-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bzr6jIEhXEDx2I7dGImgDVNqdgWhtn6wlipzJfklZy0fyx72n7d0+A9tS00hVDEb 8ppztKkgTrpxlBMKQNlgDg== 0000914317-01-000243.txt : 20010402 0000914317-01-000243.hdr.sgml : 20010402 ACCESSION NUMBER: 0000914317-01-000243 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SALISBURY BANCORP INC CENTRAL INDEX KEY: 0001060219 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 061514263 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-24751 FILM NUMBER: 1585605 BUSINESS ADDRESS: STREET 1: 5 BISSELL ST CITY: LAKEVILLE STATE: CT ZIP: 06039-1868 BUSINESS PHONE: 8604359801 MAIL ADDRESS: STREET 1: 5 BISSELL ST CITY: LAKEVILLE STATE: CT ZIP: 06039-1868 10KSB 1 0001.txt 10KSB FOR SALISBURY BANCORP SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-KSB (Mark One) [ X ] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________to ______________ Commission file number 0-24751 SALISBURY BANCORP, INC. --------------------------------------------- (Name of Small Business Issuer in its charter) Connecticut 06-1514263 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 5 Bissell Street, Lakeville, CT 06039 - ---------------------------------------------- ------------------- (Address of Principal Executive Offices) (Zip Code) (860) 435-9801 - -------------------------------------------------------------------------------- (Issuer's telephone number, Including area code) Securities registered under Section 12 (b) of the Exchange Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- -------------------------- Common stock par value $.10 per share American Stock Exchange - --------------------------------------- ---------------------------- Securities registered under Section 12 (g) of the Exchange Act: None - -------------------------------------------------------------------------------- (Title of Class) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant"s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ] The revenues for the issuer's fiscal year ended December 31, 2000 are $18,531,411 State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act). On January 31, 2000: $24,375,924 Note. If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated. Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ X ] No [ ] APPLICABLE ONLY TO CORPORATE REGISTRANTS The Company had 1,443,961 shares outstanding as of March 9, 2001. Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] Documents Incorporated by Reference: None
TABLE OF CONTENTS ----------------- Page ---- Part I Item 1 - Description of Business 3 (a) General Development of the Business 3 (b) Narrative Description of Business 4 Item 2 - Description of Properties 13 Item 3 - Legal Proceedings 14 Item 4 - Submission of Matters to a Vote of Security Holders 14 Part II Item 5 - Market for Common Equity and Related Stockholder Matters 14 (a) Market Information 14 (b) Holders 14 (c) Dividends 14 Item 6 - Management"s Discussion and Analysis 16 Item 7 - Financial Statements 25 Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26 Part III Item 9 - Directors, Executive Officers, Promoters, and Control Persons; Compliance with Section 16 (a) of the Exchange Act 26 Item 10- Executive Compensation 28 Item 11- Security Ownership of Certain Beneficial Owners and Management 30 Item 12- Certain Relationships and Related Transactions 31 Item 13- Exhibits, List and Reports on Form 8-K 32 Signatures 33
2 PART I ITEM 1. DESCRIPTION OF BUSINESS (a) General Development of the Business Salisbury Bancorp, Inc. (AMEX:SAL) (the "Company") is a Connecticut corporation that was formed in 1998. Its primary activity is to act as the holding company for its sole subsidiary, the Salisbury Bank and Trust Company (the "Bank") which accounts for most of the Company"s net income. The Bank assumed its present name in 1925 following the acquisition by the Robbins Burrall Trust Company of the Salisbury Savings Society. The Robbins Burrall Trust Company was incorporated in 1909 as the successor to a private banking firm established in 1874. The Salisbury Savings Society was incorporated in 1848. The Bank is chartered as a state bank and trust company by the State of Connecticut and its deposits are insured by the Federal Deposit Insurance Corporation in accordance with the Federal Deposit Insurance Act. The Bank"s main office is at 5 Bissell Street, Lakeville, Connecticut 06039. Its telephone number is (860) 435-9801. The Bank serves its customers from its three (3) offices which are located in Lakeville, Salisbury and Sharon, Connecticut. Substantially all of the Bank"s customers reside in or maintain their principal offices in Litchfield County, Connecticut or in Dutchess County or Columbia County, New York or in Berkshire County, Massachusetts. The Company's products and services are all of the nature of commercial banking. Lending Lending is the principal business of the Bank and loans represent the largest portion of the Bank's assets. The portfolio consists of many types of loans. These include residential mortgages, home equity lines of credit, monthly installment loans for consumers as well as commercial loans which include lines of credit, short term loans, Small Business Administration ("SBA") loans and real estate loans for business customers. The primary lending activity has been the origination of first mortgage loans for the purchase, refinance or construction of residential properties in the Bank"s market area. The Bank has also increased its lending activity through home equity loans. Loans secured by mortgages on a borrower's principal residence are generally viewed as the least vulnerable to major economic changes and at the same time provide a significant yet relatively stable source of interest income. Presently, loans are maintained in the Bank"s portfolio and are completely serviced by the Bank. The Bank also originates a variety of other loans for consumer and business purposes. Although these loans represent a smaller percentage of the total loan portfolio, the Bank is in a position of being a full service retail lender to its consumers and a full service commercial lender to its business customers. Investments The Company"s securities portfolio is also an important component of the balance sheet. It provides a source of earnings in the form of interest and dividends. It also plays a role in the interest rate risk management of the Company and it provides a source of liquidity. The portfolio is comprised primarily of U.S. Government sponsored agencies, U.S. Treasury and mortgage-backed securities. At December 31, 2000, it totaled $91,922,000 which represents approximately 36.91% of total assets and it produced interest and dividend income of $5,461,000 for the year 2000 as compared with $4,588,000 for 1999. 3 Deposits and Borrowings The Bank"s primary sources of funds are deposits, borrowings and principal payments on loans. Although competition for funds from non-banking institutions remains aggressive, the Bank continues its efforts to build multiple account relationships with its customers. As a result, average daily deposits increased 2.40% to $161,216,000 during 2000. The Bank is a member of the Federal Home Loan Bank of Boston. Borrowings totaled $47,357,293 at December 31, 2000 as compared with $39,711,979 at December 31, 1999. For additional information relating to the asset, deposit and borrowing components of the Company, see Item 6, Management"s Discussion and Analysis and the accompanying Consolidated Financial Statements. Fiduciary The Bank provides trust, investment and financial planning services to its customers. The Bank has a full service Trust Department. Among the services offered are: custody and agency accounts, estate planning and estate settlement. Another service is that of serving as Guardian or Conservator of estates and managing the financial position of Guardianships or Conservatorships. Self directed IRAs and Pension plans are also offered. All Others The Company also offers safe deposit rentals, foreign exchange, a full menu of elective fund transfer services and other ancillary services to businesses and individuals. (b) Narrative Description of Business Salisbury Bancorp, Inc. is a bank holding company, which as described above, has one subsidiary, Salisbury Bank and Trust Company, (the "Bank"). The Bank is a full-service commercial bank and its activities encompass a broad range of services which includes a complete menu of deposit services, multiple mortgage products and various other types of loans for both business and personal needs. Full trust services are also available. The Bank owns and operates one subsidiary, SBT Realty, Inc. which is incorporated under the laws of the State of New York. SBT Realty, Inc. holds and manages bank owned real estate situated in New York State. Competition The Bank encounters competition in all phases of its business. Several competitive financial institutions have offices in the Salisbury, Connecticut banking market. In addition, the Bank competes with banking institutions located in Massachusetts and New York. A number of these institutions have higher lending limits and greater resources than the Bank and provide certain services that the Bank does not provide. The banking business in the area served by the Bank is very competitive. Based on information published by the Federal Reserve Bank of Boston in June 1999, the Salisbury, Connecticut banking market consists of eight (8) commercial and savings banks with a total of twelve (12) banking offices. The Bank has a 45.96% market share of deposits in the market. 4
SALISBURY, CONNECTICUT ALL INSTITUTIONS, BY TOTAL DEPOSITS Number of Dollars in Total Deposits Branches Thousands (Percent) -------- --------- --------- l. Salisbury Bancorp, Lakeville .............. 2 $ 164,000 45.96% (Salisbury Bank & Trust Company) ......... (2) ($164,000) -- 2. Canaan National Bancorp, Canaan ............ 1 $ 48,000 13.55% (Canaan National Bank) .................... (1) ($ 48,000) -- 3. NewMil Bancorp, New Milford ................ 2 $ 35,000 9.76% (New Milford Savings Bank) ................ (2) ($ 35,000) -- 4. Iron Bancshares, Inc., Salisbury ........... 3 $ 33,000 9.16% (National Iron Bank) ...................... (3) ($ 33,000) -- 5. Torrington Savings Bank .................... 1 $ 28,000 7.80% 6. People"s Mutual Holdings, Bridgeport ....... 1 $ 21,000 5.84% (Peoples Bank) ............................ (1) ($ 21,000) -- 7. Union Savings Bank ......................... 1 $ 16,000 4.46% 8. Litchfield Bancorp ......................... 1 $ 12,000 3.46% --------- --------- ------ All Commercial Banking and Thrift Organizations 12 $ 356,000 100.00%
Herfindahl-Hirschman Index: 2,602 Note: The table is based on June 30, 1999 deposit data. It reflects all mergers and bank holding company acquisitions completed by August 19, 2000. Banks compete on the basis of price, including rates paid on deposits and charged on borrowings, convenience and quality of service. Savings and loan associations are able to compete aggressively with commercial banks in the important area of consumer lending. Credit unions and small loan companies are each significant factors in the consumer market. Insurance companies, investment firms, credit and mortgage companies, brokerage firms cash management accounts, money-market funds and retailers are all significant competitors for various types of business. Insurance companies, investment counseling firms and other businesses and individuals actively compete with the Bank for personal and corporate trust services and investment counseling services. Many non-bank competitors are not subject to the extensive regulation described below under "LEGISLATION, REGULATION AND SUPERVISION" and in certain respects may have a competitive advantage over banks in providing certain services. In marketing its services, the Bank emphasizes its position as a hometown bank with personal service, flexibility and prompt responsiveness to the needs of its customers. Moreover, the Bank competes for both deposits and loans by offering competitive rates and convenient business hours. In addition to providing banking services to customers in its primary service areas, the Bank is a member of the automatic teller machine networks which allow the Bank to deliver certain financial services to customers regardless of their proximity to the primary service area of the Bank. Connecticut has enacted legislation which liberalized banking powers for thrift institutions thereby improving their competitive position with other banks. In addition, the Connecticut Interstate Banking Act permits acquisitions of and mergers with Connecticut banks and bank holding companies with banks and bank holding companies in other states. Accordingly, it is possible for large super-regional organizations to enter many new markets including the market served by the Bank. Certain of these competitors, by virtue of their size and resources, may enjoy certain efficiencies and competitive advantages over the Bank in the pricing, delivery, and marketing of their products and services. It is possible that such legislative authority will increase the number or the size of financial institutions competing with the Bank for deposits and loans in its market place, although it is impossible to predict the effect upon competition of such legislation. 5 Legislation, Regulation and Supervision General Virtually every aspect of the business of banking is subject to regulation including such matters as the amount of reserves that must be established against various deposits, the establishment of branches, mergers, non-banking activities and other operations. Numerous laws and regulations also set forth special restrictions and procedural requirements with respect to the extension of credit, credit practices, the disclosure of credit terms and discrimination in credit transactions. The descriptions of the statutory provisions and regulations applicable to banks set forth below do not purport to be a complete description of such statutes and regulations and their effects on the Bank. Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies. The likelihood and timing of any changes and the impact such changes might have on the Bank"s future business and earnings are difficult to determine. Federal Reserve Board Regulation The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"). It is subject to the supervision and examination of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and files with the Federal Reserve Board the reports as required under the BHCA. The BHCA generally requires prior approval by the Federal Reserve Board of the acquisition by the Company of substantially all of the assets or more than five percent (5%) of the voting stock of any bank. The BHCA also allows the Federal Reserve Board to determine (by order or by regulation) what activities are so closely related to banking as to be a proper incident of banking, and thus, whether the Company can engage in such activities. The BHCA prohibits the Company and the Bank from engaging in certain tie-in arrangements in connection with any extension of credit, sale of property or furnishing of services. Federal legislation permits adequately capitalized bank holding companies to venture across state lines to offer banking services through bank subsidiaries to a wide geographic market. It is possible for large super-regional organizations to enter many new markets including the market served by the Bank, although it is impossible to assess what impact this will have on the Company or the Bank. The Federal Reserve Act imposes certain restrictions on loans by the Bank to the Company and certain other activities, on investments, in their stock or securities, and on the taking by the Bank of such stock or securities as collateral security for loans to any borrower. Under the BHCA and the regulations of the Federal Reserve System promulgated thereunder ("Regulation Y"), no corporation may become a bank holding company as defined therein, without prior approval of the Federal Reserve Board. The Company received the approval to become a bank holding company on June 18, 1998. The Company will also have to secure prior approval of the Federal Reserve Board if it wishes to acquire voting shares of any other bank, if after such acquisition it would own or control more than five percent (5%) of the voting share of such bank. The BHCA imposes limitations upon the Company as to the types of business in which it may engage. Regulation Y requires bank holding companies to provide the Federal Reserve Board with written notice before purchasing or redeeming equity securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the Company for all such purchases or redemptions during the preceding twelve (12) months, is equal to ten percent (10%) or more of the Company"s consolidated net worth. For purposes of Regulation Y, "net consideration" is the gross consideration paid by a company for all of its equity securities purchased or redeemed during the period, minus the gross consideration received for all of its equity securities sold during the period other than as part of a new issue. However, a bank holding company need not obtain Federal Reserve Board approval of any equity security redemption when:(i) the bank holding company"s capital ratios exceed the threshold established for "well-capitalized" state member banks before and immediately after the redemption; (ii) the bank holding company is well-managed; and (iii) the bank holding company is not the subject of any unresolved supervisory issues. 