SALISBURY BANCORP Management's Discussion and Analysis of Financial Condition and Results of Operations ofSalisbury Bancorp, Inc. ("Salisbury" or the "Company") and its subsidiary should be read in conjunction with Salisbury's Annual Report on Form 10-K for the year endedDecember 31, 2022 . Readers should also review other disclosures Salisbury files from time to time with theSecurities and Exchange Commission (the "SEC"). BUSINESS
Salisbury Bancorp, Inc. , aConnecticut corporation, formed in 1998, is the bank holding company forSalisbury Bank and Trust Company (the "Bank"), aConnecticut -chartered andFederal Deposit Insurance Corporation (the "FDIC") insured commercial bank headquartered inLakeville, Connecticut . Salisbury's common stock is traded on the NASDAQ Capital Market under the symbol "SAL." Salisbury's principal business consists of its operation and control of the business of the Bank.
The Bank, formed in 1848, currently provides commercial banking, consumer
financing, retail banking and trust and wealth advisory services through a
network of fourteen banking offices and ten ATMs located in:
Critical Accounting Policies and Estimates
Salisbury's consolidated financial statements follow GAAP as applied to the banking industry in which it operates. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Salisbury's significant accounting policies are presented in Note 1 of Notes to Consolidated Financial Statements, which, along with this Management's Discussion and Analysis, provide information on how significant assets are valued in the financial statements and how those values are determined. Management believes that the following accounting estimates are the most critical to aid in fully understanding and evaluating Salisbury's reported financial results, and they require management's most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
Allowance for Credit Losses on Loans ("ACL")
EffectiveJanuary 1, 2023 , the Company adopted the new accounting standard for credit losses, ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended (ASU 2016-13). This new accounting standard, commonly referred to as "CECL," significantly changed our methodology for accounting for reserves on loans, unfunded off-balance sheet credit exposures, including certain unfunded loan commitments and standby guarantees. ASU 2016-13 replaced the "incurred loss" methodology used to establish an allowance on loans and off-balance sheet credit exposures, with an "expected loss" approach. Under CECL, the ACL at each reporting period serves as our best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date. The recorded ACL on loans is determined based on the amortized cost basis of the assets and may be determined at various levels, including homogeneous loan pools and individual credits with unique risk factors. Salisbury has elected to use a discounted cash flow approach to calculate the ACL for each loan segment. Within the discounted cash flow model, a probability of default ("PD") and loss given default ("LGD") assumption is applied to calculate the expected loss for each loan segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. PD and LGD data are derived from internal historical default and loss experience as well as the use of external data where there are not statistically meaningful loss events for a loan segment. CECL may create more volatility in the Bank's ACL for loans and for off-balance sheet credit exposures. Under CECL, Salisbury's ACL may increase or decrease period to period based on many factors, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) forecast period and reversion speed; (iii) prepayment speed assumption; (iv) loan portfolio volumes and changes in mix; (v) credit quality; and (vi) various qualitative factors outlined in ASU 2016-13. ASU 2016-13 also changed the methodology and accounting for credit losses within Salisbury's investment portfolio designated as AFS. To the extent the fair value of a security designated as AFS is less than its amortized cost and the Bank either (i) intends to sell the security or (ii) it is more-likely-than-not that the Bank will be required to sell the security before recovery of its amortized cost basis, then the investment is permanently impaired and the amortized cost basis is written down to fair value and a corresponding impairment charge is recorded within the consolidated statement of income. If neither of the above is true, but the fair value of the investment is below its amortized cost basis at the reporting date, then an allowance is established on the AFS investment for the portion of the impairment that is due to credit reasons (e.g. credit rating downgrades, past due receivables, and/or other macro- or micro-adverse trends). The allowance established on an AFS investment due to credit losses is limited to the amount the fair value of the investment is below its amortized cost basis as of the reporting date. If the fair value of the investment is below its amortized cost basis for non-credit-related reasons (e.g. interest rate environment), then the impairment continues to be recognized within shareholders' equity through AOCI, as it did prior to the adoption of ASU 2016-13. 26 Management considers the ACL on loans to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover management's estimate of all expected credit losses over the expected contractual life of the loans in its portfolio. Determining the appropriateness of the allowance is a key management function that requires significant judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the current loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in future periods. While our current evaluation indicates that the ACL is appropriate, the allowance may need to be increased under adversely different conditions or assumptions. The allowance for credit losses represents management's estimate of credit losses inherent in the loan portfolio. Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on individually evaluated loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the balance sheet.
The significant key assumptions used with the ACL calculation at
• Macroeconomic factors (loss drivers): Salisbury monitors and assesses National Unemployment, changes in National GDP and changes in National Housing Price Index at least annually to determine if these macroeconomic factors continue to be the most predictive indicator of losses within our loan portfolio. Factors considered in determining the ACL may change from time to time. • Forecast Period and Reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period management believes to be reasonable and supportable is four quarters. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In determining the length of time over which the reversion will take place (i.e. "reversion speed"), management considers factors, which include but are not limited to, historical loan loss experience over previous economic cycles, as well as what stage of the economic cycle management believes the economy is in. • Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing industry benchmark data due to the stability and increased number of observations. The prepayment speed assumption is utilized with the discounted cash flow model (i.e. the CECL model) to forecast expected cashflows over the contractual life of the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa. • Qualitative factors: As within previous accounting guidance used for the "incurred loss" model, ASU 2016-13 requires companies to consider various qualitative factors that may impact expected credit losses. Salisbury continues to consider qualitative factors in determining and arriving at the ACL each reporting period. As ofMarch 31, 2023 , the recorded ACL was$16.0 million and represented management's best estimate. However, management may adjust its assumptions to account for differences between expected and actual losses from period to period. A future change of management's assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL is reviewed periodically within a calendar quarter to assess trends in key CECL assumptions and asset quality, and consider their impact on the Company's financial condition. A discussion of the factors driving changes in the amount of the allowance for credit losses is included in the "Provision and Allowance for Credit Losses" section of Management's Discussion and Analysis.
