 4
Change in unearned income ........................................ (5) (18)(2)
Increase (decrease) in taxes payable ............................ 186 (242)0 310
-------- --------
Net cash provided by operating activities .............................. 2,078 1,3121,154 1,118
-------- --------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock ............................... (342) (62)0 (21)
Purchase of available-for-sale securities .............................. (27,121) (35,533)(8,336) (4,493)
Proceeds from sales of available-for-sale securities ................... 11,745 19,5754,795
Proceeds from maturities of available-for-sale securities .............. 3,583 5,59715,348 2,818
Proceeds from maturities of held-to-maturity securities ................ 1,076 2,6022 419
Net (increase) decrease ( increase) in loans ...................................... (1,173) 491
Proceeds from sales of other real estate owned ......................... 100 196(1,406) 144
Capital expenditures ................................................... (70) (319)(26) (96)
Recoveries of loans previously charged-off ............................. 22 295 10
-------- --------
Net cash used in(used in) provided by investing activities ................................... (12,180) (7,424)10,382 (1,219)
-------- --------
6
SALISBURY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts(dollars in thousands)
NineThree months ended September 30,March 31, 1999 and 1998 and 1997
(unaudited)
(continued)
1999 1998 1997
-------- --------
Cash flows from financing activities:
Net decrease in demand deposits, NOW and
savings accounts (4,508) (1,381)(349) (7,242)
Net increase(decrease)(increase) decrease in time deposits ................. (1,686) 1,639(348) 575
Advances from Federal Home Loan Bank ..................... 24,000 3,0000 4,000
Principal payments on advances from Federal Home Loan Bank (6,005) (3,012)(10,379) (261)
Dividends paid ........................................... (510) (408)(420) (329)
Issuance of common stock ................................. 68 1440 13
Net change in treasury stock ............................. (398) (125)
Retirementrepurchase of common stock ............................... (18) (1)(996) (108)
-------- --------
Net cash provided by (used in) financing activities ...... 10,943 (144)(12,492) (3,352)
-------- --------
Net increase (decrease)decrease in cash and cash equivalents ........ 841 (6,256)(956) (3,453)
Cash and cash equivalents at beginning of period ............12,134 11,673 14,985
-------- --------
Cash and cash equivalents at end of period .................. $ 12,51411,178 $ 8,7298,220
======== ========
Supplemental disclosures:
Interest paid ............................................ $ 4,2941,524 $ 4,2371,422
Income taxes paid ........................................ 999 654190 34
Transfer of loans to other real estate owned ............. 1950 100
7
SALISBURY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
On June 27, 1998,- ------------------------------
The accompanying condensed interim financial statements are unaudited and
include the shareholdersaccounts of Salisbury Bancorp, Inc. ("the Company"), those of
Salisbury Bank and Trust Company (the "Bank") approved the formation of a holding company, Salisbury Bancorp, Inc.
(the "Company"). The holding company structure became effective August 24, 1998,
(the "Effective Time") as approved by the appropriate regulatory agencies. At
the Effective Time, each share of the Bank's common stock issued and outstanding
immediately prior to the Effective Time was converted into the right to receive
six (6) shares of the Company's common stock in exchange for each share of the
Bank's common stock.
The accompanying unaudited condensed interim consolidated financial statements
include the accounts of the Company,, its wholly-owned subsidiary the Bank, and
the Bank's subsidiary, S.B.T. Realty, Inc. The accompanying unaudited condensed interim consolidated financial statements
of the Company
have been prepared in accordance with generally accepted accounting principals
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 principals 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,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 ninethree months ended September 30,
1998March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.1999. These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Bank's 1997Company's 1998 Annual Report on Form 10-K.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
- --------------------------------------
In June 1997, the FASB issued SFAS 130 "Reporting Comprehensive Income" which
establishes standards for disclosure of comprehensive income. Comprehensive
income represents net income for a period plus the change in equity of a
business during a period from non-shareholder sources. Excluding net income, the
Bank'sCompany's only other source of comprehensive income is its unrealized gain
(loss) on investment securities available for sale, net of tax. SFAS 130
requires the restatement of prior periods for comparative purposes. The BankCompany
adopted SFAS 130 for the fiscal year beginning January 1, 1998. Adoption of this
Statement did not have material impact on the Bank'sCompany's financial position. Total comprehensive
income for the nine months ended September 30, 1998 and 1997 was $2,253,000 and
$1,843,000, respectively.
