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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM ________ TO ________

 

Commission file number 0-24751

SALISBURY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Connecticut 06-1514263
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
   
5 Bissell Street, Lakeville, CT 06039
(Address of principal executive offices) (Zip code) 

(860) 435-9801

(Registrant's telephone number, including area code)

 

Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, Par Value $0.10 per share SAL NASDAQ

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesNo

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YesNo

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer”, "accelerated filer”, "smaller reporting company”, and "emerging growth company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer ☐

Accelerated filer

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YesNo ☑

 

The number of shares of Common Stock outstanding as of November 4, 2020 is 2,843,292.

 
 

 

TABLE OF CONTENTS

 

  PART 1 FINANCIAL INFORMATION Page
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2020 (unaudited) and DECEMBER 31, 2019 3
CONSOLIDATED STATEMENTS OF INCOME FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019 (unaudited) 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019 (unaudited) 5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019 (unaudited) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 and 2019 (unaudited) 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 9
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 49
Item 4. CONTROLS AND PROCEDURES 50
     
  PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 51
Item 1A. RISK FACTORS 51
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 51
Item 3. DEFAULTS UPON SENIOR SECURITIES 51
Item 4. MINE SAFETY DISCLOSURES 51
Item 5. OTHER INFORMATION 51
Item 6. EXHIBITS 52
SIGNATURES 52

 

 2 
Table of Contents 

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS (unaudited)

(dollars in thousands, except share data)     September 30, 2020       December 31, 2019  
ASSETS     (unaudited)          
Cash and due from banks   $ 6,828     $ 7,406  
Interest bearing demand deposits with other banks     88,513       19,479  
Total cash and cash equivalents     95,341       26,885  
Interest bearing Time Deposits with Financial Institutions     750       750  
Securities                
Available-for-sale at fair value     95,720       91,801  
CRA mutual fund at fair value     916       882  
Federal Home Loan Bank of Boston stock at cost     3,158       3,242  
Loans held-for-sale     2,761       332  
Loans receivable, net (allowance for loan losses: $13,001 and $8,895)     1,031,593       927,413  
Other real estate owned           314  
Bank premises and equipment, net     18,727       17,385  
Goodwill     13,815       13,815  
Intangible assets (net of accumulated amortization: $5,132 and $4,884)     748       995  
Accrued interest receivable     6,055       3,415  
Cash surrender value of life insurance policies     17,572       20,580  
Deferred taxes     2,252       1,249  
Other assets     3,352       3,390  
Total Assets   $ 1,292,760     $ 1,112,448  
LIABILITIES and SHAREHOLDERS' EQUITY                
Deposits                
Demand (non-interest bearing)   $ 313,742     $ 237,852  
Demand (interest bearing)     201,760       153,314  
Money market     270,097       239,504  
Savings and other     181,691       161,112  
Certificates of deposit     127,851       127,724  
Total deposits     1,095,141       919,506  
Repurchase agreements     10,885       8,530  
Federal Home Loan Bank of Boston advances     43,880       50,887  
Subordinated debt     9,877       9,859  
Note payable     218       246  
Finance lease obligations     1,685       1,718  
Accrued interest and other liabilities     8,834       8,047  
Total Liabilities     1,170,520       998,793  
Shareholders' Equity                
Common stock - $0.10 per share par value                
Authorized: 5,000,000                
Issued: 2,843,292 and 2,825,912                
Outstanding: 2,843,292 and 2,825,912     284       283  
Unearned compensation - restricted stock awards     (906 )     (795 )
Paid-in capital     45,171       44,490  
Retained earnings     74,995       68,320  
Accumulated other comprehensive income, net     2,696       1,357  
Total Shareholders' Equity     122,240       113,655  
Total Liabilities and Shareholders' Equity   $ 1,292,760     $ 1,112,448  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 3 
Table of Contents 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

