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 March 31, 2009
----------------------------
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 0-24751
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) Identification No.)
5 Bissell Street Lakeville Connecticut 06039
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants 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 [_]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer or a smaller reporting company.
(See the definitions of large accelerated filer, accelerated Filer and smaller
reporting company in Rule 12b-2 of the Exchange Act). (Check one):
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 in
Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of May 1, 2009, there were
1,685,861 shares outstanding.
SALISBURY BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements: 3
Condensed Consolidated Balance Sheets -March 31, 2009
(unaudited) and December 31, 2008 4
Condensed Consolidated Statements of Income -three months
ended March 31, 2009 and 2008 (unaudited) 5
Condensed Consolidated Statements of Cash Flows -three months
ended March 31, 2009 and 2008 (unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 4T. Controls and Procedures 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 20
Signatures 21
2
Part I-- FINANCIAL INFORMATION
Item 1. Financial Statements
3
SALISBURY BANCORP, INC. AND SUBSIDIARY
--------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
March 31, 2009 and December 31, 2008
------------------------------------
March 31, December 31,
2009 2008
---- ----
ASSETS (unaudited)
------
Cash and due from banks $ 5,836,264 $ 7,082,317
Interest bearing demand deposits with other banks 1,764,606 900,487
Money market mutual funds 10,267,027 1,476,999
Federal funds sold 0 200,000
------------- -------------
Cash and cash equivalents 17,867,897 9,659,803
Investments in available-for-sale securities (at fair value) 149,620,391 150,526,964
Investments in held-to-maturity securities (fair values of $65,443 as of
March 31, 2009 and $66,502 as of December 31, 2008) 65,273 66,443
Federal Home Loan Bank stock, at cost 5,323,000 5,323,000
Loans held-for-sale 807,000 2,314,250
Loans, less allowance for loan losses of $3,005,139 as of March 31, 2009
and $2,724,024 as of December 31, 2008 298,333,242 297,367,434
Investment in real estate 75,000 75,000
Other real estate owned 418,024 204,534
Premises and equipment 8,275,831 7,123,671
Goodwill 9,828,712 9,828,712
Core deposit intangible 1,124,014 1,165,068
Accrued interest receivable 2,445,102 2,704,385
Cash surrender value of life insurance policies 3,949,827 3,824,653
Deferred taxes 5,283,496 4,196,819
Due from broker 1,314,582 0
Other assets 1,408,589 1,373,424
------------- -------------
Total assets $ 506,139,980 $ 495,754,160
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 63,448,689 $ 65,479,271
Interest-bearing 303,314,838 279,445,961
------------- -------------
Total deposits 366,763,527 344,925,232
Securities sold under agreements to repurchase 9,081,236 11,203,289
Federal Home Loan Bank advances 78,598,166 87,913,667
Due to broker 0 7,631,919
Other liabilities 5,439,507 5,140,721
------------- -------------
Total liabilities 459,882,436 456,814,828
------------- -------------
Shareholders' equity:
Preferred stock, par value$.01 per share, authorized 25,000 shares; issued
and outstanding 8,816 shares at March 31, 2009 and 0 shares at
December 31, 2008. 88 0
Common stock, par value $.10 per share; authorized 3,000,000 shares;
issued and outstanding, 1,685,861 shares at March 31, 2009 and
December 31, 2008 168,586 168,586
Unused common stock warrants outstanding 111,998 0
Paid-in capital 21,861,797 13,157,883
Retained earnings 35,127,465 34,518,331
Accumulated other comprehensive loss (11,012,390) (8,905,468)
------------- -------------
Total shareholders' equity 46,257,544 38,939,332
------------- -------------
Total liabilities and shareholders' equity $ 506,139,980 $ 495,754,160
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
SALISBURY BANCORP, INC. AND SUBSIDIARY
--------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(unaudited)
Three Months Ended
March 31,
2009 2008
---- ----
Interest and dividend income:
Interest and fees on loans $4,509,670 $4,631,588
Interest on debt securities:
Taxable 1,331,810 1,286,915
Tax-exempt 643,630 574,462
Dividends on equity securities 0 78,248
Other interest 1,847 96,684
---------- ----------
Total interest and dividend income 6,486,957 6,667,897
---------- ----------
Interest expense:
Interest on deposits 1,483,582 1,973,229
Interest on securities sold under agreements to repurchase 39,027 0
Interest on Federal Home Loan Bank advances 761,517 1,035,161
---------- ----------
Total interest expense 2,284,126 3,008,390
---------- ----------
Net interest and dividend income 4,202,831 3,659,507
Provision for loan losses 430,000 60,000
---------- ----------
Net interest and dividend income after provision for
loan losses 3,772,831 3,599,507
---------- ----------
Noninterest income:
Trust department income 540,000 600,000
Loan commissions 1,548 0
Service charges on deposit accounts 208,246 198,160
Gains on available-for-sale securities, net 427,338 317,970
Gain on sales of loans held-for-sale 114,555 72,833
Other income 413,697 243,688
---------- ----------
Total noninterest income 1,705,384 1,432,651
---------- ----------
Noninterest expense:
Salaries and employee benefits 2,265,103 2,076,173
Occupancy expense 257,119 230,527
Equipment expense 226,717 211,086
Data processing 383,436 318,640
Insurance 136,952 43,900
Printing and stationery 65,969 59,508
Professional fees 261,341 234,210
Legal expense 95,358 61,427
Amortization of core deposit intangible 41,054 41,054
Other expense 400,740 373,471
---------- ----------
Total noninterest expense 4,133,789 3,649,996
---------- ----------
Income before income taxes 1,344,426 1,382,162
Income taxes 263,251 301,228
---------- ----------
Net income $1,081,175 $1,080,934
========== ==========
Earnings per common share $ .63 $ .64
---------- ----------
Dividends per common share $ .28 $ .28
---------- ----------
The accompanying notes are an integral part of these
consolidated financial statements.
