XML 48 R10.htm IDEA: XBRL DOCUMENT v3.20.1
LOANS
 3 Months Ended
Mar. 31, 2020
Receivables [Abstract]  
LOANS

NOTE 3 – LOANS

The composition of loans receivable is as follows:

(In thousands)    March 31, 2020     December 31, 2019  
Residential 1-4 family  $353,112   $346,299 
Residential 5+ multifamily   35,008    35,455 
Construction of residential 1-4 family   12,214    11,889 
Home equity lines of credit   31,907    33,798 
Residential real estate   432,241    427,441 
Commercial   310,436    289,795 
Construction of commercial   10,922    8,466 
Commercial real estate   321,358    298,261 
Farm land   3,612    3,641 
Vacant land   14,488    7,893 
Real estate secured   771,699    737,236 
Commercial and industrial   157,573    169,411 
Municipal   20,964    21,914 
Consumer   8,195    6,385 
Loans receivable, gross   958,431    934,946 
Deferred loan origination fees and costs, net   1,329    1,362 
Allowance for loan losses   (10,618)   (8,895)
Loans receivable, net  $949,142   $927,413 
Loans held-for-sale          
Residential 1-4 family  $580   $332 

Salisbury has entered into loan participation agreements with other banks and transferred a portion of its originated loans to the participating banks. Transferred amounts are accounted for as sales and excluded from Salisbury's loans receivable. Salisbury and its participating lenders share ratably in any gains or losses that may result from a borrower's lack of compliance with contractual terms of the loan. Salisbury services the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties.

Salisbury also has entered into loan participation agreements with other banks and purchased a portion of the other banks' originated loans.  Purchased amounts are accounted for as loans without recourse to the originating bank.  Salisbury and its originating lenders share ratably in any gains or losses that may result from a borrower's lack of compliance with contractual terms of the loan.  The originating banks service the loans on behalf of the participating lenders and, as such, collect cash payments from the borrowers, remit payments (net of servicing fees) to participating lenders and disburse required escrow funds to relevant parties. 

At March 31, 2020 and December 31, 2019, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $62.6 million and $67.0 million, respectively.

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New York; and Berkshire County, Massachusetts, 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, installment loans 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.

Salisbury's commercial loan portfolio is comprised of loans to diverse industries, several of which may experience operating challenges from the economic downturn caused by the COVID-19 virus pandemic (“virus”). Approximately 34% of the Bank's commercial gross loans receivable are to entities who operate rental properties, which include commercial strip malls, smaller rental units as well as multi-unit dwellings. Approximately 15% of the Bank's gross commercial loan receivables is to entities in the hospitality industry, which includes hotels, bed & breakfast inns and restaurants. Approximately 8% of gross commercial loan receivables is to educational institutions and approximately 6% of Salisbury's gross commercial loan receivables is to entertainment and recreation related businesses, which include a ski resort, bowling alleys and amusement parks. Salisbury's commercial loan exposure is mitigated by a variety of factors including the personal liquidity of the borrower, real estate and/or non-real estate collateral, U.S. Department of Agriculture or Small Business Administration (“SBA”) guarantees, loan payment deferrals and economic stimulus loans from the U.S. government as a result of the virus, and other factors. The duration of the economic shutdown and the time required for businesses to recover may adversely affect the ability of some borrowers to make timely loan payments. During such economic shutdown and recovery, the Bank may experience higher loan payment delinquencies and higher loan charge-offs, which could warrant increased provisions for loan losses.

Credit Quality

Salisbury uses credit risk ratings as part of its determination of the allowance for loan losses. Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a borrower. The 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 criticized as defined by the regulatory agencies. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

Loans rated as "special mention" (5) possess credit deficiencies or potential weaknesses deserving management's close attention that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.

Loans rated as "substandard" (6) are loans where the Bank's position is clearly not protected adequately by borrower current net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished and the Bank must rely on sale of collateral or other secondary sources of collection.

Loans rated "doubtful" (7) have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated loss is deferred until its exact status can be determined.

Loans classified as "loss" (8) are considered uncollectible and of such little value that continuance as Bank assets is unwarranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this loan even though partial recovery may be made in the future.

Management actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate its assignment of credit risk ratings. In addition, the Bank's loan portfolio is examined periodically by its regulatory agencies, the Federal Deposit Insurance Corporation (“FDIC”) and the Connecticut Department of Banking (“CTDOB”).

