UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20429
FORM 10-Q
[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 2008
------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______ to __________
Commission file number: 000-51832
SBT Bancorp, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Connecticut 20-4346972
- ------------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
760 Hopmeadow Street, P.O. Box 248, Simsbury, CT 06070
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(Address of Principal Executive Offices) (Zip Code)
(860) 408-5493
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer", and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer
--- --- ---
Smaller reporting company X
---
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of September 30, 2008, the registrant had outstanding 864,976 shares of its
Common Stock, no par value.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ------
INDEX
SBT Bancorp, Inc.
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Information
Condensed Consolidated Balance Sheets as of September 30, 2008 and 2007 (unaudited)
and December 31, 2007 3
Condensed Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 2008 and 2007 (unaudited) 4
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 2008 and 2007 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2008 and 2007 (unaudited) 6
Notes to Condensed Consolidated Financial Statements - (unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 10 - 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4T. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits. 18
SIGNATURES 19
EXHIBIT INDEX 20
2
PART I - FINANCIAL INFORMATION
SBT BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share amounts)
9/30/08 12/31/07 9/30/07
--------------- -------------- ------------
(Unaudited) (Unaudited)
ASSETS
- ------
Cash and due from banks $11,319 $ 13,424 $ 10,289
Interest-bearing deposits with the Federal Home Loan Bank 2,949 26 28
Federal funds sold 8,985 2,300 2,250
Money market mutual funds 27 4 218
--------------- -------------- ------------
Cash and cash equivalents 23,280 15,754 12,785
Investments in available-for-sale securities (at fair value) 16,829 24,871 29,171
Federal Home Loan Bank stock, at cost 631 631 631
Loans 179,608 165,690 157,691
Less allowance for loan losses 1,822 1,925 1,679
--------------- -------------- ------------
Loans, net 177,786 163,765 156,012
Premises and equipment 910 1,223 1,292
Accrued interest receivable 745 808 801
Bank owned life insurance 1,192 1,818 2,940
Other assets 1,760 1,520 1,583
--------------- -------------- ------------
Total other assets 4,607 5,369 6,616
--------------- -------------- ------------
TOTAL ASSETS $223,133 $ 210,390 $205,215
=============== ============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Demand deposits $37,418 $ 40,196 $ 35,580
Savings and NOW deposits 100,880 83,444 85,452
Time deposits 63,696 63,166 62,262
--------------- -------------- ------------
Total deposits 201,994 186,806 183,294
Federal Home Loan Bank advance 3,000 2,000 2,150
Securities sold under agreements to repurchase 900 1,363 1,709
Due to Broker - 1,433 -
Other liabilities 1,012 1,470 1,279
--------------- -------------- ------------
Total liabilities 206,906 193,072 188,432
--------------- -------------- ------------
Stockholders' equity:
Common stock, no par value; authorized 2,000,000 shares;
issued and outstanding 864,976 shares on 9/30/08; 850,896
shares on 12/31/07; 850,896 shares on 9/30/07 9,292 8,975 8,860
Retained earnings 7,256 8,603 8,118
Accumulated other comprehensive loss (321) (260) (195)
--------------- -------------- ------------
Total stockholders' equity 16,227 17,318 16,783
--------------- -------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $223,133 $210,390 $205,215
=============== ============== ============
See accompanying notes to the condensed consolidated financial statements
3
SBT BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except for per share amounts)
For the quarter ended For the nine months ended
----------------------- -------------------------
9/30/08 9/30/07 9/30/08 9/30/07
---------- ----------- ----------- ------------
Interest and dividend income
Interest and fees on loans $2,522 $2,438 $ 7,330 $ 7,204
Investment securities 228 352 813 1,154
Federal funds sold and overnight deposits 41 50 126 172
---------- ----------- ----------- ------------
Total interest and dividend income 2,791 2,840 8,269 8,530
---------- ----------- ----------- ------------
Interest
expense
Deposits 658 824 2,202 2,518
Repurchase Agreements 11 10 44 26
FHLB advances 2 25 4 71
---------- ----------- ----------- ------------
Total interest expense 671 859 2,250 2,615
---------- ----------- ----------- ------------
Net interest and dividend income 2,120 1,981 6,019 5,915
---------- ----------- ----------- ------------
Provision for loan losses 50 - 250 -
---------- ----------- ----------- ------------
Net interest and dividend income after provision for
loan losses 2,070 1,981 5,769 5,915
---------- ----------- ----------- ------------
Noninterest (charge) income
Service charges on deposit accounts 129 102 363 298
Gain on sale and write-down of available for sale
securities, net (1,668) - (1,658) -
Other service charges and fees 154 144 436 394
Increase in cash surrender value of life insurance
policies 11 38 49 113
BOLI death benefit income - - 328 -
Investment services fees and commissions 20 49 66 166
Other income 12 6 56 19
---------- ----------- ----------- ------------
Total noninterest (charge) income (1,342) 339 (360) 990
---------- ----------- ----------- ------------
Noninterest expense
Salaries and employee benefits 1,103 1,038 3,144 3,121
Directors' fees 34 33 101 105
Premises and equipment 516 372 1,293 1,129
Advertising and promotions 109 87 279 259
Forms and supplies 35 23 118 101
Professional fees 97 107 197 343
Correspondent charges 61 47 173 139
Postage 20 16 78 68
Other expenses 267 223 774 703
---------- ----------- ----------- ------------
Total noninterest expense 2,242 1,946 6,157 5,968
---------- ----------- ----------- ------------
(Loss) income before income taxes (1,514) 374 (748) 937
Income tax provision 42 116 183 282
---------- ----------- ----------- ------------
Net (loss) income $(1,556) $258 $ (931) $ 655
========== =========== =========== ============
Comprehensive (loss) income $(1,617) $417 $ (992) $ 814
========== =========== =========== ============
Net (loss) income per share, basic $(1.80) $0.30 $ (1.09) $ 0.77
========== =========== =========== ============
Average shares outstanding, basic 864,976 849,991 858,369 848,987
========== =========== =========== ============
Net (loss) income per share, assuming dilution $(1.80) $0.30 $ (1.09) $ 0.76
========== =========== =========== ============
Average shares outstanding, assuming dilution 864,976 859,153 858,369 858,788
========== =========== =========== ============
See accompanying notes to the condensed consolidated financial statements.
