SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
--------------------------------
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
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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 Identification No.)
Incorporation or Organization)
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 or a non-accelerated filer. (See definition of "accelerated
filer and large accelerated Filer" in Rule 12b-2 of the Exchange Act). (Check
one):
Large Accelerated Filer [_] Accelerated Filer [_] Non-Accelerated Filer [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 November 3, 2006, there were 1,684,181 shares outstanding.
----------------------------
SALISBURY BANCORP, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements: 3
Condensed Consolidated Balance Sheets -September 30, 2006 (unaudited)
and December 31, 2005 4
Condensed Consolidated Statements of Income -nine and three months ended September 30, 2006
and 2005 (unaudited) 5
Condensed Consolidated Statements of Cash Flows -nine months ended September 30, 2006
and 2005 (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 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 20
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)
September 30, 2006 and December 31, 2005
----------------------------------------
September 30, December 31,
2006 2005
---- ----
ASSETS (unaudited)
------
Cash and due from banks $ 5,804 $ 8,432
Interest bearing demand deposits with other banks 1,171 652
Money market mutual funds 1,043 1,120
Federal funds sold 347 0
------------ ------------
Cash and cash equivalents 8,365 10,204
Investments in available-for-sale securities (at fair value) 158,049 145,608
Investments in held-to-maturity securities (fair values of $76 as of
September 30, 2006 and $147 as of December 31, 2005) 76 147
Federal Home Loan Bank stock, at cost 4,553 5,413
Loans held-for-sale 150 0
Loans, less allowance for loan losses of $2,580 as of September 30, 2006
and $2,626 as of December 31, 2005 231,167 215,989
Investment in real estate 75 75
Premises and equipment 6,224 6,452
Goodwill 9,509 9,509
Core deposit intangible 1,535 1,658
Accrued interest receivable 2,415 2,363
Cash surrender value of life insurance policies 3,514 3,424
Other assets 1,797 2,080
------------ ------------
Total assets $ 427,429 $ 402,922
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing $ 66,232 $ 63,996
Interest-bearing 241,676 223,275
------------ ------------
Total deposits 307,908 287,271
Federal Home Loan Bank advances 72,322 71,016
Other liabilities 2,361 3,193
------------ ------------
Total liabilities 382,591 361,480
------------ ------------
Stockholders' equity:
Common stock, par value $.10 per share; authorized 3,000,000 shares; issued
and outstanding, 1,684,181 shares at September 30, 2006 and 1,683,341 shares
at December 31, 2005 168 168
Paid-in capital 13,100 13,068
Retained earnings 33,100 31,101
Accumulated other comprehensive loss (1,530) (2,895)
------------ ------------
Total stockholders' equity 44,838 41,442
------------ ------------
Total liabilities and stockholders' equity $ 427,429 $ 402,922
============ ============
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)
September 30, 2006 and 2005
(unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
Interest and dividend income:
Interest and fees on loans $11,471 $ 9,811 $ 3,999 $ 3,362
Interest on debt securities:
Taxable 3,967 3,497 1,405 1,258
Tax-exempt 1,652 1,857 595 575
Dividends on equity securities 211 158 81 57
Other interest 60 52 31 20
------- ------- ------- -------
Total interest and dividend income 17,361 15,375 6,111 5,272
------- ------- ------- -------
Interest expense:
Interest on deposits 4,843 2,962 1,886 1,075
Interest on Federal Home Loan Bank advances 2,609 2,333 868 831
------- ------- ------- -------
Total interest expense 7,452 5,295 2,754 1,906
------- ------- ------- -------
Net interest and dividend income 9,909 10,080 3,357 3,366
Provision for loan losses 0 270 0 90
------- ------- ------- -------
Net interest and dividend income after provision for
loan losses 9,909 9,810 3,357 3,276
------- ------- ------- -------
Noninterest income:
Trust department income 1,410 1,119 476 342
Loan commissions 80 226 35 101
Service charges on deposit accounts 527 470 168 167
Gain on sales of available-for-sale securities, net 294 1,227 233 390
Gain on sales of loans held-for-sale 290 176 60 40