Refer to Note 1 of the consolidated financial statements for further details on the Company's policies and accounting elections made.
Salisbury considers the ACL for off-balance sheet credit exposures to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover management's estimate of all expected credit losses on expected future loan advances of primarily, unfunded loan commitments for those that are not unconditionally cancellable by the Company. The expected credit loss factors for each loan segment determined using the ACL on loans methodology described above, as well as within Note 1 of the consolidated financial statements, is used to calculate the ACL on off-balance sheet credit exposures for each applicable loan segment, and, thus, are subject to the same level of estimation risk and volatility previously described. In addition, one other key assumption is used to derive the ACL on off-balance sheet credit exposures and that is the expected funding rate. The expected funding rate is derived using historical loan-level data for credit line usage, and is applied to total off-balance sheet credit exposures at each reporting date, excluding any that are unconditionally cancellable by the Company, to determine the expected funding amount. As unfunded loan commitments are funded, the allowance migrates from that provided for off-balance sheet credit exposures to the ACL on loans. If the expected funding rate or any other key assumption used is not reasonable, then this could have an adverse impact on the total ACL upon funding. As ofMarch 31, 2023 , the recorded ACL on off-balance sheet credit exposures of$1.2 million is recorded within accrued interest and other liabilities on Salisbury's consolidated balance sheet. Increases (decreases) to the allowance are presented within provision (credit) for credit losses on the consolidated statements of income. The allowance atMarch 31, 2023 , represented management's best estimate, however, management may adjust various assumptions to account for differences between expected and actual losses from period to period. A future change to certain assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL on off-balance sheet credit exposures is reviewed on a quarterly basis by the Company's Loan Committee, and subsequently ratified by the Company's Board of Directors. As ofMarch 31, 2023 , the Company had not identified indications of credit risk and did not carry any allowance for credit losses on its AFS portfolio, nor did it record any permanent impairments during first quarter 2023. 27 FINANCIAL CONDITION
Securities and Short Term Funds
As ofMarch 31, 2023 , the market value of Salisbury's available-for-sale (AFS) investment portfolio was$187.6 million or 12.0% of total assets. compared with$187.4 million , or 12.2% of total assets atDecember 31, 2022 . Cash and cash equivalents (non-time interest-bearing deposits with other banks, money market funds and federal funds sold) of$49.8 million atMarch 31, 2023 decreased$0.7 million , or 1.4% fromDecember 31, 2022 . The decline in market interest rates in first quarter 2023 resulted in inception-to-date after-tax unrealized losses in Salisbury's AFS portfolio of$18.0 million atMarch 31, 2023 compared with an after-tax unrealized losses of$20.7 million atDecember 31, 2022 . These unrealized losses and gains are recorded in accumulated other comprehensive loss, net on Salisbury's consolidated balance sheet. Salisbury evaluates securities for impairment when the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers its intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an impairment charge to earnings equal to the entire difference between the security's amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for impairment. Salisbury evaluates securities for strategic fit and may reduce its position in securities, although it is not more likely than not that Salisbury will be required to sell securities before recovery of their cost basis, which may be maturity. Management does not consider any of its securities to be impaired atMarch 31, 2023 .
Loans
Net loans receivable of$1.235 billion atMarch 31, 2023 increased from$1.214 billion atDecember 31, 2022 . AtMarch 31, 2023 andDecember 31, 2022 , Salisbury had approximately$0.2 million of PPP loans on its balance sheet. The increase in net loan receivable balances primarily reflected growth in residential mortgage, commercial real estate and commercial construction balances, partially offset by lower commercial & industrial, consumer and municipal loan balances. Salisbury did not sell any residential loans to FHLB Boston in first quarter 2023 or fourth quarter 2022. The ratio of gross loans to deposits for first quarter 2023 was 96.7% compared with 90.4% for fourth quarter 2022.
Asset Quality
During the first three months of 2023, overall asset quality remained strong. Non-performing assets decreased$0.4 million to$2.2 million , or 0.14% of assets atMarch 31, 2023 , from$2.7 million , or 0.17% of assets atDecember 31, 2022 . Salisbury has cooperative relationships with the vast majority of its non-performing loan 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. Salisbury pursues the resolution of all non-performing loans through collections, restructures, voluntary liquidation of collateral by the borrower and, where necessary, legal action. When attempts to work with a customer to return a loan to performing status, including restructuring the loan, are unsuccessful, Salisbury will initiate appropriate legal action seeking to acquire property by deed in lieu of foreclosure or through foreclosure, or to liquidate business assets.
Past Due Loans
Loans past due 30 days or more increased during first quarter 2023 to
The components of loans past due 30 days or greater are as follows:
(in thousands) March 31, 2023 December 31, 2022 Past due 30-59 days $ 2,156 $ 1,195 Past due 60-89 days 78 115 Past due 90-179 days - - Past due 180 days and over - - Accruing loans 2,234 1,310 Past due 30-59 days - 68 Past due 60-89 days 48 - Past due 90-179 days 16 90 Past due 180 days and over 100 15 Non-accrual loans 164 173
Total loans past due 30 days or greater $ 2,398 $
1,483 28 Credit Risk Ratings Salisbury assigns credit risk ratings to loans receivable in order to manage credit risk and to determine the allowance for credit losses. Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a borrower. Salisbury's rating model has eight risk rating grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 4 are pass ratings and 5 through 8 are ratings (special mention, substandard, doubtful, and loss) defined by the bank's regulatory agencies, theFDIC and CTDOB. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.
