SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24751
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Salisbury Bancorp, Inc.
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(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
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(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, 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:
The Company had 1,685,861 shares outstanding as of August 11, 2008.
SALISBURY BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements: 3
Condensed Consolidated Balance Sheets -June 30, 2008 (unaudited)
and December 31, 2007 4
Condensed Consolidated Statements of Income -six and three months
ended June 30,2008 and 2007 (unaudited) 5
Condensed Consolidated Statements of Cash Flows -six months ended
June 30, 2008 and 2007 (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 19
Signatures 19
2
Part I-- FINANCIAL INFORMATION
Item 1. Financial Statements
3
SALISBURY BANCORP, INC. AND SUBSIDIARY
--------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(amounts in thousands, except per share data)
June 30, 2008 and December 31, 2007
-----------------------------------
June 30, December 31,
2008 2007
---- ----
ASSETS
------
(unaudited)
Cash and due from banks $ 8,578 $ 12,811
Interest-bearing demand deposits with other banks 1,083 726
Money market mutual funds 1,390 1,341
Federal funds sold 200 300
------------ ------------
Cash and cash equivalents 11,251 15,178
Investments in available-for-sale securities (at fair value) 145,745 147,377
Investments in held-to-maturity securities (fair values of $69 as of
June 30, 2008 and $71 as of December 31, 2007) 69 71
Federal Home Loan Bank stock, at cost 5,267 5,176
Loans held-for-sale 409 120
Loans, less allowance for loan losses of $2,625 as of June 30, 2008
and $2,475 as of December 31, 2007 288,941 268,191
Investment in real estate 75 75
Premises and equipment 7,383 6,803
Goodwill 9,829 9,829
Core deposit intangible 1,247 1,329
Accrued interest receivable 2,630 2,539
Cash surrender value of life insurance policies 3,748 3,688
Other assets 3,111 1,584
------------ ------------
Total assets $ 479,705 $ 461,960
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing $ 69,227 $ 69,215
Interest-bearing 263,560 248,526
------------ ------------
Total deposits 332,787 317,741
Federal Home Loan Bank advances 99,246 95,011
Due to broker 0 0
Other liabilities 4,165 3,645
------------ ------------
Total liabilities 436,198 416,397
------------ ------------
Shareholders' equity:
Common stock, par value $.10 per share; authorized 3,000,000 shares; issued
and outstanding, 1,685,861 shares at June 30, 2008 and 1,685,021 shares at
December 31, 2007 169 169
Paid-in capital 13,158 13,130
Retained earnings 36,421 35,583
Accumulated other comprehensive loss (6,241) (3,319)
------------ ------------
Total shareholders' equity 43,507 45,563
------------ ------------
Total liabilities and shareholders' equity $ 479,705 $ 461,960
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
4
SALISBURY BANCORP, INC. AND SUBSIDIARY
--------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(amounts in thousands, except per share data)
June 30, 2008 and 2007
(unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
2008 2007 2008 2007
---------- ---------- ---------- ----------
Interest and dividend income:
Interest and fees on loans $ 9,232 $ 8,736 $ 4,600 $ 4,348
Interest on debt securities:
Taxable 2,630 2,757 1,343 1,326
Tax-exempt 1,153 1,111 579 585
Dividends on equity securities 130 159 52 81
Other interest 114 34 17 20
---------- ---------- ---------- ----------
Total interest and dividend income 13,259 12,797 6,591 6,360
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 3,639 4,022 1,666 1,992
Interest on Federal Home Loan Bank advances 2,079 2,046 1,044 1,005
---------- ---------- ---------- ----------
Total interest expense 5,718 6,068 2,710 2,997
---------- ---------- ---------- ----------
Net interest and dividend income 7,541 6,729 3,881 3,363
Provision for Loan Losses 170 0 110 0
---------- ---------- ---------- ----------
Net interest and dividend income
after provision for loan losses 7,371 6,729 3,771 3,363
---------- ---------- ---------- ----------
Noninterest income:
Trust/Wealth Advisory Services income 1,141 1,033 541 503
