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SHAREHOLDERS' EQUITY
 12 Months Ended
Dec. 31, 2016
Equity [Abstract]  
SHAREHOLDERS' EQUITY

NOTE 13 – SHAREHOLDERS' EQUITY

Capital Requirements

Salisbury and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional and discretionary actions by the regulators that, if undertaken, could have a direct material effect on Salisbury's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Salisbury and the Bank must meet specific guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Salisbury and the Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, the Federal Reserve Bank (FRB) approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for bank holding companies and their bank subsidiaries. On July 9, 2013, the FDIC also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. On April 8, 2014, the FDIC adopted as final its interim final rule, which is identical in substance to the final rules issued by the FRB in July 2013. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by the Bank and Company. The rules include a common equity Tier 1 capital risk-weighted assets minimum ratio of 4.5%, minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio of Total capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the regulatory minimum capital requirements. The initial implementation of the capital conservation buffer began phasing in January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent January 1, by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. As of December 31,2016, the Bank exceeded the fully phased in regulatory requirement for the capital conservation buffer. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules.

As of December 31, 2016, the Company and the Bank met each of their capital requirements and the most recent notification from the FDIC categorized the Bank as “well-capitalized.” There are no conditions or events since that notification that management believes have changed the Bank's category.

 

      To be Well Capitalized
   Actual 

For Capital Adequacy

Purposes

 

Under Prompt Corrective

Action Provisions

  (dollars in thousands)  Amount  Ratio  Amount  Ratio  Amount  Ratio
December 31, 2016                  
Total Capital (to risk-weighted assets)                              
Salisbury  $96,166    13.26%  $57,997    8.0%   n/a    — 
Bank   93,690    12.92    57,996    8.0   $72,495    10.0%
Tier 1 Capital (to risk-weighted assets)                              
Salisbury   79,868    11.02    43,498    6.0    n/a    — 
Bank   87,392    12.05    43,497    6.0    57,996    8.0 
Common Equity Tier 1 Capital (to risk-weighted assets)                              
Salisbury   79,868    11.02    32,623    4.5    n/a    — 
Bank   87,392    12.05    32,623    4.5    47,122    6.5 
Tier 1 Capital (to average assets)                              
Salisbury   79,868    8.69    37,282    4.0    n/a    — 
Bank   87,392    9.51    36,762    4.0    45,953    5.0 
December 31, 2015                              
Total Capital (to risk-weighted assets)                              
Salisbury  $92,030    13.51%  $54,509    8.0%   n/a    — 
Bank   89,249    13.10    54,504    8.0   $68,131    10.0%
Tier 1 Capital (to risk-weighted assets)                              
Salisbury   76,120    11.17    40,878    6.0    n/a    — 
Bank   83,340    12.23    40,878    6.0    54,504    8.0 
Common Equity Tier 1 Capital (to risk-weighted assets)                              
Salisbury   76,120    11.17    30,659    4.5    n/a    — 
Bank   83,340    12.23    30,659    4.5    44,285    6.5 
Tier 1 Capital (to average assets)                              
Salisbury   76,120    8.56    36,102    4.0    n/a    — 
Bank   83,340    9.37    35,593    4.0    44,491    5.0 

 

Restrictions on Cash Dividends to Common Shareholders

Salisbury's ability to pay cash dividends is substantially dependent on the Bank's ability to pay cash dividends to Salisbury. There are certain restrictions on the payment of cash dividends and other payments by the Bank to Salisbury. Under Connecticut law, the Bank cannot declare a cash dividend except from net profits, defined as the remainder of all earnings from current operations. The total of all cash dividends declared by the Bank in any calendar year shall not, unless specifically approved by the Banking Commissioner, exceed the total of its net profits of that year combined with its retained net profits of the preceding two years.

FRB Supervisory Letter SR 09-4, February 24, 2009, revised March 30, 2009, notes that, as a general matter, the Board of Directors of a Bank Holding Company (“BHC”) should inform the Federal Reserve and should eliminate, defer, or significantly reduce dividends if (1) net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (2) the prospective rate of earnings retention is not consistent with capital needs and overall current and prospective financial condition; or (3) the BHC will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Moreover, a BHC should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the BHC capital structure.

Preferred Stock

In August 2011, Salisbury issued to the U.S. Secretary of the Treasury (the “Treasury”) $16 million of its Series B Preferred Stock under the Small Business Lending Fund (the “SBLF”) program. Such Series B Preferred Stock was redeemed by Salisbury in December 2015. The SBLF program is a $30 billion fund established under the Small Business Jobs Act of 2010 to encourage lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The Preferred Stock qualified as Tier 1 capital for regulatory purposes and ranked senior to the Common Stock.

During fourth quarter 2015, the Company completed an offering of $10 million of unsecured 6.00% fixed-to–floating rate subordinated notes due in 2025. The notes qualify as Tier II capital and are included as such within the Company's total risk-based capital ratio.

The net proceeds of the offering, along with cash on hand, were used during the fourth quarter 2015 to redeem the $16 million of Senior Non-Cumulative Perpetual Preferred Stock issued in conjunction with the Company's participation in the U.S. Treasury's SBLF program.