5
SALISBURY BANCORP INC. AND SUBSIDIARY
-------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
Three months ended March 31, 2009 and 2008
(unaudited)
2009 2008
---- ----
Cash flows from operating activities:
Net income $ 1,081,175 $ 1,080,934
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of securities, net 100,768 23,901
Gain on sales of available-for-sale securities, net (427,338) (317,970)
Provision for loan losses (430,000) (60,000)
Change in loans held-for-sale 1,507,250 (26,000)
Change in deferred loan costs, net (7,093) (20,469)
Increase in unearned income on loans 6,251 6,059
Net (increase) decrease in mortgage servicing rights (69,329) 18,235
Depreciation and amortization 174,551 161,910
Amortization of core deposit intangible 41,054 41,054
Accretion of fair value adjustment on deposits & borrowings (32,551) (32,551)
Amortization of fair value adjustment on loans 11,905 11,905
Decrease in interest receivable 228,670 274,322
Deferred tax benefit (1,293) 1,676
Decrease in taxes receivable 154,588 253,895
Increase in prepaid expenses (63,121) (37,157)
Increase in cash surrender value of insurance policies (125,174) (30,190)
Increase in other assets (80,826) (173,321)
Increase (decrease) in accrued expenses 376,878 (64,811)
Increase in interest payable 21,556 45,791
(Decrease) increase in other liabilities (67,236) 385,919
------------ ------------
Net cash provided by operating activities 2,400,685 1,543,132
------------ ------------
Cash flows from investing activities
Purchases of available-for-sale securities (53,864,056) (64,317,145)
Proceeds from sales of available-for-sale securities 24,956,599 63,348,683
Proceeds from maturities of available-for-sale securities 18,000,000 0
Proceeds from maturities of held-to-maturity securities 1,163 1,028
Loan originations and principal collections, net (694,637) (3,348,061)
Purchase of loans (76,266) (4,483,208)
Recoveries of loans previously charged-off 10,542 10,210
Capital expenditures (1,303,187) (277,889)
------------ ------------
Net cash used in investing activities (12,969,842) (9,066,382)
------------ ------------
6
SALISBURY BANCORP INC. AND SUBSIDIARY
-------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
Three months ended March 31, 2009 and 2008
(unaudited)
(continued)
2009 2008
---- ----
Cash flows from financing activities:
Net increase in demand deposits, NOW and savings accounts 7,986,641 15,567,164
Net increase in time deposits 13,851,654 3,286,912
Federal Home Loan Bank advances 12,000,000 0
Principal payments on advances from Federal Home Loan Bank (404,950) (175,774)
Net change in short term advances from Federal Home Loan Bank (20,878,000) (8,637,000)
Decrease in other borrowed funds-Repo's (2,122,053) 0
Proceeds from issuance of preferred stock 8,816,000 0
Dividends paid (472,041) (738,021)
------------ ------------
Net cash provided by financing activities 18,777,251 9,303,281
------------ ------------
Net increase in cash and cash equivalents 8,208,094 1,780,031
Cash and cash equivalents at beginning of period 9,659,803 15,178,195
------------ ------------
Cash and cash equivalents at end of period $ 17,867,897 $ 16,958,226
============ ============
Supplemental disclosures:
Interest paid $ 2,295,121 $ 3,029,000
Income taxes paid 109,956 11,000
The accompanying notes are an integral part of these consolidated
financial statements.
7
SALISBURY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying condensed consolidated interim financial statements are
unaudited and include the accounts of Salisbury Bancorp, Inc. (the "Company"),
its wholly owned subsidiary Salisbury Bank and Trust Company (the "Bank"), and
the Bank's subsidiaries, S.B.T. Realty, Inc. and SBT Mortgage Service
Corporation (the "PIC"). The consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (GAAP) for interim financial information and with the
instructions to the SEC's Form 10-Q. Accordingly, they do not include all the
information and footnotes required by GAAP for complete financial statements.
All significant intercompany accounts and transactions have been eliminated in
the consolidation. These financial statements reflect, in the opinion of
Management, all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the Company's financial position and the
results of its operations and its cash flows for the periods presented.
Operating results for the three months ended March 31, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2009. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 2008 Annual
Report on Form 10-K.
The year-end condensed balance sheet data derived from audited financial
statements does not include all disclosures required by GAAP.
NOTE 2 - COMPREHENSIVE (LOSS) INCOME
------------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," establishes standards for disclosure of comprehensive
income which includes net income and any changes in equity from non-owner
sources that are not recorded in the income statement (such as changes in the
net unrealized gains (losses) on securities). The purpose of reporting
comprehensive (loss) income is to report a measure of all changes in equity that
result from recognized transactions and other economic events of the period
other than transactions with owners in their capacity as owners. The Company's
sources of other comprehensive (loss) income are the net changes in unrealized
holding (losses) or gains on securities and the net change in unrecognized
pension plan expense.
Comprehensive (Loss) Income
Three months ended
March 31,
2009 2008
---- ----
Net income $ 1,081,175 $ 1,080,934
Net change in unrealized holding (losses) or
gains on securities and net change in
unrecognized pension plan expense,
net of tax during period (2,106,922) (946,411)
----------- -----------
Comprehensive (loss) income $(1,025,747) $ 134,523
=========== ===========
NOTE 3 - IMPACT OF NEW ACCOUNTING STANDARDS
-------------------------------------------
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 Issue 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 was for fiscal years
beginning after December 15, 2007, with earlier application permitted. The
Company 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 Company adopted this Issue in 2008, and it did
not have a significant impact on its financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
157). SFAS No. 157 defines fair value, establishes a framework for measuring
fair value under generally accepted accounting principles (GAAP) and expands
disclosures about fair value measurements. The FASB's FSP FAS 157-2, "Effective
Date of
8
FASB Statement No. 157", defers until January 1, 2009, the application of SFAS
157 to nonfinancial assets and nonfinancial liabilities not recognized or
disclosed at least annually at fair value. This includes nonfinancial assets and
nonfinancial liabilities initially measured at fair value in a business
combination or other new basis event, but not measured at fair value in
subsequent periods. The Company adopted this statement on January 1, 2008 and it
did not have a significant impact on its financial statements.
