LOANS

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

LOANS

NOTE 3 - LOANS

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

Years ended December 31, (in thousands)		2013			2012
Residential 1-4 family	$	231,113		$	198,552
Residential 5+ multifamily		4,848			3,889
Construction of residential 1-4 family		1,876			2,379
Home equity credit		34,139			34,162
Residential real estate		271,976			238,982
Commercial		91,853			87,382
Construction of commercial		10,948			5,823
Commercial real estate		102,801			93,205
Farm land		3,402			4,320
Vacant land		9,067			9,926
Real estate secured		387,246			346,433
Commercial and industrial		46,292			38,094
Municipal		4,252			3,378
Consumer		3,889			4,181
Loans receivable, gross		441,679			392,086
Deferred loan origination fees and costs, net		1,182			1,032
Allowance for loan losses		(4,683	)		(4,360	)
Loans receivable, net	$	438,178		$	388,758
Loans held-for-sale
Residential 1-4 family	$	173		$	1,879

Salisbury has entered into loan participation agreements with other banks and transferred a portion of its originated loans to the participating banks. Transferred amounts are accounted for as sales and excluded from Salisbury’s loans receivable. Salisbury and its participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. Salisbury services the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties.

At December 31, 2013 and 2012, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $24,222,000 and $1,847,000, respectively. Salisbury sold 12 participation loans with original balances totaling $22,632,000 and purchased a participation portion of one commercial line of credit totaling $73,000 in 2013.

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

Salisbury uses credit risk ratings to determine its allowance for loan losses. Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a borrower. The rating model has eight risk rating grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 4 are pass ratings and 5 through 8 are criticized as defined by the regulatory agencies. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

Loans rated as "special mention" possess credit deficiencies or potential weaknesses deserving management’s close attention that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.

Loans rated as "substandard" are loans where the Bank’s position is clearly not protected adequately by borrower current net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished and the Bank must rely on sale of collateral or other secondary sources of collection.

Loans rated "doubtful" have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated loss is deferred until its exact status can be determined.

Loans classified as "loss" are considered uncollectible and of such little value that continuance as Bank assets is unwarranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this loan even though partial recovery may be made in the future.

Management actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate its assignment of credit risk ratings. In addition, the Bank’s loan portfolio is examined periodically by its regulatory agencies, the FDIC and CTDOB.

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

(in thousands)	Pass		Special mention		Substandard		Doubtful		Loss		Total
December 31, 2013
Residential 1-4 family	$	212,683	$	12,338	$	5,997	$	95	$	—	$	231,113
Residential 5+ multifamily		2,674		1,199		975		—		—		4,848
Construction of residential 1-4 family		1,876		—		—		—		—		1,876
Home equity credit		31,444		1,355		1,340		—		—		34,139
Residential real estate		248,677		14,892		8,312		95		—		271,976
Commercial		67,554		16,044		8,255		—		—		91,853
Construction of commercial		10,257		102		589		—		—		10,948
Commercial real estate		77,811		16,146		8,844		—		—		102,801
Farm land		847		1,421		1,134		—		—		3,402
Vacant land		5,640		288		3,139		—		—		9,067
Real estate secured		332,975		32,747		21,429		95		—		387,246
Commercial and industrial		37,860		7,452		980		—		—		46,292
Municipal		4,252		—		—		—		—		4,252
Consumer		3,739		113		37		—		—		3,889
Loans receivable, gross	$	378,826	$	40,312	$	22,446	$	95	$	—	$	441,679
December 31, 2012
Residential 1-4 family	$	180,442	$	12,473	$	5,538	$	99	$	—	$	198,552
Residential 5+ multifamily		2,872		773		244		—		—		3,889
Construction of residential 1-4 family		1,570		—		809		—		—		2,379
Home equity credit		30,981		1,848		1,333		—		—		34,162
Residential real estate		215,865		15,094		7,924		99		—		238,982
Commercial		64,817		13,299		9,266		—		—		87,382
Construction of commercial		5,055		297		471		—		—		5,823
Commercial real estate		69,872		13,596		9,737		—		—		93,205
Farm land		2,799		341		1,180		—		—		4,320
Vacant land		4,885		863		4,178		—		—		9,926
Real estate secured		293,421		29,894		23,019		99		—		346,433
Commercial and industrial		28,453		8,300		1,341		—		—		38,094
Municipal		3,378		—		—		—		—		3,378
Consumer		3,994		159		28		—		—		4,181
Loans receivable, gross	$	329,246	$	38,353	$	24,388	$	99	$	—	$	392,086