4
SBT BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Loss Total
-------- ------------- ---------------- -----------------
Balance, December 31, 2006 $8,636 $7,837 $(354) $16,119
Comprehensive income
Net Income 655
Net change in unrealized holding loss on
available-for-sale securities, net of tax effect 159
Comprehensive income 814
Cash dividend paid (374) (374)
Recognition of stock-based compensation expense 102 102
Shares issued from exercise of stock options 122 122
-------- ------------- ---------------- -----------------
Balance, September 30, 2007 $8,860 $8,118 $ (195) $16,783
======== ============= ================ =================
Balance, December 31, 2007 $8,975 $8,603 $(260) $17,318
Comprehensive loss
Net loss (931)
Net change in unrealized holding loss on
available-for-sale securities, net of tax effect (61)
Comprehensive loss (992)
Cash dividend paid (416) (416)
Recognition of stock-based compensation expense 89 89
Tax benefit on disqualified options exercised 33 33
Shares issued from exercise of stock options 195 195
-------- ------------- ---------------- -----------------
Balance, September 30, 2008 $9,292 $7,256 $ (321) $16,227
======== ============= ================ =================
Accumulated other comprehensive loss as of September 30, 2008 and 2007 consists of net unrealized
holding losses on available-for-sale securities, net of taxes.
See accompanying notes to the condensed consolidated financial statements
5
SBT BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the nine months ended
---------------------------------
9/30/08 9/30/07
--------------- ---------------
Cash flows from operating activities:
Net loss $ (931) $ 655
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on write-down of available-for-sale securities 1,668 -
Net gain on sales of available-for-sale securities (10) -
Decrease in loans held-for-sale - 268
Provision for loan losses 250 -
Depreciation and amortization 381 269
Decrease in interest receivable 63 94
Net (accretion) amortization of securities (5) 5
(Decrease) increase in unearned income (29) 7
Recognition of stock based compensation expense 89 102
(Decrease) increase in other liabilities (458) 381
Increase in cash surrender value of bank owned life insurance (38) (113)
BOLI death benefit income (328) -
(Increase) decrease in other assets (164) 28
-------------- ---------------
Net cash provided by operating activities 488 1,696
-------------- ---------------
Cash flows from investing activities:
Purchases of available-for-sale securities (3,456) (639)
Maturities of available-for-sale securities 8,302 9,540
Proceeds from sales of securities 10 -
Loan originations and principal collections, net (14,243) (506)
Recoveries of previously charged off loans 1 -
Redemption of Federal Home Loan Bank stock - 37
Redemptions of life insurance policies 992 -
Premium paid on life insurance policy - (15)
Capital expenditures (72) (5)
-------------- --------------
Net cash (used in) provided by investing activities (8,466) 8,412
-------------- --------------
Cash flows from financing activities:
Net increase (decrease) in demand, NOW, money market and savings deposits 14,658 (2,794)
Net increase (decrease) in time deposits 530 (12,314)
Net change in short term advances from the Federal Home Loan Bank 1,000 2,150
Net (decrease) increase in securities sold under agreements to repurchase (463) 81
Cash dividends paid (416) (374)
Proceeds from exercise of stock options 195 122
-------------- --------------
Net cash provided by (used in) financing activities 15,504 (13,129)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 7,526 (3,021)
Cash and cash equivalents at beginning of period 15,754 15,806
-------------- --------------
Cash and cash equivalents at end of period $ 23,280 $ 12,785
============== ==============
Supplemental disclosures:
Interest paid 2,472 2,609
Income taxes paid 322 468
See accompanying notes to the condensed consolidated financial statements
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
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NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial statements and the instructions to Form 10-Q, and accordingly
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying unaudited condensed consolidated financial
statements reflect all adjustments necessary, consisting of only normal
recurring accruals, to present fairly the financial position, results of
operations, cash flows and changes in stockholders' equity of SBT Bancorp, Inc.
(the "Company") for the periods presented. In preparing the interim financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. The interim results of operations are not
necessarily indicative of the results to be expected for the year ending
December 31, 2008.
While management believes that the disclosures presented are adequate so as
not to make the information misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes included in the Company's Form 10-KSB for the year ended
December 31, 2007.
NOTE 2 - STOCK BASED COMPENSATION
At September 30, 2008, the Company maintains a stock-based employee
compensation plan. Effective January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payments"
("SFAS 123R"). This Statement revised SFAS No. 123, "Accounting for Stock Based
Compensation" and superceded Accounting Principles Board ("APB") Opinion No. 25,
" Accounting for Stock Issued to Employees", and its related implementation
guidance. SFAS 123R requires that the cost resulting from all share-based
payment transactions be recognized in the consolidated financial statements and
establishes fair value as the measurement objective in accounting for
share-based payment arrangements. During the nine months ended September 30,
2008, the Company recognized $89,000 in stock-based employee compensation
expense. During the nine months ended September 30, 2007, the Company recognized
$102,000 in stock-based employee compensation expense.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value under generally accepted accounting principles (GAAP) and enhances
disclosures about fair value measurements. SFAS 157 retains the exchange price
notion and clarifies that the exchange price is the price that would be received
for an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date. SFAS 157 is
effective for the Company's consolidated financial statements for the year
beginning on January 1, 2008. The adoption of this statement did not have a
material impact on its financial condition and results of operations. See also
Note 4.
