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LOANS
 12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
LOANS

NOTE 4 - LOANS

Change in Presentation of Loan Balances and Related Credit Metrics

As a result of Salisbury’s acquisition of Riverside Bank in 2014, Salisbury previously disclosed the loan balances, the allowance for loan and lease losses and the credit quality metrics for the acquired loans separately from its business activities loans. As the acquired loan portfolio has become a smaller percentage of Salisbury’s overall loan portfolio, all loan balances and the related credit metrics, including those for prior periods, are presented on a consolidated basis.

The composition of loans receivable and loans held-for-sale is as follows:

December 31,    2017      2016  
       
(in thousands)    Total Loans        Total Loans  
       
Residential 1-4 family  $317,639   $301,128 
Residential 5+ multifamily   18,108    13,625 
Construction of residential 1-4 family   11,197    10,951 
Home equity lines of credit   33,771    35,487 
Residential real estate   380,715    361,191 
Commercial   249,311    235,482 
Construction of commercial   9,988    5,398 
Commercial real estate   259,299    240,880 
Farm land   4,274    3,914 
Vacant land   7,883    6,600 
Real estate secured   652,171    612,585 
Commercial and industrial   132,731    141,473 
Municipal   17,494    8,626 
Consumer   4,794    5,380 
Loans receivable, gross   807,190    768,064 
Deferred loan origination fees and costs, net   1,289    1,247 
Allowance for loan losses   (6,776)   (6,127)
Loans receivable, net  $801,703   $763,184 
Loans held-for-sale          
Residential 1-4 family  $669   $— 

Salisbury has entered into loan participation agreements with other banks and transferred a portion of its originated loans to the participating banks. Transferred amounts are accounted for as sales and excluded from Salisbury’s loans receivable. Salisbury and its participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. Salisbury services the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments (net of servicing fees) to participating lenders and disburses required escrow funds to relevant parties.

Salisbury also has entered into loan participation agreements with other banks and purchased a portion of the other banks’ originated loans.  Purchased amounts are accounted for as loans without recourse to the originating bank.  Salisbury and its originating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan.  The originating banks service the loans on behalf of the participating lenders and, as such, collect cash payments from the borrowers, remit payments (net of servicing fees) to participating lenders and disburse required escrow funds to relevant parties. 

At December 31, 2017 and 2016, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $57.2 million and $59.8 million, respectively. During 2017, Salisbury sold 50% of its interest in 1 commercial construction loan with a commitment of $5.9 million. No funds were drawn against this commitment as of December 31, 2017. Additionally, Salisbury purchased a participant share in 36 loans with outstanding balances of $18.5 million.

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut, New York and Massachusetts towns, which constitute Salisbury's service area. Salisbury offers a broad range of loan and credit facilities to borrowers in its service area, including residential mortgage loans, commercial real estate loans, construction loans, working capital loans, equipment loans, and a variety of consumer loans, including home equity lines of credit, installment loans, and collateral loans. All residential and commercial mortgage loans are collateralized by first or second mortgages on real estate. The ability of single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the market area and real estate values. The ability of commercial borrowers to honor their repayment commitments is dependent on the general economy as well as the health of the real estate economic sector in Salisbury’s market area.

Credit Quality

Salisbury uses credit risk ratings as part of its determination of the allowance for loan losses. Credit risk ratings categorize loans by common financial and structural characteristics that measure the credit strength of a borrower. The rating model has eight risk rating grades, with each grade corresponding to a progressively greater risk of default. Grades 1 through 4 are pass ratings and 5 through 8 are criticized as defined by the regulatory agencies. Risk ratings are assigned to differentiate risk within the portfolio and are reviewed on an ongoing basis and revised, if needed, to reflect changes in the borrowers' current financial position and outlook, risk profiles and the related collateral and structural positions.

Loans rated as "special mention" possess credit deficiencies or potential weaknesses deserving management’s close attention that if left uncorrected may result in deterioration of the repayment prospects for the loans at some future date.