Loan commissions 2 13 2 9
Service charges on deposit accounts 401 361 203 181
Gain on sales of available-for-sale securities, net 354 180 36 63
Gain on sales of loans held-for-sale 159 167 86 102
Other income 529 485 285 257
---------- ---------- ---------- ----------
Total noninterest income 2,586 2,239 1,153 1,115
---------- ---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 4,077 3,832 2,001 1,880
Occupancy expense 463 380 232 189
Equipment expense 431 370 220 179
Data processing 695 638 376 301
Insurance 90 74 46 36
Printing and stationery 135 144 75 80
Professional fees 433 339 199 174
Legal expense 166 126 105 71
Amortization of core deposit intangible 82 82 41 41
Other expense 775 639 401 354
---------- ---------- ---------- ----------
Total noninterest expense 7,347 6,624 3,696 3,305
---------- ---------- ---------- ----------
Income before income taxes 2,610 2,344 1,228 1,173
Income taxes 546 461 245 224
---------- ---------- ---------- ----------
Net income $ 2,064 $ 1,883 $ 983 $ 949
========== ========== ========== ==========
Earnings per common share $ 1.23 $ 1.12 $ .58 $ .56
========== ========== ========== ==========
Dividends per common share outstanding $ .56 $ .54 $ .28 $ .27
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
5
SALISBURY BANCORP, INC. AND SUBSIDIARY
--------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(amounts in thousands)
Six months ended June 30, 2008 and 2007
(unaudited)
2008 2007
---------- ----------
Cash flows from operating activities:
Net income $ 2,064 $ 1,883
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of securities, net 36 46
Gain on sales of available-for-sale securities, net (354) (180)
Provision for loan losses (170) 0
Change in loans held-for-sale (289) 304
Change in deferred loan costs, net (23) (56)
Net decrease in mortgage servicing rights 17 53
Depreciation and amortization 324 250
Amortization of core deposit intangible 82 82
Accretion of fair value adjustment on deposits/borrowings (65) (65)
Amortization of fair value adjustment on loans 24 44
Increase in interest receivable (92) (31)
Deferred tax expense (benefit) 188 (433)
Decrease in taxes receivable 42 317
Decrease in prepaid expenses 56 42
Increase in cash surrender value of insurance policies (61) (60)
Increase in income tax payable 0 157
Increase in other assets (146) (15)
Decrease in accrued expenses (158) (178)
Increase in interest payable 74 109
Increase in other liabilities 415 270
Issuance of shares for Directors' fees 28 30
Change in unearned income on loans 6 4
---------- ----------
Net cash provided by operating activities 1,998 2,573
---------- ----------
Cash flows from investing activities:
Purchase of Federal Home Loan Bank stock (91) (419)
Purchases of available-for-sale securities (85,489) (37,394)
Proceeds from sales of available-for-sale securities 82,990 37,414
Proceeds from maturities of held-to-maturity securities 2 2
Loan originations and principal collections, net (18,599) 2,831
Purchase of loans (2,009) (1,886)
Recoveries of loans previously charged-off 22 41
Capital expenditures (887) (739)
---------- ----------
Net cash used in investing activities (24,061) (150)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW and savings accounts 19,523 (5,073)
Net (decrease) increase in time deposits (4,477) 40
Federal Home Loan Bank advances 17,000 10,000
Principal payments on advances from Federal Home Loan Bank (10,328) (11,208)
Net change in short term advances from Federal Home Loan Bank (2,372) 1,397
Dividends paid (1,210) (893)
---------- ----------
Net cash provided by (used in) financing activities 18,136 (5,737)
---------- ----------
Net decrease in cash and cash equivalents (3,927) (3,314)
Cash and cash equivalents at beginning of year 15,178 11,757
---------- ----------
Cash and cash equivalents at end of period $ 11,251 $ 8,443
========== ==========
Supplemental disclosures:
Interest paid $ 5,644 $ 5,798
Income taxes paid 316 420
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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 SEC 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 six months ended June 30, 2008 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2008. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 2007 Annual
Report on Form 10-K.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by GAAP.
