FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 20 - FAIR VALUE MEASUREMENTS

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 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. Level 1 also includes U.S. Treasury, other U.S. Government and agency mortgage-backed securities that are traded by dealers or brokers in active markets. 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.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Salisbury did not have any significant transfers of assets between levels 1 and 2 of the fair value hierarchy during the year ended December 31, 2014.

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. Securities available-for-sale 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.

Other than discussed above, the following methods and assumptions were used by management to estimate the fair value of significant classes of financial instruments for which it is practicable to estimate that value.

Cash and cash equivalents. Carrying value is assumed to represent fair value for cash and cash equivalents that have original maturities of ninety days or less.

Loans held-for-sale. The fair value is determined using a factor based on the estimated gain on sale of the loan.

Loans, net. The carrying value of the loans in the loan portfolio is based on their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, the unamortized balance of any deferred fees or costs on originated loans and the unamortized balance of any premiums or discounts on loans purchased or acquired through mergers. The fair value of the loans is estimated by discounting future cash flows using the current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality.

Accrued interest receivable. Carrying value approximates fair value.

Deposits. The fair value of demand, non-interest bearing checking, savings and money market deposits is determined as the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the estimated future cash flows using market rates offered for deposits of similar remaining maturities.

Borrowed funds. The fair value of borrowed funds is estimated by discounting the future cash flows using market rates for similar borrowings.

Assets measured at fair value are as follows:

	Fair Value Measurements Using						Assets at
(in thousands)		Level 1		Level 2		Level 3		fair value
December 31, 2014
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,806	$	—	$	2,806
U.S. Government agency notes		—		5,874		—		5,874
Municipal bonds		—		40,352		—		40,352
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		27,709		—		27,709
Collateralized mortgage obligations:
U.S. Government agencies		—		2,679		—		2,679
Non-agency		—		6,596		—		6,596
SBA bonds		—		4,465		—		4,465
CRA mutual funds		—		504		—		504
Preferred stock		327		—		—		327
Securities available-for-sale	$	327	$	90,985	$	—	$	91,312
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		10,463		10,463
Other real estate owned		—		—		1,002		1,002
December 31, 2013
Assets at fair value on a recurring basis
U.S. Treasury notes	$	—	$	2,657	$	—	$	2,657
U.S. Government agency notes		—		2,590		—		2,590
Municipal bonds		—		40,437		—		40,437
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		33,892		—		33,892
Collateralized mortgage obligations:
U.S. Government agencies		—		3,580		—		3,580
Non-agency		—		8,308		—		8,308
SBA bonds		—		2,230		—		2,230
Preferred stock		797		—		—		797
Securities available-for-sale	$	797	$	93,694	$	—	$	94,491
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans		—		—		9,782		9,782
Other real estate owned		—		—		377		377

Carrying values and estimated fair values of financial instruments are as follows:

		Carrying		Estimated	Fair value measurements using
(In thousands)		value		fair value		Level 1		Level 2		Level 3
December 31, 2014
Financial Assets
Cash and cash equivalents	$	36,105	$	36,105	$	36,105	$	—	$	—
Securities available-for-sale		91,312		91,312		327		90,985		—
Federal Home Loan Bank stock		3,515		3,515		—		3,515		—
Loans held-for-sale		568		572		—		—		572
Loans receivable, net		673,330		683,845		—		—		683,845
Accrued interest receivable		2,334		2,334		—		—		2,334
Financial Liabilities
Demand (non-interest-bearing)	$	161,386	$	161,386	$	—	$	—	$	161,386
Demand (interest-bearing)		117,169		117,169		—		—		117,169
Money market		174,274		174,274		—		—		174,274
Savings and other		121,387		121,387		—		—		121,387
Certificates of deposit		141,210		142,261		—		—		142,261
Deposits		715,426		716,477		—		—		716,477
Repurchase agreements		4,163		4,163		—		—		4,163
FHLBB advances		28,813		30,626		—		—		30,626
Capital lease liability		424		929		—		—		929
Accrued interest payable		166		166		—		—		166
December 31, 2013
Financial Assets
Cash and cash equivalents	$	12,711	$	12,711	$	12,711	$	—	$	—
Interest-bearing time deposits with other banks		738		738		—		—		738
Securities available-for-sale		94,491		94,491		797		93,694		—
Federal Home Loan Bank stock		5,340		5,340		—		5,340		—
Loans held-for-sale		173		175		—		—		175
Loans receivable, net		438,178		430,645		—		—		430,645
Accrued interest receivable		1,760		1,760		—		—		1,760
Financial Liabilities
Demand (non-interest-bearing)	$	84,677	$	84,677	$	—	$	—	$	84,677
Demand (interest-bearing)		81,932		81,932		—		—		81,932
Money market		120,550		120,550		—		—		120,550
Savings and other		107,171		107,171		—		—		107,171
Certificates of deposit		83,039		83,520		—		—		83,520
Deposits		477,369		477,850		—		—		477,850
Repurchase agreements		2,554		2,554		—		—		2,554
FHLBB advances		30,411		33,034		—		—		33,034
Capital lease liability		425		425		425		—		—
Accrued interest payable		140		140		—		—		140