6 After decades of debate, in November of 1999, Congress passed and President Clinton signed legislation which repealed the restrictions that prohibited most affiliations among banking, securities, and insurance firms. The new law, the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (S.900), provides bank holding companies, banks, securities firms, insurance companies, and investment management firms the option of engaging in a broad range of financial and related activities by opting to become a "financial holding company." These holding companies will be subject to oversight by the Federal Reserve Board, in addition to other regulatory agencies. Under the financial holding company structure, bank holding companies have greater ability to purchase or establish nonbank subsidiaries which are financial in nature or which engage in activities which are incidental or complementary to a financial activity. Additionally, for the first time, securities and insurance firms will be permitted to purchase full-service banks. As a general rule, the individual entities within a financial holding company structure will be regulated according to the type of services provided-functional regulation. Under this approach, a financial holding company with banking, securities, and insurance subsidiaries will have to deal with several regulatory agencies (e.g., appropriate banking agency, SEC, state insurance commissioner). A financial holding company that is itself an insurance provider will be subject to Federal Reserve Board oversight, as well as to regulation by the appropriate state insurance commissioner. Broker/dealer and insurance firms electing to become financial holding companies will be subject to Federal Reserve Board regulation. In addition to permitting financial services providers to enter new lines of business, the new law gives firms the freedom to streamline existing operations and potentially reduce costs. The impact that Gramm-Leach-Bliley Act is likely to have on the Bank and the Company is difficult to predict. While the Act facilitates the ability of financial institutions to offer a wide range of financial services, large financial institutions would appear to be the beneficiaries as a result of this Act because many community banks are less able to devote the capital and management resources needed to facilitate broad expansion of financial services. To qualify as a financial holding company, a bank holding company must certify to the Federal Reserve System that it and its subsidiary banks satisfy the requisite criteria of being "well-capitalized," "well-managed" and have a CRA rating of "satisfactory" or better. The Company meets all of the criteria and became a regulated financial holding company on May 3, 2000. Connecticut Regulation The Company is incorporated in the State of Connecticut and is subject to the Connecticut Business Corporation Act and the Connecticut Bank Holding Company Statutes. As a state-chartered bank and member of the Federal Deposit Insurance Corporation ("FDIC"), the Bank is subject to regulation both by the Connecticut Banking Commissioner and by the FDIC. Applicable laws and regulations impose restrictions and requirements in many areas, including capital requirements, maintenance of reserves, establishment of new branch offices, mergers, making of loans and investments, consumer protection, employment practices and other matters. Any new regulations or amendments to existing regulations may materially affect the services offered, expenses incurred and/or income generated by the Bank. The Connecticut Banking Commissioner regulates the Bank"s internal organization as well as its deposit, lending and investment activities. The approval of the Connecticut Banking Commissioner is required, among other things, to open branch offices and to consummate merger transactions and other business combinations. The Connecticut Banking Commissioner conducts periodic examinations of the Bank. The Connecticut banking statutes also restrict the ability of the Bank to declare cash dividends to its shareholders. Subject to certain limited exceptions, loans made to any one obligor may not exceed fifteen percent (15%) of the Bank"s capital, surplus, undivided profits and loan reserves. In addition, under Connecticut law, the beneficial ownership of more than ten percent (10%) of any class of voting securities of a bank may not be acquired by any person or groups of persons acting in concert without the approval of the Connecticut Banking Commissioner. 7 FDIC Regulation The FDIC insures the Bank"s deposit accounts in an amount up to $100,000 for each insured depositor. FDIC insurance of deposits may be terminated by the FDIC, after notice and a hearing, upon a finding by the FDIC that the insured institution has engaged in unsafe or unsound practices, or is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule or order of, or condition imposed by, the FDIC. A bank"s failure to meet the minimum capital and risk-based capital guidelines discussed below, would be considered to be unsafe and unsound banking practices. The Bank, as a Connecticut-chartered FDIC-insured bank, is regulated by the FDIC in many of the areas also regulated by the Connecticut Banking Commissioner. The FDIC also conducts its own periodic examinations of the Bank, and the Bank is required to submit financial and other reports to the FDIC on a quarterly and annual basis, or as otherwise required by the FDIC. FDIC insured banks, such as the Bank, pay premiums to the FDIC for the insurance of deposits. Under FDIC regulations, FDIC-insured, state-chartered banks which are not members of the Federal Reserve System must meet certain minimum capital requirements, including a leverage capital ratio and a risk-based capital ratio. See "MANAGEMENT"S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". The Community Reinvestment Act ("CRA") requires lenders to identify the communities served by the institution"s offices and to identify the types of credit the institution is prepared to extend within such communities. The FDIC conducts examinations of insured institutions" CRA compliance and rates such institutions as "Outstanding", "Satisfactory", "Needs to Improve" and "Substantial Noncompliance". As of its last CRA examination, the Bank received a rating of "Outstanding". Failure to receive at least a "Satisfactory" rating may inhibit an institution from undertaking certain activities, including acquisitions of other financial institutions, which require regulatory approval based, in part, on CRA compliance considerations. Similarly, failure of a bank to maintain a CRA rating of "Satisfactory" or better would preclude it or its holding company from engaging in any new financial activities pursuant to the Gramm-Leach- Bliley Act. Employees The Company's current workforce at January 31, 2001 was 75 employees of whom 61 were full time and 14 were part time. The employees are not represented by a collective bargaining unit. 8 STATISTICAL DISCLOSURE REQUIRED PURSUANT TO SECURITIES EXCHANGE ACT, INDUSTRY GUIDE 3 The statistical disclosures required pursuant to Industry Guide 3, not contained in Management"s Discussion and Analysis of Financial Condition and Results of Operations-contained herein, are presented on the following pages of this Report on Form 10-KSB. Page(s) of Item of Guide 3 This Report I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential 22 II. Investment Portfolio 10 III. Loan Portfolio 11 IV. Summary of Loan Loss Experience 12 V. Deposits 17 VI. Return on Equity and Assets 14 VII. Short-Term Borrowings 13 9 Investment Portfolio As of December 1994, Salisbury Bank and Trust Company adopted Statement of Financial Accounting Standard No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities". SFAS 115 provides for the categorization of investments into three (3) groups and further provides for the accounting and reporting treatment of each group. Investments may be classified as held-to-maturity, available-for-sale, or trading. The Bank does not purchase or hold any investment securities for the purpose of trading such investments. The following table sets forth the carrying amounts of the investment securities as of December 31: (dollars in thousands) 2000 1999 1998 ----------------------------- Available-for-sale securities: (at fair value) Equity securities $ 179 $ 137 $ 116 U.S. Treasury securities and other U.S. government corporations and agencies 46,761 33,290 43,578 Obligations of states and political subdivisions 14,170 12,379 9,553 Mortgage-backed securities 27,472 29,347 25,408 ----------------------------- $88,582 $75,153 $78,655 ============================= Held-to-maturity securities (at amortized cost) U.S. Treasury securities and other U.S. government corporations and agencies $ $ $ Obligations of states and political subdivisions 0 0 25 Mortgage-backed securities 410 489 554 ------ $ 410 $ 489 $ 579 ====== Federal Home Loan Bank stock $2,930 $2,102 $2,056 ====== For the following table, yields are not calculated and presented on a fully taxable-equivalent ("FTE") basis. The scheduled maturities of held-to-maturity securities and available-for-sale securities (other than equity securities) were as follows as of December 31, 2000:
(dollars in thousands) Under 1-5 5-10 Over 10 1 Year Yield Years Yield Years Yield Years Yield Total ------------------------------------------------------------------------------------------------ Held-to-maturity - ---------------- securities - ---------- (at amortized cost) U.S. Treasury securities and other U.S. government corporations and agencies $ 0 $ 0 $ 0 $ 0 $ 0 Obligations of state and political subdivisions Mortgage-backed securities 410 6.40% $ 410 Available-for-sale - ------------------ securities - ---------- (at fair value) U.S. Treasury securities and other U.S. government corporations and agencies $ 3,227 5.75% $ 4,972 6.17% $ 6,881 6.27% $ 31,681 7.72% $46,761 Obligations of state and political subdivisions $ 0 $ 412 7.58% $ 4,025 7.54% $ 9,733 7.43% $14,170 Mortgage-backed securities $ 0 $ 1,568 7.37% $ 2,015 5.87% $ 23,889 6.60% $27,472
10 Loan Portfolio Analysis by Category (dollars in thousands)
December 31 2000 1999 1998 1997 1996 ---------------------------------------------------------------- Commercial, financial and $ 8,592 $ 9,025 $ 10,692 $ 11,575 $ 12,047 agricultural Real Estate-construction and 6,275 3,382 3,392 4203 4,839 land development Real Estate - residential 98,312 86,680 80,451 77,336 75,756 Real Estate-commercial 15,463 15,324 14,909 13,355 13,607 Consumer 10,673 10,698 10,430 10,805 10,433 Other 247 364 535 655 743 ----------------------------------------------------------------- 139,562 125,473 120,409 117,929 117,425 Allowance for possible loan losses (1,292) (1,160) (1,260) (1,226) (1,242) Unearned income 0 (0) (6) (12) (34) ----------------------------------------------------------------- Net loans $ 138,270 $ 124,313 $ 119,143 $ 116,691 $ 116,149 =================================================================
There are no industry concentrations in the Bank"s loan portfolio. The following table shows the maturity of commercial, financial and agricultural loans, real estate commercial loans and real estate-construction loans outstanding as of December 31, 2000. Also provided are the amounts due after one year classified according to the sensitivity to changes in interest rates.
Due after Due in one one year to Due after year or less five years five years -------------------------------------------- Commercial, financial, agricultural and real estate commercial $ 5,717 $ 2,191 $16,147 Real estate-construction and land development 6,275 0 0 ------- ------- ------- $11,992 $ 2,191 $16,147 Maturities after One Year with: Fixed interest rates $ 1,464 $ 5,250 Variable interest rates 727 10,897 ------- ------- $ 2,191 $16,147
11 Nonaccrual, Past Due and Restructured Loans At December 31, 2000, there were two (2) nonaccrual loans in the Bank's portfolio. They were secured by 1-4 family residential properties. There were three (3) real estate loans 90 days past due and still accruing. They are scheduled to be brought current during 2001. At December 31, 2000, there was only one restructured loan and it was secured by a 1-4 family residential property. When a mortgage loan becomes 90 days past due, and there is not sufficient collateral to cover the principal and accrued interest, the Bank generally stops accruing interest unless there are unusual circumstances which warrant an exception. Generally the only loan types that the Bank reclassifies to nonaccrual are those secured by real estate. Other types of loans are generally charged off if they become 90 days or more delinquent. However, exception is warranted with the $44,000 in loans that are presently 90 days past due and still accruing. Nonaccrual, Past Due and Restructured Loans (dollars in thousands)
December 31 2000 1999 1998 1997 1996 ------------------------------------------------------- Nonaccrual $ 186 $ 473 $1,208 $1,328 $1,316 90 days or more past due 323 10 109 279 49 Restructured loans 12 12 547 764 1,547 ------------------------------------------------------- Total nonperforming loans $ 521 $ 495 $1,864 $2,371 $2,912 ======================================================= Total nonperforming loans as per- centage of the total loan portfolio 0.37% 0.39% 1.55% 2.01% 2.48% Allowance for credit losses as a per- centage of nonperforming loans 247.99% 234.34% 67.60% 51.71% 42.65%
Information with respect to non-accrual and restructured loans at December 31, 2000, 1999 and 1998 is as follows:
(dollars in thousands) Year Ended December 31 2000 1999 1998 ----------------------------------- Interest income that would have been recorded under original terms $12 $37 $83 Gross interest recorded 1 11 8 ----------------------------------- Foregone interest $11 $26 $75 ===================================
Summary of Loan Loss Experience (dollars in thousands) Year Ended December 31 2000 1999 1998 1997 1996 ------------------------------------------------------- Balance of the allowance for loan losses at beginning of year $1,160 $1,260 $1,226 $1,242 $1,160 ------------------------------------------------------- Charge-offs: Commercial, financial and agricultural 0 1 7 0 19 Real estate mortgage 21 243 53 38 160 Consumer 50 25 52 66 67 ------------------------------------------------------- Total charge-offs 71 269 112 104 246 ------------------------------------------------------- Recoveries: Commercial, financial and agricultural 0 0 0 11 27 Real estate mortgage 6 19 13 7 7 Consumer 17 30 13 20 19 ------------------------------------------------------- Total recoveries 23 49 26 38 53 ------------------------------------------------------- Net charge-offs 48 220 86 66 193 Provisions charges to operations 180 120 120 50 275 ------------------------------------------------------- Balance at end of year $1,292 $1,160 $1,260 $1,226 $1,242 ======================================================= Ratio of net charge-offs to average loans outstanding .04% .18% .07% .06% .17% Ratio of allowance for loan losses to year end loans .93% .93% 1.05% 1.04% 1.07%
12 Allocation of the Allowance for Loan Losses (dollars in thousands)
December 31, 2000 December 31, 1999 December 31, 1998 -------------------------------------------------------------------------- Percent of Percent of Percent of Loans to Loans to Loans to Amount Total Loans Amount Total Loans Amount Total Loans Commercial, financial and agricultural $ 160 6.16% $ 160 7.19% $ 182 8.88% Real estate construction 0 4.50% 0 2.70% 0 2.82% and land development Real estate mortgage 1,066 81.51% 941 81.30% 982 79.20% Consumer 65 7.65% 58 8.52% 95 8.66% Other loans 1 .18% 1 .29% 1 .44% -------------------------------------------------------------------------- Total allowance $1,292 100.00% $1,160 100.00% $1,260 100.00%
Provisions to the allowance for possible loan losses are charged to operating expenses and are based on past experience, current economic conditions and management's judgement of the amount necessary to cover possible losses on the collection of loans. The Bank records provisions for estimated loan losses, which are charged against earnings, in the period they are established. Short-Term Borrowings (dollars in thousands)
December 31 2000 1999 1998 ----------------------------------------------- Federal Home Loan Bank Advances Average interest rate At year end 5.93% 5.19% 5.01% For the year 5.81% 5.19% 6.02% Average amount outstanding during the year $49,291 $35,954 $15,267 Maximum amount outstanding at any month $58,605 $42,038 $41,120 Amount outstanding at year end $47,357 $39,712 $41,120
ITEM 2. DESCRIPTION OF PROPERTIES The Company is not the owner or lessee of any properties. The Bank does not lease any properties. The properties described below are owned by the Bank. The Bank serves its customers from its three (3) offices which are located in Lakeville, Salisbury and Sharon, Connecticut. The Bank's trust department is located in a separate building adjacent to the main office of the Bank. The following table includes all property owned by the Bank, but does not include Other Real Estate Owned. OFFICES LOCATION STATUS Main Office 5 Bissell Street Owned Lakeville, Connecticut Trust Department 19 Bissell Street Owned Lakeville, Connecticut Salisbury Office 18 Main Street Owned Salisbury, Connecticut Sharon Office 29 Low Road Owned Sharon, Connecticut 13 ITEM 3. LEGAL PROCEEDINGS Other than routine litigation incidental to its business, there are no material legal proceedings pending to which the Company, Bank, or their properties are subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the Company"s 2000 fiscal year. PART II ITEM 5. MARKET FOR REGISTRANT"S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information The Company's common stock is traded on The American Stock Exchange under the symbol "SAL". The following table presents the high and low sales prices of the Company's common stock.