                   
      Three months ended       Nine months ended  
Periods ended September 30, (in thousands, except per share amounts) 2020       2019       2020       2019  
Interest and dividend income                                
Interest and fees on loans   $ 10,362     $ 10,045     $ 30,662     $ 29,859  
Interest on debt securities                                
Taxable     396       530       1,260       1,734  
Tax exempt     157       166       513       355  
Other interest and dividends     87       282       229       761  
Total interest and dividend income     11,002       11,023       32,664       32,709  
Interest expense                                
Deposits     764       1,879       3,261       5,674  
Repurchase agreements     6       9       16       16  
Finance lease     35       43       106       135  
Note payable     3       4       11       12  
Subordinated debt     156       156       468       468  
Federal Home Loan Bank of Boston advances     113       265       472       956  
Total interest expense     1,077       2,356       4,334       7,261  
Net interest and dividend income     9,925       8,667       28,330       25,448  
Provision for loan losses     686       94       4,198       539  
Net interest and dividend income after provision for loan losses     9,239       8,573       24,132       24,909  
Non-interest income                                
Trust and wealth advisory     1,068       1,023       3,129       2,973  
Service charges and fees     711       1,003       2,214       2,935  
Gains on sales of mortgage loans, net     707       42       1,020       50  
Mortgage servicing, net     29       76       162       232  
Gains on CRA mutual fund           6       22       29  
Gains (losses) on available-for-sale securities, net     34       (9 )     216       263  
BOLI income and gains     719       86       986       253  
Other     18       29       97       96  
Total non-interest income     3,286       2,256       7,846       6,831  
Non-interest expense                                
Salaries     3,114       3,042       8,375       8,994  
Employee benefits     1,061       1,181       3,244       3,408  
Premises and equipment     1,005       974       2,897       2,950  
Data processing     569       534       1,666       1,620  
Professional fees     635       572       2,020       1,690  
OREO gains, losses and write-downs, net           84             406  
Collections and other real estate owned     108       119       212       328  
FDIC insurance     123       (9 )     331       294  
Marketing and community support     126       141       419       448  
Amortization of intangibles     78       93       247       297  
Other     440       453       1,572       1,398  
Total non-interest expense     7,259       7,184       20,983       21,833  
Income before income taxes     5,266       3,645       10,995       9,907  
Income tax provision     910       657       1,858       1,781  
Net income   $ 4,356     $ 2,988     $ 9,137     $ 8,126  
Net income available to common stock   $ 4,288     $ 2,940     $ 9,006     $ 8,016  
                                 
Basic earnings per common share   $ 1.53     $ 1.06     $ 3.22     $ 2.88  
Diluted earnings per common share   $ 1.53     $ 1.05     $ 3.21     $ 2.87  
Common dividends per share   $ 0.29     $ 0.28     $ 0.87     $ 0.84  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 4 
Table of Contents 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

                       
      Three months ended       Nine months ended  
Periods ended September 30, (in thousands)     2020       2019       2020       2019  
Net income   $ 4,356     $ 2,988     $ 9,137     $ 8,126  
Other comprehensive income (loss)                                
Net unrealized gains  on securities available-for-sale     113       313       1,912       2,704  
Reclassification of net realized losses (gains) and write-downs in net income (1)     (34 )     9       (216 )     (263 )
Unrealized gains on securities available-for-sale     79       322       1,696       2,441  
Income tax (expense)     (17 )     (67 )     (357 )     (512 )
Other comprehensive income     62       255       1,339       1,929  
Comprehensive income   $ 4,418     $ 3,243     $ 10,477     $ 10,055  

 

(1) Reclassification adjustments include realized security gains and losses. The gains and losses have been reclassified out of accumulated other comprehensive income (loss) and have affected certain lines in the consolidated statements of income as follows: The pre-tax amount is reflected as gains (losses) on available-for-sale securities, net, the tax effect is included in the income tax provision and the after tax amount is included in net income. The net tax effect for the three months ending September 30, 2020 and 2019 are $(7) thousand and $2 thousand, respectively. The net tax effect for the nine months ending September 30, 2020 and 2019 were ($45) thousand and ($55) thousand, respectively.

