-----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, ImFACOYiesQ/GjA1SioEJWUkBqUgKXlvbjsK7boA2qgjvzXB80tdfFEWJb+68Vfz 45i6Vw6AOA7mtpl82GaDfQ== 0000914317-05-003460.txt : 20051114 0000914317-05-003460.hdr.sgml : 20051111 20051114120332 ACCESSION NUMBER: 0000914317-05-003460 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24751 FILM NUMBER: 051198033 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 10-Q 1 form10q-71799_salisbury.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to __________________ Commission file number 0-24751 Salisbury Bancorp, Inc. ------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Connecticut 06-1514263 -------------------------------- -------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 5 Bissell Street Lakeville Connecticut 06039 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrants Telephone Number, Including Area Code (860) 435-9801 --------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Indicate by check mark whether the registrant is an accelerated filer. Yes | | No |X| APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: as of October 31, 2005, there were 1,683,341 shares outstanding. SALISBURY BANCORP, INC. AND SUBSIDIARY TABLE OF CONTENTS Page Part I. FINANCIAL INFORMATION Item 1. Financial Statements: 3 Condensed Consolidated Balance Sheets -September 30, 2005 (unaudited) and December 31, 2004 4 Condensed Consolidated Statements of Income -three and nine months ended September 30, 2005 and 2004 (unaudited) 5 Condensed Consolidated Statements of Cash Flows -nine months ended September 30, 2005 and 2004 (unaudited) 6 Notes to Condensed Consolidated Financial Statements (unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 19 Item 4. Controls and Procedures 20 Part II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20 Item 3. Defaults Upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits 20 Signatures 21 2 Part I-- FINANCIAL INFORMATION Item 1. Financial Statements 3 SALISBURY BANCORP, INC. AND SUBSIDIARY -------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (amounts in thousands, except per share data) September 30, 2005 and December 31, 2004 ----------------------------------------
September 30 December 31 2005 2004 ------------ ----------- (unaudited) ASSETS - ------ Cash and due from banks $ 9,686 $ 7,284 Interest bearing demand deposits with other banks 1,281 1,181 Money market mutual funds 1,107 942 Federal funds sold 0 2,271 ------------ ----------- Cash and cash equivalents 12,074 11,678 Investments in available-for-sale securities (at fair value) 151,710 178,655 Investments in held-to-maturity securities (fair values of $156,000 as of September 30, 2005 and $220,000 as of December 31, 2004) 155 218 Federal Home Loan Bank stock, at cost 5,413 5,413 Loans held-for-sale 644 375 Loans, less allowance for loan losses of $2,743,000 as of September 30, 2005 and $2,512,000 as of December 31, 2004 206,900 201,978 Investment in real estate 75 75 Premises and equipment 6,428 5,934 Goodwill 9,509 9,509 Core deposit intangible 1,699 1,822 Accrued interest receivable 2,017 2,257 Cash surrender value of life insurance policies 3,385 3,294 Other assets 2,260 1,893 ------------ ----------- Total assets $ 402,269 $ 423,101 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits: Noninterest-bearing $ 65,475 $ 65,017 Interest-bearing 218,933 233,825 ------------ ----------- Total deposits 284,408 298,842 Federal Home Loan Bank advances 72,452 79,213 Due to broker 0 1,083 Other liabilities 2,828 3,263 ------------ ----------- Total liabilities 359,688 382,401 ------------ ----------- Stockholders' equity: Common stock, par value $.10 per share; authorized 3,000,000 shares; issued and outstanding, 1,683,341 shares at September 30, 2005 and 1,682,401 at December 31, 2004 168 168 Paid-in capital 13,068 13,032 Retained earnings 30,729 28,223 Accumulated other comprehensive loss (1,384) (723) ------------ ----------- Total stockholders' equity 42,581 40,700 ------------ ----------- Total liabilities and stockholders' equity $ 402,269 $ 423,101 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 SALISBURY BANCORP, INC. AND SUBSIDIARY -------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share data) September 30, 2005 and 2004 (unaudited)
Nine Months Ended Three Months Ended September 30 September 30 2005 2004 2005 2004 ------- ------- ------- -------- Interest and dividend income: Interest and fees on loans $ 9,811 $ 6,700 $ 3,362 $ 2,376 Interest and dividends on securities: Taxable 3,497 3,253 1,258 1,134 Tax-exempt 1,857 1,614 575 551 Dividends on equity securities 158 71 57 25 Other interest 52 37 20 19 ------- ------- ------- -------- Total interest and dividend income 15,375 11,675 5,272 4,105 ------- ------- ------- -------- Interest expense: Interest on deposits 2,962 1,876 1,075 660 Interest on Federal Home Loan Bank advances 2,333 2,056 831 730 ------- ------- ------- -------- Total interest expense 5,295 3,932 1,906 1,390 ------- ------- ------- -------- Net interest and dividend income 10,080 7,743 3,366 2,715 Provision for loan losses 270 180 90 60 ------- ------- ------- -------- Net interest and dividend income after provision for loan losses 9,810 7,563 3,276 2,655 ------- ------- ------- -------- Noninterest income: Trust department income 1,119 1,007 342 300 Service charges on deposit accounts 470 463 167 157 Gain on sales of available-for-sale securities, net 1,227 1,029 390 387 Gain on sale of loans held-for-sale 176 212 40 63 Other income 898 627 336 217 ------- ------- ------- -------- Total noninterest income 3,890 3,338 1,275 1,124 ------- ------- ------- -------- Noninterest expense: Salaries and employee benefits 5,359 4,142 1,849 1,620 Occupancy expense 524 259 175 96 Equipment expense 557 404 183 123 Trust department expense 276 234 59 55 Data processing 585 465 192 165 Insurance 111 87 36 29 Printing and stationery 192 153 43 40 Professional fees 221 187 87 72 Legal expense 109 69 41 7 Amortization of core deposit intangible 123 56 41 22 Other expense 1,002 1,266 362 756 ------- ------- ------- -------- Total noninterest expense 9,059 7,322 3,068 2,985 ------- ------- ------- -------- Income before income taxes 4,641 3,579 1,483 794 Income taxes provision (benefit) 873 615 352 (2) ------- ------- ------- -------- Net income $ 3,768 $ 2,964 $ 1,131 $ 796 ======= ======= ======= ======== Earnings per common share $ 2.24 $ 2.05 $ .67 $ .54 ======= ======= ======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 SALISBURY BANCORP, INC. AND SUBSIDIARY -------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (amounts in thousands) Nine months ended September 30, 2005 and 2004 (unaudited)
