Salisbury Bancorp, Inc. Reports Results for Second Quarter 2020; Declares 29 Cent Dividend

• Second Quarter 2020 Net Income of $0.96 per Basic Common Share
  
  
• Results Reflected a Loan Loss Provision of $1.8 Million Primarily Due to Risks Associated with COVID-19 Pandemic
  
  
• Common Equity Tier 1 and Total Capital Ratios of 11.9% and 13.2%, Respectively
  
  
• Non-Performing Assets were 0.37% of Total Assets  
  
  
• Salisbury Bank was Added to Russell 3000^® Index as of June 29, 2020

LAKEVILLE, Conn., July 31, 2020 (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 second quarter ended June 30, 2020.

Net income allocated to common shareholders was $2.7 million, or $0.96 per common share, for the quarter ended June 30, 2020 (second quarter 2020), compared with $2.0 million, or $0.72 per common share, for the first quarter ended March 31, 2020 (first quarter 2020), and $2.7 million, or $0.96 per common share, for the second quarter ended June 30, 2019 (second quarter 2019). Results for second quarter 2020 included a loan loss provision of $1.8 million, which was partly offset by fee income of $369 thousand and interest income of $192 thousand on loans recorded under the Small Business Administration's Paycheck Protection Program (PPP). Additionally, during second quarter 2020, the Bank recorded a credit to compensation expense of $544 thousand to defer the cost of originating such PPP loans over their loan term.

Salisbury's President and Chief Executive Officer, Richard J. Cantele, Jr., stated, "The pandemic continues to weigh heavily on businesses and consumers as we all adapt to the new "normal". Despite a higher provision for loan losses, we reported solid results for the second quarter and we continued to bolster our capital base. We remain steadfast in our commitment to help our customers navigate through this period of uncertainty. In addition, we have accelerated our charitable giving to many non-profits in the communities served by the Bank. During the second quarter, the employees of Salisbury Bank processed almost 900 PPP applications for nearly $100 million in loans resulting in approximately 10,500 jobs preserved. In addition, Salisbury assisted hundreds of customers adversely effected by the COVID-19 pandemic with waivers of fees and short-term loan payment deferments. All Salisbury Bank branches reopened to customers on July 8^th, and we remain committed to providing outstanding customer service and supporting our local communities during this crisis."

Net Interest and Dividend Income

Tax equivalent net interest income of $9.8 million for the second quarter 2020 increased $832 thousand, or 9.3%, versus first quarter 2020, and increased $1.3 million, or 15.3%, versus second quarter 2019. Interest income increased $0.2 million, or 2.0%, compared to first quarter 2020 and increased $0.1 million, or 1.3%, compared with second quarter 2019. Second quarter 2020 included PPP fees and interest of $369 thousand and $192 thousand, respectively. The cost of interest bearing liabilities declined $0.6 million, or 31.3%, from first quarter 2020 and declined $1.2 million, or 46.7%, from second quarter 2019. Average earning assets increased $114.3 million, or 10.7%, versus first quarter 2020, and increased $116.5 million, or 11.0%, versus second quarter 2019. Average earning assets for second quarter 2020 included average PPP loan balances of $76.6 million. Average total interest bearing liabilities increased $42.2 million, or 5.5%, versus first quarter 2020 and increased $29.2 million, or 3.7%, versus second quarter 2019. The increase from prior periods primarily reflected the funding of PPP loans. The tax equivalent net interest margin for the second quarter 2020 was 3.31% compared with 3.35% for the first quarter 2020 and 3.19% for the second quarter 2019. See SUPPLEMENTAL INFORMATION – Net Interest and Dividend Income on pages 8-9 of this release for additional details.

Non-Interest Income

Non-interest income of $2.3 million for second quarter 2020 increased $71 thousand versus first quarter 2020 and decreased $232 thousand versus second quarter 2019. To help support the financial needs of our customers and the communities in our markets, the Bank waived approximately $240 thousand and $270 thousand of deposit and transaction fees in second quarter and the six month period ended June 30, 2020, respectively. Non-interest income for the second quarter 2020 included realized gains of $181 thousand on the sale of available-for-sale securities compared with negligible realized gains in the first quarter 2020 and realized gains of $281 thousand in the second quarter 2019.

Trust and Wealth Advisory fees of $1.0 million were essentially unchanged versus first quarter 2020 and decreased slightly versus second quarter 2019. Assets under administration were $704.1 million as of June 30, 2020 compared with $639.5 million at March 31, 2020 and $713.3 million as of June 30, 2019. Discretionary assets under administration of $480.5 million in second quarter 2020 increased from $425.4 million in first quarter 2020 and $464.5 million in second quarter 2019. The growth from first quarter 2020 primarily reflected higher market valuations whereas the growth versus second quarter 2019 primarily reflected new business activity. Non-discretionary assets under administration were $223.6 million in second quarter 2020 compared with $214.1 million in first quarter 2020 and $248.8 million in second quarter 2019. The increase from first quarter 2020 primarily reflected higher valuations whereas the decline from second quarter 2019 primarily reflected a lower valuation of shares in a partnership for one significant client relationship for which the trust and wealth business recorded only a nominal annual fee.