Other income 638 672 241 235
------- ------- ------- -------
Total noninterest income 3,239 3,890 1,213 1,275
------- ------- ------- -------
Noninterest expense:
Salaries and employee benefits 5,262 5,359 1,852 1,849
Occupancy expense 538 524 186 175
Equipment expense 586 557 205 183
Data processing 869 796 259 240
Insurance 95 111 32 36
Printing and stationery 183 209 54 46
Professional fees 303 223 123 89
Legal expense 94 144 31 43
Amortization of core deposit intangible 123 123 41 41
Other expense 877 1,013 318 366
------- ------- ------- -------
Total noninterest expense 8,930 9,059 3,101 3,068
------- ------- ------- -------
Income before income taxes 4,218 4,641 1,469 1,483
Income taxes 905 873 309 352
------- ------- ------- -------
Net income $ 3,313 $ 3,768 $ 1,160 $ 1,131
======= ======= ======= =======
Earnings per common share $ 1.97 $ 2.24 $ 0.69 $ 0.67
------- ------- ------- -------
Dividends per common share $ 0.78 $ 0.75 $ 0.26 $ 0.25
------- ------- ------- -------
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)
Nine months ended September 30, 2006 and 2005
(unaudited)
2006 2005
---- ----
Cash flows from operating activities:
Net income $ 3,313 $ 3,768
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of securities, net 60 224
Gain on sales of available-for-sale securities, net (294) (1,227)
Provision for loan losses 0 270
Change in loans held-for-sale (150) 239
Net decrease in mortgage servicing rights 46 0
Depreciation and amortization 406 390
Amortization of core deposit intangible 123 123
Accretion of fair value adjustment on deposits & borrowings (102) (116)
Amortization of fair value adjustment on loans 88 157
(Increase) decrease in interest receivable (52) 236
Deferred tax benefit (195) 0
Decrease in taxes receivable 256 298
Increase in prepaid expenses (476) (680)
Increase in cash surrender value of insurance policies (90) (90)
(Increase)decrease in other assets (74) 92
(Decrease) increase in accrued expenses (475) 37
Increase in interest payable 111 2
Decrease in other liabilities (35) (157)
Issuance of shares for Directors' fees 32 36
Decrease in unearned income on loans (102) 0
-------- --------
Net cash provided by operating activities 2,390 3,602
-------- --------
Cash flows from investing activities
Sale of Federal Home Loan Bank stock 860 0
Purchases of available-for-sale securities (61,650) (71,775)
Proceeds from sales of available-for-sale securities 44,268 66,688
Proceeds from maturities of available-for-sale securities 6,797 30,872
Proceeds from maturities of held-to-maturity securities 71 64
Loan originations and principal collections, net (15,207) (5,872)
Recoveries of loans previously charged-off 43 31
Capital expenditures (159) (884)
-------- --------
Net cash (used in) provided by investing activities (24,977) 19,124
-------- --------
The accompanying notes are an integral part of these consolidated financial statements.
6
SALISBURY BANCORP INC. AND SUBSIDIARY
-------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(amounts in thousands)
Nine months ended September 30, 2006 and 2005
(unaudited)
(continued)
2006 2005
---- ----
Cash flows from financing activities:
Net decrease in demand deposits, NOW and savings accounts (6,957) (4,938)
Net increase (decrease) in time deposits 27,598 (9,479)
Federal Home Loan Bank advances 10,000 15,987
Principal payments on advances from Federal Home Loan Bank (10,227) (22,651)
Net change in short term advances from Federal Home Loan Bank 1,631 0
Dividends paid (1,296) (1,249)
-------- --------
Net cash provided by (used in) financing activities 20,749 (22,330)
-------- --------
Net (decrease) increase in cash and cash equivalents (1,838) 396
Cash and cash equivalents at beginning of period 10,204 11,678
-------- --------
Cash and cash equivalents at end of period $ 8,366 $ 12,074
======== ========
Supplemental disclosures:
Interest paid $ 7,500 $ 5,293
Income taxes paid 844 615
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 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 three and nine months ended September 30, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006. These financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's 2005 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
-----------------------------
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 is the net unrealized holding gain (loss)
on securities.