In September 2006, the FASB ratified the consensus reached by the
Emerging Issues Task Force ("EITF") on Issue No. 06-4 "Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life
Insurance Arrangements," (EITF 06-4). EITF 06-4 requires companies with an
endorsement split-dollar life insurance arrangement to recognize a liability for
future postretirement benefits. The effective date is for fiscal years beginning
after December 15, 2007, with earlier application permitted. Companies should
recognize the effects of applying this issue through either (a) a change in
accounting principle through a cumulative effect adjustment to retained earnings
or (b) a change in accounting principle through retrospective application to all
periods. The adoption of this statement did not have a material impact on its
financial condition and results of operations.
7
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115" (SFAS 159). SFAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
The new standard is effective at the beginning of the Company's fiscal year
beginning January 1, 2008. The adoption of this statement did not have a
material impact on its financial condition, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations" (SFAS 141(R)). SFAS 141(R) will significantly change the
accounting for business combinations. Under SFAS 141(R), an acquiring entity
will be required to recognize all the assets acquired and liabilities assumed in
a transaction at the acquisition-date fair value with limited exceptions. It
also amends the accounting treatment for certain specific items including
acquisition costs and non controlling minority interests and includes a
substantial number of new disclosure requirements. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009. The Company does not expect the adoption of this
statement to have a material impact on its financial condition and results of
operations.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement No. 133" (SFAS
161). SFAS 161 changes the disclosure requirements for derivative instruments
and hedging activities. Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. The guidance in SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. This Statement encourages, but does not
require, comparative disclosures for earlier periods at initial adoption. The
Company does not expect the adoption of this statement to have a material impact
on its financial condition and results of operations.
NOTE 4 - FAIR VALUE MEASUREMENT DISCLOSURES
As of January 1, 2008, the Company adopted SFAS No. 157, "Fair Value
Measurements," which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and enhances disclosures
about fair value measurements for financial assets and financial liabilities. In
accordance with Financial Accounting Standards Board ("FASB") Staff Position No.
157-2, "Effective Date of FASB Statement No. 157," the Company has delayed the
application of SFAS No. 157 for nonfinancial assets, such as goodwill and real
property held for sale, and nonfinancial liabilities until January 1, 2009.
The fair value hierarchy established by SFAS No. 157 is based on observable and
unobservable inputs participants use to price an asset or liability. SFAS No.
157 has prioritized these inputs into the following value hierarchy:
Level 1 Inputs - Unadjusted quoted prices in active markets for
identical assets or liabilities that are available at the measurement
date.
Level 2 Inputs - Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly or
indirectly. These might include quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than
quoted prices that are observable for the asset or liability (such as
interest rates, volatilities, prepayment speeds, credit risks, etc.) or
inputs that are derived principally from a corroborated by market data
by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair value of
the assets or liability and are based on the entity's own assumption
about the assumptions that market participants would use to price the
asset or liability.
8
A description of the valuation methodologies used for instruments measured at
fair value, as well as the general clarification of such instruments pursuant
to the valuation hierarchy is set forth below. These valuation methodologies
were applied to all of the Company's financial assets and liabilities carried
at fair value effective January 1, 2008.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Securities Available for Sale. The fair value of the Company's available for
sale securities portfolio was estimated using Level 2 inputs. The Company
obtains fair value measurements from an independent pricing service. The fair
value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, market consensus prepayment speeds, credit
information, and bond's terms and conditions, among other factors. At
September 30, 2008, the carrying value and estimated fair value, using Level
2 inputs, of securities available-for-sale was $16.8 million.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share (EPS) excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
The following information was used in the computation of EPS on both a basic and
diluted basis for the quarters ended September 30, 2008 and September 30, 2007:
(Dollars in thousands, except per share amounts)
For the three months ended
--------------------------
9/30/08 9/30/07
---------- --------
Basic EPS computation:
Net (loss) income $ (1,556) $ 258
---------- --------
Weighted average shares outstanding 864,976 849,991
Basic EPS $ (1.80) $ 0.30
========== ========
Diluted EPS computation:
Net (loss) income $ (1,556) $ 258
Weighted average shares outstanding 864,976 849,991
Dilutive potential shares - 9,162
---------- --------
864,976 859,153
Diluted EPS $ (1.80) $ 0.30
========== ========
The following information was used in the computation of EPS on both a basic and
diluted basis for the nine months ended September 30, 2008 and September 30,
2007:
(Dollars in thousands, except per share amounts)
For the nine months ended
-------------------------
9/30/08 9/30/07
---------- --------
Basic EPS computation:
Net (loss) income $ (931) $ 655
---------- --------
Weighted average shares outstanding 858,369 848,987
Basic EPS $ (1.09) $ 0.77
========== ========
Diluted EPS computation:
Net (loss) income $ (931) $ 655
Weighted average shares outstanding 858,369 848,987
Dilutive potential shares - 9,801
---------- --------
858,369 858,788
Diluted EPS $ (1.09) $ 0.76
========== ========
9
Item 2. Management's Discussion and Analysis of Financial Conditions and
----------------------------------------------------------------
Results of Operations
---------------------
Forward Looking Statements
When used in this quarterly report on Form 10-Q (the "Quarterly Report"),
the words "intends," "expects," "plans," "estimates," "projects," "believes,"
"anticipates" and similar expressions are intended to identify forward-looking
statements. The Company has made and may continue to make various
forward-looking statements with respect to earnings, credit quality and other
financial and business matters for periods subsequent to the quarter ended
September 30, 2008. The Company cautions that these forward-looking statements
are not guarantees of future performance and are subject to numerous
assumptions, risks and uncertainties, and that statements relating to subsequent
periods are subject to greater uncertainty because of the increased likelihood
of changes in underlying factors and assumptions. Actual results could differ
materially from forward-looking statements. The following factors, among others,
could cause actual results to differ materially from such forward-looking
statements: competitive pressures on loan and deposit product pricing; actions
of competitors; changes in economic conditions; the extent and timing of actions
of the Federal Reserve Board ("Fed"); customer deposit disintermediation;
changes in customers' acceptance of our products and services; and the extent
and timing of legislative and regulatory actions and reforms.