Service charges and fees of $598 thousand decreased $307 thousand versus first quarter 2020 and decreased $414 thousand versus second quarter 2019. The decrease from the comparative quarters primarily reflected waived deposit and transaction fees as a result of COVID-19 pandemic.

Income from sales and servicing of mortgage loans of $318 thousand increased $190 thousand versus first quarter 2020 and increased $237 thousand from second quarter 2019. Mortgage loans of $14.7 million were sold during the second quarter 2020 compared with sales of $3.2 million for first quarter 2020 and $0.3 million in second quarter 2019.

Non-Interest Expense

Non-interest expense of $6.8 million for second quarter 2020 decreased $147 thousand versus first quarter 2020 and decreased $650 thousand versus second quarter 2019. Compensation expense of $3.4 million for second quarter 2020 decreased $548 thousand from first quarter 2020 and decreased $553 thousand versus second quarter 2019. The decline from the comparative quarters primarily reflected the deferral of compensation costs associated with originating PPP loans. The deferred compensation costs will be amortized into income over the term of the PPP loans as an offset to loan interest income.

Excluding compensation, other non-interest expenses of $3.3 million for second quarter 2020 increased $400 thousand from first quarter 2020 and declined $96 thousand from second quarter 2019. The increase from first quarter 2020 primarily reflected higher premises and equipment charges and increased consulting costs as well as the acceleration of restricted equity awards for retiring directors and the timing of community support contributions. The decrease from second quarter 2019 primarily reflected OREO losses in second quarter 2019, partly offset by higher consulting costs.

The effective income tax rates for second quarter 2020, first quarter 2020 and second quarter 2019 were 18.1%, 14.4% and 18.1%, respectively. The lower tax rate in first quarter 2020 primarily reflected the effect of tax-exempt income from municipal bonds, tax advantaged loans and bank-owned life insurance on a comparatively lower level of pre-tax income.

Loans

Gross loans for second quarter 2020 included $98.9 million in PPP loans, which are categorized as commercial & industrial loans in the below table, and deferred fees of $2.6 million. Excluding PPP loans, gross loans receivable were $956.4 million at June 30, 2020, compared with $959.8 million at March 31, 2020, and $919.5 million at June 30, 2019. Including PPP loans, the ratio of gross loans to deposits for second quarter 2020 was 97.0% compared with 99.4% for first quarter 2020 and 96.7% for second quarter 2019. Balances by loan type for the comparative periods were as follows:

Asset Quality

In March 2020, Salisbury implemented a loan payment deferral program which allowed residential, commercial and consumer borrowers, who have been adversely affected by the COVID-19 pandemic, to defer loan payments for up to three months. Customers may also apply for additional deferments. As of June 30, 2020, loan payments were deferred on 124 residential and consumer loans ($35 million loan balance) and 200 commercial loans ($136 million loan balance).

Non-performing assets increased $1.6 million during second quarter 2020 to $4.8 million, or 0.37% of total assets at June 30, 2020, from $3.2 million, or 0.28% of total assets at March 31, 2020, and decreased $0.7 million from $5.5 million, or 0.49% of total assets, at June 30, 2019.

The amount of total impaired and potential problem loans decreased $1.3 million during the second quarter ended June 30, 2020 to $26.9 million (2.55% of gross loans receivable), compared to $28.1 million, or 2.93% of gross loans receivable at March 31, 2020, and increased $4.6 million from $22.2 million, or 2.42% of gross loans receivable at June 30, 2019.

Accruing loans receivable 30-to-89 days past due decreased $3.5 million during second quarter 2020 to $2.7 million, or 0.25% of gross loans receivable, from $6.1 million, or 0.64% of gross loans receivable at March 31, 2020, and increased $0.2 million from $2.5 million, or 0.27% of gross loans receivable at June 30, 2019.

The allowance for loan losses at June 30, 2020 was $12.4 million compared with $10.6 million at March 31, 2020 and $8.9 million at June 30, 2019. The provision for loan losses expense was $1.8 million for second quarter 2020 versus $1.7 million for first quarter 2020, and $151 thousand for second quarter 2019. The provision for second quarter reflected management's assessment of the impact of the COVID-19 pandemic on certain qualitative and environmental factors and impaired loans. Net loan charge-offs (recoveries) were $55 thousand for the second quarter 2020, ($17) thousand for first quarter 2020 and $15 thousand for the second quarter 2019. Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, was 1.18% for the second quarter 2020, versus 1.11% for first quarter 2020 and 0.97% for second quarter 2019.

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 $1.1 billion at June 30, 2020 compared with $965.6 million at March 31, 2020 and $950.7 million at June 30, 2019. Deposits at June 30, 2020 included brokered deposits, including CDARS one-way buys, of $38.2 million compared with $58.2 million at March 31, 2020 and $52.7 million at June 30, 2019. Average total deposits for the second quarter 2020 were $1.0 billion compared with $949.4 million for the first quarter ended March 31, 2020 and $947.1 million for the second quarter ended June 30, 2019. Average total deposits for the second quarter 2020 included average brokered deposits of $44.2 million compared with $33.3 million for first quarter 2020 and $56.4 million for second quarter 2019.

