10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________ TO ________

Commission file number 0-24751

SALISBURY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Connecticut	06-1514263
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
5 Bissell Street, Lakeville, CT	06039
(Address of principal executive offices)	(Zip code)

(860) 435-9801

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares of Common Stock outstanding as of November 14, 2016 is 2,758,086.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2016 (unaudited) and DECEMBER 31, 2015	3
	CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015 (unaudited)	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015 (unaudited)	5
	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015 ( (unaudited)	5
	CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2016 AND 2015 (unaudited)	6, 7
	NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	8
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47
Item 4.	CONTROLS AND PROCEDURES	49
PART II. OTHER INFORMATION		49
Item 1.	LEGAL PROCEEDINGS	49
Item 1A.	RISK FACTORS	49
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	49
Item 3.	DEFAULTS UPON SENIOR SECURITIES	49
Item 4.	MINE SAFETY DISCLOSURES	49
Item 5.	OTHER INFORMATION	49
Item 6.	EXHIBITS	50
SIGNATURES		51

2

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)	September 30, 2016			December 31, 2015
ASSETS		(unaudited)
Cash and due from banks	$	13,004		$	14,891
Interest bearing demand deposits with other banks		29,634			47,227
Total cash and cash equivalents		42,638			62,118
Securities:
Available-for-sale at fair value		76,801			76,694
Federal Home Loan Bank of Boston stock at cost		2,937			3,176
Loans held-for-sale		837			763
Loans receivable, net (allowance for loan losses: $5,892 and $5,716)		753,623			699,018
Other real estate owned		2,823			—
Bank premises and equipment, net		14,573			14,307
Goodwill		12,552			12,552
Intangible assets (net of accumulated amortization: $3,364 and $2,909)		1,883			2,338
Accrued interest receivable		2,260			2,307
Cash surrender value of life insurance policies		13,952			13,685
Deferred taxes		2,114			1,989
Other assets		1,452			2,245
Total Assets	$	928,445		$	891,192
LIABILITIES and SHAREHOLDERS' EQUITY
Deposits:
Demand (non-interest bearing)	$	210,396		$	201,340
Demand (interest bearing)		126,064			125,465
Money market		201,504			183,783
Savings and other		127,595			119,651
Certificates of deposit		121,171			124,294
Total deposits		786,730			754,533
Repurchase agreements		3,581			3,914
Federal Home Loan Bank of Boston advances		27,134			26,979
Subordinated debt(1)		9,782			9,764
Note payable		351			376
Capital lease liability		419			422
Accrued interest and other liabilities		6,894			4,630
Total Liabilities		834,891			800,618
Shareholders' Equity
Common stock - $0.10 per share par value
Authorized: 5,000,000
Outstanding: 2,758,086 and 2,733,576		276			273
Paid-in capital		42,053			41,364
Retained earnings		50,773			47,922
Unearned compensation - restricted stock awards		(431	)		(110	)
Accumulated other comprehensive income		883			1,125
Total Shareholders' Equity		93,554			90,574
Total Liabilities and Shareholders' Equity	$	928,445		$	891,192

⁽¹⁾ Net of issuance costs, which are capitalized and amortized as a component of interest expense over a period of 10 years.

3

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

	Three months ended				Nine months ended
Periods ended September 30, (in thousands except per share amounts)		2016		2015		2016		2015
Interest and dividend income
Interest and fees on loans	$	8,061	$	7,955	$	23,915	$	23,727
Interest on debt securities:
Taxable		341		286		976		910
Tax exempt		202		351		725		1,098
Other interest and dividends		60		58		138		132
Total interest and dividend income		8,664		8,650		25,754		25,867
Interest expense
Deposits		565		463		1,603		1,359
Repurchase agreements		2		2		4		5
Capital lease		17		18		52		53
Note payable		5		1		16		1
Subordinated debt		156		—		468		—
Federal Home Loan Bank of Boston advances		237		269		714		832
Total interest expense		982		753		2,857		2,250
Net interest and dividend income		7,682		7,897		22,897		23,617
Provision for loan losses		344		655		1,332		651
Net interest and dividend income after provision for loan losses		7,338		7,242		21,565		22,966
Non-interest income
Trust and wealth advisory		849		798		2,517		2,510
Service charges and fees		840		798		2,355		2,307
Gains on sales of mortgage loans, net		55		47		152		227
Mortgage servicing, net		28		5		61		(15	)
Gains on sales and calls of available-for-sale securities, net		10		6		157		192
Other		113		115		342		343
Total non-interest income		1,895		1,769		5,584		5,564
Non-interest expense
Salaries		2,757		2,531		8,017		7,520
Employee benefits		924		916		2,923		2,881
Premises and equipment		809		863		2,546		2,683
Data processing		472		404		1,369		1,276
Professional fees		459		398		1,403		1,642
Collections, OREO and loan related		109		125		420		594
FDIC insurance		164		163		474		494
Marketing and community support		144		174		524		465
Amortization of core deposit intangibles		148		161		455		494
Other		513		467		1,844		1,528
Total non-interest expense		6,499		6,202		19,975		19,577
Income before income taxes		2,734		2,809		7,174		8,953
Income tax provision		812		824		2,009		2,663
Net income	$	1,922	$	1,985	$	5,165	$	6,290
Net income applicable to common shareholders	$	1,907	$	1,928	$	5,124	$	6,116
Basic earnings per common share	$	0.70	$	0.71	$	1.88	$	2.26
Weighted average common shares outstanding, to calculate basic earnings per share		2,737		2,707		2,732		2,704
Diluted earnings per common share		0.69		0.71		1.87		2.25
Weighted average common shares outstanding, to calculate diluted earnings per share		2,751		2,724		2,747		2,721
Common dividends per share		0.28		0.28		0.84		0.84

4

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

	Three months ended						Nine months ended
Periods ended September 30, (in thousands)		2016			2015			2016			2015
Net income	$	1,922		$	1,985		$	5,165		$	6,290
Other comprehensive (loss) income
Net unrealized (losses) gains on securities available-for-sale		(331	)		116			(211	)		(816	)
Reclassification of net realized gains in net income (1)		(10	)		(6	)		(157	)		(192	)
Unrealized (losses) gains on securities available-for-sale		(341	)		110			(368	)		(1,008	)
Income tax benefit (expense)		116			(37	)		126			343
Unrealized (losses) gains on securities available-for-sale, net of tax		(225	)		73			(242	)		(665	)
Comprehensive income	$	1,697		$	2,058		$	4,923		$	5,625

⁽¹⁾Reclassification adjustments include realized security gains and losses. The gains and losses have been reclassified out of other comprehensive income (loss) and have affected certain lines in the consolidated statements of income as follows: The pre-tax amount is reflected as gains on sales and calls of available-for-sale securities, net, the tax effect is included in the income tax provision and the after tax amount is included in net income.

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) Nine months ended September 30, 2016 and 2015

(dollars in thousands)	Common Stock					Preferred stock		Paid-in capital			Retained earnings			Unearned compensation – restricted stock awards			Accumulated other comp- rehensive income			Total share- holders' equity
	Shares			Amount
Balances at December 31, 2014		2,720,766		$	272	$	16,000	$	41,077		$	42,677		$	(313	)	$	2,108		$	101,821
Net income		—			—		—		—			6,290			—			—			6,290
Other comprehensive loss, net of tax		—			—		—		—			—			—			(665	)		(665	)
Common stock dividends declared		—			—		—		—			(2,289	)		—			—			(2,289	)
Preferred stock dividends declared		—			—		—		—			(120	)		—			—			(120	)
Stock options exercised		9,450			1		—		182			—			—			—			183
Issuance of common stock for executives		1,000			—		—		29			—			—			—			29
Forfeiture of restricted common stock		(300	)		—		—		(7	)		—			7			—			—
Issuance of common stock for directors		2,660			—		—		81			—			—			—			81
Stock based compensation – restricted stock awards		—			—		—		—			—			120			—			120
Balances at September 30, 2015		2,733,576		$	273	$	16,000	$	41,362		$	46,558		$	(186	)	$	1,443		$	105,450
Balances at December 31, 2015		2,733,576		$	273	$	—	$	41,364		$	47,922		$	(110	)	$	1,125		$	90,574
Net income		—			—		—		—			5,165			—			—			5,165
Other comprehensive loss, net of tax		—			—		—		—			—			—			(242	)		(242	)
Common stock dividends declared		—			—		—		—			(2,314	)		—			—			(2,314	)
Stock options exercised		4,050			—		—		87			—			—			—			87
Issuance of restricted stock awards		15,800			2		—		464			—			(466	)		—			—
Forfeiture of restricted common stock		(100	)		—		—		(3	)		—			3			—			—
Issuance of common stock for directors		4,760			1		—		141			—						—			142
Stock based compensation – restricted stock awards		—			—		—		—			—			142			—			142
Balances at September 30, 2016		2,758,086		$	276	$	—	$	42,053		$	50,773		$	(431	)	$	883		$	93,554

5

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine months ended September 30, (in thousands)		2016			2015
Operating Activities
Net income	$	5,165		$	6,290
Adjustments to reconcile net income to net cash provided by operating activities:
(Accretion), amortization and depreciation:
Securities		204			178
Bank premises and equipment		889			917
Core deposit intangible		455			494
Mortgage servicing rights		182			282
Fair value adjustment on loans		(1,429	)		(2,031	)
Fair value adjustment on deposits		(97	)		(355	)
(Gains) and losses, including write-downs
Gain on calls of securities available-for-sale, net		(1	)		(40	)
Gain on sales of securities available-for-sale, net		(156	)		(152	)
Gain on sales of loans, excluding capitalized servicing rights		(152	)		(102	)
Write-downs of other real estate owned		—			238
Loss on sale/disposals of premises and equipment		13			45
Provision for loan losses		1,332			651
Proceeds from loans sold		6,814			4,897
Loans originated for sale		(6,736	)		(4,800	)
(Increase) decrease in deferred loan origination costs, net		(91	)		25
Mortgage servicing rights originated		(71	)		(125	)
Increase in mortgage servicing rights impairment reserve		13			3
Decrease in interest receivable		47			38
Deferred tax benefit		—			(17	)
Decrease (increase) in prepaid expenses		18			(409	)
Increase in cash surrender value of life insurance policies		(267	)		(277	)
Decrease in income tax receivable		433			—
Increase in income tax payable		—			271
Increase (decrease) in other assets		218			(87	)
Increase (decrease) in accrued expenses		1,079			(11	)
Modification fees on Federal Home Loan Bank advances		173			—
Amortization of debt issuance costs		18			—
Decrease in interest payable		(125	)		(45	)
Increase in other liabilities		1,310			369
Stock based compensation-restricted stock awards		142			120
Net cash provided by operating activities		9,380			6,367
Investing Activities
Purchase of Federal Home Loan Bank of Boston stock		(319	)		—
Redemption of Federal Home Loan Bank of Boston stock		558			—
Purchases of securities available-for-sale		(45,317	)		(9,322	)
Proceeds from sales of securities available-for-sale		3,860			3,861
Proceeds from calls of securities available-for-sale		11,811			7,995
Proceeds from maturities of securities available-for-sale		29,125			7,413
Loan originations and principal collections, net		(57,351	)		(13,748	)
Recoveries of loans previously charged off		111			613
Proceeds from sales of other real estate owned		—			698
Capital expenditures		(1,168	)		(739	)
Net cash used in investing activities		(58,690	)		(3,229	)

6

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Nine months ended September 30, (in thousands)		2016			2015
Financing Activities
Increase in deposit transaction accounts, net		35,320			57,607
Decrease in time deposits, net		(3,026	)		(11,199	)
(Decrease) increase in securities sold under agreements to repurchase, net		(333	)		47
Principal payments on Federal Home Loan Bank of Boston advances		(18	)		(786	)
Modification payment on Federal Home Loan Bank of Boston advances		—			(1,099	)
Principal payments on note payable		(25	)		—
Decrease in capital lease obligation		(3	)		(2	)
Stock options exercised		87			183
Issuance of shares for director fees		142			81
Issuance of shares for executives		—			29
Common stock dividends paid		(2,314	)		(2,289	)
Series B preferred stock dividends paid		—			(120	)
Net cash provided by financing activities		29,830			42,452
Net (decrease) increase in cash and cash equivalents		(19,480	)		45,590
Cash and cash equivalents, beginning of period		62,118			36,105
Cash and cash equivalents, end of period	$	42,638		$	81,695
Cash paid during period
Interest	$	2,714		$	2,650
Income taxes		842			2,409
Non-cash investing and financing activities
Transfer from loans to other real estate owned		2,823			101
Note payable to fund building purchase		—			380

7

Salisbury Bancorp, Inc. and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The interim (unaudited) consolidated financial statements of Salisbury Bancorp, Inc. ("Salisbury") include those of Salisbury and its wholly owned subsidiary, Salisbury Bank and Trust Company (the "Bank"). In the opinion of management, the interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position of Salisbury and the consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the interim periods presented.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In preparing the financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, expected cash flows from loans acquired in a business combination, other-than-temporary impairment of securities and impairment of goodwill and intangibles.

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2015 Annual Report on Form 10-K for the year ended December 31, 2015.

The allowance for loan losses is a significant accounting policy and is presented in the Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis, which provides information on how significant assets are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective judgments, and as such could be most subject to revision as new information becomes available.

Impact of New Accounting Pronouncements Issued

In January 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments – overall (subtopic 825-10): "Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. Salisbury does not expect ASU No. 2016-01 to have a material impact on its Consolidated Financial Statements; however, Salisbury will continue to closely monitor developments and additional guidance.

8

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. Salisbury is currently evaluating this ASU to determine the impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation–Stock Compensation (Topic 718): "Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. Salisbury is currently evaluating the provisions of ASU No. 2016-09 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Salisbury is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments." This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU No. 2016-15 is not expected to have a material impact on Salisbury’s Consolidated Financial Statements.

9

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
September 30, 2016
Available-for-sale
Municipal bonds		$	18,252		$	352		$	—			$	18,604
Mortgage-backed securities
U.S. Government agencies and U.S. Government-sponsored enterprises			47,881			372			(77	)			48,176
Collateralized mortgage obligations
U.S. Government agencies			1,596			8			—				1,604
Non-agency			3,619			418			(5	)			4,032
SBA bonds			2,268			18			—				2,286
CRA mutual funds			828			10			—				838
Corporate bonds			1,000			20			—				1,020
Preferred stock			20			221			—				241
Total securities available-for-sale		$	75,464		$	1,419		$	(82	)		$	76,801
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	2,937		$	—		$	—			$	2,937

(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 sold $3.6 million in securities available-for-sale during the nine month period ended September 30, 2016, and sold $3.7 million in securities available-for-sale during the nine month period ended September 30, 2015.

10

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, 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
September 30, 2016
Available-for-sale
Mortgage-backed securities	$	27,770	$	(71	)	$	310	$	(6	)	$	28,080	$	(77	)
Collateralized mortgage obligations:
Non-agency		203		(1	)		175		(4	)		378		(5	)
Total temporarily impaired  securities	$	27,973	$	(72	)	$	485	$	(10	)	$	28,458	$	(82	)

(in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
December 31, 2015
Available-for-sale
Mortgage-backed securities	$	14,750	$	(83	)	$	53	$	—		$	14,803	$	(83	)
Collateralized mortgage obligations:
Non-agency		237		—			226		(7	)		463		(7	)
CRA mutual funds		764		(2	)		—		—			764		(2	)
Total temporarily impaired  securities	$	15,751	$	(85	)	$	279	$	(7	)	$	16,030	$	(92	)

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 September 30, 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 September 30, 2016.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 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 September 30, 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 basis.

11

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:

Nine months ended September 30 (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 September 30, 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.

NOTE 3 – LOANS

The composition of loans receivable and loans held-for-sale is as follows:

	September 30, 2016									December 31, 2015
(In thousands)	Business Activities  Loans			Acquired Loans			Total			Business Activities  Loans			Acquired Loans			Total
Residential 1-4 family	$	286,663		$	7,022		$	293,685		$	261,495		$	7,799		$	269,294
Residential 5+ multifamily		7,690			5,864			13,554			6,411			6,136			12,547
Construction of residential 1-4 family		9,824			—			9,824			7,998			—			7,998
Home equity lines of credit		35,470			—			35,470			35,017			—			35,017
Residential real estate		339,647			12,886			352,533			310,921			13,935			324,856
Commercial		162,602			81,741			244,343			129,446			88,829			218,275
Construction of commercial		4,066			2,139			6,205			6,525			4,874			11,399
Commercial real estate		166,668			83,880			250,548			135,971			93,703			229,674
Farm land		4,033			—			4,033			3,193			—			3,193
Vacant land		5,830			—			5,830			8,563			—			8,563
Real estate secured		516,178			96,766			612,944			458,648			107,638			566,286
Commercial and industrial		101,146			30,009			131,155			74,657			46,764			121,421
Municipal		8,475			—			8,475			9,566			—			9,566
Consumer		5,593			68			5,661			6,195			77			6,272
Loans receivable, gross		631,392			126,843			758,235			549,066			154,479			703,545
Deferred loan origination costs, net		1,280			—			1,280			1,189			—			1,189
Allowance for loan losses		(5,613	)		(279	)		(5,892	)		(5,481	)		(235	)		(5,716	)
Loans receivable, net	$	627,059		$	126,564		$	753,623		$	544,774		$	154,244		$	699,018
Loans held-for-sale
Residential 1-4 family	$	837		$	—		$	837		$	763		$	—		$	763

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut, New York and Massachusetts towns, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, and installment and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

12

Loan Credit Quality

The composition of loans receivable by risk rating grade is as follows:

Business Activities Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
September 30, 2016
Residential 1-4 family	$	276,508	$	6,111	$	3,955	$	89	$	—	$	286,663
Residential 5+ multifamily		5,611		1,912		167		—		—		7,690
Construction of residential 1-4 family		9,824		—		—		—		—		9,824
Home equity lines of credit		34,102		528		840		—		—		35,470
Residential real estate		326,045		8,551		4,962		89		—		339,647
Commercial		152,026		3,541		7,035		—		—		162,602
Construction of commercial		3,949		—		117		—		—		4,066
Commercial real estate		155,975		3,541		7,152		—		—		166,668
Farm land		3,025		—		1,008		—		—		4,033
Vacant land		5,739		63		28		—		—		5,830
Real estate secured		490,784		12,155		13,150		89		—		516,178
Commercial and industrial		98,795		1,716		635		—		—		101,146
Municipal		8,475		—		—		—		—		8,475
Consumer		5,566		27		—		—		—		5,593
Loans receivable, gross	$	603,620	$	13,898	$	13,785	$	89	$	—	$	631,392

Acquired Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
September 30, 2016
Residential 1-4 family	$	6,133	$	110	$	779	$	—	$	—	$	7,022
Residential 5+ multifamily		5,741		—		123		—		—		5,864
Construction of residential 1-4 family		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Residential real estate		11,874		110		902		—		—		12,886
Commercial		72,288		4,082		5,371		—		—		81,741
Construction of commercial		1,881		—		258		—		—		2,139
Commercial real estate		74,169		4,082		5,629		—		—		83,880
Farm land		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—
Real estate secured		86,043		4,192		6,531		—		—		96,766
Commercial and industrial		28,566		1,238		205		—		—		30,009
Municipal		—		—		—		—		—		—
Consumer		65		3		—		—		—		68
Loans receivable, gross	$	114,674	$	5,433	$	6,736	$	—	$	—	$	126,843

13

Business Activities Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Residential 1-4 family	$	248,027	$	6,933	$	6,444	$	91	$	—	$	261,495
Residential 5+ multifamily		4,507		1,815		89		—		—		6,411
Construction of residential 1-4 family		7,111		887		—		—		—		7,998
Home equity lines of credit		33,687		545		785		—		—		35,017
Residential real estate		293,332		10,180		7,318		91		—		310,921
Commercial		120,903		4,801		3,742		—		—		129,446
Construction of commercial		6,525		—		—		—		—		6,525
Commercial real estate		127,428		4,801		3,742		—		—		135,971
Farm land		2,162		—		1,031		—		—		3,193
Vacant land		5,567		69		2,927		—		—		8,563
Real estate secured		428,489		15,050		15,018		91		—		458,648
Commercial and industrial		72,887		1,214		555		1		—		74,657
Municipal		9,566		—		—		—		—		9,566
Consumer		6,171		18		6		—		—		6,195
Loans receivable, gross	$	517,113	$	16,282	$	15,579	$	92	$	—	$	549,066

Acquired Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Residential 1-4 family	$	6,824	$	199	$	776	$	—	$	—	$	7,799
Residential 5+ multifamily		6,136		—		—		—		—		6,136
Construction of residential 1-4 family		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Residential real estate		12,960		199		776		—		—		13,935
Commercial		80,406		4,005		4,418		—		—		88,829
Construction of commercial		4,612		—		262		—		—		4,874
Commercial real estate		85,018		4,005		4,680		—		—		93,703
Farm land		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—
Real estate secured		97,978		4,204		5,456		—		—		107,638
Commercial and industrial		45,363		875		443		83		—		46,764
Municipal		—		—		—		—		—		—
Consumer		71		6		—		—		—		77
Loans receivable, gross	$	143,412	$	5,085	$	5,899	$	83	$	—	$	154,479

14

The composition of loans receivable by delinquency status is as follows:

Business Activities Loans

			Past due
												180		30
(in thousands)	Current			1-29		30-59		60-89		90-179		days		days			Accruing		Non-
				days		days		days		days		and		and		90 days			accrual
												over		over		and over
September 30, 2016
Residential 1-4 family	$	281,558		$	1,892	$	313	$	679	$	74	$	2,147	$	3,213		$	—	$	3,017
Residential 5+ multifamily		7,690			—		—		—		—		—		—			—		167
Construction of residential 1-4 family		9,824			—		—		—		—		—		—			—		—
Home equity lines of credit		34,949			69		151		90		54		157		452			—		681
Residential real estate		334,021			1,961		464		769		128		2,304		3,665			—		3,865
Commercial		158,272			1,251		1,917		252		—		910		3,079			—		2,993
Construction of commercial		4,066			—		—		—		—		—		—			—		—
Commercial real estate		162,338			1,251		1,917		252		—		910		3,079			—		2,993
Farm land		2,514			795		—		—		—		724		724			—		1,009
Vacant land		5,784			46		—		—		—		—		—			—		28
Real estate secured		504,657			4,053		2,381		1,021		128		3,938		7,468			—		7,895
Commercial and industrial		99,230			1,105		627		161		—		23		811			—		23
Municipal		8,475			—		—		—		—		—		—			—		—
Consumer		5,555			19		9		10		—		—		19			—		—
Loans receivable, gross	$	617,917		$	5,177	$	3,017	$	1,192	$	128	$	3,961	$	8,298		$	—	$	7,918

Acquired Loans

September 30, 2016
Residential 1-4 family	$	5,961	$	282	$	—	$	—	$	—	$	779	$	779	$	—	$	779
Residential 5+ multifamily		5,299		—		442		—		—		123		565		—		123
Construction of residential 1-4 family		—		—		—		—		—		—		—		—		—
Home equity credit lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		11,260		282		442		—		—		902		1344		—		902
Commercial		74,978		2,695		1,503		—		974		1,591		4,068		365		2,199
Construction of commercial		1,881		—		—		—		—		258		258		—		258
Commercial real estate		76,859		2,695		1,503		—		974		1,849		4,326		365		2,457
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		88,119		2,977		1,945		—		974		2,751		5,670		365		3,359
Commercial and industrial		27,711		622		543		1,103		30		—		1,676		30		—
Municipal		—		—		—		—		—		—		—		—		—
Consumer		68		—		—		—		—		—		—		—		—
Loans receivable, gross	$	115,898	$	3,599	$	2,488	$	1,103	$	1,004	$	2,751	$	7,346	$	395	$	3,359

15

Business Activities Loans

			Past due
												180		30
(in thousands)	Current			1-29		30-59		60-89		90-179		days		days			Accruing		Non-
				days		days		days		days		and		and		90 days			accrual
												over		over		and over
December 30, 2015
Residential 1-4 family	$	254,152		$	1,781	$	1,931	$	683	$	973	$	1,975	$	5,562		$	—	$	5,671
Residential 5+ multifamily		6,254			—		68		—		—		89		157			—		89
Construction of residential 1-4 family		7,826			172		—		—		—		—		—			—		—
Home equity lines of credit		33,744			363		306		101		113		390		910			—		601
Residential real estate		301,976			2,316		2,305		784		1,086		2,454		6,629			—		6,361
Commercial		126,440			1,618		474		—		233		681		1,388			—		2,349
Construction of commercial		6,525			—		—		—		—		—		—			—		—
Commercial real estate		132,965			1,618		474		—		233		681		1,388			—		2,349
Farm land		2,172			298		—		—		—		723		723			—		1,031
Vacant land		5,734			—		6		—		—		2,823		2,829			—		2,855
Real estate secured		442,847			4,232		2,785		784		1,319		6,681		11,569			—		12,596
Commercial and industrial		73,698			906		35		—		—		18		53			—		461
Municipal		9,566			—		—		—		—		—		—			—		—
Consumer		6,096			61		21		17		—		—		38			—		80
Loans receivable, gross	$	532,207		$	5,199	$	2,841	$	801	$	1,319	$	6,699	$	11,660		$	—	$	13,137

Acquired Loans

December 30, 2015
Residential 1-4 family	$	6,823	$	—	$	—	$	110	$	—	$	866	$	976	$	90	$	776
Residential 5+ multifamily		6,136		—		—		—		—		—		—		—		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		12,959		—		—		110		—		866		976		90		776
Commercial		81,140		4,848		916		—		—		1,925		2,841		—		2,000
Construction of commercial		4,612		—		—		—		—		262		262		—		262
Commercial real estate		85,752		4,848		916		—		—		2,187		3,103		—		2,262
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		98,711		4,848		916		110		—		3,053		4,079		90		3,038
Commercial and industrial		46,128		471		83		82		—		—		165		—		—
Municipal		—		—		—		—		—		—		—		—		—
Consumer		77		—		—		—		—		—		—		—		—
Loans receivable, gross	$	144,916	$	5,319	$	999	$	192	$	—	$	3,053	$	4,244	$	90	$	3,038

Interest on non-accrual loans that would have been recorded as additional interest income for the nine months ended September 30, 2016 and 2015 had the loans been current in accordance with their original terms totaled $666,000 and $609,000, respectively.

16

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

Business Activities Loans

	Nine months ended
	September 30, 2016						September 30, 2015
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		4	$	683	$	683		2	$	923	$	923
Commercial real estate		2		2,123		2,123		1		294		294
Home equity lines of credit		—		—		—		1		35		35
Troubled debt restructurings		6	$	2,806	$	2,806		4		1,252		1,252
Rate reduction and term extension		1	$	174	$	174		1	$	294	$	294
Interest only and term extension		—		—		—		—		—		—
Debt consolidation		1		1,863		1,863		—		—		—
Debt consolidation and term extension		1		260		260		—		—		—
Note bifurcation		—		—		—		1		48		48
Term extension		3		509		509		2		910		910
Troubled debt restructurings		6	$	2,806	$	2,806		4		1,252		1,252

Acquired Loans

	Nine months ended
	September 30, 2016						September 30, 2015
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		1	$	88	$	88		—	$	—	$	—
Commercial real estate		—		—		—		1		184		184
Home equity lines of credit		—		—		—		—		—		—
Troubled debt restructurings		1	$	88	$	88		1	$	184	$	184
Rate reduction and term extension		1	$	88	$	88		1	$	184	$	184
Interest only and term extension		—		—		—		—		—		—
Interest only		—		—		—		—		—		—
Debt consolidation and term extension		—		—		—		—		—		—
Term extension		—		—		—		—		—		—
Troubled debt restructurings		1	$	88	$	88		1	$	184	$	184

Seven loans were modified in troubled debt restructurings during 2016, one of which was past due at September 30, 2016.

As of September 30, 2016, there were no commitments to lend additional amounts on troubled debt restructurings.

As of September 30, 2016, the Bank had $2,793,000 in loans collateralized by residential real estate property in the process of foreclosure.

17

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended September 30, 2016												Three months ended September 30, 2016
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,248	$	224		$	(155	)	$	8	$	2,325	$	69	$	5		$	—		$	—	$	74
Commercial		1,734		29			(1	)		—		1,762		134		37			—			—		171
Land		166		82			(42	)		—		206		—		—			—			—		—
Real estate		4,148		335			(198	)		8		4,293		203		42			—			—		245
Commercial and industrial		851		(16	)		(2	)		25		858		37		(11	)		—			8		34
Municipal		56		(3	)		—			—		53		—		—			—			—		—
Consumer		89		17			(17	)		5		94		—		—			—			—		—
Unallocated		334		(19	)		—			—		315		—		—			—			—		—
Totals	$	5,478	$	314		$	(217	)	$	38	$	5,613	$	240	$	31		$	—		$	8	$	279
	Business Activities Loans												Acquired Loans
(in thousands)	Nine months ended September 30, 2016												Nine months ended September 30, 2016
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,477	$	370		$	(550	)	$	28	$	2,325	$	79	$	(5	)	$	—		$	—	$	74
Commercial		1,466		332			(37	)		1		1,762		132		133			(98	)		4		171
Land		188		106			(88	)		—		206		—		—			—			—		—
Real estate		4,131		808			(675	)		29		4,293		211		128			(98	)		4		245
Commercial and industrial		683		167			(32	)		40		858		24		403			(416	)		23		34
Municipal		61		(8	)		—			—		53		—		—			—			—		—
Consumer		124		1			(46	)		15		94		—		—			—			—		—
Unallocated		482		(167	)		—			—		315		—		—			—			—		—
Totals	$	5,481	$	801		$	(753	)	$	84	$	5,613	$	235	$	531		$	(514	)	$	27	$	279
	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended September 30, 2015												Three months ended September 30, 2015
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,147	$	632		$	(92	)	$	111	$	2,798	$	15	$	55		$	—		$	—	$	70
Commercial		1,339		(102	)		(10	)		—		1,227		77		81			—			5		163
Land		182		168			(72	)		—		278		—		—			—			—		—
Real estate		3,668		698			(174	)		111		4,303		92		136			—			5		233
Commercial and industrial		691		(197	)		—			4		498		52		(22	)		—			10		40
Municipal		64		(16	)		—			—		48		—		—			—			—		—
Consumer		123		1			(17	)		6		113		—		—			—			—		—
Unallocated		369		55			—			—		424		—		—			—			—		—
Totals	$	4,915	$	541		$	(191	)	$	121	$	5,386	$	144	$	114		$	—		$	15	$	273
	Business Activities Loans												Acquired Loans
(in thousands)	Nine months ended September 30, 2015												Nine months ended September 30, 2015
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,306	$	952		$	(573	)	$	113	$	2,798	$	—	$	70		$	—		$	—	$	70
Commercial		1,697		(256	)		(214	)		—		1,227		7		151			—			5		163
Land		164		186			(72	)		—		278		—		—			—			—		—
Real estate		4,167		882			(859	)		113		4,303		7		221			—			5		233
Commercial and industrial		583		(484	)		(56	)		455		498		14		—			—			26		40
Municipal		61		(13	)		—			—		48		—		—			—			—		—
Consumer		117		30			(47	)		13		113		—		—			—			—		—
Unallocated		409		15			—			—		424		—		—			—			—		—
Totals	$	5,337	$	430		$	(962	)	$	581	$	5,386	$	21	$	221		$	—		$	31	$	273

18

The composition of loans receivable and the allowance for loan losses is as follows:

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2016
Residential 1-4 family	$	280,711	$	1,698	$	5,952	$	147	$	286,663	$	1,845
Residential 5+ multifamily		5,860		54		1,830		—		7,690		54
Construction of residential 1-4 family		9,824		85		—		—		9,824		85
Home equity lines of credit		34,674		324		796		17		35,470		341
Residential real estate		331,069		2,161		8,578		164		339,647		2,325
Commercial		158,185		1,646		4,417		69		162,602		1,715
Construction of commercial		3,949		48		117		—		4,066		48
Commercial real estate		162,134		1,694		4,534		69		166,668		1,763
Farm land		3,025		27		1,008		9		4,033		36
Vacant land		5,589		166		241		4		5,830		170
Real estate secured		501,817		4,048		14,361		246		516,178		4,294
Commercial and industrial		101,063		853		83		4		101,146		857
Municipal		8,475		53		—		—		8,475		53
Consumer		5,593		94		—		—		5,593		94
Unallocated allowance		—		315		—		—		—		315
Totals	$	616,948	$	5,363	$	14,444	$	250	$	631,392	$	5,613

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2016
Residential 1-4 family	$	6,244	$	—	$	779	$	74	$	—	$	—	$	7,023	$	74
Residential 5+ multifamily		5,741		—		123		—		—		—		5,864		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		11,985		—		902		74		—		—		12,887		74
Commercial		74,858		22		2,955		82		3,928		64		81,741		168
Construction of commercial		1,881		3		258		—		—		—		2,139		3
Commercial real estate		76,739		25		3,213		82		3,928		64		83,880		171
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		88,724		25		4,115		156		3,928		64		96,767		245
Commercial and industrial		29,676		26		—		—		332		8		30,008		34
Municipal		—		—		—		—		—		—		—		—
Consumer		52		—		—		—		16		—		68		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	118,452	$	51	$	4,115	$	156	$	4,276	$	72	$	126,843	$	279