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

		Past due
												180 days		30 days		Accruing 90
(in thousands)		Current		1-29 days		30-59 days		60-89 days		90-179 days		and over		and over		days and over		Non- accrual
December 31, 2013
Residential 1-4 family	$	222,356	$	3,853	$	1,795	$	2,622	$	353	$	134	$	4,904	$	—	$	1,525
Residential 5+ multifamily		4,749		—		—		99		—		—		99		—		—
Residential 1-4 family construction		1,876		—		—		—		—		—		—		—		—
Home equity credit		33,391		129		361		125		—		133		619		—		402
Residential real estate		262,372		3,982		2,156		2,846		353		267		5,622		—		1,927
Commercial		89,434		566		371		108		235		1,139		1,853		—		1,857
Construction of commercial		9,784		1,025		—		139		—		—		139		—		—
Commercial real estate		99,218		1,591		371		247		235		1,139		1,992		—		1,857
Farm land		2,995		23		—		—		—		384		384		—		384
Vacant land		6,058		139		—		—		—		2,870		2,870		—		2,870
Real estate secured		370,643		5,735		2,527		3,093		588		4,660		10,868		—		7,038
Commercial and industrial		45,897		262		112		—		—		21		133		—		134
Municipal		4,252		—		—		—		—		—		—		—		—
Consumer		3,746		113		29		1		—		—		30		—		—
Loans receivable, gross	$	424,538	$	6,110	$	2,668	$	3,094	$	588	$	4,681	$	11,031	$	—	$	7,172
December 31, 2012
Residential 1-4 family	$	190,488	$	2,545	$	3,578	$	639	$	1,185	$	117	$	5,519	$	—	$	3,024
Residential 5+ multifamily		3,889		—		—		—		—		—		—		—		—
Residential 1-4 family construction		2,379		—		—		—		—		—		—		—		—
Home equity credit		32,540		890		113		396		—		223		732		—		442
Residential real estate		229,296		3,435		3,691		1,035		1,185		340		6,251		—		3,466
Commercial		83,477		864		1,104		566		58		1,313		3,041		—		2,214
Construction of commercial		5,659		—		164		—		—		—		164		—		21
Commercial real estate		89,136		864		1,268		566		58		1,313		3,205		—		2,235
Farm land		3,898		422		—		—		—		—		—		—		—
Vacant land		5,932		—		—		48		740		3,206		3,994		—		3,995
Real estate secured		328,262		4,721		4,959		1,649		1,983		4,859		13,450		—		9,696
Commercial and industrial		37,618		351		26		99		—		—		125		—		164
Municipal		3,378		—		—		—		—		—		—		—		—
Consumer		4,034		108		25		14		—		—		39		—		—
Loans receivable, gross	$	373,292	$	5,180	$	5,010	$	1,762	$	1,983	$	4,859	$	13,614	$	—	$	9,860

Interest on non-accrual loans that would have been recorded as additional interest income for the years ended December 31, 2013, 2012 and 2011 had the loans been current in accordance with their original terms totaled $522,000, $507,000 and $700,000, respectively.