Forward-looking statements included in this Quarterly Report speak only as
of the date hereof and the Company undertakes no obligation to revise or update
such statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events or circumstances.
General
Management's Discussion and Analysis of Financial Condition and Results of
Operations is designed to provide a better understanding of the significant
changes and trends related to the Company's financial condition, results of
operations, and liquidity and capital resources. The discussion should be read
in conjunction with the consolidated financial statements of the Company. All
adjustments, which, in the opinion of management, are necessary in order to make
the consolidated financial statements not misleading have been made.
The Company's only business is its investment in The Simsbury Bank & Trust
Company (the "Bank"), which is a community oriented financial institution
providing a variety of banking and investment services. The Bank offers a full
range of banking services including commercial loans, term real estate loans,
construction loans, SBA loans and a variety of consumer loans; checking,
savings, certificates of deposit and money market deposit accounts; and
travelers' checks, safe deposit and other customary non-deposit banking services
to consumers and businesses in northcentral Connecticut.
The Bank offers investment products and services to customers through SBT
Investment Services, Inc., a wholly-owned subsidiary of the Bank, and its
affiliation with the securities broker/dealer LPL Financial.
Disclosure of the Company's significant accounting policies is included in
Note 2 to the consolidated financial statements of the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2007. Some of these policies are
particularly sensitive, requiring significant judgments, estimates and
assumptions to be made by management. One of these significant policies relates
to the provision for loan losses. See the heading "Provision for Loan Losses"
below for further details about the Bank's current provision.
Results of Operation
Overview
The Company incurred a net loss of $1,556,000, or ($1.80) per basic and
diluted share, for the quarter ended September 30, 2008 compared to net income
of $258,000, or $0.30 per basic and diluted share, for the quarter ended
September 30, 2007. The net loss for the nine months ended September 30, 2008
was $931,000, or ($1.09) per basic and diluted share, compared to net income of
$655,000, or basic and diluted earnings per share $0.76, respectively for the
comparable period in 2007. The net loss for the period was attributable to an
other-than-temporary impairment charge ("OTTI Write-down") on Fannie Mae and
Freddie Mac preferred stock of $1,668,000 in the quarter ended September 30,
2008. The Company did not record a tax benefit related to the OTTI Write-down
10
during the quarter ended September 30, 2008. However, as a result of legislation
passed on October 3, 2008, the Company will recognize a tax benefit associated
with the OTTI Write-down of approximately $650,000, or $0.75 per share, during
the fourth quarter ending December 31, 2008.
Excluding the OTTI Write-down, the Company earned $112,000 or $0.13 per
diluted share for the quarter ending September 30, 2008 and $737,000, or $0.85
per diluted share for the first nine months of 2008.
Three Months Nine Months
Ended 9/30/08 Ended 9/30/08
- -------------------------------------------------------------------------------------------
Net (Loss) Net (Loss)
Income EPS Income EPS
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
GAAP Basis $(1,556,000) $(1.80) $(931,000) $(1.09)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
OTTI Write-down $1,668,000 $1.93 $1,668,000 $1.94
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Results Excluding the OTTI Charge $112,000 $0.13 $737,000 $0.85
- -------------------------------------------------------------------------------------------
Capital levels for the Company remain well in excess of those required
to meet the regulatory "well-capitalized" designation.
Capital Ratios
9/30/08
- --------------------------------------------------------------------------------------
The Simsbury Bank & Regulatory Standard For Well-
Trust Company Capitalized
- --------------------------------------------------------------------------------------
Tier 1 Leverage Capital Ratio 7.53% > 5.00%
-
- --------------------------------------------------------------------------------------
Tier 1 Risk-Based Capital Ratio 11.80% > 6.00%
-
- --------------------------------------------------------------------------------------
Total Risk-Based Capital Ratio 13.05% > 10.00%
-
- --------------------------------------------------------------------------------------
In August 2008, the Company announced a reconfiguration of its Albany
Turnpike service network to increase operating effectiveness by better aligning
Company resources with customer needs. As part of this effort, one-time expenses
of approximately $130,000 (before tax affect) were incurred during the third
quarter for transitioning the Company's Canton office from full to limited
service. Excluding the two nonrecurring items, (OTTI Write-down and the Albany
Turnpike reconfiguration charges) earnings for the quarter ending September 30,
2008 were $191,000 or $0.22 per basic and diluted share.
On September 30, 2008, loans outstanding were $180 million, an increase of
$22 million, or 14%, over a year ago. Core deposits (Demand, Savings and NOW
accounts) grew by $17 million or 14% over the past twelve months. Total deposits
ended the quarter at $202 million, $19 million, or 10%, above their September
30, 2007 level.
Net interest and dividend income plus noninterest income (excluding the
OTTI Write-down) was $2,446,000 in the third quarter compared to $2,320,000 a
year ago, an increase of 5%. Net interest and dividend income increased by
$139,000 or 7%. Income from fees, services and other sources (noninterest
income) decreased by $13,000, or 4%.
The Company's net interest margin (taxable equivalent net interest and
dividend income divided by average earnings assets) declined slightly from 4.18%
in the third quarter of 2007 to 4.12% in the third quarter of 2008.
Total noninterest expense for the third quarter increased by $296,000, or
15%, compared to a year earlier, primarily due to non-recurring expenses of
$130,000 associated with the Albany Turnpike Market reconfiguration announced in
August of this year.
11
A provision for loan losses of $50,000 in the third quarter of 2008 and
$250,000 through the first nine months of 2008 increased the loan loss reserve
to $1,822,000, or 1.01% of loans outstanding at September 30, 2008. The Company
had no non-performing loans on September 30, 2008.