 

 

 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

               

Three months ended September 30,
(dollars in thousands)

  Common Stock   Paid-in   Retained   Unearned compensation restricted stock   Accumulated other comprehensive   Total shareholders'
    Shares   Amount   Capital   Earnings   awards   (loss) income   equity
Balances at June 30, 2019     2,823,476     $ 282     $ 44,382     $ 63,905     $ (1,075 )   $ 1,454     $ 108,948  
Net income                       2,988                   2,988  
Other comprehensive loss, net of tax                                   255       255  
Common stock dividends declared ($0.28 per share)                       (789 )                 (789 )
Stock options exercised                                          
Forfeiture of stock awards     (250 )           (10 )           10              
Retired common stock     (14 )                                    
Stock based compensation-restricted stock  awards                             178             178  
Balances at September 30, 2019     2,823,212     $ 282     $ 44,372     $ 66,104     $ (887 )   $ 1,709     $ 111,580  
Balances at June 30, 2020     2,843,292     $ 284     $ 45,096     $ 71,461     $ (1,031 )   $ 2,634     $ 118,444  
Net income                       4,356                   4,356  
Other comprehensive loss, net of tax                                   62       62  
Common stock dividends declared ($0.29 per share)                       (822 )                 (822 )
Issuance of restricted common stock     500             18             (18 )            
Forfeiture of stock awards
    (500 )           (21 )           21              
Stock based compensation-restricted stock awards                 78             122             200  
Balances at September 30, 2020     2,843,292     $ 284     $ 45,171     $ 74,995     $ (906 )   $ 2,696     $ 122,240  
 5 
Table of Contents 

               

Nine months ended September 30,
(dollars in thousands)

  Common Stock   Paid-in   Retained   Unearned compensation restricted stock   Accumulated other comprehensive   Total shareholders'
    Shares   Amount   Capital   Earnings   awards   (loss) income   equity
Balances at December 31, 2018     2,806,781     $ 281     $ 43,770     $ 60,339     $ (711 )   $ (220 )   $ 103,459  
Net income for period                       8,126                   8,126  
Other comprehensive income, net of tax                                   1,929       1,929  
Common stock dividends declared ($0.84 per share)                       (2,361 )                 (2,361 )
Stock options exercised     2,025             34                         34  
Issuance of restricted common stock     11,530       1       457             (458 )            
Forfeiture of stock awards     (710 )           (31 )           31              
Issuance of director's restricted stock awards     3,600             142             (142 )            
Retired Common Stock     (14 )                                    
Stock based compensation-restricted stock awards                             393             393  
Balances at September 30, 2019     2,823,212     $ 282     $ 44,372     $ 66,104     $ (887 )   $ 1,709     $ 111,580  
Balances at December 31, 2019     2,825,912     $ 283     $ 44,490     $ 68,320     $ (795 )   $ 1,357     $ 113,655  
Net income for period                       9,137                   9,137  
Other comprehensive income, net of tax                                   1,339       1,339  
Common stock dividends declared ($0.87 per share)                       (2,462 )                 (2,462 )
Stock options exercised     3,105             53                         53  
Issuance of restricted common stock     12,275       1       439             (440 )            
Forfeiture of stock awards
    (1,200 )           (50 )           50              
Issuance of director's restricted stock awards     3,200             114             (114 )            
Stock based compensation-restricted stock awards                 125             393             518  
Balances at September 30, 2020     2,843,292     $ 284     $ 45,171     $ 74,995     $ (906 )   $ 2,696     $ 122,240  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 6 
Table of Contents 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine months ended September 30, (in thousands)     2020       2019  
Operating Activities                
Net income   $ 9,137     $ 8,126  
Adjustments to reconcile net income to net cash provided by operating activities                
(Accretion), amortization and depreciation                
Securities     388       238  
Bank premises and equipment     1,071       1,210  
Core deposit intangible     247       297  
Modification fees on Federal Home Loan Bank of Boston advances     64       174  
Subordinated debt issuance costs     18       18  
Mortgage servicing rights     84       36  
Fair value adjustment on loans           (64 )
Fair value adjustment on deposits     (4 )     (6 )
(Gains) and losses, including write-downs                
Sales and calls of securities available-for-sale, net     (216 )     (263 )
CRA Mutual Fund     (22 )     (29 )
Sales of loans, excluding capitalized servicing rights     (843 )     (50 )
Other real estate owned           406  
Provision for loan losses     4,198       539  
Proceeds from loans sold     45,246       6,107  
Loans originated for sale     (46,832 )     (6,563 )
Increase in deferred loan origination fees and costs, net     2,321       62  
Mortgage servicing rights originated     (413 )     (25 )
Increase in interest receivable     (2,640 )     (277 )
Deferred tax benefit     (1,359 )     (176 )
Decrease (increase) in prepaid expenses     295       (147 )
Increase in cash surrender value of life insurance policies     (986 )     (253 )
Decrease in income tax receivable           137  
Increase in income tax payable     1,412        
Decrease in other assets     42       728  
Decrease in accrued expenses     (584 )     (348 )
Increase in interest payable     132       270  
Decrease in other liabilities     (144 )     (147 )
Stock based compensation-restricted stock awards     518       393  
Net cash provided by operating activities     11,130       10,393  
Investing Activities                
Redemption (purchase) of Federal Home Loan Bank of Boston stock, net of redemptions     84       1,921  
Purchases of securities available-for-sale     (27,802 )     (51,931 )
Purchases of interest-bearing time deposits with financial institutions           (786 )
Proceeds from sales of securities available-for-sale     12,526       41,802  
Proceeds from calls of securities available-for-sale     655       75  
Proceeds from principal payments and maturities of securities available-for-sale     12,226       9,523  
Reinvestment of CRA Mutual Fund     (12 )     (16 )
Loan originations and principal collections, net     (110,743 )     (6,405 )
Recoveries of loans previously charged off     44       64  
Proceeds from sales of other real estate owned     314       1,086  
Capital expenditures     (2,384 )     (1,760 )
Purchase of life insurance policies           (5,750 )
Proceeds from life insurance policy     3,994        
Net cash used by investing activities   $ (111,098 )   $ (12,177 )

