Salisbury Bancorp, Inc. Reports Results for Third Quarter 2018; Declares 28 Cent Dividend

• Third Quarter Net Income of $0.84 per Share
   
• Total Assets of $1.1 Billion with Strong Loan Growth
   
• Non-performing Assets were 0.77% of Total Assets
   
• Wealth Assets Under Administration Increased $22 million to $690 Million

LAKEVILLE, Connecticut, Oct. 26, 2018 (GLOBE NEWSWIRE) -- Salisbury Bancorp, Inc. (“Salisbury”), (NASDAQ Capital Market: “SAL”), the holding company for Salisbury Bank and Trust Company (the “Bank”), announced results for its third quarter ended September 30, 2018.

Net income allocated to common shareholders was $2.3 million, or $0.84 per common share, for the quarter ended September 30, 2018 (third quarter 2018), compared with $1.9 million, or $0.68 per common share, for the second quarter ended June 30, 2018 (second quarter 2018), and $1.7 million, or $0.61 per common share, for the third quarter ended September 30, 2017 (third quarter 2017).

Salisbury’s President and Chief Executive Officer, Richard J. Cantele, Jr., stated, “We reported strong earnings on continued loan growth this quarter amidst sustained competitive market conditions. The credit quality of our loan portfolio remains strong and we are beginning to realize improvement in our efficiency ratio. We remain focused on prudently managing our balance sheet and expense base to optimize shareholder value while continuing to provide outstanding customer service.”

Net-Interest Income

Tax equivalent net interest income for third quarter 2018 increased $460 thousand, or 5.6%, versus second quarter 2018, and increased $632 thousand or 7.9%, versus third quarter 2017. Average earning assets increased $59.2 million versus second quarter 2018, and increased $128.3 million versus third quarter 2017. Average total interest bearing deposits increased $41.6 million versus second quarter 2018 and increased $68.6 million versus third quarter 2017. The tax equivalent net interest margin for the third quarter 2018 was 3.29% compared with 3.31% for the second quarter 2018 and 3.49% for the third quarter 2017.

Non-Interest Income

Non-interest income for third quarter 2018 increased $30 thousand versus second quarter 2018 and increased $8 thousand versus third quarter 2017.

Trust and Wealth Advisory fees decreased $13 thousand versus second quarter 2018 and increased $62 thousand versus third quarter 2017. The quarter-over-quarter decrease reflected tax preparation fees recorded in the second quarter 2018 and lower estate settlement fees partly offset by higher asset-based fees.  The increase from the prior year third quarter primarily reflected higher asset management fees as well as higher estate and retirement planning fees. Assets under administration were $690 million as of September 30, 2018 compared with $668 million at June 30, 2018 and $595 million as of September 30, 2017. The increase from the second quarter 2018 was primarily attributed to growth in discretionary assets under administration.  

Service charges and fees increased $40 thousand versus second quarter 2018 and decreased $3 thousand versus third quarter 2017. The increase from the second quarter 2018 primarily reflected higher deposit and interchange fees whereas the decrease versus third quarter 2017 reflected higher interchange fees, offset by lower deposit and other fees.

Income from sales and servicing of mortgage loans increased $22 thousand versus second quarter 2018 and decreased $24 thousand versus third quarter 2017. The increase from second quarter 2018 included gains on the sale of $1.2 million of mortgage loans. No mortgage loans were sold in the second quarter 2018 and $0.4 million of loans were sold in the third quarter 2017. The third quarter 2017 also included a benefit of $25 thousand for the reversal of previously recorded impairment charges for mortgage servicing rights. Third quarter 2018, second quarter 2018, and third quarter 2017 included net mortgage servicing amortization and periodic impairment charges (benefit) of $12 thousand, $11 thousand, and ($12) thousand, respectively.

There were no realized gains / (losses) on the sale of securities in the third quarter 2018 or the third quarter 2017. There were realized gains of $30 thousand on the sale of securities for the second quarter 2018. Losses on an equity investment in a CRA mutual fund were $6 thousand in the third quarter 2018 compared with losses of $20 thousand for the second quarter 2018. Prior to first quarter 2018, unrealized gains and losses on equity investments were included in shareholders’ equity.

Non-Interest Expense

Non-interest expense for third quarter 2018 decreased $88 thousand versus second quarter 2018 and increased $109 thousand versus third quarter 2017. 

Total compensation expense increased $235 thousand versus second quarter 2018 primarily due to higher base salaries, production accruals, reflecting higher loan origination volume, higher incentive accruals and benefits expense and lower deferred expenses related to loan originations. Total compensation expenses year-over-year increased by $310 thousand primarily reflecting higher base salaries and higher production accruals, reflecting higher loan origination volume, and higher incentive accruals and deferred compensation expense.

