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LOANS
 12 Months Ended
Dec. 31, 2019
Receivables [Abstract]  
LOANS

NOTE 4 - LOANS

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

December 31,    2019      2018  
(in thousands)    Total Loans      Total Loans  
Residential 1-4 family  $346,299   $345,862 
Residential 5+ multifamily   35,455    36,510 
Construction of residential 1-4 family   11,889    12,041 
Home equity lines of credit   33,798    34,433 
Residential real estate   427,441    428,846 
Commercial   289,795    283,599 
Construction of commercial   8,466    8,976 
Commercial real estate   298,261    292,575 
Farm land   3,641    4,185 
Vacant land   7,893    8,322 
Real estate secured   737,236    733,928 
Commercial and industrial   169,411    162,905 
Municipal   21,914    14,344 
Consumer   6,385    4,512 
Loans receivable, gross   934,946    915,689 
Deferred loan origination fees and costs, net   1,362    1,421 
Allowance for loan losses   (8,895)   (7,831)
Loans receivable, net  $927,413   $909,279 
Loans held-for-sale          
Residential 1-4 family  $332   $— 

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, 2019 and 2018, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $67.0 million and $66.4 million, respectively.

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in Litchfield County, Connecticut; Dutchess, Orange and Ulster Counties, New York; and Berkshire County, Massachusetts, 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. Salisbury's commercial real estate exposure as a percentage of the Bank's total risk-based capital, which represents Tier 1 plus Tier 2 capital, was approximately 169% as of December 31, 2019 and 170% at December 31, 2018 compared to the regulatory monitoring guideline of 300%.

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" (5) 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" (6) 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" (7) 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" (8) 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 CTDOB.

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

(in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2019                              
Residential 1-4 family  $337,302   $4,278   $4,719   $—   $—   $346,299 
Residential 5+ multifamily   33,619    99    1,737    —    —    35,455 
Construction of residential 1-4 family   11,889    —    —    —    —    11,889 
Home equity lines of credit   33,381    312    105    —    —    33,798 
Residential real estate   416,191    4,689    6,561    —    —    427,441 
Commercial   271,708    10,964    7,052    71    —    289,795 
Construction of commercial   8,225    —    241    —    —    8,466 
Commercial real estate   279,933    10,964    7,293    71    —    298,261 
Farm land   1,934    —    1,707    —    —    3,641 
Vacant land   7,834    59    —    —    —    7,893 
Real estate secured   705,892    15,712    15,561    71    —    737,236 
Commercial and industrial   167,458    443    1,510    —    —    169,411 
Municipal   21,914    —    —    —    —    21,914 
Consumer   6,344    3    38    —    —    6,385 
Loans receivable, gross  $901,608   $16,158   $17,109   $71   $—   $934,946 

 

(in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2018                              
Residential 1-4 family  $337,520   $4,281   $4,061   $—   $—   $345,862 
Residential 5+ multifamily   34,726    784    1,000    —    —    36,510 
Construction of residential 1-4 family   12,041    —    —    —    —    12,041 
Home equity lines of credit   33,728    265    440    —    —    34,433 
Residential real estate   418,015    5,330    5,501    —    —    428,846 
Commercial   270,461    4,530    8,608    —    —    283,599 
Construction of commercial   8,482    —    494    —    —    8,976 
Commercial real estate   278,943    4,530    9,102    —    —    292,575 
Farm land   3,969    —    216    —    —    4,185 
Vacant land   8,253    69    —    —    —    8,322 
Real estate secured   709,180    9,929    14,819    —    —    733,928 
Commercial and industrial   159,127    2,672    1,106    —    —    162,905 
Municipal   14,344    —    —    —    —    14,344 
Consumer   4,502    10    —    —    —    4,512 
Loans receivable, gross  $887,153   $12,611   $15,925   $—   $—   $915,689 

