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EX-31.1 - EXHIBIT 31.1 - SALISBURY BANCORP INCsal0510form10qexh31_1.htm
EX-31.2 - EXHIBIT 31.2 - SALISBURY BANCORP INCsal0510form10qexh31_2.htm
EX-32 - EXHIBIT 32 - SALISBURY BANCORP INCsal0510form10qexh32.htm

 

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 March 31, 2016

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)

 

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.

Yes ☑ No

 

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 and post such files).

Yes ☑ No

 

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

 

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☑

 

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

Yes ☐ No ☑

 

The number of shares of Common Stock outstanding as of May 16, 2016 is 2,753,426.

 

 
 

 

TABLE OF CONTENTS

Page

  PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements (unaudited)
  CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2016 (unaudited) AND DECEMBER 31, 2015 3
  CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015(unaudited) 4
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (unaudited) 5
  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (unaudited) 5
  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015 (unaudited) 6
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 47
Item 4. CONTROLS AND PROCEDURES 48
  PART II. OTHER INFORMATION  
Item 1. LEGAL PROCEEDINGS 49
Item 1A. RISK FACTORS 50
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 50
Item 3.  DEFAULTS UPON SENIOR SECURITIES 50
Item 4.  MINE SAFETY DISCLOSURES 50
Item 5.  OTHER INFORMATION 50
Item 6.  EXHIBITS 51

 
 

 

PART I - FINANCIAL INFORMATION

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)  March 31, 2016    December 31, 2015  
ASSETS    (unaudited)     
Cash and due from banks  $9,309   $14,891 
Interest bearing demand deposits with other banks   22,194    47,227 
Total cash and cash equivalents   31,503    62,118 
Securities          
Available-for-sale at fair value   79,034    76,694 
Federal Home Loan Bank of Boston stock at cost   3,117    3,176 
Loans held-for-sale   183    763 
Loans receivable, net (allowance for loan losses: $5,877 and $5,716)   728,845    699,018 
Bank premises and equipment, net   14,632    14,307 
Goodwill   12,552    12,552 
Intangible assets (net of accumulated amortization: $3,064 and $2,909)   2,183    2,338 
Accrued interest receivable   2,451    2,307 
Cash surrender value of life insurance policies   13,775    13,685 
Deferred taxes   2,013    1,989 
Other assets   1,516    2,245 
Total Assets  $891,804   $891,192 
LIABILITIES and SHAREHOLDERS' EQUITY          
Deposits          
Demand (non-interest bearing)  $192,184   $201,340 
Demand (interest bearing)   122,814    125,465 
Money market   192,357    183,783 
Savings and other   126,214    119,651 
Certificates of deposit   122,089    124,294 
Total deposits   755,658    754,533 
Repurchase agreements   2,620    3,914 
Federal Home Loan Bank of Boston advances   27,031    26,979 
Subordinated debt(1)   9,770    9,764 
Note payable   365    376 
Capital lease liability   420    422 
Accrued interest and other liabilities   4,538    4,630 
Total Liabilities   800,402    800,618 
Shareholders' Equity          
Common stock - $.10 per share par value          
Authorized: 5,000,000          
Issued: 2,753,426 and 2,733,576   275    273 
Paid-in capital   41,915    41,364 
Retained earnings   48,662    47,922 
Unearned compensation - restricted stock awards   (529)   (110)
Accumulated other comprehensive income   1,079    1,125 
Total Shareholders' Equity   91,402    90,574 
Total Liabilities and Shareholders' Equity  $891,804   $891,192 

 (1) Net of issuance costs, which are capitalized and amortized as a component of interest expense over a period of 10 years.