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

(in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
March 31, 2020                              
Residential 1-4 family  $344,792   $4,191   $4,129   $—   $—   $353,112 
Residential 5+ multifamily   33,180    98    1,730    —    —    35,008 
Construction of residential 1-4 family   12,214    —    —    —    —    12,214 
Home equity lines of credit   31,313    387    207    —    —    31,907 
Residential real estate   421,499    4,676    6,066    —    —    432,241 
Commercial   291,486    4,687    14,192    71    —    310,436 
Construction of commercial   10,684    —    238    —    —    10,922 
Commercial real estate   302,170    4,687    14,430    71    —    321,358 
Farm land   1,918    —    1,694    —    —    3,612 
Vacant land   14,390    57    41    —    —    14,488 
Real estate secured   739,977    9,420    22,231    71    —    771,699 
Commercial and industrial   155,326    473    1,774    —    —    157,573 
Municipal   20,964    —    —    —    —    20,964 
Consumer   8,157    4    34    —    —    8,195 
Loans receivable, gross  $924,424   $9,897   $24,039   $71   $—   $958,431 
(in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2019                              
Residential 1-4 family  $337,302   $4,278   $4,719   $—   $—   $346,299 
Residential 5+ multifamily   33,619    99    1,737    —    —    35,455 
Construction of residential 1-4 family   11,889    —    —    —    —    11,889 
Home equity lines of credit   33,381    312    105    —    —    33,798 
Residential real estate   416,191    4,689    6,561    —    —    427,441 
Commercial   271,708    10,964    7,052    71    —    289,795 
Construction of commercial   8,225    —    241    —    —    8,466 
Commercial real estate   279,933    10,964    7,293    71    —    298,261 
Farm land   1,934    —    1,707    —    —    3,641 
Vacant land   7,834    59    —    —    —    7,893 
Real estate secured   705,892    15,712    15,561    71    —    737,236 
Commercial and industrial   167,458    443    1,510    —    —    169,411 
Municipal   21,914    —    —    —    —    21,914 
Consumer   6,344    3    38    —    —    6,385 
Loans receivable, gross  $901,608   $16,158   $17,109   $71   $—   $934,946 

  

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

      Past due   
                         
               180  30  Accruing   
(in thousands)          days  days  90 days 
      30-59  60-89  90-179  and  and  and  Non-
    Current  days  days  days  over  over  over  accrual
March 31, 2020                        
Residential 1-4 family  $349,628   $3,211   $236   $37   $—   $3,484   $—   $1,019 
Residential 5+ multifamily   34,147    —    —    —    861    861    —    861 
Construction of residential 1-4 family   12,214    —    —    —    —    —    —    — 
Home equity lines of credit   31,300    337    89    103    78    607    —    207 
Residential real estate   427,289    3,548    325    140    939    4,952    —    2,087 
Commercial   307,973    2,114    278    —    71    2,463    —    755 
Construction of commercial   10,922    —    —    —    —    —    —    — 
Commercial real estate   318,895    2,114    278    —    71    2,463    —    755 
Farm land   3,436    176    —    —    —    176    —    181 
Vacant land   14,447    —    —    41    —    41    41    — 
Real estate secured   764,067    5,838    603    181    1,010    7,632    41    3,023 
Commercial and industrial   157,341    83    25    124    —    232    27    97 
Municipal   20,964    —    —    —    —    —    —    — 
Consumer   8,190    4    1    —    —    5    —    — 
Loans receivable, gross  $950,562   $5,925   $629   $305   $1,010   $7,869   $68   $3,120 

 

      Past due   
                         
               180  30  Accruing   
(in thousands)          days  days  90 days 
      30-59  60-89  90-179  and  and  and  Non-
    Current  days  days  days  over  over  over  accrual
December 31, 2019                        
Residential 1-4 family  $344,085   $971   $351   $200   $692   $2,214   $—   $1,551 
Residential 5+ multifamily   34,594    —    —    —    861    861    —    861 
Construction of residential 1-4 family   11,889    —    —    —    —    —    —    — 
Home equity lines of credit   33,522    152    46    —    78    276    —    105 
Residential real estate   424,090    1,123    397    200    1,631    3,351    —    2,517 
Commercial   289,103    336    141    71    144    692    —    914 
Construction of commercial   8,466    —    —    —    —    —    —    — 
Commercial real estate   297,569    336    141    71    144    692    —    914 
Farm land   3,461    180    —    —    —    180    —    186 
Vacant land   7,852    —    41    —    —    41    —    — 
Real estate secured   732,972    1,639    579    271    1,775    4,264    —    3,617 
Commercial and industrial   169,262    2    146    1    —    149    1    — 
Municipal   21,914    —    —    —    —    —    —    — 
Consumer   6,382    —    1    2    —    3    2    — 
Loans receivable, gross  $930,530   $1,641   $726   $274   $1,775   $4,416   $3   $3,617 