2000 Quarters 1999 Quarters ---------------------------------------- ---------------------------------------- 4th 3rd 2nd 1st 4th 3rd 2nd 1st ---------------------------------------- ---------------------------------------- High $18.50 $17.50 $17.75 $18.88 $20.63 $20.00 $21.38 $22.13 Low $17.25 $17.00 $17.19 $17.25 $19.13 $18.88 $19.75 $19.75
(b) Holders There were approximately 525 holders of stock as of March 9, 2001. This number includes brokerage firms and other financial institutions which hold stock in their name but which is actually owned by third parties. The Company is not provided with the number or identities of these parties. (c) Dividends Dividends are currently declared four (4) times a year, and the Company expects to follow such practices in the future. During the year 2000, Salisbury Bancorp, Inc. declared a cash dividend each quarter of $.13 per share and a year end special cash dividend of $.25 per share. Accordingly, total dividends for the year amounted to $.77 per share. Recognizing the fact that the special dividend paid by the Company is a reflection of earnings each quarter, the Board has decided to increase the Company's regular quarterly dividends in lieu of the declaration of a special dividend. At their February 26, 2001 meeting, the Directors of Salisbury Bancorp, Inc. voted to increase the regular quarterly dividends to $.21 per share beginning with the first quarter of 2001. The $.21 per share dividend will be paid on April 27, 2001 to shareholders of record as of March 30, 2001. While the Board anticipates continuing the $.21 per share quarterly dividend and eliminating any annual special dividend, resulting in projected aggregate dividends for 2001 in the amount of $.84 per share, the declaration and payment of all dividends are dependent upon the condition and earnings of the Company. The Company's ability to pay dividends is limited by the prudent banking principles applicable to all bank holding companies and by the provisions of Connecticut Corporate law, which provide that no distribution may be made by a company if, after giving it effect: (1) the company would not be able to pay its debts as they become due in the usual course of business; or (2) the company's total assets would be less than the sum of its total liabilities plus, unless the certificate of incorporation permits otherwise, the amount that would be needed, if the company were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. The following table presents cash dividends declared per share for the last two (2) years: 14
2000 Quarters 1999 Quarters ------------------------------------------------- ---------------------------------------------- 4th 3rd 2nd 1st 4th 3rd 2nd 1st ------------------------------------------------- ---------------------------------------------- Cash dividends declared $0.38 $0.13 $0.13 $0.13 $0.34 $0.12 $0.12 $0.12
The dividends paid to shareholders of the Company are funded primarily from dividends received by the Company from the Bank. Reference should be made to Note 12 of the Consolidated Financial Statements on page F-19 for a description of restrictions on the ability of the Bank to pay dividends to the Company. 15 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS Salisbury Bancorp, Inc. and Subsidiary OVERVIEW The following provides Management's comments on the financial condition and results of operations of Salisbury Bancorp, Inc. (the "Company"), a Connecticut corporation which is the holding company for Salisbury Bank and Trust Company, (the "Bank"). The Company's sole subsidiary is the Bank, which has three (3) full service offices including a Trust Department, located in the towns of Lakeville, Salisbury and Sharon, Connecticut. The Company and the Bank were formed in 1998 and 1848, respectively. This discussion should be read in conjunction with the Company's consolidated financial statements and the notes to the consolidated financial statements that are presented as part of this Annual Report for the two (2) years ended December 31, 2000. The reported earnings for the Company were $2,849,000 in 2000, a 5.79% increase over reported earnings in 1999 of $2,693,000. Earnings per diluted share increased 7.87% to $ 1.92 per share. This compares to earnings per diluted share of $ 1.78 for 1999. This growth in net income and earnings per share during 2000 primarily reflects an increase in average earning assets and noninterest income, the continuing efforts of management to control operating expenses, and the reduced number of shares outstanding as a result of stock repurchases. The Company's risk-based capital ratios at December 31, 2000, which includes the risk-weighted assets and capital of Salisbury Bank and Trust Company were 18.91% for Tier 1 capital and 20.05% for total capital. The leverage ratio was 9.53%. During 2000, the Company repurchased 45,805 shares of common stock. As a result of the Company's financial performance, the Board of Directors increased the dividends declared on the Company's common stock to $.77 per share in 2000. This compares to a $.70 per share dividend in 1999. FINANCIAL CONDITION COMPARISON OF DECEMBER 31, 2000 AND 1999 Total assets at December 31, 2000 were $249,054,000 compared to $215,385,000 at December 31, 1999, an increase of $33,669,000 or 15.63% SECURITIES PORTFOLIO As of December 31, 2000, the securities portfolio, including Federal Home Loan Bank of Boston stock, totaled $91,922,000. This represents an increase of $14,177,000 or 18.24% when compared to $77,745,000 at year end 1999. The Company manages the securities portfolio in accordance with the investment policy adopted by the Board of Directors. The primary objectives are to earn interest and dividend income, provide liquidity to meet cash flow needs and to manage interest rate risk and asset-quality diversification to the Company's assets. The securities portfolio also acts as collateral for deposits of public agencies. The Company continues to use arbitrage strategy by borrowing funds and then investing them at a rate of return higher than the borrowing cost in order to generate additional interest income. The increase in the securities portfolio is primarily the result of an increase in arbitrage strategy. The primary component of the total portfolio is U.S. Government sponsored agencies which accounted for 48.70% of the portfolio at December 31, 2000. The remaining portion of the portfolio primarily consists of U.S. Treasury, State and Municipal obligations and mortgage-backed securities. At December 31, 2000, securities totaling $88,582,000 were classified as available-for-sale and securities totaling $410,000 were classified as held-to-maturity. As of January 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This resulted in new classifications of the securities in the portfolio; Securities-Available-for-Sale, and Securities-Held-to-Maturity. The 16 securities reported as available-for-sale are stated at fair value in the financial statements of the Company. Unrealized holding gains and losses (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 December 31, 2000 the unrealized loss net of tax was ($171,000) compared to an unrealized loss net of tax of ($1,835,000) at December 31, 1999. The securities reported as securities-held-to-maturity are stated at amortized cost. This position is designed to give the Company flexibility in managing liquidity needs. FEDERAL FUNDS SOLD The balance of federal funds sold totaled $5,125,000 at December 31, 2000 in comparison to a zero balance at December 31, 1999. This represents a normal operating range of funds for daily cash needs and is considered to be adequate by Management. LENDING Loans receivable, net of allowance for loan losses increased $13,957,000 to $138,270,000 at December 31, 2000 or 11.23% compared to $124,313,000 at December 31, 1999. During the first quarter of 2000 the Company expanded its "Mortgage Makers" menu of products. This program has been instrumental in increasing the loan portfolio. The Company's credit function is designed to insure adherence to a high level of credit standards despite aggressive pressures of competition for loans in the Company's market area. Residential mortgages showed the largest dollar growth during the year increasing 13.42% or $11,632,000 to $98,312,000 at December 31, 2000 compared to $86,680,000 at December 31, 1999. The Company offers a wide variety of loan types and terms to customers along with very competitive pricing and we continue to develop new personalized financial products and services to meet the needs of our customers. ALLOWANCE FOR LOAN LOSSES Credit risk is inherent in the business of extending loans. The Company maintains an allowance or reserve for credit losses through charges to earnings. The loan loss provision for the year 2000 was $180,000 as compared to $120,000 for the year ended December 31, 1999. The increase is primarily the result of the significant growth of the loan portfolio during 2000. Specifically identifiable and quantifiable losses are immediately charged off against the allowance. The Company formally determines the adequacy of the allowance on a monthly basis. This determination is based on assessment of credit quality or "risk rating" of loans by senior management which is submitted to the Board of Directors for approval. Loans are initially risk rated when originated. If there is a 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"). These impaired loans receive individual evaluation of the allowance necessary on a monthly basis. Impaired loans are defined in the Bank's Loan Policy as residential real estate mortgages with balances of $300,000 or more and commercial loans over $100,000 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. These commercial loans and residential mortgage loans will then be considered impaired under any one of the following circumstances: 1. Non-accrual status; 2. Loans over 90 days delinquent; 3. Troubled debt restructures consummated after December 31, 1994; or 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. 17 The individual allowance for each 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. The loss factor applied as a general allowance is determined by a periodic analysis of the Allowance for Loan Losses. This analysis considers historical loan losses and delinquency figures for the last three years. It also looks at delinquency trends over the most recent quarter. The credit card delinquency and loss history is evaluated separately 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. Average net losses for the last three years by loan type are examined as well as trends by type for the last three years. The Bank's loan mix over that same period of time is also analyzed. A loan loss allocation is made for each type of loan and multiplied by the loan mix percentage for each loan type to produce a weighted average factor. At December 31, 2000, the allowance for loan losses totaled $1,292,000 representing 247.99% of nonperforming loans and .93% of total loans compared to $1,160,000 representing 234.34% of nonperforming loans and .93% of total loans at December 31, 1999. Management believes that the allowance for loan losses is adequate. 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 and other factors, both within and outside of management's control. Additionally, with expectations of the Company to grow its existing loan portfolio, 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. Deposits at year end 2000 totaled $166,436,000 compared to $154,358,000 at year end 1999. This increase of $12,078,000 or 7.83% can be attributed to products being competitively priced and to the ongoing efforts of the Company to develop and maintain relationship banking with its customers. The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and the aggressive competition from nonbanking entities. During the year, there was an increase in demand deposits, savings and money market accounts which are lower cost core deposits. The average daily amount of deposits by category and the average rates paid on such deposits are summarized in the following table:
(dollars in thousands) Year Ended December 31 2000 1999 1998 ----------------------------------------------------------------------- Average Average Average Balance Rate Balance Rate Balance Rate Demand $ 31,522 $ 30,024 $ 27,234 NOW 16,246 1.06% 16,400 2.03% 15,592 1.24% Money Market 43,975 4.71% 36,782 3.67% 34,781 3.84% Savings 15,691 2.43% 15,315 2.43% 14,547 2.44% Time 53,781 5.20% 58,933 4.99% 61,316 5.28% --------- -------- -------- $161,215 3.36% $157,454 3.07% $153,470 3.34% ========== ======== =======
18 Maturities of time certificates of deposit of $100,000 or more outstanding at December 31, 2000 are summarized as follows: (dollars in thousands) Year Ended December 31 2000 1999 1998 --------------------------------------- Three months or less $ 3,355 $ 2,296 $ 6,920 Over three months through six months 4,351 4,120 2,069 Over six months through one year 7,105 5,194 3,887 Over one year 2,088 3,294 2,508 ------- ------- ------- Total $16,899 $14,904 $15,384 ======= ======= ======= BORROWINGS As part of its operating strategy, the Company utilizes advances from the Federal Home Loan Bank to supplement deposit growth and fund its asset growth, a strategy which 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 December 31, 2000 the Company had $47,357,000 in outstanding advances from the Federal Home Loan Bank compared to $39,712,000 at December 31, 1999. Management expects that it will continue this strategy of supplementing deposit growth with advances from the Federal Home Loan Bank of Boston. 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 the Company's 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. At December 31, 2000 the Company was slightly asset sensitive, however, the level of interest rate risk is well 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 fluctuation 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, Salisbury Bank and Trust 19 Company is a member of the Federal Home Loan Bank of Boston. This enhances the liquidity position by providing a source of available borrowings. At December 31, 2000, the Company had approximately $30,261,000 in loan commitments outstanding. Management believes that the level of liquidity is ample to meet the Company's needs for both the present and foreseeable future. CAPITAL At December 31, 2000, the Company had $22,460,000 in shareholder equity compared to $19,895,000 at December 31, 1999. This represents an increase of $2,565,000 or 12.89%. Several components contributed to the change since December 1999. Earnings for the year totaled $2,849,000. Market conditions have resulted in a positive adjustment to unrealized comprehensive income of $1,664,000. The Company has declared dividends in 2000 resulting in a decrease in capital of $1,132,000. In November 1998 the Company announced a stock repurchase plan to acquire up to approximately 10% of the outstanding common stock of the Company. On October 24, 2000 the Board of Directors announced the continuation of the program. During 2000 the Company repurchased 45,805 shares of stock which has resulted in a decrease in capital of $816,000. Under current regulatory definitions, the Company is "well-capitalized", the highest rating defined under the Federal Deposit Insurance Corporation Improvement Act . As a result, the Bank pays the lowest deposit premium possible. The 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 in account off-balance sheet exposure in assessing capital adequacy and it minimizes disincentives to holding liquid, low risk assets. At year end 2000, the Company had a risk-based capital ratio of 20.05% compared to 21.71% at December 31, 1999. The slight decrease is primarily the result of the activity in the Company's stock buy back program during the year. Maintaining strong capital is essential to bank safety and soundness which influence customer confidence, potential investors, regulators and shareholders. 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, meeting regulatory requirements and being consistent with prudent industry practices. Management believes that the capital ratios of the Company and Bank are adequate to continue to meet the foreseeable capital needs of the institution. RESULTS OF OPERATIONS COMPARISON BETWEEN 2000 AND 1999 NET INTEREST INCOME The Company earns income from two basic sources. The primary source is through the management of its financial assets and liabilities and the second is by charging fees for services provided. The first involves functioning as a financial intermediary. The Company accepts funds from depositors or borrows funds and then either lends the funds to borrowers or invests those funds in various types of securities. The second is fee income which is discussed in the noninterest income section of this analysis. Net interest income is the difference between the interest and fees earned on loans and securities (the Company's earning assets) and the interest expense paid on deposits and borrowed funds, primarily in the form of advances from the Federal Home Loan Bank. The amount by which interest income will exceed interest expense depends on two factors: (1) the volume or balance of earning assets compared to the volume or balance of interest-bearing deposits and borrowed funds, and (2) the interest rate earned on those interest earning assets compared with the interest rate paid on those interest-bearing deposits and borrowed funds. For this discussion, net interest 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 applicable State and Federal income tax rates for all periods presented. 20 (dollars in thousands) December 31 2000 1999 1998 ----------------------------------------- Interest Income (financial statements) $ 16,510 $ 14,524 $ 13,361 Tax Equivalent Adjustment 335 295 206 Interest Expense (8,284) (6,683) ( 6,043) -------- -------- -------- Net Interest Income-FTE $ 8,561 $ 8,136 $ 7,524 ======== ======== ======== The Company's 2000 interest income-FTE of $16,845,000 was $2,026,000 or 13.67% greater then 1999. This is primarily the result of an increase in average earning assets of $ 19,010,000 or 9.19% to $225,804,000 during 2000. Interest expense increased $1,601,000 or 23.96% to $8,284,000 in 2000. This is the result of an increase in average Federal Home Loan Bank advances of $13, 697,000 or 38.48% and an increase in average interest-bearing deposits of 1.78% to $129,693,000. Overall, net interest income-FTE increased 5.22% to $8,561,000 in 2000 compared to $8,136,000 in 1999. Net interest margin is net interest income expressed as a percentage of average earning assets. It is used to measure the difference between the average rate of interest earned on assets and the average rate of interest that must be paid to support those assets. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid. The Company's 2000 net interest margin (FTE) of 3.79% was .14% lower than 1999's net interest margin of 3.93%. Although interest margins continue to be pressured by aggressive competition, increased volumes of deposits and borrowings have resulted in the increase in net interest and dividend income on a fully taxable equivalent basis. 21 Average Balances, Interest Earned and Rates Paid
[dollars in thousands] 2000 1999 1998 ----------------------------------------------------------------------------------------------------- INTEREST INTEREST INTEREST AVERAGE EARNED/ YIELD AVERAGE EARNED/ YIELD AVERAGE EARNED/ YIELD BALANCE PAID * RATE * BALANCE PAID * RATE * BALANCE PAID * RATE * ----------------------------------------------------------------------------------------------------- ASSETS Interest Earning Assets: Loans $129,972 $ 10,494 8.07% $123,174 $ 9,621 7.81% $118,417 $ 9,480 8.01% Taxable Securities 73,958 4,810 6.50% 65,403 4,016 6.14% 46,903 3,032 6.46% Tax-Exempt Securities 13,160 987 7.50% 11,614 867 7.47% 7,917 606 7.65% Federal Funds 8,382 533 6.36% 6,156 295 4.79% 8,080 425 5.26% Other Interest Income 332 21 6.33% 447 20 4.47% 408 24 5.88% ------------------------------ ------------------------------ ------------------------------ Total interest earning 225,804 16,845 7.46% 206,794 14,819 7.17% 181,725 13,567 7.47% assets -------- -------- -------- Allowance for loan losses (1,187) (1,190) (1,254) Cash & due from Banks 5,040 5,101 4,572 Premise, Equipment 2,425 2,498 2,901 Net unrealized gain/loss on AFS Securities (2,803) (754) (538) Other Assets 3,281 2,378 2,135 -------- -------- -------- Total Average Assets $232,560 $214,827 $190,617 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest Bearing Liabilities: NOW/Money Market deposits $ 60,221 $ 2,245 3.73% $ 53,182 $ 1,524 2.87% $ 50,373 $ 1,531 3.04% Savings deposits 15,691 382 2.43% 15,315 372 2.43% 14,547 355 2.44% Time deposits 53,781 2,794 5.20% 58,933 2,939 4.99% 61,316 3,238 5.28% Borrowed funds 49,291 2,863 5.81% 35,594 1,848 5.19% 15,267 919 6.02% ------------------------------ ------------------------------ ------------------------------ Total interest bearing liabilities 178,984 8,284 4.63% 163,024 6,683 4.10% 141,503 6,043 4.27% -------- -------- -------- Demand Deposits 31,522 30,024 27,234 Other Liabilities 1,167 999 1,308 Shareholders' Equity 20,887 20,780 20,572 -------- -------- -------- Total Liabilities and Equity $232,560 $214,827 $190,617 ======== ======== ======== Net Interest Income $ 8,561 $ 8,136 $ 7,524 ======== ======== ======== Net Interest Spread 2.83% 3.07% 3.20% Net Interest Margin 3.79% 3.93% 4.14% * Annualized