19

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2015
Residential 1-4 family	$	253,156	$	1,415	$	8,339	$	610	$	261,495	$	2,025
Residential 5+ multifamily		4,640		33		1,771		—		6,411		33
Construction of residential 1-4 family		7,998		65		—		—		7,998		65
Home equity lines of credit		34,298		286		719		68		35,017		354
Residential real estate		300,092		1,799		10,829		678		310,921		2,477
Commercial		125,173		1,265		4,273		113		129,446		1,378
Construction of commercial		6,403		87		122		1		6,525		88
Commercial real estate		131,576		1,352		4,395		114		135,971		1,466
Farm land		2,162		23		1,031		14		3,193		37
Vacant land		5,486		122		3,077		29		8,563		151
Real estate secured		439,316		3,296		19,332		835		458,648		4,131
Commercial and industrial		74,131		673		526		10		74,657		683
Municipal		9,566		61		—		—		9,566		61
Consumer		6,115		124		80		—		6,195		124
Unallocated allowance		—		482		—		—		—		482
Totals	$	529,128	$	4,636	$	19,938	$	845	$	549,066	$	5,481

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2015
Residential 1-4 family	$	7,023	$	—	$	776	$	79	$	—	$	—	$	7,799	$	79
Residential 5+ multifamily		6,136		—		—		—		—		—		6,136		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		13,159		—		776		79		—		—		13,935		79
Commercial		81,300		19		2,742		107		4,787		2		88,829		128
Construction of commercial		4,612		4		262		—		—		—		4,874		4
Commercial real estate		85,912		23		3,004		107		4,787		2		93,703		132
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		99,071		23		3,780		186		4,787		2		107,638		211
Commercial and industrial		45,650		24		—		—		1,114		—		46,764		24
Municipal		—		—		—		—		—		—		—		—
Consumer		61		—		—		—		16		—		77		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	144,782	$	47	$	3,780	$	186	$	5,917	$	2	$	154,479	$	235

20

The credit quality segments of loans receivable and the allowance for loan losses are as follows:

Business Activities Loans

September 30, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	612,039	$	4,849	$	—	$	—	$	612,039	$	4,849
Potential problem loans		4,909		200		—		—		4,909		200
Impaired loans		—		—		14,444		250		14,444		250
Unallocated allowance		—		315		—		—		—		315
Totals	$	616,948	$	5,364	$	14,444	$	250	$	631,392	$	5,614

Acquired Loans

September 30, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	120,106	$	70	$	—	$	—	$	120,106	$	70
Potential problem loans		2,622		53		—		—		2,622		53
Impaired loans		—		—		4,115		156		4,115		156
Totals	$	122,728	$	123	$	4,115	$	156	$	126,843	$	279

Business Activities Loans

December 30, 2015 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	527,905	$	4,110	$	—	$	—	$	527,905	$	4,110
Potential problem loans		1,223		44		—		—		1,223		44
Impaired loans		—		—		19,938		845		19,938		845
Unallocated allowance		—		482		—		—		—		482
Totals	$	529,128	$	4,636	$	19,938	$	845	$	549,066	$	5,481

Acquired Loans

December 30, 2015 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	148,580	$	46	$	—	$	—	$	148,580	$	46
Potential problem loans		2,119		2		—		—		2,119		2
Impaired loans		—		—		3,780		187		3,780		187
Unallocated allowance		—		—		—		—		—		—
Totals	$	150,699	$	48	$	3,780	$	187	$	154,479	$	235

21

A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the present value of expected cash flows or fair value of collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment is as follows:

Business Activities Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
September 30, 2016
Residential	$	5,530	$	6,080	$	6,418	$	147	$	72	$	2,252	$	2,409	$	2,683	$	69
Home equity lines of credit		410		436		463		17		1		386		419		346		5
Residential real estate		5,940		6,516		6,881		164		73		2,638		2,828		3,029		74
Commercial		3,568		3,958		3,393		69		73		849		1,106		996		17
Construction of commercial		—		—		72		—		—		117		123		47		5
Farm land		723		784		440		9		—		286		358		580		—
Vacant land		46		46		2,305		4		2		195		232		201		8
Real estate secured		10,277		11,304		13,091		246		148		4,085		4,647		4,853		104
Commercial and industrial		4		4		40		4		—		78		106		217		2
Consumer		—		—		—		—		—		—		—		8		—
Totals	$	10,281	$	11,308	$	13,131	$	250	$	148	$	4,163	$	4,753	$	5,078	$	106

Acquired Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
September 30, 2016
Residential 1-4 family	$	779	$	893	$	637	$	74	$	3	$	123	$	123	$	267	$	—
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		779		893		637		74		3		123		123		267		—
Commercial		1,146		1,557		577		82		111		1,809		2,268		2,085		158
Construction of commercial		—		—		—		—		—		258		272		259		—
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		1,925		2,450		1,214		156		114		2,190		2,663		2,611		158
Commercial and industrial		—		—		100		—		—		—		—		24		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	1,925	$	2,450	$	1,314	$	156	$	114	$	2,190	$	2,663	$	2,635	$	158

22

Business Activities Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
December 31, 2015
Residential 1-4 family	$	7,482	$	8,094	$	6,213	$	610	$	109	$	2,628	$	2,770	$	3,043	$	82
Home equity lines of credit		535		659		176		68		6		184		199		611		2
Residential real estate		8,017		8,753		6,389		678		115		2,812		2,969		3,654		84
Commercial		3,131		3,405		2,629		113		113		1,142		1,393		2,130		12
Construction of commercial		122		128		—		1		—		—		—		127		6
Farm land		733		773		445		14		—		298		352		270		15
Vacant land		2,870		3,836		3,058		29		2		207		241		5		7
Real estate secured		14,873		16,895		12,521		835		230		4,459		4,955		6,186		124
Commercial and industrial		95		98		120		10		8		431		481		464		7
Consumer		—		—		—		—		—		80		108		—		—
Totals	$	14,968	$	16,993	$	12,641	$	845	$	238	$	4,970	$	5,544	$	6,650	$	131

Acquired Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
December 31, 2015
Residential 1-4 family	$	599	$	716	$	176	$	79	$	—	$	177	$	177	$	436	$	4
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		599		716		176		79		—		177		177		436		4
Commercial		675		826		557		107		61		2,067		2,843		2,097		10
Construction of commercial		—		—		—		—		—		262		273		138		16
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		1,274		1,542		733		186		61		2,506		3,293		2,671		30
Commercial and industrial		—		—		4		—		1		—		4		—		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	1,274	$	1,542	$	737	$	186	$	62	$	2,506	$	3,297	$	2,671	$	30

(1) The table above reflects the book, note and specific allowance as of December 31, 2015, while the average balances and income recognized are for the nine months ended September 30, 2015.

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NOTE 4 - MORTGAGE SERVICING RIGHTS

September 30, (in thousands)		2016		2015
Residential mortgage loans serviced for others	$	125,988	$	132,201
Fair value of mortgage servicing rights		962		1,429

Changes in mortgage servicing rights are as follows:

		Three months						Nine months
Periods ended September 30, (in thousands)		2016			2015			2016			2015
Mortgage Servicing Rights
Balance, beginning of period	$	416		$	599		$	487		$	694
Originated		27			22			71			124
Amortization (1)		(67	)		(86	)		(182	)		(282	)
Balance, end of period		376			535			376			536
Valuation Allowance
Balance, beginning of period		(25	)		(2	)		(4	)		1
(Increase) decrease in impairment reserve (1)		8			2			(13	)		(2	)
Balance, end of period		(17	)		—			(17	)		(1	)
Loan servicing rights, net	$	359		$	535		$	359		$	535

(1) Amortization expense and changes in the impairment reserve are recorded in mortgage servicing, net.

NOTE 5 - PLEDGED ASSETS

(in thousands)		September 30, 2016		December 31, 2015
Securities available-for-sale (at fair value)	$	65,357	$	67,750
Loans receivable		196,077		153,269
Total pledged assets	$	261,434	$	221,019

At September 30, 2016, securities were pledged as follows: $59.6 million to secure public deposits, $5.7 million to secure repurchase agreements and $0.1 million to secure FHLBB advances. In addition to securities, loans receivable were pledged to secure FHLBB advances and credit facilities.

NOTE 6 – EARNINGS PER SHARE

Salisbury defines unvested share-based payment awards that contain non-forfeitable rights to dividends as participating securities that are included in computing earnings per share (EPS) using the two-class method.

The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. Basic EPS excludes dilution and is computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table sets forth the computation of earnings per share (basic and diluted) for the periods indicated:

		Three months						Nine months
Periods ended September 30, (in thousands, except share and per share data)		2016			2015			2016			2015
Net income	$	1,922		$	1,985		$	5,165		$	6,290
Less: Preferred stock dividends declared		—			(40	)		—			(120	)
Net income available to common shareholders		1,922			1,945			5,165			6,170
Less: Undistributed earnings allocated to participating securities		(15	)		(17	)		(41	)		(54	)
Net income allocated to common stock	$	1,907		$	1,928		$	5,124		$	6,116
Weighted-average common shares issued		2,758			2,731			2,754			2,728
Less: Unvested restricted stock awards		(21	)		(24	)		(22	)		(24	)
Weighted-average common shares outstanding used to calculate basic earnings per common share		2,737			2,707			2,732			2,704
Add: Dilutive effect of stock options		14			17			15			17
Weighted-average common shares outstanding used to calculate diluted earnings per common share		2,751			2,724			2,747			2,721
Earnings per common share (basic)	$	0.70		$	0.71		$	1.88		$	2.26
Earnings per common share (diluted)	$	0.69		$	0.71		$	1.87		$	2.25

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NOTE 7 – SHAREHOLDERS’ EQUITY

Capital Requirements

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on Salisbury’s and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Salisbury and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Board of Governors of the Federal Reserve System (FRB) and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for bank holding companies and their bank subsidiaries. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by Salisbury and the Bank. The rules include a new common equity Tier 1 capital risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 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 new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. The initial implementation of the capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent January 1, by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

As of September 30, 2016, Salisbury and the Bank met each of their capital requirements and the most recent notification from the FDIC categorized the Bank as “well-capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s category.

Actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" for Salisbury and the Bank are as follows:

											To be Well Capitalized
	Actual					For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2016
Total Capital (to risk-weighted assets)
Salisbury	$	94,948		13.25	%	$	57,330		8.0	%		n/a		—
Bank		92,739		12.94			57,330		8.0			71,662		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		78,875		11.01			42,997		6.0			n/a		—
Bank		86,666		12.09			42,997		6.0			57,329		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		78,875		11.01			41,868		4.5			n/a		—
Bank		86,666		12.09			41,871		4.5			60,481		6.5
Tier 1 Capital (to average assets)
Salisbury		78,875		8.47			37,216		4.0			n/a		—
Bank		86,666		9.30			37,219		4.0			46,524		5.0
December 31, 2015
Total Capital (to risk-weighted assets)
Salisbury	$	92,030		13.51	%	$	54,509		8.0	%		n/a		—
Bank		89,249		13.10			54,504		8.0		$	68,131		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		76,120		11.17			40,878		6.0			n/a		—
Bank		83,340		12.23			40,878		6.0			54,504		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		76,120		11.17			30,659		4.5			n/a		—
Bank		83,340		12.23			30,659		4.5			44,285		6.5
Tier 1 Capital (to average assets)
Salisbury		76,120		8.56			36,102		4.0			n/a		—
Bank		83,340		9.37			35,593		4.0			44,491		5.0

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DIVIDENDS

Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut 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, revised December 21, 2015, notes that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the FRB 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 the FRB 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 structure.

Preferred Stock

In August 2011, Salisbury issued to the U.S. Secretary of the Treasury (the “Treasury”) $16 million of its Series B Preferred Stock under the Small Business Lending Fund (the “SBLF”) program. The SBLF program is a $30 billion fund established under the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The Preferred Stock qualified as Tier 1 capital for regulatory purposes and ranked senior to the Common Stock.

During fourth quarter 2015, Salisbury completed an offering of $10 million of unsecured 6.00% fixed-to–floating rate subordinated notes due in 2025. The notes qualify as Tier II capital and are included as such within Salisbury’s total risk-based capital ratio.

The net proceeds of the offering, along with cash on hand, were used during the fourth quarter 2015 to redeem the $16 million of Senior Non-Cumulative Perpetual Preferred Stock issued in conjunction with Salisbury’s participation in the U.S. Treasury’s SBLF program.

NOTE 8 – BENEFITS

Salisbury’s 401(k) Plan expense was $179,000 and $166,000, respectively, for the three month periods ended September 30, 2016 and 2015, and $568,000 and $516,000, respectively, for the nine month periods ended September 30, 2016 and 2015. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $19,000 and $22,000, respectively, for the three month periods ended September 30, 2016 and 2015, and $56,000 and $53,000, respectively, for the nine month periods ended September 30, 2016 and 2015.

In 2014, Salisbury terminated the Defined Benefit Pension Plan.  Excess assets in the amount of $1,018,000 were distributed to the Bank’s Defined Contribution Plan (401k) and the Employee Stock Ownership Plan (ESOP) for future allocations to employees.  The division of the excess pension assets was 66.67% to the 401k account (or $679,000) and 33.33% to the ESOP account (or $339,000).

ESOP

Salisbury offers an ESOP to eligible employees.  Under the Plan, Salisbury may make discretionary contributions to the Plan, which generally vest in full upon six years of qualified service.

Salisbury’s ESOP expense was $51,000 and $96,000, respectively, for the three month periods ended September 30, 2016 and 2015, and $132,000 and $287,000, respectively, for the nine month periods ended September 30, 2016 and 2015.

Other Retirement Plans

A Non-Qualified Deferred Compensation Plan (the "Plan") was adopted effective January 1, 2013. This Plan was adopted by the Bank for the benefit of certain key employees ("Executive" or "Executives") who have been selected and approved by the Bank to participate in this Plan and who have evidenced their participation by execution of a Non-Qualified Deferred Compensation Plan Participation Agreement ("Participation Agreement") in a form provided by the Bank. This Plan is intended to comply with Internal Revenue Code ("Code") Section 409A and any regulatory or other guidance issued under such Section of the Code.

In 2015, 2014, and 2013 the Bank awarded six (6), seven (7) and six (6) Executives, respectively, with discretionary contributions to the plan. Expenses related to this Plan amounted to $56,000 for the third quarter of 2016 and $34,000 for the third quarter of 2015. Additionally, expenses related to this plan amounted to $168,000 and $95,000 for the nine months ended September 30, 2016 and 2015, respectively. Based on the Executive’s date of retirement, the vesting schedule ranges from 7.7% per year to 50% per year.

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On January 29, 2016, the Compensation Committee granted a total of 47,470 Phantom Stock Appreciation Units pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, including 23,012 units to three Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 11,484 units, John Davies, President of the New York Region and Chief Lending Officer received 5,963 units and Donald E. White, Chief Financial Officer received 5,565 units. The units will vest on the third anniversary of the grant date.

Grants of Restricted Stock and Options

On February 16, 2016, 1,350 shares of stock options were exercised at $21.48 per share by one former Riverside Bank executive.

On January 29, 2016, Salisbury granted a total of 15,800 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 42 employees, including 6,000 shares to three Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 5,000 and John Davies, President New York Region and Chief Lending Officer and Donald E. White, Chief Financial Officer each received 500 shares. The fair value of all such stock as of the grant date was determined to be $466,000 and the stock will be vested three years from the grant date. On July 29, 2016, the Board of Directors approved the accelerated vesting of 200 shares for a recently retired employee.  

On January 26, 2016, 2,700 shares of stock options were exercised at $21.48 per share by two former Riverside Bank executives.

On February 17, 2015 and February 25, 2015, 1,350 and 5,400 shares of stock options were exercised, respectively, at $18.52 per share by two former Riverside Bank executives.

On September 28, 2015, 2,700 shares of stock options were exercised at $21.48 per share by one former Riverside Bank executive.

On March 27, 2015, Salisbury granted a total of 1,000 shares of restricted stock, pursuant to its 2011 Long Term Incentive Plan, to one (1) Named Executive Officer, Richard J. Cantele, Jr., President and Chief Executive Officer. The fair value of the stock as of the grant date was determined to be $29,000 and the stock vested immediately.

Expense related to such grants in the three months ended September 30, 2016 and 2015 totaled $57,000 and $52,000, respectively, and for the nine months ended September 30, 2016 and 2015 totaled $164,000 and $167,000, respectively. Unrecognized compensation cost relating to the awards as of September 30, 2016 and 2015 totaled $431,000 and $186,000, respectively. There were 100 shares forfeited in the nine months ended September 30, 2016 and a total of 300 shares were forfeited in the nine months ended September 30, 2015.

NOTE 9 –ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income are as follows:

(in thousands)		September 30, 2016		December 31, 2015
Unrealized gains on securities available-for-sale, net of tax	$	883	$	1,125
Accumulated other comprehensive income, net	$	883	$	1,125

NOTE 10 – FAIR VALUE OF ASSETS AND LIABILITIES

Salisbury uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, other assets are recorded at fair value on a nonrecurring basis, such as loans held for sale, collateral dependent impaired loans, property acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

Accounting Standards Codification (ASC) 820-10, “Fair Value Measurement-Overall,” provides a framework for measuring fair value under generally accepted accounting principles. This guidance permitted Salisbury the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. Salisbury did not elect fair value treatment for any financial assets or liabilities upon adoption.

In accordance with ASC 820-10, Salisbury groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Salisbury’s market assumptions. These two types of inputs have created the following fair value hierarchy:

27

• Level 1. Quoted prices in active markets for identical assets. Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2. Significant other observable inputs. Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

• Level 3. Significant unobservable inputs. Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Salisbury did not have any significant transfers of assets between levels 1 and 2 of the fair value hierarchy during the quarter ended September 30, 2016.

The following is a description of valuation methodologies for assets recorded at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy.

• Securities available-for-sale. Securities available-for-sale are recorded at fair value on a recurring basis. Level 1 securities include exchange-traded equity securities. Level 2 securities include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes obligations of the U.S. Treasury and U.S. government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, municipal bonds, SBA bonds, corporate bonds and certain preferred equities. Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

• Collateral dependent loans that are deemed to be impaired are valued based upon the fair value of the underlying collateral less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level 3.

• Other real estate owned acquired through foreclosure or repossession is adjusted to fair value less costs to sell upon transfer out of loans. Subsequently, it is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or appraised values of the collateral. Management adjusts appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is categorized as Level 3.

• Mortgage servicing assets are accounted for at cost, subject to impairment testing. When the carrying cost exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors; as such, the primary risk inherent in valuing mortgage servicing assets is the impact of fluctuating interest rates on the servicing revenue stream. Mortgage servicing assets are classified within Level 2 of the fair value hierarchy.

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Assets measured at fair value are as follows:

	Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair
							value
September 30, 2016
Assets at fair value on a recurring basis
Municipal bonds	$	—	$	18,604	$	—	$	18,604
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		48,176		—		48,176
Collateralized mortgage obligations:
U.S. Government agencies		—		1,604		—		1,604
Non-agency		—		4,032		—		4,032
SBA bonds		—		2,286		—		2,286
CRA mutual funds		—		838		—		838
Corporate bonds		—		1,020		—		1,020
Preferred stock		241		—		—		241
Securities available-for-sale	$	241	$	76,560	$	—	$	76,801
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		11,801		11,801
Mortgage servicing rights		—		962		—		962
December 31, 2015
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,541	$	—	$	2,541
U.S. Government agency notes		—		498		—		498
Municipal bonds		—		30,385		—		30,385
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		32,202		—		32,202
Collateralized mortgage obligations:
U.S. Government agencies		—		2,014		—		2,014
Non-agency		—		4,948		—		4,948
SBA bonds		—		3,096		—		3,096
CRA mutual funds		—		764		—		764
Preferred stock		246		—		—		246
Securities available-for-sale	$	246	$	76,448	$	—	$	76,694
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		15,211		15,211
Mortgage servicing rights		—		1,315		—		1,315

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Carrying values and estimated fair values of financial instruments are as follows:

(in thousands)	Carrying		Estimated		Fair value measurements using
	value		fair value		Level 1		Level 2		Level 3
September 30, 2016
Financial Assets
Cash and cash equivalents	$	42,638	$	42,638	$	42,638	$	—	$	—
Securities available-for-sale		76,801		76,801		241		76,560		—
Federal Home Loan Bank stock		2,937		2,937		—		2,937		—
Loans held-for-sale		837		852		—		—		852
Loans receivable, net		753,623		765,433		—		—		765,433
Accrued interest receivable		2,260		2,260		2,260		—		—
Cash surrender value of life insurance		13,952		13,952		13,952		—		—
Mortgage servicing rights		359		962		—		962		—
Financial Liabilities
Demand (non-interest-bearing)	$	210,396	$	210,396	$	—	$	—	$	210,396
Demand (interest-bearing)		126,064		126,064		—		—		126,064
Money market		201,504		201,504		—		—		201,504
Savings and other		127,595		127,595		—		—		127,595
Certificates of deposit		121,171		122,448		—		—		122,448
Deposits		786,730		788,007		—		—		788,007
Repurchase agreements		3,581		3,581		—		—		3,581
FHLBB advances		27,134		28,004		—		—		28,004
Subordinated debt		9,782		10,432		—		—		10,432
Note payable		351		385		—		—		385
Capital lease liability		419		903		—		—		903
Accrued interest payable		275		275		275		—		—
December 31, 2015
Financial Assets
Cash and cash equivalents	$	62,118	$	62,118	$	62,118	$	—	$	—
Securities available-for-sale		76,694		76,694		246		76,448		—
Federal Home Loan Bank stock		3,176		3,176		—		3,176		—
Loans held-for-sale		763		778		—		—		778
Loans receivable, net		699,018		707,154		—		—		707,154
Accrued interest receivable		2,307		2,307		2,307		—		—
Cash surrender value of life insurance		13,685		13,685		13,685		—		—
Mortgage servicing rights		597		1,383		—		1,383		—
Financial Liabilities
Demand (non-interest-bearing)	$	201,340	$	201,340	$	—	$	—	$	201,340
Demand (interest-bearing)		125,465		125,465		—		—		125,465
Money market		183,783		183,783		—		—		183,783
Savings and other		119,651		119,651		—		—		119,651
Certificates of deposit		124,294		125,437		—		—		125,437
Deposits		754,533		755,676		—		—		755,676
Repurchase agreements		3,914		3,914		—		—		3,914
FHLBB advances		26,979		28,559		—		—		28,559
Subordinated debt		9,764		9,764		—		—		9,764
Note payable		376		405		—		—		405
Capital lease liability		422		870		—		—		870
Accrued interest payable		150		150		150		—		—

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions. 

NOTE 11 – SUBSEQUENT EVENT

On October 28, 2016, the Board of Directors of Salisbury declared a common stock dividend of $0.28 per common share payable on November 25, 2016 to shareholders of record on November 11, 2016.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations of Salisbury and its subsidiary should be read in conjunction with Salisbury's Annual Report on Form 10-K for the year ended December 31, 2015. Readers should also review other disclosures Salisbury files from time to time with the Securities and Exchange Commission (the “SEC”).

BUSINESS

Salisbury, a Connecticut corporation, formed in 1998, is the bank holding company for the Bank, a Connecticut-chartered and FDIC insured commercial bank headquartered in Lakeville, Connecticut. Salisbury's principal business consists of the management and operations of the business of the Bank. The Bank, formed in 1848, is engaged in customary banking activities, including general deposit taking and lending activities to both retail and commercial markets, and trust and wealth advisory services. The Bank conducts its banking business from thirteen full-service offices in the towns of: Canaan, Lakeville, Salisbury and Sharon, Connecticut; Great Barrington, South Egremont and Sheffield, Massachusetts; and, Fishkill, Newburgh, Poughkeepsie, Red Oaks Mill, Dover Plains and Millerton, New York. The Bank’s trust and wealth advisory services are based in Lakeville, Connecticut. In May 2014, the Bank established a new branch in Great Barrington, Massachusetts. In June 2014, the Bank acquired a branch office and related deposits from another institution in Sharon, Connecticut and consolidated its existing Sharon office with the new branch. In December 2014, the Bank completed its acquisition of Riverside Bank of Poughkeepsie, New York, adding four new offices and a strong commercial lending focus to Salisbury’s New York market presence.

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.

Loans acquired in business combinations are initially recorded at fair value with no carryover of the related allowance for credit losses. Determining the fair value of the loans involves estimating the amount and timing of cash flows initially expected to be collected and discounting those cash flows at an appropriate market rate of interest. The Bank continues to evaluate reasonableness of the timing and the amount of cash to be collected. Subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments, and in some cases may result in the loan being considered impaired.  For collateral dependent loans with deteriorated credit quality, the Bank estimates the fair value of the underlying collateral of the loans.  These values are discounted using market derived rates of return, with consideration given to the period of time and costs associated with the foreclosure and disposition of the collateral.

The allowance for loan losses represents management’s estimate of credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan 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 impaired 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. Note 1 “Basis of Presentation” describes the methodology used to determine the allowance for loan losses. A discussion of the factors driving changes in the amount of the allowance for loan losses are included in the “Provision and Allowance for Loan Losses” section of Management’s Discussion and Analysis.

Management evaluates goodwill and identifiable intangible assets for impairment annually using valuation techniques that involve estimates for discount rates, projected future cash flows and time period calculations, all of which are susceptible to change based on changes in economic conditions and other factors. Future events or changes in the estimates, which are used to determine the carrying value of goodwill and identifiable intangible assets or which otherwise adversely affect their value or estimated lives could have a material adverse impact on the results of operations.

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Management evaluates securities for other-than-temporary impairment giving consideration to the extent to which the fair value has been less than cost, estimates of future cash flows, delinquencies and default severity, and the intent and ability of Salisbury to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The consideration of the above factors is subjective and involves estimates and assumptions about matters that are inherently uncertain. Should actual factors and conditions differ materially from those used by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

FINANCIAL CONDITION

Overview

Total assets were $928.4 million at September 30, 2016, up $37.2 million from December 31, 2015. Loans receivable, net, were $753.6 million at September 30, 2016, up $54.6 million, or 7.2%, from December 31, 2015. Non-performing assets were $14.5 million at September 30, 2016, down $1.8 million from $16.3 million at December 31, 2015. Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, was 0.78%, 0.81% and 0.82%, at September 30, 2016, December 31, 2015 and September 30, 2015, respectively. Deposits were $786.7 million at September 30, 2016 and $754.5 million at December 31, 2015. FHLBB advances increased $0.1 million from December 31, 2015 to September 30, 2016.

At September 30, 2016, book value and tangible book value per common share were $33.92 and $28.69, respectively. Salisbury’s Tier 1 leverage, total risk-based and common equity Tier 1 capital ratios were 8.47%, 13.25%, and 11.01%, respectively.

Securities and Short Term Funds

During the first nine months of 2016, securities increased $0.1 million to $76.8 million at September 30, 2016. Cash and cash equivalents (non-time interest-bearing deposits with other banks, money market funds and federal funds sold) decreased $19.5 million.

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 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 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.

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. Therefore, management does not consider any of its securities, other than four non-agency CMO securities reflecting previously recognized OTTI, to be OTTI at September 30, 2016.

Salisbury has, and continues to monitor, CMO securities where historical recognition of losses has occurred as a result of OTTI. Salisbury determined, as of September 30, 2016, that additional recognition of OTTI was not required. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI.

Loans

Net loans receivable increased $54.6 million to $753.6 million at September 30, 2016, compared with $699.0 million at December 31, 2015 and increased $65.9 million from $687.7 million at September 30, 2015.

Loan Credit Quality

During the first nine months of 2016, total impaired and potential problem loans decreased to $26.1 million, or 3.4% of gross loans receivable at September 30, 2016, from $27.1 million, or 3.8% of gross loans receivable at December 31, 2015 and decreased from $31.7 million at September 30, 2015. The percentage of such loans at September 30, 2016 when compared to September 30, 2015 improved from 4.5% of gross loans.

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Changes in impaired and potential problem loans are as follows:

	September 30, 2016												September 30, 2015
Three months ended	Impaired loans							Potential					Impaired loans							Potential
(in thousands)		Non-						problem						Non-						problem
		accrual			Accruing			loans			Total			accrual			Accruing			loans			Total
Loans placed on non-accrual status	$	877		$	(289	)	$	(578	)	$	10		$	2,385		$	(973	)	$	—		$	1,412
Foreclosed to OREO		(2,823	)		—			—			(2,823	)
Loans restored to accrual status		—			—			—			—			(325	)		86			236			(3	)
Loan risk rating downgrades to substandard		—			—			643			643			—			—			—			—
Loan risk rating upgrades from substandard		—			—			—			—			—			—			—			—
Loan repayments		(619	)		(205	)		(124	)		(948	)		(428	)		(202	)		(74	)		(704	)
Loan charge-offs		(116	)		—			—			(116	)		(175	)		—			—			(175	)
Increase (decrease) in TDR loans		—			231			—			231			—			35			—			35
Inter-month tax advances		—			—			—			—			—			—			—			—
(Decrease) increase in loans	$	(2,681	)	$	(263	)	$	(59	)	$	(3,003	)	$	1,457		$	(1,054	)	$	162		$	565

During the third quarter of 2016, Salisbury placed $0.9 million of loans on non-accrual status as a result of deteriorated payment and financial performance and charged-off $116,000 of non-accrual loans primarily as a result of credit or collateral deficiencies.

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.

Credit Quality Segments

Salisbury categorizes loans receivable into the following credit quality segments:

• Impaired loans consist of all non-accrual loans and troubled debt restructured loans, and represent loans for which it is probable that Salisbury will not be able to collect all principal and interest amounts due according to the contractual terms of the loan agreements.

• Non-accrual loans, a sub-set of impaired loans, are loans for which the accrual of interest has been discontinued because, in the opinion of management, full collection of principal or interest is unlikely.

• Non-performing loans consist of non-accrual loans, and accruing loans past due 90 days and over that are well collateralized, in the process of collection and where full collection of principal and interest is reasonably assured. Non-performing assets consist of non-performing loans plus real estate acquired in settlement of loans.

• Troubled debt restructured loans are loans for which concessions such as reduction of interest rates, other than normal market rate adjustments, or deferral of principal or interest payments, extension of maturity dates, or reduction of principal balance or accrued interest, have been granted due to a borrower’s financial condition. Loan restructuring is employed when management believes the granting of a concession will increase the probability of the full or partial collection of principal and interest.

• Potential problem loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired.

Credit Risk Ratings

Salisbury assigns credit risk ratings to loans receivable in order to manage credit risk and to determine the allowance for loan 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 banks regulatory agencies, the FDIC 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.

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• Loans risk rated as "special mention" 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" 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" 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" 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, the FDIC and CTDOB.

Impaired Loans

Loans individually evaluated for impairment (impaired loans) are loans for which Salisbury does not expect to collect all contractual principal and interest in accordance with the contractual terms of the loan. Impaired loans include all modified loans classified as troubled debt restructurings (TDRs) and loans on non-accrual status. The components of impaired loans are as follows:

(in thousands)		September 30, 2016		December 31, 2015
Accruing troubled debt restructured loans	$	7,281	$	7,544
Non-accrual troubled debt restructured loans		3,617		3,044
Non-accrual loans, excluding troubled debt restructured loans		7,660		13,131
Total impaired loans	$	18,558	$	23,719
Commitments to lend additional amounts to impaired borrowers	$	—	$	—

Non-Performing Assets

Non-performing assets decreased $1.8 million to $14.5 million, or 1.6% of assets at September 30, 2016, from $16.3 million, or 1.8% of assets at December 31, 2015, and decreased $2.1 million from $16.6 million, or 1.8% of assets at September 30, 2015.

The 11% decrease in non-performing assets in 2016 resulted primarily from $2.4 million of loans reinstated to accrual status, $1.3 million in payoffs and repayments, $0.3 million change in 90+ past due and accruing, $0.7 million inter-month tax advance, and $0.3 million charged off. This decrease was offset in part by $2.9 million placed on non-accrual status.

The components of non-performing assets are as follows:

(in thousands)		September 30, 2016		December 31, 2015
Residential 1-4 family	$	3,918	$	6,447
Residential 5+ multifamily		167		89
Home equity lines of credit		681		601
Commercial		5,451		4,611
Farm land		1,008		1,031
Vacant land		28		2,855
Real estate secured		11,253		15,634
Commercial and industrial		24		461
Consumer		—		80
Non-accruing loans		11,277		16,175
Accruing loans past due 90 days and over		396		90
Non-performing loans		11,673		16,265
Real estate acquired in settlement of loans		2,823		—
Non-performing assets	$	14,496	$	16,265

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The past due status of non-performing loans is as follows:
(in thousands)		September 30, 2016		December 31, 2015
Current	$	1,466	$	4,497
Past due 001-029 days		452		362
Past due 030-059 days		1,886		306
Past due 060-089 days		26		27
Past due 090-179 days		1,133		1,320
Past due 180 days and over		6,710		9,753
Total non-performing loans	$	11,673	$	16,265

At September 30, 2016, 12.57% of non-performing loans were current with respect to loan payments, compared with 27.65% at December 31, 2015. Loans past due 180 days exclude a former $2.8 million loan secured by vacant land (residential building lots) as foreclosure was completed in the third quarter and the balance is now reflected in Other Real Estate Owned.