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
----------- ------------- ------
Nine months ended September 30, 1998
Basic EPS
Net income and income available to common stockholders $1,778 1,561 $ 1.14
Effect of dilutive securities, options ............... 11
------ ------
Diluted EPS
Income available to common stockholders and assumed
conversions ....................................... $1,778 1,572 $ 1.13
====== ====== ======
Nine months ended September 30, 1997
Basic EPS
Net income and income available to common stockholders $1,627 1,554 $ 1.05
Effect of dilutive securities, options ............... 12
------ -------
Diluted EPS
Income available to common stockholders and assumed
conversions ....................................... $1,627 1,566 $ 1.04
====== ====== ======
8
(Amounts(Dollars in thousands, except per share data)
(unaudited)
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Three months ended September 30,March 31, 1999
Basic EPS
Net income and income available to common stockholders $ 637 1,510 $ .42
Effect of dilutive securities, options -- 16
----- -----
Diluted EPS
Income available to common stockholders and assumed
conversions $ 637 1,526 $ .42
===== ===== =======
Three months ended March 31, 1998
Basic EPS
Net income and income available to common stockholders $ 601 1,555620 1,563 $ .39.40
Effect of dilutive securities, options ............... 11
------ -------- 14
----- -----
Diluted EPS
Income available to common stockholders and assumed
conversions ....................................... $ 601 1,566620 1,577 $ .38
====== ====== ======
Three months ended September 30, 1997
Basic EPS
Net income and income available to common stockholders $ 590 1,556 $ .38
Effect of dilutive securities, options ............... 16
------ ------
Diluted EPS
Income available to common stockholders and assumed
conversions ....................................... $ 590 1,572 $ .38
====== ====== ======.39
===== ===== =======
9
Part I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
10
Overview:
New Holding Company
We are pleased to report to you under our new holding company,- ---------
Salisbury Bancorp, Inc. (the "Company"). The reorganization was completed on
August 24, 1998 and, a Connecticut corporation, is
the holding company for Salisbury Bank and Trust Company (the "Bank") began
operating throughwhich 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 holding company structurestandard against which the Company's performance
should be measured as follows:
o We strive to make Salisbury Bank and Trust Company the subsidiary ofleading
community bank in the Company,
a stock corporation organized under the laws of the State of Connecticut.tri-state area.
o We will continue to remainare committed to providing professional financial services
in a friendly and responsive manner.
o We remainare dedicated to being an active corporate citizen in the
communities we serve and weserve.
o We will continue to inspire our staff to grow personally and
professionally.
The holding company structure
also provides us with additional flexibility with respect to capitalization and
financing which will allow us to pursue additional banking and other permissible
non banking opportunities.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 quarter of 1999 towards fulfilling its Mission Statement.
Improvements in earnings and asset quality have resulted in an increase in both
earnings per share and dividends per share. Continued prudent management is
essential to maintaining the quality and sustainability of the Company's
earnings. In order to provide a strong foundation for building shareholder value
and serving our customers, the Company remains committed to investing in the
technological and human resources necessary to developing new personalized
financial products and services to meet the needs of our customers.
The following is Management's discussion of the financial condition and
results of operations on a consolidated basis for the first quarter of 1999 and
1998, of Salisbury Bancorp, Inc. which includes the accounts of Salisbury Bank
and Trust Company, its sole subsidiary. Earnings per share and dividends per
share computations for 1998 have been restated to reflect the six for one stock
exchange when the Company acquired in a single transaction all of the outstanding
shares of the Bank. As a result, each share of the Bank's common stock was
converted to six shares of commoncapital stock of the Company. The common stock of the
Company also began trading on the American Stock ExchangeBank on
August 24, 1998. The trading symbolManagement's discussion should be read in conjunction with
Salisbury Bancorp, Inc.'s Annual Report on Form 10-K for the stock is "SAL".
Net income foryear ended December
31, 1998.
During the nine months ended September 30, 1998 increased
9.3% to $1,778,000 or $1.13 diluted earnings per share as compared tofirst quarter of 1999, the Company reported net income of
$1,627,000$637,000 or $1.04$.42 per diluted share. This represents an increase of 2.74% when
comparing first quarter 1998 earnings of $620,000 or $.39 per sharediluted share.
Total assets at the end of the first quarter of 1999 reflect an increase of
approximately $24,020,000 to $205,091,000 when comparing the same quarter in
1998. Although lower interest rates and competition continue to pressure
interest margins, the increase in earnings assets resulted in net interest
income consistent with that of the first quarter of 1998. The increase in
11
earnings is primarily the result of an increase in other income coupled with
management's continuing efforts to control operating expenses. A major component
of other income is Trust Department income which as a result of increased
business increased 20.97% to $300,000 for the nine months ended
September 30, 1997.first quarter of 1999 compared to
$248,000 for the same period in 1998.
The Company's risk-based capital ratios, which include the
risk-weighted assets and capital of Salisbury Bank and Trust Company were 20.27%
for Tier 1 capital and 21.56% for total capital at March 31, 1999. These ratios
substantially exceeded the regulatory minimums for bank holding companies of 4%
for Tier 1 capital and 8% for total capital.
As a result of the Company's financial performance, the Board of
Directors declared a cash dividend of $.12 per common share. This compares to an
$.11 per share which compares to a
$.10 per sharecash dividend from a year ago.
NINEago, an increase of 9.09%.
THREE MONTHS ENDED SEPTEMBER 30, 1998MARCH 31, 1999
AS COMPARED TO NINETHREE MONTHS ENDED SEPTEMBER 30, 1997MARCH 31, 1998
Results of Operations
Net Interest Income
- -------------------
The Company's earnings are primarily dependent upon net interest income
and noninterest income from its community banking operations with net interest
income being the largest component of the Company's revenues. Net interest and
dividend income (interestis the difference between interest and dividenddividends earned on the
loan and investment portfolio and interest paid on deposits and advances from
the Federal Home Loan Bank. Noninterest income lessis primarily derived from the
Trust Department and from service charges and other fees related to deposit and
loan accounts. For the following discussion, interest expense) beforeincome 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 provisionCompany's federal income tax rate of 34% for loan lossesall periods presented.