22 Volume and Rate Variance Analysis of Net Interest Income (Taxable equivalent basis)
(dollars in thousands) 2000 over 1999 1999 over 1998 ---------------------------------------- -------------------------------------- Volume Rate Total Volume Rate Total ---------------------------------------- -------------------------------------- Increase (decrease) in: Interest income on: Loans $ 531 $ 342 $ 873 $ 381 $ (240) $ 141 Taxable investment securities 525 269 794 1,195 (211) 984 Tax-exempt investment securities 116 4 120 282 (21) 261 Other interest income 101 138 239 (100) (34) (134) ------- ------- ------- ------- ------- ------- Total interest income $ 1,273 $ 753 $ 2,026 $ 1,758 $ (506) $ 1,252 ------- ------- ------- ------- ------- ------- Interest expense on: NOW/Money Market deposits $ 202 $ 519 $ 721 $ 85 $ (92) $ (7) Savings deposits 9 1 10 19 (2) 17 Time deposits (258) 113 (144) (126) (173) (299) Borrowed funds 711 304 1,014 1,224 (295) 929 ------- ------- ------- ------- ------- ------- Total interest expense $ 664 $ 937 $ 1,601 $ 1,202 $ (562) $ 640 ------- ------- ------- ------- ------- ------- Net interest margin $ 609 $ (184) $ 425 $ 556 $ 56 $ 612 ======= ======= ======= ======= ======= =======
NONINTEREST INCOME Fees earned by the Trust Department remain the largest component of noninterest income and amounted to $1,108,000 in 2000 as compared with $1,121,000 in 1999. A significant portion of trust fee income is based upon the value of assets under management, and, as such, the calculation of fees is influenced by the value of the markets at the time of assessment. The year 2000 was one that experienced significant movement downward in the stock market and primarily as a result of this factor, trust fee income decreased $13,000 or approximately 1.17% when comparing 2000 to 1999. Estate settlement fees also contribute to trust department income. Although the timing of the receipt of the fees is difficult to predict, the overall volume of business for 2000 and 1999 was very comparable. Other noninterest income increased $53,000 or 6.16% from $860,000 in 1999 to $913,000 in 2000. Growth in demand deposit and NOW accounts generated an increase in transaction volumes resulting in increased fees. The Company's VISA credit card program continues to grow, resulting in an increase in transaction fees. The Company expanded its "Mortgage Makers" program early in 2000 and it has contributed to the increase in noninterest income. The Company continues to work on increasing noninterest income due to its importance as a potential contributor to profitability. NONINTEREST EXPENSE Noninterest expense totaled $5,861,000 in 2000. This is an increase of $336,000 when compared to total noninterest expense of $5,525,000 in 1999. However, as a percentage of total assets, these expenses have remained generally consistent at 2.60% in 2000 and 2.67% in 1999. Salaries and employee benefits increased $517,000 or 17.96%. Earlier this year the Company expanded its "Mortgage Makers" program. As mentioned previously, this program has been instrumental in increasing the net loan portfolio to its current level of $138,270,000. This has resulted in the need to increase staff to process and service the increase in volume of new mortgage loans. This coupled with annual staff pay increases and increasing costs of employee benefits accounts for the increases. Occupancy and equipment expenses decreased 6.33% to $651,000 from $695,000. Data processing expenses have decreased $33,000 to $288,000. This is partially due to higher than normal costs that were incurred during 1999 in preparation for the year 2000. The aggregate of all other operating expenses decreased $105,000 to $1,526,000 for the year 2000 from $1,631,000 for the year 1999. This decrease represents management's continuing efforts to control operating expenses. INCOME TAXES In 2000, the Company's tax expense was $1,357,000, an effective tax rate of 32.26%. This compares to income tax expenses of $1,484,000 in 1999, reflecting an effective tax rate of 35.53%. This is primarily the result of a reduction in state tax coupled with an increase in tax-exempt income. 23 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 due the effects of general levels of inflation; although they do not necessarily move in the same direction or with the same magnitude as the prices of goods and services. Although not an influence in recent years, inflation could impact earnings in future periods. FORWARD LOOKING STATEMENTS This form 10-KSB 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 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 through growth resulting from attraction of new deposit and loan customers and the introduction of new products and services. 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 Reform Act or 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 affect the operations, 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 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. The Company and Bank do not undertake any obligation to update or revise any forward-looking statements subsequent to the date on which they are made. STATEMENT OF MANAGEMENT'S RESPONSIBILITY Management is responsible for the integrity and objectivity of the financial statements and other information appearing in this Annual Report. The financial statements were prepared in accordance with generally accepted accounting principles applying estimates and Management's best judgement as required. To fulfill their responsibilities, Management establishes and maintains accounting systems and practices adequately supported by internal accounting controls. These controls include the selection and training of management and supervisory personnel; an organization structure providing for delegation of authority and establishment or responsibilities; communication of requirements for compliance with approved accounting, control and business practices throughout the organization; business planning and review; and a program of internal audit. Management believes the internal accounting controls in use provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with Management's authorization and that financial records are reliable for the purpose of preparing financial statements. 24 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Report of Independent Auditors" January 25, 2001............................F-1 Consolidated Balance Sheets at December 31, 2000 and 1999...................F-2 Consolidated Statements of Income for the Years Ended December 31, 2000 and 1999.................................................F-3 Consolidated Statements of Changes in Stockholders" Equity for the Years Ended December 31, 2000 and 1999.............................F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000 and 1999.................................................F-5 Notes to Consolidated Financial Statements for the Years Ended December 31, 2000 and 1999.....................................F-7 Salisbury Bancorp, Inc. (parent company only) Balance Sheet at December 31, 2000 and 1999................................F-21 Statement of Income for the Year Ended December 31, 2000 and 1999..........F-22 Statement of Cash Flows for the Year Ended December 31, 2000 and 1999......F-23 25 [LETTERHEAD SHATSWELL, MACLEOD & COMPANY, P.C.] To the Board of Directors Salisbury Bancorp, Inc. Lakeville, Connecticut INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of Salisbury Bancorp, Inc. and Subsidiary as of December 31, 2000 and 1999 and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Salisbury Bancorp, Inc. and Subsidiary as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Shatswell, MacLeod & Company, P.C. -------------------------------------- SHATSWELL, MacLEOD & COMPANY, P.C. West Peabody, Massachusetts January 25, 2001 SALISBURY BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ------------ ------------ ASSETS - ------ Cash and due from banks $ 7,299,657 $ 6,477,502 Interest bearing demand deposits with other banks 673,455 267,696 Money market mutual funds 661,312 970,526 Federal funds sold 5,125,000 ------------ ------------ Cash and cash equivalents 13,759,424 7,715,724 Investments in available-for-sale securities (at fair value) 88,581,628 75,153,227 Investments in held-to-maturity securities (fair values of $408,188 as of December 31, 2000 and $478,185 as of December 31, 1999) 410,441 489,340 Federal Home Loan Bank stock, at cost 2,930,300 2,102,000 Loans, net 138,270,230 124,312,781 Investment in real estate 75,000 75,000 Premises and equipment 2,521,329 2,248,711 Accrued interest receivable 1,790,228 1,575,524 Other assets 715,415 1,712,934 ------------ ------------ Total assets $249,053,995 $215,385,241 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits: Noninterest-bearing $ 32,098,094 $ 28,317,523 Interest-bearing 134,337,910 126,040,804 ------------ ------------ Total deposits 166,436,004 154,358,327 Federal Home Loan Bank advances 47,357,293 39,711,979 Due to broker 11,004,451 Other liabilities 1,795,991 1,420,184 ------------ ------------ Total liabilities 226,593,739 195,490,490 ------------ ------------ Stockholders' equity: Common stock, par value $.10 per share; authorized 3,000,000 shares; issued and outstanding, 1,458,366 shares in 2000 and 1,504,171 shares in 1999 145,837 150,417 Paid-in capital 2,968,894 3,780,376 Retained earnings 19,516,414 17,798,981 Accumulated other comprehensive loss (170,889) (1,835,023) ------------- ------------- Total stockholders' equity 22,460,256 19,894,751 ------------- ------------- Total liabilities and stockholders' equity $ 249,053,995 $ 215,385,241 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F-2 SALISBURY BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2000 and 1999
2000 1999 ----------- ----------- Interest and dividend income: Interest and fees on loans $10,494,181 $ 9,621,177 Interest and dividends on securities: Taxable 4,608,874 3,891,267 Tax-exempt 651,386 571,852 Dividends on equity securities 200,784 125,095 Other interest 554,517 314,957 ----------- ----------- Total interest and dividend income 16,509,742 14,524,348 ----------- ----------- Interest expense: Interest on deposits 5,421,144 4,835,337 Interest on Federal Home Loan Bank advances 2,863,277 1,847,811 ----------- ----------- Total interest expense 8,284,421 6,683,148 ----------- ----------- Net interest and dividend income 8,225,321 7,841,200 Provision for loan losses 180,000 120,000 ----------- ----------- Net interest and dividend income after provision for loan losses 8,045,321 7,721,200 ----------- ----------- Other income: Trust department income 1,108,249 1,120,978 Service charges on deposit accounts 337,708 337,828 Gain on sale of loans held-for-sale 72,719 Other income 502,993 521,817 ----------- ----------- Total other income 2,021,669 1,980,623 ----------- ----------- Other expense: Salaries and employee benefits 3,395,161 2,878,290 Occupancy expense 233,107 246,614 Equipment expense 418,146 448,005 Data processing 288,426 321,199 Insurance 105,613 97,140 Net cost (profit) of operation of other real estate owned 1,762 15,177 Loss on sales of available-for-sale securities, net 63,976 1,942 Printing and stationery 149,988 142,377 Legal expense 64,192 87,162 Other expense 1,140,601 1,287,228 ----------- ----------- Total other expense 5,860,972 5,525,134 ----------- ----------- Income before income taxes 4,206,018 4,176,689 Income taxes 1,356,994 1,483,779 ----------- ----------- Net income $ 2,849,024 $ 2,692,910 =========== =========== Earnings per common share $ 1.92 $ 1.78 =========== =========== Earnings per common share, assuming dilution $ 1.92 $ 1.78 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 SALISBURY BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 2000 and 1999
Number of Shares Common Paid-in Retained Treasury Issued Stock Capital Earnings Stock ----------- ------------ ------------- ------------- ----------- Balance, December 31, 1998 1,556,286 $ 155,629 $ 4,882,027 $ 16,160,547 $ Comprehensive income: Net income 2,692,910 Net change in unrealized holding gain on available-for-sale securities, net of tax effect Comprehensive income Repurchase of common stock (1,106,863) Transfer treasury stock to reduce shares issued (52,115) (5,212) (1,101,651) 1,106,863 Dividends declared ($.70 per share) (1,054,476) ---------- ------------ ------------ ------------ ---------- Balance, December 31, 1999 1,504,171 150,417 3,780,376 17,798,981 Comprehensive income: Net income 2,849,024 Net change in unrealized holding loss on available-for-sale securities, net of tax effect Comprehensive income Repurchase of common stock (816,062) Transfer treasury stock to reduce shares issued (45,805) (4,580) (811,482) 816,062 Dividends declared ($.77 per share) (1,131,591) ---------- ------------ ------------ ------------ ---------- Balance, December 31, 2000 1,458,366 $ 145,837 $ 2,968,894 $ 19,516,414 $ ========== ============ ============ ============ ==========
Accumulated Other Comprehensive Income (Loss) Total ------------ -------------- Balance, December 31, 1998 $ 357,235 $ 21,555,438 Comprehensive income: Net income Net change in unrealized holding gain on available-for-sale securities, net of tax effect (2,192,258) Comprehensive income 500,652 Repurchase of common stock (1,106,853) Transfer treasury stock to reduce shares issued Dividends declared ($.70 per share) (1,054,476) ----------- ------------ Balance, December 31, 1999 (1,835,023) 19,894,751 Comprehensive income: Net income Net change in unrealized holding loss on available-for-sale securities, net of tax effect 1,664,134 Comprehensive income 4,513,158 Repurchase of common stock (816,062) Transfer treasury stock to reduce shares issued Dividends declared ($.77 per share) (1,131,591) ------------ ------------ Balance, December 31, 2000 $ (170,889) $ 22,460,256 ============ ============
Reclassification disclosure for the years ended December 31:
2000 1999 -------------- --------------- Net unrealized gains (losses) on available-for-sale securities $ 2,661,877 $(3,599,259) Reclassification adjustment for realized losses in net income 63,976 1,942 ----------- ----------- Other comprehensive income (loss) before income tax effect 2,725,853 (3,597,317) Income tax (expense) benefit (1,061,719) 1,405,059 ----------- ----------- Other comprehensive income (loss), net of tax $ 1,664,134 $(2,192,258) =========== ===========
Accumulated other comprehensive income (loss) as of December 31, 2000 and 1999 consists of net unrealized holding gains (losses) on available-for-sale securities, net of taxes. The accompanying notes are an integral part of these consolidated financial statements. F-4 SALISBURY BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2000 and 1999
2000 1999 ------------ ------------ Cash flows from operating activities: Net income $ 2,849,024 $ 2,692,910 Adjustments to reconcile net income to net cash provided by operating activities: Accretion of securities, net (65,908) (52,519) Loss on sales of available-for-sale securities, net 63,976 1,942 Provision for loan losses 180,000 120,000 Change in unearned income (6,425) Depreciation and amortization 269,143 268,770 Loss on sales of other real estate owned, net 6,309 Increase in interest receivable (214,704) (192,175) Deferred tax benefit (139,532) (41,744) (Increase) decrease in prepaid expenses (10,377) 607 (Increase) decrease in cash surrender value of insurance policies (26,945) (24,837) (Increase) decrease in other assets 112,654 14,823 Increase (decrease) in taxes payable (8,081) 171,137 Increase in accrued expenses 236,033 158,100 Increase in interest payable 106,596 31,439 Increase (decrease) in other liabilities (1,502) 3,430 ------------ ------------ Net cash provided by operating activities 3,350,377 3,151,767 ------------ ------------ Cash flows from investing activities: Purchases of Federal Home Loan Bank stock (828,300) (46,000) Purchases of available-for-sale securities (21,958,344) (49,108,950) Proceeds from sales of available-for-sale securities 6,225,720 3,236,440 Proceeds from maturities of available-for-sale securities 16,036,879 45,828,371 Proceeds from maturities of held-to-maturity securities 78,479 89,318 Net increase in loans (14,159,992) (5,331,648) Recoveries of loans previously charged off 22,543 48,077 Capital expenditures (541,761) (117,874) Proceeds from sales of other real estate owned 98,691 ------------ ------------ Net cash used in investing activities (15,124,776) (5,303,575) ------------ ------------
F-5 SALISBURY BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2000 and 1999 -------------------------------------- (continued)
2000 1999 ------------ ------------ Cash flows from financing activities: Net increase (decrease) in demand deposits, NOW and savings accounts 14,653,988 5,652,392 Net decrease in time deposits (2,576,311) (4,441,517) Advances from Federal Home Loan Bank 29,000,000 14,800,000 Principal payments on advances from Federal Home Loan Bank (21,354,686) (16,207,827) Dividends paid (1,088,830) (963,255) Net repurchase of common stock (816,062) (1,106,863) ------------ ------------ Net cash provided by (used in) financing activities 17,818,099 (2,267,070) ------------ ------------ Net increase (decrease) in cash and cash equivalents 6,043,700 (4,418,878) Cash and cash equivalents at beginning of year 7,715,724 12,134,602 ------------ ------------ Cash and cash equivalents at end of year $ 13,759,424 $ 7,715,724 ============ ============ Supplemental disclosures: Interest paid $ 8,177,825 $ 6,651,709 Income taxes paid 1,488,445 1,354,3860
The accompanying notes are an integral part of these consolidated financial statements. F-6 SALISBURY BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2000 and 1999 NOTE 1 - NATURE OF OPERATIONS Salisbury Bancorp, Inc. (Company) is a Connecticut corporation that was organized on April 24, 1998 to become a holding company, under which Salisbury Bank & Trust Company (Bank) operates as its wholly-owned subsidiary. The Bank is a state chartered bank which was incorporated in 1874 and is headquartered in Lakeville, Connecticut. The Bank operates its business from three banking offices located in Connecticut. The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in residential and commercial real estate, consumer and small business loans. NOTE 2 - ACCOUNTING POLICIES The accounting and reporting policies of the Company and its subsidiary conform to generally accepted accounting principles and predominant practices within the banking industry. The consolidated financial statements were prepared using the accrual basis of accounting. The significant accounting policies are summarized below to assist the reader in better understanding the consolidated financial statements and other data contained herein. PERVASIVENESS OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank, and the Bank's wholly-owned subsidiary, SBT Realty, Inc. SBT Realty, Inc. holds and manages bank owned real estate situated in New York state. All significant intercompany accounts and transactions have been eliminated in the consolidation. CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items, due from banks, interest bearing demand deposits with other banks and money market mutual funds. Cash and due from banks as of December 31, 2000 includes $1,500,000 which is subject to withdrawals and usage restrictions to satisfy the reserve requirements of the Federal Reserve Bank. SECURITIES: Investments in debt securities are adjusted for amortization of premiums and accretion of discounts. Gains or losses on sales of investment securities are computed on a specific identification basis. F-7 The Company classifies debt and equity securities into one of three categories: held-to-maturity, available-for-sale or trading. This security classification may be modified after acquisition only under certain specified conditions. In general, securities may be classified as held-to-maturity only if the Company has the positive intent and ability to hold them to maturity. Trading securities are defined as those bought and held principally for the purpose of selling them in the near term. All other securities must be classified as available-for-sale. -- Held-to-maturity securities are measured at amortized cost in the balance sheet. Unrealized holding gains and losses are not included in earnings or in a separate component of capital. They are merely disclosed in the notes to the consolidated financial statements. -- Available-for-sale securities are carried at fair value on the balance sheet. Unrealized holding gains and losses are not included in earnings but are reported as a net amount (less expected tax) in a separate component of capital until realized. -- Trading securities are carried at fair value on the balance sheet. Unrealized holding gains and losses for trading securities are included in earnings. LOANS: Loans receivable that management has the intent and ability to hold until maturity or payoff, are reported at their outstanding principal balances reduced by any charge-offs, the allowance for loan losses and any deferred fees or costs on originated loans or unamortized premiums or discounts on purchased loans. Interest on loans is recognized on a simple interest basis. Loan origination, commitment fees and certain direct origination costs are deferred, and the net amount amortized as an adjustment of the related loan's yield. The Company is amortizing these amounts over the contractual life of the related loans. Cash receipts of interest income on impaired loans is credited to principal to the extent necessary to eliminate doubt as to the collectibility of the net carrying amount of the loan. Some or all of the cash receipts of interest income on impaired loans is recognized as interest income if the remaining net carrying amount of the loan is deemed to be fully collectible. When recognition of interest income on an impaired loan on a cash basis is appropriate, the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate. Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-offs until the charge-offs are fully recovered. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. F-8 A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures. PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less accumulated depreciation and amortization. Cost and related allowances for depreciation and amortization of premises and equipment retired or otherwise disposed of are removed from the respective accounts with any gain or loss included in income or expense. Depreciation and amortization are calculated principally on the straight-line method over the estimated useful lives of the assets. OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURES: Other real estate owned includes properties acquired through foreclosure and properties classified as in-substance foreclosures in accordance with Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring." These properties are carried at the lower of cost or estimated fair value less estimated costs to sell. Any writedown from cost to estimated fair value required at the time of foreclosure or classification as in-substance foreclosure is charged to the allowance for loan losses. Expenses incurred in connection with maintaining these assets and subsequent writedowns are included in other expense. In accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," the Company classifies loans as in-substance repossessed or foreclosed if the Company receives physical possession of the debtor's assets regardless of whether formal foreclosure proceedings take place. INCOME TAXES: The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled. FAIR VALUES OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires that the Company disclose estimated fair value for its financial instruments. Fair value methods and assumptions used by the Company in estimating its fair value disclosures are as follows: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. Securities (including mortgage-backed securities): Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. F-9 Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Accrued interest receivable: The carrying amount of accrued interest receivable approximates its fair value. Deposit liabilities: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Federal Home Loan Bank Advances: Fair values for Federal Home Loan Bank advances are estimated using a discounted cash flow technique that applies interest rates currently being offered on advances to a schedule of aggregated expected monthly maturities on Federal Home Loan Bank advances. Due to broker: The carrying amount of due to broker approximates its fair value. Off-balance sheet instruments: The fair value of commitments to originate loans is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments and the unadvanced portion of loans, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date. STOCK BASED COMPENSATION: The Company recognizes stock-based compensation using the intrinsic value approach set forth in APB Opinion No. 25 rather than the fair value method introduced in SFAS No. 123. Entities electing to continue to follow the provisions of APB No. 25 must make pro forma disclosure of net income and earnings per share, as if the fair value method of accounting defined in SFAS No. 123 had been applied. The Company has made the pro forma disclosures required by SFAS No. 123. The Company had no stock options outstanding as of December 31, 2000. EARNINGS PER SHARE: Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company has computed and presented EPS for the years ended December 31, 2000 and 1999 in accordance with SFAS No. 128. F-10 RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, effective for fiscal years beginning after June 15, 2000. This Statement establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts, and requires that an entity recognize all derivatives as assets or liabilities in the balance sheet and measure them at fair value. If certain conditions are met, an entity may elect to designate a derivative as follows: (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of an unrecognized firm commitment, an available-for-sale security, a foreign currency denominated forecasted transaction, or a net investment in a foreign operation. The Statement generally provides for matching the timing of the recognition of the gain or loss on derivatives designated as hedging instruments with the recognition of the changes in the fair value of the item being hedged. Depending on the type of hedge, such recognition will be in either net income or other comprehensive income. For a derivative not designated as a hedging instrument, changes in fair value will be recognized in net income in the period of change. Management is currently evaluating the impact of adopting this Statement on the consolidated financial statements, but does not anticipate that it will have a material impact. The Company had no derivative instruments as of December 31, 2000. NOTE 3 - INVESTMENTS IN SECURITIES Debt and equity securities have been classified in the consolidated balance sheets according to management's intent. The carrying amount of securities and their approximate fair values are as follows as of December 31:
Gross Gross Amortized Unrealized Unrealized Cost Holding Holding Fair Basis Gains Losses Value ------------ ------------ ------------ ------------ Available-for-sale securities: December 31, 2000: Equity securities $ 11,830 $ 166,735 $ $ 178,565 Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies 46,925,648 35,087 (199,693) 46,761,042 Debt securities issued by states of the United States and political subdivisions of the states 14,134,594 209,400 (173,563) 14,170,431 Money market mutual funds 661,312 661,312 Mortgage-backed securities 27,789,473 63,523 (381,406) 27,471,590 ------------ ------------ ------------ ------------ 89,522,857 474,745 (754,662) 89,242,940 Money market mutual funds included in cash and cash equivalents (661,312) (661,312) ------------ ------------ ------------ ------------ $ 88,861,545 $ 474,745 $ (754,662) $ 88,581,628 ============ ============ ============ ============
F-11
Gross Gross Amortized Unrealized Unrealized Cost Holding Holding Fair Basis Gains Losses Value ------------ ------------ ------------ ------------ Available-for-sale securities: December 31, 1999: Equity securities $ 12,333 $ 124,642 $ $ 136,975 Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies 34,345,096 (1,054,693) 33,290,403 Debt securities issued by states of the United States and political subdivisions of the states 13,128,484 26,842 (776,864) 12,378,462 Money market mutual funds 970,526 970,526 Mortgage-backed securities 30,673,084 5,067 (1,330,764) 29,347,387 ------------ ------------ ------------ ------------ 79,129,523 156,551 (3,162,321) 76,123,753 Money market mutual funds included in cash and cash equivalents (970,526) (970,526) ------------ ------------ ------------ ------------ $ 78,158,997 $ 156,551 $ (3,162,321) $ 75,153,227 ============ ============ ============ ============ Held-to-maturity securities: December 31, 2000: Mortgage-backed securities $ 410,441 $ $ (2,253) $ 408,188 ============ ============ ============ ============ December 31, 1999: Mortgage-backed securities $ 489,340 $ $ (11,155) $ 478,185 ============ ============ ============ ============
The scheduled maturities of held-to-maturity securities and available-for-sale securities (other than equity securities) were as follows as of December 31, 2000:
Held-to-maturity Available-for-sale securities: securities: ---------------------------- ---------------------------- Amortized Amortized Cost Fair Cost Fair Basis Value Basis Value ----------- ----------- ----------- ----------- Debt securities other than mortgage-backed securities: Due within one year $ $ $ 3,230,765 $ 3,226,600 Due after one year through five years 5,398,516 5,384,140 Due after five years through ten years 10,924,159 10,905,757 Due after ten years 41,506,802 41,414,976 Mortgage-backed securities 410,441 408,188 27,789,473 27,471,590 ----------- ----------- ----------- ----------- $ 410,441 $ 408,188 $88,849,715 $88,403,063 =========== =========== =========== ===========
During 2000, proceeds from sales of available-for-sale securities amounted to $6,225,720. Gross realized gains and gross realized losses on those sales amounted to $145 and $64,121, respectively. During 1999, proceeds from sales of available-for-sale securities amounted to $3,236,440. Gross realized gains and gross realized losses on those sales amounted to $7,068 and $9,010, respectively. The tax (expense) benefit applicable to these net realized gains and losses amounted to $(4,776) and $165, respectively. There were no issuers of securities whose carrying amount exceeded 10% of stockholders' equity as of December 31, 2000. Total carrying amounts of $7,073,366 and $8,910,735 of debt securities were pledged to secure public deposits and for other purposes as required by law as of December 31, 2000 and 1999, respectively. F-12 NOTE 4 - LOANS Loans consisted of the following as of December 31: 2000 1999 --------- --------- (in thousands) Commercial, financial and agricultural $ 8,592 $ 9,025 Real estate - construction and land development 6,275 3,382 Real estate - residential 98,312 86,680 Real estate - commercial 15,463 15,324 Consumer 10,673 10,698 Other 247 364 --------- --------- 139,562 125,473 Allowance for loan losses (1,292) (1,160) --------- --------- Net loans $ 138,270 $ 124,313 ========= ========= Certain directors and executive officers of the Company and companies in which they have significant ownership interest were customers of the Bank during 2000. Total loans to such persons and their companies amounted to $1,501,801 as of December 31, 2000. During 2000 advances of $121,993 were made and repayments totaled $233,596. Changes in the allowance for loan losses were as follows for the years ended December 31: 2000 1999 ----------- ----------- Balance at beginning of period $ 1,159,537 $ 1,260,488 Provision for loan losses 180,000 120,000 Recoveries of loans previously charged off 22,543 48,077 Loans charged off (70,578) (269,028) ----------- ----------- Balance at end of period $ 1,291,502 $ 1,159,537 =========== =========== Information about loans that meet the definition of an impaired loan in Statement of Financial Accounting Standards No. 114 is as follows as of December 31:
2000 1999 --------------------------- --------------------------- Recorded Related Recorded Related Investment Allowance Investment Allowance In Impaired For Credit In Impaired For Credit Loans Losses Loans Losses ---------- ------------ ------------- ----------- Loans for which there is a related allowance for credit losses $ 0 $ 0 $ 291,057 $ 40,000 Loans for which there is no related allowance for credit losses 0 0 ---------- ---------- ---------- ---------- Totals $ 0 $ 0 $ 291,057 $ 40,000 ========== ========== ========== ========== Average recorded investment in impaired loans during the year ended December 31 $ 58,211 $1,116,858 ========== ========== Related amount of interest income recognized during the time, in the year ended December 31, that the loans were impaired Total recognized $ 0 $ 67,895 ========== ========== Amount recognized using a cash-basis method of accounting $ 0 $ 0 ========== ==========
F-13 NOTE 5 - PREMISES AND EQUIPMENT The following is a summary of premises and equipment as of December 31: 2000 1999 ----------- ----------- Land $ 324,194 $ 293,194 Buildings 2,231,783 2,021,088 Furniture and equipment 1,768,521 1,971,269 ----------- ----------- 4,324,498 4,285,551 Accumulated depreciation and amortization (1,803,169) (2,036,840) ----------- ----------- $ 2,521,329 $ 2,248,711 =========== =========== NOTE 6 - DEPOSITS The aggregate amount of time deposit accounts in denominations of $100,000 or more as of December 31, 2000 and 1999 was $16,899,009 and $14,903,731, respectively. For time deposits as of December 31, 2000, the scheduled maturities for years ended December 31 are: 2001 $43,579,275 2002 5,618,775 2003 1,054,534 2004 590,591 2005 2,969,920 ----------- $53,813,095 =========== NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES Advances consist of funds borrowed from the Federal Home Loan Bank (FHLB). Maturities of advances for the five years ending after December 31, 2000 and thereafter are summarized as follows: INTEREST RATE RANGE AMOUNT ------------------- ----------- 2001 5.38% - 6.80% $14,353,547 2002 5.68% - 6.58% 1,113,139 2003 5.68% - 6.58% 993,295 2004 5.68% - 6.45% 766,823 2005 5.68% - 6.30% 263,339 Thereafter 4.88% - 6.30% 29,867,150 ----------- $47,357,293 =========== The advances due after 2005 include tw o advances that were redeemable at par of the option of the FHLB. An advance of $19,000,000 was redeemable on January 25, 2001 and an advance of $10,000,000 was redeemable on December 15, 2003. Amortizing advances are being repaid in equal monthly payments and are being amortized from the date of the advance to the maturity date on a direct reduction basis. Advances are secured by the Company's stock in that institution, its residential real estate mortgage portfolio and the remaining U.S. government and agencies obligation not otherwise pledged. NOTE 8 - EMPLOYEE BENEFITS The Company has an insured noncontributory defined benefit retirement plan available to all employees eligible as to age and length of service. Benefits are based on a covered employee's final average compensation, primary social security benefit and credited service. The Company makes annual contributions which meet the Employee Retirement Income Security Act minimum funding requirements. F-14 The following tables set forth information about the plan as of December 31 and the years then ended:
2000 1999 ----------- ------------ Change in projected benefit obligation: Benefit obligation at beginning of year $ 2,004,633 $ 2,407,714 Actuarial (gain) loss 191,408 (192,692) Service cost 131,006 111,604 Interest cost 163,061 159,855 Benefits paid (315,547) (481,848) ----------- ----------- Benefit obligation at end of year 2,174,561 2,004,633 ----------- ----------- Change in plan assets: Plan assets at estimated fair value at beginning of year 2,567,234 2,645,553 Actual return on plan assets 44,657 388,286 Employer contribution 15,243 Benefits paid (315,547) (481,848) ----------- ----------- Fair value of plan assets at end of year 2,296,344 2,567,234 ----------- ----------- Funded status 121,783 562,601 Unrecognized net gain from actuarial experience (516,865) (758,532) Unrecognized prior service cost 96,328 8,051 Unamortized net asset existing at date of adoption of SFAS No. 87 58,364 58,364 ----------- ----------- Accrued benefit cost included in other liabilities $ (240,390) $ (129,516) =========== ===========
The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8.0% and 6.0% for 2000 and 1999, respectively. The weighted-average expected long-term rate of return on assets was 8.0% for 2000 and 1999. Components of net periodic cost: 2000 1999 --------- --------- Service cost $ 131,006 $ 111,604 Interest cost on benefit obligation 163,061 159,855 Expected return on assets (192,757) (194,846) Amortization of prior service cost 9,564 8,623 --------- --------- Net periodic cost $ 110,874 $ 85,236 ========= ========= The Company adopted a 401(k) Plan, effective in 2000. Under the Plan eligible participants may contribute up to fifteen percent of their pay. The Company may make discretionary contributions to the Plan. The Company's contribution in the year ended December 31, 2000 amounted to $44,000. Discretionary contributions vest in full after five years. NOTE 9 - INCOME TAXES The components of income tax expense are as follows for the years ended December 31: 2000 1999 ----------- ----------- Current: Federal $ 1,172,814 $ 1,170,254 State 323,712 355,269 ----------- ----------- 1,496,526 1,525,523 ----------- ----------- Deferred: Federal (113,530) (38,359) State (26,002) (3,385) ----------- ----------- (139,532) (41,744) ----------- ----------- Total income tax expense $ 1,356,994 $ 1,483,779 =========== =========== F-15 The reasons for the differences between the statutory federal income tax rates and the effective tax rates are summarized as follows for the years ended December 31: 2000 1999 ----------- ----------- % of % of Income Income ----------- ----------- Federal income tax at statutory rate 34.0% 34.0% Increase (decrease) in tax resulting from: Tax-exempt income (5.3) (4.1) Other items (1.0) State tax, net of federal tax benefit 4.6 5.6 ---------- ----------- Effective tax rates 32.3% 35.5% ========== =========== The Company had gross deferred tax assets and gross deferred tax liabilities as follows as of December 31:
2000 1999 ----------- ----------- Deferred tax assets: Allowance for loan losses $ 306,595 $ 255,197 Interest on non-performing loans 6,244 12,302 Accrued deferred compensation 22,361 24,179 Post retirement benefits 14,801 10,128 Other real estate owned property writedown 25,317 25,509 Deferred organization costs 3,386 4,466 Accrued pensions 110,771 50,445 Net unrealized holding loss on available-for-sale securities 109,028 1,170,747 ----------- ----------- Gross deferred tax assets 598,503 1,552,973 ----------- ----------- Deferred tax liabilities: Deferred state tax refund (14,781) Accelerated depreciation (335,378) (356,648) Discount accretion (7,872) (4,104) ----------- ----------- Gross deferred tax liabilities (343,250) (375,533) ----------- ----------- Net deferred tax assets $ 255,253 $ 1,177,440 =========== ===========
Deferred tax assets as of December 31, 2000 and 1999 have not been reduced by a valuation allowance because management believes that it is more likely than not that the full amount of deferred tax assets will be realized. As of December 31, 2000, the Company had no operating loss and tax credit carryovers for tax purposes. NOTE 10 - FINANCIAL INSTRUMENTS The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to originate loans, standby letters of credit and unadvanced funds on loans. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. F-16 Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include secured interests in mortgages, accounts receivable, inventory, property, plant and equipment and income producing properties. The estimated fair values of the Company's financial instruments, all of which are held or issued for purposes other than trading, are as follows as of December 31:
2000 1999 ------------------------------ ------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ------------ ------------ ------------ ------------ Financial assets: Cash and cash equivalents $ 13,759,424 $ 13,759,424 $ 7,715,724 $ 7,715,724 Available-for-sale securities 88,581,628 88,581,628 75,153,227 75,153,227 Held-to-maturity securities 410,441 408,188 489,340 478,185 Federal Home Loan Bank stock 2,930,300 2,930,300 2,102,000 2,102,000 Loans 138,270,230 136,498,000 124,312,781 123,285,000 Accrued interest receivable 1,790,228 1,790,228 1,575,524 1,575,524 Financial liabilities: Deposits 166,436,004 166,426,000 154,358,327 154,527,000 FHLB advances 47,357,293 47,029,000 39,711,979 38,902,000 Due to broker 11,004,451 11,004,451
The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions. Accounting policies related to financial instruments are described in Note 2. The amounts of financial instrument liabilities with off-balance sheet credit risk are as follows as of December 31: 2000 1999 ----------- ----------- Commitments to originate loans $ 7,462,000 $ 3,774,044 Standby letters of credit 20,000 30,000 Unadvanced portions of loans: Home equity 7,355,736 6,550,744 Commercial lines of credit 6,653,389 6,594,189 Construction 3,792,995 641,184 Consumer 4,976,987 4,733,621 ----------- ----------- $30,261,107 $22,323,782 =========== =========== There is no material difference between the notional amounts and the estimated fair values of the off-balance sheet liabilities. The Company has no derivative financial instruments subject to the provisions of SFAS No. 119 "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments." NOTE 11 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK Most of the Bank's business activity is with customers located within the state. There are no concentrations of credit to borrowers that have similar economic characteristics. The majority of the Bank's loan portfolio is comprised of loans collateralized by real estate located in northwestern Connecticut and bordering New York and Massachusetts towns. F-17 NOTE 12 - REGULATORY MATTERS The Company and its subsidiary the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Their capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2000, that the Company and the Bank meet all capital adequacy requirements to which they are subject. As of December 31, 2000, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category. The Company and the Bank's actual capital amounts and ratios are also presented in the table.