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine months ended September 30, (in thousands)     2020       2019  
Financing Activities                
Increase in deposit transaction accounts, net   $ 175,508     $ 47,642  
Increase (decrease) in time deposits, net     131       (23,193 )
Increase in securities sold under agreements to repurchase, net     2,355       4,484  
Federal Home Loan Bank of Boston long term advances     46,001        
Federal Home Loan Bank of Boston long-term maturities/payments     (21,000 )     (35,000 )
Federal Home Loan Bank of Boston short-term advances, net change     (30,000 )     5,500  
Principal payments on Amortizing FHLB Advance     (2,072 )      
Principal payments on note payable     (28 )     (25 )
Decrease in finance lease obligation     (62 )     (194 )
Stock options exercised     53       34  
Common stock dividends paid     (2,462 )     (2,361 )
Net cash provided by (applied to) by financing activities     168,424       (3,113 )
Net increase (decrease) in cash and cash equivalents     68,456       (4,897 )
Cash and cash equivalents, beginning of period     26,885       58,445  
Cash and cash equivalents, end of period   $ 95,341     $ 53,548  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Supplemental Cash Flow Information:                
Cash paid for interest   $ 4,124     $ 6,805  
Cash paid for income taxes     1,805       1,593  
Non-cash transfers:                
Finance Lease obligations                
Adoption of ASU 2016-02 - Other assets           1,552  
Adoption of ASU 2016-02 - Other liabilities           (1,552 )

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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Salisbury Bancorp, Inc. and Subsidiary

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The interim (unaudited) consolidated financial statements of Salisbury Bancorp, Inc. ("Salisbury") include those of Salisbury and its wholly owned subsidiary, Salisbury Bank and Trust Company (the "Bank"). In the opinion of management, the interim unaudited consolidated financial statements include all adjustments (consisting of normal recurring adjustments) necessary to present fairly the consolidated financial position of Salisbury and the consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the interim periods presented.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). In preparing the financial statements, management is required to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, other-than-temporary impairment of securities and impairment of goodwill and intangibles.