Loans rated as "substandard" are loans where the Bank’s position is clearly not protected adequately by borrower current net worth or payment capacity. These loans have well defined weaknesses based on objective evidence and include loans where future losses to the Bank may result if deficiencies are not corrected, and loans where the primary source of repayment such as income is diminished and the Bank must rely on sale of collateral or other secondary sources of collection.

Loans rated "doubtful" have the same weaknesses as substandard loans with the added characteristic that the weakness makes collection or liquidation in full, given current facts, conditions, and values, to be highly improbable. The possibility of loss is high, but due to certain important and reasonably specific pending factors, which may work to strengthen the loan, its reclassification as an estimated loss is deferred until its exact status can be determined.

Loans classified as "loss" are considered uncollectible and of such little value that continuance as Bank assets is unwarranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather, it is not practical or desirable to defer writing off this loan even though partial recovery may be made in the future.

Management actively reviews and tests its credit risk ratings against actual experience and engages an independent third-party to annually validate its assignment of credit risk ratings. In addition, the Bank’s loan portfolio is examined periodically by its regulatory agencies, the FDIC and the Connecticut Department of Banking.

The composition of loans receivable by risk rating grade is as follows:

(in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2017                              
Residential 1-4 family  $307,240   $6,452   $3,947   $—   $—   $317,639 
Residential 5+ multifamily   16,129    957    1,022    —    —    18,108 
Construction of residential 1-4 family   11,197    —    —    —    —    11,197 
Home equity lines of credit   32,891    710    170    —    —    33,771 
Residential real estate   367,457    8,119    5,139    —    —    380,715 
Commercial   232,492    4,456    12,363    —    —    249,311 
Construction of commercial   9,622    —    366    —    —    9,988 
Commercial real estate   242,114    4,456    12,729    —    —    259,299 
Farm land   4,024    —    250    —    —    4,274 
Vacant land   7,806    77    —    —    —    7,883 
Real estate secured   621,401    12,652    18,118    —    —    652,171 
Commercial and industrial   129,219    2,536    976    —    —    132,731 
Municipal   17,494    —    —    —    —    17,494 
Consumer   4,744    50    —    —    —    4,794 
Loans receivable, gross  $772,858   $15,238   $19,094   $—   $—   $807,190 

 

(in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2016                              
Residential 1-4 family  $291,928   $6,279   $2,832   $89   $—   $301,128 
Residential 5+ multifamily   11,556    1,906    163    —    —    13,625 
Construction of residential 1-4 family   10,951    —    —    —    —    10,951 
Home equity lines of credit   34,299    512    676    —    —    35,487 
Residential real estate   348,734    8,697    3,671    89    —    361,191 
Commercial   215,856    7,818    11,808    —    —    235,482 
Construction of commercial   5,025    —    373    —    —    5,398 
Commercial real estate   220,881    7,818    12,181    —    —    240,880 
Farm land   2,912    —    1,002    —    —    3,914 
Vacant land   6,513    87    —    —    —    6,600 
Real estate secured   579,040    16,602    16,854    89    —    612,585 
Commercial and industrial   137,914    2,894    665    —    —    141,473 
Municipal   8,626    —    —    —    —    8,626 
Consumer   5,353    27    —    —    —    5,380 
Loans receivable, gross  $730,933   $19,523   $17,519   $89   $—   $768,064 

 

The composition of loans receivable by delinquency status is as follows:

         Past due
(In thousands)   Current     30-59 days    60-89 days    90-179 days    180 days and over    30 days and over    Accruing 90 days and over    Non- accrual 
December 31, 2017                                         
Residential 1-4 family  $314,798   $1,410   $165   $156   $1,110   $2,841   $—   $2,045 
Residential 5+ multifamily   18,108    —    —    —    —    —    —    151 
Construction of residential 1-4 family   11,197    —    —    —    —    —    —    — 
Home equity lines of credit   33,219    75    477    —    —    552    —    66 
Residential real estate   377,322    1,485    642    156    1,110    3,393    —    2,262 
Commercial   244,869    1,888    758    —    1,796    4,442    —    3,364 
Construction of commercial   9,730    —    —    —    258    258    —    258 
Commercial real estate   254,599    1,888    758    —    2,054    4,700    —    3,622 
Farm land   4,032    242    —    —    —    242    —    250 
Vacant land   7,883    —    —    —    —    —    —    — 
Real estate secured   643,836    3,615    1400    156    3,164    8,335    —    6,134 
Commercial and industrial   131,991    131    218    391    —    740    31    470 
Municipal   17,494    —    —    —    —    —    —    — 
Consumer   4,752    34    8    —    —    42    —    — 
Loans receivable, gross  $798,073   $3,780   $1,626   $547   $3,164   $9,117   $31   $6,604 