3
 


 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

Three months ended March 31, (in thousands except per share amounts)    2016      2015  
Interest and dividend income          
Interest and fees on loans  $7,925   $7,922 
Interest on debt securities          
Taxable   293    326 
Tax exempt   286    390 
Other interest and dividends   74    33 
Total interest and dividend income   8,578    8,671 
Interest expense          
Deposits   508    444 
Repurchase agreements   1    1 
Capital lease   18    18 
Note payable   5     
Subordinated debt   156     
Federal Home Loan Bank of Boston advances   231    282 
Total interest expense   919    745 
Net interest and dividend income   7,659    7,926 
Provision (benefit) for loan losses   463    (200)
Net interest and dividend income after provision (benefit) for loan losses   7,196    8,126 
Non-interest income          
Trust and wealth advisory   784    822 
Service charges and fees   730    731 
Gains on sales of mortgage loans, net   39    94 
Mortgage servicing, net   12    (40)
Gains on sales and calls of available-for-sale securities, net   2    175 
Other   117    114 
Total non-interest income   1,684    1,896 
Non-interest expense          
Salaries   2,574    2,540 
Employee benefits   1,088    1,005 
Premises and equipment   895    908 
Data processing   447    474 
Professional fees   380    650 
Collections and OREO   157    244 
FDIC insurance   134    198 
Marketing and community support   200    110 
Amortization of core deposit intangibles   155    169 
Other   810    537 
Total non-interest expense   6,840    6,835 
Income before income taxes   2,040    3,187 
Income tax provision   528    953 
Net income  $1,512   $2,234 
Net income available to common shareholders   $1,512   $2,194 
           
Basic earnings per common share  $0.55   $0.81 
Weighted average common shares outstanding, to calculate basic earnings per share   2,723    2,699 
Diluted earnings per common share  $0.55   $0.80 
Weighted average common shares outstanding, to calculate diluted earnings per share   2,741    2,716 
Common dividends per share  $0.28   $0.28 

4
 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three months ended March 31, (in thousands)    2016      2015  
Net income  $1,512   $2,234 
Other comprehensive loss          
Net unrealized losses on securities available-for-sale   (68)   (193)
Reclassification of net realized gains in net income(1)   (2)   (175)
Unrealized losses on securities available-for-sale   (70)   (368)
Income tax benefit   24    128 
Unrealized losses on securities available-for-sale, net of tax   (46)   (240)
Comprehensive income  $1,466   $1,994 

(1) Reclassification adjustments include realized security gains and losses. The gains and losses have been reclassified out of other comprehensive loss and have affected certain lines in the consolidated statements of income as follows: The pre-tax amount is reflected as gains on sales and calls of 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.

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

  (dollars in thousands) Common Stock  Preferred stock  Paid-in capital  Retained earnings  Unearned compensation - restricted stock awards 

Accumulated other comp-

rehensive income

 

Total share-

holders' equity

   Shares  Amount                  
Balances at December 31, 2014  2,720,766   $272   $16,000   $41,077   $42,677   $(313)  $2,108   $101,821 
Net income                   2,234            2,234 
Other comprehensive loss, net of tax                           (240)   (240)
Common stock dividends declared                   (761)           (761)
Preferred stock dividends declared                   (40)           (40)
Stock options exercised   6,750    1        125                126 
Issuance of common stock for executives   1,000            29                29 
Stock based compensation-restricted stock awards                       42        42 
Balances at March 31, 2015   2,728,516   $273   $16,000   $41,231   $44,110   $(271)  $1,868   $103,211 
Balances at December 31, 2015  2,733,576   $273   $   $41,364   $47,922   $(110)  $1,125   $90,574 
Net income                   1,512            1,512 
Other comprehensive loss, net of tax                           (46)   (46)
Common stock dividends declared                   (772)           (772)
Stock options exercised   4,050            87                87 
Issuance of restricted stock awards   15,800    2        464                466 
Stock based compensation-restricted stock awards                       (419)       (419)
Balances at March 31, 2016   2,753,426   $275   $   $41,915   $48,662   $(529)  $1,079   $91,402 

 