NOTE 2 - COMPREHENSIVE INCOME (LOSS)
------------------------------------
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 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 primary
source of other comprehensive income (loss) is the net unrealized holding gain
(loss) on securities.
Comprehensive income (loss)
Six months ended Three months ended
June 30, June 30,
2008 2007 2008 2007
------- ------- ------- -------
(amounts in thousands) (amounts in thousands)
Net income $ 2,064 $ 1,883 $ 983 $ 949
Net change in unrealized (losses)
on securities and minimum pension
liability adjustment, net of tax during period. (2,922) (2,742) (1,976) (2,356)
------- ------- ------- -------
Comprehensive loss $ (858) $ (859) $ (993) $(1,407)
======= ======= ======= =======
NOTE 3 - IMPACT OF NEW ACCOUNTING STANDARDS
-------------------------------------------
In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS
No. 155, "Accounting for Certain Hybrid Instruments" ("SFAS No. 155"), which
permits, but does not require, fair value accounting for any hybrid financial
instrument that contains an embedded derivative that would otherwise require
bifurcation in accordance with SFAS No. 133. The statement also subjects
beneficial interests issued by securitization vehicles to the requirements of
SFAS No. 133. The statement was effective as of January 1, 2007. The adoption of
SFAS No. 155 did not have an impact on the Company's financial condition and
results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets- an amendment of FASB Statement No. 140" ("SFAS No. 156"). SFAS
No. 156 requires any entity to recognize a servicing asset or servicing
liability each time it undertakes an obligation to service a financial asset by
entering into a servicing contract in specific situations. Additionally, the
servicing asset or servicing liability shall be initially measured at fair
value; however, an entity may elect the "amortization method" or "fair value
method" for subsequent balance sheet reporting periods. The adoption of this
statement did not have a material impact on the Company's financial condition,
results of operations or cash flows.
7
In June 2006 the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement 109" (FIN 48). FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken, or expected to be
taken, in a tax return and provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FIN 48 was effective for fiscal years beginning after December 15,
2006. The adoption of FIN 48 did not have a material impact on the Company's
financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 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 No. 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 No. 157 was 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.
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. Companies
may 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 EITF Issue 06-4 did not have a material impact on the
Company's 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 No. 159"). SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
were not previously 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 was effective at the beginning of the Company's fiscal year
beginning January 1, 2008, and early application may be elected in certain
circumstances. The adoption of this statement did not have a material impact on
its financial condition and results of operations.
In December 2007, the FASB issued SFAS No. 141 (Revised 2008), "Business
Combinations" ("SFAS No. 141(R)"). SFAS No. 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 No. 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 No. 161"). SFAS No. 161 changes the disclosure requirements for
derivative instruments and hedging activities. Entities will be required to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedge 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 No. 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.
8
NOTE 4 - DEFINED BENEFIT PENSION PLAN
-------------------------------------
The following summarizes the net periodic benefit cost for the six and three
months ended June 30:
Six Months Ended Three Months Ended
June30, June 30,
2008 2007 2008 2007
--------- --------- --------- ---------
Components of net periodic benefit cost:
Service cost $ 201,904 $ 218,870 $ 88,154 $ 104,780
Interest cost 183,475 171,011 88,475 82,034
Expected return on plan assets (213,496) (184,471) (107,746) (107,307)
Amortization of:
Prior service costs 446 447 223 224
Actuarial loss 22,431 34,118 6,681 12,945
--------- --------- --------- ---------
Net periodic benefit cost $ 194,760 $ 239,975 $ 75,787 $ 92,676
========= ========= ========= =========
The following actuarial weighted average assumptions were used in calculating
net periodic benefit cost:
Discount rate 6.00% 6.00% 6.00% 6.00%
Average wage increase Graded table* Graded table* Graded table* Graded table*
Return on plan assets 7.50% 7.50% 7.50% 7.50%
*5% at age 20 grading down to 3% at age 60 and beyond (roughly 3.25% on
average).