On a combined basis, the five largest non-performing loan relationships account for 49% of the non-performing assets while the combined largest ten loan relationships account for 68% of total non-performing assets. Accordingly, asset quality issues are confined to a small number of relationships and management does not consider them to be systemic. All of the ten largest non-performing relationships are secured by real estate and seven of these are actively moving through the legal process.

Troubled Debt Restructured Loans

Troubled debt restructured loans decreased $0.3 million during the nine (9) month period ended September 30, 2016 to $10.9 million, or 1.40% of gross loans receivable at September 30, 2016, from $10.6 million, or 1.50% of gross loans receivable at December 31, 2015.

The components of troubled debt restructured loans are as follows:

(in thousands)		September 30, 2016		December 31, 2015
Residential	$	4,599	$	4,351
Home equity lines of credit		115		118
Personal		—		222
Vacant land		213		122
Commercial		2,295		2,666
Real estate secured		7,222		7,479
Commercial and industrial		59		65
Accruing troubled debt restructured loans		7,281		7,544
Residential		1,304		1,149
Commercial		2,313		1,554
Real estate secured		3,617		2,703
Commercial and industrial		—		341
Non-accrual troubled debt restructured loans		3,617		3,044
Troubled debt restructured loans	$	10,898	$	10,588
The past due status of troubled debt restructured loans is as follows:
(in thousands)		September 30, 2016		December 31, 2015
Current	$	6,621	$	6,771
Past due 1-29 days		589		453
Past due 30-59 days		—		320
Past due 60-89 days		71		—
Past due 90-179 days		—		—
Accruing troubled debt restructured loans		7,281		7,544
Current		739		1,810
Past due 01-29 days		53		—
Past due 30-59 days		1,811		28
Past due 60-89 days		26		—
Past due 90-179 days		—		1,206
Past due 180 days and over		988		—
Non-accrual troubled debt restructured loans		3,617		3,044
Total troubled debt restructured loans	$	10,898	$	10,588

At September 30, 2016, 67.54% of troubled debt restructured loans were current with respect to loan payments, as compared with 81.04% at December 31, 2015.

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Past Due Loans

Loans past due 30 days or more decreased $0.3 million during 2016 to $15.6 million, or 2.06% of gross loans receivable at September 30, 2016, compared with $15.9 million, or 2.26% of gross loans receivable at December 31, 2015.

The components of loans past due 30 days or greater are as follows:

(in thousands)		September 30, 2016		December 31, 2015
Past due 030-059 days	$	3,620	$	3,534
Past due 060-089 days		2,269		966
Past due 090-179 days		396		—
Past due 180 days and over		—		90
Accruing loans		6,285		4,590
Past due 030-059 days		1,886		306
Past due 060-089 days		26		27
Past due 090-179 days		737		1,319
Past due 180 days and over		6,710		9,662
Non-accrual loans		9,359		11,314
Total loans past due 30 days or greater	$	15,644	$	15,904

Potential Problem Loans

Potential problem loans increased $4.2 million during the first nine months of 2016 to $7.5 million, or 0.99% of gross loans receivable at September 30, 2016, compared with $3.3 million, or 0.48% of gross loans receivable at December 31, 2015.

The components of potential problem loans are as follows:

(in thousands)		September 30, 2016		December 31, 2015
Residential 1-4 family	$	537	$	655
Home equity credit		124		150
Residential real estate		661		805
Commercial real estate		6,113		2,030
Vacant land		—		23
Real estate secured		6,774		2,858
Commercial and industrial		757		478
Consumer		—		6
Other classified loans receivable	$	7,531	$	3,342

The past due status of potential problem loans is as follows:

(in thousands)		September 30, 2016		December 31, 2015
Current	$	5,165	$	2,716
Past due 001-029 days		1,003		229
Past due 030-059 days		1,020		150
Past due 060-089 days		343		247
Total potential problem loans	$	7,531	$	3,342

At September 30, 2016, 68.58% of potential problem loans were current with respect to loan payments, as compared with 81.27% at December 31, 2015.

Management cannot predict the extent to which economic or other factors may impact such borrowers’ future payment capacity, and there can be no assurance that such loans will not be placed on nonaccrual status, restructured, or require increased provisions for loan losses.

Deposits and Borrowings

Deposits, totaling $786.7 million, increased $32.2 million during the nine months ended September 30, 2016 as compared to balances at December 31, 2015 of $754.5 million. Deposits increased $25.2 million year-over-year from $761.5 million at September 30, 2015. Retail repurchase agreements decreased $0.3 million during the nine months ended September 30, 2016 to $3.6 million compared with $3.9 million at December 31, 2015, and decreased $0.6 million for year-over-year compared with $4.2 million at September 30, 2015.

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Federal Home Loan Bank of Boston (FHLBB) advances increased $0.1 million during the nine months ended September 30, 2016 to $27.1 million at September 30, 2016, from $27.0 million at December 31, 2015, and increased $0.2 million year-over-year from $26.9 million at September 30, 2015. Salisbury has an Irrevocable Letter of Credit Reimbursement Agreement with the FHLB, whereby upon the Bank’s request an irrevocable letter of credit is issued to secure municipal transactional deposit accounts.  These letters of credit primarily are secured by residential mortgage loans.  The amount of funds available from the FHLB to the Bank is reduced by any letters of credit outstanding.  At September 30, 2016, there were no municipal letters of credit outstanding.

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 assets, primarily loans and available-for-sale securities.

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. At September 30, 2016, Salisbury's liquidity ratio, as represented by cash, short term available-for-sale securities and marketable assets to net deposits and short term unsecured liabilities, was 20.29%, down from 22.67% at December 31, 2015. Management believes Salisbury’s funding sources will meet anticipated funding needs.

Operating activities for the nine-month period ended September 30, 2016 provided net cash of $9.4 million. Investing activities used net cash of $58.7 million primarily to fund loan growth of $57.3 million and purchase investments of $45.3 million. Investment activities generated $44.8 million of funds from the sale, principal payments, calls and maturities of securities available-for-sale. Financing activities provided net cash of $29.8 million, principally due to the $35.3 million increase in deposit transaction accounts. Financing activities also utilized net cash of $2.3 million for the payment of common stock dividends.

At September 30, 2016, Salisbury had outstanding commitments to fund new loan originations of $27.2 million and unused lines of credit of $109.7 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.

RESULTS OF OPERATIONS

For the three month periods ended September 30, 2016 and 2015

OVERVIEW

Net income allocated to common stock was $1.9 million, or $0.70 per common share, for the third quarter ended September 30, 2016, compared with $1.9 million, or $0.71 per common share, for the third quarter ended September 30, 2015.

☐	Earnings Per Share increased 11.1% to $0.70 for the third quarter 2016 as compared with the $0.63 for the second quarter 2016.
☐	Trust and Wealth Advisory Assets under administration increased $84.9 million, or 20%, from the second quarter 2016 and have increased $159.5 million, or 46%, from third quarter 2015.
☐	Total deposits increased $32 million, or 4%, from the second quarter of 2016.
☐	Salisbury’s efficiency ratio improved to 64.13% for the quarter ended September 30, 2016 as compared to 66.51% in the prior quarter.
☐	Tangible book value per common share of $28.69 at September 30, 2016 increased $0.41 from $28.28 at June 30, 2016, and $1.42 as compared to $27.21 at September 30, 2015.

Net Interest Income

Tax equivalent net interest income for third quarter 2016 decreased $218,000, or 2.7%, versus third quarter 2015. Average earning assets increased $55.7 million versus third quarter 2015. Average total interest bearing deposits increased $37.9 million versus third quarter 2015. The net interest margin of 3.59% for the third quarter 2016 decreased by 34 basis points as compared to 3.93% for the third quarter 2015.

Interest income for the third quarter reflects net accretion related to the fair value adjustments of loans acquired in the Riverside Bank acquisition in the amount of $440,000. The third quarter 2015 interest income was benefitted by $726,000 from a similar adjustment.

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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 September 30,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)		2016		2015		2016		2015		2016		2015
Loans (a)(d)	$	757,207	$	690,075	$	8,250	$	8,070		4.32	%	4.64	%
Securities (c)(d)		78,845		78,214		618		819		3.13		4.19
FHLBB stock		3,430		3,515		31		29		3.57		3.24
Short term funds (b)		47,979		59,984		60		30		0.50		0.20
Total interest-earning assets		887,461		831,788		8,959		8,948		4.01		4.27
Other assets		57,371		58,603
Total assets	$	944,832	$	890,391
Interest-bearing demand deposits	$	125,365	$	125,220		81		80		0.26		0.25
Money market accounts		225,443		181,668		160		120		0.28		0.26
Savings and other		127,553		124,405		59		57		0.18		0.18
Certificates of deposit		122,091		131,289		265		206		0.86		0.62
Total interest-bearing deposits		600,452		562,582		565		463		0.37		0.33
Repurchase agreements		5,135		5,279		2		2		0.17		0.18
Note payable		353		169		5		1		6.05		1.61
Subordinated debt		9,779		—		156		—		6.38		—
Capital lease		419		423		17		18		16.61		16.57
FHLBB advances		30,638		27,689		237		269		3.03		3.81
Total interest-bearing liabilities		646,776		596,142		982		753		0.60		0.50
Demand deposits		194,169		180,276
Other liabilities		10,596		8,705
Shareholders’ equity		93,291		105,268
Total liabilities & shareholders’ equity	$	944,832	$	890,391
Net interest income					$	7,977	$	8,195
Spread on interest-bearing funds										3.41		3.77
Net interest margin (e)										3.59		3.93

(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 $295,000 and $298,000, respectively, for 2016 and 2015 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.

The following table sets forth the changes in FTE interest due to volume and rate.

Three months ended September 30, (in thousands)	2016 versus 2015
Change in interest due to		Volume			Rate			Net
Interest-earning assets
Loans	$	758		$	(578	)	$	180
Securities		6			(207	)		(201	)
FHLBB stock		(1	)		3			2
Short term funds		(11	)		41			30
Total		752			(741	)		11
Interest-bearing liabilities
Deposits		14			88			102
Repurchase agreements		—			—			—
Note payable		3			1			4
Subordinated debt		78			78			156
Capital lease		(1	)		—			(1	)
FHLBB advances		26			(58	)		(32	)
Total		120			109			229
Net change in net interest and dividend income	$	632		$	(850	)	$	(218	)

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Interest Income

Interest income (FTE) on loans increased $180,000 due to the $67.1 million or 9.7% increase in average volume to $757.2 million for the third quarter of 2016 compared to $690.1 million for the third quarter of 2015. The favorable impact on interest income (FTE) of the average loan growth was partially offset by the 32 basis point decrease in the loan yield from 4.64% for the third quarter of 2015 to 4.32% for the third quarter of 2016. Interest income (FTE) on securities decreased $201,000 due primarily to the 106 basis point decrease in yield from 4.19% for the third quarter of 2015 to 3.13% for the third quarter of 2016. The decrease in the yield of securities reflects the replacement of securities at lower yields as compared to those securities which comprised the September 2015 investment portfolio.

Interest Expense

Interest expense increased $229,000, or 30.4%, to $982,000 for the third quarter of 2016 as compared to $753,000 for the third quarter of 2015. Interest expense on the subordinated debt issued in December 2015 was $156,000 for the third quarter of 2016 as compared to no such expense in the third quarter of 2015. Proceeds from the issuance of the subordinated debt, along with cash on hand, was used to fully redeem $16.0 million of outstanding Series B Preferred Stock, which was issued pursuant to Salisbury’s participation in the U. S. Treasury‘s SBLF program. Interest expense on interest bearing deposits increased $102,000 or 22.0% from $463,000 for the third quarter of 2015 to $565,000 for the third quarter of 2016. The increase in interest expense related to interest bearing deposits was due to the 4 basis point increase in the average rate, from 0.33% to 0.37%, due to higher interest rates paid on interest bearing deposits and the change in product mix. The average volume of interest bearing deposits increased $37.9 million or 6.73% increase from $562.6 million for the third quarter of 2015 to $600.5 million for the third quarter of 2016. The growth in interest bearing deposits was primarily due to the $43.8 million increase in the average volume of money market accounts from $181.7 million for the third quarter of 2015 to $225.4 million for the third quarter of 2016. Interest expense on FHLB borrowings decreased $32,000 or 11.9% as the cost of these funds decreased 78 basis points from 3.81% for the third quarter of 2015 to 3.03% for the third quarter of 2016. The decrease substantially reflects a third quarter 2015 advance modification on $21.0 million of advances, in accordance with ASC 470-50, which extended maturities to a weighted average 39 months and lowered the effective rate.The favorable impact on interest expense of the decrease in the average rate on these borrowings as a result of this modification was partially offset by the $2.9 million or 10.7% increase in the average volume of these borrowings to support loan growth.

Provision and Allowance for Loan Losses

The provision for loan losses was $344,000 for third quarter 2016, compared with $655,000 for third quarter 2015. Included in the provision are impairments related to acquired loans accounted for under ASC 310-30 of $34,000 and $142,000 for the third quarter of 2016 and 2015, respectively. Net loan charge-offs were $171,000 and $55,000 for the respective quarters.

The following table details the principal categories of credit quality ratios:

Three months ended September 30,	2016		2015
Net charge-offs to average loans receivable, gross	0.02	%	0.03	%
Non-performing loans to loans receivable, gross	1.54		2.37
Accruing loans past due 30-89 days to loans receivable, gross	0.78		0.36
Allowance for loan losses to loans receivable, gross	0.78		0.82
Allowance for loan losses to non-performing loans	50.47		34.43
Non-performing assets to total assets	1.56		1.84

Reserve coverage, as measured by the ratio of the allowance for loan losses to gross loans, decreased to 0.78% at September 30, 2016 compared to 0.82% at September 30, 2015.

Non-performing loans (non-accrual loans and accruing loans past-due 90 days or more) amounted to $11.7 million or 1.3% of assets at September 30, 2016 as compared to 1.8% at September 30, 2015. Accruing loans past due 30-89 days increased $3.4 million to $5.9 million at September 30, 2016, or 0.8% of gross loans receivable from 0.36% at September 30, 2015. See “Financial Condition – Loan Credit Quality” above for further discussion and analysis.

The allowance for loan losses represents management’s estimate of the probable credit losses inherent in the loan portfolio as of the reporting date. The allowance is increased by provisions charged to earnings and by recoveries of amounts previously charged off, and is reduced by loan charge-offs. Loan charge-offs are recognized when management determines a loan, or portion of a loan, to be uncollectible. The allowance for loan losses is computed by segregating the portfolio into three components: (1) loans collectively evaluated for impairment: general loss allocation factors for non-impaired loans are segmented into pools of loans based on similar risk characteristics such as loan product, collateral type and loan-to-value, loan risk rating, historical loss experience, delinquency factors and other similar economic indicators, (2) loans individually evaluated for impairment: individual loss allocations for loans deemed to be impaired based on discounted cash flows or collateral value, and (3) unallocated: general loss allocations for other environmental factors.

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Impaired loans and certain potential problem loans, when warranted, are individually evaluated for impairment. Impairment is measured for each individual loan, or for a borrower’s aggregate loan exposure, using either the fair value of the collateral, less estimated costs to sell if the loan is collateral dependent, or the present value of expected future cash flows discounted at the loan’s effective interest rate. A specific allowance is generally established when the collateral value or discounted cash flows of the loan is lower than the carrying value of that loan.

The component of the allowance for loan losses related to loans collectively evaluated for impairment is estimated by stratifying loans into segments as well as credit risk ratings and then applying management’s general loss allocation factors. The general loss allocation factors are based on expected loss experience adjusted for historical loss experience and other qualitative factors, including levels or trends in delinquencies; trends in volume and terms of loans; effects of changes in risk selection and underwriting standards and other changes in lending policies, procedures and practices; experience/ability/depth of lending management and staff; and national and local economic trends and conditions. The qualitative factors are determined based on the various risk characteristics of each loan segment. There were no significant changes in Salisbury’s policies or methodology pertaining to the general component of the allowance for loan losses during the first nine months of 2016.

The unallocated component of the allowance is maintained to cover uncertainties that could affect management’s estimate of probable losses. It reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general reserves in the portfolio. Additionally reserves are established for off balance sheet exposures.

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 at September 30, 2016.

Management’s loan risk rating assignments, loss percentages and specific reserves are subjected annually to an independent credit review by an external firm. In addition, the Bank is examined annually on a rotational basis by one of its two primary regulatory agencies, the FDIC and CTDOB. As an integral part of their examination process, the FDIC and CTDOB review the adequacy and methodology of the Bank's credit risk ratings and allowance for loan losses.

Non-Interest Income

The following table details the principal categories of non-interest income.

Three months ended September 30, (dollars in thousands)		2016		2015		2016 vs. 2015
Trust and wealth advisory fees	$	849	$	798	$	51		6.40	%
Service charges and fees		840		798		42		5.26	%
Gains on sales of mortgage loans, net		55		47		8		17.02	%
Mortgage servicing, net		28		5		23		4.60	%
Gains on sales and calls of available-for-sale securities, net		10		6		4		66.66	%
Other		113		115		(2	)	(1.74)	%
Total non-interest income	$	1,895	$	1,769	$	126		7.12	%

Non-interest income for third quarter 2016 increased $126,000 versus third quarter 2015.

Trust and wealth advisory revenues increased $51,000, or 6%, to $849,000 for the third quarter 2016 as compared to $798,000 for the third quarter 2015. Revenue generated from Managed Asset balances at September 30, 2016 was $783,000 for the third quarter, an increase of 6% from $738,000 for the third quarter 2015. Non-Managed asset revenue of $66,000 in the third quarter 2016 increased 10% from $60,000 in revenue for the third quarter 2015. Balances of $509.6 million of Assets under Administration (AUA) at September 30, 2016 increased $158.8 million, or 45%, from $350.8 million of AUA at September 30, 2015. AUA are comprised of Managed Assets and Non-Managed Assets. Managed Asset balances at September 30, 2016 of $361.3 million increased 29% as compared to balances of $280.2 million at September 30, 2015. Non-Managed asset balances of $148.2 million at September 30, 2016 increased 110% as compared to third quarter 2015 balances of $70.6 million.

Service charges and fees increased $42,000 versus third quarter 2015. The third quarter increase was a result of higher fees due to increased transactional volume, mainly attributable to interchange fees, and Master Card Enrollment fees. The Master Card Enrollment fees, which began in June 2016, were $25,000 in the third quarter of 2016, with no such fees in the third quarter 2015. Income from sales and servicing of mortgage loans increased $31,000 versus third quarter 2015 due primarily to favorable changes in the valuation of mortgage servicing which increased $23,000. Third quarter 2016 mortgage loan sales totaled $3.3 million versus $1.4 million for third quarter 2015. Third quarter 2016, and third quarter 2015 included mortgage servicing valuation charges of $42,000, and $85,000, respectively. Gains on sales and calls of securities for the third quarter 2016, and third quarter 2015 totaled $10,000 and $6,000, respectively. Other income includes bank owned life insurance income and rental income.

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Non-Interest Expense

The following table details the principal categories of non-interest expense.

Three months ended September 30, (dollars in thousands)		2016		2015		2016 vs. 2015
Salaries	$	2,757	$	2,531	$	226		8.93	%
Employee benefits		924		916		8		0.87	%
Premises and equipment		809		863		(54	)	6.26	%
Data processing		472		404		68		16.83	%
Professional fees		459		398		61		15.33	%
Collections, OREO and loan related		109		125		(16	)	(12.80)	%
FDIC insurance		164		163		1		0.61	%
Marketing and community support		144		174		(30	)	(17.24)	%
Amortization of intangible assets		148		161		(13	)	(8.07)	%
Other		513		467		46		9.85	%
Non-interest expense	$	6,499	$	6,202	$	297		4.76	%

Non-interest expense for third quarter 2016 increased $297,000 versus third quarter 2015. Total compensation expense increased $234,000 versus third quarter 2015, which reflects increased staffing levels, market and merit adjustments. Premises and equipment expense decreased $54,000 versus third quarter 2015. The year-over-year decrease is mainly related to lower fuel, utilities, and building repair costs. Data processing increased $68,000 versus third quarter 2015. The increase is mainly due to increases in data communications and processing. Professional fees increased $61,000 versus third quarter 2015. Third quarter 2016 includedincreased Trust and Wealth Advisory related investment management fees. Loan related expenses decreased $16,000 versus third quarter 2015 mainly due to lower appraisal fees, which were partially offset by increased expense related to customer delinquent taxes. Other expense increased $46,000 versus third quarter 2015 due primarily to the change in the off balance sheet provision between the two periods; the third quarter 2016 provision expense of $3,000 contrasts to a benefit of $29,000 recognized in the third quarter 2015.

Income Taxes

The effective income tax rates for third quarter 2016, second quarter 2016 and third quarter 2015 were 29.71%, 27.83% and 29.31%, respectively. Generally, fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income. Salisbury’s effective tax rate is generally less than the 34% federal statutory rate due to holdings of tax-exempt municipal bonds, tax-exempt loans and bank owned life insurance.

Salisbury did not incur Connecticut income tax in 2016 (to date) or 2015, other than minimum state income tax, as a result of its utilization of Connecticut tax legislation that permits banks to shelter certain mortgage income from the Connecticut corporation business tax through the use of a special purpose entity called a Passive Investment Company (“PIC”). In accordance with this legislation, in 2004 the Bank formed a PIC, SBT Mortgage Service Corporation. Salisbury's income tax provision reflects the full impact of the Connecticut legislation. Salisbury does not expect to pay other than minimum state income tax in the foreseeable future unless there is a change in the State of Connecticut corporate tax law.

For the nine month periods ended September 30, 2016 and 2015

Overview

Net income allocated available to common stock was $5.1 million, or $1.88 per common share, for the nine month period ended September 30, 2016 (nine month period 2016), compared with $6.2 million, or $2.26 per common share, for the nine month period ended September 30, 2015 (nine month period 2015).

• During the nine (9) month period ended September 30, 2016, total shareholders’ equity increased to $93.6 million from $90.6 million at December 31, 2015.

• Net Loans increased $54.6 million, or 7.8%, in the first nine months of 2016 to $753.6 million and increased $65.9 million, or 9.6% versus the third quarter 2015.

• Book value per common share increased $0.79 to $33.92 at September 30, 2016 from $33.13 at December 31, 2015, and $1.20 as compared to $32.72 at September 30, 2015.

• Tangible book value per common share of $28.63 at September 30, 2016 increased $0.94 from $27.69 at December 31, 2015, and $1.42 as compared to $27.21 at September 30, 2015.

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Net Interest Income

Tax equivalent net interest income for the nine month period ended September 30, 2016 decreased $648,000, or 2.6%, versus the nine month period ended September 30, 2015. The net interest margin decreased 32 basis points to 3.69% from 4.01%.

The following table sets forth the components of Salisbury's fully tax-equivalent (“FTE”) net interest and dividend income and yields on average interest-earning assets and interest-bearing liabilities.

Nine months ended September 30,	Average Balance				Income / Expense				Average Yield / Rate
(dollars in thousands)		2016		2015		2016		2015		2016		2015
Loans (a) (d)	$	740,828	$	684,870	$	24,470	$	24,052		4.38	%	4.67	%
Securities (c)(d)		76,009		79,765		2,031		2,584		3.56		4.32
FHLBB stock		3,327		3,515		87		59		3.48		2.29
Short term funds (b)		37,943		44,881		138		72		0.49		0.22
Total interest earning assets		858,107		813,031		26,726		26,767		4.13		4.38
Other assets		57,091		60,304
Total assets	$	915,198	$	873,335
Interest-bearing demand deposits	$	124,375	$	120,266		238		231		0.26		0.26
Money market accounts		203,088		175,993		433		349		0.28		0.26
Savings and other		125,284		126,210		168		166		0.18		0.18
Certificates of deposit		123,149		137,179		764		613		0.83		0.60
Total interest-bearing deposits		575,896		559,648		1,603		1,359		0.37		0.32
Repurchase agreements		3,686		4,170		4		5		0.16		0.17
Note payable		364		57		16		1		5.79		1.61
Subordinated debt		9,773		—		468		—		6.24		—
Capital lease		420		423		52		53		16.58		16.57
FHLBB advances		31,725		28,122		714		832		2.96		3.90
Total interest-bearing liabilities		621,864		592,420		2,857		2,250		0.61		0.51
Demand deposits		191,454		168,397
Other liabilities		9,634		8,387
Shareholders’ equity		92,246		104,131
Total liabilities & shareholders’ equity	$	915,198	$	873,335
Net interest and dividend income					$	23,869	$	24,517
Spread on interest-bearing funds										3.52		3.87
Net interest margin (e)										3.69		4.01

(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 $972,000 and $900,000, respectively for 2016 and 2015 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.

The following table sets forth the changes in FTE interest due to volume and rate.

Nine months ended September 30, (in thousands)	2016 versus 2015
Change in interest due to		Volume			Rate			Net
Interest-earning assets
Loans	$	1,907		$	(1,489	)	$	418
Securities		(111	)		(442	)		(553	)
FHLBB stock		(4	)		32			28
Short term funds		(18	)		84			66
Total		1,774			(1,815	)		(41	)
Interest-bearing liabilities
Deposits		(12	)		256			244
Repurchase agreements		(1	)		—			(1	)
Note payable		10			5			15
Subordinated debt		234			234			468
Capital lease		(1	)		—			(1	)
FHLBB advances		94			(212	)		(118	)
Total		324			283			607
Net change in net interest and dividend income	$	1,450		$	(2,098	)	$	(648	)

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Interest Income

Interest income (FTE) on loans increased $418,000, or 1.7%, due to the $55.9 million (8.1%) increase in average volume from $684.9 million for the first nine months of 2015 as compared to $740.8 million for the first nine months of 2016. The favorable impact on interest income (FTE) due to the increase in the average loan growth was partially offset by the 29 basis point (FTE) decrease in the loan yield from 4.67% for the nine months of 2015 to 4.40% for the first nine months of 2016. Interest income (FTE) on securities decreased $553,000 due both to the $3.8 million (4.7%) decrease in average volume and the 76 basis point reduction in average yield which decreased from 4.32% for the first nine months of 2015 to 3.56% for the nine months of 2016. The decrease in the securities reflects the replacement of securities at lower rates than those securities which comprised the September 2015 investment portfolio.

Interest Expense

Interest expense increased $607,000 or 27.0% from $2,250,000 for the first nine months of 2015 to $2,857,000 for the first nine months of 2016. Interest expense related to the subordinated debt issued in December 2015 was $468,000 for the first nine months of 2016 as compared to no such expense in the first nine months of 2015. The issuance of this debt, along with cash on hand, was used to fully redeem $16.0 million of outstanding Series B Preferred Stock issued pursuant to the participation in the U. S. Treasury‘s SBLF program. Interest expense on interest bearing deposits increased $244,000 or 18.0% from $1,359,000 for the first nine months of 2015 to $1,603,000 for the first nine months of 2016. The interest expense increase on interest bearing deposits was due to the 5 basis point increase in the average rate of these deposits from 0.32% to 0.37% resulting from the higher interest rates paid on interest bearing deposits and the change in product mix. The average volume of interest bearing deposits increased $16.2 million or 2.9% from $559.6 million for the first nine months of 2015 to $575.9 million for the first nine months of 2016. Interest expense on FHLB borrowings decreased $118,000 or 14.2% as the cost of these funds decreased 94 basis points from 3.90% for the first nine months of 2015 to 2.96% for the first nine months of 2016. The decrease substantially reflects a third quarter 2015 advance modification on $21.0 million of advances, in accordance with ASC 470-50, which extended maturities to a weighted average 39 months and lowered the effective rate.The favorable impact on interest expense due to the lower rate on these borrowings was partially offset by the $3.6 million or 12.8% increase in average volume.

The $23.0 million or 13.7% increase in the average volume of non-interest bearing demand deposits and the $29.4 million or 5.0% increase in the average volume of interest bearing liabilities for the first nine months of 2016 compared to the first nine months of 2015 substantially provided the funding for the $56.0 million or 8.2% increase in the average loan volume over this same period.

Provision and Allowance for Loan Losses

The provision for loan losses was $1,332,000 for the nine month period ended September 30, 2016 and $651,000 for the nine month period ended September 30, 2015. Included in the provision are impairments related to acquired loans accounted for under ASC 310-30 of $534,000 and $217,000 for the nine months ended September 30, 2016 and 2015, respectively. Net loan charge-offs were $1,156,000 and $350,000 for the respective periods.

Reserve coverage at September 30, 2016, as measured by the ratio of allowance for loan losses to gross loans, at 0.78%, compares with 0.82% a year ago at September 30, 2015. During the first nine months of 2016, non-performing loans (non-accrual loans and accruing loans past-due 90 days or more) decreased $4.6 million to $11.7 million. Such amount represents 1.54% of gross loans receivable and has declined from 2.31% at December 31, 2015. At September 30, 2016, accruing loans past due 30-89 days increased $1.4 million to $5.9 million or 0.78% of gross loans receivable from 0.64% at December 31, 2015. See “Financial Condition – Loan Credit Quality” for further discussion and analysis.

Non-interest income

The following table details the principal categories of non-interest income.

Nine months ended September 30, (dollars in thousands)		2016		2015			2016 vs. 2015
Trust and wealth advisory fees	$	2,517	$	2,510		$	7		0.28	%
Service charges and fees		2,355		2,307			48		2.08	%
Gains on sales of mortgage loans, net		152		227			(75	)	(33.04)	%
Mortgage servicing, net		61		(15	)		76		506.67	%
Gains on sales and calls of available-for-sale securities, net		157		192			(35	)	(18.23)	%
Other		342		343			(1	)	(0.29)	%
Total non-interest income	$	5,584	$	5,564		$	20		0.36	%

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Non-interest income for the nine months ended September 30, 2016 increased $20,000 versus the same period in 2015.

Trust and wealth advisory revenues increased $7,000 to $2.5 million for the nine months ending September 30, 2016 from $2.5 million for the same nine month period in 2015. Revenue on managed assets for the first nine months of 2016 was $2.3 million, up $19,000, versus $2.3 million through the first nine months of 2015. Non-managed assets generated revenue of $171,000 for the nine months ending September 30, 2016, down $12,000, versus $183,000 the same nine month period in 2015. Ending balance information for each period is included in the quarterly comments.

Service charges and fees increased $48,000, primarily due to increased transactional volume and also as a result of higher interchange and Master Card Enrollment related fees. Income from sales and servicing of mortgage loans increased $1,000. Mortgage loans sales totaled $6.8 million for the nine months ended September 30, 2016 and $4.9 million for the nine months ended September 30, 2015. The nine months ended September 30, 2016 and 2015 included mortgage servicing amortization of $182,000 and $282,000, respectively. Other income includes bank owned life insurance income and rental income.

Non-interest expense

The following table details the principal categories of non-interest expense.

Nine months ended September 30, (dollars in thousands)		2016		2015		2016 vs. 2015
Salaries	$	8,017	$	7,520	$	497		6.61	%
Employee benefits		2,923		2,881		42		1.46	%
Premises and equipment		2,546		2,683		(137	)	(5.11)	%
Data processing		1,369		1,276		93		7.29	%
Professional fees		1,403		1,642		(239	)	(14.56)	%
Collections, OREO and loan related		420		594		(174	)	(29.29)	%
FDIC insurance		474		494		(20	)	(4.05)	%
Marketing and community support		524		465		59		12.69	%
Amortization of intangible assets		455		494		(39	)	(7.89)	%
Other		1,844		1,528		316		20.68	%
Non-interest expense	$	19,975	$	19,577	$	398		2.03	%

Non-interest expense for the nine months ended September 30, 2016 increased $398,000 versus the same period in 2015. Salaries and benefits increased $497,000 primarily due to increased staffing levels, market and merit adjustments. Premises and equipment decreased $137,000 mainly due to lower fuel, utilities, and building repair costs. Data processing increased $93,000 mainly due to expenses related to a terminated contract and imaging set-up fees. Professional fees decreased $239,000 versus 2015 fees, which included due diligence on core data processing providers and IT support. Collections, OREO and loan related expense decreased $174,000 due primarily to write-down of OREO in 2015 and no such expense in 2016. Salisbury had no foreclosed properties at September 30, 2015 and one at September 30, 2016. The FDIC insurance assessment decreased $20,000 due to a 2015 refund of an overpayment. Marketing and community support increased $59,000 due primarily to an increase in general marketing campaigns. Amortization of intangible assets decreased $39,000 reflecting the completion of the intangible asset amortization related to the acquired People’s Bank branch. Other expenses increased $316,000 mainly due to expenses related to loans serviced for others.

