NOTE 2 - SECURITIES

3 Months Ended

Mar. 31, 2022

Note 2 - Securities

NOTE 2 - SECURITIES

NOTE 2 - SECURITIES

The composition of securities is as follows:

(in thousands)		Amortized cost basis		Gross un-realized gains		Gross un-realized losses		Fair value
March 31, 2022
Available-for-sale
U.S. Treasury	$	20,243	$	—	$	1,140	$	19,103
U.S. Government Agency notes		33,013		119		1,199		31,933
Municipal bonds		51,547		52		3,300		48,299
Mortgage-backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		80,554		37		3,795		76,796
Collateralized mortgage obligations:
U.S. Government agencies		27,202		7		1,289		25,920
Corporate bonds		13,750		39		188		13,601
Total securities available-for-sale	$	226,309	$	254	$	10,911	$	215,652
CRA mutual fund							$	862
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	1,077	$	—	$	—	$	1,077

(in thousands)		Amortized cost basis		Gross un-realized gains		Gross un-realized losses		Fair value
December 31, 2021
Available-for-sale
U.S. Treasury	$	15,301	$	12	$	182	$	15,131
U.S. Government Agency notes		31,623		237		256		31,604
Municipal bonds		46,469		1,557		204		47,822
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		74,703		643		805		74,541
Collateralized mortgage obligations:
U.S. Government agencies		20,948		135		185		20,898
Corporate bonds		12,250		158		8		12,400
Total securities available-for-sale	$	201,294	$	2,742	$	1,640	$	202,396
CRA mutual fund							$	901
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	1,397	$	—	$	—	$	1,397

Salisbury sold $17.7 million of available-for-sale securities during the three-month period ended March 31, 2022 realizing gains of $451 thousand and losses of $241 thousand resulting in a net gain of $210 thousand and a related tax expense of $44 thousand. Salisbury did not sell any available-for-sale securities during the three-month period ended March 31, 2021.

The following table summarizes the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:

	Less than 12 Months				12 Months or Longer				Total
March 31, 2022 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	19,103	$	1,140	$	—	$	—	$	19,103	$	1,140
U.S. Government Agency notes		20,669		1,159		4,867		40		25,536		1,199
Municipal bonds		42,942		3,242		493		58		43,435		3,300
Mortgage- backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		58,882		2,945		12,697		850		71,579		3,795
Collateralized mortgage obligations:
U.S. Government agencies		22,414		1,289		—		—		22,414		1,289
Corporate bonds		5,312		188		—		—		5,312		188
Total temporarily impaired securities	$	169,322	$	9,963	$	18,057	$	948	$	187,379	$	10,911

	Less than 12 Months				12 Months or Longer				Total
December 31, 2021 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	12,155	$	182	$	—	$	—	$	12,155	$	182
U.S. Government Agency notes		22,137		235		2,019		21		24,156		256
Municipal bonds		12,496		204		552		—		13,048		204
Mortgage-backed securities:
U.S. Government agencies and U.S. Government-sponsored enterprises		52,619		740		3,195		65		55,814		805
Collateralized mortgage obligations		11,554		185		—		—		11,554		185
Corporate bonds		1,742		8		—		—		1,742		8
Total temporarily impaired securities	$	112,703	$	1,554	$	5,766	$	86	$	118,469	$	1,640

The table below presents the amortized cost, fair value and tax equivalent yield of securities, by maturity. Debt securities issued by U.S. Government agencies (SBA securities), MBS, and CMOS are disclosed separately in the table below as these securities may prepay prior to the scheduled contractual maturity dates.