 

 

Troubled Debt Restructurings (TDRs)

Troubled debt restructurings are as follows:

   For the three months ending March 31, 2020  For the three months ending March 31, 2019
(in thousands)  Quantity  Pre-modification balance  Post-modification balance  Quantity  Pre-modification balance  Post-modification balance
Residential real estate   —   $—   $—    —   $—   $— 
Commercial real estate   1    133    133    —    —    — 
Consumer   —    —    —    —    —    — 
Troubled debt restructurings   1   $133   $133    —   $—   $— 
Interest only payments to sell property   —   $—   $—    —   $—   $— 
Rate reduction   —    —    —    —    —    — 
Modification and Rate reduction   —    —    —    —    —    — 
Workout refinance. Extension of new funds to pay outstanding taxes   1    133    133    —    —    — 
Modification and term extension   —    —    —    —    —    — 
Troubled debt restructurings   1   $133   $133    —   $—   $— 

For the three months ended March 31, 2020, there was one troubled debt restructurings. For the three months ended March 31, 2019, there were no troubled debt restructurings. Salisbury currently does not have any commitments to lend additional funds to TDR loans.

There were no modifications for TDRs within the last year where a concession has been made, that then defaulted in the current reporting period. All TDR loans are included in the Impaired Loan schedule and are individually evaluated.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

   Three months ended March 31, 2020  Three months ended March 31, 2019
(in thousands)  Beginning balance  Provision  Charge- offs  Reco- veries  Ending balance  Beginning balance  Acquisition Discount Transfer  Provision  Charge- offs  Reco- veries  Ending balance
Residential 1-4 family  $2,393   $306   $—   $7   $2,706   $2,149   $10   $(180)  $—   $1   $1,980 
Residential 5+ multifamily   446    62    —    —    508    413    —    53    —    —    466 
Construction of residential 1-4 family   75    12    —    —    87    83    —    (6)   —    —    77 
Home equity lines of credit   197    81    —    —    278    219    1    (11)   —    —    209 
Residential real estate   3,111    461    —    7    3,579    2,864    11    (144)   —    1    2,732 
Commercial   3,742    758    —    19    4,519    3,048    488    276    (9)   —    3,803 
Construction of commercial   104    22    —    —    126    122    —    21    —    —    143 
Commercial real estate   3,846    780    —    19    4,645    3,170    488    297    (9)   —    3,946 
Farm land   47    5    —    —    52    33    —    14    —    —    47 
Vacant land   71    73    —    —    144    100    —    (11)   —    —    89 
Real estate secured   7,075    1,319    —    26    8,420    6,167    499    156    (9)   1    6,814 
Commercial and industrial   1,145    (74)   —    —    1,071    1,158    164    (61)   (30)   2    1,233 
Municipal   46    7    —    —    53    12    —    2    —    —    14 
Consumer   60    51    (12)   3    102    56    —    (3)   (6)   4    51 
Unallocated   569    403    —    —    972    438    —    200    —    —    638 
Totals  $8,895   $1,706   $(12)  $29   $10,618   $7,831   $663   $294   $(45)  $7   $8,750 

 

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

  (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
March 31, 2020                              
Residential 1-4 family  $348,369   $2,400   $4,743   $306   $353,112   $2,706 
Residential 5+ multifamily   34,031    508    977    —    35,008    508 
Construction of residential 1-4 family   12,214    87    —    —    12,214    87 
Home equity lines of credit   31,700    252    207    26    31,907    278 
Residential real estate   426,314    3,247    5,927    332    432,241    3,579 
Commercial   306,125    3,986    4,311    533    310,436    4,519 
Construction of commercial   10,922    126    —    —    10,922    126 
Commercial real estate   317,047    4,112    4,311    533    321,358    4,645 
Farm land   3,431    52    181    —    3,612    52 
Vacant land   14,311    136    177    8    14,488    144 
Real estate secured   761,103    7,547    10,596    873    771,699    8,420 
Commercial and industrial   157,354    1,063    219    8    157,573    1,071 
Municipal   20,964    53    —    —    20,964    53 
Consumer   8,161    75    34    27    8,195    102 
Unallocated allowance   —    972    —    —    —    972 
Totals  $947,582   $9,710   $10,849   $908   $958,431   $10,618 

 