(amounts in thousands) (unaudited)
Three months ended March 31, 1999 1998 1997
---- ---- ----
Interest Income $ 3,487 $ 3,266 $ 3,068
(financial statements)
Tax Equivalent Adjustment 64 51 29
------- ------- -------
Total interest income(on an FTE basis) 3,551 3,317 3,097
Interest Expense (1,632) (1,412) (1,369)
------- ------- -------
Net Interest Income-FTE $ 1,919 $ 1,905 $ 1,728
======= ======= =======
12
Competition and a decline in market interest rates over the past year
continue to pressure interest margins. At March 31, 1999, net interest income on
a FTE basis was $1,919,000 compared to $1,905,000 for the nine months ended
September 30, 1998 increased by $426,000 to $5,602,000, an increase of 8.2% when
comparing the same period ofin 1998
and $1,728,000 in 1997. Interest expense on deposits was $3,863,000
for the nine months ended September 30, 1998 asA 14.29% increase in average earning assets at March 31,
1999 when compared to $3,972,000 for the same time period in 1997. This is1998 helped offset an overall decrease
in the net interest margin to 3.83% from 4.22%. The yield on earning assets was
reduced by approximately 63 basis points to 7.08%. Generally lower interest
rates coupled with a decrease of $109,000in deposits resulted in a 7.66% or 2.7%.$99,000
decrease in interest expense paid on deposits. An increase in Federal Home Loan
Bank borrowings has resulted in an increase in interest expense on Federal Home
Loan Bank advances of $319,000 or 268.07% to $438,000. The overall result is a
decrease in interest expense yield to 4.07% from 4.10% when comparing the first
quarter of 1999 to the corresponding period in 1998.
Noninterest Income
- ------------------
For the quarter ended March 31, 1999, noninterest income increased
to $23,492,000 at September 30,$74,000 or 18.36% from 1998 and totaled $477,000. The increase is primarily the
result of increased business in the Trust Department which resulted in a 71.8% increase in interest expenseincreased
income of 20.97% to $426,000$300,000 compared to $248,000 for the same period in 1998. A
new addition to services offered, INVEST Financial Services resulted in $20,000
additional noninterest income during the first quarter of 1999. Another
contribution to the increase in noninterest income is VISA and MasterMoney
interchange fees which have increased 68.75% to $27,000 in 1999 compared to
$16,000 in 1998.
Noninterest Expense
- -------------------
Noninterest expenses amounted to $1,315,000 for the first quarter of
1999. This is a year ago. These$52,000 increase or 4.12% over the $1,263,000 reported for the
same period of 1998. Salaries and employee benefits increased 4.48% or $29,000.
This is primarily due to salary increases and increased cost in employee
benefits. Occupancy expense increased 24.56% to $71,000 during the first quarter
of 1999 compared to the corresponding period in 1998. This is primarily the
result of additional costs of winter maintenance. Equipment expense increased
9.26% to $118,000 in 1999. This increase is largely due to the Company's
commitment to continuing enhancement of technology that is needed to meet the
financial needs of customers. The increase in other operating expenses resulted
from normal operating activities.
Income Taxes
- ------------
The first quarter 1999 income tax provision was $350,000 compared to
$344,000 for the same quarter of 1998. This increase reflects an increase in
taxable income.
Financial Condition
-------------------
Total assets at March 31, 1999 were $205,091,000, a decrease of
$12,135,000 from $217,226,000 at December 31, 1998. This is primarily from
maturities of borrowings are the resultsthat were part of an interest rate risk strategy
implemented during 1998 that was designed to prevent loss of income primarily in
a falling rate environment and aenvironment. When comparing total assets at March 31, 1999 to
total assets at March 31, 1998, there is an increase of $24,020,000 which
reflects the strategy directed at providingwhich resulted in an increase in interest income.
13
Loans
- -----
Although loan demand was not strong during the Company with competitive
fixed rate mortgage products. Total interest expense for the nine months ended
September 30, 1998 increased 1.6% or $69,000 when comparing the same period in
1997.
The pressure of loan rates and customer demand for fixed rate loans
continues to create aggressivefirst quarter,
competition for loans, especially residential mortgage loans, remains very
aggressive in the Banks market area.
Interestarea of the Company. New business development and fees onnew
home construction loans have contributed to the growth of commercial and real
estate construction loans. Total loans outstanding have increased $36,000 when comparing the nine months
ended September 30 of 1998 to
1997. Interest and dividends on securities and
other interest has increased 19.8% or $459,000$121,778,000 at March 31, 1999 compared to $2,779,000 when comparing the
same nine month periods. This increase is a reflection of growth in the
securities portfolio of 22.6% to $61,450,000 from $50,116,000$120,409,000 at December 31, 1997.
1998.