NOTE 5 - ASSETS MEASURED AT FAIR VALUE ON A RECURRING BASIS
-----------------------------------------------------------
($ in 000s) Fair Value Measurements at Reporting using
Quoted Prices in
Active Markets Significant Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
Description 6/30/08 (Level 1) (Level 2) (Level 3)
------- --------- --------- ---------
$ 145,745 $ 126 $ 145,619 $ 0
--------------- --------------- --------------- ---------------
Total $ 145,745 $ 126 $ 145,619 $ 0
=============== =============== =============== ===============
9
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 North 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 Salisbury Bancorp,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 2007.
RESULTS OF OPERATIONS
---------------------
Overview
--------
The Company's net income for the six months ended June 30, 2008 was $2,064,000.
This compares to earnings of $1,883,000 for the same period in 2007. Earnings
per share for the six months ended June 30, 2008 totaled $1.23 per share which
compared to earnings per share of $1.12 for the corresponding period in 2007.
The increase in earnings is primarily attributable to an increase in earning
assets, which has resulted in an increase in interest income, and movement in
the markets, which has created opportunities to generate gains in securities
transactions during the period, which contributed to the increase in noninterest
income.
The Company's assets at June 30, 2008 totaled $479,705,000 compared to total
assets of $461,960,000 at December 31, 2007. During the first six months of
2008, net loans outstanding, not including loans held-for-sale increased
$20,750,000 or 7.73% to $288,941,000. This compares to total net loans
outstanding, not including loans held-for-sale of $268,191,000 at December 31,
2007. This increase is primarily attributable to increased loan demand during
the period. Non-performing loans totaled $2,265,000 at June 30, 2008 or .78% of
total loans outstanding. This compares to non-performing loans totaling
$1,008,000 at December 31, 2007 or .37% of total loans outstanding. 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. Deposits at June 30, 2008 totaled $332,787,000 as compared to total
deposits of $317,741,000 at December 31, 2007.
The Bank is "well capitalized" pursuant to the standards of the Federal Deposit
Insurance Corporation. The Bank's total risk based capital ratio was 14.14%; the
Tier 1 capital ratio was 13.21% and the leverage ratio was 8.21%. The Board of
Directors declared a second quarter cash dividend of $.28 per common share,
which was paid on July 31, 2008 to shareholders of record as of June 30, 2008.
This compared to a cash dividend of $.27 per common share that was paid for the
second quarter of 2007. Year-to-date dividends total $.56 per common share
outstanding for this year. This compares to total year-to-date dividends of $.54
per common share one year ago.
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."
10
SIX MONTHS ENDED JUNE 30, 2008
------------------------------
AS COMPARED TO SIX MONTHS ENDED JUNE 30, 2007
Net Interest and Dividend Income
--------------------------------
The Company's earnings are primarily dependent upon net interest and dividend
income, and to a lesser extent non-interest 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 and advances from
the Federal Home Loan Bank. Non-interest 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.
(amounts in thousands)
Six Months Ended June 30, 2008 2007
---- ----
Total Interest and Dividend Income
(financial statements) $13,259 $12,797
Tax Equivalent Adjustment 594
------- -------
572
Total Interest and Dividend Income
(on an FTE basis) 13,853 13,369
Total Interest Expense 5,718 6,068
------- -------
Net Interest and Dividend Income-FTE $ 8,135 $ 7,301
======= =======
Total interest and dividend income on a FTE basis for the six months ended June
30, 2008, when compared to the same period in 2007, increased $484,000 or 3.62%.
The increase was primarily attributable to an increase of earning assets.
Interest expense on deposits for the first six months of 2008 totaled
$3,639,000, a decrease of $383,000 or 9.52% which compared to $4,022,000 for the
same period in 2007. This decrease reflects an economic environment of generally
lower interest rates. The Bank's volume of Federal Home Loan Bank advances
outstanding at June 30, 2008 increased 4.46% when compared to total advances
outstanding at December 31, 2007, resulting in an increase of interest expense
totaling $33,000. Total interest expense for the six months ended June 30, 2008
was $5,718,000, a decrease of $350,000 or 5.77% when compared to the same period
in 2007.
