NOTE 11 - FAIR VALUE OF ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures [Abstract]

NOTE 11 - FAIR VALUE OF ASSETS AND LIABILITIES

NOTE 11 - 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. Currently, Salisbury uses an interest rate swap to manage its interest rate risk. The fair value of the interest rate swap is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. To comply with the provisions of ASC 820, Salisbury incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Bank has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

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.

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 nine-month period ended September 30, 2020.

Assets and liabilities measured at fair value are as follows:

	Fair Value Measurements Using						Assets and
(in thousands)	Level 1		Level 2		Level 3		liabilities at
							fair value
September 30, 2020
Assets at fair value on a recurring basis
U.S. Government Agency notes	$	—	$	5,787	$	—	$	5,787
Municipal bonds		—		26,558		—		26,558
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		36,508		—		36,508
Collateralized mortgage obligations:
U.S. Government agencies		—		19,037		—		19,037
Corporate bonds		—		7,830		—		7,830
Securities available-for-sale	$	—	$	95,720	$	—	$	95,720
CRA mutual funds		916		—		—		916
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	2,010	$	2,010
Other real estate owned	$	—	$	—	$	—	$	—
Liabilities at fair value on a recurring basis
Derivative financial instruments	$	—	$	3	$	—	$	3

December 31, 2019
Assets at fair value on a recurring basis
U.S. Government Agency notes	$	—	$	4,644	$	—	$	4,644
Municipal bonds		—		27,193		—		27,193
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		—		29,357		—		29,357
Collateralized mortgage obligations:
U.S. Government agencies		—		25,499		—		25,499
Corporate bonds		—		5,108		—		5,108
Securities available-for-sale	$	—	$	91,801	$	—	$	91,801
CRA mutual funds		882		—		—		882
Assets at fair value on a non-recurring basis
Collateral dependent impaired loans	$	—	$	—	$	1,593	$	1,593
Other real estate owned	$	—	$	—	$	314	$	314

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, 2020
Financial Assets
Cash and cash equivalents	$	95,341	$	95,341	$	95,341	$	—	$	—
Interest bearing time deposits with financial institutions		750		750		750		—		—
Securities available-for-sale		95,720		95,720		—		95,720		—
CRA mutual fund		916		916		916		—		—
Federal Home Loan Bank of Boston stock		3,158		3,158		3,158		—		—
Loans held-for-sale		2,761		2,802		—		—		2,802
Loans receivable, net		1,031,593		1,058,564		—		—		1,058,564
Accrued interest receivable		6,055		6,055		6,055		—		—
Cash surrender value of life insurance policies		17,572		17,572		17,572		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	313,742	$	313,742	$	—	$	313,742	$	—
Demand (interest-bearing)		201,760		201,760		—		201,760		—
Money market		270,097		270,097		—		270,097		—
Savings and other		181,691		181,691		—		181,691		—
Certificates of deposit		127,851		129,311		—		129,311		—
Deposits		1,095,141		1,096,601		—		1,096,601		—
Repurchase agreements		10,885		10,885		—		10,885		—
FHLBB advances		43,880		44,099		—		44,099		—
Subordinated debt		9,877		9,965		9,965		—		—
Note payable		218		222		—		222		—
Finance lease liability		1,685		1,868		—		—		1,868
Accrued interest payable		210		210		210		—		—
Derivative financial instruments		3		3		—		3		—

December 31, 2019
Financial Assets
Cash and cash equivalents	$	26,885	$	26,885	$	26,885	$	—	$	—
Interest bearing time deposits with financial institutions		750		750		750		—		—
Securities available-for-sale		91,801		91,801		—		91,801		—
CRA mutual fund		882		882		882		—		—
Federal Home Loan Bank of Boston stock		3,242		3,242		3,242		—		—
Loans held-for-sale		332		334		—		—		334
Loans receivable, net		927,413		933,287		—		—		933,287
Accrued interest receivable		3,415		3,415		3,415		—		—
Cash surrender value of life insurance policies		20,580		20,580		20,580		—		—
Financial Liabilities
Demand (non-interest-bearing)	$	237,852	$	237,852	$	—	$	237,852	$	—
Demand (interest-bearing)		153,314		153,314		—		153,314		—
Money market		239,504		239,504		—		239,504		—
Savings and other		161,112		161,112		—		161,112		—
Certificates of deposit		127,724		128,629		—		128,629		—
Deposits		919,506		920,411		—		920,411		—
Repurchase agreements		8,530		8,530		—		8,530		—
FHLBB advances		50,887		51,028		—		51,028		—
Subordinated debt		9,859		10,113		10,113		—		—
Note payable		246		251		—		251		—
Finance lease liability		1,718		1,967		—		—		1,967
Accrued interest payable		78		78		78		—		—

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.