The following table represents the composition of the loan portfolio comparing
March 31, 1999 to December 31, 1998:
March 31, 1999 December 31, 1998
-------------- -----------------
(dollars in thousands)
Commercial, financial and agricultural $ 10,977 $ 10,692
Real Estate-construction and land development 3,780 3,392
Real Estate-residential 80,181 80,451
Real Estate-commercial 16,341 14,909
Consumer 10,023 10,430
Other 476 535
-------- --------
Loans outstanding $121,778 $120,409
======== ========
Provisions and Allowance for Loan Loss ProvisionLosses
- ----------------------------------------
The provisionCompany'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 $30,000 provision to the allowance
for possible loan losses was made during the nine months ended September
30, 1998 was $90,000first quarter of 1999, the same as
the first quarter of 1998. Nonaccrual loans were $814,000 at March 31, 1999
compared to $20,000 for the same period in 1997. At
September 30, 1998, the$1,208,000 at December 31, 1998. Accruing loans past due 90 days or
more were $22,000 at March 31, 1999 compared to $109,000 at December 31, 1998.
Restructured loans were $899,000 at March 31, 1999 compared to $547,000 at
December 31, 1998. The allowance for loan losses was $1,259,000, representing
1.1%$1,258,000 or 1.03% of
total loans asat March 31, 1999 compared to $1,226,000$1,260,000 or 1.0%1.05% of total loans at
December 31, 1997. Nonperforming loans have decreased 22.1% to $1,848,000 from their year
end 19971998.
A total of $2,371,000. The ratio of allowance for loan losses to
nonperforming$37,000 in loans equaled 68.1% at September 30, 1998was charged off during the quarter ended
March 31, 1999 compared to 51.7% at
December 31, 1997, the result of a decrease in nonperforming loans.
11
During the first nine months of 1998, a total of $79,000 of loans
were charged off compared to $89,000$14,000 charged off during the corresponding period
in 1997. The charge offs1998. A total of both periods consisted primarily of consumer loans.
Recoveries$5,000 of previously charged off loans totaled $22,000was recovered during
the quarter ended March 31, 1999 compared to $10,000 for the first nine
months of 1998 compared to $29,000 for the samecorresponding
period in 1997.
The allowance for loan losses is reviewed monthly.1998.
14
Determining the proper level of allowance is difficult asrequires management mustto make
estimates using assumptions and information which is often subjective and
changing. In management's judgement, the allowance for loan losses is adequate
to absorb probable losses in the existing portfolios.
Noninterest Income
Noninterest income increasedportfolio.
Securities
- ----------
As of March 31, 1999, the securities portfolio totaled $68,984,000.
This represents a decrease from $1,032,000 forDecember 31, 1998 of $12,306,000 when the
first nine
months in 1997 to $1,259,000 for the first nine month period in 1998. This is an
increase of 22.0%. Trust department income increased 14.4% to $763,000 which is
the result of new accounts and an increase in account values. Service charges on
deposit accounts increased $104,000 or 44.4% whichportfolio totaled $81,290,000. The decrease is primarily the resultdue to maturing
securities that were part of an arbitrage strategy of borrowing funds and
investing them at a higher volumerate of ATM and MasterMoney debit card transactions and anreturn than the borrowing cost. Management
expects that it will continue to employ this arbitrage strategy as efforts
continue to increase in
insufficient funds charges.
Noninterest Expense
Noninterest expense increased 10.3% to $3,854,000 forearning assets. Presently, $576,000 of the nine
months ended September 30, 1998investment
securities portfolio is classified as held-to-maturity with the balance of the
investment securities portfolio being classified as available-for-sale. The net
unrealized gain on securities available-for-sale, net of tax effect totaled
$35,000 at March 31, 1999 compared to $3,493,000 for$357,000 at December 31, 1998. The
decrease is attributable to a movement in interest rates, the corresponding
periodactivity in 1997.the
stock market and a decrease in the total portfolio. The increase is primarilyfollowing table presents
the result of the formation expenses
of the holding company. Salaries and employee benefits increased $141,000 or
7.8%. This is due to an increase in staff and cost of benefits. Equipment and
data processing expenses have increased 13.7% to $571,000 from $502,000. This
increase is the result of a continuing plan to enhance technology which is
important to meeting the needs of our customers. The increase in other operating
expenses resulted from normal operating activities.
Income Taxes
The income tax provision for the nine months ended September 30,
1998 totaled $1,139,000 in comparison to $1,068,000 in 1997. The increase
reflects an increase in taxable income.
THREE MONTHS ENDED SEPTEMBER 30, 1998
AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997
Net Interest Income
Net interest and dividend income increased 5.9% or $105,000 to
$1,894,000 compared to $1,789,000 for the corresponding three month period in
1997. This increase is primarily the result of the growthcarrying values of the securities portfolio to $61,450,000at March 31, 1999 and December
31, 1998.