· Loans risk rated as "special mention" (5) possess credit deficiencies or
potential weaknesses deserving management's close attention that if left
uncorrected may result in deterioration of the repayment prospects for the
loans at some future date.
· Loans risk rated as "substandard" (6) are loans where the Bank's position is
clearly not protected adequately by borrower current net worth or payment
capacity. These loans have well defined weaknesses based on objective evidence
and include loans where future losses to the Bank may result if deficiencies
are not corrected, and loans where the primary source of repayment such as
income is diminished and the Bank must rely on sale of collateral or other
secondary sources of collection.
· Loans risk rated as "doubtful" (7) have the same weaknesses as substandard
loans with the added characteristic that the weakness makes collection or
liquidation in full, given current facts, conditions, and values, to be highly
improbable. The possibility of loss is high, but due to certain important and
reasonably specific pending factors, which may work to strengthen the loan, its
reclassification as an estimated loss is deferred until its exact status can be
determined.
· Loans risk rated as "loss" (8) are considered uncollectible and of such little
value that continuance as Bank assets is unwarranted. This classification does
not mean that the loan has absolutely no recovery or salvage value, but rather,
it is not practical or desirable to defer writing off this loan even though
partial recovery may be made in the future.
Management actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate its assignment of credit risk ratings. In addition, the Bank's loan portfolio and risk ratings are examined annually on a rotating basis by its two primary regulatory agencies, theFDIC and CTDOB.
Deposits and Borrowings
Total deposits of$1.3 billion atMarch 31, 2023 decreased$65.4 million , or 4.8%, fromDecember 31, 2022 and increased$2.6 million , or 0.2%, fromMarch 31, 2022 . Salisbury accumulates deposits from a diverse customer base. AtMarch 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%. AtMarch 31, 2023 , the balance of Salisbury's deposits that were not insured by theFDIC and not collateralized by marketable securities owned by Salisbury was approximately$344 million , or 27%, of total deposits. AtMarch 31, 2023 , Salisbury had outstanding brokered deposits balances of$53.2 million compared with balances of$45.0 million atDecember 31, 2022 . Salisbury did not have any outstanding brokered deposit balances atMarch 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 theFederal Reserve Bank . Salisbury had$100.0 million of outstanding advances from FHLBB atMarch 31, 2023 compared with$10.0 million atDecember 31, 2022 and$0.4 million atMarch 31, 2022 , respectively. Salisbury's excess borrowing capacity at FHLBB was approximately$145 million atMarch 31, 2023 . Additionally, atMarch 31, 2023 , Salisbury had approximately$100 million of eligible collateral that could be posted to theFederal Reserve to secure funds under the Bank Term Funding Program. Salisbury has not borrowed funds under this program. Salisbury has an Irrevocable Letter of Credit Reimbursement Agreement with the FHLBB, whereby upon the Bank's request an irrevocable letter of credit is issued to secure municipal and certain other transactional deposit accounts. These letters of credit are secured primarily by residential mortgage loans. The amount of funds available from the FHLBB to the Bank is reduced by any letters of credit outstanding. AtMarch 31, 2023 ,$20.0 million of letters of credit were outstanding compared with$20.0 million atDecember 31, 2022 . 29
The distribution of average total deposits by account type was as follows:
March 31, 2023 December 31, 2022
Weighted-Average Weighted-Average
(in thousands) Average Balance Percent Interest Rate Average Balance Percent Interest Rate
Demand deposits $ 382,586 28.99 % 0.00 % $ 395,848 30.01 % 0.00 %Interest-bearing checking accounts 223,742
16.95 0.22 231,970 17.59 0.18 Regular savings accounts 232,162 17.59 0.70 240,695 18.25 0.26 Money market savings 320,015 24.25 1.61 318,302 24.13 0.49
Certificates of deposit (CD's) 161,300
12.22 2.58 132,192 10.02 0.84 Total deposits$ 1,319,806 100.00 % 0.87 %$ 1,319,007 100.00 % 0.28 %
The classification of certificates of deposit by interest rates is as follows:
Interest rates March 31, 2023 December 31, 2022 Less than 1.00% $ 48,809 $ 104,261 1.00% to 1.99% 10,437 11,739 2.00% to 2.99% 18,734 19,907 3.00% to 3.99% 29,781 17,463 4.00% to 4.99% 62,601 - Total$ 170,362 $ 153,370 The distribution of certificates of deposit by interest rate and maturity is as follows: At March 31, 2023 Less Than or Equal More Than One to More Than Two to More Than Three Interest rates to One Year Two Years Three Years Years Total Percent of Total Less than 1.00%$ 32,823 $ 7,998 $ 4,329 $ 3,659 $ 48,809 28.65 % 1.00% to 1.99% 6,041 4,301 95 - 10,437 6.12 2.00% to 2.99% 14,501 1,735 2,498 - 18,734 11.0 3.00% to 3.99% 29,781 - - - 29,781 17.48 4.00% to 4.99% 56,928 5,673 - - 62,601 36.75 Total$ 140,074 $ 19,707 $ 6,922 $ 3,659 $ 170,362 100.00 %
Scheduled maturities of time certificates of deposit in denominations of
Within Over
March 31, 2023 (in thousands) 3 months 3-6 months 6-12 months 1 year Total
Certificates of deposit $100,000 and over $ 62,218 $ 9,819 $ 36,930$ 15,960 $ 124,926 Liquidity
