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LOANS

3 Months Ended

Jun. 30, 2012

NOTE 3 - LOANS

The composition of loans receivable and loans held-for-sale is as follows:

(in thousands)	June 30, 2012	December 31, 2011
Residential 1-4 family	$ 194,784	$ 187,676
Residential 5+ multifamily	3,583	3,187
Construction of residential 1-4 family	2,478	5,305
Home equity credit	35,584	34,621
Residential real estate	236,429	230,789
Commercial	83,227	81,958
Construction of commercial	7,969	7,069
Commercial real estate	91,196	89,027
Farm land	3,818	4,925
Vacant land	11,489	12,828
Real estate secured	342,932	337,569
Commercial and industrial	30,678	29,358
Municipal	2,689	2,415
Consumer	4,085	4,496
Loans receivable, gross	380,384	373,838
Deferred loan origination fees and costs, net	1,036	1,004
Allowance for loan losses	(4,208)	(4,076)
Loans receivable, net	$ 377,212	$ 370,766
Loans held-for-sale
Residential 1-4 family	$ 3,155	$ 948

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut and nearby New York and Massachusetts towns, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, and installment and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

Credit Quality

The composition of loans receivable by credit risk rating is as follows:

(in thousands)	Pass	Special mention	Substandard	Doubtful	Loss	Total
June 30, 2012
Residential 1-4 family	$ 177,444	$ 13,283	$ 4,057	$ -	$ -	$ 194,784
Residential 5+ multifamily	2,797	786	-	-	-	3,583
Construction of residential 1-4 family	1,271	413	794	-	-	2,478
Home equity credit	32,410	1,578	1,596	-	-	35,584
Residential real estate	213,922	16,060	6,447	-	-	236,429
Commercial	62,246	10,038	10,943	-	-	83,227
Construction of commercial	7,198	300	471	-	-	7,969
Commercial real estate	69,444	10,338	11,414	-	-	91,196
Farm land	2,272	344	1,202	-	-	3,818
Vacant land	6,774	873	3,842	-	-	11,489
Real estate secured	292,412	27,615	22,905	-	-	342,932
Commercial and industrial	21,167	7,276	2,235	-	-	30,678
Municipal	2,689	-	-	-	-	2,689
Consumer	3,877	160	48	-	-	4,085
Loans receivable, gross	$ 320,145	$ 35,051	$ 25,188	$ -	$ -	$ 380,384

(in thousands)	Pass	Special mention	Substandard	Doubtful	Loss	Total
December 31, 2011
Residential 1-4 family	$ 168,326	$ 15,517	$ 3,833	$ -	$ -	$ 187,676
Residential 5+ multifamily	2,752	435	-	-	-	3,187
Construction of residential 1-4 family	4,116	415	774	-	-	5,305
Home equity credit	31,843	1,451	1,327	-	-	34,621
Residential real estate	207,037	17,818	5,934	-	-	230,789
Commercial	64,458	6,187	11,313	-	-	81,958
Construction of commercial	6,296	302	471	-	-	7,069
Commercial real estate	70,754	6,489	11,784	-	-	89,027
Farm land	2,327	1,768	830	-	-	4,925
Vacant land	8,039	883	3,906	-	-	12,828
Real estate secured	288,157	26,958	22,454	-	-	337,569
Commercial and industrial	21,104	6,847	1,407	-	-	29,358
Municipal	2,415	-	-	-	-	2,415
Consumer	4,254	178	64	-	-	4,496
Loans receivable, gross	$ 315,930	$ 33,983	$ 23,925	$ -	$ -	$ 373,838

Credit quality segments of loans receivable by credit risk rating are as follows:

(in thousands)	Pass	Special mention	Substandard	Doubtful	Loss	Total
June 30, 2012
Performing loans	$ 319,145	$ 33,460	$ -	$ -	$ -	$ 352,605
Potential problem loans	-	-	12,635	-	-	12,635
Troubled debt restructurings: accruing	1,000	1,591	4,144	-	-	6,735
Troubled debt restructurings: non-accrual	-	-	1,606	-	-	1,606
Other non-accrual loans	-	-	6,803	-	-	6,803
Impaired loans	1,000	1,591	12,553	-	-	15,144
Loans receivable, gross	$ 320,145	$ 35,051	$ 25,188	$ -	$ -	$ 380,384
December 31, 2011
Performing loans	$ 314,551	$ 32,570	$ -	$ -	$ -	$ 347,121
Potential problem loans	-	-	14,039	-	-	14,039
Troubled debt restructurings: accruing	1,379	1,413	1,810	-	-	4,602
Troubled debt restructurings: non-accrual	-	-	1,753	-	-	1,753
Other non-accrual loans	-	-	6,323	-	-	6,323
Impaired loans	1,379	1,413	9,886	-	-	12,678
Loans receivable, gross	$ 315,930	$ 33,983	$ 23,925	$ -	$ -	$ 373,838

Potential problem loans are performing loans risk rated substandard that are not classified as impaired. Impaired loans are loans for which it is probable that Salisbury will not be able to collect all principal and interest amounts due according to the contractual terms of the loan agreements.