5
 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Three months ended March 31, (in thousands)    2016      2015  
Operating Activities          
Net income  $1,512   $2,234 
Adjustments to reconcile net income to net cash provided by operating activities:          
(Accretion), amortization and depreciation:          
Securities   60    38 
Bank premises and equipment   306    311 
Core deposit intangible   155    169 
Mortgage servicing rights   51    119 
Fair value adjustment on loans   (586)   (650)
Fair value adjustment on deposits   (38)   (135)
Debt issuance costs   6     
(Gains) and losses, including write-downs          
Gain on sales and calls of securities available-for-sale, net   (2)   (175)
Gain on sales of loans, excluding capitalized servicing rights   (19)   (32)
Write-downs of other real estate owned       127 
Loss on sale/disposals of premises and equipment   13    45 
Provision (benefit) for loan losses   463    (200)
Proceeds from loans sold   1,787    2,134 
Loans originated for sale   (1,188)   (1,862)
Increase in deferred loan origination fees and costs, net   (44)   (3)
Mortgage servicing rights originated   (20)   (62)
Increase in mortgage servicing rights impairment reserve   20    10 
Increase in interest receivable   (144)   (22)
Deferred tax benefit       (13)
Decrease (increase) in prepaid expenses   47    (126)
Increase in cash surrender value of life insurance policies   (90)   (92)
Decrease in income tax receivable   506     
Increase in income taxes payable       55 
Decrease in other assets   125    64 
Decrease in accrued expenses   (113)   (184)
Decrease in interest payable   (30)    
Increase in other liabilities   51    161 
Stock based compensation-restricted stock awards   47    71 
Net cash provided by operating activities   2,875    1,982 
Investing Activities          
Redemption of Federal Home Loan Bank of Boston stock   59     
Purchases of securities available-for-sale   (10,072)   (3)
Proceeds from sales of securities available-for-sale       3,861 
Proceeds from calls of securities available-for-sale   5,351    3,740 
Proceeds from maturities of securities available-for-sale   2,253    2,304 
Loan originations and principal collections, net   (29,674)   (3,011)
Recoveries of loans previously charged off   14    460 
Capital expenditures   (644)   (186)
Net cash (utilized) provided by investing activities   (32,713)   7,165 

 

6
 

Salisbury Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Continued)

Three months ended March 31, (in thousands)    2016      2015  
Financing Activities          
Increase in deposit transaction accounts, net   3,330    9,556 
(Decrease) increase in time deposits, net   (2,167)   63 
Decrease in securities sold under agreements to repurchase, net   (1,294)   (885)
Principal payments on Federal Home Loan Bank of Boston advances   (6)   (410)
Modification fees on Federal Home Loan Bank of Boston advances   58     
Principal payments on note payable   (11)    
Decrease in capital lease obligation   (2)   (1)
Stock options exercised   87    126 
Common stock dividends paid   (772)   (761)
Series B preferred stock dividends paid       (40)
Net cash (utilized) provided by financing activities   (777)   7,648 
Net (decrease) increase in cash and cash equivalents   (30,615)   16,795 
Cash and cash equivalents, beginning of period   62,118    36,105 
Cash and cash equivalents, end of period  $31,503   $52,900 
Cash paid during period          
Interest  $760   $745 
Income taxes   258    911 

7
 

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 financial position of Salisbury and the statements of income, comprehensive income, 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, expected cash flows from loans acquired in a business combination, 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 March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying condensed financial statements should be read in conjunction with the financial statements and notes thereto included in Salisbury's 2015 Annual Report on Form 10-K for the year ended December 31, 2015.

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.

Impact of New Accounting Pronouncements Issued

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – overall (subtopic 825-10): "Recognition and Measurement of Financial Assets and Financial Liabilities." This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early application is permitted as of the beginning of the fiscal year of adoption only for provisions (3) and (6) above. Early adoption of the other provisions mentioned above is not permitted. Salisbury does not expect ASU No. 2016-01 to have a material impact on the Company's Consolidated Financial Statements; however, the Company will continue to closely monitor developments and additional guidance.