Net Interest Income and Net Interest Margin
The Company's earnings depend largely upon the difference between the
income received from its loan portfolio and investment securities and the
interest paid on its liabilities, including interest paid on deposits. This
difference is "net interest income." The net interest income, when expressed as
a percentage of average total interest-earning assets, is referred to as the net
yield on interest-earning assets. The Company's net interest income is affected
by the change in the level and the mix of interest-earning assets and
interest-bearing liabilities, referred to as volume changes. The Company's net
yield on interest-earning assets is also affected by changes in yields earned on
assets and rates paid on liabilities, referred to as rate changes. Interest
rates charged on the Bank's loans are affected principally by the demand for
such loans, the supply of money available for lending purposes and competitive
factors. These factors are in turn affected by general economic conditions and
other factors beyond the Bank's control, such as federal economic policies, the
general supply of money in the economy, legislative tax policies, governmental
budgetary matters, and the actions of the Federal Reserve Bank.
Net interest and dividend income totaled $6,019,000 and $5,915,000 for the
nine months ended September 30, 2008 and 2007, respectively. Net interest and
dividend income totaled $2,120,000 and $1,981,000 for the quarters ended
September 30, 2008 and 2007, respectively. The quarterly comparison increase is
primarily a result of a reduction in deposit interest expense. Loans have grown
from approximately $158 million on September 30, 2007 to $180 million on
September 30, 2008. The Bank's net interest margin, defined as the ratio of
taxable, equivalent net interest and dividend income to interest-earning assets
or net yield on earning assets, decreased from 4.18% for the quarter ending
September 30, 2007 to 4.12% for the quarter ending September 30, 2008. The
Bank's net interest spread, defined as the difference between the yield on
earning assets and the cost of deposits, increased from 3.69% for the quarter
ending September 30, 2007 to 3.76% for the quarter ending September 30, 2008.
The Bank's net yield on interest earning assets decreased during the third
quarter of 2008 to 5.40% as compared to 5.97% for the third quarter of 2007,
while the cost of deposits decreased from 2.23% for the third quarter of 2007 to
1.64% for the third quarter of 2008.
Provision for Loan Losses
The provision for loan losses is charged to earnings to bring the total
allowance for loan losses to a level deemed appropriate by Management based on
such factors as historical experience, the volume and type of lending conducted
by the Bank, the amount of non-performing loans, regulatory policies, generally
accepted accounting principles, general economic conditions, and other factors
related to the collectability of loans in the Bank's portfolio.
Each month the Bank reviews the allowance for loan losses and makes
additional transfers to the allowance, as needed. During the nine months ended
September 30, 2008 the allowance was increased by $250,000 for additional
provision and $909 in recoveries and decreased by $352,000 for loans that were
charged off. For the nine months ended September 30, 2007, the allowance was
decreased by $19,500 which was the net charge offs for the period. In the
quarter ended September 30, 2008 the allowance was increased $50,000 for
additional provision and $727 in recoveries and decreased by $265,000 in net
charge offs. During the quarter ended September 30, 2007, the allowance was
decreased by $8,500 in a charge off of one loan for the period, and there were
no recoveries. The total allowance for loan losses as of September 30, 2008 was
$1,822,000 or 1.01% of outstanding loans as compared to a total allowance for
loan losses of $1,679,000 or 1.06% of outstanding loans as of September 30,
2007. In the third quarter of 2008, 5 loans totaling approximately $265,000 were
charged off and there were recoveries from two loans for $727. The Bank believes
the allowance for loan losses is adequate.
Noninterest Income and Noninterest Expense
Total noninterest charge for the first nine months of 2008 was $360,000, a
decrease of $1,350,000 compared to $990,000 of total noninterest income in the
first nine months of 2007. Total noninterest charge for the third quarter of
2008 was $1,342,000, a decrease of $1,681,000, from the $339,000 of total
noninterest income of 2007. The decreases are primarily due to a $1,668,000
write down of Fannie Mae and Freddie Mac preferred stock. At September 30, 2008,
the Bank had approximately 20,100 deposit accounts, which is 700 or 3.4% less
12
than the approximately 20,800 accounts at the end of the third quarter of 2007.
The major portion of noninterest income is derived from service and overdraft
charges.
Total noninterest expense for the first nine months of 2008 was $6,157,000,
an increase of $189,000 over total noninterest expense of $5,968,000 for the
first nine months of 2007. Total noninterest expense for the third quarter of
2008 was $2,242,000, an increase of $296,000 over noninterest expense of
$1,946,000 for the third quarter 2007. The primary reason for the increase in
noninterest expense is $130,000 associated with the Albany Turnpike
reconfiguration announced in August of this year. The ratio of annualized
operating expenses to average assets was 4.09% for the third quarter of 2008 as
compared to 3.80% for the third quarter of 2007. This increase is also
attributable to the Albany Turnpike reconfiguration.
Salaries and employee benefits comprised approximately 51% and 52% of total
noninterest expense in the first nine months for 2008 and 2007 respectively.
Other major categories included premises and equipment at approximately 21% and
19% in the first nine months of 2008 and 2007, respectively; advertising and
promotions at approximately 5% and 4% in the first nine months of 2008 and 2007
respectively; and professional fees at approximately 3% and 6% in the first six
months of 2008 and 2007, respectively. Salaries and employee benefits comprised
approximately 49% and 53% of total noninterest expense in the third quarters of
2008 and 2007, respectively. Other major categories included premises and
equipment at approximately 23% and 19% in the third quarter of 2008 and 2007,
respectively; professional fees at approximately 4% and 5% in the second
quarters of both 2008 and 2007, respectively; and advertising and promotions at
5% and 4% in the third quarters of both 2008 and 2007, respectively.
Financial Condition
Investment Portfolio
In order to maintain a reserve of readily salable assets to meet the Bank's
liquidity and loan requirements, the Bank purchases United States Treasury
securities and other investments. Sales of "Federal Funds" (short-term loans to
other banks) are regularly utilized. Placement of funds in certificates of
deposit with other financial institutions may be made as alternative investments
pending utilization of funds for loans or other purposes.