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, 2019                        
Residential 1-4 family  $344,085   $971   $351   $200   $692   $2,214   $—   $1,551 
Residential 5+ multifamily   34,594    —    —    —    861    861    —    861 
Construction of residential 1-4 family   11,889    —    —    —    —    —    —    — 
Home equity lines of credit   33,522    152    46    —    78    276    —    105 
Residential real estate   424,090    1,123    397    200    1,631    3,351    —    2,517 
Commercial   289,103    336    141    71    144    692    —    914 
Construction of commercial   8,466    —    —    —    —    —    —    — 
Commercial real estate   297,569    336    141    71    144    692    —    914 
Farm land   3,461    180    —    —    —    180    —    186 
Vacant land   7,852    —    41    —    —    41    —    — 
Real estate secured   732,972    1,639    579    271    1,775    4,264    —    3,617 
Commercial and industrial   169,262    2    146    1    —    149    1    — 
Municipal   21,914    —    —    —    —    —    —    — 
Consumer   6,382    —    1    2    —    3    2    — 
Loans receivable, gross  $930,530   $1,641   $726   $274   $1,775   $4,416   $3   $3,617 

 

 

         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, 2018                        
Residential 1-4 family  $342,881   $1,100   $521   $—   $1,360   $2,981   $—   $2,092 
Residential 5+ multifamily   35,648    —    —    633    229    862    —    1,000 
Construction of residential 1-4 family   12,041    —    —    —    —    —    —    — 
Home equity lines of credit   33,806    235    33    —    359    627    —    411 
Residential real estate   424,376    1,335    554    633    1,948    4,470    —    3,503 
Commercial   281,053    264    240    833    1,209    2,546    654    1,388 
Construction of commercial   8,835    —    —    141    —    141    141    252 
Commercial real estate   289,888    264    240    974    1,209    2,687    795    1,640 
Farm land   4,185    —    —    —    —    —    —    216 
Vacant land   8,280    42    —    —    —    42    —    — 
Real estate secured   726,729    1,641    794    1,607    3,157    7,199    795    5,359 
Commercial and industrial   162,507    —    38    —    360    398    —    360 
Municipal   14,344    —    —    —    —    —    —    — 
Consumer   4,504    2    6    —    —    8    —    — 
Loans receivable, gross  $908,084   $1,643   $838   $1,607   $3,517   $7,605   $795   $5,719 

 

Troubled Debt Restructurings (TDRs)

Troubled debt restructurings occurring during the years ended December 31, 2019 and 2018:

  Business Activities Loans December 31, 2019  December 31, 2018
  (in thousands)  Quantity  Pre-modification balance  Post-modification balance  Quantity  Pre-modification balance  Post-modification balance
Residential real estate   3   $1,416   $1,416    1   $68   $68 
Commercial real estate   4    977    1,191    1    566    566 
Consumer   1    —    36    —    —    — 
Troubled debt restructurings   8   $2,393   $2,643    2   $634   $634 
Interest only payments to sell property   1   $791   $791    —   $—   $— 
Rate reduction   —    —    —    2    634    634 
Modification and Rate reduction   2    625    625    —    —    — 
Extension of new funds to pay outstanding taxes   3    259    442    —    —    — 
Modification and term extension   2    718    785    —    —    — 
Troubled debt restructurings   8   $2,393   $2,643    2   $634   $634 

For the twelve months ended December 2019, there were eight troubled debt restructurings. 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, 2019

 

For the twelve months ending

December 31, 2018

   Quantity  Balance  Quantity  Balance
Troubled Debt Restructurings                    
Residential 1-4 family —   $—    1   $67 
Commercial real estate   1    274    —    — 
 Total   1   $274    1   $67 

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)    2019      2018  
Non-accrual loans, excluding troubled debt restructured loans  $2,604   $4,430 
Non-accrual troubled debt restructured loans   1,013    1,289 
Accruing troubled debt restructured loans   7,778    6,801 
Total impaired loans  $11,395   $12,520 
Commitments to lend additional amounts to impaired borrowers  $—   $— 

Allowance for Loan Losses

In first quarter 2019 Salisbury transferred the remaining unearned credit-related discount on loans acquired in its 2014 acquisition of Riverside Bank to the allowance for loan losses. As a result of this transfer, which is reflected in the table below as the “acquisition discount transfer”, gross loans receivable and the allowance for loan losses increased by $663 thousand. The balance of net loans receivable did not change as a result of this transfer.