Overall, net interest and dividend income (on an FTE basis) increased $834,000
or 11.42% to $8,135,000 for the period ended June 30, 2008 when compared to the
same period in 2007.
Noninterest Income
------------------
Noninterest income totaled $2,586,000 for the six months ended June 30, 2008.
This is an increase of $347,000 or 15.50% compared to noninterest income of
$2,239,000 for the six months ended June 30, 2007. Continuing growth of the
Trust/Wealth Advisory Services Division has resulted in increased income of
$108,000 or 10.45% to $1,141,000 for the period ended June 30, 2008. This
compares to income totaling $1,033,000 for the corresponding period in 2007.
Gains on sales of available-for-sale securities increased 96.67% to $354,000 for
the first six months of 2008 compared to the same period in 2007. This increase
is primarily the result of the movement of market rates during the quarter that
resulted in opportunities to generate gains in securities transactions. Other
income which primarily consists of fees associated with transaction accounts,
fees related to the origination and servicing of mortgage loans and gains
related to the sale of mortgage loans increased $65,000 or 6.34% to $1,091,000
from $1,026,000 during the period ended June 30, 2008.
11
Noninterest Expense
-------------------
Noninterest expense increased 10.91% for the first six months of 2008 as
compared to the same period in 2007. This increase is primarily attributable to
the Trust and Wealth Advisory Services Division working with Bradley Foster and
Sargent, Inc., an investment advisory firm that assists in providing a broader
scope of highly personalized professional investment services to clients. In
addition, internal audit expense increased. Although some increases in the
described noninterest expenses in the table below are attributable to normal
volumes of business, the increase also reflects additional staffing and the
additional costs associated with the daily operation of our new Dover Plains,
New York branch, which opened in August of 2007. The components of noninterest
expense and the changes in the period were as follows (amounts in thousands):
2008 2007 Change% Change
-------------------------------------------------------------------------------
Salaries and employee benefits $ 4,077 $ 3,832 $ 245 6.39%
Occupancy expense 463 380 83 21.84
Equipment expense 431 370 61 16.48
Data processing 695 638 57 8.93
Insurance 90 74 16 21.62
Printing and stationery 135 144 (9) (6.25)
Professional fees 433 339 94 27.72
Legal expense 166 126 40 31.74
Amortization of core deposit intangible 82 82 0 0
Other expense 775 639 136 21.28
-------- -------- -------- -------
Total noninterest expense $ 7,347 $ 6,624 $ 723 10.91
======== ======== ======== =======
Income Taxes
------------
The income tax provision for the first six months of 2008 totaled $546,000 in
comparison to $461,000 for the same six-month period in 2007. Pretax income in
2008 was $2,610,000 and included tax-exempt income totaling $1,153,000. Pretax
income in 2007 was $2,344,000 and included tax-exempt income totaling
$1,111,000. The increase in the income tax provision is primarily attributable
to an increase in taxable income.
Net Income
----------
Overall, net income totaled $2,064,000 for the six months ended June 30, 2008
and represents earnings of $1.23 per average share outstanding. This compares to
net income of 1,883,000 or $1.12 per average share outstanding for the same
period in 2007.
THREE MONTHS ENDED JUNE 30, 2008
AS COMPARED TO THREE MONTHS ENDED JUNE 30, 2007
Net Interest and Dividend Income
--------------------------------
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 loans and securities as if such interest were
taxed at the Company's federal tax rate of 34% for all periods presented.
(amounts in thousands)
Three Months Ended June 30 2008 2007
------- -------
Total Interest and Dividend Income
(financial statements) $ 6,591 $ 6,360
Tax Equivalent Adjustment 298 301
------- -------
Total Interest and Dividend Income (on an FTE basis) 6,889 6,661
Total Interest (Expense) (2,710) (2,997)
------- -------
Net Interest and Dividend Income-FTE $ 4,179 $ 3,664
======= =======
12
Total interest and dividend income on an FTE basis for the three months ended
June 30, 2008 increased $228,000 or 3.42% compared to the same period in 2007.
