NOTE 13 – FAIR VALUE OF ASSETS AND LIABILITIES

6 Months Ended

Jun. 30, 2023

Fair Value Disclosures [Abstract]

NOTE 13 – FAIR VALUE OF ASSETS AND LIABILITIES

NOTE 13 – 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 mutual funds 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.

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 mutual funds. Securities available-for-sale and mutual funds 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
June 30, 2023
Assets at fair value on a recurring basis
U.S. Treasury	$	—	$	17,245	$	—	$	17,245
U.S. Government Agency notes		—		25,516		—		25,516
Municipal bonds		—		43,662		—		43,662
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		58,069		—		58,069
Collateralized mortgage obligations:
U.S. Government agencies		—		20,825		—		20,825
Corporate bonds		803		11,357		—		12,160
Securities available-for-sale	$	803	$	176,674	$	—	$	177,477
Mutual funds		2,020		—		—		2,020

December 31, 2022
Assets at fair value on a recurring basis
U.S. Treasury	$	—	$	17,133	$	—	$	17,133
U.S. Government Agency notes		—		27,154		—		27,154
Municipal bonds		—		46,538		—		46,538
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		61,875		—		61,875
Collateralized mortgage obligations:
U.S. Government agencies		—		21,936		—		21,936
Corporate bonds		833		11,941		—		12,744
Securities available-for-sale	$	833	$	186,577	$	—	$	187,410
Mutual funds		1,933		—		—		1,933

At June 30, 2023 and December 31, 2022, Salisbury did not have any assets measured at fair value on a non-recurring basis.

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
June 30, 2023
Financial Assets
Cash and cash equivalents	$	54,057	$	54,057	$	54,057	$	—	$	—
Securities available-for-sale, net		177,477		177,477		803		176,674		—
Mutual funds		2,020		2,020		2,020		—		—
Federal Home Loan Bank of Boston stock		1,488		1,488		—		1,488		—
Loans held-for-sale		—		—		—		—		—
Loans receivable, net		1,237,511		1,180,881		—		—		1,180,881
Accrued interest receivable		6,546		6,546		—		6,546		—
Cash surrender value of life insurance policies		30,248		30,248		—		30,248		—
Financial Liabilities
Demand (non-interest-bearing)	$	353,794	$	353,794	$	—	$	353,794	$	—
Demand (interest-bearing)		219,483		219,483		—		219,483		—
Money market		361,004		361,004		—		361,004		—
Savings and other		218,339		218,339		—		218,339		—
Certificates of deposit		207,330		206,311		—		206,311		—
Deposits		1,359,950		1,358,931		—		1,358,931		—
Repurchase agreements		7,492		7,492		—		7,492		—
FHLBB advances		20,000		20,000		—		20,000		—
Subordinated debt		24,559		20,257		—		20,257		—
Note payable		106		103		—		103		—
Finance lease obligation		4,189		3,357		—		—		3,357
Accrued interest payable		721		721		—		721		—

December 31, 2022
Financial Assets
Cash and cash equivalents	$	50,539	$	50,539	$	50,539	$	—	$	—
Securities available-for-sale		187,410		187,410		833		186,577		—
Mutual fund		1,933		1,933		1,933		—		—
Federal Home Loan Bank of Boston stock		1,285		1,285		—		1,285		—
Loans held-for-sale		—		—		—		—		—
Loans receivable, net		1,213,671		1,172,416		—		—		1,172,416
Accrued interest receivable		6,797		6,797		—		6,797		—
Cash surrender value of life insurance policies		30,379		30,379		—		30,379		—
Financial Liabilities
Demand (non-interest-bearing)	$	395,994	$	395,994	$	—	$	395,994	$	—
Demand (interest-bearing)		231,486		231,486		—		231,486		—
Money market		343,965		343,965		—		343,965		—
Savings and other		233,578		233,578		—		233,578		—
Certificates of deposit		153,370		153,411		—		153,411		—
Deposits		1,358,393		1,358,434		—		1,358,434		—
Repurchase agreements		7,228		7,228		—		7,228		—
FHLBB advances		10,000		10,000		—		10,000		—
Subordinated debt		24,531		21,670		—		21,670		—
Note payable		128		125		—		125		—
Finance lease liability		4,262		3,546		—		—		3,546
Accrued interest payable		210		210		—		210		—

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions or are included in accrued interest and other liabilities.