The composition of loans receivable delinquency status by credit risk rating is as follows:

(in thousands)	Pass	Special mention	Substandard	Doubtful	Loss	Total
June 30, 2012
Current	$ 314,409	$ 30,252	$ 13,748	$ -	$ -	$ 358,409
Past due 001-029	5,241	3,784	2,642	-	-	11,667
Past due 030-059	392	659	856	-	-	1,907
Past due 060-089	103	356	732	-	-	1,191
Past due 090-179	-	-	879	-	-	879
Past due 180+	-	-	6,331	-	-	6,331
Loans receivable, gross	$ 320,145	$ 35,051	$ 25,188	$ -	$ -	$ 380,384
December 31, 2011
Current	$ 311,741	$ 31,407	$ 12,618	$ -	$ -	$ 355,766
Past due 001-029	3,696	1,195	3,517	-	-	8,408
Past due 030-059	435	1,024	674	-	-	2,133
Past due 060-089	58	357	46	-	-	461
Past due 090-179	-	-	1,095	-	-	1,095
Past due 180+	-	-	5,975	-	-	5,975
Loans receivable, gross	$ 315,930	$ 33,983	$ 23,925	$ -	$ -	$ 373,838

The composition of loans receivable by delinquency status is as follows:

(in thousands)	Current	Past due							Non- accrual
(in thousands)	Current	1-29 days	30-59 days	60-89 days	90-179 days	180 days and over	30 days and over	Accruing 90 days and over	Non- accrual
June 30, 2012
Residential 1-4 family	$ 185,821	$ 7,039	$ 562	$ 534	$ 97	$ 731	$ 1,924	$ -	$ 1,185
Residential 5+ multifamily	3,583	-	-	-	-	-	-	-	-
Residential 1-4 family construction	2,065	-	413	-	-	-	413	-	-
Home equity credit	34,289	783	47	76	355	34	512	-	463
Residential real estate	225,758	7,822	1,022	610	452	765	2,849	-	1,648
Commercial	77,435	3,082	733	58	427	1,492	2,710	-	2,511
Construction of commercial	7,804	144	-	-	-	21	21	-	21
Commercial real estate	85,239	3,226	733	58	427	1,513	2,731	-	2,532
Farm land	3,427	14	-	377	-	-	377	-	-
Vacant land	7,794	-	-	94	-	3,601	3,695	-	3,601
Real estate secured	322,218	11,062	1,755	1,139	879	5,879	9,652	-	7,781
Commercial and industrial	29,558	494	122	52	-	452	626	-	628
Municipal	2,689	-	-	-	-	-	-	-	-
Consumer	3,944	112	29	-	-	-	29	-	-
Loans receivable, gross	$358,409	$ 11,668	$ 1,906	$ 1,191	$ 879	$ 6,331	$ 10,307	$ -	$ 8,409
December 31, 2011
Residential 1-4 family	$ 182,263	$ 3,772	$ 811	$ 121	$ -	$ 709	$ 1,641	$ -	$ 1,240
Residential 5+ multifamily	2,918	-	112	157	-	-	269	-	-
Residential 1-4 family construction	5,305	-	-	-	-	-	-	-	-
Home equity credit	34,124	298	50	-	83	66	199		173
Residential real estate	224,610	4,070	973	278	83	775	2,109	-	1,413
Commercial	75,486	3,887	483	180	930	992	2,585	-	2,317
Construction of commercial	6,796	108	145	-	20	-	165	-	20
Commercial real estate	82,282	3,995	628	180	950	992	2,750	-	2,337
Farm land	4,499	46	380	-	-	-	380	-	-
Vacant land	9,047	73	50	-	-	3,658	3,708	-	3,658
Real estate secured	320,438	8,184	2,031	458	1,033	5,425	8,947	-	7,408
Commercial and industrial	28,542	152	51	1	62	550	664	-	668
Municipal	2,415	-	-	-	-	-	-	-	-
Consumer	4,371	72	51	2	-	-	53	-	-
Loans receivable, gross	$355,766	$ 8,408	$ 2,133	$ 461	$ 1,095	$ 5,975	$ 9,664	$ -	$ 8,076

