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NOTE 4 - LOANS
 12 Months Ended
Dec. 31, 2022
Receivables [Abstract]  
NOTE 4 - LOANS

NOTE 4 - LOANS

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

December 31,    2022      2021  
(in thousands)    Total Loans      Total Loans  
Residential 1-4 family  $428,486   $373,131 
Residential 5+ multifamily   80,400    52,325 
Construction of residential 1-4 family   22,534    19,738 
Home equity lines of credit   25,699    23,270 
Residential real estate   557,119    468,464 
Commercial   374,281    310,923 
Construction of commercial   46,866    58,838 
Commercial real estate   421,147    369,761 
Farm land   4,081    2,807 
Vacant land   14,440    14,182 
Real estate secured   996,787    855,214 
Commercial and industrial ex PPP Loans   190,191    169,543 
PPP Loans   299    25,589 
Total Commercial and industrial   190,490    195,132 
Municipal   19,693    16,534 
Consumer   20,546    12,547 
Loans receivable, gross   1,227,516    1,079,427 
Deferred loan origination costs (fees), net   1,001    285 
Allowance for loan losses   (14,846)   (12,962)
Loans receivable, net  $1,213,671   $1,066,750 
Loans held-for-sale          
Residential 1-4 family  $ —   $2,684 


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, 2022 and 2021, Salisbury serviced commercial loans for other banks under loan participation agreements totaling $64.1 million and $77.5 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 loan portfolio is comprised of loans to diverse industries, several of which may experience operating challenges from the economic downturn caused by the COVID-19 virus pandemic (“virus”). Approximately 31% of the Bank’s commercial loan portfolio are to entities who operate rental properties, which include commercial strip malls, smaller rental units as well as multi-unit dwellings. Approximately 10% of the Bank’s commercial loans are to entities in the hospitality industry, which includes hotels, bed & breakfast inns and restaurants. Approximately 9% of the Bank’s commercial loans are to educational institutions and approximately 4% of Salisbury’s commercial loans are to entertainment and recreation related businesses, which include a ski resort, bowling alleys and amusement parks. 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 198% as of December 31, 2022 and 179% at December 31, 2021 compared to the regulatory monitoring guideline of 300%. Salisbury’s commercial loan exposure is mitigated by a variety of factors including the personal liquidity of the borrower, real estate and/or non-real estate collateral, U.S. Department of Agriculture or Small Business Administration (“SBA”) guarantees, loan payment deferrals and economic stimulus loans from the U.S. government as a result of the virus, and other factors.

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 the borrower’s 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 the 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, 2022                              
Residential 1-4 family  $423,612   $2,995   $1,879   $ —   $ —   $428,486 
Residential 5+ multifamily   80,254    68    78     —     —    80,400 
Construction of residential 1-4 family   22,534     —     —     —     —    22,534 
Home equity lines of credit   25,536    163     —     —     —    25,699 
Residential real estate   551,936    3,226    1,957     —     —    557,119 
Commercial   355,963    12,934    5,384     —     —    374,281 
Construction of commercial   46,866     —     —     —     —    46,866 
Commercial real estate   402,829    12,934    5,384     —     —    421,147 
Farm land   2,408    1,280    393     —     —    4,081 
Vacant land   14,410    30     —     —     —    14,440 
Real estate secured   971,583    17,470    7,734     —     —    996,787 
Commercial and industrial   188,267    680    1,543     —     —    190,490 
Municipal   19,693     —     —     —     —    19,693 
Consumer   20,541     —    5     —     —    20,546 
Loans receivable, gross  $1,200,084   $18,150   $9,282   $ —   $ —   $1,227,516 

 

