FAIR VALUE OF ASSETS AND LIABILITIES

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE OF ASSETS AND LIABILITIES

NOTE 11 – 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 and the CRA mutual fund 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.

Salisbury adopted ASC 820-10, “Fair Value Measurement - Overall,” which 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 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 year ended December 31, 2019.

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 and the CRA mutual fund. Securities available-for-sale and the CRA mutual fund 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.

Assets measured at fair value are as follows:

	Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair
							value
March 31, 2020
Assets at fair value on a recurring basis
U.S. Government Agency notes	$	—	$	4,391	$	—	$	4,391
Municipal bonds		—		27,250		—		27,250
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		29,843		—		29,843
Collateralized mortgage obligations:
U.S. Government agencies		—		24,727		—		24,727
Corporate bonds		—		5,122		—		5,122
Securities available-for-sale	$	—	$	91,333	$	—	$	91,333
CRA mutual funds		900		—		—		900
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	1,207	$	1,207
Other real estate owned	$	—	$	—	$	—	$	—
December 31, 2019
Assets at fair value on a recurring basis
U.S. Government Agency notes	$	—	$	4,644	$	—	$	4,644
Municipal bonds		—		27,193		—		27,193
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		29,357		—		29,357
Collateralized mortgage obligations:
U.S. Government agencies		—		25,499		—		25,499
Corporate bonds		—		5,108		—		5,108
Securities available-for-sale	$	—	$	91,801	$	—	$	91,801
CRA mutual funds		882		—		—		882
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	1,593	$	1,593
Other real estate owned	$	—	$	—	$	314	$	314

 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
March 31, 2020
Financial Assets
Cash and cash equivalents	$	39,262	$	39,262	$	39,262	$	—	$	—
Interest bearing time deposits with financial institutions		750		750		750
Securities available-for-sale, net		91,333		91,333		—		91,333		—
CRA mutual fund		900		900		900		—		—
Federal Home Loan Bank of Boston stock		2,733		2,733		2,733		—		—
Loans held-for-sale		580		589		—		—		589
Loans receivable, net		949,142		948,157		—		—		948,157
Accrued interest receivable		3,437		3,437		3,437		—		—
Cash surrender value of life insurance policies		20,714		20,714		20,714		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	243,491	$	243,491	$	—	$	243,491	$	—
Demand (interest-bearing)		157,069		157,069		—		157,069		—
Money market		222,746		222,746		—		222,746		—
Savings and other		167,408		167,408		—		167,408		—
Certificates of deposit		174,906		176,461		—		176,461		—
Deposits		965,620		967,175		—		967,175		—
Repurchase agreements		4,929		4,929		—		4,929		—
FHLBB advances		40,932		41,167		—		41,167		—
Subordinated debt		9,865		9,958		9,958		—		—
Note payable		237		241		—		241		—
Finance lease obligation		1,707		1,935		—		—		1,938
Accrued interest payable		297		297		297		—		—
December 31, 2019
Financial Assets
Cash and cash equivalents	$	26,885	$	26,885	$	26,885	$	—	$	—
Interest bearing time deposits with financial institutions		750		750		750		—		—
Securities available-for-sale		91,801		91,801		—		91,801		—
CRA mutual fund		882		882		882		—		—
Federal Home Loan Bank of Boston stock		3,242		3,242		3,242		—		—
Loans held-for-sale		332		334		—		—		334
Loans receivable, net		927,413		933,287		—		—		933,287
Accrued interest receivable		3,415		3,415		3,415		—		—
Cash surrender value of life insurance policies		20,580		20,580		20,580		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	237,852	$	237,852	$	—	$	237,852	$	—
Demand (interest-bearing)		153,314		153,314		—		153,314		—
Money market		239,504		239,504		—		239,504		—
Savings and other		161,112		161,112		—		161,112		—
Certificates of deposit		127,724		128,629		—		128,629		—
Deposits		919,506		920,411		—		920,411		—
Repurchase agreements		8,530		8,530		—		8,530		—
FHLBB advances		50,887		51,028		—		51,028		—
Subordinated debt		9,859		10,113		10,113		—		—
Note payable		246		251		—		251		—
Finance lease liability		1,718		1,967		—		—		1,967
Accrued interest payable		78		78		78		—		—