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

(in thousands)	Three months ended June 30, 2012			Six months ended June 30, 2012
(in thousands)	Quantity	Pre-modification balance	Post-modification balance	Quantity	Pre-modification balance	Post-modification balance
Residential real estate	-	$ -	$ -	1	$ 326	$ 326
Commercial and industrial	1	1,570	1,570	6	2,349	2,349
Troubled debt restructurings	1	$ 1,570	$ 1,570	7	$ 2,675	$ 2,675
Rate reduction and term extension	-	$ -	$ -	2	$ 373	$ 373
Debt consolidation and term extension	1	1,570	1,570	4	2,276	2,276
Seasonal interest only concession	-	-	-	1	26	26
Troubled debt restructurings	1	$ 1,570	$ 1,570	7	$ 2,675	$ 2,675

Seven loans were restructured during the first half of 2012 and 62.36% were current at June 30, 2012.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

(in thousands)	Three months ended June 30					Six months ended June 30
(in thousands)	Beginning balance	Provision	Charge-offs	Reco-veries	Ending balance	Beginning balance	Provision	Charge-offs	Reco-veries	Ending balance
2012 Periods
Residential	$ 1,500	$ 95	$ (118)	$ -	$ 1,477	$ 1,479	$ 134	$ (136)	$ -	$ 1,477
Commercial	1,061	214	-	1	1,276	1,139	135	-	2	1,276
Land	339	(120)	-	-	219	409	(148)	(42)	-	219
Real estate	2,900	189	(118)	1	2,972	3,027	121	(178)	2	2,972
Commercial & industrial	778	38	-	5	821	704	138	(29)	8	821
Municipal	28	(1)	-	-	27	24	3	-	-	27
Consumer	132	(41)	(39)	13	65	79	17	(49)	18	65
Unallocated	328	(5)	-	-	323	242	81	-	-	323
Totals	$ 4,166	$ 180	$ (157)	$ 19	$ 4,208	$ 4,076	$ 360	$ (256)	$ 28	$ 4,208
2011 Periods
Residential	$ 1,462	$ 139	$ (20)	$ 2	$ 1,583	$ 1,504	$ 197	$ (121)	$ 3	$ 1,583
Commercial	1,343	(9)	(96)	-	1,238	1,132	282	(175)	-	1,239
Land	296	(25)	-	-	271	392	(42)	(79)	-	271
Real estate	3,101	105	(116)	2	3,092	3,028	437	(375)	3	3,093
Commercial & industrial	531	79	(89)	-	521	541	69	(89)	-	521
Municipal	55	(27)	-	-	28	51	(23)	-	-	28
Consumer	167	70	(159)	13	91	164	86	(179)	19	92
Unallocated	124	123	-	-	247	136	111	-	-	245
Totals	$ 3,978	$ 350	$ (364)	$ 15	$ 3,979	$ 3,920	$ 680	$ (643)	$ 22	$ 3,979

The composition of loans receivable and the allowance for loan losses is as follows:

(in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
(in thousands)	Loans	Allowance	Loans	Allowance	Loans	Allowance
June 30, 2012
Residential 1-4 family	$ 190,514	$ 762	$ 4,270	$ 269	$ 194,784	$ 1,031
Residential 5+ multifamily	2,842	22	741	-	3,583	22
Construction of residential 1-4 family	2,478	12	-	-	2,478	12
Home equity credit	35,098	396	486	16	35,584	412
Residential real estate	230,932	1,192	5,497	285	236,429	1,477
Commercial	76,898	882	6,329	288	83,227	1,170
Construction of commercial	7,948	85	21	21	7,969	106
Commercial real estate	84,846	967	6,350	309	91,196	1,276
Farm land	3,818	63	-	-	3,818	63
Vacant land	7,745	96	3,744	60	11,489	156
Real estate secured	327,341	2,318	15,591	654	342,932	2,972
Commercial and industrial	28,632	374	2,046	447	30,678	821
Municipal	2,689	27	-	-	2,689	27
Consumer	4,024	39	61	26	4,085	65
Unallocated allowance	-	-	-	-	-	323
Totals	$362,686	$ 2,758	$ 17,698	$ 1,127	$ 380,384	$ 4,208