March 31, 1999 December 31, 1998
(dollars in thousands)
Available-for-sale securities:
Equity securities $ 136 $ 116
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies 30,195 43,578
Debt securities issued by states of the United States
and political subdivisions of the states 10,565 9,553
Mortgage-backed securities 25,456 25,408
Held-to-maturity securities:
Debt securities issued by states of the United States
and political subdivisions of the states 24 25
Mortgage-backed securities 552 554
Federal Home Loan Bank Stock 2,056 2,056
------- -------
Total Securities $68,984 $81,290
======= =======
15
Deposits
- --------
The following table illustrates the composition of the Company's
deposits at March 31, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998
(dollars in thousands)
Demand $ 26,762 $ 27,435
NOW 15,432 17,700
Money Market 35,043 32,367
Savings 14,733 14,819
Time 60,483 60,830
-------- --------
Total Deposits $152,453 $153,151
======== ========
Total deposits, which has increased interest and dividends on
securities and other income 22.5% to $1,001,000 forconstitute the principal funding source of the
Company's assets have remained consistent during the first quarter ended September
30, 1998of 1999 when
compared to $817,000 foryear end 1998. The slight decrease represents the same period in 1997.
Interest expense on deposits remained consistent fortraditional
seasonal cash flows of the quarter at
$1,308,000.
Interest expense onCompany's deposit customers.
Borrowings
- ----------
The Company uses arbitrage strategy to generate additional interest
income. Funds are borrowed from the Federal Home Loan Bank advances increasedand then invested at
a rate of return higher than the borrowing cost. At March 31, 1999, total
borrowings had decreased $10,379,000 to $166,000 from $74,000. Borrowings increased $12,635,000 during the quarter$30,741,000-the result of a matured
arbitrage. Management expects that it will continue to $23,492,000 at September 30, 1998. These increased borrowings are the resultsemploy this type of
arbitrage which is part of an interest rate risk strategy designed to prevent lossprovide
funds to grow interest earning assets.
Asset/Liability Management
- --------------------------
The Bank's assets and liabilities are managed in accordance with
policies established and reviewed by the Bank's Board of Directors. The Bank's
Asset/Liability Management Committee implements and monitors compliance with
these policies regarding the Bank's asset and liability management practices
with regard to interest rate risk, liquidity and capital.
Interest Rate Risk
- ------------------
Interest rate risk is defined as the sensitivity of the Company's
income primarilyto short and long term changes in a
falling rate environment and a strategy directed at providinginterest rates. One of the primary
financial objectives of the Company with
competitive fixedis to manage its interest rate mortgage products.
12risk and
control the sensitivity of the Company's earnings to changes in interest rates
in order to prudently improve net interest income and the Company's interest
rate margins and manage the maturities and interest rate sensitivities of assets
and liabilities. One method of monitoring interest rate risk is a gap analysis
which identifies the differences between the amount of assets and the amount of
16
Loan Loss Provision
The provision for loan lossesliabilities which mature or reprice during specific time frames and the
potential effect on earnings of such maturities or repricing opportunities.
Model simulation is used to evaluate the impact on earnings of potential changes
in interest rates. "Rate shock" is also used to measure earnings volatility due
to immediate increase or decrease in market rates up to 200 basis points.
To this end, because the Company is asset sensitive, strategy is being
developed to protect against negative earnings should interest rates decline any
further. Conversely, current structure would result in increased earnings should
interest rates rise.
Liquidity Risk
- --------------
Management of liquidity is designed to provide for the third quarterBank's cash
needs at a reasonable cost. These needs include the withdrawal of 1998 was
$30,000 compared to $20,000 fordeposits on
demand or at maturity, the same period in 1997. A totalrepayment of $37,000borrowings as they mature and lending
opportunities. Asset liquidity is achieved through the management of loans were charged off during the quarter and a total of $7,000 was recovered on
previously charged off loans. During the same period in 1997, a total of $41,000
of loans were charged off and recoveries totaled $13,000. The charge offs of
both periods consisted primarily of consumer loans.
Noninterest Income and Expense
Noninterest income increased 9.0% or $34,000 to $410,000 for the
quarter ended September 30, 1998 as compared to $376,000 for the same quarter in
1997. Trust fees decreased to $246,000 or 3.5%. This is primarily the result of
the downward trend of the market during the period. Service charges on deposit
accounts have increased 39.2% to $110,000. This increase is the result of
increased transaction volume from deposit accounts.
Noninterest expense increased $116,000 to $1,298,000 for the period
ended September 30, 1998 compared to $1,182,000 for the corresponding period in
1997. The increase is the result of the formation expenses of the holding
company.
Net Income
Net income for the three months ended September 30, 1998 totaled
$601,000 compared to $590,000 for the same three month period in 1997. This
increase of $11,000 can be attributed to an increase in earning assetsreadily
marketable investment securities as well as management continuing effortsmanaging asset maturities and
pricing of loan and deposit products.
The Company's subsidiary, Salisbury Bank and Trust Company, is a member
of the Federal Home Loan Bank System which provides credit to control operating expenses.its member banks.
This enhances the liquidity position by providing a source of available
borrowings. Additionally, federal funds and borrowings on repurchase agreements
are available to fund short term cash needs. At March 31, 1999, the Company had
approximately $24,380,000 in loan commitments and unadvanced funds outstanding.
It is expected that these commitments will be funded primarily by deposits, loan
repayments and maturing investments. The Company has ample liquidity to meet its
present and foreseeable needs.
