SECURITIES

9 Months Ended

Sep. 30, 2016

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
September 30, 2016
Available-for-sale
Municipal bonds		$	18,252		$	352		$	—			$	18,604
Mortgage-backed securities
U.S. Government agencies and U.S. Government-sponsored enterprises			47,881			372			(77	)			48,176
Collateralized mortgage obligations
U.S. Government agencies			1,596			8			—				1,604
Non-agency			3,619			418			(5	)			4,032
SBA bonds			2,268			18			—				2,286
CRA mutual funds			828			10			—				838
Corporate bonds			1,000			20			—				1,020
Preferred stock			20			221			—				241
Total securities available-for-sale		$	75,464		$	1,419		$	(82	)		$	76,801
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	2,937		$	—		$	—			$	2,937

(in thousands)	Amortized cost (1)			Gross un- realized gains			Gross un- realized losses				Fair Value
December 31, 2015
Available-for-sale
U.S. Treasury notes		$	2,499		$	42		$	—			$	2,541
U.S. Government agency notes			498			—			—				498
Municipal bonds			29,752			633			—				30,385
Mortgage-backed securities
U.S. Government agencies and U.S. Government-sponsored enterprises			31,900			385			(83	)			32,202
Collateralized mortgage obligations
U.S. Government agencies			2,002			12			—				2,014
Non-agency			4,487			468			(7	)			4,948
SBA bonds			3,065			31			—				3,096
CRA mutual funds			766			—			(2	)			764
Preferred stock			20			226			—				246
Total securities available-for-sale		$	74,989		$	1,797		$	(92	)		$	76,694
Non-marketable securities
Federal Home Loan Bank of Boston stock		$	3,176		$	—		$	—			$	3,176

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

Salisbury sold $3.6 million in securities available-for-sale during the nine month period ended September 30, 2016, and sold $3.7 million in securities available-for-sale during the nine month period ended September 30, 2015.

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

(in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
September 30, 2016
Available-for-sale
Mortgage-backed securities	$	27,770	$	(71	)	$	310	$	(6	)	$	28,080	$	(77	)
Collateralized mortgage obligations:
Non-agency		203		(1	)		175		(4	)		378		(5	)
Total temporarily impaired  securities	$	27,973	$	(72	)	$	485	$	(10	)	$	28,458	$	(82	)

(in thousands)	Less than 12 Months					12 Months or Longer					Total
	Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
December 31, 2015
Available-for-sale
Mortgage-backed securities	$	14,750	$	(83	)	$	53	$	—		$	14,803	$	(83	)
Collateralized mortgage obligations:
Non-agency		237		—			226		(7	)		463		(7	)
CRA mutual funds		764		(2	)		—		—			764		(2	)
Total temporarily impaired  securities	$	15,751	$	(85	)	$	279	$	(7	)	$	16,030	$	(92	)

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 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 September 30, 2016.

U.S. Government agency mortgage-backed securities: 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, and does not intend to sell these securities. Therefore, management does not consider these securities to be OTTI at September 30, 2016.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at September 30, 2016, to assess whether any of the securities were OTTI. Salisbury uses 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 September 30, 2016. 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.

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:

Nine months ended September 30 (in thousands)		2016		2015
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

The Federal Home Loan Bank of Boston (FHLBB) is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Bank’s FHLBB stock as of September 30, 2016. Deterioration of the FHLBB’s capital levels may require the Bank to deem its restricted investment in FHLBB stock to be OTTI. If evidence of impairment exists in the future, the FHLBB stock would reflect fair value using either observable or unobservable inputs. The Bank will continue to monitor its investment in FHLBB stock.