SAL - Salisbury Bancorp Inc. Reports Results for Third Quarter 2021

• Third Quarter 2021 Net Income of $1.21 per Basic Common Share
  
• Gross Loan Balances Increased $47 Million, or 5%, During Third Quarter 2021 ¹
• Non-performing Assets were 0.34% of Total Assets Compared with 0.44% at December 31, 2020
• Common Equity Tier 1 and Total Risk-Based Capital Ratios of 12.95% and 14.20%, Respectively

LAKEVILLE, Conn., Oct. 20, 2021 (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, 2021.

Net income available to common shareholders was $3.4 million, or $1.21 per basic common share, for Salisbury’s third quarter ended September 30, 2021 (third quarter 2021), compared with $4.3 million, or $1.53 per basic common share, for the second quarter ended June 30, 2021 (second quarter 2021), and $4.3 million, or $1.53 per basic common share, for the third quarter ended September 30, 2020 (third quarter 2020). Net income for third quarter 2021 included a provision for loan losses of $0.4 million compared with a net release of credit reserves of $1.1 million in second quarter 2021.

Salisbury’s President and Chief Executive Officer, Richard J. Cantele, Jr., stated, “We reported solid results for the third quarter, which included robust organic growth in both our residential and commercial loan portfolios. Credit quality and capital ratios remained strong and loan payment deferrals declined to only two commercial loans at the end of the third quarter. We are cautiously optimistic that the business environment will remain favorable as we enter the fourth quarter and we are focused on driving disciplined loan growth across our markets. In September, we hired two commercial lenders and one residential lender as an integral part of this strategy. Salisbury Bank is well-positioned to meet the needs of our customers, and our employees remain committed to providing outstanding customer service.”

Net Interest and Dividend Income

Tax equivalent net interest income of $10.3 million for the third quarter 2021 increased $0.6 million, or 6.2%, versus second quarter 2021, and increased $0.2 million, or 2.4% compared with third quarter 2020. Tax equivalent interest income of $11.2 million for third quarter 2021 increased $0.4 million, or 3.6%, versus second quarter 2021 and was essentially unchanged from third quarter 2020.

The cost of interest-bearing liabilities of $0.8 million for third quarter 2021 decreased $0.2 million, or 20.9%, compared to second quarter 2021 and declined $0.2 million, or 22.4% from third quarter 2020. Interest expense for second quarter 2021 included approximately $180 thousand for interest and the amortization of issuance costs on subordinated debt, which Salisbury issued in 2015 and fully redeemed on May 28, 2021. Second quarter 2021 also included interest expense and issuance costs of $233 thousand on subordinated debt that Salisbury issued in March 2021.

Average earning assets of $1.4 billion for third quarter 2021 increased $32.8 million, or 2.4% from second quarter 2021, and increased $185.6 million, or 15.2%, versus third quarter 2020. The growth in average earning assets from comparative periods primarily reflected higher average short-term fund balances due to deposit growth and higher average balances in the available-for-sale portfolio. Average earning assets for third quarter 2021 included average PPP loan balances of $51.8 million, net of deferred fees, compared with $80.4 million in second quarter 2021 and $97.0 million in third quarter 2020. Average total interest bearing liabilities of $0.9 billion for third quarter 2021 decreased $9.6 million, or 1.0%, from second quarter 2021 primarily due to lower average subordinated debt and deposit balances. Average total interest bearing liabilities for third quarter 2021 increased $113.9 million, or 13.6%, versus third quarter 2020 primarily due to higher average deposit and subordinated debt balances, which were partially offset by lower average borrowings.

The tax equivalent net interest margin for third quarter 2021 was 2.92% compared with 2.82% for second quarter 2021 and 3.29% for third quarter 2020. Excluding the impact of PPP loans, the tax equivalent net interest margin for third quarter 2021 was 2.78% compared with 2.76% for second quarter 2021 and 3.35% for third quarter 2020. See SUPPLEMENTAL INFORMATION – Net Interest and Dividend Income on page 9 on this release for additional details.

Non-Interest Income

Non-interest income of $2.8 million for third quarter 2021 decreased $131 thousand versus second quarter 2021 and decreased $446 thousand versus third quarter 2020.

Trust and Wealth Advisory fees of $1.3 million for third quarter 2021 increased $32 thousand from second quarter 2021 and increased $218 thousand versus third quarter 2020. The increase from second quarter 2021 primarily reflected higher asset-based fees, which were partially offset by lower seasonal tax preparation fees. The increase from third quarter 2020 primarily reflected higher asset-based fees. Assets under administration were $973.2 million at September 30, 2021 compared with $944.3 million at December 31, 2020 and $748.2 million at September 30, 2020. Discretionary assets under administration of $608.2 million in third quarter 2021 increased from $555.0 million in fourth quarter 2020 and $515.0 million in third quarter 2020 primarily due to higher market valuations. Non-discretionary assets under administration of $365.0 million in third quarter 2021 decreased from $389.4 million in fourth quarter 2020 and increased from $233.2 million in third quarter 2020. The decline from fourth quarter 2020 primarily reflected the lower valuation of certain partnership assets under administration whereas the increase from third quarter 2020 reflected the addition of partnership assets under administration for an existing client relationship. The trust and wealth business records only a nominal annual fee on this non-discretionary relationship.