Salisbury manages its liquidity position to ensure that there is sufficient funding availability at all times to meet both anticipated and unanticipated deposit withdrawals, loan originations and advances, securities purchases and other operating cash outflows. Salisbury's primary sources of liquidity are principal payments and maturities of securities and loans, short-term borrowings through repurchase agreements and FHLBB advances, net deposit growth and funds provided by operations. Liquidity can also be provided through sales of loans and available-for-sale securities. During first quarter 2023, Salisbury increased its utilization of brokered deposits by$5.3 million and increased its borrowings from FHLBB by$90.0 million to fund loan growth and to provide liquidity. AtMarch 31, 2023 , Salisbury's outstanding borrowings and excess borrowing capacity at FHLBB were$100 million and$145 million , respectively. Salisbury maintains access to multiple sources of liquidity, including wholesale funding. An increase in funding costs could have an adverse impact on Salisbury's net interest margin. If an extended economic shutdown causes depositors to withdraw their funds, Salisbury could become more dependent on more expensive sources of funding. Salisbury manages its liquidity in accordance with a liquidity funding policy, and also maintains a contingency funding plan that provides for the prompt and comprehensive response to unexpected demands for liquidity. Management believes Salisbury's funding sources will meet anticipated funding needs. Operating activities for the three-month period endedMarch 31, 2023 provided net cash of$3.0 million . Investing activities utilized net cash of$23.2 million due to the net loan originations of$22.3 million , net purchases of FHLB stock of$3.7 million and other activity of$0.2 million , partly offset by$3.0 million from the maturities/principal paydowns of available-for-sale (AFS) securities. Financing activities provided net cash of$19.6 million primarily due to the increase of short-term FHLB borrowings of$90 million , increase in time deposits$17.0 million partly off-set by the decrease of savings deposits of$82.4 million , a decrease of$4.0 million in securities sold under agreements to repurchase and$1.0 million in dividends paid. AtMarch 31, 2023 , Salisbury had outstanding commitments to fund new loan originations of$42.6 million and unused lines of credit of$253.0 million . Salisbury believes that these commitments can be met in the normal course of business. Salisbury believes that its liquidity sources will continue to provide funding sufficient to support operating activities, loan originations and commitments, and deposit withdrawals. 30 RESULTS OF OPERATIONS
For the three month periods ended
OVERVIEW
Net income allocated to common shareholders was$3.0 million , or$0.52 basic earnings per common share, for the first quarter endedMarch 31, 2023 (first quarter 2023), compared with$4.1 million , or$0.71 basic earnings per common share, for the fourth quarter endedDecember 31, 2022 (fourth quarter 2022), and$3.5 million , or$0.62 basic earnings per common share, for the first quarter endedMarch 31, 2022 (first quarter 2022). The decrease from fourth quarter 2022 primarily reflected lower net interest income of$0.9 million , a higher provision for credit losses of$0.4 million and higher non-interest expenses of$0.2 million . The decrease from first quarter 2022 primarily reflected a higher provision for credit losses of$0.6 million , lower non-interest income of$0.4 million and higher non-interest expense of$0.5 million , partially offset by higher net interest income of$0.8 million . First quarter 2023 included cost of$385 thousand related to the pending merger with NBT.
Net Interest Income
Tax equivalent net interest income for first quarter 2023 increased$834 thousand , or 8.0%, versus first quarter 2022. Average total earning assets for the first quarter 2023 increased$82.5 million , or 5.8%, versus first quarter 2022. Average total interest bearing deposits for the first quarter 2023 increased$19.4 million , or 2.1%, versus first quarter 2022. The tax equivalent net interest margin for the first quarter 2023 was 2.99% compared with 2.95% for the first quarter 2022. Excluding PPP loans, the tax equivalent net interest margin for the first quarter 2023 was 2.99% compared with 2.86% for first quarter 2022.
The following table sets forth the components of Salisbury's fully tax-equivalent ("FTE") net interest income and yields on average interest-earning assets and interest-bearing liabilities.
Three months ended March 31, Average Balance Income / Expense Average Yield / Rate (dollars in thousands) 2023 2022 2023 2022 2023 2022 Loans (a)(d)$ 1,236,778 $ 1,079,610 $ 13,367 $ 10,277 4.29 % 3.79 % Securities (c)(d) 214,246 208,140 1,353 962 2.53 1.85 FHLBB stock 3,436 1,434 19 7 2.29 2.05 Short term funds (b) 40,689 123,454 375 50 3.72 0.16 Total interest-earning assets 1,495,149 1,412,638 15,114 11,296 4.02 3.19 Other assets 55,022 74,795 Total assets$ 1,550,171 $ 1,487,433
Interest-bearing demand deposits$ 223,742 $ 232,464 119
99 0.22 0.17
Money market accounts 320,015 321,198 1,270 126 1.61 0.16
Savings and other 232,162 233,092 402 64 0.70 0.11
Certificates of deposit 161,300 131,059 1,027 189 2.58 0.59Total interest-bearing deposits 937,219 917,813 2,818
478 1.22 0.21
Repurchase agreements 3,961 7,146 16 3 1.65 0.14
Finance lease 5,397 5,097 40 41 2.96 3.23
Note payable 121 163 2 2 6.17 6.12
Subordinated debt (net of
issuance costs) 24,536 24,480 233 233 3.80 3.81
FHLBB advances 57,056 2,974 687 55 4.82 7.46
Total interest-bearing
liabilities 1,028,290 957,673 3,796 812 1.49 0.34
Demand deposits 382,601 386,884
Other liabilities 8,427 7,036
Shareholders' equity 130,853 135,840
Total liabilities &
shareholders' equity $ 1,550,171 $ 1,487,433
Net interest income (d) $ 11,318 $ 10,484 Spread on interest-bearing funds
2.54 2.84
Net interest margin (e) 2.99 2.95
(a) Includes non-accural loans.
(b) Includes interest-bearing deposits in other banks and federal funds sold.