(in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2021                              
Residential 1-4 family  $367,225   $3,543   $2,363   $ —   $ —   $373,131 
Residential 5+ multifamily   50,588    79    1,658     —     —    52,325 
Construction of residential 1-4 family   19,738     —     —     —     —    19,738 
Home equity lines of credit   23,037    212    21     —     —    23,270 
Residential real estate   460,588    3,834    4,042     —     —    468,464 
Commercial   271,821    16,034    23,068     —     —    310,923 
Construction of commercial   58,838     —     —     —     —    58,838 
Commercial real estate   330,659    16,034    23,068     —     —    369,761 
Farm land   1,162    1,214    431     —     —    2,807 
Vacant land   14,143    39     —     —     —    14,182 
Real estate secured   806,552    21,121    27,541     —     —    855,214 
Commercial and industrial   191,857    688    2,587     —     —    195,132 
Municipal   16,534     —     —     —     —    16,534 
Consumer   12,547     —     —     —     —    12,547 
Loans receivable, gross  $1,027,490   $21,809   $30,128   $ —   $ —   $1,079,427 

 

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, 2022                        
Residential 1-4 family  $427,769   $672   $30   $ —   $15   $717   $ —   $820 
Residential 5+ multifamily   80,400     —     —     —     —     —     —     — 
Construction of residential 1-4 family   22,534     —     —     —     —     —     —     — 
Home equity lines of credit   25,411    288     —     —     —    288     —     — 
Residential real estate   556,114    960    30     —    15    1,005     —    820 
Commercial   374,196     —     —    85     —    85     —    1,255 
Construction of commercial   46,866     —     —     —     —     —     —     — 
Commercial real estate   421,062     —     —    85     —    85     —    1,255 
Farm land   4,081     —     —     —     —     —     —    393 
Vacant land   14,440     —     —     —     —     —     —     — 
Real estate secured   995,697    960    30    85    15    1,090     —    2,468 
Commercial and industrial   190,340    149    1     —     —    150     —    189 
Municipal   19,693     —     —     —     —     —     —     — 
Consumer   20,303    154    84    5     —    243     —    5 
Loans receivable, gross  $1,226,033   $1,263   $115   $90   $15   $1,483   $ —   $2,662 

 

 

         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, 201                        
Residential 1-4 family  $372,620   $223   $135   $63   $90   $511   $ —   $750 
Residential 5+ multifamily   51,464     —     —     —    861    861     —    861 
Construction of residential 1-4 family   19,668     —    70     —     —    70     —     — 
Home equity lines of credit   23,000    165    98     —    7    270     —    21 
Residential real estate   466,752    388    303    63    958    1,712     —    1,632 
Commercial   310,331    87    251     —    254    592     —    1,924 
Construction of commercial   58,838     —     —     —     —     —     —     — 
Commercial real estate   369,169    87    251     —    254    592     —    1,924 
Farm land   2,807     —     —     —     —     —     —    432 
Vacant land   14,182     —     —     —     —     —     —     — 
Real estate secured   852,910    475    554    63    1,212    2,304     —    3,988 
Commercial and industrial   194,838    250    32    1    11    294    11    200 
Municipal   16,534     —     —     —     —     —     —     — 
Consumer   12,503    40    4     —     —    44     —     — 
Loans receivable, gross  $1,076,785   $765   $590   $64   $1,223   $2,642   $11   $4,188 

 

Troubled Debt Restructurings (TDRs)

Troubled debt restructurings occurring during the years ended December 31, 2022 and 2021:

For the twelve months ended December 2022, there were no troubled debt restructurings, for the twelve months ended December 2021, there was one residential real estate loan with a modification and term extension that was a troubled debt restructuring. 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, 2022

For the twelve months ending

December 31, 2021

Quantity Balance Quantity Balance
Troubled Debt Restructurings
Residential 1-4 family — — 1 74
Total — — 1 74

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)    2022      2021  
Non-accrual loans, excluding troubled debt restructured loans  $2,595   $2,838 
Non-accrual troubled debt restructured loans   67    1,350 
Accruing troubled debt restructured loans   2,670    3,609 
Total impaired loans  $5,332   $7,797 
Commitments to lend additional amounts to impaired borrowers  $ —   $ — 


Allowance for Loan Losses

                   
    Year Ended December 31, 2022   Year Ended December 31, 2021
(in thousands)   Beginning balance  

Prov-

ision (release)

   Charge- offs   Reco- veries   Ending balance   Beginning balance  

Prov-

ision (release)