2005 2004 -------- -------- Cash flows from operating activities: Net income $ 3,768 $ 2,964 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of securities, net 224 231 Gain on sales of available-for-sale securities, net (1,227) (1,029) Provision for loan losses 270 180 Change in loans held-for-sale 239 119 Depreciation and amortization 390 285 Amortization of core deposit intangible 123 60 Amortization of fair value adjustments, net 41 (4) Decrease (increase) in interest receivable 236 (371) Increase in prepaid expenses (680) (414) Decrease in other assets 2 1,009 Increase (decrease) in taxes payable 298 (69) Increase (decrease) in accrued expenses 37 (89) Increase in interest payable 2 100 (Decrease)/increase in other liabilities (157) 1,188 -------- -------- Net cash provided by operating activities 3,566 4,160 -------- -------- Cash flows from investing activities: Purchase of Federal Home Loan Bank stock 0 (351) Purchases of available-for-sale securities (71,775) (99,049) Proceeds from sales of available-for-sale securities 66,688 80,582 Proceeds from maturities of available-for-sale securities 30,872 28,200 Proceeds from maturities of held-to-maturity securities 64 9 Loan originations and principal collections, net (5,872) (7,694) Recoveries of loans previously charged-off 31 17 Capital expenditures (884) (772) Cash paid to Canaan National Bancorp, Inc. shareholders 0 (6,020) Cash and cash equivalents acquired from Canaan National Bancorp, Inc. net of expenses paid of $310,000 0 2,487 -------- -------- Net cash provided by (used in) investing activities 19,124 (2,591) -------- --------
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 SALISBURY BANCORP, INC. AND SUBSIDIARY -------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (amounts in thousands) Nine months ended September 30, 2005 and 2004 (unaudited) (continued)
2005 2004 -------- -------- Cash flows from financing activities: Net (decrease)/increase in demand deposits, NOW and savings accounts (4,938) 5,892 Net decrease in time deposits (9,479) (1,188) Federal Home Loan Bank advances 15,987 34,295 Principal payments on advances from Federal Home Loan Bank (22,651) (33,561) Dividends paid (1,249) (1,011) Issuance of common stock 36 32 -------- -------- Net cash (used in) provided by financing activities (22,294) 4,459 -------- -------- Net increase in cash and cash equivalents 396 6,028 Cash and cash equivalents at beginning of year 11,678 12,129 -------- -------- Cash and cash equivalents at end of period $ 12,074 $ 18,157 ======== ======== Supplemental disclosures: Interest paid $ 5,293 $ 3,832 Income taxes paid 615 545
The accompanying notes are an integral part of these condensed consolidated financial statements. 7 SALISBURY BANCORP, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The accompanying condensed consolidated interim financial statements are unaudited and include the accounts of Salisbury Bancorp, Inc. (the "Company"), its wholly owned subsidiary Salisbury Bank and Trust Company (the "Bank"), and the Bank's subsidiaries, S.B.T. Realty, Inc. and SBT Mortgage Service Corporation (the "PIC") formed in April 2004. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to SEC Form 10-Q. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. All significant intercompany accounts and transactions have been eliminated in the consolidation. These financial statements reflect, in the opinion of Management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the Company's financial position and the results of its operations and its cash flows for the periods presented. Operating results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 2004 Annual Report on Form 10-K. On September 10, 2004 Canaan National Bancorp, Inc. merged with and into the Company. The merger was accounted for using the purchase method of accounting. Accordingly, the assets acquired and liabilities assumed have been recorded by the Company at their fair values at the consummation date. Financial statement amounts for Canaan National Bancorp, Inc. are included in the Company's consolidated financial statements beginning on the acquisition date. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. NOTE 2 - COMPREHENSIVE INCOME - ----------------------------- Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," establishes standards for disclosure of comprehensive income which includes net income and any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in the net unrealized gains (losses) on securities). The purpose of reporting comprehensive income is to report a measure of all changes in equity that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. The Company's one source of other comprehensive income is the net unrealized holding gain (loss) on securities. Comprehensive Income
Nine months ended Three months ended September 30, September 30, 2005 2004 2005 2004 ------- -------- ------- -------- (amounts in thousands) (amounts in thousands) Net income $ 3,768 $ 2,964 $ 1,131 $ 796 Net change in unrealized holding losses or gains on securities during period (661) (200) (739) 2,928 ------- -------- ------- -------- Comprehensive income $ 3,107 $ 2,764 $ 392 $ 3,724 ======= ======== ======= ========
NOTE 3 - IMPACT OF NEW ACCOUNTING STANDARDS - ------------------------------------------- In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. In December 2003, the FASB revised Interpretation No. 46, also referred to as Interpretation 46 (R) ("FIN 46(R)"). The objective of this interpretation is not to restrict the use of variable interest entities but to improve financial reporting by 8 companies involved with variable interest entities. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. This interpretation changes that by requiring a variable interest entity to be consolidated by a company only if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The Company is required to apply FIN 46, as revised, to all entities subject to it no later than the end of the first reporting period ending after March 15, 2004. However, prior to the required application of FIN 46, as revised, the Company shall apply FIN 46 or FIN 46 (R) to those entities that are considered to be special-purpose entities as of the end of the first fiscal year or interim period ending after December 15, 2003. The adoption of this interpretation did not have an impact on the Company's consolidated financial statements. In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits - an amendment of SFAS No. 87, SFAS No. 88 and SFAS No. 106" ("SFAS No. 132 (revised 2003)"). This Statement revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This Statement retains the disclosure requirements contained in SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits," which it replaces. It requires additional disclosures to those in the original Statement 132 about assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. This