Income taxes

The effective income tax rates for the nine months ended September 30, 2016 and September 30, 2015 were 28.00% and 29.70%, respectively. Fluctuations in the effective tax rate result from changes in the mix of taxable and tax exempt income. Salisbury’s effective tax rate is generally less than the 34% federal statutory rate due to holdings of tax-exempt municipal bonds, tax-exempt loans and bank owned life insurance.

CAPITAL RESOURCES

Shareholders’ equity was $93.6 million at September 30, 2016, up $3.0 million from December 31, 2015. Book value and tangible book value per common share were $33.92 and $28.69, respectively, compared with $33.13 and $27.69, respectively, at December 31, 2015. Contributing to the increase in shareholders’ equity for year-to-date 2016 was net income of $5.2 million and issued stock of $0.3 million, partially offset by other common stock dividends of $2.3 million, and a decrease in other comprehensive income of $0.2 million. Accumulated other comprehensive income consists of unrealized gains on securities available-for-sale, net of tax, of $0.9 million as of September 30, 2016.

In August 2011, Salisbury issued to the Treasury $16 million of its Series B Preferred Stock under the SBLF program. The SBLF program is a $30 billion fund established under the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The Preferred Stock qualified as Tier 1 capital for regulatory purposes and ranked senior to the Common Stock.

44

The Series B Preferred Stock paid noncumulative dividends. The dividend rate on the Series B Preferred Stock for the initial quarterly dividend period ended September 30, 2011, and each of the next nine quarterly dividend periods the Series B Preferred Stock was outstanding, was determined each quarter based on the increase in the Bank’s Qualified Small Business Lending. The dividend rate for the quarterly dividend period ended December 31, 2015, was 1.0%. For the eleventh quarterly dividend period through four and one-half years after its issuance, the dividend rate on the Series B Preferred Stock was 1.0% and after four and one-half years from its issuance the dividend rate would have been fixed at 9.0% per annum. In December 2015, Salisbury issued $10 million of subordinated debentures and used the proceeds along with other cash-on-hand to redeem all of the Series B Preferred Stock.

On February 16, 2016, 1,350 shares of stock options were exercised at $21.48 per share by one former Riverside Bank executive.

On January 26, 2016, 2,700 shares of stock options were exercised at $21.48 per share by two former Riverside Bank executives.

On September 28, 2015, 2,700 shares of stock options were exercised at $21.48 per share by one former Riverside Bank executive.

On February 17, 2015 and February 25, 2015, 1,350 and 5,400 shares of stock options were exercised, respectively, at $18.52 per share by two former Riverside Bank executives.

On January 29, 2016, Salisbury granted a total of 15,800 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 42 employees, including 6,000 shares to three Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 5,000 and John Davies, President New York Region and Chief Lending Officer and Donald E. White, Chief Financial Officer each received 500 shares. The fair value of the stock as of the grant date was determined to be $466,000 and the stock will be vested three years from the grant date. On July 29, 2016, the Board of Directors approved the accelerated vesting of 200 shares for a recently retired employee.  

On March 27, 2015, Salisbury granted a total of 1,000 shares of restricted stock, pursuant to its 2011 Long Term Incentive Plan, to one (1) Named Executive Officer, Richard J. Cantele, Jr., President and Chief Executive Officer. The fair value of the stock as of the grant date was determined to be $29,000 and the stock vested immediately.

Capital Requirements

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on Salisbury’s and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Salisbury and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Under current regulatory definitions, Salisbury and the Bank meet all capital adequacy requirements to which they are subject and the Bank is considered to be well-capitalized. As a result, 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 Salisbury’s and the Bank's regulatory capital ratios are as follows:

	September 30, 2016					December 31, 2015
		Salisbury		Bank			Salisbury		Bank
Total Capital (to risk-weighted assets)		13.25	%	12.94	%		13.51	%	13.10	%
Tier 1 Capital (to risk-weighted assets)		11.01		12.09			11.17		12.23
Common Equity Tier 1 Capital (to risk-weighted assets)		11.01		12.09			11.17		12.23
Tier 1 Capital (to average assets)		8.47		9.30			8.56		9.37

A well-capitalized institution, which is the highest capital category for an institution as defined by the Prompt Corrective Action regulations issued by the FDIC 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 to 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 to Salisbury 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.

45

The FRB and FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for bank holding companies and their bank subsidiaries. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank and Company. The rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 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 new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. This capital conservation buffer was initially phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent year by an additional 0.625% until reaching its final level of 2.50% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

As of September 30, 2016, the Company and the Bank met each of their capital requirements and the most recent notification from the FDIC categorized the Bank as “well-capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s category.

Dividends

During the nine months ended September 30, 2016, Salisbury paid $2,314,000 in common stock dividends.

On October 28, 2016, the Board of Directors of Salisbury declared a common stock dividend of $0.28 per common share payable on November 25, 2016 to shareholders of record on November 11, 2016. Common stock dividends, when declared, will generally be paid the last Friday of February, May, August and November, although Salisbury is not obligated to pay dividends on those dates or at any other time.

Salisbury's ability to pay cash dividends is dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut 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, revised December 31, 2015, states that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the Federal 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 the Federal 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 considers Salisbury's capital needs, asset quality, and overall financial condition and does not adversely affect the financial stability of Salisbury or the Bank. The continued payment of common stock cash dividends by Salisbury will be dependent on Salisbury's future core earnings, financial condition and capital needs, regulatory restrictions, and other factors deemed relevant by the Board of Directors of Salisbury.

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 of Salisbury’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 affect Salisbury to some extent because, as prices increase, the money supply grows and interest rates are affected by inflationary expectations. There is no precise method, however, to measure the effects of inflation on Salisbury’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.

46

FORWARD-LOOKING STATEMENTS

This Form 10-Q and future filings made by Salisbury with the Securities and Exchange Commission, as well as other filings, reports and press releases made or issued by Salisbury and the Bank, and oral statements made by executive officers of Salisbury and the Bank, may include forward-looking statements relating to such matters as:

(a) assumptions concerning future economic and business conditions and their effect on the economy in general and on the markets in which Salisbury and the Bank do business; and

(b) expectations for revenues and earnings for Salisbury and the Bank.

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 of Salisbury’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 Salisbury and the Bank through increased operating expenses;

(c) increased competition from other financial and non-financial institutions;

(d) the impact of technological advances and cybersecurity matters;

(e) interest rate fluctuations; and

(f) other risks detailed from time to time in Salisbury’s filings with the Securities and Exchange Commission.

Such developments could have an adverse impact on Salisbury’s and the Bank’s financial position and results of operations.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Salisbury manages its exposure to interest rate risk through its Asset/Liability Management Committee (“ALCO”) using risk limits and policy guidelines to manage assets and funding liabilities to produce financial results that are consistent with Salisbury’s liquidity, capital adequacy, growth, risk and profitability targets. Interest rate risk is the risk of a negative impact to future earnings due to changes in interest rates.

The ALCO manages interest rate risk using income simulation to measure interest rate risk inherent in Salisbury’s financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24-month horizon. In management’s September 30, 2016 analysis, three of the simulations incorporate static growth assumptions over the simulation horizons, with allowances made for loan, deposit and security product mix shifts in selected interest rate scenarios, such as movements between lower rate savings and money market deposit accounts and higher rate time deposits, and changes in the reinvestment of loan and securities cash flows. The fourth simulation incorporates management’s balance sheet growth assumptions. Additionally, the simulations take into account the specific re-pricing, maturity and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios.

The ALCO reviews the simulation results to determine whether Salisbury’s exposure to change in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. Salisbury’s tolerance levels for changes in net interest income in its income simulations vary depending on the magnitude of interest rate changes and level of risk-based capital. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where interest rates remain stable over the forecast horizon. The ALCO also evaluates the directional trends of net interest income, net interest margin and other financial measures over the forecast horizon for consistency with its liquidity, capital adequacy, growth, risk and profitability targets.

47

ALCO uses four interest rate scenarios to evaluate interest risk exposure and may vary these interest rate scenarios to show the effect of steepening or flattening changes in yield curves as well as parallel changes in interest rates. At September 30, 2016, ALCO used the following interest rate scenarios: (1) unchanged interest rates; (2) immediately rising interest rates – immediate parallel upward shift in market interest rates ranging from 300 basis points for short term rates to 300 basis points for the 10-year Treasury; (3) immediately falling interest rates – immediate non-parallel downward shift in market interest rates ranging from 75 basis points for short term rates to 119 basis points for the 10-year Treasury; and (4) immediately rising interest rates – immediate parallel upward shift in market interest rates ranging from 200 basis points for short term rates to 200 basis points for the 10-year Treasury. Deposit rates are assumed to shift by lesser amounts due to their relative historical insensitivity to market interest rate movements. Further, deposits are assumed to have certain minimum rate levels below which they will not fall. Income simulations do not reflect adjustments in strategy that the ALCO could implement in response to changes in general market conditions including rates. As of September 30, 2016, net interest income simulations indicated that the Bank’s exposure to changing interest rates over the simulation horizons remained within its tolerance levels.

The following table sets forth the estimated change in net interest income from an unchanged interest rate scenario over the periods indicated for changes in market interest rates using the Bank’s financial instruments as of September 30, 2016:

As of September 30, 2016	Months 1-12			Months 13-24
Immediately rising interest rates (static growth assumptions)		(3.58	)%		7.18	%
Immediately falling interest rates (static growth assumptions)		(2.01	)		(4.77	)
Immediately rising interest rates (static growth with assumption sensitivity stress testing)		(1.41	)		6.15

The negative exposure of net interest income to immediately and gradually rising rates as compared to the unchanged rate scenario results from a faster projected rise in the cost of funds versus income from earning assets, as relatively rate-sensitive money market and time deposits re-price faster than longer duration earning assets. The negative exposure of net interest income to immediately falling rates as compared to an unchanged rate scenario results from a greater decline in earning asset yields compared to rates paid on funding liabilities, as a result of faster prepayments on existing assets and lower reinvestment rates on future loans originated and securities purchased.

While the ALCO reviews simulation assumptions and back-tests simulation results to ensure that they are reasonable and current, income simulation may not always prove to be an accurate indicator of interest rate risk or future net interest margin. Over time, the re-pricing, maturity and prepayment characteristics of financial instruments and the composition of Salisbury’s balance sheet may change to a different degree than estimated. Simulation modeling assumes Salisbury’s expectation for future balance sheet growth, which is a function of the business environment and customer behavior. Another significant simulation assumption is the sensitivity of core savings deposits to fluctuations in interest rates. Income simulation results assume that changes in both core savings deposit rates and balances are related to changes in short-term interest rates. The assumed relationship between short-term interest rate changes and core deposit rate and balance changes used in income simulation may differ from the ALCO’s estimates. Lastly, mortgage-backed securities and mortgage loans involve a level of risk that unforeseen changes in prepayment speeds may cause related cash flows to vary significantly in differing rate environments. Such changes could affect the level of reinvestment risk associated with cash flow from these instruments, as well as their market value. Changes in prepayment speeds could also increase or decrease the amortization of premium or accretion of discounts related to such instruments, thereby affecting interest income.

Salisbury also monitors the potential change in market value of its available-for-sale debt securities in changing interest rate environments. The purpose is to determine market value exposure that may not be captured by income simulation, but which might result in changes to Salisbury’s capital and liquidity position. Results are calculated using industry-standard analytical techniques and securities data. Available-for-sale equity securities are excluded from this analysis because the market value of such securities cannot be directly correlated with changes in interest rates.

The following table summarizes the potential change in market value of available-for-sale debt securities resulting from immediate parallel rate shifts:

As of September 30, 2016 (in thousands)		Rates up 100bp			Rates up 200bp
U.S. Treasury notes	$	—		$	—
U.S. Government agency notes		—			—
Municipal bonds		(268	)		(518	)
Mortgage backed securities		(887	)		(2,238	)
Collateralized mortgage obligations		(100	)		(203	)
SBA pools		(5	)		(10	)
Other		(62	)		(119	)
Total available-for-sale debt securities	$	(1,322	)	$	(3,088	)

48

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Salisbury’s management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of Salisbury’s disclosure controls and procedures as of September 30, 2016. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective as of September 30, 2016.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 

Changes in Internal Controls

In addition, based on an evaluation of its internal controls over financial reporting, no change in Salisbury’s internal control over financial reporting occurred during the quarter ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, Salisbury’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Bank is involved in various claims and legal proceedings arising in the ordinary course of business, which management currently believes are not material, individually or in the aggregate, to the business, financial condition or operating results of Salisbury or any of its subsidiaries.

There are no material pending legal proceedings, other than ordinary routine litigation incidental to Salisbury’s business, to which Salisbury is a party or any of its subsidiaries is a party or of which any of their property is subject.

Item 1A.	RISK FACTORS
	Not applicable
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	None
Item 3.	DEFAULTS UPON SENIOR SECURITIES
	None
Item 4.	MINE SAFETY DISCLOSURES
	Not Applicable

Item 5.	OTHER INFORMATION
	None

49

Item 6. EXHIBITS

3.1 Certificate of Incorporation of Salisbury Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of Registrant’s 1998 Registration Statement on Form S-4 filed April 23, 1998, File No.: 33-50857).

3.1.1 Amendment to Article Third of Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed March 11, 2009).

3.1.2 Certificate of Amendment to Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed March 19, 2009).

3.1.3 Certificate of Amendment to Certificate of Incorporation for the Series B Preferred Stock (incorporated by reference to Registrant’s Form 8-K filed on August 25, 2011).

3.1.4 Certificate of Amendment to Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of Registrant’s Form 8-K filed October 30, 2014).

3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 of Form 8-K filed November 25, 2014).

4.1 Form of Subordinated Note, dated as of December 10, 2015, issued by Salisbury Bancorp, Inc. (incorporated by reference to Exhibit 4.1 of Registrant’s Form 8-K filed December 10, 2015).

10.2 2011 Long Term Incentive Plan adopted by the Board on March 25, 2011 and approved by the shareholders at Salisbury’s 2011 Annual Meeting (incorporated by reference to Exhibit 10.9 of Registrant’s Annual Report on Form 10-K filed March 19, 2012).

10.3 Amendment Number One to 2011 Long Term Incentive Plan dated as of January 18, 2013 (incorporated by reference to Exhibit 10.10 of Registrant’s Annual Report on Form 10-K filed March 7, 2013).

10.4 Severance Agreement between Salisbury Bank and Trust and Mr. Richard J. Cantele, Jr. effective as of January 1, 2013 (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed February 15, 2013).

10.5 Non-qualified Deferred Compensation Plan effective as of January 1, 2013 (incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed February 15, 2013).

10.6 Change in Control Agreement with Donald E. White dated April 1, 2013 (incorporated by reference to Exhibit 10.3 of Form 10-Q filed May 14, 2013).

10.7 Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.14 of Form 10-K filed March 28, 2014).

10.8 Salisbury Bancorp, Inc. 2015 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Form 8-K filed January 2, 2015).

10.9 Amendment Number One to Salisbury Bancorp, Inc. 2015 Phantom Stock Appreciation Unit and Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Form 8-K filed January 30, 2015).

10.10 Amendment Number Two to 2011 Long Term Incentive Plan dated as of January 29, 2016 (incorporated by reference to Exhibit 10.12 of Registrant’s Annual Report on Form 10-K filed March 30, 2016).

10.11 Form of Split-dollar Life Insurance Agreements with Senior Executive Officers (incorporated by reference to Exhibit 10.13 of Registrant’s Form 10-K filed March 30, 2016).

10.12 Employment Agreement with John M. Davies (incorporated by reference to Exhibit 10.13 of Registrant’s Form 10-K filed March 30, 2016).

10.13 Form of Subordinated Note Purchase Agreement, dated as of December 10, 2015, between Salisbury Bancorp, Inc. and the Purchasers identified therein. (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed December 10, 2015).

31.1 Chief Executive Officer Certification Pursuant to 17 CFR 240.13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Chief Financial Officer Certification Pursuant to 17 CF 240.13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 Chief Executive Officer and Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

50

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SALISBURY BANCORP, INC.
November 14, 2016	By:	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer
November 14, 2016	By:	/s/ Donald E. White
		Donald E. White,
		Executive Vice President and Chief Financial Officer

51

EX-31.1

SALISBURY BANCORP, INC.

Form 10-Q

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Richard J. Cantele, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salisbury Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function):

a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 14, 2016	By:	/s/ Richard J. Cantele, Jr.
		Richard J. Cantele, Jr.,
		President and Chief Executive Officer

EX-31.2

SALISBURY BANCORP, INC.

Form 10-Q

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a)/15d-14(a)

I, Donald E. White, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Salisbury Bancorp, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent function):

a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 14, 2016	By:	/s/ Donald E. White
		Donald E. White,
		Executive Vice President and Chief Financial Officer

EX-32

SALISBURY BANCORP, INC.

Form 10-Q

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Salisbury Bancorp, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard J. Cantele, Jr., President and Chief Executive Officer of the Company, and I, Donald E. White, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

November 14, 2016	By:	/s/ Richard J. Cantele, Jr.	By:	/s/ Donald E. White
		Richard J. Cantele, Jr.,		Donald E. White,
		President and Chief Executive Officer		Executive Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 14, 2016
Document And Entity Information
Entity Registrant Name	SALISBURY BANCORP INC
Entity Central Index Key	0001060219
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,758,086
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - Balance Sheets - USD ($) $ in Thousands		Sep. 30, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks		$ 13,004	$ 14,891
Interest bearing demand deposits with other banks		29,634	47,227
Total cash and cash equivalents		42,638	62,118
Securities
Available-for-sale at fair value		76,801	76,694
Federal Home Loan Bank of Boston stock at cost		2,937	3,176
Loans held-for-sale		837	763
Loans receivable, net (allowance for loan losses: $5,892 and $5,716)		753,623	699,018
Other real estate owned		2,823
Bank premises and equipment, net		14,573	14,307
Goodwill		12,552	12,552
Intangible assets (net of accumulated amortization: $3,364 and $2,909)		1,883	2,338
Accrued interest receivable		2,260	2,307
Cash surrender value of life insurance policies		13,952	13,685
Deferred taxes		2,114	1,989
Other assets		1,452	2,245
Total Assets		928,445	891,192
Deposits
Demand (non-interest bearing)		210,396	201,340
Demand (interest bearing)		126,064	125,465
Money market		201,504	183,783
Savings and other		127,595	119,651
Certificates of deposit		121,171	124,294
Total deposits		786,730	754,533
Repurchase agreements		3,581	3,914
Federal Home Loan Bank of Boston advances		27,134	26,979
Subordinated debt	[1]	9,782	9,764
Note payable		351	376
Capital lease liability		419	422
Accrued interest and other liabilities		6,894	4,630
Total Liabilities		834,891	800,618
Shareholders' Equity
Common stock - $.10 per share par value; Authorized: 5,000,000; Outstanding: 2,758,086 and 2,733,576		276	273
Paid-in capital		42,053	41,364
Retained earnings		50,773	47,922
Unearned compensation - restricted stock awards		(431)	(110)
Accumulated other comprehensive income		883	1,125
Total Shareholders' Equity		93,554	90,574
Total Liabilities and Shareholders' Equity		$ 928,445	$ 891,192

[1] (1) Net of issuance costs, which are capitalized and amortized as a component of interest expense over a period of 10 years.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Allowance for loan losses, loans receivable	$ 5,892	$ 5,716
Accumulated amortization, intangible assets	$ 3,364	$ 2,909
Shareholders' Equity
Common stock, par value	$ 0.10	$ 0.10
Common stock, authorized	5,000,000	5,000,000
Common stock, issued	2,758,086	2,733,576

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Interest and dividend income
Interest and fees on loans	$ 8,061	$ 7,955	$ 23,915	$ 23,727
Interest on debt securities
Taxable	341	286	976	910
Tax exempt	202	351	725	1,098
Other interest and dividends	60	58	138	132
Total interest and dividend income	8,664	8,650	25,754	25,867
Interest expense
Deposits	565	463	1,603	1,359
Repurchase agreements	2	2	4	5
Capital lease	17	18	52	53
Note payable	5	1	16	1
Subordinated debt	156		468
Federal Home Loan Bank of Boston advances	237	269	714	832
Total interest expense	982	753	2,857	2,250
Net interest and dividend income	7,682	7,897	22,897	23,617
Provision for loan losses	344	655	1,332	651
Net interest and dividend income after provision for loan losses	7,338	7,242	21,565	22,966
Non-interest income
Trust and wealth advisory	849	798	2,517	2,510
Service charges and fees	840	798	2,355	2,307
Gains on sales of mortgage loans, net	55	47	152	227
Mortgage servicing, net	28	5	61	(15)
Gains on sales and calls of available-for-sale securities, net	10	6	157	192
Other	113	115	342	343
Total non-interest income	1,895	1,769	5,584	5,564
Non-interest expense
Salaries	2,757	2,531	8,017	7,520
Employee benefits	924	916	2,923	2,881
Premises and equipment	809	863	2,546	2,683
Data processing	472	404	1,369	1,276
Professional fees	459	398	1,403	1,642
Collections, OREO and loan related	109	125	420	594
FDIC insurance	164	163	474	494
Marketing and community support	144	174	524	465
Amortization of core deposit intangibles	148	161	455	494
Other	513	467	1,844	1,528
Total non-interest expense	6,499	6,202	19,975	19,577
Income before income taxes	2,734	2,809	7,174	8,953
Income tax provision	812	824	2,009	2,663
Net income	1,922	1,985	5,165	6,290
Net income applicable to common shareholders	$ 1,907	$ 1,928	$ 5,124	$ 6,116
Basic earnings per common share	$ .70	$ .71	$ 1.88	$ 2.26
Weighted average common shares outstanding, to calculate basic earnings per share	2,737	2,707	2,732	2,704
Diluted earnings per common share	$ .69	$ .71	$ 1.87	$ 2.25
Weighted average common shares outstanding, to calculate diluted earnings per share	2,751	2,724	2,747	2,721
Common dividends per share	$ .28	$ 0.28	$ .84	$ .84

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net income		$ 1,922	$ 1,985	$ 5,165	$ 6,290
Other comprehensive (loss) income
Net unrealized (losses) gains on securities available-for-sale		(331)	116	(211)	(816)
Reclassification of net realized gains in net income	[1]	(10)	(6)	(157)	(192)
Unrealized (losses) gains on securities available-for-sale		(341)	110	(368)	(1,008)
Income tax benefit (expense)		116	(37)	126	343
Unrealized (losses) gains on securities available-for-sale, net of tax		(225)	73	(242)	(665)
Comprehensive income		$ 1,697	$ 2,058	$ 4,923	$ 5,625

[1] (1) Reclassification adjustments include realized security gains and losses. The gains and losses have been reclassified out of other comprehensive loss and have affected certain lines in the consolidated statements of income as follows: The pre-tax amount is reflected as gains on sales and calls of available-for-sale securities, net, the tax effect is included in the income tax provision and the after tax amount is included in net income.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Common Stock	Preferred stock	Paid-in capital	Retained earnings	Unearned compensation - restricted stock awards	Accumulated other comprehensive income	Total shareholders' equity
Balance - Beginning, amount at Dec. 31, 2014	$ 272	$ 16,000	$ 41,077	$ 42,677	$ (313)	$ 2,108	$ 101,821
Balance - Beginning, shares at Dec. 31, 2014	2,720,766
Net income				6,290			6,290
Other comprehensive loss, net of tax						(665)	(665)
Common stock dividends declared				(2,289)			(2,289)
Preferred stock dividends declared				(120)			(120)
Stock options exercised, amount	$ 1		182				183
Stock options exercised, shares	9,450
Issuance of common stock for executives, amount			29				29
Issuance of common stock for executives, shares	1,000
Forfeiture of restricted common stock, amount			(7)		7
Forfeiture of restricted common stock, shares	(300)
Issuance of common stock for directors, amount			81				81
Issuance of common stock for directors, shares	2,660
Stock based compensation - restricted stock awards					120		120
Balance - Ending, amount at Sep. 30, 2015	$ 273	16,000	41,362	46,558	(186)	1,443	105,450
Balance - Ending, shares at Sep. 30, 2015	2,733,576
Balance - Beginning, amount at Dec. 31, 2015	$ 273		41,364	47,922	(110)	1,125	90,574
Balance - Beginning, shares at Dec. 31, 2015	2,733,576
Net income				5,165			5,165
Other comprehensive loss, net of tax						(242)	(242)
Common stock dividends declared				(2,314)			(2,314)
Stock options exercised, amount			87				87
Stock options exercised, shares	4,050
Issuance of restricted stock awards, amount	$ 2		464		(466)
Issuance of restricted stock awards, shares	15,800
Forfeiture of restricted common stock, amount			(3)		3
Forfeiture of restricted common stock, shares	(100)
Issuance of common stock for directors, amount	$ 1		141				142
Issuance of common stock for directors, shares	4,760
Stock based compensation - restricted stock awards					142		142
Balance - Ending, amount at Sep. 30, 2016	$ 276		$ 42,053	$ 50,773	$ (431)	$ 883	$ 93,554
Balance - Ending, shares at Sep. 30, 2016	2,758,086

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CONSOLIDATED STATEMENTS OF CASH FLOWS - Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Operating Activities
Net income	$ 5,165	$ 6,290
(Accretion), amortization and depreciation:
Securities	204	178
Bank premises and equipment	889	917
Core deposit intangible	455	494
Mortgage servicing rights	182	282
Fair value adjustment on loans	(1,429)	(2,031)
Fair value adjustment on deposits	(97)	(355)
(Gains) and losses, including write-downs
Gains on calls of securities available-for-sale, net	(1)	(40)
Gains on sales of securities, available-for-sale, net	(156)	(152)
Gains on sales of loans, excluding capitalized servicing rights	(152)	(102)
Write-downs of other real estate owned		238
Loss on sale/disposals of premises and equipment	13	45
Provision for loan losses	1,332	651
Proceeds from loans sold	6,814	4,897
Loans originated for sale	(6,736)	(4,800)
(Increase) decrease in deferred loan origination costs, net	(91)	25
Mortgage servicing rights originated	(71)	(125)
Increase in mortgage servicing rights impairment reserve	13	3
Decrease in interest receivable	47	38
Deferred tax benefit		(17)
Decrease (increase) in prepaid expenses	18	(409)
Increase in cash surrender value of life insurance policies	(267)	(277)
Decrease in income tax receivable	433
Increase in income tax payable		271
Increase (decrease) in other assets	218	(87)
Increase (decrease) in accrued expenses	1,079	(11)
Modification fees on Federal Home Loan Bank advances	173
Amortization of debt issuance costs	18
Decrease in interest payable	(125)	(45)
Increase in other liabilities	1,310	369
Stock based compensation - restricted stock awards	142	120
Net cash provided by operating activities	9,380	6,367
Investing Activities
Purchase of Federal Home Loan Bank of Boston stock	(319)
Redemption of Federal Home Loan Bank of Boston stock	558
Purchases of securities available-for-sale	(45,317)	(9,322)
Proceeds from sales of securities available-for-sale	3,860	3,861
Proceeds from calls of securities available-for-sale	11,811	7,995
Proceeds from maturities of securities available-for-sale	29,125	7,413
Loan originations and principle collections, net	(57,351)	(13,748)
Recoveries of loans previously charged off	111	613
Proceeds from sales of other real estate owned		698
Capital expenditures	(1,168)	(739)
Net cash used in investing activities	(58,690)	(3,229)
Financing Activities
Increase in deposit transaction accounts, net	35,320	57,607
Decrease in time deposits, net	(3,026)	(11,199)
(Decrease) increase in securities sold under agreements to repurchase, net	(333)	47
Principal payments on Federal Home Loan Bank of Boston advances	(18)	(786)
Modification payment on Federal Home Loan Bank of Boston advances		(1,099)
Principal payments on note payable	(25)
Decrease in capital lease obligation	(3)	(2)
Stock options exercised	87	183
Issuance of shares for director fees	142	81
Issuance of shares for executives		29
Common stock dividends paid	(2,314)	(2,289)
Series B preferred stock dividends paid		(120)
Net cash provided by financing activities	29,830	42,452
Net (decrease) increase in cash and cash equivalents	(19,480)	45,590
Cash and cash equivalents, beginning of period	62,118	36,105
Cash and cash equivalents, end of period	42,638	81,695
Cash paid during year
Interest	2,714	2,650
Income taxes	842	2,409
Non-cash investing and financing activities
Transfer from loans to other real estate owned	2,823	101
Note payable to fund building purchase		$ 380

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

BASIS OF PRESENTATION

Salisbury Bancorp, Inc. and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The interim (unaudited) consolidated financial statements of Salisbury Bancorp, Inc. ("Salisbury") include those of Salisbury and its wholly owned subsidiary, Salisbury Bank and Trust Company (the "Bank"). In the opinion of management, the interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position of Salisbury and the consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the interim periods presented.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In preparing the financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, expected cash flows from loans acquired in a business combination, other-than-temporary impairment of securities and impairment of goodwill and intangibles.

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2015 Annual Report on Form 10-K for the year ended December 31, 2015.

The allowance for loan losses is a significant accounting policy and is presented in the Notes to Consolidated Financial Statements and in Management’s Discussion and Analysis, which provides information on how significant assets are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective judgments, and as such could be most subject to revision as new information becomes available.

Impact of New Accounting Pronouncements Issued

In January 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments – overall (subtopic 825-10): "Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. Salisbury does not expect ASU No. 2016-01 to have a material impact on its Consolidated Financial Statements; however, Salisbury will continue to closely monitor developments and additional guidance.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. Salisbury is currently evaluating this ASU to determine the impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation–Stock Compensation (Topic 718): "Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. Salisbury is currently evaluating the provisions of ASU No. 2016-09 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Salisbury is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments." This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU No. 2016-15 is not expected to have a material impact on Salisbury’s Consolidated Financial Statements.

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SECURITIES

9 Months Ended

Sep. 30, 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
September 30, 2016
Available-for-sale
Municipal bonds		$	18,252		$	352		$	—			$	18,604
Mortgage-backed securities
U.S. Government agencies and U.S. Government-sponsored enterprises			47,881			372			(77	)			48,176
Collateralized mortgage obligations
U.S. Government agencies			1,596			8			—				1,604
Non-agency			3,619			418			(5	)			4,032
SBA bonds			2,268			18			—				2,286
CRA mutual funds			828			10			—				838
Corporate bonds			1,000			20			—				1,020
Preferred stock			20			221			—				241
Total securities available-for-sale		$	75,464		$	1,419		$	(82	)		$	76,801
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	2,937		$	—		$	—			$	2,937

(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 sold $3.6 million in securities available-for-sale during the nine month period ended September 30, 2016, and sold $3.7 million in securities available-for-sale during the nine month period ended September 30, 2015.

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, 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
September 30, 2016
Available-for-sale
Mortgage-backed securities	$	27,770	$	(71	)	$	310	$	(6	)	$	28,080	$	(77	)
Collateralized mortgage obligations:
Non-agency		203		(1	)		175		(4	)		378		(5	)
Total temporarily impaired  securities	$	27,973	$	(72	)	$	485	$	(10	)	$	28,458	$	(82	)

(in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
December 31, 2015
Available-for-sale
Mortgage-backed securities	$	14,750	$	(83	)	$	53	$	—		$	14,803	$	(83	)
Collateralized mortgage obligations:
Non-agency		237		—			226		(7	)		463		(7	)
CRA mutual funds		764		(2	)		—		—			764		(2	)
Total temporarily impaired  securities	$	15,751	$	(85	)	$	279	$	(7	)	$	16,030	$	(92	)

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 September 30, 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 September 30, 2016.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 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 September 30, 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 basis.

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:

Nine months ended September 30 (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 September 30, 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.