(c) Average balances of securities are based on cost.
(d) Includes tax exempt income benefit of
for 2023 and 2022 on tax-exempt securities and loans whose income and yields
are calculated on a tax-equivalent basis.
(e) Net interest income divided by average interest-earning assets.
31
The following table sets forth the changes in FTE interest due to volume and rate.
Three months ended March 31, (in thousands) 2023 versus 2022 Change in interest due to Volume Rate Net Loans$ 1,633 $ 1,457 $ 3,090 Securities 34 357 391 FHLBB stock 11 1 12 Short term funds (405 ) 730 325 Interest-earning assets 1,273 2,545 3,818 Deposits (7 ) 2,347 2,340 Repurchase agreements (8 ) 21 13 Finance lease 2 (3 ) (1 )
Subordinated debt and notes payable 1 (1 )
- FHLBB advances 830 (198 ) 632 Interest-bearing liabilities 818 2,166 2,984 Net change in net interest income$ 455 $ 379 $ 834 Interest Income Tax equivalent interest income increased$3.8 million , or 33.8%, to$15.1 million for first quarter 2023 compared with first quarter 2022. Loan income compared with first quarter 2022 increased$3.1 million , or 30.0%, primarily due to a 50 basis point increase in the average loan yield and a$157.2 million , or 14.6%, increase in average loans. Tax equivalent securities income increased$391 thousand , or 40.6%, for first quarter 2023 compared with first quarter 2022, primarily due to a$6.1 million , or 2.9%, increase in average balances and a 68 basis point increase in average yield. Income on short-term funds compared with first quarter 2022 increased$325 thousand , or 650.0%, primarily due to a 356 basis point increase in the average short-term funds yields, partially offset by an$82.7 million , or 67.0% decrease in average balances.
Interest Expense
Interest expense increased$3.0 million , or 367.5%, to$3.8 million for first quarter 2023 compared with first quarter 2022. Interest on deposit accounts increased$2.3 million , or 489.5%, as a result of a 101 basis point increase in average deposit rates and a$19.4 million , or 2.1%, increase in the average balances compared with first quarter 2022. Interest expense on FHLBB borrowings increased$632 thousand , or 1,149.1%, compared with first quarter 2022 due to an average balance increase of$54.1 million , or 1,818.5%, partially offset by a 264 basis point decrease in the average borrowings rate. Interest expense on FHLBB borrowings for first quarter 2022 included a non-recurring expense of approximately$30 thousand to pay off a$6.0 million advance due inDecember 2022 .
Provision and Allowance for Credit Losses
During first quarter 2023, the allowance for credit losses on loans increased by the provision for credit losses on loans of$0.9 million compared with a provision expense of$0.5 million for fourth quarter 2022 and a provision expense of$0.4 million for first quarter 2022. The provision expense for first quarter 2023 primarily reflected loan growth during the quarter as well as changes in 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,$13 thousand for fourth quarter 2022 and$410 thousand for the first quarter 2022. Charge-offs for first quarter 2022 included a write-down of$374 thousand to reduce the carrying value on$3.8 million of non-performing and under-performing residential and commercial loans, which Salisbury sold during the quarter, to the initial bid prices. Upon the adoption of ASU 326, Salisbury increased its ACL for off-balance sheet credit exposures by$0.9 million . In first quarter 2023, Salisbury increased the ACL for this exposure by$92 thousand . (in thousands) March 31, 2023 March 31, 2022 At or For the Three Months Ended (CECL) (Incurred Loss) ACL on loans, beginning of period$ 14,846
$ 12,962 Impact of CECL adoption 271 - Provision for credit losses 924 363 Charge-offs: Commercial & industrial - (46 ) Commercial real estate - (334 ) Residential real estate - (19 ) Consumer (35 ) (17 ) Total loan charge-offs (35 ) (416 ) Recoveries: Commercial & industrial - 1 Commercial real estate - - Residential real estate - - Consumer 3 5 Total loan recoveries 3 6 Net charge-offs $ (32 ) $ (410 )
ACL on loans, end of the period$ 16,009 $ 12,915 ACL on unfunded commitments, beginning of period $ 183
$ 146 Impact of CECL adoption 913 - Provision for credit losses 92 37
ACL on unfunded commitments, end of period $ 1,183
$ 183 Components of ACL: ACL on loans$ 16,009 $ 12,915 ACL on unfunded commitments 1,183 183 ACL, end of period$ 17,192 $ 13,098 Net charge-offs to average loans Provision for credit losses on loans to average loans 0.07 % 0.03 % ACL on loans to total loans 1.28 %
1.20 %
32
As a result of these factors, reserve coverage, as measured by the ratio of the allowance for credit losses to gross loans, excluding PPP loans, was 1.28% for the first quarter 2023, versus 1.21% for the fourth quarter 2022 and 1.20% for the first quarter 2022. Similarly, reserve coverage, as measured by the ratio of the allowance for credit losses to non-performing loans was 714% for first quarter of 2023, versus 558% for fourth quarter of 2022 and 467% for first quarter of 2022.
