FAIR VALUE OF ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE OF ASSETS AND LIABILITIES

NOTE 10 – FAIR VALUE OF ASSETS AND LIABILITIES

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. 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 may also include 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.

Salisbury adopted ASC 2016-01, “Financial Instruments – overall (subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities”, which requires the exit price notion to be used when measuring the fair value of financial instruments for disclosure. Salisbury estimated the fair value of its loan portfolio based on a loan-level assessment that incorporated probabilities of default by loan type and internal risk rating, product-level loss given defaults and prepayment rates as well as discount rates.

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 three month period ended September 30, 2019.

Assets measured at fair value are as follows:

	Fair Value Measurements Using						Assets at
(in thousands)	Level 1		Level 2		Level 3		fair
							value
September 30, 2019
Assets at fair value on a recurring basis
U.S. Government Agency notes	$	—	$	4,804	$	—	$	4,804
Municipal bonds		—		27,305		—		27,305
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		31,121		—		31,121
Collateralized mortgage obligations:
U.S. Government agencies		—		27,247		—		27,247
Corporate bonds		—		4,337		—		4,337
Securities available-for-sale	$	—	$	94,814	$	—	$	94,814
CRA mutual funds		881		—		—		881
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	3,162	$	3,162
Other real estate owned	$	—	$	—	$	317	$	317
December 31, 2018
Assets at fair value on a recurring basis
U.S. Government Agency notes	$	—	$	7,670	$	—	$	7,670
Municipal bonds		—		5,379		—		5,379
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		57,446		—		57,446
Collateralized mortgage obligations:
U.S. Government agencies		—		17,747		—		17,747
Corporate bonds		—		3,576		—		3,576
Securities available-for-sale	$	—	$	91,818	$	—	$	91,818
CRA mutual funds		836		—		—		836
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	4,238	$	4,238
Other real estate owned	$	—	$	—	$	1,810	$	1,810

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

(in thousands)	Carrying		Estimated		Fair value measurements using
	value		fair value		Level 1		Level 2		Level 3
September 30, 2019
Financial Assets
Cash and cash equivalents	$	53,548	$	53,548	$	53,548	$	—	$	—
Interest bearing time deposits with financial institutions		786		786		786		—		—
Securities available-for-sale		94,814		94,814		—		94,814		—
CRA mutual fund		881		881		881		—		—
Federal Home Loan Bank of Boston stock		2,575		2,575		2,575		—		—
Loans held-for-sale		506		512		—		—		512
Loans receivable, net		915,083		919,524		—		—		919,524
Accrued interest receivable		3,425		3,425		3,425		—		—
Cash surrender value of life insurance policies		20,441		20,441		20,441		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	247,771	$	247,771	$	—	$	247,771	$	—
Demand (interest-bearing)		160,139		160,139		—		160,139		—
Money market		238,494		238,494		—		238,494		—
Savings and other		166,298		166,298		—		166,298		—
Certificates of deposit		153,476		154,205		—		154,205		—
Deposits		966,178		966,907		—		966,907		—
Repurchase agreements		8,588		8,588		—		8,588		—
FHLBB advances		37,828		38,010		—		38,010		—
Subordinated debt		9,853		10,072		10,072		—		—
Note payable		255		260		—		260		—
Finance lease liability		1,729		1,929		—		—		1,929
Accrued interest payable		508		508		508		—		—
December 31, 2018
Financial Assets
Cash and cash equivalents	$	58,445	$	58,445	$	58,445	$	—	$	—
Securities available-for-sale, net		91,818		91,818		—		91,818		—
CRA mutual fund		836		836		836		—		—
Federal Home Loan Bank of Boston stock		4,496		4,496		4,496		—		—
Loans receivable, net		909,279		886,222		—		—		886,222
Accrued interest receivable		3,148		3,148		3,148		—		—
Cash surrender value of life insurance policies		14,438		14,438		14,438		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	228,448	$	228,448	$	—	$	228,448	$	—
Demand (interest-bearing)		153,586		153,586		—		153,586		—
Money market		204,219		204,219		—		204,219		—
Savings and other		178,807		178,807		—		178,807		—
Certificates of deposit		161,679		162,013		—		162,013		—
Deposits		926,739		927,073		—		927,073		—
Repurchase agreements		4,104		4,104		—		4,104		—
FHLBB advances		67,154		67,231		—		67,231		—
Subordinated debt		9,835		10,006		10,006		—		—
Note payable		280		288		—		288		—
Finance lease liability		3,081		3,339		—		—		3,339
Accrued interest payable		237		237		237		—		—

The carrying amounts of financial instruments shown in the above table are included in the consolidated balance sheets under the indicated captions or are included in accrued interest and other liabilities.