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

	December 31, 2013						December 31, 2012
(in thousands)	Quantity		Pre-modification balance		Post-modification balance		Quantity		Pre-modification balance		Post-modification balance
Residential real estate		6	$	2,434	$	2,434		9	$	2,002	$	2,002
Land		2		225		225		—		—		—
Commercial real estate		—		—		—		4		1,871		1,871
Consumer		1		22		22		—		—		—
Commercial and industrial		1		91		91		4		528		528
Troubled debt restructurings		10	$	2,772	$	2,772		17	$	4,401	$	4,401
Rate reduction and term extension		5	$	813	$	813		3	$	513	$	513
Interest only pursuant to sale		1		40		40		—		—		—
Debt consolidation and term extension		—		—		—		4		2,276		2,276
Rate reduction		2		1,070		1,070		3		727		727
Rate reduction interest only		1		758		758		2		625		625
Debt consolidation, rate reduction and term extension, note bifurcation		—		—		—		1		99		99
Rate reduction and debt consolidation		1		91		91		—		—		—
Refinance		—		—		—		1		80		80
Modification pursuant to bankruptcy		—		—		—		1		34		34
Seasonal interest only concession		—		—		—		1		26		26
Term extension		—		—		—		1		21		21
Troubled debt restructurings		10	$	2,772	$	2,772		17	$	4,401	$	4,401

Ten loans were restructured during 2013, of which one loan, totaling $64,000, was past due 30-59 days and one loan totaling $449,000 was past due 90-179 days at December 31, 2013.

Impaired loans

Loans individually evaluated for impairment (impaired loans) are loans for which Salisbury does not expect to collect all contractual principal and interest in accordance with the contractual terms of the loan. Impaired loans include all modified loans classified as troubled debt restructurings (TDRs) and loans on non-accrual status. The components of impaired loans are as follows:

Years ended December 31, (in thousands)		2013		2012
Non-accrual loans, excluding troubled debt restructured loans	$	5,419	$	7,579
Non-accrual troubled debt restructured loans		1,753		2,280
Accruing troubled debt restructured loans		8,500		6,703
Total impaired loans	$	15,672	$	16,562
Commitments to lend additional amounts to impaired borrowers	$	—	$	—

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

		December 31, 2013												December 31, 2012
Years ended		Beginning					Charge-			Reco-		Ending		Beginning					Charge-			Reco-		Ending
(in thousands)		balance		Provision			offs			veries		balance		balance		Provision			offs			veries		balance
Residential	$	1,934	$	275		$	(271	)	$	—	$	1,938	$	1,479	$	688		$	(233	)	$	—	$	1,934
Commercial		1,059		528			(208	)		6		1,385		1,139		(52	)		(64	)		36		1,059
Land		300		147			(221	)		—		226		409		167			(276	)		—		300
Real estate		3,293		950			(700	)		6		3,549		3,027		803			(573	)		36		3,293
Commercial & industrial		499		65			(4	)		1		561		704		(21	)		(222	)		38		499
Municipal		36		7			—			—		43		24		12			—			—		36
Consumer		92		59			(70	)		24		105		79		78			(91	)		26		92
Unallocated		440		(15	)		—			—		425		242		198			—			—		440
Totals	$	4,360	$	1,066		$	(774	)	$	31	$	4,683	$	4,076	$	1,070		$	(886	)	$	100	$	4,360
														December 31, 2011
Years ended														Beginning					Charge-			Reco-		Ending
(in thousands)														balance		Provision			offs			veries		balance
Residential													$	1,504	$	329		$	(357	)	$	3	$	1,479
Commercial														1,132		258			(274	)		23		1,139
Land														392		371			(354	)		—		409
Real estate														3,028		958			(985	)		26		3,027
Commercial & industrial														540		315			(180	)		29		704
Municipal														51		(27	)		—			—		24
Consumer														164		89			(201	)		27		79
Unallocated														137		105			—			—		242
Totals													$	3,920	$	1,440		$	(1,366	)	$	82	$	4,076

