SECURITIES

3 Months Ended

Mar. 31, 2016

Investments, Debt and Equity Securities [Abstract]

SECURITIES

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un- realized losses			Fair value
March 31, 2016
Available-for-sale
U.S. Treasury notes	$	7,497	$	33	$	(1	)	$	7,529
Municipal bonds		24,893		495		—			25,388
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		35,328		497		(23	)		35,802
Collateralized mortgage obligations:
U.S. Government agencies		1,850		12		—			1,862
Non-agency		4,198		382		(12	)		4,568
SBA bonds		2,843		28		—			2,871
CRA mutual funds		770		9		—			779
Preferred stock		20		215		—			235
Total securities available-for-sale	$	77,399	$	1,671	$	(36	)	$	79,034
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	3,117	$	—	$	—		$	3,117

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un- realized losses			Fair value
December 31, 2015
Available-for-sale
U.S. Treasury notes	$	2,499	$	42	$	—		$	2,541
U.S. Government agency notes		498		—		—			498
Municipal bonds		29,752		633		—			30,385
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		31,900		385		(83	)		32,202
Collateralized mortgage obligations:
U.S. Government agencies		2,002		12		—			2,014
Non-agency		4,487		468		(7	)		4,948
SBA bonds		3,065		31		—			3,096
CRA mutual funds		766		—		(2	)		764
Preferred stock		20		226		—			246
Total securities available-for-sale	$	74,989	$	1,797	$	(92	)	$	76,694
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	3,176	$	—	$	—		$	3,176

(1) Net of other-than-temporary impairment write-downs recognized in earnings.

Salisbury did not sell any available-for-sale securities during the three month period ended March 31, 2016, and sold $3.9 million in available-for-sale securities during the three month period ended March 31, 2015, for a gain of $165,000. The after tax gain totaled $150,000.

The following table summarizes, for all securities in an unrealized loss position, including debt securities for which a portion of other-than-temporary impairment (OTTI) has been recognized in other comprehensive loss, the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:

(in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
March 31, 2016
Available-for-sale
Municipal bonds	$	4,997	$	(1	)	$	—	$	—		$	4,997	$	(1	)
Mortgage-backed securities		7,096		(18	)		177		(5	)		7,273		(23	)
Collateralized mortgage obligations:
Non-agency		343		(2	)		211		(6	)		554		(8	)
Total temporarily impaired securities		12,436		(21	)		388		(11	)		12,824		(32	)
Other-than-temporarily impaired securities
Collateralized mortgage obligations:
Non-agency		217		(4	)		—		—			217		(4	)
Total temporarily impaired and other-than-temporarily impaired securities	$	12,653	$	(25	)	$	388	$	(11	)	$	13,041	$	(36	)

Salisbury evaluates securities for OTTI where 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 whether it has the 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 OTTI 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 OTTI.

The following summarizes, by security type, the basis for evaluating if the applicable securities were OTTI at March 31, 2016.

U.S. Government agency mortgage-backed securities: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Therefore, management does not consider these securities to be OTTI at March 31, 2016.

Municipal bonds: Contractual cash flows are performing as expected. Salisbury’s portfolio is mostly comprised of tax-exempt general obligation bonds or public-purpose revenue bonds for schools, municipal offices, sewer infrastructure and fire houses, for small towns and municipalities across the United States. In the wake of the financial crisis, most monoline bond insurers had their ratings downgraded or withdrawn because of excessive exposure to insurance for collateralized debt obligations. Where appropriate, Salisbury performs credit underwriting reviews of unrated issuers, including some that have had their ratings withdrawn and are insured by insurers that have had their ratings withdrawn, to assess default risk. For all completed reviews, pass credit risk ratings have been assigned. Management expects to recover the entire amortized cost basis of these securities. It is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be at maturity, and Salisbury does not intend to sell these securities. Therefore, management does not consider these securities to be OTTI at March 31, 2016.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at March 31, 2016, to assess whether any of the securities were OTTI. Salisbury uses cash flow forecasts for each security based on a variety of market driven assumptions and securitization terms, including prepayment speed, default or delinquency rate, and default severity for losses including interest, legal fees, property repairs, expenses and realtor fees, that, together with the loan amount are subtracted from collateral sales proceeds to determine severity. In 2009, Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1,128,000. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of March 31, 2016. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and depending upon such factor could reduce its position in these securities, although it has no present intention to do so, and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost bases.

The following table presents activity related to credit losses recognized into earnings on the non-agency CMOs held by Salisbury for which a portion of an OTTI charge was recognized in accumulated other comprehensive income:

Three months ended March 31 (in thousands)		2016		2015
Balance, beginning of period	$	1,128	$	1,128
Credit component on debt securities in which OTTI was not previously recognized		—		—
Balance, end of period	$	1,128	$	1,128

The Federal Home Loan Bank of Boston (FHLBB) is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Bank’s FHLBB stock as of March 31, 2016. Deterioration of the FHLBB’s capital levels may require the Bank to deem its restricted investment in FHLBB stock to be OTTI. If evidence of impairment exists in the future, the FHLBB stock would reflect fair value using either observable or unobservable inputs. The Bank will continue to monitor its investment in FHLBB stock.