The increase was primarily attributable to an increase in earning assets.
Interest expense on deposits decreased $326,000 or 16.37% for the quarter to
$1666,000 compared to $1,992,000 for the same quarter in 2007. This decrease is
primarily the result of an economic environment of generally lower interest
rates. The Bank's volume of Federal Home Loan Bank advances has increased during
the three month period ended June 30, 2008 when compared to the corresponding
period in 2007. Interest expense on these advances increased $39,000 or 3.88%
and totaled $1,044,000 for the three months ended June 30, 2008 compared to
$1,005,000 for the corresponding period in 2007. Total interest expense for the
three months ending June 30, 2008 was $2,710,000 compared to total interest
expense for the same period in 2007 of $2,997,000, a decrease of $287,000 or
9.58%. This decrease is a reflection of an economic environment of generally
lower interest rates. Overall, net interest and dividend income (on a FTE basis)
increased $515,000 or 14.06% to $4,179,000 for the three-month period ended June
30, 2008 when compared to the corresponding period in 2007.
Noninterest Income
------------------
Noninterest income totaled $1,153,000 for the three months ended June 30, 2008
as compared to $1,115,000 for the three months ended June 30, 2007. This
increase of $38,000 or 3.40% is primarily attributable to increased income
generated by an increase in income from the Trust/Wealth Advisory Services
Division of $38,000 or 7.56% to $541,000 for the second quarter of 2008 compared
to the same period in 2007. This is primarily the result of continued growth in
assets under management.
Noninterest Expense
-------------------
Noninterest expense totaled $3,696,000 for the three month period ended June 30,
2008 as compared to $3,305,000 for the same period in 2007, an increase of
$391,000 or 11.83%. Although there are some increases in noninterest expenses
that are attributable to normal volumes of business, much of the overall
increase in the noninterest expenses listed in the table below is attributable
to additional staffing, and expenses related to the establishment of a new
branch in New York State, which commenced operations on August 1, 2007. The
components of noninterest expense and the changes in the period were as follows
(amounts in thousands):
2008 2007 Change % Change
-------------------------------------------------------------------------------
Salaries and employee benefits $ 2,001 $ 1,880 $ 121 6.44%
Occupancy expense 232 189 43 22.75
Equipment expense 220 179 41 22.91
Data processing 376 301 75 24.91
Insurance 46 36 10 27.77
Printing and stationery 75 80 (5) (6.25)
Professional fees 199 174 25 14.37
Legal expense 105 71 34 47.88
Amortization of core deposit intangible 41 41 0 0
Other expense 401 354 47 13.28
-------- -------- -------- --------
Total non-interest expense $ 3,696 $ 3,305 $ 391 11.83
======== ======== ======== ========
Income Taxes
------------
The income tax provision for the three-month period ended June 30, 2008 totaled
$245,000 in comparison to $224,000 for the same three month period in 2007. The
increase in the income tax provision is attributable to an increase in taxable
income.
Net Income
----------
Overall, net income totaled $983,000 for the three months ended June 30, 2008
and represents earnings of $.58 per average share outstanding. This compares to
net income of $949,000 for the same period in 2007, an increase of $34,000 or
3.58% and compares to earnings per share of $.56 for the 2007 period.
13
FINANCIAL CONDITION
-------------------
Total assets at June 30, 2008 were $479,705,000 compared to $461,960,000 at
December 31, 2007, an increase of 3.84%. The increase is primarily the result of
an increase in earning assets during the period, specifically loans.
Securities
----------
The make up of the securities 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. None of the
securities owned in the portfolio are collateralized by sub-prime mortgages.
During the six months ended June 30, 2008, the securities portfolio, including
Federal Home Loan Bank stock, decreased $1,543,000 or 1.01% to $151,081,000 from
$152,624,000 at December 31, 2007.
Securities are classified in the portfolio as either securities
available-for-sale or securities held-to-maturity. Almost all securities 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
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 June 30, 2008, the unrealized loss net of tax was $5,209,000. This
compares to an unrealized loss net of tax of $2,273,000 at December 31, 2007.