Premises and equipment expense decreased $65 thousand versus second quarter 2018 and increased $41 thousand versus third quarter 2017.  The decrease from the second quarter 2018 primarily reflected lower machine maintenance and repair charges partly offset by higher software and building maintenance and repair costs. The year-over-year increase primarily reflected higher charges for building depreciation and maintenance and repair costs offset by lower equipment maintenance and repair costs.

Data processing expenses, which also include data communications, decreased $37 thousand versus second quarter 2018 and decreased $26 thousand versus third quarter 2017. The decrease from the second quarter 2018 primarily reflected lower ATM and debit card processing fees and lower data communication charges. The year over year decrease primarily reflected lower trust & wealth related data processing charges and lower ATM and debit card processing fees, partly offset by higher core system data processing charges.

Professional fees decreased $115 thousand versus second quarter 2018, and increased $15 thousand versus third quarter 2017. The decline from the second quarter 2018 primarily reflected lower consultation and investment management fees, partly offset by higher internal audit fees. The second quarter 2018 included one-time legal and consultation costs of approximately $75 thousand related to the acquisition of the Fishkill, N.Y. branch from Orange Bank & Trust Company. The increase from the third quarter 2017 primarily reflected higher internal audit fees, partly offset by lower consultation, investment management and external audit fees.

Loan related expenses decreased $119 thousand compared to second quarter 2018 and decreased $85 thousand versus third quarter 2017. The decrease from both comparable periods was primarily driven by lower OREO carrying costs, lower delinquent taxes paid on properties in the foreclosure process, and lower litigation expense, partly offset by higher appraisal costs. The third quarter 2018 also included a write-down on OREO properties of $38 thousand.

Other expenses increased $19 thousand compared to second quarter 2018 and increased $83 thousand versus third quarter 2017. The third quarter 2018 included a one-time charge of $95 thousand, related to a write-down on a mortgage loan previously sold to the FHLB Boston, partly offset by lower investor relations expenses.

The effective income tax rates for third quarter 2018, second quarter 2018 and third quarter 2017 were 18.7%, 14.4% and 29.1%, respectively. The increase in the effective income tax rate from the second quarter 2018 primarily reflected the impact of permanent items on lower taxable income in the second quarter 2018. The decline in the effective income tax rate from the third quarter 2017 primarily reflected the enactment of the new U.S. tax law during the fourth quarter of 2017.

Loans

Gross loans receivable increased $26.2 million during the quarter to $906.4 million at September 30, 2018, compared with $880.2 million at June 30, 2018, and increased $115.7 million from $790.6 million at September 30, 2017. Residential real estate loans increased $19.8 million during third quarter 2018 to $426.9 million, and increased $52.3 million from third quarter 2017. Commercial real estate loans increased $7.4 million during third quarter 2018 to $291.3 million, and increased $34.7 million from third quarter 2017. Commercial and Industrial loans were essentially unchanged from second quarter 2018 at $150.7 million, and increased $22.1 million from third quarter 2017.

The allowance for loan losses for third quarter 2018 was $7.7 million compared with $7.4 million for second quarter 2018 and $6.5 million for third quarter 2017.

Asset Quality

Non-performing assets increased $2.1 million during third quarter 2018 to $8.5 million, or 0.77% of total assets at September 30, 2018, from $6.4 million, or 0.58% of total assets at June 30, 2018, and decreased $3.7 million from $12.3 million, or 1.25% of total assets, at September 30, 2017.  The increase in non-performing assets from the second quarter 2018 was primarily attributed to a single residential property.

The amount of total impaired and potential problem loans increased $1.1 million during the third quarter to $24.4 million (2.7% of gross loans receivable), compared to $23.3 million, or 2.7% of gross loans receivable at June 30, 2018, and increased $1.1 million from $23.3 million, or 3.0% of gross loans receivable at September 30, 2017.  

Accruing loans receivable 30-to-89 days past due increased $0.3 million during third quarter 2018 to $1.8 million, or 0.20% of gross loans receivable, from $1.5 million, or 0.17% of gross loans receivable at June 30, 2018, and decreased $1.7 million from $3.4 million, or 0.44% of gross loans receivable at September 30, 2017.

Provision for loan loss expense was $378 thousand for third quarter 2018 versus $467 thousand for second quarter 2018, and $237 thousand for third quarter 2017. The decrease in the provision from second quarter 2018 reflected lower loan growth whereas the increase from the third quarter 2017 reflected higher loan growth.  Net loan charge-offs were $14 thousand for the third quarter 2018, $144 thousand for second quarter 2018 and $236 thousand for the third quarter 2017. Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, was 0.85% for the third quarter 2018, versus 0.84% for second quarter 2018 and 0.82% for third quarter 2017.