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, at specified election
dates, to choose to measure certain financial instruments at fair value that are
not currently required to be measured at fair value. The fair value option is
applied on an instrument-by-instrument basis, is irrevocable and can only be
applied to an entire instrument and not to specified risks, specific cash flows,
or portions of that instrument. Unrealized gains and losses on items for which
the fair value option has been elected will be reported in earnings at each
subsequent reporting date and upfront fees and costs related to those items will
be recognized in earnings as incurred and not deferred. SFAS No. 159 became
effective in fiscal years beginning after November 15, 2007. The Company adopted
SFAS 159 effective January 1, 2008 and it did not have a significant impact on
its financial statements.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements and Amendment of ARB No. 51 ("SFAS No. 160").
The pronouncement requires all entities to report noncontrolling (minority)
interests in subsidiaries as a component of shareholders' equity. SFAS No. 160
is effective for fiscal years beginning after December 15, 2008. Early adoption
is prohibited. Management anticipates that this statement will not have a
material impact on the Company's financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations" (SFAS 141(R)). SFAS 141(R) significantly changes the accounting
for business combinations. Under SFAS 141(R), an acquiring entity is 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 February 2008, the FASB issued FSP FAS 140-3, "Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions." This FSP provides
guidance on how the transferor and transferee should separately account for a
transfer of a financial asset and a related repurchase financing if certain
criteria are met. This guidance became effective January 1, 2009. The adoption
of this new FSP is not expected to have a material effect on the Company's
results of operations or financial position.
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.
In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life
of Intangible Assets." This FSP provides guidance as to factors considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS 142, "Goodwill and Other Intangible
Assets." This guidance became effective January 1, 2009. The adoption is not
expected to have a material effect on the Company's results of operations or
financial position.
9
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." This standard formalizes minor changes in prioritizing
accounting principles used in the preparation of financial statements that are
presented in conformity with GAAP. This standard became effective November 15,
2008.
In April 2009, the FASB issued FASB Staff Position 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4). FSP FAS 157-4 provides additional guidance for estimating fair value
measurements in accordance with FASB Statement No. 157, "Fair Value
Measurements," when the volume and level of activity for the asset or liability
have significantly decreased. FSP FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009 with early adoption permitted for
periods ending after March 15, 2009. The Company/Bank/Corporation is currently
evaluating the impact of the adoption of this FSP on its financial condition and
results of operations.
In April 2009, the FASB issued FASB Staff Position 107-1 and Accounting
Principles Board Opinion 28-1, "Interim Disclosures About Fair Value of
Financial Instruments" (FSP FAS 107-1 and APB 28-1). FSP FAS 107-1 amends FASB
Statement No. 107, "Disclosures About Fair Value of Financial Instruments," to
require entities to disclose the methods and significant assumptions used to
estimate the fair value of financial instruments in both interim and annual
financial statements. APB 28-1 amends APB Opinion No. 28, "Interim Financial
Reporting" to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS 107-1 and APB 28-1 are effective for interim
and annual periods ending after June 15, 2009 with early adoption permitted for
periods ending after March 15, 2009. An entity may early adopt this FSP only if
it also elects to early adopt FSP FAS 157-4. The Company/Bank/Corporation is
currently evaluating the impact of the adoption of this FSP on its financial
condition and results of operations.
In April 2009, the FASB issued FASB Staff Position 115-2 and 124-2, "Recognition
and Presentation of Other-Than-Temporary Impairments" (FSP FAS 115-2 and FAS
124-2). FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment
(OTTI) guidance for debt securities to make the guidance more operational and to
improve the presentation and disclosure of OTTI on debt and equity securities in
the financial statements. This FSP does not amend existing recognition and
measurement guidance related to OTTI of equity securities. FSP FAS 115-2 and FAS
124-2 are effective for interim and annual reporting periods after June 15, 2009
with early adoption permitted for periods ending after March 15, 2009. The
Company/Bank/Corporation is currently evaluating the impact of the adoption of
this FSP on its financial condition and results of operations.
NOTE 4 - DEFINED BENEFIT PENSION PLAN
-------------------------------------
The following summarizes the net periodic benefit cost for the three months
ended March 31:
Three Months Ended
March 31,
2009 2008
--------------------------
Components of net periodic benefit cost:
Service cost $ 107,000 $ 113,750
Interest cost 100,750 95,000
Expected return on plan assets (89,750) (105,750)
Amortization of:
Prior service cost 0 223
Actuarial loss 32,500 15,750
--------- ---------
Net periodic benefit cost $ 150,500 $ 118,973
========= =========
The following actuarial weighted average assumptions were used in calculating
net periodic benefit cost:
Discount rate 6.00% 6.00%
Average wage increase Graded table* Graded table*
Expected return on plan assets 7.50% 7.50%
*5% at age 20 grading down to 3% at age 60 and beyond (roughly 3.25% on
average).
10
NOTE 5 - ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS
-----------------------------------------------------------
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
asset 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.
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.