Capital
Resources
Shareholders'- -------
At March 31, 1999, the Company had $20,693,000 in shareholder equity
increased 5.36% or $1,098,000 to $21,581,000
for the nine months ofcompared with $20,816,000 at March 31, 1998 endedand $19,022,000 at September 30. Book value per share
increased $.82 to $13.88 when comparing DecemberMarch 31, 1997 book value per share
of $13.06 (adjusted to reflect 6 for 1 stock exchange).1997.
The increasechange in equityaccounts resulted from first quarter earnings of $1,778,000, an increase$637,000, a
decrease of $178,000$322,000 in the adjustment for net unrealized holdingsholding gains on
securities and a quarterly dividend declared of $181,000. In November of 1998,
the Company announced a stock repurchase program to acquire up to approximately
10% of the outstanding common stock of the Company. To date, the Company has
repurchased 49,394 shares of stock. Since December 31, 1998, the buy back
program has resulted in a decrease in equity of $348,000 from$996,000.
The various capital ratios of the retirement of shares of treasury stockCompany at March 31, 1999, 1998 and
other transactions and dividends
declared of $510,000.
The following reflects the Company's capital ratios:1997 were: (unaudited)
Actual Actual Actual
SeptemberMarch 1999 March 1998 SeptemberMarch 1997
September 1996
-------------- -------------- ------------------------ ---------- ----------
Total Risk-Based Capital 20.13% 22.14% 21.13%21.56% 21.81% 21.74%
Tier 1 Risk BasedRisk-Based Capital 18.85% 20.89% 19.88%20.27% 20.56% 20.49%
Leverage ratio 9.91% 11.24% 10.77%9.86% 11.11% 11.03%
At September 30, 1998,17
From a regulatory standpoint, the Company hadhas capital ratios which
place it in the "well capitalized""well-capitalized" category.
Liquidity
The Company's liquidity is dependent on dividends provided by the
Bank. Connecticut Banking Laws limit the amount of annual dividends that the
Bank may pay to an amount which approximates the Bank's net profits for the then
current year, plus the Bank's net profits for the prior two years. The Bank is
also prohibited from paying a cash dividend or repurchasing any of its common
stock if the effect thereof would reduce its capital accounts below minimum
regulatory requirements.
13
The primary function of asset/liability management is to ensure
adequate liquidity and maintain an appropriate balance between interest earning
assets and interest-bearing liabilities. The Bank manages its liquidity position
to ensure that there is sufficient funds available for deposit withdrawals, loan
commitments, securities purchases and other operating cash outflows. Interest
rate risk management seeks to avoid significant fluctuations in the Bank's net
interest margin and to enhance growth of net interest income during periods of
changing interest rates. The principal sources of liquidity are principal
payments on loans, maturities and sales of securities, net deposit growth and
Federal Home Loan Bank advances. As of September 30, 1998, the Bank had unused
loan commitments of $26,051,000 and a liquidity ratio of 36.13%. The Bank
believes that its liquidity sources will continue to meet its present and
foreseeable needs.
Year 2000
Year 2000 Issue---------
Disclosure relating to "Year 2000"
The "Year 2000 issue" refers to a wide variety of potential computer
issues that may arise from the inability of computer programs to properly
process date-sensitive information relating to the Year 2000, years thereafter
and to a lesser degree the Year 1999.
The State of the Company's Readiness
The Year 2000 issue creates risk for the Company from unforeseen
problems in its computer systems and from Year 2000 issues with the Company's
vendors, service providers and customers. A company-wide Year 2000 ("Y2K")
compliance program has been
implementedthat includes a formal Y2K project plan continues to determinebe utilized in
addressing Y2K issues and defineissues. The Company continues to use a strategymulti-phase approach to
assure Y2K
compliance. The compliance program is segmented by phases;the Year 2000, which includes awareness, inventory, assessment, renovation,
validation, implementation and post-implementation. In
1997, a Y2K committee was formed. The committee briefs senior management of the
Company and the Company's board of directors on the progress of the Year 2000
effort. The compliance program as it relates to
awareness, inventory and assessment are essentially complete with limited activities relating to borrower
assessment scheduled to beis completed. The Plan is effectively
supplemented by a Y2K budget, investment portfolio review, customer awareness
plan, commercial loan plan, test plans and scripts, and Y2K contingency plans.
The Company has substantially completed by year-end.the remediation of its network
hardware, personal computers and operating systems. The remainder of the Y2K
compliance programserver located in our
branch in Salisbury, Connecticut is scheduled to be completed by June 30, 1999, barring any
unforeseen problems.
Specifically,upgraded during the awareness phase, which is essentially complete,
involved the disseminationsecond
quarter of Year 2000 information throughout the1999. The Bank's two ATM's have been upgraded and are Y2K compliant.
The Company continues to upgrade and the education of all levels of management about Year 2000 issues and their
potential impact on the Company's operation. The inventory phase, which is
essentially complete, involved a detailed inventory of hardware, software, core
systems (internal and external), and other microchip-embedded products. The
assessment phase, which is also essentially complete, involved assessing the
information prepared in the inventory phase as it related to the determination
of the requirements for fixes, upgrades and replacements for all hardware,test application software embedded systems and desktop applications. The renovation
phase is more than halfway complete.as vendors
provide new releases.