Comprehensive Income
Nine months ended Three months ended
September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
(amounts in thousands) (amounts in thousands)
Net income $ 3,313 $ 3,768 $ 1,160 $ 1,131
Net change in unrealized holding gains or losses
on securities and minimum pension liability
adjustment, net of tax during period 1,365 (661) 3,112 (739)
------- ------- ------- -------
Comprehensive income $ 4,678 $ 3,107 $ 4,272 $ 392
======= ======= ======= =======
NOTE 3 - IMPACT OF NEW ACCOUNTING STANDARDS
-------------------------------------------
"Share-Based Payment" ("SFAS 123R") requires that the cost resulting from all
share-based payment transactions be recognized in the consolidated financial
statements. It establishes fair value as the measurement objective in accounting
for share-based payment arrangements and requires all entities to apply a
fair-value based measurement method in accounting for share-based payment
transactions with employees except for equity instruments held by employee share
ownership plans. This Statement became effective for the Company as of the
beginning of the first interim or annual reporting period that began after
December 15, 2005. The Statement is not anticipated to have a material impact on
the Company's financial position or results of operations as there are no
share-based payment arrangements with employees and the compensation expense
related to the Directors Stock Retainer Plan is not anticipated to be material.
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
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. SFAS 156 is effective as of an
entity's first fiscal year beginning after September 15, 2006. Early adoption is
permitted as of the beginning of an entity's fiscal year, provided the entity
has not yet issued financial statements, including
8
interim financial statements, for any period of that fiscal year. The Company
does not expect the adoption of this statement to have a material impact on its
financial condition, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158, "Employer's Accounting for
Defined Benefit Pension and other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106 and 132 (R)" ("SFAS 158"). SFAS 158 requires 1) the
recognition of an asset or liability for the over-funded or under-funded status
of a defined benefit plan, 2) the recognition of actuarial gains and losses and
prior service costs and credits in other comprehensive income, 3) measurement of
plan assets and benefit obligations as of the employer's balance sheet date,
rather than at interim measurement dates as currently allowed, and 4) disclosure
of additional information concerning actuarial gains and losses and prior
service costs and credits recognized in other comprehensive income. This
statement is effective for financial statements with fiscal years ending after
December 15, 2006. The Company does not believe the adoption of this Statement
will have a material impact on the Company's financial position or result of
operations.
NOTE 4 - DEFINED BENEFIT PENSION PLAN
-------------------------------------
The following summarizes the net periodic benefit cost for the nine months and
three months ended September 30:
Nine Months Ended Three Months Ended
September 30, September 30,
2006 2005 2006 2005
----------------- -----------------
Components of net periodic benefit cost:
Service cost $ 322,526 $ 349,928 $ 79,661 $ 116,643
Interest cost 238,733 218,119 75,237 72,706
Expected return on plan assets (221,699) (200,709) (78,866) (66,903)
Amortization of:
Prior service cost 670 670 223 224
Transition obligation 0 2,078 0 692
Recognized net loss 66,896 49,002 18,633 16,334
--------- --------- --------- ---------
Net periodic benefit cost $ 407,126 $ 419,088 $ 94,888 $ 139,696
========= ========= ========= =========
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*
Expected return on plan assets 7.50% 7.25% 7.50% 7.25%
*5% at age 20 grading down to 3% at age 60 and beyond (roughly 3.25% on
average).
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 six (6) full
service offices including a Trust and Investment Services Division located in
the towns of Canaan, Lakeville, Salisbury and Sharon, Connecticut and Sheffield
and South Egremont, Massachusetts. 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 in order to better serve both
current and future customers in the tri-state area. On October 6, 2006, the Bank
announced that it had entered into a purchase and assumption agreement to
acquire certain assets and liabilities of a small branch of New York Community
Bank. The acquisition is subject to state and federal regulatory approvals and
makes it possible for the Company and the Bank to establish additional offices
in New York State subject to regulatory approvals. This discussion should be
read in conjunction with Salisbury Bancorp, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 2005.