8
 

In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee's obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU No. 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. The Company is currently evaluating this ASU to determine the impact on its consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation–Stock Compensation (Topic 718): "Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. Salisbury is currently evaluating the provisions of ASU No. 2016-09 to determine the potential impact the new standard will have on the Company's Consolidated Financial Statements.

 

NOTE 2 - SECURITIES

The composition of securities is as follows:

  (in thousands) Amortized
cost (1)
  Gross un-
realized gains
  Gross un-
realized losses
  Fair value
March 31, 2016           
Available-for-sale                   
U.S. Treasury notes $7,497   $33   $(1)  $7,529 
Municipal bonds  24,893    495        25,388 
Mortgage-backed securities:                   
U.S. Government agencies and U.S. Government- sponsored enterprises  35,328    497    (23)   35,802 
Collateralized mortgage obligations:                   
U.S. Government agencies  1,850    12        1,862 
Non-agency  4,198    382    (12)   4,568 
SBA bonds  2,843    28        2,871 
CRA mutual funds  770    9        779 
Preferred stock  20    215        235 
Total securities available-for-sale $77,399   $1,671   $(36)  $79,034 
Non-marketable securities                   
Federal Home Loan Bank of Boston stock $3,117   $   $   $3,117 
                    
9
 

  (in thousands) Amortized
cost (1)
  Gross un-
realized gains
  Gross un-
realized losses
  Fair value
December 31, 2015                   
Available-for-sale                   
U.S. Treasury notes $2,499   $42   $   $2,541 
U.S. Government agency notes  498            498 
Municipal bonds  29,752    633        30,385 
Mortgage-backed securities:                   
U.S. Government agencies and U.S. Government- sponsored enterprises  31,900    385    (83)   32,202 
Collateralized mortgage obligations:                   
U.S. Government agencies  2,002    12        2,014 
Non-agency  4,487    468    (7)   4,948 
SBA bonds  3,065    31        3,096 
CRA mutual funds  766        (2)   764 
Preferred stock  20    226        246 
Total securities available-for-sale $74,989   $1,797   $(92)  $76,694 
Non-marketable securities                   
Federal Home Loan Bank of Boston stock $3,176   $   $   $3,176 
                    
(1)Net of other-than-temporary impairment write-downs recognized in earnings.

Salisbury did not sell any available-for-sale securities during the three month period ended March 31, 2016, and sold $3.9 million in available-for-sale securities during the three month period ended March 31, 2015, for a gain of $165,000. The after tax gain totaled $150,000.

The following table summarizes, for all securities in an unrealized loss position, including debt securities for which a portion of other-than-temporary impairment (OTTI) has been recognized in other comprehensive loss, the aggregate fair value and gross unrealized loss of securities that have been in a continuous unrealized loss position as of the date presented:

  (in thousands)  Less than 12 Months  12 Months or Longer  Total
   Fair
value
 

Unrealized

losses

  Fair
value
 

Unrealized

losses

  Fair
value
  Unrealized losses
March 31, 2016               
Available-for-sale                              
Municipal bonds  $4,997   $(1)  $   $   $4,997   $(1)
Mortgage-backed securities   7,096    (18)   177    (5)   7,273    (23)
Collateralized mortgage obligations:                              
Non-agency   343    (2)   211    (6)   554    (8)
Total temporarily impaired securities   12,436    (21)   388    (11)   12,824    (32)
Other-than-temporarily impaired securities                              
Collateralized mortgage obligations:                              
Non-agency   217    (4)           217    (4)
Total temporarily impaired and other-than-temporarily impaired securities  $12,653   $(25)  $388   $(11)  $13,041   $(36)
                               

Salisbury evaluates 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.

10
 

The following summarizes, by security type, the basis for evaluating if the applicable securities were OTTI at March 31, 2016.

U.S. Government agency mortgage-backed securities: The contractual cash flows are guaranteed by U.S. government agencies and U.S. government-sponsored enterprises. 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 securities to be OTTI at March 31, 2016.