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LOANS

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

LOANS

NOTE 3 – LOANS

The composition of loans receivable and loans held-for-sale is as follows:

	September 30, 2016									December 31, 2015
(In thousands)	Business Activities  Loans			Acquired Loans			Total			Business Activities  Loans			Acquired Loans			Total
Residential 1-4 family	$	286,663		$	7,022		$	293,685		$	261,495		$	7,799		$	269,294
Residential 5+ multifamily		7,690			5,864			13,554			6,411			6,136			12,547
Construction of residential 1-4 family		9,824			—			9,824			7,998			—			7,998
Home equity lines of credit		35,470			—			35,470			35,017			—			35,017
Residential real estate		339,647			12,886			352,533			310,921			13,935			324,856
Commercial		162,602			81,741			244,343			129,446			88,829			218,275
Construction of commercial		4,066			2,139			6,205			6,525			4,874			11,399
Commercial real estate		166,668			83,880			250,548			135,971			93,703			229,674
Farm land		4,033			—			4,033			3,193			—			3,193
Vacant land		5,830			—			5,830			8,563			—			8,563
Real estate secured		516,178			96,766			612,944			458,648			107,638			566,286
Commercial and industrial		101,146			30,009			131,155			74,657			46,764			121,421
Municipal		8,475			—			8,475			9,566			—			9,566
Consumer		5,593			68			5,661			6,195			77			6,272
Loans receivable, gross		631,392			126,843			758,235			549,066			154,479			703,545
Deferred loan origination costs, net		1,280			—			1,280			1,189			—			1,189
Allowance for loan losses		(5,613	)		(279	)		(5,892	)		(5,481	)		(235	)		(5,716	)
Loans receivable, net	$	627,059		$	126,564		$	753,623		$	544,774		$	154,244		$	699,018
Loans held-for-sale
Residential 1-4 family	$	837		$	—		$	837		$	763		$	—		$	763

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut, New York and Massachusetts towns, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, and installment and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

Loan Credit Quality

The composition of loans receivable by risk rating grade is as follows:

Business Activities Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
September 30, 2016
Residential 1-4 family	$	276,508	$	6,111	$	3,955	$	89	$	—	$	286,663
Residential 5+ multifamily		5,611		1,912		167		—		—		7,690
Construction of residential 1-4 family		9,824		—		—		—		—		9,824
Home equity lines of credit		34,102		528		840		—		—		35,470
Residential real estate		326,045		8,551		4,962		89		—		339,647
Commercial		152,026		3,541		7,035		—		—		162,602
Construction of commercial		3,949		—		117		—		—		4,066
Commercial real estate		155,975		3,541		7,152		—		—		166,668
Farm land		3,025		—		1,008		—		—		4,033
Vacant land		5,739		63		28		—		—		5,830
Real estate secured		490,784		12,155		13,150		89		—		516,178
Commercial and industrial		98,795		1,716		635		—		—		101,146
Municipal		8,475		—		—		—		—		8,475
Consumer		5,566		27		—		—		—		5,593
Loans receivable, gross	$	603,620	$	13,898	$	13,785	$	89	$	—	$	631,392

Acquired Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
September 30, 2016
Residential 1-4 family	$	6,133	$	110	$	779	$	—	$	—	$	7,022
Residential 5+ multifamily		5,741		—		123		—		—		5,864
Construction of residential 1-4 family		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Residential real estate		11,874		110		902		—		—		12,886
Commercial		72,288		4,082		5,371		—		—		81,741
Construction of commercial		1,881		—		258		—		—		2,139
Commercial real estate		74,169		4,082		5,629		—		—		83,880
Farm land		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—
Real estate secured		86,043		4,192		6,531		—		—		96,766
Commercial and industrial		28,566		1,238		205		—		—		30,009
Municipal		—		—		—		—		—		—
Consumer		65		3		—		—		—		68
Loans receivable, gross	$	114,674	$	5,433	$	6,736	$	—	$	—	$	126,843

Business Activities Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Residential 1-4 family	$	248,027	$	6,933	$	6,444	$	91	$	—	$	261,495
Residential 5+ multifamily		4,507		1,815		89		—		—		6,411
Construction of residential 1-4 family		7,111		887		—		—		—		7,998
Home equity lines of credit		33,687		545		785		—		—		35,017
Residential real estate		293,332		10,180		7,318		91		—		310,921
Commercial		120,903		4,801		3,742		—		—		129,446
Construction of commercial		6,525		—		—		—		—		6,525
Commercial real estate		127,428		4,801		3,742		—		—		135,971
Farm land		2,162		—		1,031		—		—		3,193
Vacant land		5,567		69		2,927		—		—		8,563
Real estate secured		428,489		15,050		15,018		91		—		458,648
Commercial and industrial		72,887		1,214		555		1		—		74,657
Municipal		9,566		—		—		—		—		9,566
Consumer		6,171		18		6		—		—		6,195
Loans receivable, gross	$	517,113	$	16,282	$	15,579	$	92	$	—	$	549,066

Acquired Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Residential 1-4 family	$	6,824	$	199	$	776	$	—	$	—	$	7,799
Residential 5+ multifamily		6,136		—		—		—		—		6,136
Construction of residential 1-4 family		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Residential real estate		12,960		199		776		—		—		13,935
Commercial		80,406		4,005		4,418		—		—		88,829
Construction of commercial		4,612		—		262		—		—		4,874
Commercial real estate		85,018		4,005		4,680		—		—		93,703
Farm land		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—
Real estate secured		97,978		4,204		5,456		—		—		107,638
Commercial and industrial		45,363		875		443		83		—		46,764
Municipal		—		—		—		—		—		—
Consumer		71		6		—		—		—		77
Loans receivable, gross	$	143,412	$	5,085	$	5,899	$	83	$	—	$	154,479

The composition of loans receivable by delinquency status is as follows:

Business Activities Loans

			Past due
												180		30
(in thousands)	Current			1-29		30-59		60-89		90-179		days		days			Accruing		Non-
				days		days		days		days		and		and		90 days			accrual
												over		over		and over
September 30, 2016
Residential 1-4 family	$	281,558		$	1,892	$	313	$	679	$	74	$	2,147	$	3,213		$	—	$	3,017
Residential 5+ multifamily		7,690			—		—		—		—		—		—			—		167
Construction of residential 1-4 family		9,824			—		—		—		—		—		—			—		—
Home equity lines of credit		34,949			69		151		90		54		157		452			—		681
Residential real estate		334,021			1,961		464		769		128		2,304		3,665			—		3,865
Commercial		158,272			1,251		1,917		252		—		910		3,079			—		2,993
Construction of commercial		4,066			—		—		—		—		—		—			—		—
Commercial real estate		162,338			1,251		1,917		252		—		910		3,079			—		2,993
Farm land		2,514			795		—		—		—		724		724			—		1,009
Vacant land		5,784			46		—		—		—		—		—			—		28
Real estate secured		504,657			4,053		2,381		1,021		128		3,938		7,468			—		7,895
Commercial and industrial		99,230			1,105		627		161		—		23		811			—		23
Municipal		8,475			—		—		—		—		—		—			—		—
Consumer		5,555			19		9		10		—		—		19			—		—
Loans receivable, gross	$	617,917		$	5,177	$	3,017	$	1,192	$	128	$	3,961	$	8,298		$	—	$	7,918

Acquired Loans

September 30, 2016
Residential 1-4 family	$	5,961	$	282	$	—	$	—	$	—	$	779	$	779	$	—	$	779
Residential 5+ multifamily		5,299		—		442		—		—		123		565		—		123
Construction of residential 1-4 family		—		—		—		—		—		—		—		—		—
Home equity credit lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		11,260		282		442		—		—		902		1344		—		902
Commercial		74,978		2,695		1,503		—		974		1,591		4,068		365		2,199
Construction of commercial		1,881		—		—		—		—		258		258		—		258
Commercial real estate		76,859		2,695		1,503		—		974		1,849		4,326		365		2,457
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		88,119		2,977		1,945		—		974		2,751		5,670		365		3,359
Commercial and industrial		27,711		622		543		1,103		30		—		1,676		30		—
Municipal		—		—		—		—		—		—		—		—		—
Consumer		68		—		—		—		—		—		—		—		—
Loans receivable, gross	$	115,898	$	3,599	$	2,488	$	1,103	$	1,004	$	2,751	$	7,346	$	395	$	3,359

Business Activities Loans

			Past due
												180		30
(in thousands)	Current			1-29		30-59		60-89		90-179		days		days			Accruing		Non-
				days		days		days		days		and		and		90 days			accrual
												over		over		and over
December 30, 2015
Residential 1-4 family	$	254,152		$	1,781	$	1,931	$	683	$	973	$	1,975	$	5,562		$	—	$	5,671
Residential 5+ multifamily		6,254			—		68		—		—		89		157			—		89
Construction of residential 1-4 family		7,826			172		—		—		—		—		—			—		—
Home equity lines of credit		33,744			363		306		101		113		390		910			—		601
Residential real estate		301,976			2,316		2,305		784		1,086		2,454		6,629			—		6,361
Commercial		126,440			1,618		474		—		233		681		1,388			—		2,349
Construction of commercial		6,525			—		—		—		—		—		—			—		—
Commercial real estate		132,965			1,618		474		—		233		681		1,388			—		2,349
Farm land		2,172			298		—		—		—		723		723			—		1,031
Vacant land		5,734			—		6		—		—		2,823		2,829			—		2,855
Real estate secured		442,847			4,232		2,785		784		1,319		6,681		11,569			—		12,596
Commercial and industrial		73,698			906		35		—		—		18		53			—		461
Municipal		9,566			—		—		—		—		—		—			—		—
Consumer		6,096			61		21		17		—		—		38			—		80
Loans receivable, gross	$	532,207		$	5,199	$	2,841	$	801	$	1,319	$	6,699	$	11,660		$	—	$	13,137

Acquired Loans

December 30, 2015
Residential 1-4 family	$	6,823	$	—	$	—	$	110	$	—	$	866	$	976	$	90	$	776
Residential 5+ multifamily		6,136		—		—		—		—		—		—		—		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		12,959		—		—		110		—		866		976		90		776
Commercial		81,140		4,848		916		—		—		1,925		2,841		—		2,000
Construction of commercial		4,612		—		—		—		—		262		262		—		262
Commercial real estate		85,752		4,848		916		—		—		2,187		3,103		—		2,262
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		98,711		4,848		916		110		—		3,053		4,079		90		3,038
Commercial and industrial		46,128		471		83		82		—		—		165		—		—
Municipal		—		—		—		—		—		—		—		—		—
Consumer		77		—		—		—		—		—		—		—		—
Loans receivable, gross	$	144,916	$	5,319	$	999	$	192	$	—	$	3,053	$	4,244	$	90	$	3,038

Interest on non-accrual loans that would have been recorded as additional interest income for the nine months ended September 30, 2016 and 2015 had the loans been current in accordance with their original terms totaled $666,000 and $609,000, respectively.

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

Business Activities Loans

	Nine months ended
	September 30, 2016						September 30, 2015
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		4	$	683	$	683		2	$	923	$	923
Commercial real estate		2		2,123		2,123		1		294		294
Home equity lines of credit		—		—		—		1		35		35
Troubled debt restructurings		6	$	2,806	$	2,806		4		1,252		1,252
Rate reduction and term extension		1	$	174	$	174		1	$	294	$	294
Interest only and term extension		—		—		—		—		—		—
Debt consolidation		1		1,863		1,863		—		—		—
Debt consolidation and term extension		1		260		260		—		—		—
Note bifurcation		—		—		—		1		48		48
Term extension		3		509		509		2		910		910
Troubled debt restructurings		6	$	2,806	$	2,806		4		1,252		1,252

Acquired Loans

	Nine months ended
	September 30, 2016						September 30, 2015
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		1	$	88	$	88		—	$	—	$	—
Commercial real estate		—		—		—		1		184		184
Home equity lines of credit		—		—		—		—		—		—
Troubled debt restructurings		1	$	88	$	88		1	$	184	$	184
Rate reduction and term extension		1	$	88	$	88		1	$	184	$	184
Interest only and term extension		—		—		—		—		—		—
Interest only		—		—		—		—		—		—
Debt consolidation and term extension		—		—		—		—		—		—
Term extension		—		—		—		—		—		—
Troubled debt restructurings		1	$	88	$	88		1	$	184	$	184

Seven loans were modified in troubled debt restructurings during 2016, one of which was past due at September 30, 2016.

As of September 30, 2016, there were no commitments to lend additional amounts on troubled debt restructurings.

As of September 30, 2016, the Bank had $2,793,000 in loans collateralized by residential real estate property in the process of foreclosure.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended September 30, 2016												Three months ended September 30, 2016
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,248	$	224		$	(155	)	$	8	$	2,325	$	69	$	5		$	—		$	—	$	74
Commercial		1,734		29			(1	)		—		1,762		134		37			—			—		171
Land		166		82			(42	)		—		206		—		—			—			—		—
Real estate		4,148		335			(198	)		8		4,293		203		42			—			—		245
Commercial and industrial		851		(16	)		(2	)		25		858		37		(11	)		—			8		34
Municipal		56		(3	)		—			—		53		—		—			—			—		—
Consumer		89		17			(17	)		5		94		—		—			—			—		—
Unallocated		334		(19	)		—			—		315		—		—			—			—		—
Totals	$	5,478	$	314		$	(217	)	$	38	$	5,613	$	240	$	31		$	—		$	8	$	279
	Business Activities Loans												Acquired Loans
(in thousands)	Nine months ended September 30, 2016												Nine months ended September 30, 2016
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,477	$	370		$	(550	)	$	28	$	2,325	$	79	$	(5	)	$	—		$	—	$	74
Commercial		1,466		332			(37	)		1		1,762		132		133			(98	)		4		171
Land		188		106			(88	)		—		206		—		—			—			—		—
Real estate		4,131		808			(675	)		29		4,293		211		128			(98	)		4		245
Commercial and industrial		683		167			(32	)		40		858		24		403			(416	)		23		34
Municipal		61		(8	)		—			—		53		—		—			—			—		—
Consumer		124		1			(46	)		15		94		—		—			—			—		—
Unallocated		482		(167	)		—			—		315		—		—			—			—		—
Totals	$	5,481	$	801		$	(753	)	$	84	$	5,613	$	235	$	531		$	(514	)	$	27	$	279
	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended September 30, 2015												Three months ended September 30, 2015
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,147	$	632		$	(92	)	$	111	$	2,798	$	15	$	55		$	—		$	—	$	70
Commercial		1,339		(102	)		(10	)		—		1,227		77		81			—			5		163
Land		182		168			(72	)		—		278		—		—			—			—		—
Real estate		3,668		698			(174	)		111		4,303		92		136			—			5		233
Commercial and industrial		691		(197	)		—			4		498		52		(22	)		—			10		40
Municipal		64		(16	)		—			—		48		—		—			—			—		—
Consumer		123		1			(17	)		6		113		—		—			—			—		—
Unallocated		369		55			—			—		424		—		—			—			—		—
Totals	$	4,915	$	541		$	(191	)	$	121	$	5,386	$	144	$	114		$	—		$	15	$	273
	Business Activities Loans												Acquired Loans
(in thousands)	Nine months ended September 30, 2015												Nine months ended September 30, 2015
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,306	$	952		$	(573	)	$	113	$	2,798	$	—	$	70		$	—		$	—	$	70
Commercial		1,697		(256	)		(214	)		—		1,227		7		151			—			5		163
Land		164		186			(72	)		—		278		—		—			—			—		—
Real estate		4,167		882			(859	)		113		4,303		7		221			—			5		233
Commercial and industrial		583		(484	)		(56	)		455		498		14		—			—			26		40
Municipal		61		(13	)		—			—		48		—		—			—			—		—
Consumer		117		30			(47	)		13		113		—		—			—			—		—
Unallocated		409		15			—			—		424		—		—			—			—		—
Totals	$	5,337	$	430		$	(962	)	$	581	$	5,386	$	21	$	221		$	—		$	31	$	273

The composition of loans receivable and the allowance for loan losses is as follows:

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2016
Residential 1-4 family	$	280,711	$	1,698	$	5,952	$	147	$	286,663	$	1,845
Residential 5+ multifamily		5,860		54		1,830		—		7,690		54
Construction of residential 1-4 family		9,824		85		—		—		9,824		85
Home equity lines of credit		34,674		324		796		17		35,470		341
Residential real estate		331,069		2,161		8,578		164		339,647		2,325
Commercial		158,185		1,646		4,417		69		162,602		1,715
Construction of commercial		3,949		48		117		—		4,066		48
Commercial real estate		162,134		1,694		4,534		69		166,668		1,763
Farm land		3,025		27		1,008		9		4,033		36
Vacant land		5,589		166		241		4		5,830		170
Real estate secured		501,817		4,048		14,361		246		516,178		4,294
Commercial and industrial		101,063		853		83		4		101,146		857
Municipal		8,475		53		—		—		8,475		53
Consumer		5,593		94		—		—		5,593		94
Unallocated allowance		—		315		—		—		—		315
Totals	$	616,948	$	5,363	$	14,444	$	250	$	631,392	$	5,613

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2016
Residential 1-4 family	$	6,244	$	—	$	779	$	74	$	—	$	—	$	7,023	$	74
Residential 5+ multifamily		5,741		—		123		—		—		—		5,864		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		11,985		—		902		74		—		—		12,887		74
Commercial		74,858		22		2,955		82		3,928		64		81,741		168
Construction of commercial		1,881		3		258		—		—		—		2,139		3
Commercial real estate		76,739		25		3,213		82		3,928		64		83,880		171
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		88,724		25		4,115		156		3,928		64		96,767		245
Commercial and industrial		29,676		26		—		—		332		8		30,008		34
Municipal		—		—		—		—		—		—		—		—
Consumer		52		—		—		—		16		—		68		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	118,452	$	51	$	4,115	$	156	$	4,276	$	72	$	126,843	$	279

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2015
Residential 1-4 family	$	253,156	$	1,415	$	8,339	$	610	$	261,495	$	2,025
Residential 5+ multifamily		4,640		33		1,771		—		6,411		33
Construction of residential 1-4 family		7,998		65		—		—		7,998		65
Home equity lines of credit		34,298		286		719		68		35,017		354
Residential real estate		300,092		1,799		10,829		678		310,921		2,477
Commercial		125,173		1,265		4,273		113		129,446		1,378
Construction of commercial		6,403		87		122		1		6,525		88
Commercial real estate		131,576		1,352		4,395		114		135,971		1,466
Farm land		2,162		23		1,031		14		3,193		37
Vacant land		5,486		122		3,077		29		8,563		151
Real estate secured		439,316		3,296		19,332		835		458,648		4,131
Commercial and industrial		74,131		673		526		10		74,657		683
Municipal		9,566		61		—		—		9,566		61
Consumer		6,115		124		80		—		6,195		124
Unallocated allowance		—		482		—		—		—		482
Totals	$	529,128	$	4,636	$	19,938	$	845	$	549,066	$	5,481

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2015
Residential 1-4 family	$	7,023	$	—	$	776	$	79	$	—	$	—	$	7,799	$	79
Residential 5+ multifamily		6,136		—		—		—		—		—		6,136		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		13,159		—		776		79		—		—		13,935		79
Commercial		81,300		19		2,742		107		4,787		2		88,829		128
Construction of commercial		4,612		4		262		—		—		—		4,874		4
Commercial real estate		85,912		23		3,004		107		4,787		2		93,703		132
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		99,071		23		3,780		186		4,787		2		107,638		211
Commercial and industrial		45,650		24		—		—		1,114		—		46,764		24
Municipal		—		—		—		—		—		—		—		—
Consumer		61		—		—		—		16		—		77		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	144,782	$	47	$	3,780	$	186	$	5,917	$	2	$	154,479	$	235

The credit quality segments of loans receivable and the allowance for loan losses are as follows:

Business Activities Loans

September 30, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	612,039	$	4,849	$	—	$	—	$	612,039	$	4,849
Potential problem loans		4,909		200		—		—		4,909		200
Impaired loans		—		—		14,444		250		14,444		250
Unallocated allowance		—		315		—		—		—		315
Totals	$	616,948	$	5,364	$	14,444	$	250	$	631,392	$	5,614

Acquired Loans

September 30, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	120,106	$	70	$	—	$	—	$	120,106	$	70
Potential problem loans		2,622		53		—		—		2,622		53
Impaired loans		—		—		4,115		156		4,115		156
Totals	$	122,728	$	123	$	4,115	$	156	$	126,843	$	279

Business Activities Loans

December 30, 2015 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	527,905	$	4,110	$	—	$	—	$	527,905	$	4,110
Potential problem loans		1,223		44		—		—		1,223		44
Impaired loans		—		—		19,938		845		19,938		845
Unallocated allowance		—		482		—		—		—		482
Totals	$	529,128	$	4,636	$	19,938	$	845	$	549,066	$	5,481

Acquired Loans

December 30, 2015 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	148,580	$	46	$	—	$	—	$	148,580	$	46
Potential problem loans		2,119		2		—		—		2,119		2
Impaired loans		—		—		3,780		187		3,780		187
Unallocated allowance		—		—		—		—		—		—
Totals	$	150,699	$	48	$	3,780	$	187	$	154,479	$	235

A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the present value of expected cash flows or fair value of collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment is as follows:

Business Activities Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
September 30, 2016
Residential	$	5,530	$	6,080	$	6,418	$	147	$	72	$	2,252	$	2,409	$	2,683	$	69
Home equity lines of credit		410		436		463		17		1		386		419		346		5
Residential real estate		5,940		6,516		6,881		164		73		2,638		2,828		3,029		74
Commercial		3,568		3,958		3,393		69		73		849		1,106		996		17
Construction of commercial		—		—		72		—		—		117		123		47		5
Farm land		723		784		440		9		—		286		358		580		—
Vacant land		46		46		2,305		4		2		195		232		201		8
Real estate secured		10,277		11,304		13,091		246		148		4,085		4,647		4,853		104
Commercial and industrial		4		4		40		4		—		78		106		217		2
Consumer		—		—		—		—		—		—		—		8		—
Totals	$	10,281	$	11,308	$	13,131	$	250	$	148	$	4,163	$	4,753	$	5,078	$	106

Acquired Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
September 30, 2016
Residential 1-4 family	$	779	$	893	$	637	$	74	$	3	$	123	$	123	$	267	$	—
Home equity credit		—		—		—		—		—		—		—		—		—
Residential real estate		779		893		637		74		3		123		123		267		—
Commercial		1,146		1,557		577		82		111		1,809		2,268		2,085		158
Construction of commercial		—		—		—		—		—		258		272		259		—
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		1,925		2,450		1,214		156		114		2,190		2,663		2,611		158
Commercial and industrial		—		—		100		—		—		—		—		24		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	1,925	$	2,450	$	1,314	$	156	$	114	$	2,190	$	2,663	$	2,635	$	158

Business Activities Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
December 31, 2015
Residential 1-4 family	$	7,482	$	8,094	$	6,213	$	610	$	109	$	2,628	$	2,770	$	3,043	$	82
Home equity lines of credit		535		659		176		68		6		184		199		611		2
Residential real estate		8,017		8,753		6,389		678		115		2,812		2,969		3,654		84
Commercial		3,131		3,405		2,629		113		113		1,142		1,393		2,130		12
Construction of commercial		122		128		—		1		—		—		—		127		6
Farm land		733		773		445		14		—		298		352		270		15
Vacant land		2,870		3,836		3,058		29		2		207		241		5		7
Real estate secured		14,873		16,895		12,521		835		230		4,459		4,955		6,186		124
Commercial and industrial		95		98		120		10		8		431		481		464		7
Consumer		—		—		—		—		—		80		108		—		—
Totals	$	14,968	$	16,993	$	12,641	$	845	$	238	$	4,970	$	5,544	$	6,650	$	131

Acquired Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
December 31, 2015
Residential 1-4 family	$	599	$	716	$	176	$	79	$	—	$	177	$	177	$	436	$	4
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		599		716		176		79		—		177		177		436		4
Commercial		675		826		557		107		61		2,067		2,843		2,097		10
Construction of commercial		—		—		—		—		—		262		273		138		16
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		1,274		1,542		733		186		61		2,506		3,293		2,671		30
Commercial and industrial		—		—		4		—		1		—		4		—		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	1,274	$	1,542	$	737	$	186	$	62	$	2,506	$	3,297	$	2,671	$	30

(1) The table above reflects the book, note and specific allowance as of December 31, 2015, while the average balances and income recognized are for the nine months ended September 30, 2015.

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MORTGAGE SERVICING RIGHTS

9 Months Ended

Sep. 30, 2016

Mortgage Loans on Real Estate [Abstract]

MORTGAGE SERVICING RIGHTS

NOTE 4 - MORTGAGE SERVICING RIGHTS

September 30, (in thousands)		2016		2015
Residential mortgage loans serviced for others	$	125,988	$	132,201
Fair value of mortgage servicing rights		962		1,429

Changes in mortgage servicing rights are as follows:

		Three months						Nine months
Periods ended September 30, (in thousands)		2016			2015			2016			2015
Mortgage Servicing Rights
Balance, beginning of period	$	416		$	599		$	487		$	694
Originated		27			22			71			124
Amortization (1)		(67	)		(86	)		(182	)		(282	)
Balance, end of period		376			535			376			536
Valuation Allowance
Balance, beginning of period		(25	)		(2	)		(4	)		1
(Increase) decrease in impairment reserve (1)		8			2			(13	)		(2	)
Balance, end of period		(17	)		—			(17	)		(1	)
Loan servicing rights, net	$	359		$	535		$	359		$	535

(1) Amortization expense and changes in the impairment reserve are recorded in mortgage servicing, net.

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PLEDGED ASSETS

9 Months Ended

Sep. 30, 2016

Guarantees [Abstract]

PLEDGED ASSETS

NOTE 5 - PLEDGED ASSETS

(in thousands)		September 30, 2016		December 31, 2015
Securities available-for-sale (at fair value)	$	65,357	$	67,750
Loans receivable		196,077		153,269
Total pledged assets	$	261,434	$	221,019

At September 30, 2016, securities were pledged as follows: $59.6 million to secure public deposits, $5.7 million to secure repurchase agreements and $0.1 million to secure FHLBB advances. In addition to securities, loans receivable were pledged to secure FHLBB advances and credit facilities.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 6 – EARNINGS PER SHARE

Salisbury defines unvested share-based payment awards that contain non-forfeitable rights to dividends as participating securities that are included in computing earnings per share (EPS) using the two-class method.

The two-class method is an earnings allocation formula that determines earnings per share for each share of common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. Basic EPS excludes dilution and is computed by dividing income allocated to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

The following table sets forth the computation of earnings per share (basic and diluted) for the periods indicated:

		Three months						Nine months
Periods ended September 30, (in thousands, except share and per share data)		2016			2015			2016			2015
Net income	$	1,922		$	1,985		$	5,165		$	6,290
Less: Preferred stock dividends declared		—			(40	)		—			(120	)
Net income available to common shareholders		1,922			1,945			5,165			6,170
Less: Undistributed earnings allocated to participating securities		(15	)		(17	)		(41	)		(54	)
Net income allocated to common stock	$	1,907		$	1,928		$	5,124		$	6,116
Weighted-average common shares issued		2,758			2,731			2,754			2,728
Less: Unvested restricted stock awards		(21	)		(24	)		(22	)		(24	)
Weighted-average common shares outstanding used to calculate basic earnings per common share		2,737			2,707			2,732			2,704
Add: Dilutive effect of stock options		14			17			15			17
Weighted-average common shares outstanding used to calculate diluted earnings per common share		2,751			2,724			2,747			2,721
Earnings per common share (basic)	$	0.70		$	0.71		$	1.88		$	2.26
Earnings per common share (diluted)	$	0.69		$	0.71		$	1.87		$	2.25

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SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 7 – SHAREHOLDERS’ EQUITY

Capital Requirements

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on Salisbury’s and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Salisbury and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Board of Governors of the Federal Reserve System (FRB) and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for bank holding companies and their bank subsidiaries. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by Salisbury and the Bank. The rules include a new common equity Tier 1 capital risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 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 new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. The initial implementation of the capital conservation buffer was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent January 1, by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

As of September 30, 2016, Salisbury and the Bank met each of their capital requirements and the most recent notification from the FDIC categorized the Bank as “well-capitalized.” There are no conditions or events since that notification that management believes have changed the Bank’s category.

Actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" for Salisbury and the Bank are as follows:

											To be Well Capitalized
	Actual					For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2016
Total Capital (to risk-weighted assets)
Salisbury	$	94,948		13.25	%	$	57,330		8.0	%		n/a		—
Bank		92,739		12.94			57,330		8.0			71,662		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		78,875		11.01			42,997		6.0			n/a		—
Bank		86,666		12.09			42,997		6.0			57,329		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		78,875		11.01			41,868		4.5			n/a		—
Bank		86,666		12.09			41,871		4.5			60,481		6.5
Tier 1 Capital (to average assets)
Salisbury		78,875		8.47			37,216		4.0			n/a		—
Bank		86,666		9.30			37,219		4.0			46,524		5.0
December 31, 2015
Total Capital (to risk-weighted assets)
Salisbury	$	92,030		13.51	%	$	54,509		8.0	%		n/a		—
Bank		89,249		13.10			54,504		8.0		$	68,131		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		76,120		11.17			40,878		6.0			n/a		—
Bank		83,340		12.23			40,878		6.0			54,504		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		76,120		11.17			30,659		4.5			n/a		—
Bank		83,340		12.23			30,659		4.5			44,285		6.5
Tier 1 Capital (to average assets)
Salisbury		76,120		8.56			36,102		4.0			n/a		—
Bank		83,340		9.37			35,593		4.0			44,491		5.0

DIVIDENDS

Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut 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, revised December 21, 2015, notes that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the FRB 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 the FRB 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 structure.

Preferred Stock

In August 2011, Salisbury issued to the U.S. Secretary of the Treasury (the “Treasury”) $16 million of its Series B Preferred Stock under the Small Business Lending Fund (the “SBLF”) program. The SBLF program is a $30 billion fund established under the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The Preferred Stock qualified as Tier 1 capital for regulatory purposes and ranked senior to the Common Stock.

During fourth quarter 2015, Salisbury completed an offering of $10 million of unsecured 6.00% fixed-to–floating rate subordinated notes due in 2025. The notes qualify as Tier II capital and are included as such within Salisbury’s total risk-based capital ratio.

The net proceeds of the offering, along with cash on hand, were used during the fourth quarter 2015 to redeem the $16 million of Senior Non-Cumulative Perpetual Preferred Stock issued in conjunction with Salisbury’s participation in the U.S. Treasury’s SBLF program.

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BENEFITS

9 Months Ended

Sep. 30, 2016

Compensation and Retirement Disclosure [Abstract]

BENEFITS

NOTE 8 – BENEFITS

Salisbury’s 401(k) Plan expense was $179,000 and $166,000, respectively, for the three month periods ended September 30, 2016 and 2015, and $568,000 and $516,000, respectively, for the nine month periods ended September 30, 2016 and 2015. Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements was $19,000 and $22,000, respectively, for the three month periods ended September 30, 2016 and 2015, and $56,000 and $53,000, respectively, for the nine month periods ended September 30, 2016 and 2015.

In 2014, Salisbury terminated the Defined Benefit Pension Plan.  Excess assets in the amount of $1,018,000 were distributed to the Bank’s Defined Contribution Plan (401k) and the Employee Stock Ownership Plan (ESOP) for future allocations to employees.  The division of the excess pension assets was 66.67% to the 401k account (or $679,000) and 33.33% to the ESOP account (or $339,000).

ESOP

Salisbury offers an ESOP to eligible employees.  Under the Plan, Salisbury may make discretionary contributions to the Plan, which generally vest in full upon six years of qualified service.

Salisbury’s ESOP expense was $51,000 and $96,000, respectively, for the three month periods ended September 30, 2016 and 2015, and $132,000 and $287,000, respectively, for the nine month periods ended September 30, 2016 and 2015.

Other Retirement Plans

A Non-Qualified Deferred Compensation Plan (the "Plan") was adopted effective January 1, 2013. This Plan was adopted by the Bank for the benefit of certain key employees ("Executive" or "Executives") who have been selected and approved by the Bank to participate in this Plan and who have evidenced their participation by execution of a Non-Qualified Deferred Compensation Plan Participation Agreement ("Participation Agreement") in a form provided by the Bank. This Plan is intended to comply with Internal Revenue Code ("Code") Section 409A and any regulatory or other guidance issued under such Section of the Code.

In 2015, 2014, and 2013 the Bank awarded six (6), seven (7) and six (6) Executives, respectively, with discretionary contributions to the plan. Expenses related to this Plan amounted to $56,000 for the third quarter of 2016 and $34,000 for the third quarter of 2015. Additionally, expenses related to this plan amounted to $168,000 and $95,000 for the nine months ended September 30, 2016 and 2015, respectively. Based on the Executive’s date of retirement, the vesting schedule ranges from 7.7% per year to 50% per year.

On January 29, 2016, the Compensation Committee granted a total of 47,470 Phantom Stock Appreciation Units pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, including 23,012 units to three Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 11,484 units, John Davies, President of the New York Region and Chief Lending Officer received 5,963 units and Donald E. White, Chief Financial Officer received 5,565 units. The units will vest on the third anniversary of the grant date.

Grants of Restricted Stock and Options

On February 16, 2016, 1,350 shares of stock options were exercised at $21.48 per share by one former Riverside Bank executive.

On January 29, 2016, Salisbury granted a total of 15,800 shares of restricted stock pursuant to its 2011 Long Term Incentive Plan, which was approved by shareholders at the 2011 Annual Meeting, to 42 employees, including 6,000 shares to three Named Executive Officers. Richard J. Cantele, Jr., President and Chief Executive Officer received 5,000 and John Davies, President New York Region and Chief Lending Officer and Donald E. White, Chief Financial Officer each received 500 shares. The fair value of all such stock as of the grant date was determined to be $466,000 and the stock will be vested three years from the grant date. On July 29, 2016, the Board of Directors approved the accelerated vesting of 200 shares for a recently retired employee.  

On January 26, 2016, 2,700 shares of stock options were exercised at $21.48 per share by two former Riverside Bank executives.

On February 17, 2015 and February 25, 2015, 1,350 and 5,400 shares of stock options were exercised, respectively, at $18.52 per share by two former Riverside Bank executives.

