SECURITIES

12 Months Ended

Dec. 31, 2013

Investments, Debt and Equity Securities [Abstract]

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, 2013
Available-for-sale
U.S. Treasury notes	$	2,497	$	160	$	—		$	2,657
U.S. Government Agency notes		2,507		83		—			2,590
Municipal bonds		41,775		782		(2,120	)		40,437
Mortgage-backed securities
U.S. Government Agencies		33,522		442		(72	)		33,892
Collateralized mortgage obligations
U.S. Government Agencies		3,545		35		—			3,580
Non-agency		7,923		401		(16	)		8,308
SBA bonds		2,042		188		—			2,230
Preferred Stock		20		777		—			797
Total securities available-for-sale	$	93,831	$	2,868	$	(2,208	)	$	94,491
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,340	$	—	$	—		$	5,340

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

(in thousands)	Amortized cost (1)		Gross un- realized gains		Gross un- realized losses			Fair value
December 31, 2012
Available-for-sale
U.S. Treasury notes	$	2,496	$	237	$	—		$	2,733
U.S. Government Agency notes		7,515		211		—			7,726
Municipal bonds		45,395		2,138		(168	)		47,365
Mortgage-backed securities
U.S. Government Agencies		47,465		1,284		(20	)		48,729
Collateralized mortgage obligations
U.S. Government Agencies		5,131		66		—			5,197
Non-agency		11,081		494		(68	)		11,507
SBA bonds		2,781		82		—			2,863
Preferred Stock		20		147		—			167
Total securities available-for-sale	$	121,884	$	4,659	$	(256	)	$	126,287
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	5,747	$	—	$	—		$	5,747

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

Years ended December 31, (in thousands)		2013		2012		2011
Proceeds	$	—	$	2,771	$	—
Gains realized		—		267		—
Losses realized		—		—		—
Net gains realized		—		267		—
Income tax provision		—		91		—

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, 2013
Available-for-sale
Municipal bonds	$	19,714	$	1,428	$	2,323	$	692	$	22,037	$	2,120
Mortgage-backed securities		15,096		20		2,132		52		17,228		72
Collateralized mortgage obligations
Non-agency		398		2		294		10		692		12
Total temporarily impaired securities		35,208		1,450		4,749		754		39,957		2,204
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		320		4		—		—		320		4
Total temporarily impaired and other-than-
temporarily impaired securities	$	35,528	$	1,454	$	4,749	$	754	$	40,277	$	2,208
December 31, 2012
Available-for-sale
Municipal bonds	$	839	$	20	$	2,360	$	148	$	3,199	$	168
Mortgage-backed securities		3,021		19		44		1		3,065		20
Collateralized mortgage obligations
Non-agency		612		2		901		17		1,513		19
Total temporarily impaired securities		4,472		41		3,305		166		7,777		207
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		535		6		1,963		43		2,498		49
Total temporarily impaired and other-than-
temporarily impaired securities	$	5,007	$	47	$	5,268	$	209	$	10,275	$	256

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

December 31, 2013 (dollars in thousands)		Amortized cost		Fair value		Yield(1)
U.S. Treasury notes	After 1 year but within 5 years	$	2,497	$	2,657		3.00	%
U.S. Government Agency notes	Within 1 year		—		—		—
	After 15 years		2,507		2,590		5.38
	Total		2,507		2,590		5.38
Municipal bonds	Within 1 year		3,686		3,935		6.90
	After 1 year but within 5 years		4,095		4,486		6.84
	After 5 years but within 10 years		2,140		2,171		6.33
	After 10 years but within 15 years		1,832		1,826		6.25
	After 15 years		30,022		28,019		6.60
	Total		41,775		40,437		6.62
Mortgage-backed securities	U.S. Government Agency		33,522		33,892		3.47
Collateralized mortgage obligations	U.S. Government Agency		3,545		3,580		1.19
	Non-agency		7,923		8,308		4.51
SBA bonds			2,042		2,230		2.57
Preferred Stock			20		797		3.58
Securities available-for-sale		$	93,831	$	94,491		4.89

(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 whether it has the 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 are 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, 2013.

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 evaluates these securities for strategic fit and may reduce its position in these securities, although 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, 2013.

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. 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, 2013.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at December 31, 2013, to assess whether any of the securities were OTTI. Salisbury uses first 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, 2013. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and depending upon such factor could reduce its position in these securities, although it has no present intention to do so, 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)		2013		2012
Non-Agency CMOs
OTTI losses (unrealized and realized)	$	—	$	—
Less: unrealized OTTI recognized in other comprehensive (loss) income		—		—
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)		2013		2012
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