The unrealized losses in these securities are attributable to changes in market
interest rates. Management deems the securities that are currently in an
unrealized loss position as not other than temporarily impaired. The securities
reported as securities held-to-maturity are stated at amortized cost.
The decrease in the portfolio is also a reflection of securities being sold and
called during the period with the proceeds being used to fund loan demand and
seasonal cash flow of transaction accounts.
Lending
-------
Total net loans outstanding of $291,237,000 at June 30, 2008 compares to total
loans outstanding of $270,361,000 at December 31, 2007, an increase of
$20,876,000 or 7.72%. Although 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
June 30, 2008 to December 31, 2007:
June 30, 2008 December 31, 2007
------------- -----------------
(amounts in thousands)
Commercial, financial and agricultural $ 19,793 $ 20,629
Real estate-construction and land
development 31,870 28,928
Real estate-residential 171,972 158,600
Real estate-commercial 59,205 53,823
Consumer 8,266 8,005
Other 131 376
------------ ------------
291,237 270,361
Deferred costs, net 329 306
Unearned income 0 (1)
Allowance for loan losses (2,625) (2,475)
------------ ------------
Net Loans $ 288,941 $ 268,191
============ ============
14
Provisions 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 for loan losses
through charges to earnings. The provision expense for allowances for loan
losses for the first six months of 2008 totaled $170,000. There was no provision
expense for loan losses for the comparable period in 2007.
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 June 30, 2008. 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
accordingly.
The allowance also includes a component resulting from the application of the
measurement criteria of Statements of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS No. 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 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, on the basis of 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.
Credit card loans are separately evaluated and given a special loan loss factor
because management recognizes the higher risk involved in such loans.
Concentrations of credit and local economic factors are also evaluated on a
periodic basis. Historical average net losses by loan type are examined as well
as trends by type. The Bank's loan mix over the same period of time is also
analyzed. A loan loss allocation is made for each type of loan multiplied by the
loan mix percentage for each loan type to produce a weighted average factor.
Nonperforming loans, which include all loans that are on a non-accrual status
along with loans that are 90 days or more past due and still accruing, are
closely monitored by Management. At June 30, 2008, nonperforming loans totaled
$2,265,000 or 0.77% of total loans outstanding of $291,237,000. The allowance
for loan losses totaled $2,625,000 representing 115.89% of nonperforming loans.
Nonperforming loans totaled $1,008,000 or 0.37% of total loans outstanding of
$270,361,000 at December 31, 2007. The allowance for loan losses totaled
$2,475,000 at December 31, 2007 and represented 245.53% of nonperforming loans.
A total of $42,000 of loans were charged off by the Bank during the six months
ended June 30, 2008. These charged-off loans consisted primarily of consumer
loans. This compares to loans charged off during the six month period ended June
30, 2007 of $63,000. A total of $22,000 of previously charged-off loans was
recovered during the six month period ended June 30, 2008.
15
Recoveries for the same period in 2007 totaled $41,000. 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.
Deposits
--------
The Company offers a variety of deposit accounts with a range of interest rates
and terms. Total deposits increased 4.73% from December 31, 2007 to June 30,
2008. The following table illustrates the composition of the Company's deposits
at June 30, 2008 and December 31, 2007:
June 30, 2008 December 31, 2007
------------- -----------------
(amounts in thousands)
Demand $ 69,227 $ 69,215
NOW 27,235 23,652
Money Market 61,351 56,210
Savings 63,402 52,616
Time 111,572 116,048
--------------- ---------------
Total Deposits $ 332,787 $ 317,741
=============== ===============
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 June 30, 2008, the Company had $99,246,000 in
outstanding advances from the Federal Home Loan Bank compared to $95,011,000 at
December 31, 2007. Management expects that it will continue this strategy of
supplementing deposit growth with advances from the Federal Home Loan Bank.