On September 28, 2015, 2,700 shares of stock options were exercised at $21.48 per share by one former Riverside Bank executive.

On March 27, 2015, Salisbury granted a total of 1,000 shares of restricted stock, pursuant to its 2011 Long Term Incentive Plan, to one (1) Named Executive Officer, Richard J. Cantele, Jr., President and Chief Executive Officer. The fair value of the stock as of the grant date was determined to be $29,000 and the stock vested immediately.

Expense related to such grants in the three months ended September 30, 2016 and 2015 totaled $57,000 and $52,000, respectively, and for the nine months ended September 30, 2016 and 2015 totaled $164,000 and $167,000, respectively. Unrecognized compensation cost relating to the awards as of September 30, 2016 and 2015 totaled $431,000 and $186,000, respectively. There were 100 shares forfeited in the nine months ended September 30, 2016 and a total of 300 shares were forfeited in the nine months ended September 30, 2015.

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ACCUMULATED OTHER COMPREHENSIVE INCOME

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

NOTE 9 –ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income are as follows:

(in thousands)		September 30, 2016		December 31, 2015
Unrealized gains on securities available-for-sale, net of tax	$	883	$	1,125
Accumulated other comprehensive income, net	$	883	$	1,125

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FAIR VALUE OF ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

FAIR VALUE ASSETS AND LIABILITIES

NOTE 10 – FAIR VALUE OF ASSETS AND LIABILITIES

Salisbury uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, other assets are recorded at fair value on a nonrecurring basis, such as loans held for sale, collateral dependent impaired loans, property acquired through foreclosure or repossession and mortgage servicing rights. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

Accounting Standards Codification (ASC) 820-10, “Fair Value Measurement-Overall,” provides a framework for measuring fair value under generally accepted accounting principles. This guidance permitted Salisbury the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. Salisbury did not elect fair value treatment for any financial assets or liabilities upon adoption.

In accordance with ASC 820-10, Salisbury groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

GAAP specifies a hierarchy of valuation techniques based on whether the types of valuation information (“inputs”) are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Salisbury’s market assumptions. These two types of inputs have created the following fair value hierarchy:

• Level 1. Quoted prices in active markets for identical assets. Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2. Significant other observable inputs. Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

• Level 3. Significant unobservable inputs. Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Salisbury did not have any significant transfers of assets between levels 1 and 2 of the fair value hierarchy during the quarter ended September 30, 2016.

The following is a description of valuation methodologies for assets recorded at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy.

• Securities available-for-sale. Securities available-for-sale are recorded at fair value on a recurring basis. Level 1 securities include exchange-traded equity securities. Level 2 securities include debt securities with quoted prices, which are traded less frequently than exchange-traded instruments, whose value is determined using matrix pricing with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes obligations of the U.S. Treasury and U.S. government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, municipal bonds, SBA bonds, corporate bonds and certain preferred equities. Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used. Subsequent to inception, management only changes level 3 inputs and assumptions when corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalization and other transactions across the capital structure, offerings in the equity or debt markets, and changes in financial ratios or cash flows.

• Collateral dependent loans that are deemed to be impaired are valued based upon the fair value of the underlying collateral less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may adjust appraised values to reflect estimated market value declines or apply other discounts to appraised values resulting from its knowledge of the property. Internal valuations are utilized to determine the fair value of other business assets. Collateral dependent impaired loans are categorized as Level 3.

• Other real estate owned acquired through foreclosure or repossession is adjusted to fair value less costs to sell upon transfer out of loans. Subsequently, it is carried at the lower of carrying value or fair value less costs to sell. Fair value is generally based upon independent market prices or appraised values of the collateral. Management adjusts appraised values to reflect estimated market value declines or apply other discounts to appraised values for unobservable factors resulting from its knowledge of the property, and such property is categorized as Level 3.

• Mortgage servicing assets are accounted for at cost, subject to impairment testing. When the carrying cost exceeds fair value, a valuation allowance is established to reduce the carrying cost to fair value. Fair value is calculated as the present value of estimated future net servicing income and relies on market based assumptions for loan prepayment speeds, servicing costs, discount rates, and other economic factors; as such, the primary risk inherent in valuing mortgage servicing assets is the impact of fluctuating interest rates on the servicing revenue stream. Mortgage servicing assets are classified within Level 2 of the fair value hierarchy.

Assets measured at fair value are as follows:

	Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair
							value
September 30, 2016
Assets at fair value on a recurring basis
Municipal bonds	$	—	$	18,604	$	—	$	18,604
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		48,176		—		48,176
Collateralized mortgage obligations:
U.S. Government agencies		—		1,604		—		1,604
Non-agency		—		4,032		—		4,032
SBA bonds		—		2,286		—		2,286
CRA mutual funds		—		838		—		838
Corporate bonds		—		1,020		—		1,020
Preferred stock		241		—		—		241
Securities available-for-sale	$	241	$	76,560	$	—	$	76,801
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		11,801		11,801
Mortgage servicing rights		—		962		—		962
December 31, 2015
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,541	$	—	$	2,541
U.S. Government agency notes		—		498		—		498
Municipal bonds		—		30,385		—		30,385
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		32,202		—		32,202
Collateralized mortgage obligations:
U.S. Government agencies		—		2,014		—		2,014
Non-agency		—		4,948		—		4,948
SBA bonds		—		3,096		—		3,096
CRA mutual funds		—		764		—		764
Preferred stock		246		—		—		246
Securities available-for-sale	$	246	$	76,448	$	—	$	76,694
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		15,211		15,211
Mortgage servicing rights		—		1,315		—		1,315

Carrying values and estimated fair values of financial instruments are as follows:

(in thousands)	Carrying		Estimated		Fair value measurements using
	value		fair value		Level 1		Level 2		Level 3
September 30, 2016
Financial Assets
Cash and cash equivalents	$	42,638	$	42,638	$	42,638	$	—	$	—
Securities available-for-sale		76,801		76,801		241		76,560		—
Federal Home Loan Bank stock		2,937		2,937		—		2,937		—
Loans held-for-sale		837		852		—		—		852
Loans receivable, net		753,623		765,433		—		—		765,433
Accrued interest receivable		2,260		2,260		2,260		—		—
Cash surrender value of life insurance		13,952		13,952		13,952		—		—
Mortgage servicing rights		359		962		—		962		—
Financial Liabilities
Demand (non-interest-bearing)	$	210,396	$	210,396	$	—	$	—	$	210,396
Demand (interest-bearing)		126,064		126,064		—		—		126,064
Money market		201,504		201,504		—		—		201,504
Savings and other		127,595		127,595		—		—		127,595
Certificates of deposit		121,171		122,448		—		—		122,448
Deposits		786,730		788,007		—		—		788,007
Repurchase agreements		3,581		3,581		—		—		3,581
FHLBB advances		27,134		28,004		—		—		28,004
Subordinated debt		9,782		10,432		—		—		10,432
Note payable		351		385		—		—		385
Capital lease liability		419		903		—		—		903
Accrued interest payable		275		275		275		—		—
December 31, 2015
Financial Assets
Cash and cash equivalents	$	62,118	$	62,118	$	62,118	$	—	$	—
Securities available-for-sale		76,694		76,694		246		76,448		—
Federal Home Loan Bank stock		3,176		3,176		—		3,176		—
Loans held-for-sale		763		778		—		—		778
Loans receivable, net		699,018		707,154		—		—		707,154
Accrued interest receivable		2,307		2,307		2,307		—		—
Cash surrender value of life insurance		13,685		13,685		13,685		—		—
Mortgage servicing rights		597		1,383		—		1,383		—
Financial Liabilities
Demand (non-interest-bearing)	$	201,340	$	201,340	$	—	$	—	$	201,340
Demand (interest-bearing)		125,465		125,465		—		—		125,465
Money market		183,783		183,783		—		—		183,783
Savings and other		119,651		119,651		—		—		119,651
Certificates of deposit		124,294		125,437		—		—		125,437
Deposits		754,533		755,676		—		—		755,676
Repurchase agreements		3,914		3,914		—		—		3,914
FHLBB advances		26,979		28,559		—		—		28,559
Subordinated debt		9,764		9,764		—		—		9,764
Note payable		376		405		—		—		405
Capital lease liability		422		870		—		—		870
Accrued interest payable		150		150		150		—		—

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions. 

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SUBSEQUENT EVENT

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENT

NOTE 11 – SUBSEQUENT EVENT

On October 28, 2016, the Board of Directors of Salisbury declared a common stock dividend of $0.28 per common share payable on November 25, 2016 to shareholders of record on November 11, 2016.

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BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Impact of New Accounting Pronouncements Issued

Impact of New Accounting Pronouncements Issued

In January 2016, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) No. 2016-01, Financial Instruments – overall (subtopic 825-10): "Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. Salisbury does not expect ASU No. 2016-01 to have a material impact on its Consolidated Financial Statements; however, Salisbury will continue to closely monitor developments and additional guidance.

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. Salisbury is currently evaluating this ASU to determine the impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation–Stock Compensation (Topic 718): "Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. Salisbury is currently evaluating the provisions of ASU No. 2016-09 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. The guidance in ASU 2016-13 is effective for “public business entities,” as defined, that are SEC filers for fiscal years and for interim periods with those fiscal years beginning after December 15, 2019. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Salisbury is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on Salisbury’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments." This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU No. 2016-15 is not expected to have a material impact on Salisbury’s Consolidated Financial Statements.

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Composition of Securities

(in thousands)	Amortized cost (1)			Gross un- realized gains			Gross un- realized losses				Fair Value
September 30, 2016
Available-for-sale
Municipal bonds		$	18,252		$	352		$	—			$	18,604
Mortgage-backed securities
U.S. Government agencies and U.S. Government-sponsored enterprises			47,881			372			(77	)			48,176
Collateralized mortgage obligations
U.S. Government agencies			1,596			8			—				1,604
Non-agency			3,619			418			(5	)			4,032
SBA bonds			2,268			18			—				2,286
CRA mutual funds			828			10			—				838
Corporate bonds			1,000			20			—				1,020
Preferred stock			20			221			—				241
Total securities available-for-sale		$	75,464		$	1,419		$	(82	)		$	76,801
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	2,937		$	—		$	—			$	2,937

(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.

Aggreggate fair value and gross unrealized loss of securities

(in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
September 30, 2016
Available-for-sale
Mortgage-backed securities	$	27,770	$	(71	)	$	310	$	(6	)	$	28,080	$	(77	)
Collateralized mortgage obligations:
Non-agency		203		(1	)		175		(4	)		378		(5	)
Total temporarily impaired  securities	$	27,973	$	(72	)	$	485	$	(10	)	$	28,458	$	(82	)

(in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
December 31, 2015
Available-for-sale
Mortgage-backed securities	$	14,750	$	(83	)	$	53	$	—		$	14,803	$	(83	)
Collateralized mortgage obligations:
Non-agency		237		—			226		(7	)		463		(7	)
CRA mutual funds		764		(2	)		—		—			764		(2	)
Total temporarily impaired  securities	$	15,751	$	(85	)	$	279	$	(7	)	$	16,030	$	(92	)

Activity related to credit losses recognized into earnings

Nine months ended September 30 (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

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LOANS (Tables)

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Composition of loans receivable and loans held-for-sale

	September 30, 2016									December 31, 2015
(In thousands)	Business Activities  Loans			Acquired Loans			Total			Business Activities  Loans			Acquired Loans			Total
Residential 1-4 family	$	286,663		$	7,022		$	293,685		$	261,495		$	7,799		$	269,294
Residential 5+ multifamily		7,690			5,864			13,554			6,411			6,136			12,547
Construction of residential 1-4 family		9,824			—			9,824			7,998			—			7,998
Home equity lines of credit		35,470			—			35,470			35,017			—			35,017
Residential real estate		339,647			12,886			352,533			310,921			13,935			324,856
Commercial		162,602			81,741			244,343			129,446			88,829			218,275
Construction of commercial		4,066			2,139			6,205			6,525			4,874			11,399
Commercial real estate		166,668			83,880			250,548			135,971			93,703			229,674
Farm land		4,033			—			4,033			3,193			—			3,193
Vacant land		5,830			—			5,830			8,563			—			8,563
Real estate secured		516,178			96,766			612,944			458,648			107,638			566,286
Commercial and industrial		101,146			30,009			131,155			74,657			46,764			121,421
Municipal		8,475			—			8,475			9,566			—			9,566
Consumer		5,593			68			5,661			6,195			77			6,272
Loans receivable, gross		631,392			126,843			758,235			549,066			154,479			703,545
Deferred loan origination costs, net		1,280			—			1,280			1,189			—			1,189
Allowance for loan losses		(5,613	)		(279	)		(5,892	)		(5,481	)		(235	)		(5,716	)
Loans receivable, net	$	627,059		$	126,564		$	753,623		$	544,774		$	154,244		$	699,018
Loans held-for-sale
Residential 1-4 family	$	837		$	—		$	837		$	763		$	—		$	763

Composition of loans receivable by risk rating grade

Business Activities Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
September 30, 2016
Residential 1-4 family	$	276,508	$	6,111	$	3,955	$	89	$	—	$	286,663
Residential 5+ multifamily		5,611		1,912		167		—		—		7,690
Construction of residential 1-4 family		9,824		—		—		—		—		9,824
Home equity lines of credit		34,102		528		840		—		—		35,470
Residential real estate		326,045		8,551		4,962		89		—		339,647
Commercial		152,026		3,541		7,035		—		—		162,602
Construction of commercial		3,949		—		117		—		—		4,066
Commercial real estate		155,975		3,541		7,152		—		—		166,668
Farm land		3,025		—		1,008		—		—		4,033
Vacant land		5,739		63		28		—		—		5,830
Real estate secured		490,784		12,155		13,150		89		—		516,178
Commercial and industrial		98,795		1,716		635		—		—		101,146
Municipal		8,475		—		—		—		—		8,475
Consumer		5,566		27		—		—		—		5,593
Loans receivable, gross	$	603,620	$	13,898	$	13,785	$	89	$	—	$	631,392

Acquired Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
September 30, 2016
Residential 1-4 family	$	6,133	$	110	$	779	$	—	$	—	$	7,022
Residential 5+ multifamily		5,741		—		123		—		—		5,864
Construction of residential 1-4 family		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Residential real estate		11,874		110		902		—		—		12,886
Commercial		72,288		4,082		5,371		—		—		81,741
Construction of commercial		1,881		—		258		—		—		2,139
Commercial real estate		74,169		4,082		5,629		—		—		83,880
Farm land		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—
Real estate secured		86,043		4,192		6,531		—		—		96,766
Commercial and industrial		28,566		1,238		205		—		—		30,009
Municipal		—		—		—		—		—		—
Consumer		65		3		—		—		—		68
Loans receivable, gross	$	114,674	$	5,433	$	6,736	$	—	$	—	$	126,843

Business Activities Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Residential 1-4 family	$	248,027	$	6,933	$	6,444	$	91	$	—	$	261,495
Residential 5+ multifamily		4,507		1,815		89		—		—		6,411
Construction of residential 1-4 family		7,111		887		—		—		—		7,998
Home equity lines of credit		33,687		545		785		—		—		35,017
Residential real estate		293,332		10,180		7,318		91		—		310,921
Commercial		120,903		4,801		3,742		—		—		129,446
Construction of commercial		6,525		—		—		—		—		6,525
Commercial real estate		127,428		4,801		3,742		—		—		135,971
Farm land		2,162		—		1,031		—		—		3,193
Vacant land		5,567		69		2,927		—		—		8,563
Real estate secured		428,489		15,050		15,018		91		—		458,648
Commercial and industrial		72,887		1,214		555		1		—		74,657
Municipal		9,566		—		—		—		—		9,566
Consumer		6,171		18		6		—		—		6,195
Loans receivable, gross	$	517,113	$	16,282	$	15,579	$	92	$	—	$	549,066

Acquired Loans

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2015
Residential 1-4 family	$	6,824	$	199	$	776	$	—	$	—	$	7,799
Residential 5+ multifamily		6,136		—		—		—		—		6,136
Construction of residential 1-4 family		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—
Residential real estate		12,960		199		776		—		—		13,935
Commercial		80,406		4,005		4,418		—		—		88,829
Construction of commercial		4,612		—		262		—		—		4,874
Commercial real estate		85,018		4,005		4,680		—		—		93,703
Farm land		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—
Real estate secured		97,978		4,204		5,456		—		—		107,638
Commercial and industrial		45,363		875		443		83		—		46,764
Municipal		—		—		—		—		—		—
Consumer		71		6		—		—		—		77
Loans receivable, gross	$	143,412	$	5,085	$	5,899	$	83	$	—	$	154,479

Composition of loans receivable by delinquency status

Business Activities Loans

			Past due
												180		30
(in thousands)	Current			1-29		30-59		60-89		90-179		days		days			Accruing		Non-
				days		days		days		days		and		and		90 days			accrual
												over		over		and over
September 30, 2016
Residential 1-4 family	$	281,558		$	1,892	$	313	$	679	$	74	$	2,147	$	3,213		$	—	$	3,017
Residential 5+ multifamily		7,690			—		—		—		—		—		—			—		167
Construction of residential 1-4 family		9,824			—		—		—		—		—		—			—		—
Home equity lines of credit		34,949			69		151		90		54		157		452			—		681
Residential real estate		334,021			1,961		464		769		128		2,304		3,665			—		3,865
Commercial		158,272			1,251		1,917		252		—		910		3,079			—		2,993
Construction of commercial		4,066			—		—		—		—		—		—			—		—
Commercial real estate		162,338			1,251		1,917		252		—		910		3,079			—		2,993
Farm land		2,514			795		—		—		—		724		724			—		1,009
Vacant land		5,784			46		—		—		—		—		—			—		28
Real estate secured		504,657			4,053		2,381		1,021		128		3,938		7,468			—		7,895
Commercial and industrial		99,230			1,105		627		161		—		23		811			—		23
Municipal		8,475			—		—		—		—		—		—			—		—
Consumer		5,555			19		9		10		—		—		19			—		—
Loans receivable, gross	$	617,917		$	5,177	$	3,017	$	1,192	$	128	$	3,961	$	8,298		$	—	$	7,918

Acquired Loans

September 30, 2016
Residential 1-4 family	$	5,961	$	282	$	—	$	—	$	—	$	779	$	779	$	—	$	779
Residential 5+ multifamily		5,299		—		442		—		—		123		565		—		123
Construction of residential 1-4 family		—		—		—		—		—		—		—		—		—
Home equity credit lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		11,260		282		442		—		—		902		1344		—		902
Commercial		74,978		2,695		1,503		—		974		1,591		4,068		365		2,199
Construction of commercial		1,881		—		—		—		—		258		258		—		258
Commercial real estate		76,859		2,695		1,503		—		974		1,849		4,326		365		2,457
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		88,119		2,977		1,945		—		974		2,751		5,670		365		3,359
Commercial and industrial		27,711		622		543		1,103		30		—		1,676		30		—
Municipal		—		—		—		—		—		—		—		—		—
Consumer		68		—		—		—		—		—		—		—		—
Loans receivable, gross	$	115,898	$	3,599	$	2,488	$	1,103	$	1,004	$	2,751	$	7,346	$	395	$	3,359

Business Activities Loans

			Past due
												180		30
(in thousands)	Current			1-29		30-59		60-89		90-179		days		days			Accruing		Non-
				days		days		days		days		and		and		90 days			accrual
												over		over		and over
December 30, 2015
Residential 1-4 family	$	254,152		$	1,781	$	1,931	$	683	$	973	$	1,975	$	5,562		$	—	$	5,671
Residential 5+ multifamily		6,254			—		68		—		—		89		157			—		89
Construction of residential 1-4 family		7,826			172		—		—		—		—		—			—		—
Home equity lines of credit		33,744			363		306		101		113		390		910			—		601
Residential real estate		301,976			2,316		2,305		784		1,086		2,454		6,629			—		6,361
Commercial		126,440			1,618		474		—		233		681		1,388			—		2,349
Construction of commercial		6,525			—		—		—		—		—		—			—		—
Commercial real estate		132,965			1,618		474		—		233		681		1,388			—		2,349
Farm land		2,172			298		—		—		—		723		723			—		1,031
Vacant land		5,734			—		6		—		—		2,823		2,829			—		2,855
Real estate secured		442,847			4,232		2,785		784		1,319		6,681		11,569			—		12,596
Commercial and industrial		73,698			906		35		—		—		18		53			—		461
Municipal		9,566			—		—		—		—		—		—			—		—
Consumer		6,096			61		21		17		—		—		38			—		80
Loans receivable, gross	$	532,207		$	5,199	$	2,841	$	801	$	1,319	$	6,699	$	11,660		$	—	$	13,137

Acquired Loans

December 30, 2015
Residential 1-4 family	$	6,823	$	—	$	—	$	110	$	—	$	866	$	976	$	90	$	776
Residential 5+ multifamily		6,136		—		—		—		—		—		—		—		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		12,959		—		—		110		—		866		976		90		776
Commercial		81,140		4,848		916		—		—		1,925		2,841		—		2,000
Construction of commercial		4,612		—		—		—		—		262		262		—		262
Commercial real estate		85,752		4,848		916		—		—		2,187		3,103		—		2,262
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		98,711		4,848		916		110		—		3,053		4,079		90		3,038
Commercial and industrial		46,128		471		83		82		—		—		165		—		—
Municipal		—		—		—		—		—		—		—		—		—
Consumer		77		—		—		—		—		—		—		—		—
Loans receivable, gross	$	144,916	$	5,319	$	999	$	192	$	—	$	3,053	$	4,244	$	90	$	3,038

Troubled debt restructurings

Business Activities Loans

	Nine months ended
	September 30, 2016						September 30, 2015
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		4	$	683	$	683		2	$	923	$	923
Commercial real estate		2		2,123		2,123		1		294		294
Home equity lines of credit		—		—		—		1		35		35
Troubled debt restructurings		6	$	2,806	$	2,806		4		1,252		1,252
Rate reduction and term extension		1	$	174	$	174		1	$	294	$	294
Interest only and term extension		—		—		—		—		—		—
Debt consolidation		1		1,863		1,863		—		—		—
Debt consolidation and term extension		1		260		260		—		—		—
Note bifurcation		—		—		—		1		48		48
Term extension		3		509		509		2		910		910
Troubled debt restructurings		6	$	2,806	$	2,806		4		1,252		1,252

Acquired Loans

	Nine months ended
	September 30, 2016						September 30, 2015
(in thousands)	Quantity		Pre- modification balance		Post- modification balance		Quantity		Pre- modification balance		Post- modification balance
Residential real estate		1	$	88	$	88		—	$	—	$	—
Commercial real estate		—		—		—		1		184		184
Home equity lines of credit		—		—		—		—		—		—
Troubled debt restructurings		1	$	88	$	88		1	$	184	$	184
Rate reduction and term extension		1	$	88	$	88		1	$	184	$	184
Interest only and term extension		—		—		—		—		—		—
Interest only		—		—		—		—		—		—
Debt consolidation and term extension		—		—		—		—		—		—
Term extension		—		—		—		—		—		—
Troubled debt restructurings		1	$	88	$	88		1	$	184	$	184

Changes in allowance for loan losses

	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended September 30, 2016												Three months ended September 30, 2016
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,248	$	224		$	(155	)	$	8	$	2,325	$	69	$	5		$	—		$	—	$	74
Commercial		1,734		29			(1	)		—		1,762		134		37			—			—		171
Land		166		82			(42	)		—		206		—		—			—			—		—
Real estate		4,148		335			(198	)		8		4,293		203		42			—			—		245
Commercial and industrial		851		(16	)		(2	)		25		858		37		(11	)		—			8		34
Municipal		56		(3	)		—			—		53		—		—			—			—		—
Consumer		89		17			(17	)		5		94		—		—			—			—		—
Unallocated		334		(19	)		—			—		315		—		—			—			—		—
Totals	$	5,478	$	314		$	(217	)	$	38	$	5,613	$	240	$	31		$	—		$	8	$	279
	Business Activities Loans												Acquired Loans
(in thousands)	Nine months ended September 30, 2016												Nine months ended September 30, 2016
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,477	$	370		$	(550	)	$	28	$	2,325	$	79	$	(5	)	$	—		$	—	$	74
Commercial		1,466		332			(37	)		1		1,762		132		133			(98	)		4		171
Land		188		106			(88	)		—		206		—		—			—			—		—
Real estate		4,131		808			(675	)		29		4,293		211		128			(98	)		4		245
Commercial and industrial		683		167			(32	)		40		858		24		403			(416	)		23		34
Municipal		61		(8	)		—			—		53		—		—			—			—		—
Consumer		124		1			(46	)		15		94		—		—			—			—		—
Unallocated		482		(167	)		—			—		315		—		—			—			—		—
Totals	$	5,481	$	801		$	(753	)	$	84	$	5,613	$	235	$	531		$	(514	)	$	27	$	279
	Business Activities Loans												Acquired Loans
(in thousands)	Three months ended September 30, 2015												Three months ended September 30, 2015
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,147	$	632		$	(92	)	$	111	$	2,798	$	15	$	55		$	—		$	—	$	70
Commercial		1,339		(102	)		(10	)		—		1,227		77		81			—			5		163
Land		182		168			(72	)		—		278		—		—			—			—		—
Real estate		3,668		698			(174	)		111		4,303		92		136			—			5		233
Commercial and industrial		691		(197	)		—			4		498		52		(22	)		—			10		40
Municipal		64		(16	)		—			—		48		—		—			—			—		—
Consumer		123		1			(17	)		6		113		—		—			—			—		—
Unallocated		369		55			—			—		424		—		—			—			—		—
Totals	$	4,915	$	541		$	(191	)	$	121	$	5,386	$	144	$	114		$	—		$	15	$	273
	Business Activities Loans												Acquired Loans
(in thousands)	Nine months ended September 30, 2015												Nine months ended September 30, 2015
	Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance		Beginning balance		Provision			Charge- offs			Reco- veries		Ending balance
Residential	$	2,306	$	952		$	(573	)	$	113	$	2,798	$	—	$	70		$	—		$	—	$	70
Commercial		1,697		(256	)		(214	)		—		1,227		7		151			—			5		163
Land		164		186			(72	)		—		278		—		—			—			—		—
Real estate		4,167		882			(859	)		113		4,303		7		221			—			5		233
Commercial and industrial		583		(484	)		(56	)		455		498		14		—			—			26		40
Municipal		61		(13	)		—			—		48		—		—			—			—		—
Consumer		117		30			(47	)		13		113		—		—			—			—		—
Unallocated		409		15			—			—		424		—		—			—			—		—
Totals	$	5,337	$	430		$	(962	)	$	581	$	5,386	$	21	$	221		$	—		$	31	$	273

Composition of loans receivable and allowance for loan losses

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2016
Residential 1-4 family	$	280,711	$	1,698	$	5,952	$	147	$	286,663	$	1,845
Residential 5+ multifamily		5,860		54		1,830		—		7,690		54
Construction of residential 1-4 family		9,824		85		—		—		9,824		85
Home equity lines of credit		34,674		324		796		17		35,470		341
Residential real estate		331,069		2,161		8,578		164		339,647		2,325
Commercial		158,185		1,646		4,417		69		162,602		1,715
Construction of commercial		3,949		48		117		—		4,066		48
Commercial real estate		162,134		1,694		4,534		69		166,668		1,763
Farm land		3,025		27		1,008		9		4,033		36
Vacant land		5,589		166		241		4		5,830		170
Real estate secured		501,817		4,048		14,361		246		516,178		4,294
Commercial and industrial		101,063		853		83		4		101,146		857
Municipal		8,475		53		—		—		8,475		53
Consumer		5,593		94		—		—		5,593		94
Unallocated allowance		—		315		—		—		—		315
Totals	$	616,948	$	5,363	$	14,444	$	250	$	631,392	$	5,613

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
September 30, 2016
Residential 1-4 family	$	6,244	$	—	$	779	$	74	$	—	$	—	$	7,023	$	74
Residential 5+ multifamily		5,741		—		123		—		—		—		5,864		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		11,985		—		902		74		—		—		12,887		74
Commercial		74,858		22		2,955		82		3,928		64		81,741		168
Construction of commercial		1,881		3		258		—		—		—		2,139		3
Commercial real estate		76,739		25		3,213		82		3,928		64		83,880		171
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		88,724		25		4,115		156		3,928		64		96,767		245
Commercial and industrial		29,676		26		—		—		332		8		30,008		34
Municipal		—		—		—		—		—		—		—		—
Consumer		52		—		—		—		16		—		68		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	118,452	$	51	$	4,115	$	156	$	4,276	$	72	$	126,843	$	279

Business Activities Loans

(in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2015
Residential 1-4 family	$	253,156	$	1,415	$	8,339	$	610	$	261,495	$	2,025
Residential 5+ multifamily		4,640		33		1,771		—		6,411		33
Construction of residential 1-4 family		7,998		65		—		—		7,998		65
Home equity lines of credit		34,298		286		719		68		35,017		354
Residential real estate		300,092		1,799		10,829		678		310,921		2,477
Commercial		125,173		1,265		4,273		113		129,446		1,378
Construction of commercial		6,403		87		122		1		6,525		88
Commercial real estate		131,576		1,352		4,395		114		135,971		1,466
Farm land		2,162		23		1,031		14		3,193		37
Vacant land		5,486		122		3,077		29		8,563		151
Real estate secured		439,316		3,296		19,332		835		458,648		4,131
Commercial and industrial		74,131		673		526		10		74,657		683
Municipal		9,566		61		—		—		9,566		61
Consumer		6,115		124		80		—		6,195		124
Unallocated allowance		—		482		—		—		—		482
Totals	$	529,128	$	4,636	$	19,938	$	845	$	549,066	$	5,481

Acquired Loans

(in thousands)	Collectively evaluated				Individually evaluated				ASC 310-30 loans				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2015
Residential 1-4 family	$	7,023	$	—	$	776	$	79	$	—	$	—	$	7,799	$	79
Residential 5+ multifamily		6,136		—		—		—		—		—		6,136		—
Construction of residential 1-4 family		—		—		—		—		—		—		—		—
Home equity lines of credit		—		—		—		—		—		—		—		—
Residential real estate		13,159		—		776		79		—		—		13,935		79
Commercial		81,300		19		2,742		107		4,787		2		88,829		128
Construction of commercial		4,612		4		262		—		—		—		4,874		4
Commercial real estate		85,912		23		3,004		107		4,787		2		93,703		132
Farm land		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—
Real estate secured		99,071		23		3,780		186		4,787		2		107,638		211
Commercial and industrial		45,650		24		—		—		1,114		—		46,764		24
Municipal		—		—		—		—		—		—		—		—
Consumer		61		—		—		—		16		—		77		—
Unallocated allowance		—		—		—		—		—		—		—		—
Totals	$	144,782	$	47	$	3,780	$	186	$	5,917	$	2	$	154,479	$	235

Credit quality segments of loans receivable and allowance for loan losses

Business Activities Loans

September 30, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	612,039	$	4,849	$	—	$	—	$	612,039	$	4,849
Potential problem loans		4,909		200		—		—		4,909		200
Impaired loans		—		—		14,444		250		14,444		250
Unallocated allowance		—		315		—		—		—		315
Totals	$	616,948	$	5,364	$	14,444	$	250	$	631,392	$	5,614

Acquired Loans

September 30, 2016 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	120,106	$	70	$	—	$	—	$	120,106	$	70
Potential problem loans		2,622		53		—		—		2,622		53
Impaired loans		—		—		4,115		156		4,115		156
Totals	$	122,728	$	123	$	4,115	$	156	$	126,843	$	279

Business Activities Loans

December 30, 2015 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	527,905	$	4,110	$	—	$	—	$	527,905	$	4,110
Potential problem loans		1,223		44		—		—		1,223		44
Impaired loans		—		—		19,938		845		19,938		845
Unallocated allowance		—		482		—		—		—		482
Totals	$	529,128	$	4,636	$	19,938	$	845	$	549,066	$	5,481

Acquired Loans

December 30, 2015 (in thousands)	Collectively evaluated				Individually evaluated				Total portfolio
		Loans		Allowance		Loans		Allowance		Loans	Allowance
Performing loans	$	148,580	$	46	$	—	$	—	$	148,580	$	46
Potential problem loans		2,119		2		—		—		2,119		2
Impaired loans		—		—		3,780		187		3,780		187
Unallocated allowance		—		—		—		—		—		—
Totals	$	150,699	$	48	$	3,780	$	187	$	154,479	$	235

Certain data with respect to loans individually evaluated for impairment

Business Activities Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
September 30, 2016
Residential	$	5,530	$	6,080	$	6,418	$	147	$	72	$	2,252	$	2,409	$	2,683	$	69
Home equity lines of credit		410		436		463		17		1		386		419		346		5
Residential real estate		5,940		6,516		6,881		164		73		2,638		2,828		3,029		74
Commercial		3,568		3,958		3,393		69		73		849		1,106		996		17
Construction of commercial		—		—		72		—		—		117		123		47		5
Farm land		723		784		440		9		—		286		358		580		—
Vacant land		46		46		2,305		4		2		195		232		201		8
Real estate secured		10,277		11,304		13,091		246		148		4,085		4,647		4,853		104
Commercial and industrial		4		4		40		4		—		78		106		217		2
Consumer		—		—		—		—		—		—		—		8		—
Totals	$	10,281	$	11,308	$	13,131	$	250	$	148	$	4,163	$	4,753	$	5,078	$	106

Acquired Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
September 30, 2016
Residential 1-4 family	$	779	$	893	$	637	$	74	$	3	$	123	$	123	$	267	$	—
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		779		893		637		74		3		123		123		267		—
Commercial		1,146		1,557		577		82		111		1,809		2,268		2,085		158
Construction of commercial		—		—		—		—		—		258		272		259		—
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		1,925		2,450		1,214		156		114		2,190		2,663		2,611		158
Commercial and industrial		—		—		100		—		—		—		—		24		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	1,925	$	2,450	$	1,314	$	156	$	114	$	2,190	$	2,663	$	2,635	$	158

Business Activities Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
December 31, 2015
Residential 1-4 family	$	7,482	$	8,094	$	6,213	$	610	$	109	$	2,628	$	2,770	$	3,043	$	82
Home equity lines of credit		535		659		176		68		6		184		199		611		2
Residential real estate		8,017		8,753		6,389		678		115		2,812		2,969		3,654		84
Commercial		3,131		3,405		2,629		113		113		1,142		1,393		2,130		12
Construction of commercial		122		128		—		1		—		—		—		127		6
Farm land		733		773		445		14		—		298		352		270		15
Vacant land		2,870		3,836		3,058		29		2		207		241		5		7
Real estate secured		14,873		16,895		12,521		835		230		4,459		4,955		6,186		124
Commercial and industrial		95		98		120		10		8		431		481		464		7
Consumer		—		—		—		—		—		80		108		—		—
Totals	$	14,968	$	16,993	$	12,641	$	845	$	238	$	4,970	$	5,544	$	6,650	$	131

Acquired Loans

	Impaired loans with specific allowance										Impaired loans with no specific allowance
(in thousands)	Loan balance							Specific		Income	Loan balance							Income
		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
December 31, 2015
Residential 1-4 family	$	599	$	716	$	176	$	79	$	—	$	177	$	177	$	436	$	4
Home equity lines of credit		—		—		—		—		—		—		—		—		—
Residential real estate		599		716		176		79		—		177		177		436		4
Commercial		675		826		557		107		61		2,067		2,843		2,097		10
Construction of commercial		—		—		—		—		—		262		273		138		16
Farm land		—		—		—		—		—		—		—		—		—
Vacant land		—		—		—		—		—		—		—		—		—
Real estate secured		1,274		1,542		733		186		61		2,506		3,293		2,671		30
Commercial and industrial		—		—		4		—		1		—		4		—		—
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	1,274	$	1,542	$	737	$	186	$	62	$	2,506	$	3,297	$	2,671	$	30

(1) The table above reflects the book, note and specific allowance as of December 31, 2015, while the average balances and income recognized are for the nine months ended September 30, 2015.