RESULTS OF OPERATIONS
---------------------
Overview
--------
The Company's net income for the nine months ended September 30, 2006 was
$3,313,000. This compares to earnings of $3,768,000 for the same period in 2005.
Earnings per share for the nine months ended September 30, 2006 totaled $1.97
per share that compared to earnings per share of $2.24 for the corresponding
period in 2005. The decrease in earnings is primarily attributable to a decrease
in noninterest income; specifically, reduced income from gains in securities
transactions when comparing the two periods. During the first nine months of
2006, the Company's gains on sale of available-for-sale securities amounted to
$294,000 as compared with $1,227,000 during the same period in 2005. In
addition, the Federal Reserve Bank continued to move interest rates upward until
the third quarter of 2006 when the tightening stopped. Total noninterest expense
for the first nine months of 2006 decreased $129,000 or 1.42% when compared to
the corresponding period in 2005. This decrease is primarily the result of
management's continuing efforts to control operating expenses.
The Company's assets at September 30, 2006 totaled $427,429,000 compared to
total assets of $402,922,000 at December 31, 2005. New business development
efforts have resulted in the growth of net loans outstanding which totaled
$231,167,000 at September 30, 2006. This is an increase of $15,178,000 or 7.03%
when compared to total net loans of $215,989,000 at December 31, 2005.
Non-performing loans totaled $1,130,000 at September 30, 2006 as compared to
non-performing loans totaling $773,000 at December 31, 2005. Although the total
represents an increase of 46.18%, the dollar difference is $357,000 which
reflects only a small number of additional loans when compared to the
non-performing loan list at December 31, 2005, and is not considered to be
indicative of any trend. 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 September 30, 2006
totaled $307,908,000 as compared to total deposits of $287,271,000 at December
31, 2005. This is an increase $20,637,000 or 7.18%. Approximately $14.5 million
of this growth is the result of the Bank's decision to begin using brokered
deposits as part of a growth strategy. The remaining growth is primarily the
result of the Company's new business development plan. As of September 30, 2006,
the most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. The Company's total risk based capital ratio was
16.36%, the Tier 1 capital ratio was 15.23% and the leverage ratio was 8.46%.
The Board of Directors declared a third quarter cash dividend of $.26 per common
share, which was paid on October 31, 2006 to shareholders of record as of
September 29, 2006. This compared to a cash dividend of $.25 per common share
that was paid for the third quarter of 2005. Year-to-date dividends total $.78
per common share for this year. This compares to total year-to-date dividends of
$.75 per common share one year ago.
10
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 future credit losses in the loan portfolio. Many factors
influence the amount of future 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."
NINE MONTHS ENDED SEPTEMBER 30, 2006
AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2005
Net Interest Income
-------------------
The Company's earnings are primarily dependent upon net interest and dividend
income, and to a lesser extent its noninterest income. Net interest and dividend
income is the difference between interest and dividends earned on the loan and
securities portfolio and interest paid on deposits and advances from the Federal
Home Loan Bank. Non-interest income is primarily derived from the trust and
investment 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)
Nine Months Ended September 30, 2006 2005
---- ----
Total Interest and Dividend Income
(financial statements) $ 17,361 $ 15,375
Tax Equivalent Adjustment 851 957
-------- --------
Total Interest and Dividend Income
(on an FTE basis) 18,212 16,332
Total Interest Expense (7,452) (5,295)
-------- --------
Net Interest and Dividend Income-FTE $ 10,760 $ 11,037
======== ========
Total interest and dividend income on an FTE basis for the nine months ended
September 30, 2006, when compared to the same period in 2005, increased
$1,880,000 or approximately 11.51%. The increase was primarily attributable to
an economic environment experiencing an increase in interest rates as well as an
increase in earning assets.