The Company's mission critical systemsservice providers and software vendors
have provided remediated products, allowing the Company to substantially
complete the validation process. The majority of non-mission critical software
vendors have also delivered remediated products, allowing the Company to
substantially complete its testing. The testing results of our mission critical
service providers and software vendors are either in remediation (thecurrently being validated by an
independent party contracted by the Company.
The Company notes that it is critically dependent on certain unrelated
third parties for the conduct of its business, such as telecommunications,
energy providers, the Federal Reserve payment system and the automated
clearinghouse system. Although the Company is monitoring these parties' progress
and Year 2000 project phase where hardware, systems and
applicationsreadiness, there are fixed, upgraded or replaced to be Year 2000 ready) or testing
(the phase in which Year 2000 remediation is validated).few, if any, alternatives for obtaining these
services.
The Company utilizes aseveral third-party service providerproviders for its'its core
applications. In May of 1998 theThe service provider conducted testing. The Company has been advised that the
service provider isproviders continue making adequate progress in meeting
their established goals for Year 2000 qualifications of their system and the related
products utilized by the Company.
Assuming that preparation for the Year 2000 continues to be a
top priority for this service provider (as it is required to be) the Company
does not, at the present time, foresee or anticipate problems.17
The Company has assessed the risks which are presented by its
reliance upon computer based products outside of information technology
processing and does not believe that these areas pose any significant risks
which are not being addressed in the Company's Y2K preparation.
The Risks of the Company's Year 2000 Issues
FailureThe Company recognizes that a failure to resolve a material Year 2000
issue could result in the interruption in, or a failure of, certain normal
14
business activities or operations such as servicing depositors, processing
transactions or originating and servicing loans. The Company plans to continue to work with
third party service providershas determined that
a company-wide business risk-assessment approach is most appropriate for
addressing and business partners to ascertain theirremediating Year 2000 compliance statusproblems. This includes an assessment of
the information technology resources of each of the functional areas of the
Company, as well as separate assessments of information technology vendors and
to coordinate testing efforts.suppliers, and non-information technology and facilities risks. There can be no
assurance that the computer systems of others on which the Company relies will
be Year 2000 ready on a timely basis, or that abasis. In addition, failure to resolve Year 2000
issues by another party, or remediation or conversion that is incompatible with
the Company's computer systems, will notsystem could have a material adverse effect on the
Company.
The Company recognizes that from a customer standpoint, ahas reviewed the risks created by potential business
interruptions suffered by the Company's major business counterparties. An
adequate process has been established and implemented to evaluate and assess
Year 2000 problem could affect a borrower's ability to service debts if their direct
operations, vendors or customers are impacted. To raise the customers' levelefforts of awareness, the Company has sponsored a Y2K seminar for borrowers.Funds Takers (primarily borrowers), Funds Providers
(depositors and other funding sources), and Capital Markets Counterparties
(trading counter parties and fiduciary relationships). The Company identified borrowers that may be affected by Y2K and is presently conducting an
analysiswill continue
to evaluatemonitor these risks through the risk.year 1999.
Management has assessedrecognizes the Company's exposure to the risk of a liquidity
crisis or financial losses stemming from the withdrawal of significant deposits
or other sources of funds as the Year 2000 approaches. The Company has developeda
Contingency PlansPlan to identify and prioritize sources of liquidity. Based on the
Company's analysis and given the Company's strong earnings record, high
liquidity and strong capital position, management is of the opinion that Y2K
liquidity risk should not have a significant impact on the Company.
The Company and the Bank are subject to examination and supervision by
the Board of Governors of the Federal Reserve System, and both the FDIC and
Connecticut Department of Banking, respectively. These agencies are actively
examining the status of preparation of the institutions which they supervise for
compliance with applicable laws and prudent industry practices, including those
associated with preparation forof the Year 2000. As regulated institutions, the
Company and the Bank could becomebe subject to formal orand informal supervisory actions
if preparation for the Year 2000 failed to satisfy regulatory requirements or
prudent industry standards. As regulated institutions, banks and
bank holding
companies face greater regulatory and litigation risks for failure to adequately
prepare for the Year 2000 than many companies in other industries. However, such
risks are not considered by Management to be probable based upon the current
level of preparation for the Year 2000 and the Company's plans to prepare for
the Year 2000.
The Costs to Address the Company's Year 2000 Issues
Costs to modify computer systems have been, and will continue to be
expensedexpended as incurred and are not expected to have a material impact on the
Company's future financial results or condition. The Company had budgeted
$20,000 for 1998Company's budget for Y2K
related expense and year-to-date expenses incurred byin 1999 is $50,000. As of March 31, 1999 the Bank has expended
$7,162.
18
Although the Company is $18,622. It is estimated thatdoes not specifically monitor the Company could incur expensescost of approximately $28,000 by the end of 1998. The Company's preliminary budget for
1999 is $33,000 noting that costs associated withinternal
resources diverted to the Year 2000 preparedness
plan are difficultproject, these costs have consumed, and can
be expected to quantify.
continue to consume, a substantial amount of time of key staff.