For Capital Actual Adequacy Purposes: ------------------ -------------------------------- Amount Ratio Amount Ratio ------- ----- ------- ------------------- (Dollar amounts in thousands) As of December 31, 2000: Total Capital (to Risk Weighted Assets) Consolidated $23,998 20.05% $ 9,573 greater than or equal 8.0% Salisbury Bank & Trust Company 23,658 19.80 9,558 greater than or equal 8.0 Tier 1 Capital (to Risk Weighted Assets) Consolidated 22,631 18.91 4,787 greater than or equal 4.0 Salisbury Bank & Trust Company 22,291 18.66 4,779 greater than or equal 4.0 Tier 1 Capital (to Average Assets) Consolidated 22,631 9.53 9,500 greater than or equal 4.0 Salisbury Bank & Trust Company 22,291 9.42 9,468 greater than or equal 4.0 Total Capital (to Risk Weighted Assets) Consolidated 22,946 21.71 8,455 greater than or equal 8.0 Salisbury Bank & Trust Company 21,990 21.02 8,369 greater than or equal 8.0 Tier 1 Capital (to Risk Weighted Assets) Consolidated 21,730 20.56 4,227 greater than or equal 4.0 Salisbury Bank & Trust Company 20,774 19.86 4,184 greater than or equal 4.0 Tier 1 Capital (to Average Assets) Consolidated 21,730 9.95 8,738 greater than or equal 4.0 Salisbury Bank & Trust Company 20,774 9.57 8,679 greater than or equal 4.0
To Be Well Capitalized Under Prompt Corrective Action Provisions: ------------------------------------------ Amount Ratio ------------ -------------------------- (Dollar amounts in thousands) As of December 31, 2000: Total Capital (to Risk Weighted Assets) Consolidated N/A Salisbury Bank & Trust Company $ 11,948 greater than or equal 10.0% Tier 1 Capital (to Risk Weighted Assets) Consolidated N/A Salisbury Bank & Trust Company 9,468 greater than or equal 6.0 Tier 1 Capital (to Average Assets) Consolidated N/A Salisbury Bank & Trust Company 11,835 greater than or equal 5.0 As of December 31, 1999: Total Capital (to Risk Weighted Assets) Consolidated N/A Salisbury Bank & Trust Company 10,461 greater than or equal 10.0 Tier 1 Capital (to Risk Weighted Assets) Consolidated N/A Salisbury Bank & Trust Company 6,277 greater than or equal 6.0 Tier 1 Capital (to Average Assets) Consolidated N/A Salisbury Bank & Trust Company 10,849 greater than or equal 5.0
F-18 The declaration of cash dividends is dependent on a number of factors, including regulatory limitations, and the Company's operating results and financial condition. The stockholders of the Company will be entitled to dividends only when, and if, declared by the Company's Board of Directors out of funds legally available therefore. The declaration of future dividends will be subject to favorable operating results, financial conditions, tax considerations, and other factors. As of December 31, 2000 the Bank is restricted from declaring dividends to the Company in an amount greater than approximately $11,710,000 as such declaration would decrease capital below the Bank's required minimum level of regulatory capital. NOTE 13 - STOCK COMPENSATION PLAN The Company had a fixed option, stock-based compensation plan, which is described below. The Plan was terminated effective December 31, 1997 and as of December 31, 2000 and 1999 there were no stock options outstanding. The Company applied APB Opinion 25 and related Interpretations in accounting for its plan. Compensation expense, as measured by APB Opinion 25, was immaterial for the year ended December 31, 1999. Had compensation cost for the Company's stock-based compensation plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method of FASB Statement 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 1999 ---------- Net income As reported $2,692,910 Pro forma $2,692,910 Earnings per common share As reported $1.78 Pro forma $1.78 Earnings per common share, assuming dilution As reported $1.78 Pro forma $1.78 Under the Employee Stock Purchase Plan, the Company granted options to its eligible employees for up to 25,000 shares of common stock. Each employee of the Company was eligible to become a participant in the Plan following the completion of one year of service. A summary of the status of the Company's fixed stock option plan as of December 31, 1999 and changes during the year ending on that date is presented below:
1999 ---- Weighted-Average Shares Exercise Price ------ -------------- Outstanding at beginning of year 4,420 $7.93 Forfeited (4,420) 7.93 ------- Outstanding at end of year 0 ======= Options exercisable at year-end 0 Weighted-average fair value of options granted during the year N/A
F-19 NOTE 14 - EARNINGS PER SHARE (EPS) Reconciliation of the numerators and the denominators of the basic and diluted per share computations for net income are as follows:
Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- --------- Year ended December 31, 2000 Basic EPS Net income and income available to common stockholders $2,849,024 1,481,594 $ 1.92 Effect of dilutive securities, options 0 ---------- ---------- Diluted EPS Income available to common stockholders and assumed conversions $2,849,024 1,481,594 $ 1.92 ========== ========== Year ended December 31, 1999 Basic EPS Net income and income available to common stockholders $2,692,910 1,512,253 $ 1.78 Effect of dilutive securities, options 0 ---------- --------- Diluted EPS Income available to common stockholders and assumed conversions $2,692,910 1,512,253 $ 1.78 ========== =========
NOTE 15 - RECLASSIFICATION Certain amounts in the prior years have been reclassified to be consistent with the current year's statement presentation. NOTE 16 - PARENT COMPANY ONLY FINANCIAL STATEMENTS The following condensed financial statements are for Salisbury Bancorp, Inc. (Parent Company Only) and should be read in conjunction with the Consolidated Financial Statements of Salisbury Bancorp, Inc. and Subsidiary. F-20 SALISBURY BANCORP, INC. (Parent Company Only) BALANCE SHEETS December 31, 2000 and 1999
2000 1999 ----------- ----------- ASSETS - ------ Money market mutual funds $ 661,312 $ 970,526 Investments in available-for-sale securities (at fair value) 230,000 500,002 Investment in subsidiary 22,120,121 18,939,257 Other assets 3,386 4,466 ----------- ----------- Total assets $23,014,819 $20,414,251 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Dividends payable $ 554,179 $ 511,418 Other liabilities 384 8,082 ----------- ----------- Total liabilities 554,563 519,500 ----------- ----------- Total stockholders' equity 22,460,256 19,894,751 ----------- ----------- Total liabilities and stockholders' equity $23,014,819 $20,414,251 =========== ===========
F-21 SALISBURY BANCORP, INC. (Parent Company Only) STATEMENTS OF INCOME Years Ended December 31, 2000 and 1999
Years Ended December 31, -------------------------- 2000 1999 ---------- ---------- Dividend income from subsidiary $1,330,000 $1,120,000 Taxable interest on securities 44,555 56,258 ---------- ---------- 1,374,555 1,176,258 ---------- ---------- Legal expense 9,906 Supplies and printing 12,828 15,715 Other expense 18,063 18,380 ---------- ---------- 40,797 34,095 ---------- ---------- Income before income tax (benefit) expense and equity in undistributed net income (loss) of subsidiary 1,333,758 1,142,163 Income tax (benefit) expense 1,464 8,779 ---------- ---------- Income before equity in undistributed net income (loss) of subsidiary 1,332,294 1,133,384 Equity in undistributed net income (loss) of subsidiary 1,516,730 1,559,526 ---------- ---------- Net income $2,849,024 $2,692,910 ========== ==========
F-22 SALISBURY BANCORP, INC. (Parent Company Only) STATEMENTS OF CASH FLOWS Years Ended December 31, 2000 and 1999
Years Ended December 31, -------------------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net income $ 2,849,024 $ 2,692,910 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed (income) loss of subsidiary (1,516,730) (1,559,526) Deferred tax (benefit) expense 1,080 1,286 Accretion of securities (22,262) (28,862) (Decrease) increase in taxes payable (8,081) 7,495 Increase in due to subsidiary 384 ----------- ----------- Net cash provided by operating activities 1,303,415 1,113,303 ----------- ----------- Cash flows from investing activities: Purchases of available-for-sale securities (2,141,461) Proceeds from sales of available-for-sale securities 292,263 1,663,514 Proceeds from maturities of available-for-sale securities 2,348,000 ----------- ----------- Net cash provided by (used in) investing activities 292,263 1,870,053 ----------- ----------- Cash flows from financing activities: Net repurchase of common stock (816,062) (1,106,863) Dividends paid (1,088,830) (963,255) ----------- ----------- Net cash used in financing activities (1,904,892) (2,070,118) ----------- ----------- Net increase (decrease) in cash and cash equivalents (309,214) 913,238 Cash and cash equivalents at beginning of year 970,526 57,288 ----------- ----------- Cash and cash equivalents at end of year $ 661,312 $ 970,526 =========== ===========
F-23 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the (2) most recent fiscal years, the Company and the Bank have had no changes in or disagreements with their independent accountants on accounting and financial disclosure matters. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT. MANAGEMENT OF THE COMPANY The following table sets forth the name and age of each Executive Officer, his principal occupation for the last five (5) years and the year in which he was first appointed an Executive Officer of the Company. EXECUTIVE OFFICER OF THE NAME AGE POSITION COMPANY SINCE: - ---- --- -------- -------------- John F. Perotti 54 President and Chief 1998 (1) Executive Officer Craig E. Toensing 63 Secretary 1998 (2) John F. Foley 50 Chief Financial Officer 1998 (3) (1) Mr. Perotti is also the President and Chief Executive Officer of the Bank and has been an Executive Officer of the Bank since 1982. (2) Mr. Toensing is also the Senior Vice President and Trust Officer of the Bank and has been an Executive Officer of the Bank since 1982. (3) Mr. Foley is also the Vice President, Comptroller and Principal Financial Officer of the Bank and has been an Executive Officer of the Bank since 1986. Board of Directors The Certificate of Incorporation and Bylaws of the Company provide for a Board of Directors of not less than seven (7) members, as determined from time to time by resolution of the Board of Directors. The Board of Directors of the Company is divided into three (3) classes. Classes of directors serve for staggered three (3) year terms. A successor class is to be elected at each annual meeting of shareholders. When the terms of office of the members of one class expire vacant directorships may be filled, until the expiration of the term of the vacated directorship, by the vote of a majority of the directors then in office. The Company does not have a nominating committee. Rather, the full Board of Directors performs that function. The following table sets forth certain information, as of March 9, 2001 with respect to the directors of the Company. 26 NOMINEES FOR ELECTION --------------------- Position Held Director Term Name Age with the Company Since Expiring ---- --- ---------------- ----- -------- John F. Perotti 54 President, CEO, 1998 2001 and Director Craig E. Toensing 63 Secretary and 1998 2001 Director Michael A. Varet 58 Director 1998 2001 Nancy F. Humphreys 59 Director 2001 2001 CONTINUING DIRECTORS -------------------- John R. H. Blum 71 Director 1998 2002 Louise F. Brown 57 Director 1998 2002 Gordon C. Johnson 66 Director 1998 2003 Holly J. Nelson 47 Director 1998 2003 John E. Rogers 71 Director 1998 2003 Walter C. Shannon, Jr. 65 Director 1998 2003 Presented below is additional information concerning the directors of the Company. Unless otherwise stated, all directors have held the positions described for at least five (5) years. John R. H. Blum is an attorney in private practice and former Commissioner of Agriculture for the State of Connecticut. He has been a director of the Bank since 1995 and was elected Chairman of the Board of Directors of the Company and the Bank in 1998. Louise F. Brown has been a director of the Bank since 1992 and is a partner at the Sharon office in the law firm of Gager & Peterson. Nancy F. Humphreys has been a director of the Company and the Bank since 2001. Ms. Humphreys has been nominated for election at the Company's 2001 Annual Meeting. Ms. Humphreys will serve in the class of directors whose terms expire at the 2002 Annual Meeting. She retired from Citigroup New York, Citibank in February of 2000, as Managing Director and Treasurer of Global Corporate Investment Bank North America. Gordon C. Johnson has been a director of the Bank since 1994 and is a Doctor of Veterinary Medicine. Holly J. Nelson has been a director of the Bank since 1995 and is a partner in Oblong Books and Music, LLC, a book and music store. John F. Perotti is President and Chief Executive Officer of the Company and the Bank. Prior to that he served as Executive Vice President and Chief Operating Office of the Bank, and prior to that he was Vice President and Treasurer of the Bank. He has been a director of the Bank since 1985. John E. Rogers has been a director of the Bank since 1964 and retired as Chairman of the Board of the Bank in 1984. He also served as President of the Bank from 1969 to 1981. Walter C. Shannon, Jr. is President Emeritus of Wagner McNeil, Inc. and President of William J. Cole Agency, Inc. He has been a director of the Bank since 1993. Craig E. Toensing has been a director of the Bank since 1995 and is Senior Vice President and Trust Officer of the Bank. 27 Michael A. Varet has been a partner in the law firm of Piper Marbury Rudnick & Wolfe LLP since 1995. Prior to 1995, Mr. Varet was a member and Chairman of Varet & Fink P.C., formerly Milgrim, Thomajan & Lee, P.C. Mr. Varet has been a director of the Bank since 1997. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company"s executive officers, directors and persons who own more than ten percent (10%) of the Company"s Common Stock, to file with the Securities and Exchange Commission (the "SEC") reports of ownership and changes in ownership of the Company"s Common Stock. Executive officers, directors and any shareholders owning greater than ten percent (10%) of the Company"s Common Stock are required by the SEC"s regulations to furnish the Company with copies of all such reports that they file. Based solely on a review of copies of reports filed with the SEC since January 1, 2000 and certain representations by executive officers and directors, all persons subject to the reporting requirements of Section 16(a) filed the required reports on a timely basis. ITEM 10. EXECUTIVE COMPENSATION Fees During 2000, each director received an annual retainer of $2,000. In addition, directors received $500 for each Board of Directors meeting attended and $200 for each committee meeting attended. Directors' Perotti and Toensing received no additional compensation for their services as directors or members of any board committee during 2000. The following table provides certain information regarding the compensation paid to certain executive officers of the Company and the Bank for services rendered in all capacities during the fiscal years ended December 31, 2000, 1999 and 1998. No other current executive officer of the Company or the Bank received cash compensation in excess of $100,000 during the year ended December 31, 2000. All compensation expense was paid by the Bank.