Interest expense on deposits for the first nine months of 2006 totaled
$4,843,000, an increase of $1,881,000 or 63.50% as compared to $2,962,000 for
the same period in 2005. This increase reflects an economic environment of
generally higher interest rates as well as growth in deposits. Federal Home Loan
Bank advances increased $1,306,000 during the nine month period ended September
30, 2006 and interest expense on these advances increased 11.83% to $2,609,000.
This increase in interest expense is also attributable to an economic
environment of increasing interest rates. Total interest expense for the nine
months ended September 30, 2006 was $7,452,000, an increase of $2,157,000 or
40.74% when compared to the same period in 2005.
Overall, net interest and dividend income (on an FTE basis) decreased $277,000
or 2.51% to $10,760,000 for the period ended September 30, 2006 when compared to
the same period in 2005.
11
Noninterest Income
------------------
Noninterest income totaled $3,239,000 for the nine months ended September 30,
2006. This is a decrease of $651,000 or 16.74% compared to noninterest income of
$3,890,000 for the nine months ended September 30, 2005. Gains on sales of
available-for-sale securities decreased 76.04% to $294,000 for the first nine
months of 2006 compared to the corresponding period in 2005. This decrease is
primarily the result of the movement of market rates during the year. The yield
curve continued to flatten and was inverted at times during the first nine
months of 2006 which limited opportunities to generate gains on sales of
available-for-sale securities. It appears that the Federal Reserve Bank has
ceased its tightening strategy as evidenced by their decision not to raise
interest rates at their last meeting. It is anticipated that a period of easing
may begin in 2007. Continuing growth of the trust and investment services
division has resulted in an increase in trust income of $291,000 or 26.01% to
$1,410,000 for the first nine months of 2006, which compares to $1,119,000 for
the same period in 2005. Other income has remained consistent when comparing the
first nine months of 2006 to the same period in 2005. This category of income
primarily consists of fees associated with transaction accounts and in addition,
fees related to the origination and servicing of mortgage loans and gains
related to the sale of mortgage loans.
Noninterest Expense
-------------------
Noninterest expense decreased $129,000 or 1.42% for the first nine months of
2006 as compared to the same period in 2005. Although there are some increases
in noninterest expenses which are attributable to normal volumes of business,
the overall decreases in the noninterest expenses listed in the table below are
all primarily attributable to management's continuing efforts to control
operating expenses. The components of noninterest expense and the changes in the
period were as follows (amounts in thousands):
2006 2005 Change % Change
-------------------------------------------------------------------------------
Salaries and employee benefits $5,262 $5,359 $ (97) (1.8)
Occupancy expense 538 524 14 2.7
Equipment expense 586 557 29 5.2
Data processing 869 796 73 9.2
Insurance 95 111 (16) (14.4)
Printing and stationery 183 209 (26) (12.4)
Professional fees 303 223 80 35.9
Legal expense 94 144 (50) (34.7)
Amortization of core deposit intangible 123 123 0 .0
Other expense 877 1,013 (136) (13.4)
------ ------ ------
Total noninterest expense $8,930 $9,059 $ (129) (1.4)
====== ====== ======
Income Taxes
------------
The income tax provision for the first nine months of 2006 totaled $905,000 in
comparison to $873,000 for the same nine month period in 2005. Pretax income in
2006 was $4,218,000 and included tax exempt income totaling $1,652,000. Pretax
income in 2005 was $4,641,000 and included tax exempt income totaling
$1,857,000. The increase in the income tax provision is primarily attributable
to an increase in taxable income.
Net Income
----------
Overall, net income totaled $3,313,000 for the nine months ended September 30,
2006 and represents earnings of $1.97 per average share outstanding. This
compares to net income of $3,768,000 or $2.24 per average share outstanding for
the same period in 2005.