Statement is effective for financial statements with fiscal years ending after December 15, 2003 and interim periods beginning after December 15, 2003. Adoption of this Statement did not have a material impact on the Company's consolidated financial statements. In December 2003, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 03-3 ("SOP 03-3") "Accounting for Certain Loans or Debt Securities Acquired in a Transfer." SOP 03-3 requires loans acquired through a transfer, such as a business combination, where there are differences in expected cash flows and contractual cash flows due in part to credit quality, be recognized at their fair value. The excess of contractual cash flows over expected cash flows is not to be recognized as an adjustment of yield, loss accrual, or valuation allowance. Valuation allowances cannot be created nor "carried over" in the initial accounting for loans acquired in a transfer on loans subject to SFAS 114, "Accounting by Creditors for Impairment of a Loan." This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004, with early adoption encouraged. The Company does not believe the adoption of SOP 03-3 will have a material impact on the Company's financial position or results of operations. In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payments" ("SFAS 123R"). This Statement revises FASB Statement No. 123, "Accounting for Stock Based Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the consolidated financial statements. It establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans. This Statement was effective for the Company as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. However, since the issuance of SFAS 123R, the SEC has delayed the effective date. The new effective date is January 1, 2006. The Company does not believe the adoption of this Statement will have a material impact on the Company's financial position or results of operations. 9 NOTE 4 - DEFINED BENEFIT PENSION PLAN - ------------------------------------- The following summarizes the net periodic benefit cost for the nine months and three months ended September 30:
Nine Months Ended Three Months Ended September 30, September 30, 2005 2004 2005 2004 ----------------------- --------------------- Components of net periodic benefit cost: Service cost $ 349,928 $ 180,701 $ 116,643 $ 81,006 Interest cost 218,119 165,401 72,706 83,780 Expected return on plan assets (200,709) (147,336) (66,903) (70,016) Amortization of: Prior service costs 670 89,842 224 89,396(1) Transition obligation 2,078 53,423 692 49,087(2) Actuarial loss 49,002 45,701 16,334 31,693 ---------- ---------- --------- --------- Net periodic benefit cost $ 419,088 $ 387,732 $ 139,696 $ 264,946 ========== ========== ========= =========
The following actuarial weighted average assumptions were used in calculating net periodic benefit cost: Discount rate 6.00% 6.00% 6.00% 6.00% Average wage increase Graded table% Graded table% Graded table% Graded table(3) Return on plan assets 7.25% 7.25% 7.25% 7.25%
(1) Includes a one-time charge of $89,172 to reconcile unrecognized amounts with amortization schedule. (2) Includes a one-time charge of $46,921 to reconcile unrecognized amounts with amortization schedule. (3) 5% at Age 20 grading down to 3% at Age 60 and beyond (effective to approximately 3.25% on average). 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Business - -------- The following provides Management's comments on the financial condition and results of operations of Salisbury Bancorp, Inc. (the "Company"), a Connecticut corporation which is the holding company for Salisbury Bank and Trust Company (the "Bank"). The Company's sole subsidiary is the Bank, which has six (6) full service offices including a Trust Department located in the towns of North Canaan, Lakeville, Salisbury and Sharon, Connecticut and Sheffield and South Egremont, Massachusetts. The Company and Bank were formed in 1998 and 1848, respectively. In order to provide a strong foundation for building stockholder value and servicing customers, the Company remains committed to investing in the technological and human resources necessary to developing new personalized financial products and services to meet the needs of customers. This discussion should be read in conjunction with Salisbury Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2004. RESULTS OF OPERATIONS - --------------------- Overview - -------- The Company's net income for the nine months ended September 30, 2005 was $3,768,000, an increase of $804,000 or 27.13% over the same period ended September 30, 2004. Earnings per share also increased 9.27% and amounted to $2.24 per share as compared to $2.05 earnings per share for the same period one year ago. The improvement in net income is primarily the result of an increase in earning assets as a result of the merger with Canaan National Bancorp, Inc. on September 10, 2004. The Company's assets at September 30, 2005 totaled $402,269,000 compared to total assets of $423,101,000 at December 31, 2004. The decrease is primarily attributable to a reduction in the securities portfolio. During the first nine months of 2005 total loans outstanding increased $5,153,000 or 2.52% to $209,643,000. This compares to total loans outstanding of $204,490,000 at December 31, 2004. The Bank continues to monitor the quality of the loan portfolio to ensure that loan quality will not be sacrificed for growth or otherwise compromise the Company's objectives. Nonperforming loans totaled $1,166,000 at September 30, 2005 as compared to nonperforming loans totaling $2,267,000 at December 31, 2004. This represents a decrease of $1,101,000 or 48.57%. Deposits at September 30, 2005 totaled $284,408,000 as compared to total deposits of $298,842,000 at December 31, 2004, a decrease of $14,434,000. The decrease at quarter end is primarily attributable to seasonal cash flows. As a result of the Company's third quarter financial performance, the Board of Directors declared a third quarter cash dividend of $.25 per common share, which was paid on October 28, 2005 to shareholders of record as of September 30, 2005. This is the same as the cash dividend of $.25 per common share that was paid for the first two quarters of 2005. Year-to-date dividends total $.75 per common share for this year. This compares to total year-to-date dividends of $.72 per common share one year ago. The Company's risk based capital ratios at September 30, 2005, which include the risk weighted assets and capital of the Bank, were 14.57% for tier 1 capital and 15.82% for total risk based capital. The Company's leverage ratio was 7.87% at September 30, 2005 which compares to 8.82% for the corresponding period in 2004. Critical Accounting Estimates - ----------------------------- In preparing the Company's financial statements, management selects and applies numerous accounting policies. In applying these policies, management must make estimates and assumptions. The accounting policy that is most susceptible to critical estimates and assumptions is the allowance for loan losses. The determination of an appropriate provision is based on an estimation of the probable amount of future credit losses in the loan portfolio. Many factors influence the amount of future loan losses, relating to both the specific characteristics of the loan portfolio and general economic conditions nationally and locally. While management carefully considers these factors in determining the amount of the allowance for loan losses, future adjustments may be necessary due to changed conditions, which could have an adverse impact on reported earnings in the future. See "Provisions and Allowance for Loan Losses." 