 

         Past due
(In thousands)   Current     30-59 days    60-89 days    90-179 days    180 days and over    30 days and over    Accruing 90 days and over    Non- accrual 
December 31, 2016                                         
Residential 1-4 family  $297,895   $1,305   $213   $327   $1,388   $3,233   $236   $1,920 
Residential 5+ multifamily   13,625    —    —    —    —    —    —    163 
Construction of residential 1-4 family   10,951    —    —    —    —    —    —    — 
Home equity lines of credit   35,190    155    88    —    54    297    —    519 
Residential real estate   357,661    1,460    301    327    1,442    3,530    236    2,602 
Commercial   229,376    1,213    250    2,139    2,504    6,106    —    4,643 
Construction of commercial   5,140    —    —    —    258    258    —    258 
Commercial real estate   234,516    1,213    250    2,139    2,762    6,364    —    4,901 
Farm land   2,402    789    —    —    723    1,512    —    1,002 
Vacant land   6,575    25    —    —    —    25    —    — 
Real estate secured   601,154    3,487    551    2,466    4,927    11,431    236    8,505 
Commercial and industrial   140,623    565    239    46    —    850    20    27 
Municipal   8,626    —    —    —    —    —    —    — 
Consumer   5,336    26    15    3    —    44    —    4 
Loans receivable, gross  $755,739   $4,078   $805   $2,515   $4,927   $12,325   $256   $8,536 

 

Troubled Debt Restructurings (TDRs)

Troubled debt restructurings occurring during the periods are as follows:

  Business Activities Loans December 31, 2017  December 31, 2016
  (in thousands)  Quantity  Pre-modification balance  Post-modification balance  Quantity  Pre-modification balance  Post-modification balance
Residential real estate   1   $222   $222    5   $772   $772 
Land   —    —    —    —    —    — 
Commercial real estate   1    600    600    2    2,123    2,123 
Construction of commercial   —    —    —    —    —    — 
Consumer   —    —    —    —    —    — 
Commercial and industrial   2    182    182    —    —    — 
HELOC   —    —    —    —    —    — 
Troubled debt restructurings   4   $1,004   $1,004    7   $2,895   $2,895 
Rate reduction and term extension   3   $404   $404    2   $262   $262 
Debt consolidation and term extension   —    —    —    1    260    260 
Debt Consolidation   —    —    —    1    1,863    1,863 
Term extension   1    600    600    3    510    510 
Troubled debt restructurings   4   $1,004   $1,004    7   $2,895   $2,895 

Four loans were restructured during 2017. No concessions have been made with respect to loans that subsequently defaulted in the current reporting period. Salisbury currently does not have any commitments to lend additional funds to TDR loans.

 

The following table discloses the recorded investment and number of modifications for TDRs within the last year where a concession has been made, that then defaulted in the current reporting period. All TDR loans are included in the Impaired Loan schedule and are individually evaluated.

