NOTE 10 - SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2021

Equity [Abstract]

NOTE 10 - SHAREHOLDERS' EQUITY

NOTE 10 - SHAREHOLDERS' EQUITY

Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. As of September 30, 2021, the Company and the Bank met each of their capital requirements.

The Company and the Bank became subject to capital regulations adopted by the Board of Governors of the Federal Reserve System (FRB) and the FDIC, which implemented the Basel III regulatory capital reforms and the changes required by the Dodd-Frank Act. The required minimum regulatory capital ratios to which the Bank is subject, and the minimum ratios required for the Bank to be categorized as "well capitalized" under the prompt corrective action framework are noted in the table below. In addition, the regulations established a capital conservation buffer of 2.5% effective January 1, 2019. Failure to maintain the capital conservation buffer will limit the ability of the Company and the Bank to pay discretionary bonuses and dividends. At September 30, 2021, the Bank exceeded the minimum requirement for the capital conservation buffer. As of September 30,2021, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed that categorization.

On March 31, 2021, Salisbury issued $25 million of subordinated debt that matures in 2031. During the first five years, the debt is non-callable, and the coupon is fixed at 3.50%. After year five, the coupon will float at the then three-month Secured Overnight Financing Rate plus 280 basis points. At March 31, 2021, $15 million of the net proceeds was retained at the holding company level and the remainder was allocated to the Bank. On May 28, 2021, Salisbury redeemed in full the $10 million of subordinated debt that was issued in 2015 and retained at the holding company.

As of September 30, 2021, Salisbury did not repurchase any of its common shares pursuant to the Common Stock Repurchase Plan approved by the Board of Directors in March 2021.

The Bank's risk-weighted assets at September 30, 2021 and December 31, 2020 were $1.05 billion and $938.0 million, respectively. Actual regulatory capital position and minimum capital requirements as defined "To Be Well Capitalized Under Prompt Corrective Action Provisions" and "For Capital Adequacy Purposes" for the Bank are as follows:

	Actual					Minimum Capital Required For Capital Adequacy					Minimum Capital Required For Capital Adequacy Plus Required Capital Conservation Buffer					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Total Capital (to risk-weighted assets)	$	149,213		14.20	%	$	84,080		8.0	%	$	110,355		10.5	%	$	105,100		10.0	%
Tier 1 Capital (to risk-weighted assets)		136,074		12.95			63,060		6.0			89,335		8.5			84,080		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)		136,074		12.95			47,295		4.5			73,570		7.0			68,315		6.5
Tier 1 Capital (to average assets)	$	136,074		9.31		$	58,451		4.0		$	58,451		4.0		$	73,063		5.0
December 31, 2020
Total Capital (to risk-weighted assets)	$	127,254		13.57	%	$	75,037		8.0	%	$	98,486		10.5	%	$	93,796		10.0	%
Tier 1 Capital (to risk-weighted assets)		115,503		12.31			56,278		6.0			79,727		8.5			75,037		8.0
Common Equity Tier 1 Capital (to risk-weighted assets)		115,503		12.31			42,208		4.5			66,657		7.0			60,967		6.5
Tier 1 Capital (to average assets)	$	115,503		8.90		$	51,907		4.0		$	51,907		4.0		$	64,884		5.0

Restrictions on Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.

FRB Supervisory Letter SR 09-4, February 24, 2009, revised March 30, 2009, notes that, as a general matter, the Board of Directors of a Bank Holding Company ("BHC") should inform the Federal Reserve and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital structure.