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MORTGAGE SERVICING RIGHTS (Tables)

9 Months Ended

Sep. 30, 2016

Mortgage Loans on Real Estate [Abstract]

Balance of loans serviced for others and fair value of mortgage servicing rights

September 30, (in thousands)		2016		2015
Residential mortgage loans serviced for others	$	125,988	$	132,201
Fair value of mortgage servicing rights		962		1,429

Changes in mortgage servicing rights

		Three months						Nine months
Periods ended September 30, (in thousands)		2016			2015			2016			2015
Mortgage Servicing Rights
Balance, beginning of period	$	416		$	599		$	487		$	694
Originated		27			22			71			124
Amortization (1)		(67	)		(86	)		(182	)		(282	)
Balance, end of period		376			535			376			536
Valuation Allowance
Balance, beginning of period		(25	)		(2	)		(4	)		1
(Increase) decrease in impairment reserve (1)		8			2			(13	)		(2	)
Balance, end of period		(17	)		—			(17	)		(1	)
Loan servicing rights, net	$	359		$	535		$	359		$	535

(1) Amortization expense and changes in the impairment reserve are recorded in mortgage servicing, net.

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PLEDGED ASSETS (Tables)

9 Months Ended

Sep. 30, 2016

Guarantees [Abstract]

Securities and loans pledged to secure public and trust deposits, securities sold under agreements to repurchase, FHLBB advances and credit facilities available

(in thousands)		September 30, 2016		December 31, 2015
Securities available-for-sale (at fair value)	$	65,357	$	67,750
Loans receivable		196,077		153,269
Total pledged assets	$	261,434	$	221,019

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Computation of earnings per share

		Three months						Nine months
Periods ended September 30, (in thousands, except share and per share data)		2016			2015			2016			2015
Net income	$	1,922		$	1,985		$	5,165		$	6,290
Less: Preferred stock dividends declared		—			(40	)		—			(120	)
Net income available to common shareholders		1,922			1,945			5,165			6,170
Less: Undistributed earnings allocated to participating securities		(15	)		(17	)		(41	)		(54	)
Net income allocated to common stock	$	1,907		$	1,928		$	5,124		$	6,116
Weighted-average common shares issued		2,758			2,731			2,754			2,728
Less: Unvested restricted stock awards		(21	)		(24	)		(22	)		(24	)
Weighted-average common shares outstanding used to calculate basic earnings per common share		2,737			2,707			2,732			2,704
Add: Dilutive effect of stock options		14			17			15			17
Weighted-average common shares outstanding used to calculate diluted earnings per common share		2,751			2,724			2,747			2,721
Earnings per common share (basic)	$	0.70		$	0.71		$	1.88		$	2.26
Earnings per common share (diluted)	$	0.69		$	0.71		$	1.87		$	2.25

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SHAREHOLDERS' EQUITY (Tables)

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Actual regulatory capital position and minimum capital requirements

											To be Well Capitalized
	Actual					For Capital Adequacy Purposes					Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2016
Total Capital (to risk-weighted assets)
Salisbury	$	94,948		13.25	%	$	57,330		8.0	%		n/a		—
Bank		92,739		12.94			57,330		8.0			71,662		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		78,875		11.01			42,997		6.0			n/a		—
Bank		86,666		12.09			42,997		6.0			57,329		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		78,875		11.01			41,868		4.5			n/a		—
Bank		86,666		12.09			41,871		4.5			60,481		6.5
Tier 1 Capital (to average assets)
Salisbury		78,875		8.47			37,216		4.0			n/a		—
Bank		86,666		9.30			37,219		4.0			46,524		5.0
December 31, 2015
Total Capital (to risk-weighted assets)
Salisbury	$	92,030		13.51	%	$	54,509		8.0	%		n/a		—
Bank		89,249		13.10			54,504		8.0		$	68,131		10.0	%
Tier 1 Capital (to risk-weighted assets)
Salisbury		76,120		11.17			40,878		6.0			n/a		—
Bank		83,340		12.23			40,878		6.0			54,504		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)
Salisbury		76,120		11.17			30,659		4.5			n/a		—
Bank		83,340		12.23			30,659		4.5			44,285		6.5
Tier 1 Capital (to average assets)
Salisbury		76,120		8.56			36,102		4.0			n/a		—
Bank		83,340		9.37			35,593		4.0			44,491		5.0

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Components of accumulated other comprehensive income

(in thousands)		September 30, 2016		December 31, 2015
Unrealized gains on securities available-for-sale, net of tax	$	883	$	1,125
Accumulated other comprehensive income, net	$	883	$	1,125

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FAIR VALUE OF ASSETS AND LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Assets measured at fair value

	Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair
							value
September 30, 2016
Assets at fair value on a recurring basis
Municipal bonds	$	—	$	18,604	$	—	$	18,604
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		48,176		—		48,176
Collateralized mortgage obligations:
U.S. Government agencies		—		1,604		—		1,604
Non-agency		—		4,032		—		4,032
SBA bonds		—		2,286		—		2,286
CRA mutual funds		—		838		—		838
Corporate bonds		—		1,020		—		1,020
Preferred stock		241		—		—		241
Securities available-for-sale	$	241	$	76,560	$	—	$	76,801
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		11,801		11,801
Mortgage servicing rights		—		962		—		962
December 31, 2015
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,541	$	—	$	2,541
U.S. Government agency notes		—		498		—		498
Municipal bonds		—		30,385		—		30,385
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		32,202		—		32,202
Collateralized mortgage obligations:
U.S. Government agencies		—		2,014		—		2,014
Non-agency		—		4,948		—		4,948
SBA bonds		—		3,096		—		3,096
CRA mutual funds		—		764		—		764
Preferred stock		246		—		—		246
Securities available-for-sale	$	246	$	76,448	$	—	$	76,694
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		15,211		15,211
Mortgage servicing rights		—		1,315		—		1,315

Carrying value and estimated fair values of financial instruments

(in thousands)	Carrying		Estimated		Fair value measurements using
	value		fair value		Level 1		Level 2		Level 3
September 30, 2016
Financial Assets
Cash and cash equivalents	$	42,638	$	42,638	$	42,638	$	—	$	—
Securities available-for-sale		76,801		76,801		241		76,560		—
Federal Home Loan Bank stock		2,937		2,937		—		2,937		—
Loans held-for-sale		837		852		—		—		852
Loans receivable, net		753,623		765,433		—		—		765,433
Accrued interest receivable		2,260		2,260		2,260		—		—
Cash surrender value of life insurance		13,952		13,952		13,952		—		—
Mortgage servicing rights		359		962		—		962		—
Financial Liabilities
Demand (non-interest-bearing)	$	210,396	$	210,396	$	—	$	—	$	210,396
Demand (interest-bearing)		126,064		126,064		—		—		126,064
Money market		201,504		201,504		—		—		201,504
Savings and other		127,595		127,595		—		—		127,595
Certificates of deposit		121,171		122,448		—		—		122,448
Deposits		786,730		788,007		—		—		788,007
Repurchase agreements		3,581		3,581		—		—		3,581
FHLBB advances		27,134		28,004		—		—		28,004
Subordinated debt		9,782		10,432		—		—		10,432
Note payable		351		385		—		—		385
Capital lease liability		419		903		—		—		903
Accrued interest payable		275		275		275		—		—
December 31, 2015
Financial Assets
Cash and cash equivalents	$	62,118	$	62,118	$	62,118	$	—	$	—
Securities available-for-sale		76,694		76,694		246		76,448		—
Federal Home Loan Bank stock		3,176		3,176		—		3,176		—
Loans held-for-sale		763		778		—		—		778
Loans receivable, net		699,018		707,154		—		—		707,154
Accrued interest receivable		2,307		2,307		2,307		—		—
Cash surrender value of life insurance		13,685		13,685		13,685		—		—
Mortgage servicing rights		597		1,383		—		1,383		—
Financial Liabilities
Demand (non-interest-bearing)	$	201,340	$	201,340	$	—	$	—	$	201,340
Demand (interest-bearing)		125,465		125,465		—		—		125,465
Money market		183,783		183,783		—		—		183,783
Savings and other		119,651		119,651		—		—		119,651
Certificates of deposit		124,294		125,437		—		—		125,437
Deposits		754,533		755,676		—		—		755,676
Repurchase agreements		3,914		3,914		—		—		3,914
FHLBB advances		26,979		28,559		—		—		28,559
Subordinated debt		9,764		9,764		—		—		9,764
Note payable		376		405		—		—		405
Capital lease liability		422		870		—		—		870
Accrued interest payable		150		150		150		—		—

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SECURITIES - Composition of Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Amortized cost (1)
Available-for-sale
U.S. Treasury notes		$ 2,499
U.S. Government Agency notes		498
Municipal bonds	$ 18,252	29,752
Mortgage-backed securities, U.S. Government agencies and U.S. Government-sponsored enterprises	47,881	31,900
Collateralized mortgage obligations, U.S. Government Agencies	1,596	2,002
Collateralized mortgage obligations, Non-agency	3,619	4,487
SBA bonds	2,268	3,065
CRA mutual funds	828	766
Corporate bonds	1,000
Preferred stock	20	20
Total securities available-for-sale	75,464	74,989
Non-marketable securities
Federal Home Loan Bank of Boston stock	2,937	3,176
Gross unrealized gains
Available-for-sale
U.S. Treasury notes		42
U.S. Government Agency notes
Municipal bonds	352	633
Mortgage-backed securities, U.S. Government agencies and U.S. Government-sponsored enterprises	372	385
Collateralized mortgage obligations, U.S. Government Agencies	8	12
Collateralized mortgage obligations, Non-agency	418	468
SBA bonds	18	31
CRA mutual funds	10
Corporate bonds	20
Preferred stock	221	226
Total securities available-for-sale	1,419	1,797
Non-marketable securities
Federal Home Loan Bank of Boston stock
Gross unrealized losses
Available-for-sale
U.S. Treasury notes
U.S. Government Agency notes
Municipal bonds
Mortgage-backed securities, U.S. Government agencies and U.S. Government-sponsored enterprises	(77)	(83)
Collateralized mortgage obligations, U.S. Government Agencies
Collateralized mortgage obligations, Non-agency	(5)	(7)
SBA bonds
CRA mutual funds		(2)
Corporate bonds
Preferred stock
Total securities available-for-sale	(82)	(92)
Non-marketable securities
Federal Home Loan Bank of Boston stock
Fair value
Available-for-sale
U.S. Treasury notes		2,541
U.S. Government Agency notes		498
Municipal bonds	18,604	30,385
Mortgage-backed securities, U.S. Government agencies and U.S. Government-sponsored enterprises	48,176	32,202
Collateralized mortgage obligations, U.S. Government Agencies	1,604	2,014
Collateralized mortgage obligations, Non-agency	4,032	4,948
SBA bonds	2,286	3,096
CRA mutual funds	838	764
Corporate bonds	1,020
Preferred stock	241	246
Total securities available-for-sale	76,801	76,694
Non-marketable securities
Federal Home Loan Bank of Boston stock	$ 2,937	$ 3,176

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SECURITIES - Aggreggate fair value and gross unrealized loss of securities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Less Than 12 Months, Fair value
Available-for-sale
Mortgage-backed securities	$ 27,770	$ 14,750
Collateralized mortgage obligations, Non-agency	203	237
CRA mutual funds		764
Total temporarily impaired securities	27,973	15,751
Less Than 12 Months, Unrealized losses
Available-for-sale
Mortgage-backed securities	(71)	(83)
Collateralized mortgage obligations, Non-agency	(1)
CRA mutual funds		(2)
Total temporarily impaired securities	(72)	(85)
12 Months or Longer, Fair value
Available-for-sale
Mortgage-backed securities	310	53
Collateralized mortgage obligations, Non-agency	175	226
CRA mutual funds
Total temporarily impaired securities	485	279
12 Months or Longer, Unrealized losses
Available-for-sale
Mortgage-backed securities	(6)
Collateralized mortgage obligations, Non-agency	(4)	(7)
CRA mutual funds
Total temporarily impaired securities	(10)	(7)
Total, Fair value
Available-for-sale
Mortgage-backed securities	28,080	14,803
Collateralized mortgage obligations, Non-agency	378	463
CRA mutual funds		764
Total temporarily impaired securities	28,458	16,030
Total, Unrealized losses
Available-for-sale
Mortgage-backed securities	(77)	(83)
Collateralized mortgage obligations, Non-agency	(5)	(7)
CRA mutual funds		(2)
Total temporarily impaired securities	$ (82)	$ (92)

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SECURITIES - Activity related to credit losses recognized into earnings (Details) - Activity related to credit losses recognized into earnings - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 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

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SECURITIES (Details Narrative) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2009
Investments, Debt and Equity Securities [Abstract]
Available-for-sale securities sold	$ 3,600	$ 3,700
Recognized losses for deterioration in credit quality			$ 1,128

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LOANS - Composition of loans receivable and loans held-for-sale (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Business Activites Loans
Residential 1-4 family	$ 286,663	$ 261,495
Residential 5+ multifamily	7,690	6,411
Construction of residential 1-4 family	9,824	7,998
Home equity lines of credit	35,470	35,017
Residential real estate	339,647	310,921
Commercial	162,602	129,446
Construction of commercial	406	6,525
Commercial real estate	166,668	135,971
Farm land	4,033	3,193
Vacant land	5,830	8,563
Real estate secured	516,178	458,648
Commercial and industrial	101,146	74,657
Municipal	8,475	9,566
Consumer	5,593	6,195
Loans receivable, gross	631,392	549,066
Deferred loan origination fees and costs, net	1,280	1,189
Allowance for loan losses	(5,613)	(5,481)
Loans receivable, net	627,059	544,744
Loans held-for-sale
Residential 1-4 family	837	763
Acquired Loans
Residential 1-4 family	7,022	7,799
Residential 5+ multifamily	5,864	6,136
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	12,886	13,935
Commercial	81,741	88,829
Construction of commercial	2,139	4,874
Commercial real estate	83,880	93,703
Farm land
Vacant land
Real estate secured	96,766	107,638
Commercial and industrial	30,009	46,764
Municipal
Consumer	68	77
Loans receivable, gross	126,843	154,479
Deferred loan origination fees and costs, net
Allowance for loan losses	(279)	(235)
Loans receivable, net	126,564	154,244
Loans held-for-sale
Residential 1-4 family
Total
Residential 1-4 family	293,685	269,294
Residential 5+ multifamily	13,554	12,547
Construction of residential 1-4 family	9,824	7,998
Home equity lines of credit	35,470	35,017
Residential real estate	352,533	324,856
Commercial	244,343	218,275
Construction of commercial	6,205	11,399
Commercial real estate	250,548	229,674
Farm land	4,033	3,193
Vacant land	5,830	8,563
Real estate secured	612,944	566,286
Commercial and industrial	131,155	121,421
Municipal	8,475	9,566
Consumer	5,661	6,272
Loans receivable, gross	758,235	703,545
Deferred loan origination fees and costs, net	1,280	1,189
Allowance for loan losses	(5,892)	(5,716)
Loans receivable, net	753,623	699,018
Loans held-for-sale
Residential 1-4 family	$ 837	$ 763

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LOANS - Composition of loans receivable by risk rating grade (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Business Activities Loans - Pass
Residential 1-4 family	$ 276,508	$ 248,027
Residential 5+ multifamily	5,611	4,507
Construction of residential 1-4 family	9,824	7,111
Home equity lines of credit	34,102	33,687
Residential real estate	326,045	293,332
Commercial	152,026	120,903
Construction of commercial	3,949	6,525
Commercial real estate	155,975	127,428
Farm land	3,025	2,162
Vacant land	5,739	5,567
Real estate secured	490,784	428,489
Commercial and industrial	98,795	72,887
Municipal	8,475	9,566
Consumer	5,566	6,171
Loans receivable, gross	603,620	517,113
Business Activities Loans - Special mention
Residential 1-4 family	6,111	6,933
Residential 5+ multifamily	1,912	1,815
Construction of residential 1-4 family		887
Home equity lines of credit	528	545
Residential real estate	8,551	10,180
Commercial	3,541	4,801
Construction of commercial
Commercial real estate	3,541	4,801
Farm land
Vacant land	63	69
Real estate secured	12,155	15,050
Commercial and industrial	1,716	1,214
Municipal
Consumer	27	18
Loans receivable, gross	13,898	16,282
Business Activities Loans - Substandard
Residential 1-4 family	3,955	6,444
Residential 5+ multifamily	167	89
Construction of residential 1-4 family
Home equity lines of credit	840	785
Residential real estate	4,962	7,318
Commercial	7,035	3,742
Construction of commercial	117
Commercial real estate	7,152	3,742
Farm land	1,008	1,031
Vacant land	28	2,927
Real estate secured	13,150	15,018
Commercial and industrial	635	555
Municipal
Consumer		6
Loans receivable, gross	13,785	15,579
Business Activities Loans - Doubtful
Residential 1-4 family	89	91
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	89	91
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured	89	91
Commercial and industrial		1
Municipal
Consumer
Loans receivable, gross	89	92
Business Activities Loans - Loss
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured
Commercial and industrial
Municipal
Consumer
Loans receivable, gross
Business Activities Loans - Total
Residential 1-4 family	286,663	261,495
Residential 5+ multifamily	7,690	6,411
Construction of residential 1-4 family	9,824	7,998
Home equity lines of credit	35,470	35,017
Residential real estate	339,647	310,921
Commercial	162,602	129,446
Construction of commercial	4,066	6,525
Commercial real estate	166,668	135,971
Farm land	4,033	3,193
Vacant land	5,830	8,563
Real estate secured	516,178	458,648
Commercial and industrial	101,146	74,657
Municipal	8,475	9,566
Consumer	5,593	6,195
Loans receivable, gross	631,392	549,066
Acquired Loans - Pass
Residential 1-4 family	6,133	6,824
Residential 5+ multifamily	5,741	6,136
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	11,874	12,960
Commercial	72,288	80,406
Construction of commercial	1,881	4,612
Commercial real estate	74,169	85,018
Farm land
Vacant land
Real estate secured	86,043	97,978
Commercial and industrial	28,566	45,363
Municipal
Consumer	65	71
Loans receivable, gross	114,674	143,412
Acquired Loans - Special Mention
Residential 1-4 family	110	199
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	110	199
Commercial	4,082	4,005
Construction of commercial
Commercial real estate	4,082	4,005
Farm land
Vacant land
Real estate secured	4,192	4,204
Commercial and industrial	1,238	875
Municipal
Consumer	3	6
Loans receivable, gross	5,433	5,085
Acquired Loans - Substandard
Residential 1-4 family	779	776
Residential 5+ multifamily	123
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	902	776
Commercial	5,371	4,418
Construction of commercial	258	262
Commercial real estate	5,371	4,680
Farm land
Vacant land
Real estate secured	6,531	5,456
Commercial and industrial	205	443
Municipal
Consumer
Loans receivable, gross	6,736	5,899
Acquired Loans - Doubtful
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured
Commercial and industrial		83
Municipal
Consumer
Loans receivable, gross		83
Acquired Loans - Loss
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured
Commercial and industrial
Municipal
Consumer
Loans receivable, gross
Acquired Loans - Total
Residential 1-4 family	7,022	7,799
Residential 5+ multifamily	5,864	6,136
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	12,886	13,935
Commercial	81,741	88,829
Construction of commercial	2,139	4,874
Commercial real estate	81,741	93,703
Farm land
Vacant land
Real estate secured	96,766	107,638
Commercial and industrial	30,009	46,764
Municipal
Consumer	68	77
Loans receivable, gross	$ 126,843	$ 154,479

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LOANS - Composition of loans receivable by delinquency status (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Business Activities Loans - Current
Residential 1-4 family	$ 281,558	$ 254,152
Residential 5+ multifamily	7,690	6,254
Construction of residential 1-4 family	9,824	7,826
Home equity lines of credit	34,949	33,744
Residential real estate	334,021	301,976
Commercial	158,272	126,440
Construction of commercial	4,066	6,525
Commercial real estate	162,338	132,965
Farm land	2,514	2,172
Vacant land	5,784	5,734
Real estate secured	504,657	442,847
Commercial and industrial	99,230	73,698
Municipal	8,475	9,566
Consumer	5,555	6,096
Loans receivable, gross	617,917	532,207
Business Activities Loans - Past due 1-29 days
Residential 1-4 family	1,892	1,781
Residential 5+ multifamily
Construction of residential 1-4 family		172
Home equity lines of credit	69	363
Residential real estate	1,961	2,316
Commercial	1,251	1,618
Construction of commercial
Commercial real estate	1,251	1,618
Farm land	795	298
Vacant land	46
Real estate secured	4,053	4,232
Commercial and industrial	1,105	906
Municipal
Consumer	19	61
Loans receivable, gross	5,177	5,199
Business Activities Loans - Past due 30-59 days
Residential 1-4 family	313	1,931
Residential 5+ multifamily		68
Construction of residential 1-4 family
Home equity lines of credit	151	306
Residential real estate	464	2,305
Commercial	1,917	474
Construction of commercial
Commercial real estate	1,917	474
Farm land
Vacant land		6
Real estate secured	2,381	2,785
Commercial and industrial	627	35
Municipal
Consumer	9	21
Loans receivable, gross	3,017	2,841
Business Activities Loans - Past due 60-89 days
Residential 1-4 family	679	683
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit	90	101
Residential real estate	769	784
Commercial	252
Construction of commercial
Commercial real estate	252
Farm land
Vacant land
Real estate secured	1,021	784
Commercial and industrial	161
Municipal
Consumer	10	17
Loans receivable, gross	1,192	801
Business Activities Loans - Past due 90-179 days
Residential 1-4 family	74	973
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit	54	113
Residential real estate	128	1,086
Commercial		233
Construction of commercial
Commercial real estate		233
Farm land
Vacant land
Real estate secured	128	1,319
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	128	1,319
Business Activities Loans - Past due 180 days and over
Residential 1-4 family	2,147	1,975
Residential 5+ multifamily		89
Construction of residential 1-4 family
Home equity lines of credit	157	390
Residential real estate	2,304	2,454
Commercial	910	681
Construction of commercial
Commercial real estate	910	681
Farm land	724	723
Vacant land		2,823
Real estate secured	3,938	6,681
Commercial and industrial	23	18
Municipal
Consumer
Loans receivable, gross	3,961	6,699
Business Activities Loans - Past due 30 days and over
Residential 1-4 family	3,213	5,562
Residential 5+ multifamily		157
Construction of residential 1-4 family
Home equity lines of credit	452	910
Residential real estate	3,665	6,629
Commercial	3,079	1,388
Construction of commercial
Commercial real estate	3,079	1,388
Farm land	724	723
Vacant land		2,829
Real estate secured	7,468	11,569
Commercial and industrial	811	53
Municipal
Consumer	19
Loans receivable, gross	8,298	11,660
Business Activities Loans - Accruing 90 days and over
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured
Commercial and industrial
Municipal
Consumer
Loans receivable, gross
Business Activities Loans - Non-accrual
Residential 1-4 family	3,017	5,671
Residential 5+ multifamily	167	89
Construction of residential 1-4 family
Home equity lines of credit	681	601
Residential real estate	3,865	6,361
Commercial	2,993	2,349
Construction of commercial
Commercial real estate	2,993	2,349
Farm land	1,009	1,031
Vacant land	28	2,855
Real estate secured	7,895	12,596
Commercial and industrial	23	461
Municipal
Consumer		80
Loans receivable, gross	7,918	13,137
Acquired Loans - Current
Residential 1-4 family	5,961	6,823
Residential 5+ multifamily	5,299	6,136
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	11,260	12,959
Commercial	74,978	81,140
Construction of commercial	1,881	4,612
Commercial real estate	76,859	85,752
Farm land
Vacant land
Real estate secured	88,119	98,711
Commercial and industrial	27,711	46,128
Municipal
Consumer	68	77
Loans receivable, gross	115,898	144,916
Acquired Loans - Past due 1-29 days
Residential 1-4 family	282
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	282
Commercial	2,695	4,848
Construction of commercial
Commercial real estate	2,695	4,848
Farm land
Vacant land
Real estate secured	2,977	4,848
Commercial and industrial	622	471
Municipal
Consumer
Loans receivable, gross	3,599	5,319
Acquired Loans - Past due 30-59 days
Residential 1-4 family
Residential 5+ multifamily	442
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	442
Commercial	1,503	916
Construction of commercial
Commercial real estate	1,503	916
Farm land
Vacant land
Real estate secured	1,945	916
Commercial and industrial	543	83
Municipal
Consumer
Loans receivable, gross	2,488	999
Acquired Loans - Past due 60-89 days
Residential 1-4 family		110
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate		110
Commercial
Construction of commercial
Commercial real estate
Farm land
Vacant land
Real estate secured		110
Commercial and industrial	1,103	82
Municipal
Consumer
Loans receivable, gross	1,103	192
Acquired Loans - Past due 90-179 days
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate
Commercial	974
Construction of commercial
Commercial real estate	974
Farm land
Vacant land
Real estate secured	974
Commercial and industrial	30
Municipal
Consumer
Loans receivable, gross	1,004
Acquired Loans - Past due 180 days and over
Residential 1-4 family	779	866
Residential 5+ multifamily	123
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	902	866
Commercial	1,591	1,925
Construction of commercial	258	262
Commercial real estate	1,849	2,187
Farm land
Vacant land
Real estate secured	2,751	3,053
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	2,751	3,053
Acquired Loans - Past due 30 days and over
Residential 1-4 family	779	976
Residential 5+ multifamily	565
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	1,344	976
Commercial	4,068	2,841
Construction of commercial	258	262
Commercial real estate	4,326	3,103
Farm land
Vacant land
Real estate secured	5,670	4,079
Commercial and industrial	1,676	165
Municipal
Consumer
Loans receivable, gross	7,346	4,244
Acquired Loans - Accruing 90 days and over
Residential 1-4 family		90
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate		90
Commercial	365
Construction of commercial
Commercial real estate	365
Farm land
Vacant land
Real estate secured	365	90
Commercial and industrial	30
Municipal
Consumer
Loans receivable, gross	395	90
Acquired Loans - Non-accrual
Residential 1-4 family	779	766
Residential 5+ multifamily	123
Construction of residential 1-4 family
Home equity lines of credit
Residential real estate	902	766
Commercial	2,199	2,000
Construction of commercial	258	262
Commercial real estate	2,457	2,262
Farm land
Vacant land
Real estate secured	3,359	3,038
Commercial and industrial
Municipal
Consumer
Loans receivable, gross	$ 3,359	$ 3,038

XML

LOANS - Troubled debt restructurings (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($) Integer	Sep. 30, 2015 USD ($) Integer
Business Activities Loans - Residential real estate
Quantity of troubled debt restructurings | Integer	3	2
Pre-modification balance	$ 683	$ 923
Post-modification balance	$ 683	$ 923
Business Activities Loans - Commercial real estate
Quantity of troubled debt restructurings | Integer	2	1
Pre-modification balance	$ 2,123	$ 294
Post-modification balance	$ 2,123	$ 294
Business Activities Loans - Home equity lines of credit
Quantity of troubled debt restructurings | Integer		1
Pre-modification balance		$ 35
Post-modification balance		$ 35
Business Activities Loans - Troubled debt restructurings
Quantity of troubled debt restructurings | Integer	6	4
Pre-modification balance	$ 2,806	$ 1,252
Post-modification balance	$ 2,806	$ 1,252
Business Activities Loans - Rate reduction and term extension
Quantity of troubled debt restructurings | Integer	1	1
Pre-modification balance	$ 174	$ 294
Post-modification balance	$ 174	$ 294
Business Activities Loans - Interest only and term extension
Quantity of troubled debt restructurings | Integer
Pre-modification balance
Post-modification balance
Business Activities Loans - Debt consolidation
Quantity of troubled debt restructurings | Integer	1
Pre-modification balance	$ 1,863
Post-modification balance	$ 1,863
Business Activities Loans - Debt consolidation and term extension
Quantity of troubled debt restructurings | Integer	1
Pre-modification balance	$ 260
Post-modification balance	$ 260
Business Activities Loans - Note bifurcation
Quantity of troubled debt restructurings | Integer		1
Pre-modification balance		$ 48
Post-modification balance		$ 48
Business Activities Loans - Term extension
Quantity of troubled debt restructurings | Integer	3	2
Pre-modification balance	$ 509	$ 910
Post-modification balance	$ 509	$ 910
Acquired Loans - Residential real estate
Quantity of troubled debt restructurings | Integer	1
Pre-modification balance	$ 88
Post-modification balance	$ 88
Acquired Loans - Commercial real estate
Quantity of troubled debt restructurings | Integer		1
Pre-modification balance		$ 184
Post-modification balance		$ 184
Acquired Loans - Home equity lines of credit
Quantity of troubled debt restructurings | Integer
Pre-modification balance
Post-modification balance
Acquired Loans - Troubled debt restructurings
Quantity of troubled debt restructurings | Integer	1	1
Pre-modification balance	$ 88	$ 184
Post-modification balance	$ 88	$ 184
Acquired Loans - Rate reduction and term extension
Quantity of troubled debt restructurings | Integer	1	1
Pre-modification balance	$ 88	$ 184
Post-modification balance	$ 88	$ 184
Acquired Loans - Interest only and term extension
Quantity of troubled debt restructurings | Integer
Pre-modification balance
Post-modification balance
Acquired Loans - Interest only
Quantity of troubled debt restructurings | Integer
Pre-modification balance
Post-modification balance
Acquired Loans - Debt consolidation and term extension
Quantity of troubled debt restructurings | Integer
Pre-modification balance
Post-modification balance
Acquired Loans - Term extension
Quantity of troubled debt restructurings | Integer
Pre-modification balance
Post-modification balance