(in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
(in thousands)	Loans	Allowance	Loans	Allowance	Loans	Allowance
December 31, 2011
Residential 1-4 family	$ 182,695	$ 762	$ 4,981	$ 297	$ 187,676	$ 1,059
Residential 5+ multifamily	2,437	17	750	4	3,187	21
Construction of residential 1-4 family	4,606	17	699	-	5,305	17
Home equity credit	34,333	382	288	-	34,621	382
Residential real estate	224,071	1,178	6,718	301	230,789	1,479
Commercial	74,419	840	7,539	202	81,958	1,042
Construction of commercial	7,049	77	20	20	7,069	97
Commercial real estate	81,468	917	7,559	222	89,027	1,139
Farm land	4,095	35	830	150	4,925	185
Vacant land	9,021	104	3,807	120	12,828	224
Real estate secured	318,655	2,234	18,914	793	337,569	3,027
Commercial and industrial	28,091	368	1,267	336	29,358	704
Municipal	2,415	24	-	-	2,415	24
Consumer	4,431	44	65	35	4,496	79
Unallocated allowance	-	-	-	-	-	242
Totals	$353,592	$ 2,670	$ 20,246	$ 1,164	$373,838	$ 4,076

The credit quality segments of loans receivable and the allowance for loan losses are as follows:

(in thousands)	Collectively evaluated		Individually evaluated		Total portfolio
(in thousands)	Loans	Allowance	Loans	Allowance	Loans	Allowance
June 30, 2012
Performing loans	$ 352,544	$ 2,451	$ 61	$ 26	$ 352,605	$ 2,477
Potential problem loans	10,142	307	2,493	106	12,635	413
Impaired loans	-	-	15,144	995	15,144	995
Unallocated allowance	-	-	-	-	-	323
Totals	$362,686	$ 2,758	$ 17,698	$ 1,127	$380,384	$ 4,208
December 31, 2011
Performing loans	$ 346,303	$ 2,436	$ 819	$ 35	$ 347,122	$ 2,471
Potential problem loans	7,289	234	6,750	255	14,039	489
Impaired loans	-	-	12,677	874	12,677	874
Unallocated allowance	-	-	-	-	-	242
Totals	$353,592	$ 2,670	$ 20,246	$ 1,164	$373,838	$ 4,076

Certain data with respect to impaired loans individually evaluated is as follows:

(in thousands)	Impaired loans with specific allowance					Impaired loans with no specific allowance
	Loan balance			Specific allowance	Income recognized	Loan balance			Income recognized
	Book	Note	Average	Specific allowance	Income recognized	Book	Note	Average	Income recognized
June 30, 2012
Residential 1-4 family	$ 1,892	$ 2,087	$ 2,178	$ 214	$ 45	$ 1,587	$ 1,614	$ 1,321	$ 7
Home equity credit	149	209	72	16	-	314	337	208	3
Residential real estate	2,041	2,296	2,250	230	45	1,901	1,951	1,529	10
Commercial	1,866	2,008	1,879	309	14	3,718	4,146	2,722	31
Vacant land	134	154	331	10	2	3,467	4,236	3,297	-
Real estate secured	4,041	4,458	4,460	549	61	9,086	10,333	7,548	41
Commercial and industrial	1,057	1,142	823	446	-	960	1,710	844	28
Consumer	-	-	-	-	-	-	143	-	-
Totals	$5,098	$5,600	$ 5,283	$ 995	$ 61	$10,046	$12,186	$ 8,392	$ 69

(in thousands)	Impaired loans with specific allowance					Impaired loans with no specific allowance
	Loan balance			Specific allowance	Income recognized	Loan balance			Income recognized
	Book	Note	Average	Specific allowance	Income recognized	Book	Note	Average	Income recognized
December 31, 2011
Residential 1-4 family	$ 3,012	$ 3,160	$ 1,822	$ 266	$ 38	$ 390	$ 426	$ 3,875	$ -
Home equity credit	-	-	-	-	-	173	177	227	-
Residential real estate	3,012	3,160	1,822	266	38	563	603	4,102	-
Commercial	2,151	2,405	2,550	203	77	2,157	2,612	2,175	37
Vacant land	594	774	639	70	-	3,063	3,627	3,243	-
Real estate secured	5,757	6,339	5,011	539	115	5,783	6,842	9,520	37
Commercial and industrial	560	639	364	335	-	577	1,221	876	16
Consumer	-	-	-	-	-	-	142	14	-
Totals	$6,317	$6,978	$ 5,375	$ 874	$ 115	$6,360	$8,205	$ 10,410	$ 53

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details