Municipal bonds: Contractual cash flows are performing as expected. Salisbury’s portfolio is mostly comprised of tax-exempt general obligation bonds or public-purpose revenue bonds for schools, municipal offices, sewer infrastructure and fire houses, for small towns and municipalities across the United States. In the wake of the financial crisis, most monoline bond insurers had their ratings downgraded or withdrawn because of excessive exposure to insurance for collateralized debt obligations. Where appropriate, Salisbury performs credit underwriting reviews of unrated issuers, including some that have had their ratings withdrawn and are insured by insurers that have had their ratings withdrawn, to assess default risk. For all completed reviews, pass credit risk ratings have been assigned. Management expects to recover the entire amortized cost basis of these securities. 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 at maturity, and Salisbury does not intend to sell these securities. Therefore, management does not consider these securities to be OTTI at March 31, 2016.

Non-agency CMOs: Salisbury performed a detailed cash flow analysis of its non-agency CMOs at March 31, 2016, to assess whether any of the securities were OTTI. Salisbury uses cash flow forecasts for each security based on a variety of market driven assumptions and securitization terms, including prepayment speed, default or delinquency rate, and default severity for losses including interest, legal fees, property repairs, expenses and realtor fees, that, together with the loan amount are subtracted from collateral sales proceeds to determine severity. In 2009, Salisbury determined that five non-agency CMO securities reflected OTTI and recognized losses for deterioration in credit quality of $1,128,000. Salisbury judged the four remaining securities not to have additional OTTI and all other CMO securities not to be OTTI as of March 31, 2016. It is possible that future loss assumptions could change necessitating Salisbury to recognize future OTTI for further deterioration in credit quality. Salisbury evaluates these securities for strategic fit and depending upon such factor could reduce its position in these securities, although it has no present intention to do so, and it is not more likely than not that Salisbury will be required to sell these securities before recovery of their cost bases.

The following table presents activity related to credit losses recognized into earnings on the non-agency CMOs held by Salisbury for which a portion of an OTTI charge was recognized in accumulated other comprehensive income:

  Three months ended March 31 (in thousands)    2016      2015  
Balance, beginning of period  $1,128   $1,128 
Credit component on debt securities in which OTTI was not previously recognized        
Balance, end of period  $1,128   $1,128 

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, 2016. 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.

11
 

NOTE 3 – LOANS

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

   March 31, 2016  December 31, 2015
  (In thousands)  Business Activities  Loans 

Acquired

Loans

  Total  Business Activities  Loans 

Acquired

Loans

  Total
Residential 1-4 family  $274,881   $7,443   $282,324   $261,495   $7,799   $269,294 
Residential 5+ multifamily   8,095    6,050    14,145    6,411    6,136    12,547 
Construction of residential 1-4 family   9,332        9,332    7,998        7,998 
Home equity lines of credit   34,329        34,329    35,017        35,017 
Residential real estate   326,637    13,493    340,130    310,921    13,935    324,856 
Commercial   136,315    86,500    222,815    129,446    88,829    218,275 
Construction of commercial   10,145    4,903    15,048    6,525    4,874    11,399 
Commercial real estate   146,460    91,403    237,863    135,971    93,703    229,674 
Farm land   4,007        4,007    3,193        3,193 
Vacant land   8,198        8,198    8,563        8,563 
Real estate secured   485,302    104,896    590,198    458,648    107,638    566,286 
Commercial and industrial   92,528    35,517    128,045    74,657    46,764    121,421 
Municipal   9,364        9,364    9,566        9,566 
Consumer   5,806    76    5,882    6,195    77    6,272 
Loans receivable, gross   593,000    140,489    733,489    549,066    154,479    703,545 
Deferred loan origination fees and costs, net   1,233        1,233    1,189        1,189 
Allowance for loan losses   (5,573)   (304)   (5,877)   (5,481)   (235)   (5,716)
Loans receivable, net  $588,660   $140,185   $728,845   $544,774   $154,244   $699,018 
Loans held-for-sale                              
Residential 1-4 family  $183   $   $183   $763   $   $763 

Concentrations of Credit Risk

Salisbury's loans consist primarily of residential and commercial real estate loans located principally in northwestern Connecticut, New York and Massachusetts towns, 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, and installment 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.