   Modifications that Subsequently Defaulted
  

For the twelve months ending

December 31, 2017

 

For the twelve months ending

December 31, 2016

Troubled Debt Restructurings                    
Residential 1-4 family   —    —    1    52 
Residential 5+ multifamily   —    —    1    163 
Commercial real estate   —    —    1    1,793 
Total   —    —    3    2,008 

 

Impaired loans

Loans individually evaluated for impairment (impaired loans) are loans for which Salisbury does not expect to collect all principal and interest in accordance with the contractual terms of the loan. Impaired loans include all modified loans classified as TDRs and loans on non-accrual status. The components of impaired loans are as follows:

December 31, (in thousands)    2017      2016  
Non-accrual loans, excluding troubled debt restructured loans  $5,450   $6,274 
Non-accrual troubled debt restructured loans   1,154    2,262 
Accruing troubled debt restructured loans   7,482    7,798 
Total impaired loans  $14,086   $16,334 
Commitments to lend additional amounts to impaired borrowers  $—   $— 


Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

  December 31, 2017   December 31, 2016
(In thousands)Beginning         Charge-    Reco-    Ending    Beginning         Charge-    Reco-    Ending 
    balance    Provision    offs    veries    balance    balance    Provision    offs    veries    balance 
Residential 1-4 family  $1,926   $100   $(197)  $33   $1,862   $2,132   $475   $(706)  $25   $1,926 
Residential 5+ multifamily   62    93    —    —    155    33    32    (3)   —    62 
Construction of residential 1-4 family   91    (16)   —    —    75    37    54    —    —    91 
Home equity lines of credit   348    (115)   (4)   7    236    354    37    (47)   4    348 
Residential real estate   2,427    62    (201)   40    2,328    2,556    598    (756)   29    2,427 
Commercial   1,920    836    (453)   244    2,547    1,507    597    (187)   3    1,920 
Construction of commercial   38    42    —    —    80    92    (54)   —    —    38 
Commercial real estate   1,958    878    (453)   244    2,627    1,599    543    (187)   3    1,958 
Farm land   28    45    (43)   2    32    37    15    (24)   —    28 
Vacant land   170    (2)   (36)   —    132    152    82    (64)   —    170 
Real estate secured   4,583    983    (733)   286    5,119    4,344    1,238    (1,031)   32    4,583 
Commercial and industrial   1,079    (229)   (162)   296    984    705    754    (452)   72    1,079 
Municipal   53    (23)   —    —    30    61    (8)   —    —    53 
Consumer   75    63    (76)   18    80    124    (4)   (67)   22    75 
Unallocated   337    226    —    —    563    482    (145)   —    —    337 
Totals  $6,127   $1,020   $(971)  $600   $6,776   $5,716   $1,835   $(1,550)  $126   $6,127 

The composition of loans receivable and the allowance for loan losses is as follows:

  (in thousands)  Collectively evaluated 1  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2017                              
Residential 1-4 family  $312,456   $1,759   $5,183   $103   $317,639   $1,862 
Residential 5+ multifamily   16,361    154    1,747    1    18,108    155 
Construction of residential 1-4 family   11,197    75    —    —    11,197    75 
Home equity lines of credit   33,658    235    113    1    33,771    236 
Residential real estate   373,672    2,223    7,043    105    380,715    2,328 
Commercial   243,602    2,432    5,709    115    249,311    2,547 
Construction of commercial   9,622    80    366    —    9,988    80 
Commercial real estate   253,224    2,512    6,075    115    259,299    2,627 
Farm land   4,024    32    250    —    4,274    32 
Vacant land   7,684    129    199    3    7,883    132 
Real estate secured   638,604    4,896    13,567    223    652,171    5,119 
Commercial and industrial   132,212    952    519    32    132,731    984 
Municipal   17,494    30    —    —    17,494    30 
Consumer   4,794    80    —    —    4,794    80 
Unallocated allowance   —    563    —    —    —    563 
Totals  $793,104   $6,521   $14,086   $255   $807,190   $6,776 

 