Certain financial information, which is normally included in financial statements prepared in accordance with generally accepted accounting principles, but which is not required for interim reporting purposes, has been condensed or omitted. Operating results for the interim period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2019 Annual Report on Form 10-K for the year ended December 31, 2019.

The allowance for loan losses is a significant accounting policy and is presented in the Notes to Consolidated Financial Statements and in Management's Discussion and Analysis, which provides information on how significant assets are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective judgments, and as such could be most subject to revision as new information becomes available.

Risks and Uncertainties

The outbreak of the COVID-19 pandemic ("virus” or "COVID-19”) has adversely impacted a broad range of industries in which the Bank's customers operate and could impair their ability to fulfill their financial obligations to the Bank. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Bank operates. Salisbury proactively implemented many operational changes in March 2020 to protect its employees and customers, which included the closing of the lobbies of its branches to customers, implementing banking by appointment and requiring employees to work remotely or from different locations. Salisbury has experienced neither a significant interruption in service provided to its customers nor a material decline in business activity as a result of the virus. On July 8, 2020, Salisbury reopened its branches to customers.

The Coronavirus Aid, Relief and Economic Security("CARES”) Act was signed into law on March 27, 2020 as a legislative economic stimulus package. The goal of the CARES Act was to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to small businesses. While the states in the Bank's market area have begun a phased reopening, economic conditions have not returned to pre-COVID-19 levels and many businesses remain closed or are operating at reduced capacity. A resurgence of the virus may cause the states in the Bank's market area to close businesses again. If this were to happen, the Bank could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full extent of the impact that the virus and an economic shutdown will have on Salisbury's operations, Salisbury is disclosing the material items of which it is currently aware.

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Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. Under current U.S. GAAP, companies generally recognize credit losses when it is probable that the loss has been incurred. The revised guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities and beneficial interests in securitized financial assets. In April 2019, the FASB issued ASU 2019-04 which clarified the treatment of accrued interest when measuring credit losses. Entities may: (1) measure the allowance for credit losses on accrued interest receivable balances separately from other components of the amortized cost basis of associated financial assets; (2) make various accounting policy elections regarding the treatment of accrued interest receivable; or (3) elect a practical expedient to disclose separately the total amount of accrued interest included in the amortized cost basis as a single balance to meet certain disclosure requirements. ASU 2019-04 also clarified that expected recoveries of amounts previously written off and expected to be written off should be included in the valuation account and should not exceed the aggregate of amounts previously written off and expected to be written off by the entity. In addition, for collateral dependent financial assets, the amendments clarify that an allowance for credit losses that is added to the amortized cost basis of the financial asset(s) should not exceed amounts previously written off. In November 2019, the FASB issued ASU 2019-10, which delayed the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies, although early adoption is permitted. Salisbury meets the definition of a smaller reporting company. In November 2019, the FASB issued ASU 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses” which clarified or addressed specific issues about certain aspects of the amendments in ASU 2016-13. The amendments in ASU 2019-11 clarified the following: (1) The allowance for credit losses for purchased financial assets with credit deterioration should include expected recoveries of amounts previously written off and expected to be written off by the entity and should not exceed the aggregate of amounts of the amortized cost basis previously written off and expected to be written off by an entity. In addition, the amendments clarify that when a method other than a discounted cash flow method is used to estimate expected credit losses, expected recoveries should not include any amounts that result in an acceleration of the noncredit discount. An entity may include increases in expected cashflows after acquisition; (2) Transition relief will be provided by permitting entities an accounting policy election to adjust the effective interest rate on existing troubled debt restructurings using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring; (3) Disclosure relief will be extended for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis; (4) An entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient. The amendments clarify that an entity applying the practical expedient should estimate expected credit losses for any difference between the amount of the amortized cost basis that is greater than the fair value of the collateral securing the financial asset (that is, the unsecured portion of the amortized cost basis). An entity may determine that the expectation of nonpayment for the amount of the amortized cost basis equal to the fair value of the collateral securing the financial asset is zero. Upon adoption, Salisbury will apply the standards' provisions as a cumulative effect adjustment to retained earnings as of the first reporting period in which the guidance is effective. Salisbury anticipates that the adoption of ASU 2016-13 and related updates will impact the consolidated financial statements as it relates to the balance in the allowance for loan losses. Salisbury has engaged a third-party software vendor to model the allowance for loan losses in conformance with this ASU. Salisbury will continue to refine this model and assess the impact to its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This ASU is intended to allow companies to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The FASB is researching whether similar amendments should be considered for other entities, including public business entities. ASU 2017-04 is effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019 and interim periods within those years. Entities should apply the guidance prospectively. On January 1, 2020, the Bank adopted the new standard, which did not have a material impact on Salisbury's Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. On January, 1, 2020, the Bank adopted the new standard, which only revised disclosure requirements and did not have a material impact on Salisbury's Consolidated Financial Statements.