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

		Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2013
Residential 1-4 family	$	225,419	$	897	$	5,694	$	617	$	231,113	$	1,514
Residential 5+ multifamily		3,894		20		954		—		4,848		20
Construction of residential 1-4 family		1,876		11		—		—		1,876		11
Home equity credit		33,689		363		450		30		34,139		393
Residential real estate		264,878		1,291		7,098		647		271,976		1,938
Commercial		87,059		977		4,794		282		91,853		1,259
Construction of commercial		10,948		126		—		—		10,948		126
Commercial real estate		98,007		1,103		4,794		282		102,801		1,385
Farm land		3,018		61		384		—		3,402		61
Vacant land		5,972		64		3,095		101		9,067		165
Real estate secured		371,875		2,519		15,371		1,030		387,246		3,549
Commercial and industrial		45,584		519		708		42		46,292		561
Municipal		4,252		43		—		—		4,252		43
Consumer		3,710		36		179		69		3,889		105
Unallocated allowance		—		—		—		—		—		425
Totals	$	425,421	$	3,117	$	16,258	$	1,141	$	441,679	$	4,683
		Collectively evaluated				Individually evaluated				Total portfolio
(in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
December 31, 2012
Residential 1-4 family	$	191,886	$	743	$	6,666	$	652	$	198,552	$	1,395
Residential 5+ multifamily		2,913		22		976		50		3,889		72
Construction of residential 1-4 family		2,379		10		—		—		2,379		10
Home equity credit		33,697		365		465		92		34,162		457
Residential real estate		230,875		1,140		8,107		794		238,982		1,934
Commercial		81,635		931		5,747		64		87,382		995
Construction of commercial		5,802		64		21		—		5,823		64
Commercial real estate		87,437		995		5,768		64		93,205		1,059
Farm land		4,320		66		—		—		4,320		66
Vacant land		5,795		70		4,131		164		9,926		234
Real estate secured		328,427		2,271		18,006		1,022		346,433		3,293
Commercial and industrial		37,073		467		1,021		32		38,094		499
Municipal		3,378		36		—		—		3,378		36
Consumer		4,061		39		120		53		4,181		92
Unallocated allowance		—		—		—		—		—		440
Totals	$	372,939	$	2,813	$	19,147	$	1,107	$	392,086	$	4,360

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

		Collectively evaluated				Individually evaluated				Total portfolio
December 31, 2013 (in thousands)		Loans		Allowance		Loans		Allowance		Loans		Allowance
Performing loans	$	416,734	$	2,835	$	157	$	69	$	416,891	$	2,904
Potential problem loans		8,687		282		429		19		9,116		301
Impaired loans		—		—		15,672		1,053		15,672		1,053
Unallocated allowance		—		—		—		—		—		425
Totals	$	425,421	$	3,117	$	16,258	$	1,141	$	441,679	$	4,683

A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the fair value of expected cash flows or collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment is as follows:

		Impaired loans with specific allowance										Impaired loans with no specific allowance
		Loan balance						Specific		Income		Loan balance						Income
(in thousands)		Book		Note		Average		allowance		recognized		Book		Note		Average		recognized
December 31, 2013
Residential 1-4 family	$	4,409	$	4,516	$	3,995	$	598	$	99	$	2,073	$	2,522	$	2,285	$	54
Home equity credit		72		72		101		30		2		378		428		251		4
Residential real estate		4,481		4,588		4,096		628		101		2,451		2,950		2,536		58
Commercial		2,777		2,835		2,349		282		127		1,771		2,299		2,411		47
Commercial construction		—		—		3		—		—		—		20		8		—
Farm land		—		—		—		—		—		384		384		118		—
Vacant land		3,095		3,889		1,853		101		—		—		100		1,430		—
Real estate secured		10,353		11,312		8,301		1,011		228		4,606		5,753		6,503		105
Commercial and industrial		119		154		233		42		1		573		975		595		36
Consumer		—		—		—		—		—		22		22		—		—
Totals	$	10,472	$	11,466	$	8,534	$	1,053	$	229	$	5,201	$	6,750	$	7,098	$	141
December 31, 2012
Residential 1-4 family	$	3,857	$	3,925	$	2,404	$	578	$	77	$	2,263	$	2,460	$	1,601	$	34
Home equity credit		351		351		146		92		—		91		93		203		—
Residential real estate		4,208		4,276		2,550		670		77		2,354		2,553		1,804		34
Commercial		1,629		1,784		1,925		64		60		3,381		3,576		3,122		82
Vacant land		3,186		3,387		1,455		158		—		808		1,467		2,358		4
Real estate secured		9,023		9,447		5,930		892		137		6,543		7,596		7,284		120
Commercial and industrial		335		368		833		32		13		661		1,063		854		31
Consumer		—		—		—		—		—		—		—		—		—
Totals	$	9,358	$	9,815	$	6,763	$	924	$	150	$	7,204	$	8,659	$	8,138	$	151