 

12
 

Loan Credit Quality

The composition of loans receivable by risk rating grade is as follows:

Business Activities Loans

  (in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
March 31, 2016                              
Residential 1-4 family  $260,994   $6,386   $7,411   $90   $   $274,881 
Residential 5+ multifamily   6,075    1,931    89            8,095 
Construction of residential 1-4 family   8,445    887                9,332 
Home equity lines of credit   32,954    510    865            34,329 
Residential real estate   308,468    9,714    8,365    90        326,637 
Commercial   125,703    5,269    5,343            136,315 
Construction of commercial   10,025        120            10,145 
Commercial real estate   135,728    5,269    5,463            146,460 
Farm land   2,983        1,024            4,007 
Vacant land   5,207    67    2,924            8,198 
Real estate secured   452,386    15,050    17,776    90        485,302 
Commercial and industrial   88,953    2,995    578    2        92,528 
Municipal   9,364                    9,364 
Consumer   5,788    17    1            5,806 
Loans receivable, gross  $556,491   $18,062   $18,355   $92   $   $593,000 

Acquired Loans

  (in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
March 31, 2016                              
Residential 1-4 family  $6,663   $   $780   $   $   $7,443 
Residential 5+ multifamily   5,927        123            6,050 
Construction of residential 1-4 family                        
Home equity lines of credit                        
Residential real estate   12,590        903            13,493 
Commercial   77,995    3,067    5,438            86,500 
Construction of commercial   4,645        258            4,903 
Commercial real estate   82,640    3,067    5,696            91,403 
Farm land                        
Vacant land                        
Real estate secured   95,230    3,067    6,599            104,896 
Commercial and industrial   34,007    917    509    84        35,517 
Municipal                        
Consumer   71    5                76 
Loans receivable, gross  $129,308   $3,989   $7,108   $84   $   $140,489 

 

 

13
 

Business Activities Loans

  (in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2015                              
Residential 1-4 family  $248,027   $6,933   $6,444   $91   $   $261,495 
Residential 5+ multifamily   4,507    1,815    89            6,411 
Construction of residential 1-4 family   7,111    887                7,998 
Home equity lines of credit   33,687    545    785            35,017 
Residential real estate   293,332    10,180    7,318    91        310,921 
Commercial   120,903    4,801    3,742            129,446 
Construction of commercial   6,525                    6,525 
Commercial real estate   127,428    4,801    3,742            135,971 
Farm land   2,162        1,031            3,193 
Vacant land   5,567    69    2,927            8,563 
Real estate secured   428,489    15,050    15,018    91        458,648 
Commercial and industrial   72,887    1,214    555    1        74,657 
Municipal   9,566                    9,566 
Consumer   6,171    18    6            6,195 
Loans receivable, gross  $517,113   $16,282   $15,579   $92   $   $549,066 

Acquired Loans

  (in thousands)  Pass  Special mention  Substandard  Doubtful  Loss  Total
December 31, 2015                              
Residential 1-4 family  $6,824   $199   $776   $   $   $7,799 
Residential 5+ multifamily   6,136                    6,136 
Construction of residential 1-4 family                        
Home equity lines of credit                        
Residential real estate   12,960    199    776            13,935 
Commercial   80,406    4,005    4,418            88,829 
Construction of commercial   4,612        262            4,874 
Commercial real estate   85,018    4,005    4,680            93,703 
Farm land                        
Vacant land                        
Real estate secured   97,978    4,204    5,456            107,638 
Commercial and industrial   45,363    875    443    83        46,764 
Municipal                        
Consumer   71    6                77 
Loans receivable, gross  $143,412   $5,085   $5,899   $83   $   $154,479 

  

14
 

The composition of loans receivable by delinquency status is as follows:

Business Activities Loans

    Past due   
                  180  30      
  (in thousands)  Current  1-29  30-59  60-89  90-179  days  days  Accruing  Non-
      days  days  days  days  and  and90 days accrual
                  over  overand over  
  March 31, 2016                           
Residential 1-4 family  $267,101   $1,334   $3,509   $75   $   $2,862   $6,446   $   $5,834 
Residential 5+ multifamily   7,946    60                89    89         
Construction of residential 1-4 family9,160    172                             
Home equity lines of credit   33,395    434    218    43    150    89    500        701 
Residential real estate   317,602    2,000    3,727    118    150    3,040    7,035        6,535 
Commercial   133,401    156    833    668    342    915    2,758        2,557 
Construction of commercial   10,145                                 
Commercial real estate   143,546    156    833    668    342    915    2,758        2,557 
Farm land   2,983    301                723    723        1,024 
Vacant land   5,371        4            2,823    2,827        2,854 
Real estate secured   469,502    2,457    4,564    786    492    7,501    13,343        12,970 
Commercial and industrial   90,851    398    973    288        18    1,279        447 
Municipal   9,364                                 
Consumer   5,763    24    15    4            19         
Loans receivable, gross  $575,480   $2,879   $5,552   $1,078   $492   $7,519   $14,641   $   $13,417 

Acquired Loans

    Past due   
                  180  30      
  (in thousands)  Current  1-29  30-59  60-89  90-179  days  days  Accruing  Non-
      days  days  days  days  and  and90 days accrual
                  over  overand over  
  March 31, 2016                           
Residential 1-4 family  $6,664   $   $   $   $   $779   $779   $   $779 
Residential 5+ multifamily   5,168    759            123        123        123 
Construction of residential 1-4 family                                    
Home equity lines of credit                                    
Residential real estate   11,832    759            123    779    902        902 
Commercial   80,481    2,635    1,605            1,779    3,384        1,839 
Construction of commercial   4,645                    258    258        258 
Commercial real estate   85,126    2,635    1,605            2,037    3,642        2,097 
Farm land                                    
Vacant land                                    
Real estate secured   96,958    3,394    1,605        123    2,816    4,544        2,999 
Commercial and industrial   33,725    844    123    825            948        414 
Municipal                                    
Consumer   72    4                             
Loans receivable, gross  $130,755   $4,242    $1,728   $825   $123   $2,816   $5,492   $   $3,413 

 

15
 

The composition of loans receivable by delinquency status is as follows:

Business Activities Loans

    Past due   
                  180  30      
  (in thousands)  Current  1-29  30-59  60-89  90-179  days  days  Accruing  Non-
      days  days  days  days  and  and90 days accrual
                  over  overand over  
  December 31, 2015                           
Residential 1-4 family  $254,152   $1,781   $1,931   $683   $973   $1,975   $5,562   $   $5,671 
Residential 5+ multifamily   6,254        68            89    157        89 
Construction of residential 1-4 family   7,826    172                             
Home equity lines of credit   33,744    363    306    101    113    390    910        601 
Residential real estate   301,976    2,316    2,305    784    1,086    2,454    6,629        6,361 
Commercial   126,440    1,618    474        233    681    1,388        2,349 
Construction of commercial   6,525                                 
Commercial real estate   132,965    1,618    474        233    681    1,388        2,349 
Farm land   2,172    298                723    723        1,031 
Vacant land   5,734        6            2,823    2,829        2,855 
Real estate secured   442,847    4,232    2,785    784    1,319    6,681    11,569        12,596 
Commercial and industrial   73,698    906    35            18    53        461 
Municipal   9,566                                 
Consumer   6,096    61    21    17            38        80 
Loans receivable, gross  $532,207   $5,199   $2,841   $801   $1,319   $6,699   $11,660   $   $13,137 

Acquired Loans
                                             
    Past due   
                  180  30      
  (in thousands)  Current  1-29  30-59  60-89  90-179  days  days  Accruing  Non-
      days  days  days  days  and  and90 days accrual
                  over  overand over  
  December 31, 2015                           
Residential 1-4 family  $6,823   $   $   $110   $   $866   $976   $90   $776 
Residential 5+ multifamily   6,136                                 
Construction of residential
1-4 family
                                    