  (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2019                              
Residential 1-4 family  $340,847   $2,117   $5,452   $276   $346,299   $2,393 
Residential 5+ multifamily   34,478    446    977    —    35,455    446 
Construction of residential 1-4 family   11,889    75    —    —    11,889    75 
Home equity lines of credit   33,693    197    105    —    33,798    197 
Residential real estate   420,907    2,835    6,534    276    427,441    3,111 
Commercial   285,462    3,333    4,333    409    289,795    3,742 
Construction of commercial   8,466    104    —    —    8,466    104 
Commercial real estate   293,928    3,437    4,333    409    298,261    3,846 
Farm land   3,455    47    186    —    3,641    47 
Vacant land   7,713    66    180    5    7,893    71 
Real estate secured   726,003    6,385    11,233    690    737,236    7,075 
Commercial and industrial   169,285    1,143    126    2    169,411    1,145 
Municipal   21,914    46    —    —    21,914    46 
Consumer   6,349    59    36    1    6,385    60 
Unallocated allowance   —    569    —    —    —    569 
Totals  $923,551   $8,202   $11,395   $693   $934,946   $8,895 

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

March 30, 2020 (in thousands) Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans   Allowance 
Performing loans  $930,294   $8,044   $—   $—   $930,294   $8,044 
Potential problem loans 1   17,288    694    —    —    17,288    694 
Impaired loans   —    —    10,849    908    10,849    908 
Unallocated allowance   —    972    —    —    —    972 
Totals  $947,582   $9,710   $10,849   $908   $958,431   $10,618 

 

December 31, 2019 (in thousands) Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans   Allowance 
Performing loans  $913,648   $7,251   $—   $—   $913,648   $7,251 
Potential problem loans 1   9,903    382    —    —    9,903    382 
Impaired loans   —    —    11,395    693    11,395    693 
Unallocated allowance   —    569    —    —    —    569 
Totals  $923,551   $8,202   $11,395   $693   $934,946   $8,895 

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

A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the present value of expected cash flows or the 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 as of and for the three months ended:

   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 
March 31, 2020                           
Residential  $4,015   $4,140   $4,067   $306   $42   $1,705   $2,019   $2,070   $6 
Home equity lines of credit   89    89    22    26    —    118    464    108    — 
Residential real estate   4,104    4,229    4,089    332    42    1,823    2,483    2,178    6 
Commercial   3,672    3,741    3,405    533    44    638    1,254    924    10 
Construction of commercial   —    —    —    —    —    —    —    —    — 
Farm land   —    —    —    —    —    181    327    184    — 
Vacant land   41    41    41    8    1    137    154    138    2 
Real estate secured   7,817    8,011    7,535    873    87    2,779    4,218    3,424    18 
Commercial and industrial   166    170    111    8    1    53    207    86    1 
Consumer   34    34    35    27    —    —    —    —    — 
Totals  $8,017   $8,215   $7,681   $908   $88   $2,832   $4,425   $3,510   $19 

 

 

   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 
March 31, 2019                           
Residential  $2,769   $2,823   $2,780   $113   $27   $3,454   $4,758   $3,620   $16 
Home equity lines of credit   45    45    46    2    1    407    495    409    — 
Residential real estate   2,814    2,868    2,826    115    28    3,861    5,253    4,029    16 
Commercial   2,568    2,568    1,993    186    24    2,427    3,912    2,748    14 
Construction of commercial   249    249    251    14    —    100    108    101    2 
Farm land   —    —    —    —    —    212    430    215    — 
Vacant land   42    42    42    2    1    145    165    146    3 
Real estate secured   5,673    5,727    5,112    317    53    6,745    9,868    7,239    35 
Commercial and industrial   —    —    —    —    —    498    620    500    2 
Consumer   —    —    —    —    —    —    1    —    — 
Totals  $5,673   $5,727   $5,112   $317   $53   $7,243   $10,489   $7,739   $37 

 

Certain data with respect to loans individually evaluated for impairment is as follows as of and for the year ended December 31, 2019:

   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, 2019                           
Residential  $4,111   $4,190   $3,725   $276   $162   $2,318   $3,081   $2,940   $52 
Home equity lines of credit   —    —    52    —    —    105    450    391    — 
Residential real estate   4,111    4,190    3,777    276    162    2,423    3,531    3,331    52 
Commercial   3,309    3,335    2,574    409    90    1,024    1,733    1,747    54 
Construction of commercial   —    —    77    —    —    —    —    39    — 
Farm land   —    —    —    —    —    186    329    203    — 
Vacant land   41    41    42    5    3    139    157    143    10 
Real estate secured   7,461    7,566    6,470    690    255    3,772    5,750    5,463    116 
Commercial and industrial   93    97    16    2    4    33    188    265    4 
Consumer   36    36    21    1    —    —    —    3    — 
Totals  $7,590   $7,699   $6,507   $693   $259   $3,805   $5,938   $5,731   $120