NOTE 2 - SECURITIES

9 Months Ended

Sep. 30, 2021

Investments, Debt and Equity Securities [Abstract]

NOTE 2 - SECURITIES

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)		Amortized cost basis		Gross un-realized gains		Gross un-realized losses		Fair value
September 30, 2021
Available-for-sale
U.S. Treasury	$	10,397	$	-	$	95	$	10,302
U.S. Government Agency notes		32,093		280		99		32,274
Municipal bonds		38,525		1,331		251		39,605
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		67,059		818		698		67,179
Collateralized mortgage obligations:
U.S. Government agencies		14,844		208		41		15,011
Corporate bonds		11,000		197		-		11,197
Total securities available-for-sale	$	173,918	$	2,834	$	1,184	$	175,568
CRA mutual fund							$	907
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	1,504	$	-	$	-	$	1,504

(in thousands)		Amortized cost basis		Gross un-realized gains		Gross un-realized losses		Fair value
December 31, 2020
Available-for-sale
U.S. Government Agency notes	$	7,735	$	153	$	37	$	7,851
Municipal bonds		25,831		1,787		1		27,617
Mortgage-backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		35,240		1,376		43		36,573
Collateralized mortgage obligations:
U.S. Government agencies		17,054		400		-		17,454
Corporate bonds		8,750		166		-		8,916
Total securities available-for-sale	$	94,610	$	3,882	$	81	$	98,411
CRA mutual fund							$	917
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	1,713	$	-	$	-	$	1,713

In third quarter 2021, $7.0 million of available-for-sale securities were called, resulting in a pre-tax gain of $7 thousand and a related tax expense of $1.4 thousand. Salisbury did not sell any available-for-sale securities during the three month period ended September 30, 2021. Salisbury sold $3.3 million of available-for-sale securities during the nine month period ended September 30, 2021 realizing a pre-tax loss of $2 thousand and a related tax benefit of $0.4 thousand. Salisbury sold $1.9 million of available-for-sale securities during the three month period ended September 30, 2020 realizing a pre-tax gain of $34 thousand and related tax expense of $7 thousand. Salisbury sold $12.5 million of available-for-sale securities during the nine month period ended September 30, 2020 realizing a pre-tax gain of $216 thousand and a related tax expense of $45 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, 2021 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	10,302	$	95	$	-	$	-	$	10,302	$	95
U.S. Government Agency notes		20,550		80		1,125		19		21,675		99
Municipal bonds		13,980		251		-		-		13,980		251
Mortgage- backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		42,471		647		1,398		26		43,869		698
Collateralized mortgage obligations		4,625		66		-		-		4,625		41
Corporate bonds		-		-		-		-		-		-
Total temporarily impaired securities	$	91,928	$	1,139	$	2,523	$	45	$	94,451	$	1,184

	Less than 12 Months				12 Months or Longer				Total
December 31, 2020 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Government Agency notes	$	2,553	$	36	$	20	$	1	$	2,573	$	37
Municipal bonds		558		1		-		-		558		1
Mortgage- backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		3,761		42		45		1		3,806		43
Total temporarily impaired securities	$	6,872	$	79	$	65	$	2	$	6,937	$	81

The table below presents the amortized cost, fair value and tax equivalent yield of securities, by maturity. Debt securities issued by U.S. Government agencies (SBA securities), MBS, and CMOS are disclosed separately in the table below as these securities may prepay prior to the scheduled contractual maturity dates.

September 30, 2021 (in thousands)	Maturity	Amortized cost			Fair value	Yield(1)
U.S. Treasury	After 5 year but within 10 years	$	10,397	$	10,302	1.15	%
U.S. Government Agency notes	After 5 year but within 10 years		15,902		15,848	1.23
	Total		26,299		26,150	1.20
Municipal bonds	After 5 year but within 10 years		3,594		3,820	2.80
	After 10 years		34,931		35,785	2.61
	Total		38,525		39,605	2.63
Mortgage-backed securities, Collateralized mortgage obligations,	Securities not due at a single maturity date		98,094		98,616	1.64
Corporate bonds	After 5 years but within 10 years		11,000		11,197	4.61
Securities available-for-sale		$	173,918	$	175,568	2.04	%

⁽¹⁾ Yield is based on amortized cost.

Salisbury evaluates debt 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, 2021.

U.S. Treasury notes: The contractual cash flows are guaranteed by the U.S. government. Four securities had unrealized losses at September 30, 2021, which approximated 0.91% 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, 2021.

U.S. Government Agency notes: The contractual cash flows are guaranteed by the U.S. government. Nineteen securities had unrealized losses at September 30, 2021, which approximated 0.45% 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, 2021.

Municipal bonds: Salisbury performed a detailed analysis of the municipal bond portfolio. Sixteen securities had unrealized losses at September 30, 2021, which approximated 1.77% 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, 2021.

U.S. Government agency and U.S. Government-sponsored enterprise securities and collateralized mortgage obligations: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Forty nine securities had unrealized losses at September 30, 2021, which approximated 1.51% 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, 2021.

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, 2021. 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.