Fair Value Measurements at Reporting Date using
Quoted Prices
in Active Significant
Markets for Significant Other Unobservable Inputs
Identical Assets Observable Inputs
Description 03/31/09 (Level 1) (Level 2) (Level 3)
-------- --------- --------- ---------
Securities
available-for sale $ 149,620,391 $ 25,228 $ 149,181 ,731 $ 413,432
------------------- ------------------- ------------------- -------------------
Impaired loans 8,471,996 0 8,471,996 0
------------------- ------------------- ------------------- -------------------
Total $ 158,092,387 $ 25,228 $ 157,653,727 $ 413,432
=================== =================== =================== ===================
Fair Value Measurements
Using Significant Unobservable Inputs
Level 3
----------------------------------------
Available-for-Sale
Securities Total
------------- -------------
Beginning balance January 1, 2009 $ 2,172,737 $ 2,172,737
Total gains or losses (realized/unrealized)
Included in earnings (or changes in net assets)
Included in other comprehensive income 775,311) (1,775,311)
Amortization of securities, net 2,444 2,444
Transfers in and/or out of Level 3 13,562 13,562
------------- -------------
Ending balance, March 31, 2009 $ 413,432 $ 413,432
============= =============
The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets still
held at the reporting date $ 0 $ 0
============= =============
11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Business
--------
The following provides Management's comments on the financial condition and
results of operations of Salisbury Bancorp, Inc. (the "Company"), a Connecticut
corporation that is the holding company for Salisbury Bank and Trust Company
(the "Bank"). The Company's sole subsidiary is the Bank, which has seven (7)
full service offices including a Trust Wealth Services Division. Such offices
are located in the towns of Canaan, Lakeville, Salisbury and Sharon,
Connecticut, Sheffield and South Egremont, Massachusetts, and Dover Plains, New
York. In addition, the bank has received regulatory approvals to open a
full-service branch in Millerton, New York. The Company and Bank were formed in
1998 and 1848, respectively. In order to provide a strong foundation for
building shareholder value and servicing 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
customers. This discussion should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2008.
RESULTS OF OPERATIONS
---------------------
Overview
--------
The Company's assets at March 31, 2009 totaled $506,139,980 compared to total
assets of $495,754,160 at December 31, 2008. During the first three months of
2009, net loans outstanding, not including loans held-for-sale, increased
$965,808 or 0.33% to $298,333,242. This compares to total net loans outstanding,
not including loans held-for-sale, of $297,367,434 at December 31, 2008. This
small increase is primarily attributable to strategic efforts directed at new
business development as loan demand has decreased due to the current economic
recession. Non-performing assets totaled $6,693,269 at March 31, 2009 which
included one OREO property at a value of $418,024. This compares to
non-performing assets totaling $5,379,135 at December 31, 2008 which included
one OREO property valued at $204,534. The Bank continues to monitor the quality
of the loan portfolio to ensure that loan quality will not be sacrificed for
growth or otherwise compromise the Company's objectives. Strong risk management
policies and procedures relating to the loan portfolio have always been
maintained by the Bank. However, the economy is in a deep recession which is
significantly impacting the Bank's market area. Deposits at March 31, 2009
totaled $366,763,527 as compared to total deposits of $344,925,232 at December
31, 2008. This increase is attributable to new business development efforts that
are being implemented and the desire of consumers to use the safety of FDIC
insured Bank funds to protect assets.
The Company's earnings for the three months ended March 31, 2009 was $1,081,175
or $.64 per average share outstanding. This is virtually unchanged from earnings
of $1,080,934 or $.64 per share for the same period in 2008.
The capital levels of the Company as well as the Bank, remain above the highest
regulatory capital level requirements as measured by the Regulatory Agencies.
Capital levels at March 31, 2009 compared to Regulatory Capital Ratios are as
follows:
Salisbury Bank Consolidated Well Capitalized
-------------- ------------ ----------------
Total risk based capital 11.72% 14.55% > 10.00%
-
Tier 1 risk based capital 10.82% 13.66% > 6.00%
-
Leverage ratio 7.52% 9.54% > 5.00%
-
As previously disclosed, on March 27, 2009, the Board of Directors declared a
first quarter cash dividend of $.28 per common share, which was paid on April
30, 2009 to shareholders of record as of April 16, 2009. This compared to a cash
dividend of $.28 per common share that was paid for the first quarter of 2008.
12
Critical Accounting Estimates
-----------------------------
In preparing the Company's financial statements, Management selects and applies
numerous accounting policies. In applying these policies, Management must make
estimates and assumptions. The accounting policy that is most susceptible to
critical estimates and assumptions is the allowance for loan losses. The
determination of an appropriate provision is based on an estimation of the
probable amount of credit losses in the loan portfolio. Many factors influence
the amount of estimated loan losses, relating to both the specific
characteristics of the loan portfolio and general economic conditions nationally
and locally. While Management carefully considers these factors in determining
the amount of the allowance for loan losses, future adjustments may be necessary
due to changed conditions, which could have an adverse impact on reported
earnings in the future. See "Provisions and Allowance for Loan Losses."
THREE MONTHS ENDED MARCH 31, 2009
AS COMPARED TO THREE MONTHS ENDED MARCH 31, 2008
Net Interest and Dividend Income
--------------------------------
The Company's earnings are primarily dependent upon net interest and dividend
income, and to a lesser extent noninterest income. Net interest and dividend
income is the difference between interest and dividends earned primarily on the
loan and securities portfolios and interest paid on deposits, securities sold
under agreements to repurchase and advances from the Federal Home Loan Bank.
Noninterest income is primarily derived from the Trust Wealth Advisory Services
Division, service charges and other fees related to deposit and loan accounts
and income from gains in securities transactions. For the following discussion,
net interest and dividend income is presented on a fully taxable-equivalent
("FTE") basis. FTE interest income restates reported interest income on tax
exempt securities as if such interest were taxed at the Company's federal tax
rate of 34% for all periods presented.
Three Months Ended March 31, 2009 2008
---- ----
Total Interest and Dividend Income
(financial statements) $6,486,957 $6,667,897
Tax Equivalent Adjustment 331,567 295,935
---------- ----------
Total Interest and Dividend Income
(on a FTE basis) 6,818,524 6,963,832
Total Interest Expense 2,284,126 3,008,390
---------- ----------
Net Interest and Dividend Income-FTE $4,534,398 $3,955,442
========== ==========
Total interest and dividend income on a FTE basis for the three months ended
March 31, 2009, when compared to the same period in 2008, decreased $145,308 or
2.09%. The decrease was primarily attributable to an economic environment of
lower interest rates.