11 NINE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2004 Net Interest Income - ------------------- The Company's earnings are primarily dependent upon net interest and dividend income, and to a lesser extent its noninterest income from its community banking operations. Net interest and dividend income is the difference between interest and dividends earned on the loan and securities portfolio and interest paid on deposits and advances from the Federal Home Loan Bank. Non-interest income is primarily derived from the Trust Department, service charges and other fees related to deposit and loan accounts and from gains on sales of available-for-sale securities. For the following discussion, net interest and dividend income is presented on a fully taxable-equivalent ("FTE") basis. FTE interest income restates reported interest income on tax exempt securities as if such interest were taxed at the Company's federal tax rate of 34% for all periods presented. (amounts in thousands) Nine Months ended September 30, 2005 2004 -------- -------- Total Interest and Dividend Income (financial statements) $ 15,375 $ 11,675 Tax Equivalent Adjustment 957 831 -------- -------- Total Interest and Dividend Income (on an FTE basis) 16,332 12,506 Total Interest Expense 5,295 3,932 -------- -------- Net Interest and Dividend Income-FTE $ 11,037 $ 8,574 ======== ======== Total interest and dividend income on an FTE basis for the nine months ended September 30, 2005, when compared to the same period in 2004, increased $3,826,000 or approximately 30.59%. The increase was primarily attributable to an increase in earning assets as well as an economic environment experiencing an increase in interest rates. Interest expense on deposits for the first nine months of 2005 totaled $2,962,000, an increase of 57.89% compared to the same period in 2004. This increase is partly the result of the additional deposit accounts resulting from the merger with Canaan National Bancorp, Inc. in September of 2004 as well as an economic environment of generally higher interest rates. Although Federal Home Loan Bank advances decreased during the nine month period ended September 30, 2005, interest expense on these advances increased 13.47% to $2,333,000. This increase in interest expense is attributable to an economic environment of increasing interest rates coupled with generally higher rates on Federal Home Loan Bank advances that were acquired in connection with the previously mentioned merger. Total interest expense for the nine months ended September 30, 2005 was $5,295,000, an increase of $1,363,000 or 34.66% when compared to the same period in 2004. Overall, net interest and dividend income (on an FTE basis) increased $2,463,000 or 28.73% to $11,037,000 for the period ended September 30, 2005 when compared to the same period in 2004. Noninterest Income - ------------------ Noninterest income totaled $3,890,000 for the nine months ended September 30, 2005. This is an increase of $552,000 or 16.54% compared to noninterest income of $3,338,000 for the nine months ended September 30, 2004. Continuing growth of the Trust Department has resulted in an increase in trust income of $112,000 or 11.12% to $1,119,000 for the first nine months of 2005, which compares to $1,007,000 for the same period in 2004. Gains on sales of available-for-sale securities increased 19.24% to $1,227,000 for the first nine months of 2005 compared to the corresponding period in 2004. Other income is a category of income primarily consisting of fees associated with transaction accounts, fees related to the origination and servicing of mortgage loans, and gains related to the sale of mortgage loans. Other income for the first nine months of 2005 totaled $898,000. This represents an increase of $271,000 or 43.22% when comparing total other income of $627,000 for the same period in 2004. 12 Noninterest Expense - ------------------- Noninterest expense increased 23.72% for the first nine months of 2005 as compared to the same period in 2004. The increases in the noninterest expenses listed in the table below are primarily attributable to the merger with Canaan National Bancorp, Inc. with the exception of the Trust Department expense, which reflects additional costs associated with the continuing growth of new accounts in the department. The decrease in other expense is a reflection of non-recurring expenses in 2004 relating to the conversion of the Company's core processing system. The components of noninterest expense and the changes in the period were as follows (amounts in thousands): 2005 2004 Change % Change - ------------------------------------------------------------------------------- Salaries and employee benefits $ 5,359 $ 4,142 $ 1,217 29.4 Occupancy expense 524 259 265 102.3 Equipment expense 557 404 153 37.9 Trust department expense 276 234 42 18.0 Data processing 585 465 120 25.8 Insurance 111 87 24 27.6 Printing and stationery 192 153 39 25.5 Professional fees 221 187 34 18.2 Legal expense 109 69 40 58.0 Amortization of core deposit intangible 123 56 67 119.6 Other expense 1,002 1,266 (264) (20.9) ------- ------- ------- -------- Total noninterest expense $ 9,059 $ 7,322 $ 1,737 23.72 ======= ======= ======= Income Taxes - ------------ The income tax provision for the first nine months of 2005 totaled $873,000 in comparison to $615,000 for the same nine month period in 2004. The increase is primarily attributable to an increase in taxable income. Net Income - ---------- Overall, net income totaled $3,768,000 for the nine months ended September 30, 2005 and represents earnings of $2.24 per share. This compares to net income of $2,964,000 for the same period in 2004, an increase of 27.13% and compares to earnings per share of $2.05 for the corresponding period in 2004. The improvement in net income is primarily the result of an increase in earning assets resulting from the merger with Canaan National