Salisbury endeavors to work constructively to resolve its non-performing loan issues with customers. Substantially all non-performing loans are collateralized with real estate and the repayment of such loans is largely dependent on the return of such loans to performing status or the liquidation of the underlying real estate collateral.

Deposits and Borrowings

Deposits were $902.2 million at September 30, 2018 compared with $897.5 million at June 30, 2018 and $832.0 million at September 30, 2017.  Average total deposits for the third quarter 2018 were $894.6 million compared with $847.8 million at June 30, 2018.  Average total deposits for the third quarter 2018 reflected normal seasonal activity as well as approximately $38 million deposited by a trust & wealth advisory customer on June 28, 2018.  As part of planned distributions, approximately $29 million of these funds were withdrawn on July 12, 2018 and the remainder was withdrawn on September 27, 2018.

FHLB advances decreased $11.9 million during the quarter to $67.6 million at September 30, 2018 and increased $40.2 million from September 30, 2017.

Capital

Book value per common share increased $0.55 during the third quarter to $35.93 per share and increased $0.92 from the third quarter 2017. Tangible book value per common share increased $0.59 during third quarter 2018 to $30.47 and increased $1.13 as compared to the third quarter 2017.

Shareholders’ equity increased $1.6 million in third quarter 2018 to $100.8 million at September 30, 2018 as net income of $2.3 million and the issuance of restricted stock awards of $0.2 million were partly offset by common stock dividends paid of $0.8 million and unrealized losses in the AFS portfolio of $0.1 million.

The Bank’s regulatory capital ratios remain in compliance with regulatory “well capitalized” requirements. At September 30, 2018, Salisbury’s Tier 1 leverage, total risk-based capital, and common equity tier 1 capital ratios were 8.02%, 12.26%, and 10.17%, respectively. The Bank’s Tier 1 leverage, total risk-based capital, and common equity tier 1 capital ratios were 8.66%, 11.91%, and 10.99%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 10.00%, and 6.5%, respectively.

Third Quarter 2018 Dividends on Common Shares

The Board of Directors of Salisbury declared a $0.28 per common share quarterly cash dividend at its October 26, 2018 meeting. The dividend will be paid on November 30, 2018 to shareholders of record as of November 16, 2018.

Background

Salisbury Bancorp, Inc. is the parent company of Salisbury Bank and Trust Company, a Connecticut chartered commercial bank serving the communities of northwestern Connecticut and proximate communities in New York and Massachusetts, since 1848, through full service branches in Canaan, Lakeville, Salisbury and Sharon, Connecticut; Great Barrington, South Egremont and Sheffield, Massachusetts; and Dover Plains, Fishkill, Millerton, Newburgh, New Paltz, Poughkeepsie, and Red Oaks Mill, New York. The Bank offers a broad spectrum of consumer and business banking products and services as well as trust and wealth advisory services.

Forward-Looking Statements

This news release may contain statements relating to Salisbury’s and the Bank’s future results that are considered “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and expectations of management as well as the assumptions and estimates made by management using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions, including among others: changes in market interest rates and general and regional economic conditions; changes in laws and regulations; changes in accounting principles; and the quality or composition of the loan and investment portfolios, technological changes and cybersecurity matters, and other factors that may be described in Salisbury’s quarterly reports on Form 10-Q and its annual report on Form 10-K, which are available at the Securities and Exchange Commission’s website (www.sec.gov) and to which reference is hereby made. Forward-looking statements made by Salisbury in this news release speak only as of the date they are made. Events or other facts that could cause Salisbury’s actual results to differ may arise from time to time and Salisbury cannot predict all such events and factors. Salisbury undertakes no obligation to publicly update any forward-looking statement unless as may be required by law.

Salisbury Contact: Richard J. Cantele, Jr., President and Chief Executive Officer
860-435-9801 or rcantele@salisburybank.com

Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS (unaudited)

Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Salisbury Bancorp, Inc. and Subsidiary
SELECTED CONSOLIDATED FINANCIAL DATA (unaudited)

⁽¹⁾ Refer to schedule labeled “Supplemental Information – Non-GAAP Financial Measures”.
⁽²⁾ Calculated as follows: Noninterest expense before OREO expense, amortization of intangibles, and goodwill impairments as a percent of net interest income (fully taxable equivalent) and noninterest revenues, excluding gains from securities transactions and litigation expenses.
⁽³⁾ The effective tax rate for 4Q2017 included the discrete charge related to the remeasurement of net deferred tax assets. Excluding this charge, the effective tax rate for the quarter was 27.12%.

Salisbury Bancorp, Inc. and Subsidiary
SUPPLEMENTAL INFORMATION – Non-GAAP Financial Measures (unaudited)