Summary Compensation Table Annual Compensation All Other Name and Principal Compensation Position Year Salary($)(1) Bonus($) ($) (2)(3) - --------------------------------------------------------------------------------------------- John F. Perotti 2000 $172,992 $38,515 $3,400 (2) President and 1999 163,200 30,243 ---- Chief Executive Officer 1998 141,984 19,700 $4,500 (3) of the Company and the Bank Craig E. Toensing 2000 $130,200 $30,825 $3,221 (2) Secretary of the Company 1999 122,808 24,641 ---- Senior Vice President 1998 104,856 15,249 $4,500 (3) and Trust Officer of the Bank Richard J. Cantele, Jr. 2000 $ 87,504 $17,700 $2,104 (2) Vice President, Treasurer and 1999 75,000 13,191 ---- Chief Lending Officer of the Bank 1998 67,200 8,249 ----
- -------------- (1) Compensation above does not include accrual of benefits under the Bank"s defined pension plan or supplemental arrangements described below. (2) The Bank's matching contribution to the 401-K plan for 2000. (3) Directors' fees paid. 28 Insurance In addition to the cash compensation paid to the executive officers of the Company and the Bank, the executive officers receive group life, health, hospitalization and medical insurance coverage. However, these plans do not discriminate in scope, terms or operation, in favor of officers or directors of the Company and the Bank and are available generally to all full-time employees. Pension Plan The Bank maintains a non-contributory defined pension plan for officers and other salaried employees of the Bank who become participants after attaining age 21 and completing one (1) year of service. Pension benefits are based upon average base salary (determined as of each January 1st) during the highest five (5) consecutive years of service prior to attaining normal retirement date. The amount of annual benefit is fifty percent (50%) of average base salary less fifty percent (50%) of the primary Social Security benefit, pro rated for less than 25 years of service, plus one-half of one percent (.5%) of average base salary for each of up to ten (10) additional years of service. This benefit formula may be modified to conform with recent changes in the pension laws. The present average base salary and years of service to date of Messrs. Perotti and Toensing are: Mr. Perotti: $171,919; 28 years; Mr. Toensing: $129,326; 20 years. The following table shows estimated annual retirement benefits payable at normal retirement date as a straight life annuity for various average base salary and service categories before the offset of a portion of the primary Social Security benefit. Average Base Salary Estimated Annual Retirement Benefit With at Retirement Years of Service at Retirement Indicated - ------------- ----------------------------------------- 10 Years 20 Years 25 Years 35 Years -------- -------- -------- -------- $120,000 $24,000 $48,000 $ 60,000 $ 66,000 130,000 26,000 52,000 65,000 71,500 140,000 28,000 56,000 70,000 77,000 150,000 30,000 60,000 75,000 82,500 160,000 32,000 64,000 80,000 88,000 170,000 34,000 68,000 85,000 93,500 180,000 36,000 72,000 90,000 99,000 190,000 38,000 76,000 95,000 104,500 200,000 40,000 80,000 100,000 110,000 $210,000 $42,000 $84,000 $105,000 $115,500 Supplemental Retirement Arrangements In 1994, the Bank entered into a supplemental retirement arrangement (the "Supplemental Retirement Agreement") with John F. Perotti. Following disability or retirement at the earlier of the age of 65, or after thirty (30) years of service to the Bank, Mr. Perotti will receive monthly payments of $1,250 (increased by 5% per year or greater to reflect increases in the cost of living index) for a period of ten (10) years. These payments are in addition to any payments under the Bank"s retirement plan. The Supplemental Retirement Agreement includes provisions which would prevent Mr. Perotti from working for a competitor in the proximity of the Bank. 29 401(k) Plan The Bank offers a 401(k) profit sharing plan. This plan began in the year 2000. Each Plan Year, the Bank will announce the amount of the matching contributions, if any. The amount of the matching contributions is directly related to the employees' 401(k) salary deferral contribution. For the Plan Year that began January 1, 2000 all eligible participants received a matching contribution equal to 50% of their 401(k) salary deferral contribution to the Plan; however, it is limited to 2% of the plan compensation not to exceed $3,400. The Plan expense was $45,031 for 2000. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information as of March 9, 2001 regarding the number of shares of Common Stock beneficially owned by each director and officer and by all directors and officers as a group. Number of Shares (1) Percentage of Class (2) John R. H. Blum 15,336 (3) 1.06% Louise F. Brown 3,156 (4) .21% John F. Foley 3,696 (5) .26% Nancy F. Humphreys 1,000 (6) .07% Gordon C. Johnson 1,502 (7) .10% Holly J. Nelson 848 (8) .06% John F. Perotti 10,839 (9) .75% John E. Rogers 28,550 (10) 1.98% Walter C. Shannon, Jr. 3,604 (11) .25% Craig E. Toensing 3,000 (12) .21% Michael A. Varet 65,646 (13) 4.55% ------------ ----- All Directors and Officers 137,177 9.50% as a group of (11 persons) (1) The shareholdings also include, in certain cases, shares owned by or in trust for a director"s spouse and/or his children or grandchildren, and in which all beneficial interest has been disclaimed by the director. (2) Percentages are based upon the 1,443,961 shares of the Bank"s Common Stock outstanding and entitled to vote on March 9, 2001. The definition of beneficial owner includes any person who, directly or indirectly, through any contract, agreement or understanding, relationship or otherwise has or shares voting power or investment power with respect to such security. (3) Includes 2,100 shares owned by John R. H. Blum"s wife. (4) Includes 2,136 shares owned by Louise F. Brown as custodian for her children. (footnotes continued on following page) 30 (footnotes continued from previous page) (5) Includes 1,518 shares owned jointly by John F. Foley and his wife and 66 shares owned by John F. Foley as custodian for his children. (6) Includes 1,000 shares owned jointly by Nancy F. Humphreys and her husband. (7) Includes 660 shares owned by Gordon C. Johnson"s wife and for which Mr. Johnson has disclaimed beneficial ownership. (8) Includes 6 shares owned by Holly J. Nelson as guardian for a minor child. (9) Includes 9,514 shares owned jointly by John F. Perotti and his wife, 761 shares owned by his wife and 564 shares in trust for his son. (10) Includes 11,370 shares owned by John E. Rogers" wife. (11) All shares are owned individually by Walter C. Shannon, Jr. (12) Includes 42 shares owned by Craig E. Toensing as custodian for his son. (13) Includes 18,540 shares owned by Michael A. Varet"s wife, 6,186 shares owned by his son, 6,180 shares owned by his daughter and 6,180 shares owned by Michael A. Varet as custodian for his son. Michael A. Varet has disclaimed beneficial ownership for all of these shares. Principal Shareholders of the Company As of March 9, 2001, management was not aware of any person (including any "group" as that term is used in Section 13 (d)(3) of the Exchange Act) who owns beneficially more than 5% of the Company"s Common Stock. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company and the Bank have had, and expect to have in the future, transactions in the ordinary course of business with directors, officers, principle shareholders and their associates on substantially the same terms as those available for comparable transactions with others. John R. H. Blum is Chairman of the Board of Directors and an attorney engaged in the private practice of law who represented the Company during 1999 and 2000 and whom the Company proposes to engage in 2001 in connection with certain legal matters. Louise F. Brown is a director of the Company and a partner in the law firm of Gager & Peterson, which represented the Company during 1999and 2000 and which the Company proposes to engage in 2001 in connection with certain legal matters. Walter C. Shannon, Jr. is a director of the Company and the President Emeritus of Wagner McNeil, Inc. which serves as the insurance agent for many of the Company"s insurance needs. The Bank has had, and expects to have in the future, banking transactions in the ordinary course of its business with directors, officers, principal shareholders of the Company, and their associates, on substantially the same terms, including interest rates and collateral on loans, as those prevailing at the same time for comparable transactions with others and such loans did not involve more than the normal risk of collectability or present other unfavorable features. Since January 1, 2000, the highest aggregate outstanding principal amount of all loans extended by the Bank to the Company"s directors, executive officers and all associates of such persons as a group was $1,649,024 representing an aggregate principal amount equal to 7.34% of the equity capital accounts of the Bank. 31 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K (a) The following exhibits are filed as part of this report on Form l0-KSB. Exhibit No. Description ----------- ----------- 3.1 Certificate of Incorporation of Salisbury Bancorp, Inc. (1) 3.2 Bylaws of Salisbury Bancorp, Inc. 10. Pension Supplement Agreement with John F. Perotti. (2) 21. Subsidiaries of the Company. (3) 27. Financial Data Schedule (1) Exhibit was filed on April 23, 1998 as Exhibit 3.1 to Company's Registration Statement on Form S-4 (No. 333-50857) and is incorporated herein by reference. (2) Exhibit was filed on April 23, 1998 as Exhibit 10 to Company's Registration Statement on Form S-4 (No. 333-50857) and is incorporated herein by reference. (3) Exhibit was filed on April 23, 1998 as Exhibit 21 to Company's Registration Statement on Form S-4 (No. 333-50857) and is incorporated herein by reference. (b) Reports on Form 8-K: The following reports on Form 8-K were filed during the fourth quarter of the 2000 fiscal year: 1. On October 25, 2000 the Company filed a Form 8-K reporting that the Company announced that its is continuing the stock repurchase program to acquire up to approximately 10% of the outstanding common stock of the Corporation. 2. On November 21, 2000 the Company filed a Form 8-K reporting the declaration of an $.13 per share quarterly cash dividend and a $ .25 per share special cash dividend. 32 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) 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, in Lakeville, Connecticut on March 27, 2001 SALISBURY BANCORP, INC. By: /s/ John F. Perotti ------------------------ John F. Perotti President and Chief Executive Officer By: /s/ John F. Foley ------------------------ John F. Foley Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date - --------- ----- ---- /s/ John F. Perotti President, March 27, 2001 - ---------------------------- (John F. Perotti) Chief Executive Officer and Director /s/ John R. H. Blum Director March 27, 2001 - ---------------------------- (John R. H. Blum) /s/ Louise F. Brown Director March 27, 2001 - ---------------------------- (Louise F. Brown) /s/ Nancy F. Humphreys Director March 27, 2001 - ---------------------------- (Nancy F. Humphreys) /s/ Gordon C. Johnson Director March 27, 2001 - ---------------------------- (Gordon C. Johnson) /s/ Holly J. Nelson Director March 27, 2001 - ---------------------------- (Holly J. Nelson) /s/ John E. Rogers Director March 27, 2001 - ---------------------------- (John E. Rogers) /s/ Walter C. Shannon, Jr. Director March 27, 2001 - ---------------------------- (Walter C. Shannon, Jr.) /s/ Craig E. Toensing Director March 27, 2001 - ---------------------------- (Craig E. Toensing) /s/ Michael A. Varet Director March 27, 2001 - ---------------------------- (Michael A. Varet) 33 EX-3 2 0002.txt BYLAWS Exhibit 3.2 BYLAWS OF SALISBURY BANCORP, INC. ARTICLE I Offices Section 1. Location. The principal office of the Corporation shall be located in the Town of Lakeville, County of Litchfield and State of Connecticut, but the Corporation may maintain such branch office or offices within or without the State of Connecticut as authorized by the Board of Directors and any other regulatory body that might have jurisdiction over the Corporation. ARTICLE II Shareholders' Meetings Section 1. Place of Meetings. Every meeting of the shareholders of the Corporation shall be held at the principal office of the Corporation or at such other place either within or without the State of Connecticut as shall be specified in the notice of said meeting given as hereinafter provided. Section 2. Annual Meeting. The annual meeting of the shareholders shall be held on such day and at such time and place within the first six (6) months of each year as the Board of Directors may determine from time to time. At such meetings, the shareholders shall elect Directors and transact such other business as may properly be brought before the meeting. Failure to hold an annual meeting as herein prescribed shall not affect otherwise valid corporate acts. In the event of such failure, a substitute annual meeting may be called in the same manner as a special meeting. Except for nominations of Directors as provided in Article III, Section 2 of these Bylaws, business is properly brought before an annual meeting if it is (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than twenty (20) days nor more than one hundred thirty (130) days prior to the meeting. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (w) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (x) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (y) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (z) any material interest of the shareholder in such business. The Secretary may also require, in writing and prior to the meeting, any and all information about the shareholder or the proposed matter which the Secretary determines in his discretion to be appropriate using the then current requirements of the Securities Exchange Commission Rule 14a as a guide. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this paragraph. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 3. Special Meetings. Special meetings of the shareholders shall be called in accordance with the provisions of the Certificate of Incorporation. 34 Section 4. Notice of Meetings. Notice of the time and place of all annual and special meetings of shareholders and the purpose thereof shall be handed or mailed, postage prepaid, by or at the direction of the Secretary, not less than ten (10) nor more than sixty (60) days before such meeting, to each shareholder of record and at such address as shall appear on the books of the Corporation. Whenever notice is required to be given to any person, a written waiver of notice signed by the person or persons entitled to such notice, whether before or after the time stated therein, and filed with the Secretary, shall be equivalent to the giving of such notice. Any shareholder who attends any shareholders' meeting without protesting the lack of proper notice, prior to or at the commencement of the meeting, shall be deemed to have waived such notice. Failure of any shareholder to receive notice of any meeting shall not invalidate the meeting. Section 5. Quorum. To constitute a quorum for the transaction of business at any meeting of shareholders, there must be present, in person or by proxy, the holders of a majority of the issued and outstanding shares of stock of the Corporation entitled to vote thereat. The shareholders present at a duly held meeting at which a quorum was present may continue to transact business notwithstanding the withdrawal of enough shares to leave less than a quorum. Section 6. Adjournment of Meetings. The holders of a majority of the voting power of the shares present, in person or by proxy, and entitled to vote, whether or not a quorum is present, may adjourn the meeting to a future date as may be agreed. Notice of such adjournment need not be given to the shareholders of the new date, time, or place if the new date, time and place is announced at the meeting before adjournment. Notice need be given, however, if a new record date for the adjourned meeting is or must be fixed in accordance with Connecticut law (which presently would be required if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting). Section 7. Voting Requirements. Except as may be otherwise specifically provided in these Bylaws, in the Certificate of Incorporation, or in the Connecticut Business Corporation Act, Connecticut banking laws, or other applicable law, the vote requirements provided for in the Connecticut Business Corporation Act, the Connecticut banking laws or other applicable law shall be the vote requirements for an act of the shareholders. Section 8. Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at a meeting of shareholders, or entitled to receive a payment of any dividend, the Board of Directors may set a record date which shall not be a date earlier than the date on which such action is taken by the Board of Directors, nor more than seventy (70) nor less than ten (10) days before the particular event requiring such determination is to occur. If no record date is fixed by the Board of Directors, the date on which the notice of the meeting is mailed or if no notice is given, the day preceding the meeting shall be the record date for determination of shareholders entitled to vote at such meeting, and the date on which the resolution of the Board of Directors declaring a dividend is adopted shall be the record date for determination of shareholders entitled to receive such distribution. Section 9. Proxies. At all meetings of shareholders, any shareholder entitled to vote may vote either in person or by proxy. All proxies shall be in writing, signed and dated and shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid for more than eleven (11) months after its execution, unless otherwise provided therein and in no event shall a proxy be valid for more than ten (10) years after its execution. Section 10. Committee on Proxies. The Board, in advance of any shareholders' meeting, shall appoint not less than two inspectors to act as a Committee on Proxies and as tellers at the meeting or any adjournment thereof. In case the Board does not so act or any person appointed to be an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the presiding officer. The inspectors shall receive and take in charge the proxies and ballots, shall decide all questions concerning the qualification of voters, the validity of proxies and the acceptance or rejection of votes, and shall count the ballots cast and report to the presiding officer the result of the vote. Section 11. Presiding Officer. The President of the Corporation, or such Director as he may designate, shall preside over all meetings of the shareholders. The order of business and all other matters of procedure at any meeting of shareholders shall be determined by the presiding officer. The Board of Directors may from time to time adopt Rules for the conduct of the annual or 35 any special meeting of shareholders, to the extent that such Rules do not conflict with applicable law or the provisions of the Corporation's Certificate of Incorporation or Bylaws. Unless specifically required by such Rules, or the Bylaws or Certificate of Incorporation of the Corporation, strict compliance with the provisions of Robert Rules of Order, or Parliamentary Procedure is not required. Rather, in accordance with the Rules and these Bylaws, the chairperson shall have the right and duty to preserve order and conduct the meeting in accordance with such chairperson's reasonable exercise of good faith and fundamental fairness. A copy of the Rules of Conduct, as may be adopted from time to time by the Board of Directors, shall be available for reference at the meeting. Section 12. Number of Votes for Each Shareholder. Each shareholder shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation as of the record date unless, and except to the extent that, voting rights of shares of any class are increased, limited, or denied pursuant to the Certificate of Incorporation. ARTICLE III Directors Section 1. Authority and Term of Office. The business, property and affairs of the Corporation shall be managed by, and under the direction of, the Board of Directors. The Board of Directors is empowered to engage the Corporation in any activity authorized by the Connecticut Business Corporation Act, and by applicable State and Federal banking laws. The Board of Directors shall have charge of the care and management of the affairs and property of the Corporation. The Board of Directors shall, pursuant to the laws of the State of Connecticut, as the same may be amended from time to time, be empowered to make rules and regulations essential to the performance of its duties of caring for and managing the property and affairs of the Corporation, to elect the officers, to fill the vacancy of any elected officer, to elect or appoint such assistants and committees as it may deem necessary for the business of the Corporation and to prescribe their duties, to determine the amount and sufficiency of the bonds and to prescribe the duties of all the officers and employees, to fix the compensation of the Directors, officers, and employees of the Corporation, to declare dividends, to prescribe the rate, method of computation and time of payment of such dividends and to take or to prescribe the taking of such other action as may be necessary to the performance of its duties. Directors need not be residents of Connecticut. At the time of election, however, each Director must own in his individual capacity one or more shares of stock of the Corporation. Section 2. Nominations. Only persons who are nominated in accordance with the procedures set forth in this section shall be eligible for election as Directors. Nominations of persons for election to the Board may be made at a meeting of shareholders by or at the direction of the Board or by any shareholder of the Corporation who is entitled to vote for the election of Directors at the meeting and who complies with the notice procedures set forth in this section. Such nominations by a shareholder shall be made only if written notice of such shareholder's intent to make such nomination or nominations has been given to the Secretary, delivered to or mailed and received at the principal executive offices of the Corporation not less than thirty (30) days nor more than fifty (50) days prior to the meeting. Such shareholder's notice shall set forth (1) as to each person whom the shareholder proposes to nominate for election as a Director, (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) the class and number of shares of the Corporation which are beneficially owned by such person, and (d) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to applicable law and regulations (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (2) as to the shareholder giving the notice, (a) the name and address, as they appear on the Corporation's books, of such shareholder, (b) the class and number of shares of the Corporation which are beneficially owned by such shareholder, (c) representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, and (d) a description of all arrangements or understandings between the shareholder and each nominee and 36 any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder. At the requirement of the Board, any person nominated by the Board for election as a Director shall furnish to the Secretary that information which would be required to be set forth in a shareholder's notice of nomination which pertains to the nominee. In addition, in order for any person age 72 or older to be nominated by the Board such individual's nomination must be approved by the affirmative vote of two-thirds (") of the full Board. The presiding officer of the meeting shall refuse to acknowledge the nomination of any person not made in compliance with this section, and the defective nomination shall be disregarded. Section 3. Vacancies. Except as otherwise fixed by or pursuant to the provisions of law or the Certificate of Incorporation, vacancies in the Board resulting from any increase in the number of directors or any vacancies resulting from death, resignation, disqualification, removal from office or other cause shall be filled by a majority vote of the Directors (or by affirmative vote of two-thirds (") of the full Board in instances involving an individual age 72 or older) then in office even though such remaining Directors may be less than a quorum of the Board and such majority may be less than a quorum. Any Director chosen in accordance with the preceding sentence shall hold office until the next shareholders meeting at which Directors are elected and until such Director's successor shall have been elected and qualified. The Board of Directors may increase the number of directors by no more than two (2) in each fiscal year. Section 4. Removal of Directors. Any Director may be removed from office at any time for cause in accordance with the provisions of the Certificate of Incorporation or applicable provisions of the Connecticut Business Corporation Act. In addition, the office of any Director who fails to attend six (6) consecutive meetings of the Board, special or regular, shall become vacant if the majority of the Board of Directors determines that such absence was without good cause. Section 5. Place of Meetings. The Board of Directors shall hold its meetings at the principal office of the Corporation or at such place or places within or without the State of Connecticut as it may determine from time to time. Section 6. Regular Meetings. Regular meetings of the Board of Directors shall be held at least monthly, at such times and places as shall be fixed by the Directors, or with such other frequency as the Board of Directors may determine. Section 7. Special Meetings. Special meetings of the Board of Directors may be called only by the President, or in his absence or disability, by a Vice President, or in writing by three (3) of the Directors. Notice thereof, oral or written, specifying the date, time, place and object of such meeting, shall be given to each Director at least two (2) days prior to such meeting. If notice is given by mail, the Secretary shall address notices to the Directors at their usual place of business or such address as may appear on the Corporation's books. Section 8. Waiver of Notice. Whenever notice is required to be given to any person, a written waiver of notice signed by the person or persons entitled to such notice, whether before or after the time stated therein, and filed with the Secretary, shall be equivalent to the giving of such notice. If any Director present at a meeting of the Board of Directors does not protest the lack of proper notice prior to or at the commencement of the meeting such Director shall be deemed to have waived notice of such meeting. Section 9. Action by Directors Without a Meeting. Any resolution in writing concerning action to be taken by the Corporation, which resolution is approved and signed by all of the Directors, severally or collectively, shall have the same force and effect as if such action were authorized at a meeting of the Board of Directors duly called and held for that purpose, and such resolution together with the Directors' written approval thereof, shall be recorded by the Secretary in the minute book of the Corporation. Section 10. Telephonic Participation in Directors Meetings. A Director or member of a committee of the Board of Directors may participate in a meeting of the Board of Directors or of such committee by means of a conference telephone or similar communications equipment enabling all Directors participating in the meeting to simultaneously hear one another, and participation in such a meeting shall constitute presence in person at such meeting. 37 Section 11. Quorum and Voting Requirement. A majority of the directors shall constitute a quorum for the transaction of business at all meetings of the Board of Directors. The act of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board, unless a higher percentage vote is required by law, the Certificate of Incorporation, or these Bylaws. Section 12. Voting. At meetings of the Board of Directors, each Director shall have one vote. Section 13. Committees; Appointment and Authority. The Board of Directors, by vote of a majority of the directors then in office, may elect from its number one or more committees, including, without limitation, an Executive Committee, a Compensation Committee, and an Audit Committee, each of which must contain two or more members, and may delegate thereto some or all of its powers except those which by law, by the Certificate of Incorporation, or by these Bylaws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these Bylaws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors. The Board of Directors shall have power to rescind any action of any committee, to the extent permitted by law, but no such rescission shall have retroactive effect. Section 14. Compensation of Directors. The Board of Directors shall have authority to fix the compensation for Directors, including reasonable allowance for expenses actually incurred in connection with their duties. Section 15. Presiding at Board Meetings. The President of the Corporation shall preside at all Board meetings. In the absence of the President, the remaining directors shall elect one of their members to preside at that meeting. ARTICLE IV Officers Section 1. Election of Officers. At the next regular meeting of the Board of Directors, following the annual meeting of the shareholders, or at another time as determined by the Board, the Board of Directors shall elect a President, one or more Vice Presidents (who may be designated "Executive," "Senior," or other to distinguish them from other Vice Presidents), a Secretary, a Treasurer and shall designate a Chief Executive Officer for the ensuing year. The Board may, in its discretion, from time to time, appoint such other officers and assistants as it shall deem necessary who shall have such authority and such designation and shall perform such duties as the Board of Directors or the President from time to time prescribe. The same person may be elected or appointed to serve simultaneously in more than one office. The officers need not be shareholders, and need not be residents of Connecticut. The duties of the officers of the Corporation shall be such as are imposed by these Bylaws and from time to time prescribed by the Board of Directors or the President. Section 2. Vacancies. Vacancies in any office may be filled at any regular or special meeting of the Board of Directors. Section 3. Removal. Any officer may be removed, without cause, from office by the President or by the affirmative vote of a two-thirds of the whole Board of Directors at any regular or special meeting, or as may otherwise be provided in any agreement between the Corporation and the officer. Any officer below the level of Vice President may be removed from office at the discretion of the President unless such officer's duties require that the officer report directly to the Board. Section 4. President. The President shall have the general charge, supervision, and control of the business and affairs of the Corporation subject to the direction of the Board of Directors. The President shall be the 38 Chief Executive Officer and shall be a director of the Corporation. The President shall have such other powers and perform such other duties as are generally incident to the office of President and as may be assigned to the President by the Board of Directors. The President shall be an ex-officio member of all committees of the Board, except the Audit Committee. Section 5. Vice Presidents. The Vice Presidents shall perform such executive and administrative duties as from time-to-time may be assigned to them by the President. In the absence of the President, the Vice Presidents (Executive Senior, if applicable), in the order of their ranking in the Corporation's management hierarchy, shall perform the duties of the President. Section 6. Treasurer. The Treasurer shall be responsible for the custody and safekeeping of all of the assets of the Corporation and shall perform all acts incident to the position of Treasurer and shall submit such reports and statements as may be required by law or by the President and perform such other duties as are assigned to the Treasurer from time-to-time by the Board of Directors or the President. Section 7. Secretary. The Secretary shall perform such executive and administrative duties as from time-to-time may be assigned to the Secretary by the Board of Directors or the President. The Secretary shall have charge of the seal of the Corporation and shall have such other powers and perform such other duties as designated in these Bylaws or as are generally incident to the office of Secretary. The Secretary shall notify the shareholders and Directors of all meetings and shall keep the minutes of meetings of the shareholders and of the Board of Directors. ARTICLE V Indemnification Section 1. Indemnification. The Corporation shall indemnify the Directors, officers, employees and agents of the Corporation to the maximum extent permitted and/or required by the Certificate of Incorporation or applicable law. Without otherwise limiting the foregoing, Section 33-770 to 33-778 of the Connecticut Business Corporation Act, as from time to time amended or superseded, governs and applies to certain matters of indemnification of Directors, officers, employees and agents of the Corporation, and is incorporated herein by reference as a part of these Bylaws. ARTICLE VI Stock Section 1. Issuance by the Board of Directors. The Board of Directors may issue at one time, or from time to time, all or a portion of the authorized but unissued shares of the capital stock of the Corporation, as in their opinion and discretion may be deemed in the Corporation's best interests. The Board may accept, in consideration for such shares, money, promissory notes, other securities and other property of any description actually received by the Corporation, provided however, that such consideration equals or exceeds in value the par value of said shares, if any, and that the consideration is legally acceptable for the issue of said shares. Section 2. Certificates of Stock. Certificates of stock shall be in compliance with Section 33-676 of the Connecticut Business Corporation Act, as from time to time amended or superseded and in a form adopted by the Board of Directors and shall be signed by the President or the Vice President and by the Secretary or Assistant Secretary, or by facsimile signature of any or all of the foregoing, and shall carry the corporate seal of the Corporation. All certificates shall be consecutively numbered and the name of the person owning the shares represented thereby and the number of such shares and the date of issue shall be entered on the Corporation's books. Section 3. Transfer of Stock. Shares of stock shall be transferred only on the books of the Corporation by the holder thereof in person or by his attorney, upon surrender of the certificate of stock properly endorsed. The Corporation shall issue a new certificate to the person entitled thereto for all shares surrendered. Section 4. Cancellation of Certificate. All surrendered certificates properly endorsed, shall be marked "canceled" with the date of cancellation and a notation of such cancellation made in the shareholder book. 39 Section 5. Lost Certificates. The President or any officer designated by the President may, in case any share certificate is lost, stolen, destroyed, or mutilated, authorize the issuance of a new certificate in lieu thereof, upon such terms and conditions, including reasonable indemnification of the Corporation, as the President or any designated officer shall determine, and notation of the transaction made in the shareholder book. Section 6. Closing of Stock Transfer Book. The stock transfer book may be closed, if so ordered by the Board, for not exceeding twenty (20) days before any dividend payment date or any meeting of the shareholders. ARTICLE VII Finance and Dividends Section 1. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January in each year. Section 2. Dividends. Dividends may be voted by the Directors as prescribed by applicable law, as from time to time amended. Such dividends will be payable to shareholders of record at the close of business on such subsequent days as the Directors may designate and to be paid on a named day not more than seventy (70) days thereafter, and the Directors may further close the transfer books during the period from the day as of which the right to such dividend is determined through the day upon which the same is to be paid. No dividend shall be paid unless duly voted by the Directors of the Corporation and the name of each Director voting for any dividend shall be entered by the Secretary on the records of the Corporation. Dividends may be paid in cash, property, or shares of the Corporation. ARTICLE VIII Amendment of Bylaws These Bylaws may be altered or amended by the Board at any meeting by a majority vote of the directors on the entire Board or at any meeting of the shareholders, whether annual or special, by a majority in interest of the stock entitled to vote, provided however, that in order to amend or repeal or to adopt any provision inconsistent with Article II, Article III (other than sections 5, 6, 14, the last paragraph of section 1 thereof and the last sentence of section 4 thereof) or this Article VIII, any vote of shareholders shall require (i) the affirmative vote of the holders of at least sixty percent (60%) of the voting power of all of the issued and outstanding shares of the Corporation then entitled to vote for the election of Directors, and (ii) if there is an "Interested Shareholder" or an "Interested Securityholder" (as those terms are defined in the Certificate of Incorporation), or an "interested shareholder" (as described in Connecticut General Statutes Section 33-840) the affirmative vote of sixty percent (60%) of the voting powers of all of the issued and outstanding shares of the Corporation entitled to vote for the election of Directors held by shareholders other than the Interested Shareholder, the Interested Securityholder, or an "interested shareholder" (as described in Connecticut General Statutes Section 33-840) any two or more of the foregoing, as applicable, and any action of Directors shall require the affirmative vote of a majority of the Directors then in office. Any notice of a meeting of the shareholders or the Board at which the Bylaws are to be altered or amended shall include notice of such proposed action. 40 EX-27 3 0003.txt
9 0001060219 Salisbury Bancorp 1,000 12-MOS DEC-31-2000 DEC-31-2000 7,300 673 5,125 0 92,173 410 408 139,562 1,292 249,054 166,436 13,086 1,796 34,271 0 0 146 22,314 249,054 10,494 5,461 555 16,510 5,421 8,284 225 180 (64) 5,797 4,206 4,206 0 0 2,849 1.92 1.92 7.46 186 323 11 0 1,160 71 23 1,292 1,292 0 0
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