   Charge- offs   Reco- veries   Ending balance
Residential 1-4 family   $ 2,846     $ 822     $ (73 )   $ 27     $ 3,622     $ 2,646     $ 225     $ (44 )   $ 19     $ 2,846  
Residential 5+ multifamily     817       779       (231 )     —       1,365       686       131       —       —       817  
Construction of residential 1-4 family     186       42       (25 )      —       203       65       121       —       —       186  
Home equity lines of credit     198       53       (11 )      —       240       252       (34 )     (21 )      1       198  
Residential real estate     4,047       1,696       (340 )     27     5,430       3,649       443       (65 )     20     4,047  
Commercial     5,416       907       (372 )     1       5,952       6,546       (1,260 )      (6 )     136       5,416  
Construction of commercial     1,025       (309 )      —       —       716       596       447       (18 )      —       1,025  
Commercial real estate     6,441       598       (372 )     1       6,668       7,142       (813 )      (24 )     136       6,441  
Farm land     21       9       —       —       30       59       (39 )      (2 )      3       21  
Vacant land     95       (4 )      —       —       91       180       (86 )     —       1       95  
Real estate secured     10,604       2,299       (712 )     28       12,219       11,030       (495 )      (91 )     160       10,604  
Commercial and industrial     1,364       31       (46 )      1       1,350       1,397       45     (131 )     53       1,364  
Municipal     31       28     —       —       59       43       (12 )      —       —       31  
Consumer     82       111       (88 )     18       123       77       68       (59 )     (4 )      82  
Unallocated     881       214       —       —       1,095       1,207       (326 )      —       —       881  
Totals   $ 12,962     $ 2,683     $ (846 )   $ 47     $ 14,846     $ 13,754     $ (720 )    $ (281 )   $ 209     $ 12,962  
         
    December 31, 2020
(in thousands)   Beginning balance   Provision (release)   Charge-offs   Recoveries   Ending balance
Residential 1-4 family   $ 2,393     $ 255     $ (11 )   $ 9     $ 2,646  
Residential 5+ multifamily     446       282       (42 )      —       686  
Construction of residential 1-4 family     75       (10 )      —       —       65  
Home equity lines of credit     197       (197 )     —       252       252  
Residential real estate     3,111       330       (53 )     261     3,649  
Commercial     3,742       2,776       (17 )     45       6,546  
Construction of commercial     104       492     —       —       596  
Commercial real estate     3,846       3,268       (17 )     45       7,142  
Farm land     47       12       —       —       59  
Vacant land     71       109     —       —       180  
Real estate secured     7,075       3,719       (70 )     306       11,030  
Commercial and industrial     1,145       612     (362 )     2       1,397  
Municipal     46       (3 )     —       —       43  
Consumer     60       72       (70 )     15       77  
Unallocated     569       638       —       —       1,207  
Totals   $ 8,895     $ 5,038     $ (502 )   $ 323     $ 13,754  

 

The composition of loans receivable and the allowance for loan losses is as follows:

  (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2022                              
Residential 1-4 family  $426,377   $3,622   $2,109   $ —   $428,486   $3,622 
Residential 5+ multifamily   80,322    1,365    78     —    80,400    1,365 
Construction of residential 1-4 family   22,534    203     —     —    22,534    203 
Home equity lines of credit   25,699    240     —     —    25,699    240 
Residential real estate   554,932    5,430    2,187     —    557,119    5,430 
Commercial   371,723    5,930    2,558    22    374,281    5,952 
Construction of commercial   46,866    716     —     —    46,866    716 
Commercial real estate   418,589    6,646    2,558    22    421,147    6,668 
Farm land   3,688    30    393     —    4,081    30 
Vacant land   14,440    91     —     —    14,440    91 
Real estate secured   991,649    12,197    5,138    22    996,787    12,219 
Commercial and industrial   190,301    1,350    189     —    190,490    1,350 
Municipal   19,693    59     —     —    19,693    59 
Consumer   20,541    123    5     —    20,546    123 
Unallocated allowance    —    1,095     —     —     —    1,095 
Totals  $1,222,184   $14,824   $5,332   $22   $1,227,516   $14,846 

 