The following table details the principal categories of credit quality ratios:
Three months endedMarch 31, 2023
2022
Net charge-offs (recoveries) to average loans receivable, gross 0.00 % 0.04 % Non-performing loans to loans receivable, gross 0.18
0.26
Accruing loans past due 30-89 days to loans receivable, gross 0.18
0.22
Allowance for credit losses to loans receivable, gross 1.28
1.20
Allowance for credit losses to non-performing loans 714.35
467.27
Non-performing assets to total assets 0.14
0.19
Non-performing loans (non-accrual loans plus accruing loans past-due 90 days or more) were$2.4 million , or 0.18% of gross loans receivable atMarch 31, 2023 as compared to$2.7 million , or 0.22% atDecember 31, 2022 and$2.8 million , or 0.26%, atMarch 31, 2022 . Accruing loans past due 30-89 days were$2.2 million , or 0.18% of gross loans receivable atMarch 31, 2023 compared with$1.3 million , or 0.11% of gross loans receivable atDecember 31, 2022 and$2.3 million , or 0.22% of gross loans receivable, atMarch 31, 2022 . See "Financial Condition - Asset Quality" above for further discussion and analysis. Salisbury adopted CECL onJanuary 1, 2023 . Under CECL, the Bank's lifetime credit loss models are based on historical data and incorporate forecasts of macroeconomic variables, expected prepayments and recoveries. Non-economic qualitative factors are also evaluated for each loan segment. A four-quarter reasonable and supportable forecast period is currently used for all loan portfolios. When the risk characteristics of a loan no longer match the characteristics of the collective pool, the loan is removed from the pool and individually assessed for credit losses. Generally, non-accrual loans and collateral dependent loans are individually assessed. Salisbury segregates its loan portfolio into discrete loan pools for purposes of evaluating credit risk. Each loan pool possesses unique risk characteristics that are considered when determining the appropriate level of allowance. See Note 4 for a description of these discrete loan pools. AtMarch 31, 2023 , the reasonable and supportable forecast used to estimate the ACL on loans used the following loss drivers by loan segment: (i) Commercial & Industrial - National Gross Domestic Product ("GDP") and National Unemployment; (ii)Commercial Real Estate - National GDP and National Unemployment; (iii)Residential Real Estate - National Housing Price Index and National Unemployment; (iv) Consumer - National Unemployment. National GDP and National Unemployment are sourced from the Federal Reserve Open Market Committee's published forecast whereas the National Housing Price Index is sourced from the Federal National Mortgage Association's published forecast. The Company's qualitative factors atMarch 31, 2023 , included consideration of the level of uncertainty surrounding the impact of macro-economic factors such as interest rates, inflation, supply chain disruption, geo-political events as well as other factors. AtMarch 31, 2023 , the ACL estimate for loans used a reversion period of two years for each loan segment. The individual assessment for credit impairment is generally based on a discounted cash flow approach unless the asset is collateral dependent. A loan is considered collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Collateral dependent loans are individually assessed and the expected credit loss is based on the fair value of the collateral. The fair value is reduced for estimated costs to sell if the value of the collateral is expected to be realized through sale. Also included within scope of CECL standard are off-balance sheet loan commitments, which includes the unfunded portion of committed lines of credit and commitments "in-process" reflect loans not in Salisbury's gross loans receivable balance as of the balance sheet date but rather negotiated loan/line of credit terms and rates that the Bank has offered to customers and is committed to honoring. In reference to "in-process" credits, the Bank defines an unfunded commitment as a credit that has been offered to and accepted by a borrower, which has not closed and by which the obligation is not unconditionally cancellable. The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk through a contractual obligation to extend credit, unless that obligation in unconditionally cancellable by the Bank. The allowance for credit losses on losses on off-balance sheet exposures includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments to be funded over its estimated life. Determining the adequacy of the allowance and reserves at any given period is difficult, particularly during deteriorating or uncertain economic periods, and management must make estimates using assumptions and information that are often subjective and changing rapidly. The review of credit exposure related to loans is a continuing event in light of a changing economy and the dynamics of the banking and regulatory environment. Should the economic climate deteriorate, borrowers could experience difficulty and the level of non-performing loans, charge-offs and delinquencies could rise, requiring increased provisions and reserves. In management's judgment, Salisbury remains adequately reserved both against total loans and non-performing loans atMarch 31, 2023 . 33 Non-Interest Income
The following table details the principal categories of non-interest income.
Three months ended
2023 vs. 2022
Trust and wealth advisory $ 1,153 $ 1,241 ($ 88 ) (7.1 %)
Service charges and fees 1,235 1,138 97 8.5
Mortgage banking activities, net 59 355 (296 ) (83.4 )
Gains (losses) on mutual funds 20 (42 ) 62 147.6
Gains on securities, net - 210 (210 ) (100.0 )
Bank-owned life insurance ("BOLI") income 192 162
30 18.5
Other 34 30 4 13.3
Total non-interest income $ 2,693 $ 3,094 ($ 401 ) (13.0 %)
Non-interest income decreased $401 thousand , or 13.0% in first quarter of 2023
versus first quarter of 2022. Trust and wealth advisory revenues decreased $88
thousand versus first quarter 2022 primarily due to lower asset management fees.
Assets under administration were $1.30 billion at March 31, 2023 compared with
$1.29 billion at December 31, 2022 and $1.0 billion at March 31, 2022 .
Discretionary assets under administration of $588.4 million in first quarter
2023 increased from $561.1 million in fourth quarter 2022 and decreased from
$625.3 million in first quarter 2022. The variance from the comparative quarters
primarily reflected changes in market valuations. Non-discretionary assets under
administration of $712.7 million in first quarter 2023 declined from $728.9
million in fourth quarter 2022 and increased from $423.9 million in first
quarter 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.
Service charges and fees increased $97 thousand versus first quarter 2022 and
primarily reflected higher deposit fees and interchange fees. First quarter 2023
income from mortgage sales and servicing decreased $296 thousand due to a lower
volume of sales of residential mortgage loans to the FHLB Boston. Salisbury did
not sell any residential loans to FHLBB during first quarter 2023 compared with
sales of $5.5 million in first quarter 2022. Mortgage banking activities, net
for first quarter 2022 also included a pre-tax gain of $239 thousand on the sale
of $3.8 million of non-performing and under-performing commercial and
residential loans.