Interest expense on deposits for the first three months of 2009 totaled
$1,483,582, a decrease of $489,647 or 24.81% when compared to $1,973,229 for the
same period in 2008. This decrease reflects an economic environment of generally
lower interest rates. The Bank's volume of Federal Home Loan Bank ("FHLB")
advances outstanding at March 31, 2009 decreased 10.60% when compared to total
advances outstanding at December 31, 2008. This decrease in borrowings, coupled
with a restructuring of the FHLB advances strategy implemented during the fourth
quarter of 2008, which included a prepayment of a high interest rate advance,
that has resulted in a decrease in borrowing expense of $273,644 or 26.43% for
the first quarter of 2009. In addition, the Bank recorded interest expense
totaling $39,027 for interest on securities sold under agreements to repurchase,
which was a new product that was introduced during 2008. Total interest expense
for the three months ended March 31, 2009 was $2,284,126, a decrease of $724,264
or 24.08% when compared to the same period in 2008.
Overall, net interest and dividend income (on a FTE basis) increased $578,956 or
14.64% to $4,534,398 for the period ended March 31, 2009 when compared to the
same period in 2008.
13
Noninterest Income
------------------
Noninterest income, not including net gains on sales of available-for-sale
securities, totaled $1,278,046 for the three months ended March 31, 2009. This
is an increase of $163,365 or 14.66% compared to noninterest income, not
including gains on available-for-sale securities transactions, of $1,114,681 for
the three months ended March 31, 2008. The increase reflected the combined
impact of a $39,122 gain on the sale of an OREO property, a $69,329 gain in the
value of the servicing rights of the FHLB mortgage loans sold and a $87,269
increase in BOLI revenue resulting from a tax-free exchange pursuant to Section
1035 of the Internal Revenue Code to a new insurance carrier. Gains on
securities sales increased $109,368 when comparing the first quarter to the same
period in 2008. First quarter income from the Trust Wealth Advisory Services
Division decreased $60,000 or 10% to $540,000. This is primarily due to movement
in the markets.
Noninterest Expense
-------------------
Noninterest expense increased $483,793 or 13.26% for the first three months of
2009 as compared to the same period in 2008. Of this increase, $188,930 was the
result of an increase in employee salaries and benefits. Additionally, FDIC
insurance expense increased $93,052, primarily reflecting the loss of one- time
assessment credit and new premium schedules. Data processing expense increased
$64,796. This increase is primarily attributable to increased transactions
resulting from growth and costs related to enhancing the delivery channels of
products to our customers. Professional fees and legal expense increased $27,131
and $33,931, respectively; primarily the result of participation in the
Treasury's TARP Capital Purchase Program ("CPP"). The increase in the other
noninterest expenses in the table below are attributable to normal volumes of
business.
The components of noninterest expense and the changes in the period were as
follows:
2009 2008 Change %Change
---------------------------------------------------------------------------------------
Salaries and employee benefits $2,265,103 $2,076,173 $ 188,930 9.10%
Occupancy expense 257,119 230,527 26,592 11.54
Equipment expense 226,717 211,086 15,631 7.41
Data processing 383,436 318,640 64,796 20.34
Insurance 136,952 43,900 93,052 211.96
Printing and stationery 65,969 59,508 6,461 10.86
Professional fees 261,341 234,210 27,131 11.58
Legal expense 95,358 61,427 33,931 55.24
Amortization of core deposit intangible 41,054 41,054 0 0
Other expense 400,740 373,471 27,269 7.30
---------- ---------- ----------
Total noninterest expense $4,133,789 $3,649,996 $ 483,793 13.25
========== ========== ==========
Income Taxes
------------
The income tax provision for the first three months of 2009 totaled $263,251 in
comparison to $301,228 for the same three month period in 2008. Pretax income
and overall tax effective rate are consistent between the two periods being
compared.
Net Income
----------
Net income was $1,081,175 or $.64 per average share outstanding for the three
months ended March 31, 2009. Net income for the corresponding period in 2008
totaled $1,080,934 or $.64 per average share outstanding.
FINANCIAL CONDITION
-------------------
Total assets at March 31, 2009 were $506,139,980, compared to $495,754,160 at
December 31, 2008, an increase of 2.10%. The increase is primarily the result of
participation in the Treasury TARP CPP program. The Company closed the TARP CPP
transaction on March 13, 2009 in the amount of $8,816,000. For further
discussion regarding the Company's participation in the TARP CPP, see "Capital"
below.
14
Securities Portfolio
--------------------
The Company manages the securities portfolio in accordance with the investment
policy adopted by the Board of Directors. The make up of the investment
portfolio is diversified among U.S. Government sponsored agencies,
mortgage-backed securities and securities issued by states of the United States
and political subdivisions of the states. The portfolio does not include
securities collateralized by pools of sub-prime mortgages. The primary
objectives of the portfolio are to earn interest and dividend income, provide
liquidity to meet cash flows and to manage interest rate risk and asset-quality
diversifications of the Company's assets. The securities portfolio also acts as
collateral for deposits of public agencies and advances from the Federal Home
Loan Bank of Boston. During the three months ended March 31, 2009, the
securities portfolio, including Federal Home Loan Bank stock, decreased $907,743
to $155,008,664 from $155,916,407 at December 31, 2008.
Securities are classified in the portfolio as either securities
available-for-sale or securities held-to-maturity. Almost all securities in the
portfolio are classified as available-for-sale. The securities reported as
available-for-sale are stated at fair value in the financial statements of the
Company. Unrealized holding gains and losses on available-for-sale securities
(accumulated other comprehensive income/loss) are not included in earnings, but
are reported as a net amount (less expected tax) in a separate component of
capital until realized. At March 31, 2009, the unrealized loss net of tax was
$9,096,020. This compares to an unrealized loss net of tax of $6,967,705 at
December 31, 2008. The Company monitors the market value fluctuations of its
securities portfolio on a monthly basis as well as associated credit ratings to
determine potential impairment of a security.