March 31, 2022 (in thousands)	Maturity	Amortized cost			Fair value	Yield(1)
U.S. Treasury	After 1 year but within 5 years	$	6,918	$	6,729	1.48	%
	After 5 year but within 10 years		13,325		12,374	1.17
	Total		20,243		19,103	1.28
U.S. Government Agency notes	After 1 year but within 5 years		996		930	1.09
	After 5 year but within 10 years		14,913		13,921	1.24
	Total		15,909		14,851	1.23
Municipal bonds	After 1 year but within 5 years		512		490	1.74
	After 5 year but within 10 years		12,789		11,893	2.38
	After 10 years but within 15 years		12,393		11,547	2.38
	After 15 years		25,853		24,369	2.54
	Total		51,547		48,299	2.45
Mortgage-backed securities and Collateralized mortgage obligations	Securities not due at a single maturity date		124,860		119,798	1.91
	Total		124,860		119,798	1.91
Corporate bonds	After 5 years but within 10 years		13,250		13,101	4.33
	After 10 years but within 15 years		500		500	4.75
	Total		13,750		13,601	4.35
Securities available-for-sale		$	226,309	$	215,652	2.16	%

⁽¹⁾       Yield is based on amortized cost.

Salisbury evaluates debt securities for other-than-temporary impairment (“OTTI”) when the fair value of a security is less than its amortized cost basis at the balance sheet date. As part of this process, Salisbury considers whether it has the intent to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of these conditions is met, Salisbury recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities that meet neither of these conditions, an analysis is performed to determine if any of these securities are at risk for OTTI.

The following summarizes, by security type, the basis for evaluating if the applicable debt securities were OTTI at March 31, 2022.

U.S. Treasury notes: The contractual cash flows are guaranteed by the U.S. government. Eleven securities had unrealized losses at March 31, 2022, which approximated 5.63% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality since time of purchase. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at March 31, 2022.

U.S. Government Agency notes: The contractual cash flows are guaranteed by the U.S. government. Twenty-five securities had unrealized losses at March 31, 2022, which approximated 4.49% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality since time of purchase. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at March 31, 2022.

Municipal bonds: Salisbury performed a detailed analysis of the municipal bond portfolio. Fifty-four securities had unrealized losses at March 31, 2022, which approximated 7.06% of their amortized cost. Management believes the unrealized loss position is attributable to interest rate and spread movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at March 31, 2022.

U.S. Government agency and U.S. Government-sponsored mortgage-backed securities and collateralized mortgage obligations: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Ninety-five securities had unrealized losses at March 31, 2022, which approximated 5.13% of their amortized cost. Changes in fair values are a function of changes in investment spreads and interest rate movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Therefore, management does not consider these investments to be other-than-temporarily impaired at March 31, 2022.

Corporate bonds: Salisbury regularly monitors and analyzes its corporate bond portfolio for credit quality. Seven securities had unrealized losses at March 31, 2022, which approximated 3.41% of their amortized cost. Management believes the unrealized loss position is attributable to interest rate and spread movements and not changes in credit quality. Management expects to recover the entire amortized cost basis of these securities. Furthermore, Salisbury evaluates these securities for strategic fit and may reduce its position in these securities, although it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost basis, which may be maturity, and does not intend to sell these securities. Management evaluated the impairment status of these debt securities, and concluded that the gross unrealized losses were temporary in nature. Therefore, management does not consider these investments to be other-than temporarily impaired at March 31, 2022.

The Federal Home Loan Bank of Boston (FHLBB) is a cooperative that provides services, including funding in the form of advances, to its member banking institutions. As a requirement of membership, the Bank must own a minimum amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. No market exists for shares of the FHLBB and therefore, they are carried at par value. FHLBB stock may be redeemed at par value five years following termination of FHLBB membership, subject to limitations which may be imposed by the FHLBB or its regulator, the Federal Housing Finance Board, to maintain capital adequacy of the FHLBB. While the Bank currently has no intentions to terminate its FHLBB membership, the ability to redeem its investment in FHLBB stock would be subject to the conditions imposed by the FHLBB. Based on the capital adequacy and the liquidity position of the FHLBB, management believes there is no impairment related to the carrying amount of the Bank’s FHLBB stock as of March 31, 2022. Future deterioration of the FHLBB’s capital levels could require the Bank to deem its restricted investment in FHLBB stock to be OTTI. If evidence of impairment exists in the future, the FHLBB stock would reflect fair value using either observable or unobservable inputs. The Bank will continue to monitor its investment in FHLBB stock.