The first quarter 2023 included net gains of $20 thousand on investments in
mutual funds compared with net losses of $42 thousand in first quarter 2022.
Non-interest income for first quarter 2022 included a pre-tax gain on the sale
of available-for-sale ("AFS") securities of $210 thousand . Salisbury did not
sell any AFS securities in first quarter 2023.
BOLI income of
Non-Interest Expense
The following table details the principal categories of non-interest expense.
Three months ended
2023 vs. 2022
Salaries $ 3,721 $ 3,479 $ 242 7.0 %
Employee benefits 1,468 1,277 191 15.0
Premises and equipment 1,105 1,104 1 0.1Loss on write-down and sale of assets 158 9 149 1655.6 Information processing and services 831 685 146 21.3 Professional fees 945 787 158 20.1 Collections, OREO, and loan related 72 117 (45 ) (38.5 ) FDIC insurance 98 171 (73 ) (42.7 ) Marketing and community support 127 184 (57 ) (31.0 ) Amortization of core deposit intangibles 39 54
(15 ) (27.8 )
Other 470 786 (316 ) (40.2 )
Non-interest expense $ 9,034 $ 8,653 $ 381 4.4 %
Non-interest expense for first quarter 2023 increased$381 thousand versus first quarter 2022. Non-interest expense for first quarter 2023 included costs of approximately$385 thousand 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 theRed Oaks Mill ,New York branch, which will be closed onApril 30, 2023 . Salaries expense increased$242 thousand versus first quarter 2022. The increase primarily reflected higher base salary expense and higher incentive accruals as well as lower deferred compensation expense. Employee benefits expense increased$191 thousand versus first quarter 2022 primarily due to higher medical insurance costs and ESOP and 401k expense. Information processing expense increased$146 thousand versus first quarter 2022 primarily due to higher core processing costs and ATM and debit card processing fees. Professional fees increased$158 thousand versus first quarter 2022 primarily as a result of increased audit and legal fees. Loan and OREO related expenses decreased$45 thousand versus first quarter 2022, mainly due to lower appraisal expenses and mortgage recording taxes. Marketing and community support expense decreased$57 thousand versus first quarter 2022. The decrease in other expenses of$316 thousand primarily reflected two isolated instances of debit card or check cashing fraud-related losses aggregating$251 thousand in first quarter 2022. 34 Income Taxes The effective income tax rates for first quarter 2023 and first quarter 2022 were 19.95% and 18.60%, respectively. The higher tax rate in the first quarter 2023 primarily reflected a lower mix of tax-exempt income from municipal bonds, tax advantaged loans and bank-owned life insurance on a comparatively lower level of pre-tax income.Salisbury did not incurConnecticut income tax in 2023 (to date) or 2022, other than minimum state income tax, as a result of aConnecticut law that permits banks to shelter certain mortgage income from theConnecticut corporation business tax through the use of a special purpose entity called aPassive Investment Company or PIC. In 2004,Salisbury availed itself of this benefit by forming a PIC,SBT Mortgage Service Corporation .Salisbury's income tax provision reflects the full impact of theConnecticut legislation.Salisbury does not expect to payConnecticut state income tax, other than minimumConnecticut state income tax, in the foreseeable future unless there is a change inConnecticut tax law. CAPITAL RESOURCES Shareholders' Equity Shareholders' equity increased$4.0 million in first quarter to$132.4 million atMarch 31, 2023 as unrealized gains in the available-for-sale securities ("AFS") portfolio of$2.7 million , net income of$3.0 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 due to the adoption of CECL. Book value per common share of$22.79 atMarch 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 atMarch 31, 2023 increased$0.67 from fourth quarter 2022 and increased$0.28 from first quarter 2022.
At
March 31, 2023 December 31, 2022
Common shareholders' equity $ 132,355 $ 128,355
Less: Goodwill (13,815 ) (13,815 )
Less: Intangible assets (188 ) (227 )Tangible common shareholders' equity$ 118,352 $
114,313
Total assets $ 1,565,334 $ 1,541,582
Less: Goodwill (13,815 ) (13,815 )
Less: Intangible assets (188 ) (227 )
Tangible total assets $ 1,551,331 $ 1,527,540
Tangible common shareholders' equity to tangible
total assets 7.63 % 7.48 %
Capital Requirements
Under current regulatory definitions, the Bank meets all capital adequacy
requirements to which it is subject and the Bank is considered to be
well-capitalized. The unrealized losses in the AFS portfolio noted above do not
affect the Bank's regulatory capital ratios. As a well-capitalized financial
institution, the Bank pays lower federal deposit insurance premiums than those
banks that are not "well-capitalized." Requirements for classification as a
well-capitalized institution and for minimum capital adequacy along with the
Bank's regulatory capital ratios are as follows:
March 31, 2023 December 31, 2022
Total Capital (to risk-weighted assets) 13.41 % 13.43 % Common Equity Tier 1 Capital 12.16
12.24
Tier 1 Capital (to risk-weighted assets) 12.16
12.24
Tier 1 Capital (to average assets) 9.98
9.99
A well-capitalized institution, which is the highest capital category for an institution as defined by the Prompt Corrective Action regulations issued by theFDIC and the FRB, is one which maintains a Total Risk-Based ratio of 10% or above, a Tier 1 Risk-Based ratio of 8% or above, a Common Equity Tier 1 ratio of 6.5% or above, and a Leverage ratio of 5% or above, and is not subject to any written order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level. Maintaining strong capital is essential toSalisbury and the Bank's 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. The FRB's final rules implementing theBasel Committee on Banking Supervision's capital guidelines for bank holding companies and their bank subsidiaries include a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer began phasing inJanuary 1, 2016 at 0.625% of risk-weighted assets and increased each subsequent year by an additional 0.625% until it reached its final level of 2.50% onJanuary 1, 2019 . Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. 