Lending
-------
Net loans outstanding (not including loans held for sale) totaled $298,333,242
at March 31, 2009 compared to net loans outstanding (not including loans held
for sale) of $297,367,434 at December 31, 2008. Competition for loans remains
aggressive in the Bank's market area; however, new business development coupled
with an increase in loan demand resulted in the increase.
The following table represents the composition of the loan portfolio comparing
March 31, 2009 to December 31, 2008:
March 31, 2009 December 31, 2008
Commercial, financial and agricultural $ 21,768,445 $ 20,784,842
Real estate-construction and land
development 34,038,066 33,342,610
Real estate-residential 175,987,002 177,048,233
Real estate-commercial 63,644,191 62,796,469
Consumer 5,244,132 5,551,172
Other 256,249 174,965
------------- -------------
300,938,085 299,698,291
Deferred costs, net 400,321 393,228
Unearned income (25) (61)
Allowance for loan losses (3,005,139) (2,724,024)
------------- -------------
Net Loans $ 298,333,242 $ 297,367,434
============= =============
Provision and Allowance for Loan Losses
---------------------------------------
Credit risk is inherent in the business of extending loans. The Bank monitors
the quality of the portfolio to ensure that loan quality will not be sacrificed
for growth or otherwise compromise the Bank's objectives. Because of this risk
associated with extending loans, the Bank maintains an allowance or reserve for
loan and lease losses through charges to earnings. The Bank evaluates the
adequacy of the allowance no less frequently than on a quarterly basis. No
material changes have been made in the estimation methods or assumptions that
the Bank uses in making this determination during the period ended March 31,
2009. Such evaluations are based on assessments of credit quality and "risk
rating" of loans by senior management, which is reviewed by the Bank's Loan
Committee on a regular basis. Loans are initially risk rated when originated. If
there is deterioration in the credit, the risk rating is adjusted
15
accordingly. As a result, for the first three-month period of 2009, the
provision for loan losses was $430,000. This compares to a provision for loan
losses of $60,000 for the corresponding period in 2008.
The allowance also includes a component resulting from the application of the
measurement criteria of Statements of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan ("SFAS 114"). Impaired loans
receive individual evaluation of the allowance necessary on a monthly basis.
Loans to be considered for impairment are defined in the Bank's Loan Policy as
commercial loans with balances outstanding of $100,000 or more and residential
real estate mortgages with balances of $300,000 or more. Such loans are
considered impaired when it is probable that the Bank will not be able to
collect all principal and interest due according to the terms of the note.
Any such commercial loan and/or residential mortgage will be considered impaired
under any of the following circumstances:
1. Non-accrual status;
2. Loans over 90 days delinquent;
3. Troubled debt restructures consummated after December 31, 1994;
4. Loans classified as "doubtful", meaning that they have weaknesses, which
make collection or liquidation in full, based on currently existing
facts, conditions, and values, highly questionable and improbable.
The individual allowance for any impaired loan is based upon the present value
of expected future cash flows discounted at the loan's effective interest rate
or the fair value of the collateral if the loan is collateral dependent.
Specifically identifiable and quantifiable losses are immediately charged off
against the allowance.
In addition, a risk of loss factor is applied in evaluating categories of loans
generally as part of the periodic analysis of the Allowance for Loan Losses.
This analysis reviews the allocations of the different categories of loans
within the portfolio and it considers historical loan losses and delinquency
figures as well as any recent delinquency trends.
Concentrations of credit and local economic factors are also evaluated on a
periodic basis. Historical average net losses by loan type are examined as well
as trends by type. The Bank's loan mix over the same period is also analyzed. A
loan loss allocation is made for each type of loan multiplied by the loan mix
percentage for each loan type to produce a weighted average factor.
Nonperforming loans, which include all loans that are on a nonaccrual status
along with loans that are 90 days or more past due and still accruing, are
closely monitored by management. At March 31, 2009, nonperforming loans totaled
$6,275,245 or 2.09% of total loans outstanding of $300,938,085 which does not
include loans held for sale. The allowance for loan losses totaled $3,005,139
representing 47.89% of nonperforming loans. Nonperforming loans totaled
$5,174,601 or 1.73% of total loans outstanding, (which does not include loans
held for sale) of $299,698,291 at December 31, 2008. The allowance for loan
losses totaled $2,724,024 at December 31, 2008 and represented 52.64% of
nonperforming loans. A total of $159,428 of loans was charged off by the Bank
during the three months ended March 31, 2009. These charged-off loans consisted
primarily of consumer loans. This compares to loans charged off during the three
month period ended March 31, 2008 that totaled $9,695. A total of $10,543 of
previously charged-off loans was recovered during the three month period ended
March 31, 2009. Recoveries for the same period in 2008 totaled $10,210. While
management estimates loan losses using the best available information, no
assurances can be given that future additions to the allowance will not be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding problem loans, identification of
additional problem loans or other factors. Additionally, future additions to the
allowance may be necessary to maintain adequate coverage ratios. At March 31,
2009, the Bank had other real estate owned ("OREO") in the amount of $418,024,
which is one commercial property.
16
Deposits
--------
The Company offers a variety of deposit accounts with a range of interest rates
and terms. The following table illustrates the composition of the Company's
deposits at March 31, 2009 and December 31, 2008:
March 31, 2009 December 31, 2008
Demand $ 63,448,689 $ 65,479,271
NOW 22,937,738 26,097,175
Money Market 67,741,014 57,648,106
Savings 73,264,594 70,180,841
Time 139,371,492 125,519,839
------------ ------------
Total Deposits $366,763,527 $344,925,232
============ ============
Deposits constitute the principal funding source of the Company's assets.