Bancorp, Inc. THREE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2004 Net Interest Income - ------------------- For the following discussion, net interest and dividend income is presented on a fully taxable-equivalent ("FTE") basis. FTE interest income restates reported interest income on tax exempt loans and securities as if such interest were taxed at the Company's federal tax rate of 34% for all periods presented. (amounts in thousands) Three months ended September 30, 2005 2004 -------- -------- Total Interest and Dividend Income (financial statements) $ 5,272 $ 4,105 Tax Equivalent Adjustment 296 284 -------- -------- Total Interest and Dividend Income (on an FTE basis) 5,568 4,389 Total Interest Expense 1,906 1,390 -------- -------- Net Interest and Dividend Income-FTE $ 3,662 $ 2,999 ======== ======== Total interest and dividend income on an FTE basis for the three months ended September 30, 2005 increased $1,179,000 or approximately 26.86% compared to the same period in 2004. The increase was primarily attributable to an increase in earning assets as well as an economic environment with generally higher interest rates. 13 Interest expense on deposits increased $415,000 or 62.88% for the quarter to $1,075,000 compared to $660,000 for the same quarter in 2004. This increase is primarily the result of an economic environment of increasing interest rates. Federal Home Loan Bank advances have increased for the three month period ended September 30, 2005 when compared to the corresponding period in 2004. Interest expense on these advances increased $101,000 or 13.84% and totaled $831,000 for the three months ended September 30, 2005 compared to the corresponding period in 2004. Total interest expense for the three months ending September 30, 2005 was $1,906,000 compared to total interest expense for the same period in 2004 of $1,390,000, an increase of $516,000 or 37.12%. This increase is a reflection of an economic environment of rising interest rates and the result of generally higher interest rates on Federal Home Loan Bank advances that were acquired in connection with the merger of Canaan National Bancorp, Inc. with the Company. Overall, net interest and dividend income (on an FTE basis) increased $663,000 or 22.11% to $3,662,000 for the three month period ended September 30, 2005 when compared to the corresponding period in 2004. Noninterest Income - ------------------ Noninterest income totaled $1,275,000 for the three months ended September 30, 2005 as compared to $1,124,000 for the three months ended September 30, 2004, an increase of $151,000 or 13.43%. Continuing growth of the Trust Department has resulted in an increase in income of $42,000 or 14.0% to $342,000 for the third quarter of 2005 compared to the same period in 2004. Gains on sales of available-for-sale securities totaled $390,000 for the third quarter of 2005 as compared to $387,000 for the corresponding period in 2004. This increase is primarily attributable to management's efforts to maximize the spreads in the portfolio. During the quarter there were opportunities in the market that resulted in taking gains on sales while increasing the yields in the portfolio at the same time. Noninterest Expense - ------------------- Noninterest expense totaled $3,068,000 for the three month period ended September 30, 2005 as compared to $2,985,000 for the same period in 2004, an increase of $83,000 or 2.8%. The increases listed in the table below are all primarily attributable to the merger with Canaan National Bancorp, Inc. The decrease in other expense is attributable to non-recurring merger expenses and conversion related expenses in 2004. The components of noninterest expense and the changes in the period were as follows (amounts in thousands): 2005 2004 Change % Change - ------------------------------------------------------------------------------- Salaries and employee benefits $ 1,849 $ 1,620 $ 229 14.1 Occupancy expense 175 96 79 82.3 Equipment expense 183 123 60 48.8 Trust department expense 59 55 4 7.3 Data processing 192 165 27 16.4 Insurance 36 29 7 24.1 Printing and stationery 43 40 3 8.0 Professional fees 87 72 15 20.8 Legal expense 41 7 34 485.7 Amortization of core deposit intangible 41 22 19 86.4 Other expense 362 756 (394) (52.1) ------- ------- ------ ------ Total noninterest expense $ 3,068 $ 2,985 $ 83 2.8 ======= ======= ====== Income Taxes - ------------ The income tax provision for the three month period ended September 30, 2005 totaled $352,000 in comparison to a tax benefit of $2,000 for the same three month period in 2004. This is the result of an increase in taxable income. In addition, the Company formed a passive investment company. The structure of the company creates tax advantages that result in a reduction of tax liability for the Company. 14 Net Income - ---------- Overall, net income totaled $1,131,000 for the three months ended September 30, 2005 and represents earnings of $.67 per share. This compares to net income of $796,000 for the same period in 2004, an increase of $335,000 or 42.1% and compares to earnings per share of $.54 for the corresponding period in 2004. The improvement in net income is primarily the result of an increase in earning assets, and is partially offset by the current economic condition of compressing interest spreads. FINANCIAL CONDITION - ------------------- Total assets at September 30, 2005 were $402,269,000, compared to $423,101,000 at December 31, 2004, a decrease of 4.92%. The decrease is primarily the result of maturities, sales and calls of available-for-sale securities in the portfolio during the period ended September 30, 2005. Securities - ---------- During the nine months ended September 30, 2005, the securities portfolio, including Federal Home Loan Bank stock, decreased $27,008,000 or 14.66% to $157,278,000 from $184,286,000 at December 31, 2004. The decrease is primarily a reflection of portfolio securities being sold and called during the period with the proceeds being used to fund loan growth and reduce total advances outstanding at the Federal Home Loan Bank of Boston. The securities portfolio is diversified among U.S. Government sponsored agencies, mortgage-backed securities and securities issued by states of the United States and political subdivisions of the states. Securities are classified in the portfolio as either securities available-for-sale or securities held-to-maturity. Almost all securities are classified as available-for-sale. The securities reported as available-for-sale are stated at fair value in the financial statements of the Company. Unrealized holding gains and losses on available-for-sale securities (accumulated other comprehensive income/loss) are not included in earnings, but are reported as a net amount (less expected tax) in a separate component of capital until realized. At