12
THREE MONTHS ENDED SEPTEMBER 30, 2006
AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2005
Net Interest 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 September 30 2006 2005
------- -------
Total Interest and Dividend Income
(financial statements) $ 6,111 $ 5,272
Tax Equivalent Adjustment 307 296
------- -------
Total Interest and Dividend Income (on an FTE basis) 6,418 5,568
Total Interest Expense (2,754) (1,906)
------- -------
Net Interest and Dividend Income-FTE $ 3,664 $ 3,662
======= =======
Total interest and dividend income on an FTE basis for the three months ended
September 30, 2006 increased $850,000 or 15.27% when compared to the same period
in 2005. The increase was primarily attributable to an economic environment with
generally higher interest rates and an increase in earning assets.
Interest expense on deposits increased $811,000 or 75.44% for the quarter to
$1,886,000 compared to $1,075,000 for the same quarter in 2005. This increase is
primarily the result of an economic environment of increasing interest rates
coupled with an increased deposit base. Federal Home Loan Bank advances have
increased slightly during the three month period ended September 30, 2006 when
compared to the corresponding period in 2005. Interest expense on these
advances, has increased $37,000 or 4.45% and totaled $868,000 for the three
months ended September 30, 2006 compared to $831,000 for the corresponding
period in 2005. Total interest expense for the three months ending September 30,
2006 was $2,754,000 compared to total interest expense for the same period in
2005 of $1,906,000, an increase of $848,000 or 44.49%. This increase is a
reflection of an economic environment of rising interest rates and the result of
generally higher interest rates on Federal Home Loan Bank advances.
Overall, net interest and dividend income (on an FTE basis) increased $2,000 to
$3,664,000 for the three month period ended September 30, 2006 when compared to
the corresponding period in 2005. The increase in net interest and dividend
income-FTE in the third quarter of 2006 is partially a reflection of the Federal
Reserve Bank's decision to cease tightening efforts during the quarter. At this
time it is anticipated that the Federal Reserve Bank could begin easing during
2007.
Noninterest Income
------------------
Noninterest income totaled $1,213,000 for the three months ended September 30,
2006 as compared to $1,275,000 for the three months ended September 30, 2005.
This decrease of $62,000 or 4.86% is attributable to reduced income from gains
in securities transactions. Gains on sales of available-for-sale securities
totaled $233,000 for the third quarter of 2006. This compares to gains on sales
of available-for-sale securities of $390,000 for the corresponding period in
2005. This decrease is primarily the result of the movement of market rates. The
yield curve remained flat which limited opportunities to generate gains on sales
of available-for-sale securities. However, as reported previously, the Federal
Reserve Bank apparently has ceased tightening and this change has resulted in
new opportunities during the quarter to generate gains on securities
transactions. Loan commissions for the quarter totaled $35,000. This is a
decrease when compared to loan commissions totaling $101,000 for the
corresponding period in 2005. This is not a reflection of the volume of activity
in the secondary mortgage market, but is a reflection of using different
investors with products that generate lower commissions upon sale. Income from
the trust and investment services division increased $134,000 or 39.18% to
$476,000 for the third quarter of 2006 compared to the same period in 2005. This
is primarily the result of continued growth in assets under management. Other
noninterest income is primarily related to fees associated with transaction
accounts and fees related to the
13
origination and servicing of mortgage loans and gains related to the sale of
mortgage loans. The volumes of these transactions are driven primarily by
consumer demand which results in variances from quarter to quarter. Year-to-date
volumes, however, are consistent when comparing 2006 to 2005.
Noninterest Expense
-------------------
Noninterest expense totaled $3,101,000 for the three month period ended
September 30, 2006 as compared to $3,068,000 for the same period in 2005, an
increase of $33,000 or 1.08%. The components of noninterest expense and the
changes in the period were as follows (amounts in thousands):
2006 2005 Change % Change
-------------------------------------------------------------------------------
Salaries and employee benefits $1,852 $1,849 $ 3 .2
Occupancy expense 186 175 11 6.3
Equipment expense 205 183 22 12.0
Data processing 259 240 19 7.9
Insurance 32 36 (4) (1.1)
Printing and stationery 54 46 8 17.4
Professional fees 123 89 34 38.2
Legal expense 31 43 (12) (27.9)
Amortization of core deposit intangible 41 41 0 0
Other expense 318 366 (48) (13.1)
------ ------ ------
Total noninterest expense $3,101 $3,068 $ 33 1.1
====== ====== ======
Income Taxes
------------
The income tax provision for the three month period ended September 30, 2006
totaled $309,000 in comparison to $352,000 for the same three month period in
2005. The decrease in the income tax provision is attributable to a decrease in
taxable income.
