Salisbury Bancorp, Inc. Reports Results for First Quarter 2023; Declares 16 Cent Dividend

• Strategic Merger With NBT Approved by Salisbury Shareholders
• First Quarter Net Income of $0.52 per Basic Common Share and Return on Average Assets of 0.79% or $0.60 and 0.91%, Respectively, Excluding Non-Recurring Expenses
• First Quarter 2023 Loan Growth of $22.1 million, or 1.8%
• Non-performing Assets were 0.14% of Total Assets at March 31, 2023
• Common Equity Tier 1 and Tangible Common Equity Ratio of 12.16% and 7.63%, Respectively, at March 31, 2023 ¹

LAKEVILLE, Conn., April 26, 2023 (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 first quarter ended March 31, 2023.

Net income available to common shareholders was $3.0 million, or $0.52 per basic common share, for the first quarter ended March 31, 2023 (first quarter 2023), compared with $4.1 million, or $0.71 per basic common share, for the fourth quarter ended December 31, 2022 (fourth quarter 2022), and $3.5 million, or $0.62 per basic common share, for the first quarter ended March 31, 2022 (first quarter 2022). Net income for first quarter 2023 included pre-tax costs of $385 thousand related to Salisbury’s pending merger with NBT Bancorp (“NBT merger”) and $158 thousand to write off fixed assets in the Red Oaks Mill, New York branch, which will close on April 30, 2023. In aggregate, these costs reduced first quarter 2023 earnings per basic share and return on average assets by $0.08 and 0.12%, respectively.

Salisbury’s President and Chief Executive Officer, Richard J. Cantele, Jr., stated, “Our financial results for the first quarter were impacted by the challenging banking and macro-economic environment. Despite these headwinds, Salisbury’s business model remains conservative, the Bank is well-capitalized and our deposit base is diversified. Additionally, the unrealized losses in our investment portfolio do not present a material risk to the Bank or to our customers. As we look forward and take a longer term perspective, we are excited that the strategic partnership with NBT has been approved by Salisbury shareholders. The merger is expected to close this quarter, subject to regulatory approval. While we work through the integration of these two high-performing franchises, Salisbury employees will remain focused on prudently managing the Bank’s capital and liquidity and providing outstanding service to our customers.”

Net Interest and Dividend Income

Tax equivalent net interest income of $11.3 million for the first quarter 2023 decreased $903 thousand, or 7.4%, versus fourth quarter 2022, and increased $834 thousand, or 8.0%, versus first quarter 2022. Tax equivalent interest income of $15.1 million for first quarter 2023 increased $755 thousand, or 5.3%, versus fourth quarter 2022 and increased $3.8 million, or 33.8%, from first quarter 2022. The cost of interest-bearing liabilities of $3.8 million for first quarter 2023 increased $1.7 million, or 77.5%, from fourth quarter 2022 and increased $3.0 million, or 367.5%, from first quarter 2022.

Average earning assets of $1.5 billion for first quarter 2023 increased $23.3 million, or 1.6%, from fourth quarter 2022, and increased $82.5 million, or 5.8%, versus first quarter 2022. Average earning assets for first quarter 2023 included average PPP loan balances of $0.2 million, net of deferred fees, compared with $0.4 million in fourth quarter 2022 and $18.7 million in first quarter 2022, respectively. Average total interest bearing liabilities of $1.0 billion for first quarter 2023 increased $45.9 million, or 4.7%, from fourth quarter 2022 and increased $70.6 million, or 7.4%, versus first quarter 2022. The increase in average total interest-bearing liabilities from the comparative periods primarily reflected higher brokered deposits, which Salisbury utilized to fund loan growth and to provide liquidity.