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In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting or Income Taxes.” The amendments in this Update simplify the accounting for income taxes by removing the following exceptions:1. Exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income) 2. Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment 3. Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary 4. Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this Update also simplify the accounting for income taxes by doing the following: 1. Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. 2. Requiring that an entity evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction. 3. Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority. 4. Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. 5. Making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years; early adoption is permitted. Salisbury is currently evaluating the provisions of ASU 2019-12 to determine the potential impact the new standard will have on Salisbury's Consolidated Financial Statements.

In October 2020, the FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. Under current generally accepted accounting principles, entities amortize the premium on purchased callable debt securities to the earliest call date. If a callable debt security contains additional future call dates, entities should consider whether the amortized cost basis exceeded the amount repayable by the issuer at the next call date. If so, the excess or premium should be amortized to the next call date. This ASU clarifies that the next call date is the first date when a call option at a specified price becomes exercisable. Once that date has passed, the next call date is when the next call option at a specified price becomes exercisable, if applicable. If there is no remaining premium or if there are no further call dates, the entity shall reset the effective yield using the payment terms of the debt security. ASU 2020-08 is effective for interim and annual reporting periods beginning after December 15, 2020; early adoption is not permitted. ASU 2020-08 is not expected to have a material impact on Salisbury's Consolidated Financial Statements.

Other Regulatory Pronouncements

On March 12, 2020 the Securities and Exchange Commission finalized amendments to the definitions of "accelerated” and "large accelerated filer”. The amendments increase the threshold criteria for meeting these categories and were effective on April 27, 2020 and apply to annual reports due on or after such effective date. Prior to these changes, Salisbury was designated as a "smaller reporting company” and an "accelerated” filer as it had more than $75 million in public float but less than $700 million at the end of Salisbury's most recent second quarter. The rule changed the definition of "accelerated filer” and expands the category of "non-accelerated filer” to include entities with public float of less than $700 million and less than $100 million in annual revenues. Salisbury meets the new definition of non-accelerated filer while continuing to qualify as a "smaller reporting company”, and will no longer be considered an accelerated filer. The categorization of "accelerated” or "large accelerated filer” determines the requirement for a public company to obtain an auditor attestation of its internal control over financial reporting. Non-accelerated filers also have additional time to file quarterly and annual reports. All public companies are required to obtain and file annual financial statements audits as well as provide management's assertion on the effectiveness of internal controls over financial reporting, but the external auditor attestation of internal control over financial reporting is not required for non-accelerated filers. As the Bank has total assets exceeding $1.0 billion, it remains subject to the rules of the Federal Deposit Insurance Corporation, which requires an auditor attestation of internal controls over the Bank's regulatory financial reporting. As such, other than additional time provided to file quarterly and annual reports, this amendment to the definition of accelerated filer does not significantly change Salisbury's annual reporting and audit requirements and does not change the auditor's role in the financial statement audit.