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
June 30, 2008:
June 30, 2008
(amounts in thousands)
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 $ 2,147 $ 0 $ 3 $ 26,299 $ 28,449
Commercial related 573 2,554 1,756 17,637 22,520
Consumer related 7,320 7,320
Standby letters of credit 3 3
--------------------------------------------------------------------------------------------------------------
Total $ 2,720 $ 2,557 $ 1,759 $ 51,256 $ 58,292
--------------------------------------------------------------------------------------------------------------
16
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 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 period
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 June 30,
2008, the Company maintains an asset sensitive (positive gap) position. This
would suggest that during a period of increasing interest rates, the Company
would be in a better position to increase net interest income. To the contrary,
during a period of declining interest rates, a negative gap would result in a
decrease in interest income. The level of interest rate risk at June 30, 2008
was 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 June 30, 2008 the Company had
approximately $58,292,000 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 June 30, 2008, the Company had $43,507,000 in shareholders' equity, a
decrease of 4.51% when compared to December 31, 2007 shareholders' equity
totaling $45,563,000. Several components contributed to the change since
December 31, 2007. Earnings for the six-month period ended June 30, 2008 totaled
$2,064,000. Securities in the 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
June 30, 2008 resulted in other comprehensive loss net of tax totaling
$5,209,000. The application of SFAS No. 158, as described in Note 3 resulted in
other comprehensive income net of tax of $15,000 for the six month period ended
June 30, 2008.
A review and analysis of the securities portfolio has determined that there has
been no credit deterioration and that the unrealized loss on securities
available-for-sale is due to the current interest rate environment and
Management deems the securities to be not other than temporarily impaired. The
Company has declared two quarterly dividends resulting in a decrease in capital
of $945,000. The Company issued 840 new shares of common stock under the terms
of the Director Stock Retainer Plan that resulted in an increase in capital of
$28,000. Under current regulatory definitions, the Bank is considered to be
"well capitalized" for capital adequacy purposes. As a result, the Bank pays the
lowest federal deposit insurance premiums possible. One primary measure of
capital adequacy for regulatory
17
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 June 30, 2008, the Bank had a total risk based capital ratio of
14.14% compared to 15.00% at December 31, 2007. 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. Management believes that the capital levels of the Bank are adequate
to continue to meet the foreseeable capital needs of the institutions.
Impact of Inflation and Changing Prices
---------------------------------------
The Company's consolidated financial statements are prepared in conformity with
generally accepted accounting principles which 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
impact the Company and Bank through increased operating expenses;
(c) increased competition from other financial and non-financial
institutions; (d) the impact of technological advances; and
(e) other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission.
Such developments could have an adverse impact on the Company's and the Bank's
financial position and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to smaller reporting companies.
18
Item 4. Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer concluded
that, based upon an evaluation as of June 30, 2008, 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 and that such
information is accumulated and communicated to the Company's management
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosures.
During the fiscal quarter ended June 30, 2008 there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Part II - OTHER INFORMATION
Item 1. - Legal Proceedings. None
Item 1A. Risk Factors. Not applicable to smaller reporting companies.
Item 2. -Unregistered Sales of Equity Securities and Use of Proceeds. On May 14,
2008, the Company issued 840 shares of common stock to members of its Board of
Directors under the terms of the Director Stock Retainer Plan. The shares were
issued in a private transaction in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended. No cash
consideration was received upon issuance of the shares.
Item 3. - Defaults Upon Senior Securities. None
Item 4. - Submission of Matters to a Vote of Security Holders. Incorporated by
reference from Form 8-K filed May 16, 2008.
Item 5. - Other Information. None
Item 6. - Exhibits
11 Computation of Earnings per Share.
31.1-Rule 13a-14(a)/15d-14(a) Certification of CEO.
31.2-Rule 13a-14(a)/15d-14(a) Certification of CFO.
32- Section 1350 Certifications of CEO and CFO.
SALISBURY BANCORP, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Salisbury Bancorp, Inc.
Date: August 11, 2008 by: /s/ John F. Perotti
---------------- --------------------
John F. Perotti
Chief Executive Officer
Date: August 11, 2008 by: /s/ John F. Foley
---------------- -----------------
John F. Foley
Chief Financial Officer
19