Management will fund these Year 2000 costs from normal cash flow.
The Company's Contingency Plans
The Company has developed a Year 2000 business resumption plan that helps
supplement the Company's comprehensive Disaster Recovery Policy and Program as a
part of the Company's contingency planning. To furtherThe business resumption plan
addresses how the Company's Disaster Recovery initiative,Company will continue operations in the event a Year 2000
related interruption occurs. The Organizational Planning and Business Impact
Analysis phases of the business resumption contingency plan has been completed.
Development of the detailed resumption contingency plans is ongoing. While
implementation of the business resumption plan is not expected to be necessary,
it will ensure the Company provides a minimum level of acceptable service and
has the ability to process transactions and service its customers, under
circumstances in which a Year 2000 problem actually occurs.
The Company has an auxiliary power generator in one of its branch
locations. If necessary, Management anticipates usingwould use this location as a provisional
operations center during the duration of any Year 2000 failure scenarios, if any.scenarios.
Management plans to re-deploy staff resources, as necessary during this period,
to help assure manual completion of critical operational activities. The Company
plans onis in the process of testing portions of the business resumption plan by March 31,and expects to
complete testing prior to June 30, 1999. The Company has developed contingency plans for its mission critical systems and
will refine these plans in 1999. However, thereThere can be no assurance that the
Company's remediation efforts and contingency plans will be sufficient to avoid
unforeseen business disruptions or other problems resulting from the Year 2000
issue.
15
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.
16Item 3. Quantitative and Qualitative Disclosures About Market Risk
The main components of market risk for the Company are equity price
risk, interest rate risk and liquidity risk. The Company's stock is traded on
the American Stock Exchange and as a result the value of its common stock may
change with market movements. The Company manages interest rate risk and
liquidity risk through an ALCO Committee comprised of outside Directors and
senior management. The committee monitors compliance with the Bank's
Asset/Liability Policy which provides guidelines to analyze and manage gap which
is the difference between the amount of assets and the amounts of liabilities
which mature or reprice during specific time frames. Model simulation is used to
measure earnings volatility under both rising and falling rate scenarios. The
Company's interest rate risk and liquidity position has not significantly
changed from year end 1998.
19
Part II--OTHER INFORMATION
Item 1. - Legal Proceedings
With the exception of the matters discussed below, there are no
other material pending legal proceedings to which the Company, the Bank, its
subsidiary or any of its properties is a party, other than ordinary litigation
arising in the normal course of business. None of such proceedings is material
to the Company, the Bank or its subsidiary.
A former employee of the Bank who resigned from the Bank's
employment alleged that her transfer in 1995 from one department of the Bank to
another was based upon gender rather than job performance. Subsequently, she
filed charges with the United States Equal Opportunity Commission (the "EEOC").
After concluding its investigation, the EEOC took no action against the Bank
because it was unable to conclude, based upon its investigation, that any
statutes were violated. Notwithstanding the conclusion of the EEOC, the employee
filed a lawsuit on April 28, 1997 entitled Deborah Rost v. Salisbury Bank and
Trust Company, John F. Perotti and Craig E. Toensing, in the United States
District Court, Southern District of New York. In that suit, the plaintiff
claimed that she was subjected to unwanted sexual harassment which she rejected
and, as a result, was transferred from her position. The plaintiff claimed
damages of Sixty Million Dollars plus costs and attorneys' fees. On March 12,
1998, the United States District Court dismissed the plaintiff's complaint
without prejudice to her right to sue the Bank within a thirty day period in
another forum. On April 3, 1998, the plaintiff filed her lawsuit entitled
Deborah Rost v. Salisbury Bank and Trust Company, John F. Perotti and Craig E.
Toensing, in the United States District Court, Connecticut.
The Bank refutes these allegations of discrimination and sexual
harassment and intends to vigorously defend this case. The Bank does not believe
that these claims will result in any material adverse effect on the Bank's
financial condition.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 66. - Exhibits and Reports on Form 8-K
A. Exhibits:
The following Exhibit is included herein: Exhibit
27-Financial27 - Financial Data Schedule
B. Reports on Form 8-K:
The Company filed a Form 8-K on August 25, 1998 to disclose
that the reorganization between the Bank and the Company had
become effective on August 24, 1998 and that the Company's
common stock began trading on the American Stock Exchange
under the symbol "SAL".
The Company filed a Form 8-K on September 1, 1998March 5, 1999 to report that the
Company's Board of Directors declared a quarterly cash dividend of
$.11$.12 per share to be paid on October 16, 1998April 30, 1999 to shareholders of
record as of September 30, 1998.
17March 31, 1999
20
SALISBURY BANCORP, INC.
Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Salisbury Bancorp, Inc.
Date: November 10, 1998 ByMay 11, 1999 by /s/ John F. Perotti
------------------ ------------------------------------ -------------------
John F. Perotti
President / Chief Executive Officer
Date: November 10, 1998 By:May 11, 1999 by: /s/ John F. Foley
----------------------------- ----------------------
John F. Foley
Chief Financial Officer
18