Net Income
----------
Overall, net income totaled $1,160,000 for the three months ended September 30,
2006 and represents earnings of $.69 per common share. This compares to net
income of $1,131,000 for the same period in 2005, an increase in the third
quarter of 2006 of $29,000 or 2.56% and compares to earnings per share of $.67
for the third quarter of 2005.
FINANCIAL CONDITION
-------------------
Total assets at September 30, 2006 were $427,429,000, compared to $402,922,000
at December 31, 2005, an increase of approximately 6.08%. The increase is
primarily the result of an increase in loans and the securities portfolio during
the period that were funded by an increase in deposits.
Securities
----------
During the nine months ended September 30, 2006, the securities portfolio,
including Federal Home Loan Bank stock, increased $11,510,000 or 7.61% to
$162,678,000 from $151,168,000 at December 31, 2005. 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.
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
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 September 30, 2006, the unrealized loss net of tax was $1,530,000.
This compares to an unrealized loss net of tax of $2,895,000 at December 31,
2005. The unrealized losses in these securities are attributable to changes in
market interest rates. Management deems the securities that
14
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.
Lending
-------
New business development during the first half of 2006 coupled with an increase
in loan demand resulted in an increase in total loans outstanding to
$233,751,000 at September 30, 2006. This compares to total loans outstanding of
$218,623,000 at December 31, 2005. This is an increase of $15,128,000 or 6.92%.
Competition for loans remains aggressive in the Bank's market area, especially
in the residential mortgage loan market.
The following table represents the composition of the loan portfolio comparing
September 30, 2006 to December 31, 2005:
September 30, 2006 December 31, 2005
------------------ -----------------
(amounts in thousands)
Commercial, financial and agricultural $ 15,600 $ 15,354
Real Estate-construction and land
development 17,764 18,814
Real Estate-residential 141,008 135,619
Real Estate-commercial 50,700 40,889
Consumer 8,640 7,900
Other 39 47
--------- ---------
Loans outstanding 233,751 218,623
Unearned income (4) (8)
Allowance for loan losses (2,580) (2,626)
--------- ---------
Net Loans $ 231,167 $ 215,989
========= =========
Provisions and Allowance for Loan Losses
----------------------------------------
Net loans at September 30, 2006 increased 7.03% to $231,167,000 when compared to
net loans of $215,989,000 at December 31, 2005. At September 30, 2006
approximately 90% of the Bank's loan portfolio was related to real estate
products. The concentration remained consistent as approximately 91% of the
portfolio was related to real estate at December 31, 2005. There were no
material changes in the composition of the loan portfolio during this period.
Credit risk is inherent in the business of extending loans. The 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 and
lease losses through charges to earnings. No provision to the allowance for loan
losses was warranted during the first nine month period of 2006. This compares
to loan loss provisions of $270,000 made during the comparable period in 2005.
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 September 30, 2006. 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 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.
15
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, 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.