Borrowings
----------
The Company utilizes advances from the Federal Home Loan Bank as part of its
operating strategy to supplement deposit growth and fund its asset growth, a
strategy that is designed to increase interest income. These advances are made
pursuant to various credit programs, each of which has its own interest rate and
range of maturities. At March 31, 2009, the Company had $78,598,166 in
outstanding advances from the Federal Home Loan Bank compared to $87,913,667 at
December 31, 2008. In addition, the Company sold securities under agreements to
repurchase as part of its operating strategy. At March 31, 2009 they totaled
$9,081,236 compared to $11,203,289 at December 31, 2008.
Off-Balance Sheet Arrangements
------------------------------
In the normal course of business, the Company enters into certain relationships
characterized as lending related off-balance sheet arrangements. These lending
commitments have various terms and are designed to accommodate the financial
needs of consumers, businesses and other entities. Many of these loan
commitments have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of these commitments are expected to expire
without being funded, the total commitment amounts do not necessarily represent
future liquidity requirements.
Loan commitments have credit risk essentially the same as that involved in
extending loans to customers. They are subject to normal credit approval
procedures and policies. Collateral is obtained based on management's assessment
of the customer's credit. The accompanying table summarizes the Company's off
balance sheet lending-related financial instruments by remaining maturity at
March 31, 2009:
By remaining maturity Less than 1 year 1-3 years 4-5 years After 5 years Total
Off balance sheet lending-related
Financial Instruments
Residential real estate related $ 4,290,401 $ -- $ -- $ 29,934,680 $ 34,225,081
Commercial related 267,669 2,760,120 1,725,461 8,057,127 12,810,377
Consumer related 1,896,810 1,896,810
Standby letters of credit 2,800 2,800
-----------------------------------------------------------------------------
Total $ 4,560,870 $ 2,760,120 $ 1,725,461 $ 39,888,617 $ 48,935,068
=============================================================================
Interest Rate Risk
------------------
Interest rate risk is the most significant market risk affecting the Company.
Interest rate risk is defined as an exposure to a movement in interest rates
that could have an adverse effect on net interest income. Net interest income is
sensitive to interest rate risk to the degree that interest-bearing liabilities
mature or reprice on a different basis than earning assets. In an attempt to
manage its exposure to changes in interest rates, 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
monitors asset and deposit levels, developments and trends in interest rates,
liquidity and capital. One of the primary financial objectives is to manage
interest rate risk and control
17
the sensitivity of earnings to changes in interest rates in order to prudently
improve net interest income and manage the maturities and interest rate
sensitivities of assets and liabilities.
To quantify the extent of these risks, both in its current position and in
actions it might take in the future, interest rate risk is monitored using gap
analysis which identifies the differences between assets and liabilities which
mature or reprice during specific time frames and model simulation which is used
to "rate shock" the Company's assets and liability balances to measure how much
of the Company's net interest income is "at risk" from sudden rate changes.
An interest rate sensitivity gap is defined as the difference between the amount
of interest-earning assets maturing or repricing within a specific time and the
amount of interest-bearing liabilities maturing or repricing within that same
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. At March 31, 2009, the
Company maintains a slight liability sensitive (negative gap) position. This
would suggest that during a period of declining interest rates, the Company
would be in a better position to increase net interest income. To the contrary,
during a period of rising interest rates, a negative gap would result in a
decrease in interest income. The level of interest rate risk at March 31, 2009
is within the limits approved by the Board of Directors.
Liquidity
---------
Liquidity is the ability to raise funds on a timely basis at an acceptable cost
in order to meet cash needs. Adequate liquidity is necessary to handle
fluctuations in deposit levels, to provide for customers' credit needs, and to
take advantage of investment opportunities as they are presented. The Company
manages liquidity primarily with readily marketable investment securities,
deposits and loan repayments. The Company's subsidiary, the Bank, is a member of
the Federal Home Loan Bank of Boston. This enhances the liquidity position by
providing a source of available borrowings. At March 31, 2009, the Company had
approximately $48,935,068 in loan commitments outstanding. Management believes
that the current level of liquidity is ample to meet the Company's needs for
both the present and foreseeable future.
Capital
-------
At March 31, 2009, the Company had $46,257,544 in shareholders' equity, an
increase of 18.79% when compared to December 31, 2008 shareholders' equity
totaling $38,939,332. Several components contributed to the change since
December 31, 2008. Earnings for the three-month period ended March 31, 2009
totaled $1,081,175 or $.64 per average share outstanding. Securities in the
investment portfolio that are classified as available-for-sale are adjusted to
fair value monthly and the unrealized losses or gains are not included in
earnings, but are reported as a net amount (less expected tax) as a separate
component of capital until realized. Market fluctuations of fair value of the
securities portfolio for the period ending March 31, 2009 resulted in a change
in accumulated other comprehensive loss net of tax totaling $2,128,315. Changes
in unrecognized pension plan expense per SFAS No. 158, resulted in accumulated
other comprehensive income net of tax of $21,393 for the three month period
ended March 31, 2009. The Company has declared a first quarter dividend of $.28
per common share out standing that has resulted in a decrease in capital of
$472,041. Following the October 14, 2008 announcement by the Treasury regarding
the TARP CPP, the Company applied for and was approved to be a participant in
such program under the Emergency Stabilization Act of 2008. The Company decided
to participate in the CPP and closed the transaction on March 13, 2009 for the
maximum amount of the preliminary approval which totaled $8,816,000. The Company
issued to the Treasury 8,816 shares of Preferred Stock with a par value of $0.01
together with related warrants to purchase approximately 57,671 shares of the
Company common stock at $22.93 per share (based on an estimated exercise price
of $22.93 determined at the preliminary approval date.) The senior preferred
stock will pay a cumulative dividend rate of 5% per annum. Under current
regulatory definitions, the Company and the Bank are considered to be "well
capitalized" for capital adequacy purposes. As a result, the Bank pays lower
federal deposit insurance premiums than those banks that are not "well
capitalized." One primary measure of capital adequacy for regulatory purposes is
based on the ratio of risk-based capital to risk-weighted assets. This method of
measuring capital adequacy helps to establish capital requirements that are more
sensitive to the differences in risk associated with various assets. It takes
into account off-balance sheet exposure in assessing capital adequacy and it
minimizes disincentives to holding liquid, low-risk assets. At March 31, 2009,
the Company had a total risk based capital ratio of 14.55% compared to 11.59% at
December 31, 2008. Maintaining strong capital is essential to Bank safety and
soundness. However, the effective management of capital resources requires
generating attractive returns on equity to build value for shareholders while
maintaining appropriate levels of capital to fund growth, meet regulatory
requirements and be consistent with prudent industry practices.
