SECURITIES

12 Months Ended

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

SECURITIES

NOTE 3 - 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, 2016
Available-for-sale
Municipal bonds	$	15,800	$	197	$	1	$	15,996
Mortgage-backed securities
U.S. Government agencies and U.S. Government-sponsored enterprises		53,407		229		335		53,301
Collateralized mortgage obligations
U.S. Government agencies		1,470		4		—		1,474
Non-agency		3,327		414		6		3,735
SBA bonds		2,056		9		1		2,064
CRA mutual funds		834		—		16		818
Corporate bonds		2,000		16		3		2,013
Preferred stock		7		215		—		222
Total securities available-for-sale	$	78,901	$	1,084	$	362	$	79,623
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	3,211	$	—	$	—	$	3,211

(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 prior years.

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

Years ended December 31, (in thousands)		2016		2015			2014
Proceeds	$	4,865	$	3,861		$	—
Gains realized		569		180			—
Losses realized		—		(27	)		—
Net gains realized		569		153			—
Income tax provision		193		52			—

The following table summarizes 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
December 31, 2016 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair Value		Unrealized losses
Available-for-sale
Municipal bonds	$	517	$	1	$	—	$	—	$	517	$	1
Mortgage-backed securities		34,758		329		249		6		35,007		335
Collateralized mortgage obligations
Non-agency		60		—		339		5		399		5
SBA bonds		475		1		—		—		475		1
CRA mutual funds		818		16		—		—		818		16
Corporate bonds		498		3		—		—		498		3
Total temporarily impaired securities		37,126		350		588		11		37,714		361
Other-than-temporarily impaired securities
Collateralized mortgage obligations
Non-agency		174		1						174		1
Total temporarily impaired and other-than-temporarily impaired securities	$	37,300	$	351	$	588	$	11	$	37,888	$	362
December 31, 2015 (in thousands)
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 and other-than-temporarily impaired securities	$	15,751	$	85	$	279	$	7	$	16,030	$	92

The amortized cost, fair value and tax equivalent yield of securities, by maturity, are as follows:

December 31, 2016 (in thousands)	Maturity	Amortized cost			Fair value	Yield(1)
Municipal bonds	Within 1 year	$	76	$	76	4.92	%
	After 1 year but within 5 years		873		873	5.49
	After 10 years but within 15 years		2,915		2,952	6.46
	After 15 years		11,936		12,095	6.73
	Total		15,800		15,996	6.60
Mortgage-backed securities	U.S. Government agency and U.S. Government-sponsored enterprises		53,407		53,301	2.33
Collateralized mortgage obligations	U.S. Government agency and U.S. Government-sponsored enterprises		1,470		1,474	1.13
	Non-agency		3,327		3,735	4.10
SBA bonds			2,056		2,064	3.19
CRA mutual funds			834		818	4.02
Corporate bonds	After 5 years but within 10 years		2,000		2,013	5.50
Preferred stock			7		222	0.00
Securities available-for-sale		$	78,901	$	79,623	3.36	%

(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 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 December 31, 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 the twenty-one securities with unrealized losses at December 31, 2016 to be OTTI.

SBA bonds: The contractual cash flows are guaranteed by the U.S. government. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality since time of purchase. 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 evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature and does not consider these investments to be other-than temporarily impaired at December 31, 2016.

Municipal bonds: Salisbury performed a detailed analysis of the municipal bond portfolio. Management believes the unrealized loss position is attributable to interest rate and spread 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 evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature and does not consider these investments to be other-than temporarily impaired at December 31, 2016.

Corporate bonds: Salisbury regularly monitors and analyzes its corporate bond portfolio for credit quality. Management believes the unrealized loss position is attributable to interest rate and spread 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 evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature and does not consider these investments to be other-than temporarily impaired at December 31, 2016.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at December 31, 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 December 31, 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.

CRA mutual funds consist of an investment in a fixed income mutual fund ($818,000 in total fair value and $16,000 in total unrealized losses as of December 31, 2016).  The severity of the impairment (fair value is approximately 1.92% less than cost) and the duration of the impairment correlates with interest rates in 2016.  Salisbury evaluated the near-term prospects of this fund in relation to the severity and duration of the impairment.  Based on that evaluation, Salisbury does not consider this investment to be OTTI at December 31, 2016.