SECURITIES

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

SECURITIES

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)		Amortized cost basis (1)		Gross un-realized gains		Gross un-realized losses		Fair value
September 30, 2018
Available-for-sale
U.S. Government Agency notes	$	4,991	$	—	$	28	$	4,963
Municipal bonds		5,392		5		7		5,390
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		34,845		21		467		34,399
Collateralized mortgage obligations:
U.S. Government agencies		18,255		1		404		17,852
Non-agency		1,423		395		21		1,797
SBA bonds		28,607		—		757		27,850
Corporate bonds		3,500		29		—		3,529
Total securities available-for-sale	$	97,013	$	451	$	1,684	$	95,780
CRA mutual fund	$	823	$	—	$	—	$	823
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	4,988	$	—	$	—	$	4,988
(in thousands)		Amortized cost basis (1)		Gross un-realized gains		Gross un-realized losses		Fair value
December 31, 2017
Available-for-sale
Municipal bonds	$	3,476	$	11	$	1	$	3,486
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		45,983		152		267		45,868
Collateralized mortgage obligations:
U.S. Government agencies		10,462		2		87		10,377
Non-agency		2,271		410		17		2,664
SBA bonds		12,278		9		20		12,267
Corporate bonds		3,500		59		9		3,550
Total securities available-for-sale	$	77,970	$	643	$	401	$	78,212
CRA mutual fund	$	835	$	—	$	—	$	835
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	3,813	$	—	$	—	$	3,813

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

Salisbury sold $8.4 million in securities available-for-sale during the nine month period ended September 30, 2018 realizing a pre-tax gain of $16 thousand and related tax expense of $3 thousand. Salisbury did not sell any available-for-sale securities during the three month period ended September 30, 2018 or the nine month period ended September 30, 2017.

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

September 30, 2018 (in thousands)	Less than 12 Months				12 Months or Longer				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Government Agency notes	$	4,963	$	28	$	—	$	—	$	4,963	$	28
Municipal bonds		1,674		7		—		—		1,674		7
Mortgage-backed securities		12,694		210		19,584		257		32,278		467
Collateralized mortgage obligations:
U.S. Government Agencies		13,546		225		3,949		179		17,495		404
Non-agency		94		4		—		—		94		4
SBA bonds		25,346		643		2,428		114		27,774		757
Total -temporarily impaired securities	$	58,317	$	1,117	$	25,961	$	550	$	84,278	$	1,667
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		—		—		75		17		75		17
Total temporarily impaired and other-than-temporarily impaired securities	$	58,317	$	1,117	$	26,036	$	567	$	84,343	$	1,684
December 31, 2017 (in thousands)	Less than 12 Months				12 Months or Longer				Total
	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
Municipal bonds	$	479	$	1	$	—	$	—	$	479	$	1
Mortgage-backed securities		15,914		99		17,892		168		33,806		267
Collateralized mortgage obligations
U.S. Government Agencies		9,317		87		—		—		9,317		87
Non-agency		—		—		77		3		77		3
SBA bonds		8,519		20		—		—		8,519		20
Corporate bonds		1,491		9		—		—		1,491		9
Total temporarily impaired securities		35,720		216		17,969		171		53,689		387
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		101		14		—		—		101		14
Total temporarily impaired and other-than-temporarily impaired securities	$	35,821	$	230	$	17,969	$	171	$	53,790	$	401

The amortized cost, fair value and tax equivalent yield of securities, by maturity, are as follows:

September 30, 2018 (in thousands)	Maturity	Amortized cost		Fair value		Yield(1)
U.S. Government agency notes	After 5 years but within 10 years	$	4,991	$	4,963		3.59	%
	Total		4,991		4,963		3.59
Municipal bonds	Within 1 year		347		347		2.37
	After 1 year but within 5 years		137		137		2.78
	After 10 years but within 15 years		4,373		4,374		4.55
	After 15 years		535		532		3.35
	Total		5,392		5,390		4.29
Mortgage-backed securities	U.S. Government agency and U.S. Government-sponsored enterprises		34,845		34,399		2.43
Collateralized mortgage obligations	U.S. Government agency and U.S. Government-sponsored enterprises		18,255		17,852		3.00
	Non-agency		1,423		1,797		5.36
SBA bonds			28,607		27,850		3.06
Corporate bonds	After 5 years but within 10 years		3,500		3,529		5.57
Securities available-for-sale		$	97,013	$	95,780		3.05	%

(1)       Yield is based on amortized cost.

 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, 2018.

U.S. Government agency notes: The contractual cash flows are guaranteed by U.S. government agencies. Two securities had unrealized losses at September 30, 2018, which approximated 0.57% of their amortized cost. 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 investments to be other-than-temporarily impaired at September 30, 2018.

Municipal bonds: Salisbury regularly monitors and analyzes its municipal bond portfolio for credit quality. Eight securities had unrealized losses at September 30, 2018, which approximated 0.44% of their amortized cost. Management believes the unrealized loss position is attributable to interest rate and spread 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 evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature and does not consider these investments to be other-than temporarily impaired at September 30, 2018.

U.S. Government agency mortgage-backed securities and collateralized mortgage obligations: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Thirty-four securities had unrealized losses at September 30, 2018, which approximated 1.72% of their amortized cost. 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 investments to be other-than-temporarily impaired at September 30, 2018.

SBA bonds: The contractual cash flows are guaranteed by the U.S. government. Sixteen securities had unrealized losses at September 30, 2018, which approximated 2.65% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality since time of purchase. 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. Management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at September 30, 2018.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 2018, to assess whether any of the securities were OTTI. Four securities had unrealized losses at September 30, 2018, which approximated 11.20% of its amortized cost. 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 other non-agency CMO securities not to have additional OTTI and all other CMO securities not to be OTTI as of September 30, 2018. 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)		2018		2017
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, 2018. 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.