Federal Home Loan Bank of Boston (FHLB) advances of $55.1 million at June 30, 2020 increased $14.2 million from March 31, 2020 and increased $22.3 million from June 30, 2019. Salisbury's excess borrowing capacity at FHLBB was approximately $223 million at June 30, 2020.

Capital

Book value per common share increased $0.61 during the second quarter to $41.66 per share at June 30, 2020 and increased $3.07 from the second quarter 2019. Tangible book value per common share increased $0.66 during second quarter 2020 to $36.51 at June 30, 2020 and increased $3.23 from the second quarter 2019.

Shareholders' equity increased $2.3 million in second quarter 2020 to $118.4 million at June 30, 2020 as net income of $2.7 million, unrealized gains in the Available-For-Sale portfolio of $0.2 million and the issuance of restricted stock awards of $0.2 million was partly offset by common stock dividends paid of $0.8 million.  

The Bank's regulatory capital ratios remain in compliance with regulatory "well capitalized" requirements. At June 30, 2020, the Bank's Tier 1 leverage, total risk-based capital, and common equity tier 1 capital ratios were 8.95%, 13.15%, and 11.90%, respectively, compared with regulatory "well capitalized" minimums of 5.00%, 10.00%, and 6.5%, respectively.

Dividends on Common Shares

The Board of Directors of Salisbury declared a $0.29 per common share quarterly cash dividend at its July 31, 2020 meeting. The dividend will be paid on August 28, 2020 to shareholders of record as of August 14, 2020.

Inclusion in the Russell 3000^® Index

As previously announced, Salisbury was added to the Russell 3000® Index at the conclusion of the 2020 Russell Indexes annual reconstitution, effective as of the US market open on Monday, June 29, 2020.  The annual Russell Indexes reconstitution captures the 4,000 largest US stocks as of May 8, 2020, ranking them by total market capitalization. Membership in the US all-cap Russell 3000^® Index, which remains in place for one year, means automatic inclusion in the small-cap Russell 2000^® Index, as well as the appropriate growth and value style indexes. FTSE Russell determines membership for its Russell indexes primarily by objective, market capitalization rankings and style attributes. Russell indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies. Russell Indexes are part of FTSE Russell, a leading global index provider.

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.

Investor presentation slides, which include a review of financial results and trends through the period ended June 30, 2020, are available in the Shareholder Relations section of Salisbury's website at salisburybank.com under Shareholder Relations/News & Market -*Information/Presentations simultaneously with this Release.

Salisbury Bancorp, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS

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

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

⁽¹⁾ Adjusted to reflect the U.S. federal statutory benefit on income derived from tax-exempt securities and loans.
⁽²⁾ Refer to schedule labeled "Supplemental Information – Non-GAAP Financial Measures".
⁽³⁾ 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.
⁽⁴⁾ Represents the capital ratios of the Bank.

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

¹ Excluding revenue and expenses associated with trust & wealth advisory, the efficiency ratios would be: Q2 2020: 54.29%; Q1 2020: 59.83%; Q4 2019: 60.19%; Q3 2019: 61.13%; Q2 2019: 64.09%. If Q2 2020 results were normalized to exclude the impact of the COVID-19 pandemic, non-interest expense would increase by $538 thousand for deferred compensation costs and revenue would be adjusted to include waived deposit fees of $240 thousand and exclude PPP loan and fee income of $192 thousand and $369 thousand, respectively. The normalized efficiency ratio for Q2 2020 would have been 62.47% or 61.08%, excluding trust & wealth advisory.

Salisbury Bancorp, Inc. and Subsidiary 
SUPPLEMENTAL INFORMATION – Net Interest and Dividend Income (unaudited)

(a)  Includes non-accrual loans.
(b)  Includes interest-bearing deposits in other banks and federal funds sold.
(c)  Average balances of securities are based on amortized cost.
(d)  Includes tax exempt income of $0.2 million, $0.2 million and $0.1 million, respectively for 2Q 2020, 1Q 2020 and 2Q 2019 on tax-exempt securities and loans for which income and yields are calculated on a tax-equivalent basis.
(e)  Net interest income divided by average interest-earning assets.

Salisbury Bancorp, Inc. and Subsidiary
SUPPLEMENTAL INFORMATION – Net Interest and Dividend Income (unaudited)

(a)  Includes non-accrual loans.
(b)  Includes interest-bearing deposits in other banks and federal funds sold.
(c)  Average balances of securities are based on historical cost.
(d)  Includes tax exempt income benefit of $0.3 million and $0.3 million, respectively for 2020 and 2019 on tax-exempt securities and loans whose income and yields are calculated on a tax-equivalent basis. The income benefit reflected the U.S. federal statutory tax rate of 21.0% for 2020 and 2019.
(e)  Net interest income divided by average interest-earning assets.

Source: Salisbury Bancorp, Inc.  

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