  (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2021                              
Residential 1-4 family  $370,558   $2,845   $2,573   $1   $373,131   $2,846 
Residential 5+ multifamily   51,376    817    949     —    52,325    817 
Construction of residential 1-4 family   19,738    186     —     —    19,738    186 
Home equity lines of credit   23,249    198    21     —    23,270    198 
Residential real estate   464,921    4,046    3,543    1    468,464    4,047 
Commercial   307,377    5,388    3,546    28    310,923    5,416 
Construction of commercial   58,838    1,025     —     —    58,838    1,025 
Commercial real estate   366,215    6,413    3,546    28    369,761    6,441 
Farm land   2,375    21    432     —    2,807    21 
Vacant land   14,182    95     —     —    14,182    95 
Real estate secured   847,693    10,575    7,521    29    855,214    10,604 
Commercial and industrial   194,856    1,297    276    67    195,132    1,364 
Municipal   16,534    31     —     —    16,534    31 
Consumer   12,547    82     —     —    12,547    82 
Unallocated allowance    —    881     —     —     —    881 
Totals  $1,071,630   $12,866   $7,797   $96   $1,079,427   $12,962 


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

  December 31, 2022 (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
Performing loans  $1,216,108   $13,351   $ —   $ —   $1,216,108   $13,351 
Potential problem loans 1   6,076    378     —     —    6,076    378 
Impaired loans    —     —    5,332    22    5,332    22 
Unallocated allowance    —    1,095     —     —     —    1,095 
Totals  $1,222,184   $14,824   $5,332   $22   $1,227,516   $14,846 

 

  December 31, 2021 (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
Performing loans  $1,046,614   $10,456   $ —   $ —   $1,046,614   $10,456 
Potential problem loans 1   25,016    1,529     —     —    25,016    1,529 
Impaired loans    —     —    7,797    96    7,797    96 
Unallocated allowance    —    881     —     —     —    881 
Totals  $1,071,630   $12,866   $7,797   $96   $1,079,427   $12,962 

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, market value approach, 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           Loan balance     
    Recorded Investment    Note    Average    Specific allowance    Income recognized    Recorded Investment    Note    Average    Income recognized 
December 31, 2022                           
Residential  $ —   $ —   $306   $ —   $ —   $2,187   $2,283   $2,192   $61 
Home equity lines of credit    —     —     —     —     —     —     —    8     — 
Residential real estate    —     —    306     —     —    2,187    2,283    2,200    61 
Commercial   559    559    604    22    30    1,999    2,148    2,308    45 
Construction of commercial    —     —     —     —     —     —     —     —     — 
Farm land    —     —     —     —     —    393    443    410     — 
Vacant land    —     —     —     —     —     —     —     —     — 
Real estate secured   559    559    910    22    30    4,579    4,874    4,918    106 
Commercial and industrial    —     —    64     —     —    189    195    88    13 
Consumer    —     —     —     —     —    5    5     —     — 
Totals  $559   $559   $974   $22   $30   $4,773   $5,074   $5,006   $119 

 

   Impaired loans with specific allowance   Impaired loans with no specific allowance 
(In thousands)  Loan balance           Loan balance     
    Recorded Investment    Note    Average    Specific allowance    Income recognized    Recorded Investment    Note    Average    Income recognized 
December 31, 2021                           
Residential  $43   $44   $872   $1   $3   $3,480   $3,817   $3,689   $75 
Home equity lines of credit    —     —    17     —     —    21    23    131     — 
Residential real estate   43    44    889    1    3    3,501    3,840    3,820    75 
Commercial   608    608    1,678    28    32    2,938    3,493    2,974    62 
Construction of commercial    —     —     —     —     —     —     —     —     — 
Farm land    —     —     —     —     —    431    447    440     — 
Vacant land    —     —    56     —     —     —     —    45     — 
Real estate secured   651    652    2,623    29    35    6,870    7,780    7,279    137 
Commercial and industrial   216    224    309    67    3    60    72    90     — 
Consumer    —     —    6     —     —     —     —    13     — 
Totals  $867   $876   $2,938   $96   $38   $6,930   $7,852   $7,382   $137