 

 

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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, 2020                                
Available-for-sale                                
U.S. Government Agency notes   $ 5,643     $ 176     $ 32     $ 5,787  
Municipal bonds     25,219       1,348       9       26,558  
Mortgage-backed securities:                                
U.S. Government agencies and U.S. Government- sponsored enterprises     35,256       1,288       36       36,508  
Collateralized mortgage obligations:                                
U.S. Government agencies     18,439       598             19,037  
Corporate bonds     7,750       101       21       7,830  
Total securities available-for-sale   $ 92,307     $ 3,511     $ 98     $ 95,720  
CRA mutual fund                                          $ 916  
Non-marketable securities                                
Federal Home Loan Bank of Boston stock   $ 3,158     $     $     $ 3,158  
(in thousands)     Amortized cost basis       Gross un-realized gains       Gross un-realized losses       Fair value  
December 31, 2019                                
Available-for-sale                                
U.S. Government Agency notes   $ 4,520     $ 125     $ 1     $ 4,644  
Municipal bonds     26,562       704       73       27,193  
Mortgage-backed securities:                                
U.S. Government agencies and U.S. Government-
sponsored enterprises
    28,961       420       24       29,357  
Collateralized mortgage obligations:                                
U.S. Government agencies     25,041       468       10       25,499  
Corporate bonds     5,000       108             5,108  
Total securities available-for-sale   $ 90,084     $ 1,825     $ 108     $ 91,801  
CRA mutual fund                           $ 882  
Non-marketable securities                                
Federal Home Loan Bank of Boston stock   $ 3,242     $     $     $ 3,242  

Salisbury sold $1.9 million in securities available-for-sale during the three month period ended September 30, 2020 realizing a pre-tax gain of $34 thousand and related tax expense of $7 thousand. Salisbury sold $12.5 million of available-for-sale securities during the nine month period ended September 30, 2020 realizing a pre-tax gain of $216 thousand and a related tax expense of $45 thousand. Salisbury sold $13.7 million in securities available-for-sale during the three month period ended September 30, 2019 realizing a pre-tax loss of $9 thousand and related tax benefit of $2 thousand. Salisbury sold $41.8 million of available-for-sale securities during the nine month period ended September 30, 2019 realizing a pre-tax gain of $263 thousand and a related tax expense of $55 thousand.

The amortized cost, fair value and tax equivalent yield of securities, by maturity, are as follows:

September 30, 2020 (in thousands)   Maturity   Amortized cost     Fair value     Yield(1)  
U.S. Government Agency notes   After 1 year but within 5 years   $ 2,496     $ 2,567       3.48 %
                             
Municipal bonds   After 5 year but within 10 years     2,224       2,379       2.85  
    After 10 years     22,995       24,179       3.05  
    Total     25,219       26,558       3.03  
Mortgage-backed securities and Collateralized mortgage obligations   Securities not due at a single maturity date     56,842       58,765       2.15  
Corporate bonds   After 5 years but within 10 years     7,750       7,830       5.20  
Securities available-for-sale       $ 92,307     $ 95,720       2.68 %

(1) Yield is based on amortized cost.

 

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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, 2020 (in thousands)   Fair value   Unrealized losses   Fair value   Unrealized losses   Fair value   Unrealized losses
Available-for-sale                        
U.S. Government Agency notes   $ 1,561     $ 31     $ 75     $ 1     $ 1,636     $ 32  
Municipal bonds     2,194       9                   2,194       9  
Mortgage- backed securities:                                                
U.S. Government agencies and U.S. Government - sponsored enterprises     6,729       35       65       1       6,794       36  
Corporate bonds     1,479       21                   1,479       21  
Total temporarily impaired securities   $ 11,963     $ 96     $ 140     $ 2     $ 12,103     $ 98  
                                                 
           
    Less than 12 Months   12 Months or Longer   Total
December 31, 2019 (in thousands)   Fair value   Unrealized l