XML

LOANS - Changes in allowance for loan losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Business Activities Loans - Residential
Beginning balance	$ 2,248	$ 2,147	$ 2,477	$ 2,306
Provision	224	632	370	952
Charge-offs	(155)	(92)	(550)	(573)
Recoveries	8	111	28	113
Ending balance	2,325	2,798	2,325	2,798
Business Activities Loans - Commercial
Beginning balance	1,734	1,339	1,466	1,697
Provision	29	(102)	332	(256)
Charge-offs	(1)	(10)	(37)	(214)
Recoveries			1
Ending balance	1,762	1,227	1,762	1,227
Business Activities Loans - Land
Beginning balance	166	182	188	164
Provision	82	168	106	186
Charge-offs	(42)	72	(88)	(72)
Recoveries
Ending balance	206	278	206	278
Business Activities Loans - Real estate
Beginning balance	4,148	3,668	4,131	4,167
Provision	335	698	808	882
Charge-offs	(198)	(174)	(675)	(859)
Recoveries	8	111	29	113
Ending balance	4,293	4,303	4,293	4,303
Business Activities Loans - Commercial and industrial
Beginning balance	851	691	683	583
Provision	(16)	(197)	167	(484)
Charge-offs	(2)		(32)	(56)
Recoveries	25	4	40	455
Ending balance	858	498	858	498
Business Activities Loans - Municipal
Beginning balance	56	64	61	61
Provision	(3)	(16)	(8)	(13)
Charge-offs
Recoveries
Ending balance	53	48	53	48
Business Activities Loans - Consumer
Beginning balance	89	123	124	117
Provision	17	1	1	30
Charge-offs	(17)	(17)	(46)	(47)
Recoveries	5	6	15	13
Ending balance	94	113	94	113
Business Activities Loans - Unallocated
Beginning balance	334	369	482	409
Provision	(19)	55	(167)	15
Charge-offs
Recoveries
Ending balance	315	424	315	424
Business Activities Loans - Totals
Beginning balance	5,478	4,915	5,481	5,337
Provision	314	541	801	430
Charge-offs	(217)	(191)	(753)	(962)
Recoveries	38	121	84	581
Ending balance	5,613	5,386	5,613	5,386
Acquired Loans - Residential
Beginning balance	69	15	79
Provision	5	55	(5)	70
Charge-offs
Recoveries
Ending balance	74	70	74	70
Acquired Loans - Commercial
Beginning balance	134	77	132	7
Provision	37	81	133	151
Charge-offs			(98)
Recoveries		5	4	5
Ending balance	171	163	171	163
Acquired Activities Loans - Land
Beginning balance
Provision
Charge-offs
Recoveries
Ending balance
Acquired Loans - Real estate
Beginning balance	203	92	211	7
Provision	42	136	128	221
Charge-offs			(98)
Recoveries		5	4	5
Ending balance	245	223	245	223
Acquired Loans - Commercial and industrial
Beginning balance	37	52	24	14
Provision	(11)	(22)	403
Charge-offs			(416)
Recoveries	8	10	23	26
Ending balance	34	40	34	40
Acquired Loans - Municipal
Beginning balance
Provision
Charge-offs
Recoveries
Ending balance
Acquired Loans - Consumer
Beginning balance
Provision
Charge-offs
Recoveries
Ending balance
Acquired Loans - Unallocated
Beginning balance
Provision
Charge-offs
Recoveries
Ending balance
Acquired Loans - Total
Beginning balance	240	144	235	21
Provision	31	114	531	221
Charge-offs			(514)
Recoveries	9	15	27	31
Ending balance	$ 279	$ 273	$ 279	$ 273

XML

LOANS - Composition of loans receivable and allowance for loan losses (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Business Activities Loans - Collectively evaluated Loans
Residential 1-4 family	$ 280,711	$ 253,156
Residential 5+ multifamily	5,860	4,640
Construction of residential 1-4 family	9,824	7,998
Home equity lines credit	34,674	34,298
Residential real estate	331,069	300,092
Commercial	158,185	125,173
Construction of commercial	3,949	6,403
Commercial real estate	162,134	131,576
Farm land	3,025	2,162
Vacant land	5,589	5,486
Real estate secured	501,817	439,316
Commercial and industrial	101,063	74,131
Municipal	8,475	9,566
Consumer	5,593	6,115
Unallocated allowance
Totals	616,948	529,128
Business Activities Loans - Collectively evaluated Allowance
Residential 1-4 family	1,698	1,415
Residential 5+ multifamily	54	33
Construction of residential 1-4 family	85	65
Home equity lines credit	324	286
Residential real estate	2,161	1,799
Commercial	1,646	1,265
Construction of commercial	48	87
Commercial real estate	1,694	1,352
Farm land	27	23
Vacant land	166	122
Real estate secured	4,048	3,296
Commercial and industrial	853	673
Municipal	53	61
Consumer	94	124
Unallocated allowance	315	482
Totals	5,363	4,636
Business Activities Loans - Individually evaluated Loans
Residential 1-4 family	5,952	8,339
Residential 5+ multifamily	1,830	1,771
Construction of residential 1-4 family
Home equity lines credit	796	719
Residential real estate	8,578	10,829
Commercial	4,417	4,273
Construction of commercial	117	122
Commercial real estate	4,534	4,395
Farm land	1,008	1,031
Vacant land	241	3,077
Real estate secured	14,361	19,332
Commercial and industrial	83	526
Municipal
Consumer		80
Unallocated allowance
Totals	14,444	19,938
Business Activities Loans - Individually evaluated Allowance
Residential 1-4 family	147	610
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines credit	17	68
Residential real estate	164	678
Commercial	69	113
Construction of commercial		1
Commercial real estate	69	114
Farm land	9	14
Vacant land	4	29
Real estate secured	246	835
Commercial and industrial	4	10
Municipal
Consumer
Unallocated allowance
Totals	250	845
Business Activities Loans - Total portfolio Loans
Residential 1-4 family	286,663	261,495
Residential 5+ multifamily	7,690	6,411
Construction of residential 1-4 family	9,824	7,998
Home equity lines credit	35,470	35,017
Residential real estate	339,647	310,921
Commercial	162,602	129,446
Construction of commercial	4,066	6,525
Commercial real estate	166,668	135,971
Farm land	4,033	3,193
Vacant land	5,830	8,563
Real estate secured	516,178	458,648
Commercial and industrial	101,146	74,657
Municipal	8,475	9,566
Consumer	5,593	6,195
Unallocated allowance
Totals	631,392	549,066
Business Activities Loans - Total portfolio Allowance
Residential 1-4 family	1,845	2,025
Residential 5+ multifamily	54	33
Construction of residential 1-4 family	85	65
Home equity lines credit	341	354
Residential real estate	2,325	2,477
Commercial	1,715	1,378
Construction of commercial	48	88
Commercial real estate	1,763	1,466
Farm land	36	37
Vacant land	170	151
Real estate secured	4,294	4,131
Commercial and industrial	857	683
Municipal	53	61
Consumer	94	124
Unallocated allowance	315	482
Totals	5,613	5,481
Acquired Loans - Collectively evaluated Loans
Residential 1-4 family	6,244	7,023
Residential 5+ multifamily	5,741	6,136
Construction of residential 1-4 family
Home equity lines credit
Residential real estate	11,985	13,159
Commercial	74,858	81,300
Construction of commercial	1,881	4,612
Commercial real estate	76,739	85,912
Farm land
Vacant land
Real estate secured	88,724	99,071
Commercial and industrial	29,676	45,650
Municipal
Consumer	52	61
Unallocated allowance
Totals	118,452	144,782
Acquired Loans - Collectively evaluated Allowance
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines credit
Residential real estate
Commercial	22	19
Construction of commercial	3	4
Commercial real estate	25	23
Farm land
Vacant land
Real estate secured	25	23
Commercial and industrial	26	24
Municipal
Consumer
Unallocated allowance
Totals	51	47
Acquired Loans - Individually evaluated Loans
Residential 1-4 family	779	776
Residential 5+ multifamily	123
Construction of residential 1-4 family
Home equity lines credit
Residential real estate	902	776
Commercial	2,955	2,742
Construction of commercial	258	262
Commercial real estate	3,213	3,004
Farm land
Vacant land
Real estate secured	4,115	3,780
Commercial and industrial
Municipal
Consumer
Unallocated allowance
Totals	4,115	3,780
Acquired Loans - Individually evaluated Allowance
Residential 1-4 family	74	79
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines credit
Residential real estate	74	79
Commercial	82	107
Construction of commercial
Commercial real estate	82	107
Farm land
Vacant land
Real estate secured	156	186
Commercial and industrial
Municipal
Consumer
Unallocated allowance
Totals	156	186
Acquired Loans - ASC 310-30 Loans
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines credit
Residential real estate
Commercial	3,928	4,787
Construction of commercial
Commercial real estate	3,928	4,787
Farm land
Vacant land
Real estate secured	3,928	4,787
Commercial and industrial	332	1,114
Municipal
Consumer	16	16
Unallocated allowance
Totals	4,276	5,917
Acquired Loans - ASC 310-30 loans Allowance
Residential 1-4 family
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines credit
Residential real estate
Commercial	64	2
Construction of commercial
Commercial real estate	64	2
Farm land
Vacant land
Real estate secured	64	2
Commercial and industrial	9
Municipal
Consumer
Unallocated allowance
Totals	72	2
Acquired Loans - Total portfolio Loans
Residential 1-4 family	7,023	7,799
Residential 5+ multifamily	5,864	6,136
Construction of residential 1-4 family
Home equity lines credit
Residential real estate	12,887	13,935
Commercial	81,741	88,829
Construction of commercial	2,139	4,874
Commercial real estate	83,880	93,703
Farm land
Vacant land
Real estate secured	96,767	107,638
Commercial and industrial	30,008	46,764
Municipal
Consumer	68	77
Unallocated allowance
Totals	126,843	154,479
Acquired Loans - Total portfolio Allowance
Residential 1-4 family	74	79
Residential 5+ multifamily
Construction of residential 1-4 family
Home equity lines credit
Residential real estate	74	79
Commercial	168	128
Construction of commercial	3	4
Commercial real estate	171	132
Farm land
Vacant land
Real estate secured	245	211
Commercial and industrial	34	24
Municipal
Consumer
Unallocated allowance
Totals	$ 279	$ 235

XML

LOANS - Credit quality segments of loans receivable and allowance for loan losses (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Business Activities Loans - Collectively evaluated Loans
Performing loans	$ 612,039	$ 527,905
Potential problem loans	4,909	1,223
Impaired loans
Unallocated allowance
Totals	616,948	529,128
Business Activities Loans - Collectively evaluated Allowance
Performing loans	4,849	4,110
Potential problem loans	200	44
Impaired loans
Unallocated allowance	315	482
Totals	5,364	4,636
Business Activities Loans - Individually evaluated Loans
Performing loans
Potential problem loans
Impaired loans	14,444	19,938
Unallocated allowance
Totals	14,444	19,938
Business Activities Loans - Individually evaluated Allowance
Performing loans
Potential problem loans
Impaired loans	250	845
Unallocated allowance
Totals	250	845
Business Activities Loans - Total portfolio Loans
Performing loans	612,039	527,905
Potential problem loans	4,909	1,223
Impaired loans	14,444	19,938
Unallocated allowance
Totals	631,392	549,066
Business Activities Loans - Total portfolio Allowance
Performing loans	4,849	4,110
Potential problem loans	200	44
Impaired loans	250	845
Unallocated allowance	315	482
Totals	5,614	5,481
Acquired Loans - Collectively evaluated Loans
Performing loans	120,106	148,580
Potential problem loans	2,622	2,119
Impaired loans
Unallocated allowance
Totals	122,728	150,699
Acquired Loans - Collectively evaluated Allowance
Performing loans	70	46
Potential problem loans	53	2
Impaired loans
Unallocated allowance
Totals	123	48
Acquired Loans - Individually evaluated Loans
Performing loans
Potential problem loans
Impaired loans	4,115	3,780
Unallocated allowance
Totals	4,115	3,780
Acquired Loans - Individually evaluated Allowance
Performing loans
Potential problem loans
Impaired loans	156	187
Unallocated allowance
Totals	156	187
Acquired Loans - Total portfolio Loans
Performing loans	120,106	148,580
Potential problem loans	2,622	2,119
Impaired loans	4,115	3,780
Unallocated allowance
Totals	126,843	154,479
Acquired Loans - Total portfolio Allowance
Performing loans	70	46
Potential problem loans	53	2
Impaired loans	156	187
Unallocated allowance
Totals	$ 279	$ 235

XML

LOANS - Certain data with respect to loans individually evaluated for impairment (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Business Activities Loans - Impaired loans with specific allowance - Loan balance - Book
Residential 1-4 family	$ 5,530	$ 7,482
Home equity lines of credit	410	535
Residential real estate	5,940	8,017
Commercial	3,568	3,131
Commercial construction		122
Farm land	723	733
Vacant land	46	2,870
Real estate secured	10,277	14,873
Commercial and industrial	4	95
Consumer
Totals	10,281	14,968
Business Activities Loans - Impaired loans with specific allowance - Loan balance - Note
Residential 1-4 family	6,080	8,094
Home equity lines of credit	436	659
Residential real estate	6,516	8,753
Commercial	3,958	3,405
Commercial construction		128
Farm land	784	773
Vacant land	46	3,836
Real estate secured	11,304	16,895
Commercial and industrial	4	98
Consumer
Totals	11,308	16,993
Business Activities Loans - Impaired loans with specific allowance - Loan balance - Average
Residential 1-4 family	6,418	6,213
Home equity lines of credit	463	176
Residential real estate	6,881	6,389
Commercial	3,393	2,629
Commercial construction	72
Farm land	440	445
Vacant land	2,305	3,058
Real estate secured	13,091	12,521
Commercial and industrial	40	120
Consumer
Totals	13,131	12,641
Business Activities Loans - Impaired loans with specific allowance - Specific allowance
Residential 1-4 family	147	610
Home equity lines of credit	17	68
Residential real estate	164	678
Commercial	69	113
Commercial construction		1
Farm land	9	14
Vacant land	4	29
Real estate secured	246	835
Commercial and industrial	4	10
Consumer
Totals	250	845
Business Activities Loans - Impaired loans with specific allowance - Income recognized
Residential 1-4 family	72	109
Home equity lines of credit	1	6
Residential real estate	73	115
Commercial	73	113
Commercial construction
Farm land
Vacant land	2	2
Real estate secured	148	230
Commercial and industrial		8
Consumer
Totals	148	238
Business Activities Loans - Impaired loans with no specific allowance - Loan balance - Book
Residential 1-4 family	2,252	2,628
Home equity lines of credit	386	184
Residential real estate	2,638	2,812
Commercial	849	1,142
Commercial construction	117
Farm land	286	298
Vacant land	195	207
Real estate secured	4,085	4,459
Commercial and industrial	78	431
Consumer		80
Totals	4,163	4,970
Business Activities Loans - Impaired loans with no specific allowance - Loan balance - Note
Residential 1-4 family	2,409	2,770
Home equity lines of credit	419	199
Residential real estate	2,828	2,969
Commercial	1,106	1,393
Commercial construction	123
Farm land	358	352
Vacant land	232	241
Real estate secured	4,647	4,955
Commercial and industrial	106	481
Consumer		108
Totals	4,753	5,544
Business Activities Loans - Impaired loans with no specific allowance - Loan balance - Average
Residential 1-4 family	2,683	3,043
Home equity lines of credit	346	611
Residential real estate	3,029	3,654
Commercial	996	2,130
Commercial construction	47	127
Farm land	580	270
Vacant land	201	5
Real estate secured	4,853	6,186
Commercial and industrial	217	464
Consumer	8
Totals	5,078	6,650
Business Activities Loans - Impaired loans with no specific allowance - Income recognized
Residential 1-4 family	69	82
Home equity lines of credit	5	2
Residential real estate	74	84
Commercial	17	12
Commercial construction	5	6
Farm land		15
Vacant land	8	7
Real estate secured	104	124
Commercial and industrial	2	7
Consumer
Totals	106	131
Acquired Loans - Impaired loans with specific allowance - Loan balance - Book
Residential 1-4 family	779	599
Home equity lines of credit
Residential real estate	779	599
Commercial	1,146	675
Commercial construction
Farm land
Vacant land
Real estate secured	1,925	1,274
Commercial and industrial
Consumer
Totals	1,925	1,274
Acquired Loans - Impaired loans with specific allowance - Loan balance - Note
Residential 1-4 family	893	716
Home equity lines of credit
Residential real estate	893	716
Commercial	1,557	826
Commercial construction
Farm land
Vacant land
Real estate secured	2,450	1,542
Commercial and industrial
Consumer
Totals	2,450	1,542
Acquired Loans - Impaired loans with specific allowance - Loan balance - Average
Residential 1-4 family	637	176
Home equity lines of credit
Residential real estate	637	176
Commercial	577	557
Commercial construction
Farm land
Vacant land
Real estate secured	1,214	733
Commercial and industrial	100	4
Consumer
Totals	1,314	737
Acquired Loans - Impaired loans with specific allowance - Specific allowance
Residential 1-4 family	74	79
Home equity lines of credit
Residential real estate	74	79
Commercial	82	107
Commercial construction
Farm land
Vacant land
Real estate secured	156	186
Commercial and industrial
Consumer
Totals	156	186
Acquired Loans - Impaired loans with specific allowance - Income recognized
Residential 1-4 family	3
Home equity lines of credit
Residential real estate	3
Commercial	111	61
Commercial construction
Farm land
Vacant land
Real estate secured	114	61
Commercial and industrial		1
Consumer
Totals	114	62
Acquired Loans - Impaired loans with no specific allowance - Loan balance - Book
Residential 1-4 family	123	177
Home equity lines of credit
Residential real estate	123	177
Commercial	1,809	2,067
Commercial construction	258	262
Farm land
Vacant land
Real estate secured	2,190	2,506
Commercial and industrial
Consumer
Totals	2,190	2,506
Acquired Loans - Impaired loans with no specific allowance - Loan balance - Note
Residential 1-4 family	123	177
Home equity lines of credit
Residential real estate	123	177
Commercial	2,268	2,843
Commercial construction	272	273
Farm land
Vacant land
Real estate secured	2,663	3,293
Commercial and industrial		4
Consumer
Totals	2,663	3,297
Acquired Loans - Impaired loans with no specific allowance - Loan balance - Average
Residential 1-4 family	267	436
Home equity lines of credit
Residential real estate	267	436
Commercial	2,085	2,097
Commercial construction	259	138
Farm land
Vacant land
Real estate secured	2,611	2,671
Commercial and industrial	24
Consumer
Totals	2,635	2,671
Acquired Loans - Impaired loans with no specific allowance - Income recognized
Residential 1-4 family		4
Home equity lines of credit
Residential real estate		4
Commercial	158	10
Commercial construction		16
Farm land
Vacant land
Real estate secured	158	30
Commercial and industrial
Consumer
Totals	$ 158	$ 30

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LOANS (Details Narrative) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Loans Details Narrative
Interest on non-accrual loans that would have been recorded as additional interest income had the loans been current in accordance with their original terms	$ 666	$ 609
Loans collateralized by residential real estate property in the process of foreclosure	$ 2,793

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MORTGAGE SERVICING RIGHTS - Balance of loans serviced for others and fair value of mortgage servicing rights (Details) - Balance of loans serviced for others and fair value of mortgage servicing rights - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2014	Dec. 31, 2015
Residential mortgage loans serviced for others	$ 125,988	$ 132,201
Fair value of mortgage servicing rights	$ 962		$ 1,429

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MORTGAGE SERVICING RIGHTS - Changes in mortgage servicing rights (Details) - Changes in mortgage servicing rights - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Mortgage Servicing Rights
Balance, beginning of period		$ 416	$ 599	$ 487	$ 694
Originated		27	22	71	124
Amortization (1)	[1]	(67)	(86)	(182)	(282)
Balance, end of period		376	535	376	535
Valuation Allowance
Balance, beginning of period		(25)	(2)	(4)	1
(Increase) decrease in impairment reserve (1)	[1]	8	2	(13)	(2)
Balance, end of period		(17)		(17)
Loan servicing rights, net		$ 359	$ 535	$ 359	$ 535

[1] (1) Amortization expense and changes in the impairment reserve are recorded in mortgage servicing, net, in the consolidated statements of income.

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PLEDGED ASSETS - Securities and loans pledged (Details) - Securities and loans pledged - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Securities available-for-sale (at fair value)	$ 65,357	$ 67,750
Loans receivable	196,077	153,269
Total pledged assets	$ 261,434	$ 221,019

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PLEDGED ASSETS (Details Narrative) $ in Thousands	Sep. 30, 2016 USD ($)
Guarantees [Abstract]
Securities pledged to secure public deposits	$ 59,600
Securities pledged to secure repurchase agreements	5,700
Securities pledged to secure FHLBB advances	$ 100

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EARNINGS PER SHARE - Computation of earnings per share (Details) - Calculation of earnings per share - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net income	$ 1,922	$ 1,985	$ 5,165	$ 6,290
Less: Preferred stock dividends declared		(40)		(120)
Net income available to common shareholders	1,922	1,945	5,165	6,170
Less: Undistributed earnings allocated to participating securities	(15)	(17)	(41)	(54)
Net income allocated to common stock	1,907	1,928	5,124	6,116
Weighted-average common shares issued	2,758	2,731	2,754	2,728
Less: Unvested restricted stock awards	(21)	(24)	(22)	(24)
Weighted average common shares outstanding used to calculate basic earnings per common share	2,737	2,707	2,732	2,704
Add: Dilutive effect of stock options	14	17	15	17
Weighted-average common shares outstanding used to calculate diluted earnings per common share	$ 2,751	$ 2,724	$ 2,747	$ 2,721
Earnings per common share (basic)	$ .70	$ .71	$ 1.88	$ 2.26
Earnings per common share (diluted)	$ .69	$ .71	$ 1.87	$ 2.25

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SHAREHOLDERS' EQUITY - Actual regulatory capital position and minimum capital requirements (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015
Salisbury
Total Capital (to risk-weighted assets)
Actual - Amount	$ 94,948	$ 92,030
Actual - Ratio	13.25%	13.51%
For Capital Adequacy - Amount	$ 57,330	$ 54,509
For Capital Adequacy - Ratio	8.00%	8.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions - Amount
To Be Well Capitalized Under Prompt Corrective Action Provisions - Ratio
Tier 1 Capital (to risk-weighted assets)
Actual - Amount	$ 78,875	$ 76,120
Actual - Ratio	11.01%	11.17%
For Capital Adequacy - Amount	$ 42,997	$ 40,878
For Capital Adequacy - Ratio	6.00%	6.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions - Amount
To Be Well Capitalized Under Prompt Corrective Action Provisions - Ratio
Common Equity Tier 1 Capital (to risk-weighted assets)
Actual - Amount	$ 78,875	$ 76,120
Actual - Ratio	11.01%	11.17%
For Capital Adequacy - Amount	$ 41,868	$ 30,659
For Capital Adequacy - Ratio	4.50%	4.50%
To Be Well Capitalized - Amount
To Be Well Capitalized - Ratio
Tier 1 Capital (to average assets)
Actual - Amount	$ 78,875	$ 76,120
Actual - Ratio	8.47%	8.56%
For Capital Adequacy - Amount	$ 37,216	$ 36,102
For Capital Adequacy - Ratio	4.00%	4.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions - Amount
To Be Well Capitalized Under Prompt Corrective Action Provisions - Ratio
Bank
Total Capital (to risk-weighted assets)
Actual - Amount		$ 89,249	$ 92,739
Actual - Ratio		13.10%	12.94%
For Capital Adequacy - Amount		$ 54,504	$ 57,330
For Capital Adequacy - Ratio		8.00%	8.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions - Amount		$ 68,131	$ 71,662
To Be Well Capitalized Under Prompt Corrective Action Provisions - Ratio		10.00%	10.00%
Tier 1 Capital (to risk-weighted assets)
Actual - Amount		$ 83,340	$ 86,666
Actual - Ratio		12.23%	12.09%
For Capital Adequacy - Amount		$ 40,878	$ 42,997
For Capital Adequacy - Ratio		6.00%	6.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions - Amount		$ 54,504	$ 57,329
To Be Well Capitalized Under Prompt Corrective Action Provisions - Ratio		8.00%	8.00%
Common Equity Tier 1 Capital (to risk-weighted assets)
Actual - Amount		$ 83,340	$ 86,666
Actual - Ratio		12.23%	12.09%
For Capital Adequacy - Amount		$ 30,659	$ 41,871
For Capital Adequacy - Ratio		4.50%	4.50%
To Be Well Capitalized - Amount		$ 44,285	$ 60,481
To Be Well Capitalized - Ratio		6.50%	6.50%
Tier 1 Capital (to average assets)
Actual - Amount		$ 83,340	$ 86,666
Actual - Ratio		9.37%	9.30%
For Capital Adequacy - Amount		$ 35,593	$ 37,219
For Capital Adequacy - Ratio		4.00%	4.00%
To Be Well Capitalized Under Prompt Corrective Action Provisions - Amount		$ 44,491	$ 46,524
To Be Well Capitalized Under Prompt Corrective Action Provisions - Ratio		5.00%	5.00%

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SHAREHOLDERS' EQUITY (Details Narrative) - Shareholders' Equity Details - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2015	Aug. 31, 2011
Series B Preferred Stock issued to Treasury under SBLF program		$ 16,000
Completed offering of unsecured fixed-to-floating rate subordinated notes	$ 10,000
Senior Non-Cumulative Perpetual Preferred Stock redeemed	$ 16,000

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BENEFITS (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2014	Feb. 16, 2016	Jan. 29, 2016	Jan. 26, 2016	Sep. 28, 2015	Mar. 27, 2015	Feb. 25, 2015	Feb. 17, 2015
Compensation and Retirement Disclosure [Abstract]
401(k) Plan contribution expense	$ 179	$ 166	$ 568	$ 516
Other post-retirement benefit obligation expense for endorsement split-dollar life insurance arrangements	19	22	56	53
Excess assets distributed to 401k and ESOP for future allocations to employees					$ 1,018
Employee Stock Ownership Plan (ESOP)
ESOP expense	51	96	132	287
Other Retirement Plans
Discretionary contribution to Executives' account	56	34	168	95
Phantom Stock Appreciation Units granted							47,470
Grants of Restricted Stock and Options
Stock options exercised by former Riverside Bank executives, shares						1,350		2,700	2,700		5,400	1,350
Stock options exercised by former Riverside Bank executives, price per share						$ 21.48		$ 21.48	$ 21.48		$ 18.52	$ 18.52
Shares of restricted stock granted pursuant to 2011 Long Term Incentive Plan							15,800			1,000
Fair value of the stock as of the grant date							$ 466			$ 29
Expense related to grants of restricted stock and options	57	52	164	167
Unrecognized compensation cost relating to awards	$ 431	$ 186	$ 431	$ 186
Forfeiture of restricted common stock, shares			(100)	(300)

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ACCUMULATED OTHER COMPREHENSIVE INCOME - Components of accumulated other comprehensive income (Details) - Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Unrealized gains on securities available-for-sale, net of tax	$ 883	$ 1,125
Accumulated other comprehensive income, net	$ 883	$ 1,125

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FAIR VALUE OF ASSETS AND LIABILITIES - Assets measured at fair value (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value Measurements Using - Level 1
Assets at fair value on a recurring basis
U.S. Government agency notes
Municipal bonds
Mortgage backed securities: U.S. Government agencies and U.S. Government-sponsored enterprises
Collateralized mortgage obligations: U.S. Government agencies
Collateralized mortgage obligations: Non-agency
SBA bonds
CRA mutual funds
Corporate bonds
Preferred stock	241	246
Securities available-for-sale	241	246
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans
Mortgage servicing rights
Fair Value Measurements Using - Level 2
Assets at fair value on a recurring basis
U.S. Treasury notes		2,541
U.S. Government agency notes		498
Municipal bonds	18,604	30,385
Mortgage backed securities: U.S. Government agencies and U.S. Government-sponsored enterprises	48,176	32,202
Collateralized mortgage obligations: U.S. Government agencies	1,604	2,014
Collateralized mortgage obligations: Non-agency	4,032	4,948
SBA bonds	2,286	3,096
CRA mutual funds	838	764
Corporate bonds	1,020
Preferred stock
Securities available-for-sale	76,560	76,448
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans
Mortgage servicing rights	962
Fair Value Measurements Using - Level 3
Assets at fair value on a recurring basis
U.S. Treasury notes
U.S. Government agency notes
Municipal bonds
Mortgage backed securities: U.S. Government agencies and U.S. Government-sponsored enterprises
Collateralized mortgage obligations: U.S. Government agencies
Collateralized mortgage obligations: Non-agency
SBA bonds
CRA mutual funds
Corporate bonds
Preferred stock
Securities available-for-sale
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	11,801	15,211
Mortgage servicing rights		1,315
Assets at fair value
Assets at fair value on a recurring basis
U.S. Treasury notes		2,541
U.S. Government agency notes		498
Municipal bonds	18,604	30,385
Mortgage backed securities: U.S. Government agencies and U.S. Government-sponsored enterprises	48,176	32,202
Collateralized mortgage obligations: U.S. Government agencies	1,604	2,014
Collateralized mortgage obligations: Non-agency	4,032	4,948
SBA bonds	2,286	3,096
CRA mutual funds	838	764
Corporate bonds	1,020
Preferred stock	241	246
Securities available-for-sale	76,801	76,694
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	11,801	15,211
Mortgage servicing rights	$ 962	$ 1,315

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FAIR VALUE OF ASSETS AND LIABILITIES - Carrying value and estimated fair values of financial instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Carrying value
Financial Assets
Cash and cash equivalents	$ 42,638	$ 62,118
Securities available-for-sale	76,801	76,694
Federal Home Loan Bank stock	2,937	3,176
Loans held-for-sale	837	763
Loans receivable, net	753,623	699,018
Accrued interest receivable	2,260	2,307
Cash surrender value of life insurance	13,952	13,685
Mortgage servicing rights	359	597
Financial Liabilities
Demand (non-interest-bearing)	210,396	201,340
Demand (interest-bearing)	126,064	125,465
Money market	201,504	183,783
Savings and other	127,595	119,651
Certificates of deposit	121,171	124,294
Deposits	786,730	754,533
Repurchase agreements	3,581	3,914
FHLBB advances	27,134	26,979
Subordinated debt	9,782	9,764
Note payable	351	376
Capital lease liability	419	422
Accrued interest payable	275	150
Estimated fair value
Financial Assets
Cash and cash equivalents	42,638	62,118
Securities available-for-sale	76,801	76,694
Federal Home Loan Bank stock	2,937	3,176
Loans held-for-sale	852	778
Loans receivable, net	765,433	707,154
Accrued interest receivable	2,260	2,307
Cash surrender value of life insurance	13,952	13,685
Mortgage servicing rights	962	1,383
Financial Liabilities
Demand (non-interest-bearing)	210,396	201,340
Demand (interest-bearing)	126,064	125,465
Money market	201,504	183,783
Savings and other	127,595	119,651
Certificates of deposit	122,448	125,437
Deposits	788,007	755,676
Repurchase agreements	3,581	3,914
FHLBB advances	28,004	28,559
Subordinated debt	10,432	9,764
Note payable	385	405
Capital lease liability	903	870
Accrued interest payable	275	150
Fair Value Measurements Using - Level 1
Financial Assets
Cash and cash equivalents	42,638	62,118
Securities available-for-sale	241	246
Federal Home Loan Bank stock
Loans held-for-sale
Loans receivable, net
Accrued interest receivable	2,260	2,307
Cash surrender value of life insurance	13,952	13,685
Mortgage servicing rights
Financial Liabilities
Demand (non-interest-bearing)
Demand (interest-bearing)
Money market
Savings and other
Certificates of deposit
Deposits
Repurchase agreements
FHLBB advances
Subordinated debt
Note payable
Capital lease liability
Accrued interest payable	275	150
Fair Value Measurements Using - Level 2
Financial Assets
Cash and cash equivalents
Securities available-for-sale	76,560	76,448
Federal Home Loan Bank stock	2,937	3,176
Loans held-for-sale
Loans receivable, net
Accrued interest receivable
Cash surrender value of life insurance
Mortgage servicing rights	962	1,383
Financial Liabilities
Demand (non-interest-bearing)
Demand (interest-bearing)
Money market
Savings and other
Certificates of deposit
Deposits
Repurchase agreements
FHLBB advances
Subordinated debt
Note payable
Capital lease liability
Accrued interest payable
Fair Value Measurements Using - Level 3
Financial Assets
Cash and cash equivalents
Securities available-for-sale
Federal Home Loan Bank stock
Loans held-for-sale	852	778
Loans receivable, net	765,433	707,154
Accrued interest receivable
Cash surrender value of life insurance
Mortgage servicing rights
Financial Liabilities
Demand (non-interest-bearing)	210,396	201,340
Demand (interest-bearing)	126,064	125,465
Money market	201,504	183,783
Savings and other	127,595	119,651
Certificates of deposit	122,448	125,437
Deposits	788,007	755,676
Repurchase agreements	3,581	3,914
FHLBB advances	28,004	28,559
Subordinated debt	10,432	9,764
Note payable	385	405
Capital lease liability	903	870
Accrued interest payable

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SUBSEQUENT EVENT (Details Narrative) - Declaration of dividend	Oct. 28, 2016 $ / shares
Common stock dividend declared	$ .28
Dividend payable date	Nov. 25, 2016