    December 31, 2019    December 31, 2018
(in thousands)   Beginning    Acquisition Discount    Provi-    Charge-    Reco-    Ending    Beginning    Provi-    Charge-   Reco-    Ending 
    balance    Transfer    sion    offs    veries    balance    balance    sions    offs    veries    balance 
Residential 1-4 family  $2,149   $10   $367   $(136)  $3   $2,393   $1,862   $580   $(299)  $6   $2,149 
Residential 5+ multifamily   413    —    33    —    —    446    155    258    —    —    413 
Construction of residential 1-4 family   83    —    (8)   —    —    75    75    8    —    —    83 
Home equity lines of credit   219    1    258    (281)   —    197    236    (18)   —    1    219 
Residential real estate   2,864    11    650    (417)   3    3,111    2,328    828    (299)   7    2,864 
Commercial   3,048    488    248    (44)   2    3,742    2,547    756    (259)   4    3,048 
Construction of commercial   122    —    (18)   —    —    104    80    42    —    —    122 
Commercial real estate   3,170    488    230    (44)   2    3,846    2,627    798    (259)   4    3,170 
Farm land   33    —    14    —    —    47    32    (6)   —    7    33 
Vacant land   100    —    (29)   —    —    71    132    (32)   —    —    100 
Real estate secured   6,167    499    865    (461)   5    7,075    5,119    1,588    (558)   18    6,167 
Commercial and industrial   1,158    164    (78)   (145)   46    1,145    984    255    (108)   27    1,158 
Municipal   12    —    34    —    —    46    30    (18)   —    —    12 
Consumer   56    —    3    (36)   37    60    80    28    (81)   29    56 
Unallocated   438    —    131    —    —    569    563    (125)   —    —    438 
Totals  $7,831   $663   $955   $(642)  $88   $8,895   $6,776   $1,728   $(747)  $74   $7,831 

  December 31, 2017
(in thousands)  Beginning balance  Provision  Charge-offs  Reco-veries  Ending balance
Residential 1-4 family  $1,926   $100   $(197)  $33   $1,862 
Residential 5+ multifamily   62    93    —    —    155 
Construction of residential 1-4 family   91    (16)   —    —    75 
Home equity lines of credit   348    (115)   (4)   7    236 
Residential real estate   2,427    62    (201)   40    2,328 
Commercial   1,920    836    (453)   244    2,547 
Construction of commercial   38    42    —    —    80 
Commercial real estate   1,958    878    (453)   244    2,627 
Farm land   28    45    (43)   2    32 
Vacant land   170    (2)   (36)   —    132 
Real estate secured   4,583    983    (733)   286    5,119 
Commercial and industrial   1,079    (229)   (162)   296    984 
Municipal   53    (23)   —    —    30 
Consumer   75    63    (76)   18    80 
Unallocated   337    226    —    —    563 
Totals  $6,127   $1,020   $(971)  $600   $6,776 

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, 2019                              
Residential 1-4 family  $340,847   $2,117   $5,452   $276   $346,299   $2,393 
Residential 5+ multifamily   34,478    446    977    —    35,455    446 
Construction of residential 1-4 family   11,889    75    —    —    11,889    75 
Home equity lines of credit   33,693    197    105    —    33,798    197 
Residential real estate   420,907    2,835    6,534    276    427,441    3,111 
Commercial   285,462    3,333    4,333    409    289,795    3,742 
Construction of commercial   8,466    104    —    —    8,466    104 
Commercial real estate   293,928    3,437    4,333    409    298,261    3,846 
Farm land   3,455    47    186    —    3,641    47 
Vacant land   7,713    66    180    5    7,893    71 
Real estate secured   726,003    6,385    11,233    690    737,236    7,075 
Commercial and industrial   169,285    1,143    126    2    169,411    1,145 
Municipal   21,914    46    —    —    21,914    46 
Consumer   6,349    59    36    1    6,385    60 
Unallocated allowance   —    569    —    —    —    569 
Totals  $923,551   $8,202   $11,395   $693   $934,946   $8,895 