35 As ofMarch 31, 2023 , the Company and the Bank met each of their capital requirements and the most recent notification from theFDIC categorized the Bank as "well-capitalized." There are no conditions or events since that notification that management believes have changed the Bank's category. OnSeptember 17, 2019 , theOffice of the Comptroller of the Currency , the FRB and theFDIC published its final rule establishing a "Community Bank Leverage Ratio" ("CBLR") that simplifies capital requirements for certain community banking organizations with less than$10 billion in total consolidated assets (such as the Bank). Under the final rule, depository institutions and their holding companies that meet certain criteria (generally, those with limited amounts of off-balance sheet exposures, trading assets and liabilities, mortgage servicing assets, and temporary difference deferred tax assets) ("qualifying community banking organizations") may elect to report the components of its Tier 1 leverage ratio as a measure of capital adequacy. A qualifying community banking organization with a CBLR of greater than 9% that "elects to use the CBLR framework" will not be subject to other risk-based and leverage capital requirements and will be considered to have met the well-capitalized ratio requirements for purposes of the agencies' Prompt Corrective Action ("PCA") framework. Under the final rule, if a bank that has opted to use the CBLR framework subsequently fails to satisfy one or more of the qualifying criteria, but continues to report a leverage ratio of greater than 8 %, the bank may continue to use the framework and will be deemed "well capitalized" for a grace period of up to two quarters. A qualifying community banking organization will be required to comply with the generally applicable capital rule and file the relevant regulatory reports if the banking organization: (1) is unable to restore compliance with all qualifying criteria during the two-quarter grace period (including achieving compliance with the greater than 9% leverage ratio requirement); (2) reports a leverage ratio of 8% or less; or (3) ceases to satisfy the qualifying criteria due to consummation of a merger transaction. The final rule became effective onJanuary 1, 2020 . The Bank would qualify for the CBLR methodology and would also be considered to be well capitalized if it elected to utilize such methodology. The Bank is currently evaluating the benefits of transitioning to this simplified methodology for assessing capital adequacy. Share Repurchases OnMarch 23, 2022 Salisbury announced that its Board of Directors has renewed its share repurchase program that was established inMarch 2021 . The share repurchase program provides for the potential repurchase ofSalisbury'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 the next twelve (12) months through privately negotiated transactions and/or market purchases at appropriate prices, subject to price and market conditions on terms determined to be in the best interests ofSalisbury .Salisbury did not repurchase any shares during first quarter 2023.
Dividends
During the three-month period endedMarch 31, 2023 ,Salisbury paid$927 thousand in dividends on common stock. OnApril 26, 2023 , the Board of Directors ofSalisbury declared a dividend of$0.16 per common share payable onMay 26, 2023 to shareholders of record onMay 12, 2023 .Salisbury's ability to pay cash dividends is dependent on the Bank's ability to pay cash dividends toSalisbury . There are certain restrictions on the payment of cash dividends and other payments by the Bank toSalisbury . UnderConnecticut law, the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years. FRB Supervisory Letter SR 09-4,February 24, 2009 , revisedDecember 31, 2015 , states that, as a general matter, the Board of Directors of aBank Holding Company ("BHC") should inform theFederal Reserve and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform theFederal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital position.Salisbury believes that the payment of common stock cash dividends is appropriate, provided that such payment considersSalisbury's capital needs, asset quality, and overall financial condition and does not adversely affect the financial stability ofSalisbury or the Bank. The continued payment of common stock cash dividends bySalisbury will be dependent onSalisbury's future core earnings, financial condition and capital needs, regulatory restrictions, and other factors deemed relevant by the Board of Directors ofSalisbury .
IMPACT OF INFLATION AND CHANGING PRICES
Salisbury's consolidated financial statements and related notes thereto presented elsewhere in this Form 10-Q are prepared in conformity with GAAP, 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 some other types of companies, the financial nature ofSalisbury's consolidated financial statements is more clearly affected by changes in interest rates than by inflation. Interest rates do not necessarily fluctuate in the same direction or in the same magnitude as the prices of goods and services. However, inflation does affectSalisbury to some extent because, as prices increase, the money supply grows and interest rates are affected by inflationary expectations. Additionally, the effects of inflation on commercial and consumer customers can have implications with respect to their borrowing needs and saving and deposit practices. Potentially, if sustained, inflation could precipitate recessionary trends that could affect commercial development and residential construction. Inflation could also increase the cost of labor and products and services used by the Bank and thereby hinder efficiencies in the Bank's ability to deliver products and services. There is no precise method, however, to measure the effects of inflation onSalisbury's consolidated financial statements. Accordingly, any examination or analysis of the financial statements should take into consideration the possible effects of inflation. Although not a material factor in recent years, inflation could impact earnings in future periods.
36 FORWARD-LOOKING STATEMENTS
This Form 10-Q and future filings made by
(a) assumptions concerning future economic and business conditions and their
effect on the economy in general and on the markets in which
the Bank do business; and
(b) expectations for revenues and earnings for
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,Salisbury claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.Salisbury 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 affect the operation, performance, development and results ofSalisbury's and the 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 impacts
(c) increased competition from other financial and non-financial institutions;
(d) the impact of technological advances and cybersecurity matters;
(e) interest rate fluctuations;
(f) the effect of the COVID-19 pandemic on
the Bank, the
economy and overall financial stability;
(g) the risk of adverse changes in business conditions due to geo-political
tensions and;
(h) the risk that the pending merger with NBT will not be completed; and
(i) changes in
conditions and competition for deposits; and
(j) other risks identified from time to time in
Such developments could have an adverse impact on
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