The tax equivalent net interest margin for first quarter 2023 was 2.99% compared with 3.28% for fourth quarter 2022 and 2.95% for first quarter 2022. Excluding PPP loans, the tax equivalent net interest margin for first quarter 2023 was 2.99% compared with 3.28% for fourth quarter 2022 and 2.86% for first quarter 2022. The decline in the tax equivalent net interest margin from the comparative quarters primarily reflected an increase in the cost of interest bearing deposits and borrowed funds as well as an increase in the amount of borrowed funds. See SUPPLEMENTAL INFORMATION – Net Interest and Dividend Income on page 9 of this release for additional details.

Non-Interest Income

Non-interest income of $2.7 million for first quarter 2023 increased $75 thousand versus fourth quarter 2022 and decreased $401 thousand versus first quarter 2022.

Trust and Wealth Advisory fees of $1.2 million for first quarter 2023 increased $28 thousand from fourth quarter 2022 and decreased $88 thousand from first quarter 2022. The change in fee income versus the comparative quarters was primarily driven by asset management fees. Assets under administration were $1.30 billion at March 31, 2023 compared with $1.29 billion at December 31, 2022 and $1.05 billion at March 31, 2022. Discretionary assets under administration of $588.4 million at March 31, 2023 compared with $561.1 million at December 31, 2022 and $625.3 million at March 31, 2022. The variance from the comparative quarters primarily reflected changes in market valuations. Non-discretionary assets under administration of $712.7 million at March 31, 2023 decreased from $728.9 million at December 31, 2022 and increased from $423.9 million at March 31, 2022. The variance from the comparative periods primarily reflected changes in the valuation of certain partnership assets for an existing client relationship. The trust and wealth business records only a nominal annual fee on this relationship.

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¹ The tangible common equity ratio is a non-GAAP measure. Management considers this ratio to be an important measure of risk. Refer to page 8 of this document for the reconciliation of the components of this calculation to U.S. GAAP.

Service charges and fees of $1.2 million for first quarter 2023 increased $16 thousand from fourth quarter 2022 and increased $97 thousand from first quarter 2022. The increase from fourth quarter 2022 primarily reflected higher deposit and loan fees, which were partially offset by lower interchange fees. The increase from first quarter 2022 primarily reflected higher deposit and higher interchange fees. Net fees from mortgage banking activities were below the comparative quarters. Salisbury did not sell any residential loans to FHLBB during first quarter 2023 and fourth quarter 2022 compared with sales of $5.5 million in first quarter 2022.

Non-Interest Expense

Non-interest expense of $9.1 million for first quarter 2023 increased $179 thousand from fourth quarter 2022 and increased $473 thousand versus first quarter 2022. Non-interest expense for first quarter 2023 and fourth quarter 2022 included costs of approximately $385 thousand and $497 thousand, respectively, associated with the pending NBT merger. Non-interest expense for first quarter 2023 also included a non-recurring charge of $158 thousand to write off fixed assets in the Red Oaks Mill, New York branch, which will be closed on April 30, 2023. Compensation expense of $5.2 million for first quarter 2023 decreased $143 thousand from fourth quarter 2022 and increased $433 thousand versus first quarter 2022. The increase in compensation expense from first quarter 2022 primarily reflected higher base salary expense and higher incentive accruals as well as lower deferred compensation expense.

Excluding compensation expense, other non-interest expenses for first quarter 2023 increased $322 thousand from fourth quarter 2022 and increased $40 thousand from first quarter 2022. The increase from comparative quarters primarily reflected higher professional fees associated with the NBT merger, and the write-off of fixed assets associated with the pending Red Oaks Mill, New York branch closure. First quarter 2022 included fraud related losses of $251 thousand.

The effective income tax rates for first quarter 2023, fourth quarter 2022 and first quarter 2022 were 20.0%, 20.1% and 18.6%, respectively.