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¹ Excludes loans granted under the Paycheck Protection Program (PPP) by the Small Business Administration (SBA).

Service charges and fees of $1.2 million for third quarter 2021 decreased $163 thousand versus second quarter 2021 and increased $500 thousand versus third quarter 2020. The decrease from second quarter 2021 primarily reflected lower loan prepayment fees whereas the increase from third quarter 2020 primarily reflected higher deposit fees. Salisbury waived approximately $289 thousand in deposit fees in third quarter 2020 due to the COVID-19 pandemic. Income from mortgage sales and servicing decreased $88 thousand versus second quarter 2021 and decreased $628 thousand versus third quarter 2020 due to lower sales volume of residential mortgage loans to Federal Home Loan Bank of Boston (FHLBB).

Non-interest income for the third quarter 2021 included BOLI income of $135 thousand compared with income of $125 thousand in second quarter 2021 and $719 thousand in third quarter 2020, which included a non-recurring non-taxable gain of $601 thousand for proceeds received due to the death of a covered former employee. Non-interest income for third quarter 2021 also included a pre-tax gain of $73 thousand primarily from the sale of Salisbury’s operations center in Canaan, Connecticut.

Non-Interest Expense

Non-interest expense of $8.3 million for third quarter 2021 increased $198 thousand versus second quarter 2021 and increased $1.0 million versus third quarter 2020. Compensation expense of $4.7 million for third quarter 2021 decreased $76 thousand from second quarter 2021 and increased $508 thousand versus third quarter 2020. The decrease from second quarter 2021 primarily reflected lower incentive and production accruals and lower benefits expense, which were partly offset by lower deferred loan origination expenses. The increase from third quarter 2020 primarily reflected higher salary and benefits expense and lower deferred loan origination expenses.

Excluding compensation, other non-interest expenses for third quarter 2021 increased $274 thousand from second quarter 2021 and increased $517 thousand from third quarter 2020. The increase from comparative quarters primarily reflected higher professional fees, higher FDIC insurance and higher marketing expenses. Expenses for third quarter 2021 also included a pre-tax loss of $144 thousand on the pending sale of the building housing the Bank’s branch in Poughkeepsie, New York. Upon completion of the sale, which is expected to occur in fourth quarter 2021, Salisbury will relocate this branch to leased space nearby. The increase in professional fees from second quarter 2021 reflected higher investment management, legal and consulting fees, which were partially offset by lower audit fees. The increase in professional fees from third quarter 2020 primarily reflected higher investment management fees. The increase in marketing costs reflected Salisbury’s ongoing web site redesign and branding initiatives.

The effective income tax rates for third quarter 2021, second quarter 2021 and third quarter 2020 were 20.1%, 21.2% and 17.3%, respectively. The higher tax rate in 2021 primarily reflected a lower mix of tax-exempt income from municipal bonds, tax advantaged loans and bank-owned life insurance on a comparatively higher level of pre-tax income.

Loans

Gross loans receivable of $1.1 billion at September 30, 2021 increased $25.6 million, or 2.4%, from second quarter 2021 and $26.0 million, or 2.5%, from third quarter 2020. Excluding PPP loans, gross loans receivable increased $46.8 million, or 4.8%, from second quarter 2021 and $85.2 million, or 9.0%, from third quarter 2020 reflecting strong growth in both the residential and commercial portfolios.

The increase in residential real estate balances during third quarter 2021 reflected continued strong origination volume and lower sales to FHLBB. Approximately $1.8 million of residential loans were sold to FHLB Boston in third quarter 2021 compared with $7.1 million during second quarter 2021 and $26.6 million in third quarter 2020. The ratio of gross loans to deposits for third quarter 2021 was 83.0% compared with 84.1% for second quarter 2021 and 95.4% for third quarter 2020. 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 September 30, 2021, loan payments were deferred on 2 commercial loans ($3 million loan balance) compared with 10 commercial loan deferrals ($20 million loan balance) as of June 30, 2021. There were no outstanding residential and consumer loan deferrals as of September 30, 2021.

Non-performing assets were $5.0 million, or 0.34% of total assets at September 30, 2021, compared with $5.6 million, or 0.44% of total assets at December 31, 2020, and $4.7 million, or 0.36% of total assets, at September 30, 2020.