Securities may be pledged to meet security requirements imposed as a
condition to receipt of deposits of public funds and repurchase agreements. At
September 30, 2008, the Bank had fifteen securities with a book value totaling
$4,881,007 pledged for such purposes. At September 30, 2007, the Bank had eleven
securities with a book value totaling $4,031,297 pledged for such purposes.
As of September 30, 2008 and 2007, the Bank's investment portfolio
consisted of U.S. Government and Agency securities, municipal securities,
corporate bonds, mortgage-backed securities, money market securities and U.S.
Government sponsored Agency equity securities. The Bank's policy is to stagger
the maturities of its investments to meet overall liquidity requirements of the
Bank.
The fair market value of investments in available-for-sale securities was
$16,829,000 and $29,171,000 which are 3% and 1% below book value as of September
30, 2008 and September 30, 2007, respectively. Management has the ability to
hold debt securities until maturity, or for the foreseeable future if classified
as available-for-sale, and equity securities until recovery to cost basis
occurs.
Management periodically reviews all investment securities with significant
declines in fair value for potential other-than-temporary impairment pursuant to
the guidance provided by SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". In November 2006, the Financial Accounting
Standards Board issued Staff Position ("FSP") FAS 115-1 and FAS 124-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments". The FSP addressed the determination as to when an investment is
considered impaired, whether the impairment is other-than-temporary, and the
measurement of an impairment loss. It also included accounting considerations
subsequent to the recognition of an other-than-temporary impairment and requires
certain disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. The guidance in the FSP amended SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities, No. 124",
"Accounting for Certain Investments Held By Not-for-Profit Organizations", and
APB Opinion 18, "The Equity Method of Accounting for Investments in Common
Stock". Management evaluates the Company's investment portfolio on an on going
basis and determined that $1,772,000 of investments in Fannie Mae and Freddie
13
Mac Preferred Stock were other-than-temporarily impaired as of September 30,
2008 and were written-down by $1,668,000 as of September 30, 2008, resulting in
a charge to income of the same amount.
Loan Portfolio
The Bank's commercial loans are made for the purpose of providing working
capital, financing the purchase of equipment or for other business purposes.
Such loans include loans with maturities ranging from thirty days to one year
and "term loans," which are loans with maturities normally ranging from one year
to twenty-five years (although currently the Bank has no loans with maturities
greater than twenty years). Short-term business loans are generally intended to
finance current transactions and typically provide for periodic principal
payments, with interest payable monthly. Term loans normally provide for fixed
or floating interest rates, with monthly payments of both principal and
interest.
The Bank's construction loans are primarily interim loans made by the Bank
to finance the construction of commercial and single family residential
property. These loans are typically short-term. The Bank will make loans for
speculative housing construction or for acquisition and development of raw land.
The Bank's other real estate loans consist primarily of loans made based on
the borrower's cash flow and are secured by deeds of trust on commercial and
residential property to provide another source of repayment in the event of
default. It is the Bank's policy to restrict real estate loans to no more than
50% to 80% of the lower of the appraised value or the purchase price of the
property depending on the type of property and its utilization. The Bank offers
both fixed and floating rate loans. Maturities on such loans typically range
from five to twenty years, however, loans guaranteed by the Small Business
Administration ("SBA") and certain other real estate loans easily sold in the
secondary market may be made for longer maturities. The Bank has been designated
a Certified Lender by the SBA. As an originator of SBA loan products, the Bank
can originate SBA loans including loans with guarantees which will mitigate the
Bank's risk on certain commercial loans. The Bank's SBA loans are categorized as
commercial or real estate-commercial depending on the underlying collateral.
Also, the Bank has been approved as an originator of loans that can be sold to
the Federal Home Loan Mortgage Corporation.
The Bank sold no loans in the nine months ended September 30, 2008. During
the nine months ended September 30, 2007 the Bank sold one loan with a principal
balance of $268,000 in the first quarter of 2007 which resulted in a loss of
approximately $400 for the Bank. The Bank is currently pursuing a new vendor
agreement to sell mortgage loans originated by the Bank.
Consumer loans are made for the purpose of financing automobiles, various
types of consumer goods, and other personal purposes. Consumer loans generally
provide for the monthly payment of principal and interest. Most of the Bank's
consumer loans are secured by the personal property being purchased. The Bank
has an agreement with BCI Financial Corp ("BCI") to purchase auto loans from
BCI. As part of the agreement, BCI services the loans for the Bank. As of
September 30, 2008, the Bank had approximately $3,453,000 in auto loans
purchased from BCI on its books as compared with September 30, 2007, at which
time the Bank had approximately $6,654,000 in auto loans purchased from BCI on
its books.
The Bank is subject to certain lending limits. With certain exceptions, the
Bank is permitted under applicable law to make related extensions of credit to
any single borrowing entity of up to 15% of the Bank's capital and reserves.
Credit equaling an additional 10% of the Bank's capital and reserves may be
extended if the credit is fully secured by qualified collateral of limited
types. As of September 30, 2008, the Bank's lending limits were $2,609,400 and
$4,348,999, respectively. As of September 30, 2007, these lending limits were
$2,715,321 and $4,525,536, respectively. The Bank sells participations in its
loans when necessary to stay within lending limits.
The Bank does not have any concentrations in its loan portfolio by industry
or group of industries. However, as of September 30, 2008, approximately 73% of
the Bank's loans were secured by residential real property located in
Connecticut as compared with September 30, 2007, when approximately 76% of the
Bank's loans were secured by residential real property located in Connecticut.
Interest on performing loans is accrued and taken into income daily. Loans
over 90 days past due are deemed "non-performing" and are placed on a nonaccrual
status, unless the loan is well collateralized and in the process of collection.