Loans

Gross loans receivable of $1.3 billion for first quarter 2023 increased $22.1 million, or 1.8%, from fourth quarter 2022, and increased $171.5 million, or 15.9%, from first quarter 2022. Residential 5+ multifamily gross loans receivable at March 31, 2023 and December 31, 2022 included a loan for approximately $16.0 million. At March 31, 2022 this loan, which had a gross balance of approximately $12.0 million, was reported in the commercial real estate category while the project was under construction. The ratio of gross loans to deposits for first quarter 2023 was 96.7% compared with 90.4% for fourth quarter 2022 and 83.6% for first quarter 2022. Balances by loan type for the comparative periods were as follows:

Asset Quality

Non-performing assets of $2.2 million, or 0.14% of total assets at March 31, 2023, decreased $0.5 million from $2.7 million, or 0.17% of total assets at December 31, 2022, and decreased $0.6 million from $2.8 million, or 0.19% of total assets, at March 31, 2022.

The amount of total impaired and potential problem loans increased $0.2 million during the quarter to $10.9 million or 0.87% of gross loans receivable at March 31, 2023 compared to $11.4 million, or 0.93% of gross loans receivable at December 31, 2022 and $27.3 million, or 2.53% of gross loans receivable at March 31, 2022. The decrease in the balance from first quarter 2022 primarily reflected management’s upgrade of the internal risk rating on certain hospitality related loans, which were previously downgraded due to concerns over COVID-19. These businesses demonstrated a return to pre-pandemic levels of activity and liquidity, which warranted the improvement in risk rating.

Accruing loans receivable 30-to-89 days past due of $2.2 million, or 0.18% of gross loans receivable, increased $0.9 million from $1.3 million, or 0.11% of gross loans receivable at December 31, 2022, and decreased $0.1 million from $2.3 million, or 0.22% of gross loans receivable at March 31, 2022.

On January 1, 2023, Salisbury adopted the Current Expected Credit Loss (“CECL”) accounting standard to estimate credit losses over the life of a loan. As a result of this implementation, Salisbury recorded a reduction of $0.9 million to retained earnings, an increase of $0.3 million to the allowance for credit (“ACL”) losses, an increase of $0.9 million to other liabilities for unfunded commitments reserves and an increase in deferred tax assets of $0.3 million. The ACL for first quarter 2023 was $16.0 million compared with $14.8 million for fourth quarter 2022 and $12.9 million for first quarter 2022. The provision expense was $0.9 million for first quarter 2022 compared with $0.5 million for fourth quarter 2022 and $0.4 million for first quarter 2022. The provision expense for first quarter 2023 primarily reflected loan growth during the quarter as well as the forecast of certain macro-economic factors, which underpin the Bank’s CECL model. Net loan charge-offs were $32 thousand for the first quarter 2023 compared with $13 thousand for fourth quarter 2022 and $410 thousand for the first quarter 2022.

Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, excluding PPP loans, was 1.28% for the first quarter 2023 versus 1.21% for both fourth quarter 2022 and first quarter 2022. Similarly, reserve coverage, as measured by the ratio of the allowance for loan losses to non-performing loans was 714% for the first quarter 2023 versus 558% for fourth quarter 2022 and 467% for first quarter 2022.

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, Borrowings and Liquidity

Total deposits of $1.3 billion at March 31, 2023 decreased $65.4 million, or 4.8%, from December 31, 2022 and increased $2.6 million, or 0.2%, from March 31, 2022. Salisbury accumulates deposits from a diverse customer base. At March 31, 2023, the composition of Salisbury’s deposit balances was as follows: retail: 45%; commercial: 39%; municipalities: 8%; brokered funds: 4%; Wealth Advisory: 3%; and educational institutions: 1%. At March 31, 2023, the balance of Salisbury’s deposits that were not insured by the FDIC or not collateralized by marketable securities owned by Salisbury was approximately $344 million, or 27%, of total deposits.