The credit card delinquency and loss history is 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 September 30, 2006, nonperforming loans
totaled $1,130,000 or 0.48% of total loans outstanding of $233,751,000. At
September 30, 2006, the allowance for loan losses totaled $2,580,000
representing 228.32% of nonperforming loans. Nonperforming loans totaled
$773,000 or 0.35% of total loans outstanding of $218,615,000 at December 31,
2005. The allowance for loan losses totaled $2,626,000 at December 31, 2005 and
represented 339.71% of nonperforming loans. A total of $89,000 of loans were
charged off by the Bank during the nine months ended September 30, 2006. These
charged-off loans consisted primarily of consumer loans. This compares to loans
charged off during the nine month period ended September 30, 2005 which totaled
$69,000. A total of $43,000 of previously charged-off loans was recovered during
the nine month period ended September 30, 2006. Recoveries for the same period
in 2005 totaled $31,000. 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. The following table illustrates the composition of the Company's
deposits at September 30, 2006 and December 31, 2005:
September 30, 2006 December 31, 2005
------------------ -----------------
(amounts in thousands)
Demand $ 66,233 $ 63,996
NOW 23,963 25,900
Money Market 53,466 57,401
Savings 48,244 51,567
Time 116,002 88,407
------------ ------------
Total Deposits $ 307,908 $ 287,271
============ ============
Deposits constitute the principal funding source of the Company's assets.
16
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 September 30, 2006, the Company had $72,322,000 in
outstanding advances from the Federal Home Loan Bank compared to $71,016,000 at
December 31, 2005. 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
September 30, 2006:
September 30, 2006
(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 $ 8,899 $ 2,137 $ 0 $26,610 $37,646
Commercial related 13,109 204 0 1,155 14,468
Consumer related 7,064 7,064
Standby letters of credit 22 22
--------------------------------------------------------------------------------------------------
Total $22,008 $ 2,363 $ 0 $34,829 $59,200
--------------------------------------------------------------------------------------------------
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 September
30, 2006, the Company maintains a liability sensitive (negative gap) position.
This would suggest that during a period of declining interest rates, the Company
17
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 September 30,
2006 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 September 30, 2006 the Company
had approximately $59,200,000 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 September 30, 2006, the Company had $44,838,000 in stockholders' equity, an
increase of 8.20% when compared to December 31, 2005 stockholders' equity
totaling $41,442,000. Earnings for the nine-month period ended September 30,
2006 totaled $3,313,000. Market conditions resulted in a decrease in accumulated
other comprehensive loss to $1,530,000 from $2,895,000 at December 31, 2005.
A review and analysis of securities 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 three
quarterly dividends resulting in a decrease in capital of $1,313,000. The
Company issued 840 new shares of common stock under the terms of the Directors
Stock Retainer Plan that resulted in an increase in capital of $32,000. 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 the
lowest federal deposit insurance premiums possible. One primary measure of
capital adequacy for regulatory purposes is based on the ratio of risk-based
capital to risk-weighted assets. This method of measuring capital adequacy helps
to establish capital requirements that are more sensitive to the differences in
risk associated with various assets. It takes into account off-balance sheet
exposure in assessing capital adequacy and it minimizes disincentives to holding
liquid, low-risk assets. At September 30, 2006, the Company had a total risk
based capital ratio of 16.36% compared to 15.76% at December 31, 2005. Tier 1
capital ratio was 15.23% and the leverage ratio was 8.46%. 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 Company
and 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.
18
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.
The main components of market risk for the Company are interest rate risk and
liquidity risk. The Company manages interest rate risk and liquidity risk
through an ALCO Committee comprised of outside Directors and senior management.
The committee monitors compliance with the Bank's Asset/Liability Policy which
provides guidelines to analyze and manage the interest rate sensitivity gap,
which is the difference between the amount of assets and the amounts of
liabilities which mature or reprice during specific time frames. Model
simulation is used to measure earnings volatility under both rising and falling
rate scenarios. Please refer to Interest Rate Risk and Liquidity under Item 2.
The Company's interest rate risk and liquidity position has not significantly
changed from year end 2005.
Item 4. Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer concluded
that, based upon an evaluation as of September 30, 2006, 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 disclosure. During the
nine month period ended September 30, 2006 there were no changes in the
Company's
19
internal control over financial reporting that 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. Not applicable
Item 1A. Risk Factors. Not applicable
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
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: November 6, 2006 by: /s/ John F. Perotti
---------------- -------------------
John F. Perotti
Chief Executive Officer
Date: November 6, 2006 by: /s/ John F. Foley
---------------- -----------------
John F. Foley
Chief Financial Officer
20