SECURITIES

9 Months Ended

Sep. 30, 2019

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, 2019
Available-for-sale
U.S. Government Agency notes	$	4,642	$	165	$	3	$	4,804
Municipal bonds		26,604		746		45		27,305
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		30,534		624		37		31,121
Collateralized mortgage obligations:
U.S. Government agencies		26,621		626		—		27,247
Corporate bonds		4,250		87		—		4,337
Total securities available-for-sale	$	92,651	$	2,248	$	85	$	94,814
CRA mutual fund	$	881	$	—	$	—	$	881
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	2,575	$	—	$	—	$	2,575
(in thousands)		Amortized cost basis (1)		Gross un-realized gains		Gross un-realized losses		Fair value
December 31, 2018
Available-for-sale
U.S. Government Agency notes	$	7,590	$	83	$	3	$	7,670
Municipal bonds		5,334		45		—		5,379
Mortgage-backed securities:
U.S. Government agencies and U.S. Government sponsored enterprises		57,837		170		561		57,446
Collateralized mortgage obligations:
U.S. Government agencies		17,835		85		173		17,747
Corporate bonds		3,500		76		—		3,576
Total securities available-for-sale	$	92,096	$	459	$	737	$	91,818
CRA mutual fund	$	836	$	—	$	—	$	836
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	4,496	$	—	$	—	$	4,496

Salisbury sold $41.8 million of available-for-sale securities during the nine month period ended September 30, 2019 realizing a pre-tax gain of $263 thousand and a related tax expense of $55 thousand. Salisbury sold $13.7 million in securities available-for-sale during the three month period ended September 30, 2019 realizing a pre-tax loss of $9 thousand and related tax benefit of $2 thousand. Salisbury sold $8.4 million of available-for-sale securities during the three and nine month periods ended September 30, 2018 realizing a pre-tax gain of $16 thousand and a related tax expense of $3 thousand.  

The following table summarizes the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:

	Less than 12 Months				12 Months or Longer				Total
September 30, 2019 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Government Agency notes	$	—	$	—	$	306	$	3	$	306	$	3
Municipal bonds		6,307		45		—		—		6,307		45
Mortgage- backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		6,097		34		731		3		6,828		37
Total temporarily impaired securities	$	12,404	$	79	$	1,037	$	6	$	13,441	$	85
	Less than 12 Months				12 Months or Longer				Total
December 31, 2018 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Government Agency notes	$	34	$	—	$	532	$	3	$	566	$	3
Mortgage-backed securities:
U.S. Government agencies and U.S. Government –sponsored enterprises		13,063		175		26,777		386		39,840		561
Collateralized mortgage obligations:
U.S. Government Agencies		—		—		8,281		173		8,281		173
Total temporarily impaired securities	$	13,097	$	175	$	35,590	$	562	$	48,687	$	737

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

September 30, 2019 (in thousands)	Maturity	Amortized cost		Fair value		Yield(1)
U.S. Government Agency notes	Within 1 year	$	49	$	49		3.32	%
	After 1 year but within 5 years		292		290		3.88
	After 5 year but within 10 years		4,301		4,465		3.36
	Total		4,642		4,804		3.39
Municipal bonds	Within 1 year		61		61		2.63
	After 5 year but within 10 years		1,741		1,846		3.16
	After 10 years		24,802		25,398		3.48
	Total		26,604		27,305		3.46
Mortgage-backed securities and Collateralized mortgage obligations	U.S. Government agencies		57,155		58,368		2.88
Corporate bonds	After 5 years but within 10 years		4,250		4,337		5.43
Securities available-for-sale		$	92,651	$	94,814		3.07	%

⁽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, 2019.

U.S. Government Agency notes: The contractual cash flows are guaranteed by the U.S. government. Four securities had unrealized losses at September 30, 2019, which approximated 0.89% 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, 2019.

Municipal bonds: Salisbury performed a detailed analysis of the municipal bond portfolio. Eight securities had unrealized losses at September 30, 2019, which approximated 0.72% 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. 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, 2019.

U.S. Government agency and U.S. Government-sponsored mortgage-backed securities and collateralized mortgage obligations: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Eight securities had unrealized losses at September 30, 2019, which approximated 0.54% 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, 2019.

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, 2019. 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.