At March 31, 2023, Salisbury had outstanding brokered deposits balances of $53.2 million compared with balances of $45.0 million at December 31, 2022. Salisbury did not have any outstanding brokered deposit balances at March 31, 2022. Brokered deposits are included in the certificates of deposit balances on Salisbury’s consolidated balance sheet. Management utilized brokered deposits in first quarter 2023 to fund loan growth and as a source of liquidity. Excluding brokered funds, Salisbury’s deposits declined $73.5 million, or 5.6%, from fourth quarter 2022 and declined $50.6 million, or 3.9%, from first quarter 2022. Average total deposits were $1.3 billion for first quarter 2023, fourth quarter 2022 and first quarter 2022. Average total deposits for first quarter 2023 included average brokered deposits of $47.9 million compared with $25.8 million for fourth quarter 2022 and $7.5 million for first quarter 2022.

Salisbury has access to various sources of liquidity, including the FHLBB and the Federal Reserve Bank. Salisbury had $100.0 million of outstanding advances from FHLBB at March 31, 2023 compared with $10.0 million at December 31, 2022 and $0.4 million at March 31, 2022, respectively. Salisbury’s excess borrowing capacity at FHLBB was approximately $145 million at March 31, 2023. Additionally, at March 31, 2023, Salisbury had approximately $100 million of eligible collateral that could be posted to the Federal Reserve to secure funds under the Bank Term Funding Program. Salisbury has not borrowed funds under this program.

Capital

Shareholders’ equity increased $4.0 million in first quarter to $132.4 million at March 31, 2023 as net income of $3.0 million, unrealized gains, net of taxes, in the available-for-sale securities (“AFS”) portfolio of $2.7 million and other activity of $0.1 million, were partially offset by common stock dividends paid of $0.9 million and a reduction of $0.9 million to retained earnings for the adoption of CECL. The unrealized losses, net of taxes, in the AFS portfolio were $18.0 million at March 31, 2023. Book value per common share of $22.79 at March 31, 2023 increased $0.66 from fourth quarter 2022 and increased $0.23 from first quarter 2022. Tangible book value per common share of $20.38 at March 31, 2023 increased $0.67 from fourth quarter 2022 and increased $0.28 from first quarter 2022. At March 31, 2023, the Bank’s tangible common equity ratio, which included the unrealized losses in the AFS portfolio noted above, was 7.63%.

The Bank’s regulatory capital ratios remain in compliance with regulatory “well capitalized” requirements. At March 31, 2023, the Bank’s Tier 1 leverage, total risk-based capital, and common equity tier 1 capital ratios were 9.98%, 13.41%, and 12.16%, respectively, compared with regulatory “well capitalized” minimums of 5.00%, 10.00%, and 6.5%, respectively. The unrealized losses in the AFS portfolio noted above do not affect the Bank’s regulatory capital ratios.

During first quarter 2023, Salisbury did not repurchase any of its outstanding common stock pursuant to its stock repurchase program, which was established in March 2021 and renewed in March 2022.

Dividend on Common Shares

On April 26, 2023, the Board of Directors of Salisbury approved a quarterly cash dividend of $0.16 per common share that will be paid on May 26, 2023 to shareholders of record as of May 12, 2023.

Other Matters

In July 2022, Salisbury management discovered that the Bank’s trust department terminated a trust account in May 2020 and distributed approximately $1.0 million that should have been retained in continuance of the trust account. In March 2023, Salisbury filed an amended complaint against the beneficiaries to recover the distributed proceeds and to reinstate the trust account. At this time, management believes that Salisbury’s exposure is not yet known or knowable and could potentially range from zero to approximately $0.8 million depending upon the facts and circumstances.

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. For more information, please visit www.salisburybank.com.

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 March 31, 2023, are available in the Shareholder Relations section of Salisbury’s website at salisburybank.com under About Us/Shareholder Relations/News & Market Information/Presentations.

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⁾ 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⁾ 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: Q1 2023: 59.08%; Q4 2022: 54.64%; Q3 2022: 55.28%; Q2 2022: 57.21%; Q1 2022: 61.83%.

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

Source: Salisbury Bancorp, Inc.

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