Interest received on nonaccrual loans is credited to income only upon receipt
and in certain circumstances may be applied to principal until the loan has been
repaid in full, at which time the interest received is credited to income. The
14
Bank had no nonaccrual loans at September 30, 2008. The Bank had one nonaccrual
loan with a balance of approximately $6,000 at September 30, 2007.
When appropriate or necessary to protect the Bank's interests, real estate
taken as collateral on a loan may be taken by the Bank through foreclosure or a
deed in lieu of foreclosure. Real property acquired in this manner by the Bank
will be known as "other real estate owned" ("OREO"), and will be carried on the
books of the Bank as an asset at the lesser of the Bank's recorded investment or
the fair value less estimated costs to sell. As of September 30, 2008 and 2007,
no OREO was held by the Bank.
Nonpayment of loans is an inherent risk in the banking business. That risk
varies with the type and purpose of the loan, the collateral which is utilized
to secure payment, and ultimately, the credit worthiness of the borrower. In
order to minimize this credit risk, the Bank requires that most loans be
approved by at least two officers, one of whom must be an executive officer.
Commercial loans greater than $100,000 as well as other loans in certain
circumstances must be approved by the Loan Committee of the Bank's Board of
Directors.
The Bank also maintains a program of annual review of certain new and
renewed loans by an outside loan review consultant. Loans are graded from "pass"
to "loss", depending on credit quality, with "pass" representing loans that are
fully satisfactory as additions to the Bank's portfolio. These are loans which
involve a degree of risk that is not unwarranted given the favorable aspects of
the credit and which exhibit both primary and secondary sources of repayment.
Classified loans identified in the review process are added to the Bank's
Internal Watchlist and an allowance for credit losses is established for such
loans if appropriate. Additionally, the Bank is examined regularly by the
Federal Deposit Insurance Corporation and the State of Connecticut Department of
Banking at which times a further review of loans is conducted.
There were thirty-seven classified loans with combined outstanding balances
of $5,941,441 as of September 30, 2008. There were twenty-five classified loans
with a combined outstanding balance of $3,206,706 as of September 30, 2007. The
bank has no exposure to sub-prime loans in its loan portfolio. The increase in
classified loans was due to the effects of a slower residential development
market in a segment of the Bank's portfolio. The Bank's overall asset quality
and loan loss reserves of 1.01% of loans compares very favorably to its peer
banks.
The Bank maintains an allowance for loan losses to provide for potential
losses in the loan portfolio. Additions to the allowance are made by charges to
operating expenses in the form of a provision for loan losses. All loans that
are judged to be uncollectible are charged against the allowance while any
recoveries are credited to the allowance. Management conducts a critical
evaluation of the loan portfolio monthly. This evaluation includes an assessment
of the following factors: the results of the Bank's internal loan review, any
external loan review, any regulatory examination, loan loss experience,
estimated potential loss exposure on each credit, concentrations of credit,
value of collateral, any known impairment in the borrower's ability to repay,
and present and prospective economic conditions.
Deposits
Deposits are the Bank's primary source of funds. At September 30, 2008, the
Bank had a deposit mix of 33% checking, 35% savings and 32% certificates. The
Bank's net interest income is enhanced by its percentage of noninterest bearing
deposits. As of September 30, 2007, the deposit mix was 34% checking, 32%
savings and 34% certificates. At September 30, 2008, nineteen percent of the
total deposits of $202.0 million were noninterest bearing as compared with
September 30, 2007 at which time nineteen percent of the Bank's total deposits
of $183.3 million were noninterest bearing. As of September 30, 2008 and 2007,
the Bank had $15,343,000 and $10,127,000, respectively, in deposits from public
sources.
The Bank's deposits are obtained from a cross-section of the communities it
serves. No material portion of the Bank's deposits has been obtained from or is
dependent upon any one person or industry. The Bank's business is not seasonal
in nature. The Bank accepts deposits in excess of $100,000 from customers. Those
deposits are priced to remain competitive.
The Bank is not dependent upon funds from sources outside the United States
and has not made loans to any foreign entities.
15
Liquidity and Asset-Liability Management
Liquidity management for banks requires that funds always be available to
pay anticipated deposit withdrawals and maturing financial obligations promptly
and fully in accordance with their terms. The balance of the funds required is
generally provided by payments on loans, sale of loans, liquidation of assets
and the acquisition of additional deposit liabilities. One method banks utilize
for acquiring additional liabilities is through the acceptance of "brokered
deposits" (defined to include not only deposits received through deposit
brokers, but also deposits bearing interest in excess of 75 basis points over
market rates), typically attracting large certificates of deposit at high
interest rates. The Bank is a member of Promontory Interfinancial Network LLC's
Certificate of Deposit Account Registry Service ("CDARS"). This allows the Bank
to offer its customers FDIC insurance on Certificates of Deposit in amounts
greater than $100,000 by placing the deposits in the CDARS network. Accounts
placed in this manner are considered brokered deposits. As of September 30, 2008
and September 30, 2007, the Bank had $617,000 and no deposits, respectively, in
the CDARS network. The Bank had no other brokered deposits as of September 30,
2008 and September 30, 2007.
To meet liquidity needs, the Bank maintains a portion of its funds in cash
deposits in other banks, Federal Funds sold, and available-for-sale securities.
As of September 30, 2008, the Bank's liquidity ratio was 19.6%, defined as the
sum of $9 million in Federal Funds sold, $16.8 million in available-for-sale
securities, and $11.3 million in cash and due from banks, $2.9 million in
interest-bearing deposits with the Federal Home Loan Bank and $27,000 in money
market mutual funds as a percentage of deposits. This ratio was 22.9% at
September 30, 2007 defined as the sum of $2.3 million in Federal Funds sold and
interest bearing deposits, $29.2 million in available-for-sale securities, $10.3
million in cash and due from banks $28,000 in interest-bearing deposits with
Federal Home Loan Bank, and $218,000 in money market mutual funds as a
percentage of deposits.
