NOTE 2 - SECURITIES

9 Months Ended

Sep. 30, 2022

Investments, Debt and Equity Securities [Abstract]

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
September 30, 2022
Available-for-sale
U.S. Treasury	$	19,266	$	—	$	2,289	$	16,977
U.S. Government Agency notes		30,552		114		2,742		27,924
Municipal bonds		55,260		—		10,650		44,610
Mortgage-backed securities:
U.S. Government agencies and U.S. Government- sponsored enterprises		72,163		30		8,713		63,480
Collateralized mortgage obligations:
U.S. Government agencies		25,925		—		3,334		22,591
Corporate bonds		14,250		—		671		13,579
Total securities available-for-sale	$	217,416	$	144	$	28,399	$	189,161
Mutual fund							$	1,882
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	1,487	$	—	$	—	$	1,487

(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
Mutual fund							$	901
Non-marketable securities
Federal Home Loan Bank of Boston stock	$	1,397	$	—	$	—	$	1,397

Salisbury did not sell any available-for-sale securities during the three month periods ended September 30, 2022 and September 30, 2021. Salisbury sold $22.0 million of available-for-sale securities during the nine month period ended September 30, 2022 realizing a pre-tax gain of $165 thousand and a related tax expense of $35 thousand. Salisbury sold $3.3 million of available-for-sale securities during the nine month period ended September 30, 2021 realizing a pre-tax loss of $2 thousand and a related tax benefit of $0.4 thousand.

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
September 30, 2022 (in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Available-for-sale
U.S. Treasury	$	8,091	$	763	$	8,886	$	1,526	$	16,977	$	2,289
U.S. Government Agency notes		4,804		589		15,151		2,153		19,955		2,742
Municipal bonds		37,026		8,290		7,584		2,360		44,610		10,650
Mortgage- backed securities:
U.S. Government agencies and U.S. Government - sponsored enterprises		28,503		3,960		29,335		4,753		57,838		8,713
Collateralized mortgage obligations		21,173		3,056		1,418		278		22,591		3,334
Corporate bonds		8,579		671		—		—		8,579		671
Total temporarily impaired securities	$	108,176	$	17,329	$	62,374	$	11,070	$	170,550	$	28,399

	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.

September 30, 2022 (in thousands)	Maturity	Amortized cost			Fair value	Yield(1)
U.S. Treasury	After 1 year but within 5 years	$	7,871	$	7,239	1.32	%
	After 5 year but within 10 years		11,395		9,738	1.18
	Total		19,266		16,977	1.24
U.S. Government Agency notes	After 1 year but within 5 years		4,979		4,319	0.97
	After 5 year but within 10 years		10,938		9,189	1.35
	Total		15,917		13,508	1.23
Municipal bonds	After 1 year but within 5 years		511		459	1.74
	After 5 year but within 10 years		15,282		12,445	2.31
	After 10 years but within 15 years		12,842		10,382	2.53
	After 15 years		26,625		21,324	2.84
	Total		55,260		44,610	2.61
Mortgage-backed securities and Collateralized mortgage obligations	Securities not due at a single maturity date		112,723		100,487	2.29
	Total		112,723		100,487	2.29
Corporate bonds	After 5 years but within 10 years		13,250		12,596	4.32
	After 10 years but within 15 years		1,000		983	6.25
	Total		14,250		13,579	4.46
Securities available-for-sale		$	217,416	$	189,161	2.45	%

⁽¹⁾ Yield is based on amortized cost.

Salisbury evaluates debt securities for OTTI where 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 securities were OTTI at September 30, 2022.

U.S. Treasury notes: The contractual cash flows are guaranteed by the U.S. government. Ten securities had unrealized losses at September 30, 2022, which approximated 11.88% 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 September 30, 2022.

U.S. Government Agency notes: The contractual cash flows are guaranteed by the U.S. government. Twenty two securities had unrealized losses at September 30, 2022, which approximated 12.08% 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 September 30, 2022.

Municipal bonds: Salisbury performed a detailed analysis of the municipal bond portfolio. Sixty six securities had unrealized losses at September 30, 2022, which approximated 19.27% 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 September 30, 2022.

U.S. Government agency and U.S. Government-sponsored enterprise securities and collateralized mortgage obligations: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. Ninety two securities had unrealized losses at September 30, 2022, which approximated 13.03% 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 September 30, 2022.

Corporate bonds: Salisbury regularly monitors and analyzes its corporate bond portfolio for credit quality. Eleven securities had unrealized losses at September 30, 2022, which approximated 7.26% 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 September 30, 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 September 30, 2022. Deterioration of the FHLBB’s capital levels may 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.