  (in thousands)  Collectively evaluated 1  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2016                              
Residential 1-4 family  $295,998   $1,797   $5,130   $129   $301,128   $1,926 
Residential 5+ multifamily   11,802    56    1,823    6    13,625    62 
Construction of residential 1-4 family   10,951    91    —    —    10,951    91 
Home equity lines of credit   34,854    326    633    22    35,487    348 
Residential real estate   353,605    2,270    7,586    157    361,191    2,427 
Commercial   228,406    1,668    7,076    251    235,482    1,919 
Construction of commercial   5,025    39    373    —    5,398    39 
Commercial real estate   233,431    1,707    7,449    251    240,880    1,958 
Farm land   2,912    28    1,002    —    3,914    28 
Vacant land   6,390    166    210    4    6,600    170 
Real estate secured   596,338    4,171    16,247    412    612,585    4,583 
Commercial and industrial   141,389    1,079    84    0    141,473    1,079 
Municipal   8,626    53    —    —    8,626    53 
Consumer   5,377    75    3    —    5,380    75 
Unallocated allowance   —    337    —    —    —    337 
Totals  $751,730   $5,715   $16,334   $412   $768,064   $6,127 

1 Includes ASC 310-30 loans and allowance of $2.4 million and $92,000, respectively for 2017 and $4.2 million and $79,000, respectively for 2016.

The credit quality segments of loans receivable and the allowance for loan losses are as follows:

  December 31, 2017 (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
Performing loans  $783,206   $5,619   $—   $—   $783,206   $5,619 
Potential problem loans 1   9,898    339    —    —    9,898    339 
Impaired loans   —    —    14,086    255    14,086    255 
Unallocated allowance   —    563    —    —    —    563 
Totals  $793,104   $6,521   $14,086   $255   $807,190   $6,776 

 

  December 31, 2016 (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
Performing loans  $744,455   $5,117   $—   $—   $744,455   $5,117 
Potential problem loans 1   7,275    261    —    —    7,275    261 
Impaired loans   —    —    16,334    412    16,334    412 
Unallocated allowance   —    337    —    —    —    337 
Totals  $751,730   $5,715   $16,334   $412   $768,064   $6,127 

1 Potential problem loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired.

A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the fair value of expected cash flows or collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment is as follows:

   Impaired loans with specific allowance   Impaired loans with no specific allowance 
(In thousands)  Loan balance    Specific    Income   Loan balance    Income 
    Book    Note    Average    allowance    recognized    Book    Note    Average    recognized 
December 31, 2017                                             
Residential  $3,532   $3,651   $3,376   $104   $109   $3,398   $4,279   $3,597   $119 
Home equity lines of credit   47    47    79    1    2    66    117    155    — 
Residential real estate   3,579    3,698    3,455    105    111    3,464    4,396    3,752    119 
Commercial   2,336    2,563    2,688    115    102    3,373    4,567    3,699    305 
Construction of commercial   108    114    59    —    7    258    274    310    — 
Farm land   —    —    —    —    —    250    450    869    — 
Vacant land   44    44    45    3    3    155    179    159    11 
Real estate secured   6,067    6,419    6,247    223    223    7,500    9,866    8,789    435 
Commercial and industrial   110    117    59    32    —    409    502    181    15 
Consumer   —    —    —    —    —    —    6    1    — 
Totals  $6,177   $6,536   $6,306   $255   $223   $7,909   $10,374   $8,971   $450 

 

   Impaired loans with specific allowance   Impaired loans with no specific allowance 
(In thousands)  Loan balance    Specific    Income   Loan balance    Income 
    Book    Note    Average    allowance    recognized    Book    Note    Average    recognized 
December 31, 2016                                             
Residential  $3,516   $3,684   $6,411   $135   $88   $3,437   $4,031   $3,060   $94 
Home equity lines of credit   406    435    462    22    2    227    277    331    3 
Residential real estate   3,922    4,119    6,873    157    90    3,664    4,308    3,391    97 
Commercial   4,275    4,932    4,072    251    48    2801    3518    3046    80 
Construction of commercial   —    —    56    —    —    373    393    321    8 
Farm land   —    —    394    —    —    1,002    1,140    622    — 
Vacant land   46    46    1,786    4    3    164    189    195    12 
Real estate secured   8,243    9,097    13,181    412    141    8,004    9,548    7,575    197 
Commercial and industrial   —    —    108    —    —    84    130    220    3 
Consumer   —    —    —    —    —    3    16    7    — 
Totals  $8,243   $9,097   $13,289   $412   $141   $8,091   $9,694   $7,802   $200