SECURITIES

12 Months Ended

Dec. 31, 2011

SecuritiesAbstract

SECURITIES

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)	Amortized cost (1)		Gross un-realized gains		Gross un-realized losses			Fair value
December 31, 2011
Available-for-sale
U.S. Treasury notes	$	5,000	$	528	$	—		$	5,528
U.S. Government Agency notes		14,544		380		—			14,924
Municipal bonds		50,881		1,067		(1,152	)		50,796
Mortgage backed securities
U.S. Government Agencies		57,193		1,126		(19	)		58,300
Collateralized mortgage obligations
U.S. Government Agencies		7,077		76		—			7,153
Non-agency		14,300		355		(488	)		14,167
SBA bonds		3,629		77		—			3,706
Corporate bonds		1,100		4		—			1,104
Preferred Stock		20		96		—			116
Total securities available-for-sale	$	153,744	$	3,709	$	(1,659	)	$	155,794
Held-to-maturity
Mortgage backed security	$	50	$	2	$	—		$	52
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	6,032	$	—	$	—		$	6,032

(1) Net of other-than-temporary impairment write-down recognized in earnings.

(in thousands)	Amortized cost (1)		Gross un-realized gains		Gross un-realized losses			Fair value
December 31, 2010
Available-for-sale
U.S. Treasury notes	$	4,999	$	197	$	—		$	5,196
U.S. Government Agency notes		41,590		380		(92	)		41,878
Municipal bonds		51,330		139		(5,371	)		46,098
Mortgage backed securities
U.S. Government Agencies		19,190		566		(20	)		19,736
Collateralized mortgage obligations
U.S. Government Agencies		9,283		29		(1	)		9,311
Non-agency		19,002		714		(599	)		19,117
SBA bonds		4,831		70		—			4,901
Corporate bonds		1,089		41		—			1,130
Preferred Stock		20		35		—			55
Total securities available-for-sale	$	151,334	$	2,171	$	(6,083	)	$	147,422
Held-to-maturity
Mortgage backed security	$	56	$	2	$	—		$	58
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	6,032	$	—	$	—		$	6,032

Sales of securities available-for-sale and gains realized are as follows:

Years ended December 31, (in thousands)	2011		2010		2009
Proceeds	$	—	$	—	$	37,818
Gains realized		—		—		600
Losses realized		—		—		(135	)
Net gains realized		—		—		465
Income tax provision		—		—		158

The following table summarizes, for all securities, including debt securities for which a portion of other-than-temporary impairment has been recognized in other comprehensive income, in an unrealized loss position, the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the dates presented:

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair Value		Unrealized losses
December 31, 2011
Available-for-sale
Municipal Bonds	$	—	$	—	$	11,526	$	1,152	$	11,526	$	1,152
Mortgage backed securities		14,881		18		56		1		14,937		19
Collateralized mortgage obligations
Non-agency		2,129		113		1,074		134		3,203		247
Total temporarily impaired securities		17,010		131		12,656		1,287		29,666		1,418
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		2,585		93		1,559		147		4,144		241
Total temporarily impaired and other-than-
temporarily impaired securities	$	19,595	$	224	$	14,215	$	1,435	$	33,810	$	1,659
December 31, 2010
Available-for-sale
U.S. Government Agency notes	$	9,908	$	92	$	—	$	—	$	9,908	$	92
Municipal Bonds		28,677		1,708		14,965		3,663		43,642		5,371
Mortgage backed securities		2,190		20		—		—		2,190		20
Collateralized mortgage obligations
U.S. Government Agencies		4,659		1		—		—		4,659		1
Non-agency		—		—		3,558		189		3,558		189
Total temporarily impaired securities		45,434		1,821		18,523		3,852		63,957		5,673
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		1,055		104		2,737		306		3,792		410
Total temporarily and other-than-temporarily impaired securities	$	46,489	$	1,925	$	21,260	$	4,158	$	67,749	$	6,083

Securities amortized cost, fair value and tax equivalent yield by maturity are as follows:

December 31, 2011 (dollars in thousands)		Amortized cost		Fair value		Yield(1)
U.S. Treasury notes	After 1 year but within 5 years	$	5,000	$	5,528	3.06	%
U.S. Government Agency notes	After 1 year but within 5 years		9,999		10,092	1.41
	After 10 years but within 15 years		2,022		2,045	3.15
	After 15 years		2,523		2,787	5.03
	Total		14,544		14,924	2.28
Municipal bonds	After 5 years but within 10 years		621		639	5.49
	After 10 years but within 15 years		4,264		4,300	6.11
	After 15 years		45,996		45,857	6.38
	Total		50,881		50,796	6.34
Mortgage backed securities	U.S. Government Agency		57,193		58,300	2.67
Collateralized mortgage obligations	U.S. Government Agency		7,077		7,153	1.11
	Non-agency		14,300		14,167	5.60
SBA bonds			3,629		3,706	1.58
Corporate bonds	Within 1 year
Preferred Stock			20		116	0.00
Securities available-for-sale		$	153,744	$	155,794	4.05
Mortgage backed security held-to-maturity		$	50	$	52	2.33	%

(1) Yield is based on amortized cost.

Salisbury evaluates 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 its 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 December 31, 2011.

U.S Government Agency notes, U.S. Government Agency mortgage-backed securities and U.S. Government Agency CMOs: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. 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 does not intend to sell these securities and 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. Therefore, management does not consider these securities to be OTTI at December 31, 2011.

Municipal bonds: Contractual cash flows are performing as expected. Salisbury purchased substantially all of these securities during 2006-to-2008 as bank qualified, insured, AAA rated general obligation or revenue bonds. Salisbury’s portfolio is mostly comprised of tax-exempt general obligation bonds or public-purpose revenue bonds for schools, municipal offices, sewer infrastructure and fire houses, for small towns and municipalities across the United States. In the wake of the financial crisis, most monoline bond insurers had their ratings downgraded or withdrawn because of excessive exposure to insurance for collateralized debt obligations. Where appropriate Salisbury performs credit underwriting reviews of issuers, including some that have had their ratings withdrawn and are insured by insurers that have had their ratings withdrawn, to assess default risk. For all completed reviews pass credit risk ratings have been assigned. Management expects to recover the entire amortized cost basis of these securities. Salisbury does not intend to sell these securities and 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. Management does not consider these securities to be OTTI at December 31, 2011.

Non-agency CMOs: Salisbury monitors detailed cash flow data and projections for its non-agency CMOs, including at December 31, 2011, to assess whether any of the securities were OTTI. Salisbury uses third party provided cash flow forecasts for each security based on a variety of market driven assumptions and securitization terms, including prepayment speed, default or delinquency rate, and default severity for losses including interest, legal fees, property repairs, expenses and realtor fees, that, together with the loan amount are subtracted from collateral sales proceeds to determine severity. In 2009 Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1,128,000. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of December 31, 2011. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury does not intend to sell these securities and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis.

Securities for which an OTTI has been recognized are as follows:

Years ended December 31, (in thousands)	2011		2010
Non-Agency CMOs
OTTI losses (unrealized and realized)	$	—	$	—
Less: unrealized OTTI recognized in other comprehensive loss		—		—
Net impairment losses recognized in earnings	$	—	$	—

The following table presents activity related to credit losses recognized into earnings on the non-agency CMOs held by Salisbury for which a portion of an OTTI charge was recognized in accumulated other comprehensive income:

Years ended December 31, (in thousands)	2011		2010
Balance, beginning of period	$	1,128	$	1,128
Credit component on debt securities in which OTTI was not previously recognized		—		—
Balance, end of period	$	1,128	$	1,128