The amount of total impaired and potential problem loans was $45.7 million, or 4.27% of gross loans receivable, at September 30, 2021 compared with $30.1 million, or 2.90% of gross loans receivable, at December 31, 2020 and $26.8 million, or 2.56% of gross loans receivable, at September 30, 2020. The increase from year-end 2020 primarily reflected the reduction of internal risk ratings on loans to certain borrowers in the hospitality and entertainment and recreation industries due to COVID-19.

Accruing loans receivable 30-to-89 days past due decreased to $909 thousand, or 0.08% of gross loans receivable, at September 30, 2021 compared with $6.9 million, or 0.66% of gross loans receivable, at December 31, 2020 and $1.6 million, or 0.16% of gross loans receivable, at September 30, 2020.

The allowance for loan losses for third quarter 2021 was $13.2 million compared with $12.7 million for second quarter 2021 and $13.8 million for fourth quarter 2020. The third quarter 2021 included a provision expense of $0.4 million compared with a net reserve release of $1.1 million in first quarter 2021 and a charge of $0.7 million in the third quarter 2020. The provision expense for third quarter 2021 was primarily driven by loan growth and changes to certain qualitative factors reflecting the continued increase in residential housing prices in the Bank’s market area and an increase in commercial construction loan exposure. Net loan (recoveries) charge-offs were ($60) thousand for the third quarter 2021, $103 thousand for second quarter 2021 and $87 thousand for the fourth quarter 2020. Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, excluding PPP loans, was 1.28% for the third quarter 2021, versus 1.29% for second quarter 2021 and 1.44% for fourth quarter 2020. Similarly, reserve coverage, as measured by the ratio of the allowance for loan losses to non-performing loans was 263% for the third quarter 2021, versus 229% for second quarter 2021 and 244% for fourth quarter 2020.

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 $1.3 billion at September 30, 2021 compared with $1.1 billion at December 31, 2020 and $1.1 billion at September 30, 2020. Deposits at September 30, 2021 included brokered deposits, including CDARS one-way buys, of $7.9 compared with $18.0 million at December 31, 2020 and $18.0 million at September 30, 2020. Average total deposits for the third quarter 2021 were $1.3 billion compared with $1.3 billion for the second quarter 2021 and $1.1 billion for the third quarter 2020. Average total deposits for the third quarter 2021 included average brokered deposits of $7.8 million compared with $15.4 million for second quarter 2021 and $24.9 million for third quarter 2020.

Advances from FHLBB were $8.9 million at September 30, 2021 compared with $12.6 million and $43.9 million at December 31, 2020 and September 30, 2020, respectively. Salisbury’s excess borrowing capacity at FHLBB was approximately $252 million at September 30, 2021.

Capital

Shareholders’ equity increased $1.8 million in the third quarter to $133.5 million at September 30, 2021 as net income of $3.5 million and restricted stock activity of $0.2 million were partly offset by common stock dividends paid of $0.9 million and unrealized losses in the available-for-sale securities portfolio of $1.0 million. Book value per common share increased $0.64 during the third quarter 2021 to $46.66 per share and increased $3.67 from the third quarter 2020. Tangible book value per common share increased $0.66 during third quarter 2021 to $41.67 and increased $3.80 from third quarter 2020.

The Bank’s regulatory capital ratios remain in compliance with regulatory “well capitalized” requirements. At September 30, 2021, the Bank’s Tier 1 leverage, total risk-based capital, and common equity tier 1 capital ratios were 9.31%, 14.20%, and 12.95%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 10.00%, and 6.5%, respectively.

During third quarter 2021, Salisbury did not repurchase any of its outstanding common stock pursuant to its stock repurchase plan adopted in March 2021, which authorizes Salisbury to repurchase Salisbury’s common stock in amounts up to an aggregate of five percent (5%) of the outstanding shares of Salisbury’s common stock from time to time over a period of twelve (12) months.

Dividend on Common Shares

The Board of Directors of Salisbury approved a quarterly cash dividend of $0.31 per common share that will be paid on November 26, 2021 to shareholders of record as of November 12, 2021.

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 September 30, 2021, are available in the Shareholder Relations section of Salisbury’s website at salisburybank.com under Shareholder Relations/News & Market Information/Presentations.

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: Q3 2021: 60.70%; Q2 2021: 61.59%; Q1 2021: 51.97%; Q4 2020: 62.62%; Q3 2020: 54.76%.

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 benefit of $0.2 million, $0.2 million and $0.2 million, respectively, for Q3 2021, Q2 2021 and Q3 2020 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 2021 and 2020.
(e) Net interest income divided by average interest-earning assets.
(f) Net of issuance costs.

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 $0.5 million and $0.5 million, respectively for 2021 and 2020 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 2021 and 2020.
(e) Net interest income divided by average interest-earning assets.
(f)  Net of issuance costs.

Source: Salisbury Bancorp, Inc.

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