 

  (in thousands)  Collectively evaluated 1  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2018                              
Residential 1-4 family  $340,946   $2,042   $4,916   $107   $345,862   $2,149 
Residential 5+ multifamily   34,835    413    1,675    —    36,510    413 
Construction of residential 1-4 family   12,041    83    —    —    12,041    83 
Home equity lines of credit   33,975    213    458    6    34,433    219 
Residential real estate   421,797    2,751    7,049    113    428,846    2,864 
Commercial   279,389    2,907    4,210    141    283,599    3,048 
Construction of commercial   8,622    106    354    16    8,976    122 
Commercial real estate   288,011    3,013    4,564    157    292,575    3,170 
Farm land   3,969    33    216    —    4,185    33 
Vacant land   8,132    98    190    2    8,322    100 
Real estate secured   721,909    5,895    12,019    272    733,928    6,167 
Commercial and industrial   162,404    1,158    501    —    162,905    1,158 
Municipal   14,344    12    —    —    14,344    12 
Consumer   4,512    56    —    —    4,512    56 
Unallocated allowance   —    438    —    —    —    438 
Totals  $903,169   $7,559   $12,520   $272   $915,689   $7,831 

1 Includes ASC 310-30 loans and allowance of $0.0 million and $0, respectively for 2019 and $1.7 million and $0, respectively for 2018.

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

  December 31, 2019 (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
Performing loans  $913,648   $7,251   $—   $—   $913,648   $7,251 
Potential problem loans 1   9,903    382    —    —    9,903    382 
Impaired loans   —    —    11,395    693    11,395    693 
Unallocated allowance   —    569    —    —    —    569 
Totals  $923,551   $8,202   $11,395   $693   $934,946   $8,895 

 

  December 31, 2018 (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
Performing loans  $895,527   $6,989   $—   $—   $895,527   $6,989 
Potential problem loans 1   7,642    132    —    —    7,642    132 
Impaired loans   —    —    12,520    272    12,520    272 
Unallocated allowance   —    438    —    —    —    438 
Totals  $903,169   $7,559   $12,520   $272   $915,689   $7,831 

1 Potential problem loans consist of performing loans that have been assigned a substandard credit risk rating and are not classified as impaired, included in this total are purchased loans net of any purchase marks remaining on the loan.

A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the present 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, 2019                           
Residential  $4,111   $4,190   $3,725   $276   $162   $2,318   $3,081   $2,940   $52 
Home equity lines of credit   —    —    52    —    —    105    450    391    — 
Residential real estate   4,111    4,190    3,777    276    162    2,423    3,531    3,331    52 
Commercial   3,309    3,335    2,574    409    90    1,024    1,733    1,747    54 
Construction of commercial   —    —    77    —    —    —    —    39    — 
Farm land   —    —    —    —    —    186    329    203    — 
Vacant land   41    41    42    5    3    139    157    143    10 
Real estate secured   7,461    7,566    6,470    690    255    3,772    5,750    5,463    116 
Commercial and industrial   93    97    16    2    4    33    188    265    4 
Consumer   36    36    21    1    —    —    —    3    — 
Totals  $7,590   $7,699   $6,507   $693   $259   $3,805   $5,938   $5,731   $120 

 

 

   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, 2018                           
Residential  $2,792   $2,842   $3,429   $107   $101   $3,799   $5,140   $3,726   $102 
Home equity lines of credit   47    47    158    6    2    411    498    114    2 
Residential real estate   2,839    2,889    3,587    113    103    4,210    5,638    3,840    104 
Commercial   1,808    1,808    2,001    141    88    2,403    3,989    2,992    75 
Construction of commercial   252    252    67    16    —    102    110    295    7 
Farm land   —    —    —    —    —    216    432    232    — 
Vacant land   42    42    43    2    3    147    168    151    10 
Real estate secured   4,941    4,991    5,698    272    194    7,078    10,337    7,510    196 
Commercial and industrial   —    —    40    —    —    501    596    469    5 
Totals  $4,941   $4,991   $5,738   $272   $194   $7,579   $10,933   $7,979   $201