September 30, 2005, the unrealized loss net of tax was $1,384,000. This compares to an unrealized loss net of tax of $723,000 at December 31, 2004. The unrealized losses in these securities are attributable to changes in market interest rates. Management deems the securities that are currently in an unrealized loss position as not other than temporarily impaired. The securities reported as securities held-to-maturity are stated at amortized cost. Lending - ------- New business development during the first nine months of 2005 coupled with a small increase in loan demand resulted in an increase in total loans outstanding to $209,643,000 at September 30, 2005. This compares to total loans outstanding of $204,490,000 at December 31, 2004. This is an increase of $5,153,000 or 2.52%. Competition for loans remains aggressive in the Bank's market area, especially in the residential mortgage loan market. The following table represents the composition of the loan portfolio comparing September 30, 2005 to December 31, 2004: September 30, 2005 December 31, 2004 ------------------ ----------------- (amounts in thousands) Commercial, financial and agricultural $ 15,418 $ 15,127 Real Estate-construction and land development 16,584 14,290 Real Estate-residential 130,646 130,414 Real Estate-commercial 38,613 35,487 Consumer 8,352 9,122 Other 40 69 ------------------ ----------------- 209,653 204,509 Unearned income (10) (19) Allowance for loan losses (2,743) (2,512) ------------------ ----------------- Net Loans $ 206,900 $ 201,978 ================== ================= 15 Provisions and Allowance for Loan Losses - ---------------------------------------- Net loans at September 30, 2005 increased 2.44% to $206,900,000 when compared to net loans of $201,978,000 at December 31, 2004. At September 30, 2005 approximately 89% of the Bank's loan portfolio was related to real estate products. The concentration remained consistent as approximately 88% of the portfolio was related to real estate at December 31, 2004. There were no material changes in the composition of the loan portfolio during this period. Credit risk is inherent in the business of extending loans. The Bank monitors the quality of the portfolio to ensure that loan quality will not be sacrificed for growth or otherwise compromise the Bank's objectives. Because of this risk associated with extending loans, the Bank maintains an allowance for loan losses through charges to earnings. The loan loss provision for the nine-month period ended September 30, 2005 was $270,000 compared to $180,000 in the comparable period of 2004. The Bank evaluates the adequacy of the allowance on a monthly basis. No material changes have been made in the estimation methods or assumptions that the Bank uses in making this determination during the period ended September 30, 2005. Such evaluations are based on assessments of credit quality and "risk rating" of loans by senior management, which are submitted to the Bank's Board of Directors for approval. Loans are initially risk rated when originated. If there is deterioration in the credit, the risk rating is adjusted accordingly. A loan is considered impaired when, based on current information and events, it is probable that the Bank 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 records, 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 Bank does not separately identify individual consumer and residential loans for impairment disclosures. In addition, a risk of loss factor is applied in evaluating categories of loans generally as part of the periodic analysis of the Allowance for Loan Losses. This analysis reviews the allocations of the different categories of loans within the portfolio and it considers historical loan losses and delinquency figures as well as any recent delinquency trends. The credit card delinquency and loss history is separately evaluated and given a special loan loss factor because management recognizes the higher risk involved in such loans. Concentrations of credit and local economic factors are also evaluated on a periodic basis. Historical average net losses by loan type are examined as well as trends by type. The Bank's loan mix over the same period of time is also analyzed. A loan loss allocation is made for each type of loan multiplied by the loan mix percentage for each loan type to produce a weighted average factor. There have been no reallocations within the allowance during the nine months ended September 30, 2005. At September 30, 2005, the allowance for loan losses totaled $2,743,000, representing 235.25% of nonperforming loans, which totaled $1,166,000, and 1.31% of total loans of $209,653,000. This compares to an allowance for loan losses of $2,512,000, representing 110.81% of nonperforming loans, which totaled $2,267,000, and 1.23% of total loans of $204,509,000 at December 31, 2004. This decrease results from the payoff of loans previously categorized as nonperforming loans at December 31, 2004. A total of $69,000 of loans were charged off by the Bank during the nine months ended September 30, 2005. These charged-off loans consisted primarily of consumer loans. This compares to loans charged off during the nine month period ended September 30, 2004 which totaled $38,000. A total of $31,000 of previously charged-off loans was recovered during the nine month period ended September 30, 2005. Recoveries for the same period in 2004 totaled $17,000. While management estimates loan losses using the best available information, no assurances can be given that future additions to the allowance will not be necessary 16 based on changes in economic and real estate market conditions, further information obtained regarding problem loans, identification of additional problem loans or other factors. Additionally, future additions to the allowance may be necessary to maintain adequate coverage ratios. Deposits - -------- The Company offers a variety of deposit accounts with a range of interest rates and terms. The following table illustrates the composition of the Company's deposits at September 30, 2005 and December 31, 2004: September 30, 2005 December 31, 2004 ------------------ ----------------- (amounts in thousands) Demand $ 65,475 $ 65,017 NOW 25,505 29,569 Money Market 55,659 49,206 Savings 55,804 63,588 Time 81,965 91,462 ------------------ ----------------- Total Deposits $ 284,408 $ 298,842 ================== ================= Deposits constitute the principal funding source of the Company's assets. Borrowings - ---------- The Company utilizes advances from the Federal Home Loan Bank as part of its operating strategy to supplement deposit growth and fund its asset growth, a strategy that is designed to increase interest income. These advances are made pursuant to various credit programs, each of which has its own