18
Impact of Inflation and Changing Prices
---------------------------------------
The Company's consolidated financial statements are prepared in conformity with
generally accepted accounting principles that require the measurement of
financial condition and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money, over time, due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of the Company are monetary and as a result, interest rates have a
greater impact on the Company's performance than do the effects of general
levels of inflation, although interest rates do not necessarily move in the same
direction or with the same magnitude as the prices of goods and services.
Although not a material factor in recent years, inflation could impact earnings
in future periods.
Forward Looking Statements
--------------------------
This Form 10-Q and future filings made by the Company with the Securities and
Exchange Commission, as well as other filings, reports and press releases made
or issued by the Company and the Bank, and oral statements made by executive
officers of the Company and the Bank, may include forward-looking statements
relating to such matters as:
(a) assumptions concerning future economic and business conditions and
their effect on the economy in general and on the markets in which the
Company and the Bank do business; and
(b) expectations for revenues and earnings for the Company and Bank.
Such forward-looking statements are based on assumptions rather than historical
or current facts and, therefore, are inherently uncertain and subject to risk.
For those statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Act of
1995.
The Company notes that a variety of factors could cause the actual results or
experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may effect the operation, performance, development and
results of the Company's and Bank's business include the following:
(a) the risk of adverse changes in business conditions in the banking
industry generally and in the specific markets in which the Bank
operates;
(b) changes in the legislative and regulatory environment that negatively
impacts the Company and Bank through increased operating expenses;
(c) increased competition from other financial and non-financial
institutions;
(d) the impact of technological advances; and
(e) other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission.
Such developments could have an adverse impact on the Company's and the Bank's
financial position and results of operations.
Item 4T. Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer concluded
that, based upon an evaluation as of March 31, 2009, the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC rules and forms. During the quarter
ended March 31, 2009 there were no changes in the Company's internal control
over financial reporting that materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.
19
Part II - OTHER INFORMATION
Item 1. - Legal Proceedings.
The Bank is a party defendant, both in its capacity as Salisbury Bank
and Trust Company and in its capacity as the Trustee of the Erling C.
Christophersen Revocable Trust, in litigation currently pending in the
Connecticut Superior Court within the Judicial District of Bridgeport,
John R. Christophersen v Erling C. Christophersen et. al., which
commenced May 29, 2008. The other parties to the litigation are the
Plaintiff, John R. Christophersen of Norwalk, Connecticut and the
Defendants, Erling C. Christophersen, of Westport, Connecticut; Bonnie
Christophersen of Westport, Connecticut, Elena Dreiske of Wanetka,
Illinois, and People's United Bank with its principal place of business
in Bridgeport, Connecticut.
The litigation involves the ownership of certain real property located
within Westport, Connecticut, which was conveyed by the Defendant,
Erling Christophersen, to the Erling Christophersen Trust, of which the
Bank is a co-Trustee. Subsequent to this conveyance, the Bank loaned
$3,386,609, to the Erling Christophersen Trust, which was secured by an
open-end commercial mortgage in favor of the Bank on the Westport real
estate referenced above.
The claim of the Plaintiff John R. Christophersen is that he had an
interest in the real property of which he was wrongfully divested. He
has brought this action seeking restoration of his allegedly divested
interest as well as money damages.
In addition to his efforts to restore his alleged interest in the real
property, the Plaintiff has made two additional claims directed at the
Bank. The Plaintiff has alleged that the Bank failed to utilize
reasonable diligence in extending financing to the Co-Defendant,
Erling, and that had it engaged in reasonable diligence it would have
discovered that the Plaintiff had an interest in the above-referenced
property. He has also alleged an implied trust against the Bank
alleging that it acquired title to the property adverse to the
Plaintiff's interest and in contravention of the Plaintiff's
entitlements, and, therefore, holds the property in trust for
Plaintiff.
The Bank disputes the claims made by the Plaintiff and is vigorously
defending the case. At the inception of this loan, the Bank obtained a
Lenders Title insurance policy from the Chicago Title and Insurance
Company. Additionally, at the time of this financing, the appraised
value of the aforementioned real estate was significantly in excess of
the loan amount. Given current economic conditions, the Bank continues
to monitor the value of its collateral position, which remains well in
excess of the outstanding loan balance. While the underlying loan is
currently performing, until the litigation is resolved, the liquidity
of the real estate collateral that secures the loan is diminished.
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds. Not
applicable
Item 3. - Defaults Upon Senior Securities. Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders. Not applicable
Item 5. - Other Information. Not applicable
Item 6. - Exhibits
11- Computation of Earnings per Share.
31.1-Rule 13a-14(a)/15d-14(a) Certification.
31.2-Rule 13a-14(a)/15d-14(a) Certification.
32- Section 1350 Certifications
20
SALISBURY BANCORP, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Salisbury Bancorp, Inc.
Date: May 14, 2009 by: /s/ John F. Perotti
-------------- --------------------
John F. Perotti
Chief Executive Officer
Date: May 14, 2009 by: /s/ John F. Foley
-------------- --------------------
John F. Foley
Chief Financial Officer
21