The careful planning of asset and liability maturities and the matching of
interest rates to correspond with this maturity matching is an integral part of
the active management of an institution's net yield. To the extent maturities of
assets and liabilities do not match in a changing interest rate environment, net
yields may be affected. Even with perfectly matched repricing of assets and
liabilities, risks remain in the form of prepayment of assets, timing lags in
adjusting certain assets and liabilities that have varying sensitivities to
market interest rates and basis risk. In its overall attempt to match assets and
liabilities, Management takes into account rates and maturities offered in
connection with its certificates of deposit and by offering variable rate loans.
The Bank has generally been able to control its exposure to changing interest
rates by maintaining floating interest rate loans and shorter term investments
and a majority of its time certificates in relatively short maturities.
The Executive Committee of the Company's Board of Directors meets at least
quarterly to monitor the Bank's investments and liquidity needs and oversee its
asset-liability management. In between meetings of the Committee, the Bank's
Management oversee the Bank's liquidity.
Capital Requirements
The banking industry is subject to capital adequacy requirements based on
risk-adjusted assets. The risk-based guidelines are used to evaluate capital
adequacy, and are based on the institution's asset risk profile, including
investments and loans, and off-balance sheet exposures, such as unused loan
commitments and standby letters of credit. The guidelines require that a portion
of total capital be core, or Tier 1. Tier 1 capital is the aggregate of common
shareholders' equity and perpetual preferred stock, less goodwill and certain
other deductions. Total capital consists of Tier 1 capital plus the allowance
for loan losses subject to certain limitations. Leverage ratio is defined as
Tier 1 capital divided by average assets.
At September 30, 2008 and 2007, the Bank's capital exceeded all minimum
regulatory requirements and the Bank was considered to be "well capitalized" as
defined in the regulations issued by the FDIC.
Inflation
The impact of inflation on financial institutions may differ significantly
from the impact exerted on other companies. Banks, as financial intermediaries,
have many assets and liabilities that may move in concert with inflation both as
to interest rates and as to value. This is especially true for companies with a
high percentage of interest rate sensitive assets and liabilities, such as the
Bank. Banks seek to reduce the impact of inflation by managing the interest rate
16
sensitivity gap. The Bank attempts to manage its interest rate sensitivity gap
and to structure its mix of financial instruments in order to minimize the
potential adverse effects of inflation or other market forces on its net
interest income and therefore its earnings and capital.
Financial institutions are also affected by inflation's impact on
non-interest expenses, such as salaries and occupancy expenses. From 1992
through September 30, 2008, inflation has remained relatively stable, due
primarily to continuous management of the money supplied by the Fed. Based on
the Bank's interest rate sensitivity position, the Bank benefits in the short
term from rising interest rates and is adversely affected by falling interest
rates. As such, indirectly, the management of the money supply by the Fed to
control the rate of inflation has an impact on the earnings of the Bank. Also,
the changes in interest rates may have a corresponding impact on the ability of
borrowers to repay loans with the Bank.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4T. Controls and Procedures
The Company has initiatives in place to ensure compliance with the
Sarbanes-Oxley Act of 2002. The Company has an Internal Compliance Committee
that is responsible for the monitoring of and compliance with all federal
regulations. This committee makes reports on compliance matters to the Audit and
Compliance Committee of the Company's Board of Directors.
Evaluation of Disclosure Control Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures as of September 30, 2008.
Based upon this evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that, as of that date, the Company's disclosure
controls and procedures were effective at ensuring that required information
will be disclosed on a timely basis.
As used herein, "disclosure controls and procedures" mean controls and
other procedures of the Company that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commissions rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act is accumulated and communicated to the Company's management, including its
principal executive, and principal financial officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Controls
There was no change in the Company's internal control over financial
reporting during the quarter ended September 30, 2008 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 1A. Risk Factors.
------------
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
-----------------------------------------------------------
None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a vote of Security Holders.
----------------------------------------------------
None.
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits
--------
Exhibit No. Description
----------- -----------
3(i) Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of the Company's Form
8K12G3 filed with the Securities and Exchange
Commission on March 7, 2006)
3(ii) Bylaws (incorporated by reference to Exhibit
3.2 of the Company's Form 8K12G3 filed with
the Securities and Exchange Commission on
March 7, 2006)
4 Specimen Common Stock Certificate
(incorporated by reference to Exhibit 4 of the
Company's 10-QSB dated May 12, 2006)
31.1 Section Rule 13a-14(a)/15d-14(a) Certification
by Chief Executive Officer
31.2 Section Rule 13a-14(a)/15d-14(a) Certification
by Chief Financial Officer
32.1 Section 1350 Certification by Chief Executive
Officer
32.2 Section 1350 Certification by Chief Financial
Officer
18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SBT BANCORP, INC.
Date: November 14, 2008 By: /s/ Martin J. Geitz
-------------------------------------
Martin J. Geitz
Chief Executive Officer
Date: November 14, 2008 By: /s/ Anthony F. Bisceglio
-------------------------------------
Anthony F. Bisceglio
Chief Financial Officer
19
EXHIBIT INDEX
3(i) Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 of the Company's Form 8K12G3 filed with the
Securities and Exchange Commission on March 7, 2006)
3(ii) Bylaws (incorporated by reference to Exhibit 3.2
of the Company's Form 8K12G3 filed with the
Securities and Exchange Commission on March 7,
2006)
4 Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4 of the Company's 10-QSB dated
May 12, 2006)
31.1 Section Rule 13a-14(a)/15d-14(a) Certification by Chief
Executive Officer
31.2 Section Rule 13a-14(a)/15d-14(a) Certification by Chief
Financial Officer
32.1 Section 1350 Certification by Chief Executive Officer
32.2 Section 1350 Certification by Chief Financial Officer
20