interest rate and range of maturities. At September 30, 2005, the Company had $72,452,000 in outstanding advances from the Federal Home Loan Bank compared to $79,213,000 at December 31, 2004. Management expects that it will continue this strategy of supplementing deposit growth with advances from the Federal Home Loan Bank. Interest Rate Risk - ------------------ Interest rate risk is the most significant market risk affecting the Company. Interest rate risk is defined as an exposure to a movement in interest rates that could have an adverse effect on net interest income. Net interest income is sensitive to interest rate risk to the degree that interest bearing liabilities mature or reprice on a different basis than earning assets. In an attempt to manage its exposure to changes in interest rates, the Bank's assets and liabilities are managed in accordance with policies established and reviewed by the Bank's Board of Directors. The Bank's Asset/Liability Management Committee monitors asset and deposit levels, developments and trends in interest rates, liquidity and capital. One of the primary financial objectives is to manage interest rate risk and control the sensitivity of earnings to changes in interest rates in order to prudently improve net interest income and manage the maturities and interest rate sensitivities of assets and liabilities. To quantify the extent of these risks, both in its current position and in actions it might take in the future, interest rate risk is monitored using gap analysis which identifies the differences between assets and liabilities which mature or reprice during specific time frames and model simulation which is used to "rate shock" the Company's assets and liability balances to measure how much of the Company's net interest income is "at risk" from sudden rate changes. An interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. At September 30, 2005, the Company was slightly asset sensitive (positive gap). This would suggest that during a period of rising interest rates, the Company would be in a better position to invest in higher yielding assets resulting in growth in interest income. To the contrary, during a period of falling interest rates, a positive gap would result in a decrease in interest income. The level of interest rate risk at September 30, 2005 is within the limits approved by the Board of Directors. 17 Liquidity - --------- Liquidity is the ability to raise funds on a timely basis at an acceptable cost in order to meet cash needs. Adequate liquidity is necessary to handle fluctuations in deposit levels, to provide for customers' credit needs, and to take advantage of investment opportunities as they are presented. The Company manages liquidity primarily with readily marketable investment securities, deposits and loan repayments. The Company's subsidiary, the Bank, is a member of the Federal Home Loan Bank of Boston. This enhances the liquidity position by providing a source of available borrowings. At September 30, 2005 the Company had approximately $53,483,000 in loan commitments outstanding. Management believes that the current level of liquidity is ample to meet the Company's needs for both the present and foreseeable future. Capital - ------- At September 30, 2005, the Company had $42,581,000 in stockholders' equity, an increase of 4.62% when compared to December 31, 2004 stockholders' equity totaling $40,700,000. Earnings for the nine-month period ended September 30, 2005 totaled $3,768,000. Market conditions resulted in an increase in accumulated other comprehensive loss to $1,384,000 from $723,000 at December 31, 2004. A review and analysis of securities has determined that there has been no credit deterioration and that the unrealized loss on securities available-for-sale is due to the current interest rate environment and management deems the securities to be not other than temporarily impaired. The Company has declared three quarterly dividends resulting in a decrease in capital of $1,262,000. The Company issued 940 new shares of common stock under the terms of the Director Stock Retainer Plan that resulted in an increase in capital of $36,000. Under current regulatory definitions, the Company and the Bank are considered to be "well capitalized" for capital adequacy purposes. As a result, the Bank pays the lowest federal deposit insurance deposit premiums possible. One primary measure of capital adequacy for regulatory purposes is based on the ratio of risk-based capital to risk-weighted assets. This method of measuring capital adequacy helps to establish capital requirements that are more sensitive to the differences in risk associated with various assets. It takes into account off-balance sheet exposure in assessing capital adequacy and it minimizes disincentives to holding liquid, low-risk assets. At September 30, 2005, the Company had a risk-based capital ratio of 15.82% compared to 12.13% at December 31, 2004. At September 30, 2005, the Company's Tier 1 Leverage Capital was 14.57% as compared to 11.12% at December 31, 2004. Maintaining strong capital is essential to bank safety and soundness. However, the effective management of capital resources requires generating attractive returns on equity to build value for shareholders while maintaining appropriate levels of capital to fund growth, meet regulatory requirements and be consistent with prudent industry practices. Management believes that the capital levels of the Company and Bank are adequate to continue to meet the foreseeable capital needs of the institutions. Impact of Inflation and Changing Prices - --------------------------------------- The Company's consolidated financial statements are prepared in conformity with generally accepted accounting principles which require the measurement of financial condition and operating results in terms of historical dollars without considering changes in the relative purchasing power of money, over time, due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of the Company are monetary and as a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation, although interest rates do not necessarily move in the same direction or with the same magnitude as the prices of goods and services. Although not an influence in recent years, inflation could impact earnings in future periods. 18 Forward-Looking Statements - -------------------------- This Form 10-Q and future filings made by the Company with the Securities and Exchange Commission, as well as other filings, reports and press releases made or issued by the Company and the Bank, and oral statements made by executive officers of the Company and the Bank, may include forward-looking statements relating to such matters as: (a) assumptions concerning future economic and business conditions and their effect on the economy in general and on the markets in which the Company and the Bank do business; and (b) expectations for revenues and earnings for the Company and Bank. Such forward-looking statements are based on assumptions rather than historical or current facts and, therefore, are inherently uncertain and subject to risk. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Act of 1995. The Company notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations described or implied by such forward-looking statements. The risks and uncertainties that may effect the operation, performance, development and results of the Company's and Bank's business include the following: (a) the risk of adverse changes in business conditions in the banking industry generally and in the specific markets in which the Bank operates; (b) changes in the legislative and regulatory environment that negatively impact the Company and Bank through increased operating expenses; (c) increased competition from other financial and non-financial institutions; (d) the impact of technological advances; and (e) other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. Such developments could have an adverse impact on the Company's and the Bank's financial position and results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The main components of market risk for the Company are interest rate risk and liquidity risk. The Company manages interest rate risk and liquidity risk through an ALCO Committee comprised of outside Directors and senior management. The committee monitors compliance with the Bank's Asset/Liability Policy which provides guidelines to analyze and manage the interest rate sensitivity gap, which is the difference between the amount of assets and the amounts of liabilities which mature or reprice during specific time frames. Model simulation is used to measure earnings volatility under both rising and falling rate scenarios. Please refer to Interest Rate Risk and Liquidity under Item 2. The Company's interest rate risk and liquidity position has not significantly changed from year end 2004. Item 4. Controls and Procedures. The Company's Chief Executive Officer and Chief Financial Officer concluded that, based upon an evaluation as of September 30, 2005, the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated, recorded, processed, summarized, reported and communicated to management, including the Company's Chief Executive Office and Chief Financial Officer, as appropriate, and allows timely decisions regarding required disclosures within the time periods specified in the SEC rules and forms. During the nine month period ended September 30, 2005 there were no material changes in the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 19 Part II - OTHER INFORMATION Item 1. - Legal Proceedings. Not applicable Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds. Not applicable Item 3. - Defaults Upon Senior Securities. Not applicable Item 4. - Submission of Matters to a Vote of Security Holders. Not applicable Item 5. - Other Information. Not applicable Item 6. - Exhibits 11 Computation of Earnings per Share. 31.1 - Rule 13a-14(a)/15d-14(a) Certification. 31.2 - Rule 13a-14(a)/15d-14(a) Certification. 32 - Section 1350 Certifications. 20 SALISBURY BANCORP, INC. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Salisbury Bancorp, Inc. Date: November 14, 2005 by: /s/ John F. Perotti ----------------- ----------------------- John F. Perotti Chief Executive Officer Date: November 14, 2005 by: /s/ John F. Foley ----------------- ----------------------- John F. Foley Chief Financial Officer 21 EX-11 2 ex11.txt EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE The Company has computed and presented earnings per share ("EPS") in accordance with Statement of Financial Accounting Standards No. 128. Reconciliation of the numerators and the denominators of the basic and diluted per share computation for net income are as follows:
(amounts in thousands, except per share data) (unaudited) Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ----------- Nine months ended September 30, 2005 Basic EPS Net income and income available to common stockholders $ 3,768 1,683 $ 2.24 Effect of dilutive securities, options 0 ----------- ------------- Diluted EPS Income available to common stockholders and assumed conversions $ 3,768 1,683 $ 2.24 =========== ============= Nine months ended September 30, 2004 Basic EPS Net income and income available to common stockholders $ 2,964 1,443 $ 2.05 Effect of dilutive securities, options 0 ----------- ------------- Diluted EPS Income available to common stockholders and assumed conversions $ 2,964 1,443 $ 2.05 =========== =============
(amounts in thousands, except per share data) (unaudited) Income Shares Per-Share (Numerator) (Denominator) Amount ----------- ------------- ----------- Three months ended September 30, 2005 Basic EPS Net income and income available to common stockholders $ 1,131 1,683 $ .67 Effect of dilutive securities, options 0 ----------- ------------- Diluted EPS Income available to common stockholders and assumed conversions $ 1,131 1,683 $ .67 =========== ============= Three months ended September 30, 2004 Basic EPS Net income and income available to common stockholders $ 796 1,481 $ .54 Effect of dilutive securities, options 0 ----------- ------------- Diluted EPS Income available to common stockholders and assumed conversions $ 796 1,481 $ .54 =========== =============
22 EX-31.1 3 ex31-1.txt Exhibit 31.1 ------------ RULE 13a-14(a)/15d-14(a) CERTIFICATION -------------------------------------- I, John F. Perotti, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Salisbury Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function): a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2005 By: /s/ John F. Perotti ----------------------- Chief Executive Officer 23 EX-31.2 4 ex31-2.txt Exhibit 31.2 ------------ RULE 13a-14(a)/15d-14(a) CERTIFICATION -------------------------------------- I, John F. Foley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Salisbury Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report to our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function): a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2005 By: /s/ John F. Foley ----------------------- Chief Financial Officer 24 EX-32 5 ex32.txt EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Salisbury Bancorp, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John F. Perotti, Chief Executive Officer of the Company, and I, John F. Foley, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John F. Perotti /s/ John F. Foley - --------------------------- --------------------------- John F. Perotti John F. Foley Chief Executive Officer Chief Financial Officer 25 -----END PRIVACY-ENHANCED MESSAGE-----