Home equity lines of credit                                    
Residential real estate   12,959            110        866    976    90    776 
Commercial   81,140    4,848    916            1,925    2,841        2,000 
Construction of commercial   4,612                    262    262        262 
Commercial real estate   85,752    4,848    916            2,187    3,103        2,262 
Farm land                                    
Vacant land                                    
Real estate secured   98,711    4,848    916    110        3,053    4,079    90    3,038 
Commercial and industrial   46,128    471    83    82            165         
Municipal                                    
Consumer   77                                 
Loans receivable, gross  $144,916   $5,319   $999   $192   $    3,053   $4,244   $90   $3,038 

Interest on non-accrual loans that would have been recorded as additional interest income for the quarters ended March 31, 2016 and 2015 had the loans been current in accordance with their original terms totaled $365,000 and $135,000, respectively. 

16
 

Troubled Debt Restructurings

Troubled debt restructurings occurring during the periods are as follows:

Business Activities Loans

   March 31, 2016  March 31, 2015
  (in thousands)  Quantity 

Pre-

modification balance

 

Post-

modification balance

  Quantity 

Pre-

modification balance

 

Post-

modification balance

Residential real estate   1   $89   $89    1   $51   $51 
Commercial real estate               1    297    297 
Home equity lines of credit                        
Troubled debt restructurings   1   $89   $89    2   $348   $348 
Refinance   1   $89   $89             
Rate reduction and term extension               1   $297   $297 
Debt consolidation and term extension                        
Debt consolidation, rate reduction, term extension and note bifurcation               1    51    51 
Term extension                        
Troubled debt restructurings   1   $89   $89    2   $348   $348 

Acquired Loans

   March 31, 2016  March 31, 2015
  (in thousands)  Quantity 

Pre-

modification balance

 

Post-

modification balance

  Quantity 

Pre-

modification balance

 

Post-

modification balance

Commercial real estate      $   $       $   $ 
Troubled debt restructurings      $   $       $   $ 
Rate reduction and term extension      $   $       $   $ 
Troubled debt restructurings      $   $       $   $ 

One loan has been modified as a troubled debt restructure during 2016 and was not past due at March 31, 2016.

Allowance for Loan Losses

Changes in the allowance for loan losses are as follows:

   Business Activities Loans  Acquired Loans
  (in thousands)  March 31, 2016  March 31, 2016
   Beginning balance 

Provision

(benefit)

 

Charge-

offs

 

Reco-

veries

  Ending balance  Beginning balance 

Provision

(benefit)

 

Charge-

offs

 

Reco-

veries

  Ending balance
Residential  $2,477   $86   $(106)  $1   $2,458   $79   $(10)  $   $   $69 
Commercial   1,466    154    (36)   1    1,585    132    56    (96)   2    94 
Land   188    (1)   (23)       164                     
Real estate   4,131    239    (165)   2    4,207    211    46    (96)   2    163 
Commercial and industrial   683    125    (31)   4    781    24    114    (1)   4    141 
Municipal   61    (2)           59                     
Consumer   124    11    (23)   2    114                     
Unallocated   482    (70)           412                     
Totals  $5,481   $303   $(219)  $8   $5,573   $235   $160   $(97)  $6   $304 
17
 

   Business Activities Loans  Acquired Loans
  (in thousands)  December 31, 2015  December 31, 2015
   Beginning balance 

Provision

(benefit)

 

Charge-

offs

 

Reco-

veries

  Ending balance  Beginning balance 

Provision

(benefit)

 

Charge-

offs

 

Reco-

veries

  Ending balance
Residential  $2,306   $746   $(698)  $123   $2,477   $   $79   $   $   $79 
Commercial   1,697    (18)   (214)   1    1,466    7    136    (16)   5    132 
Land   164    157    (133)       188                     
Real estate   4,167    885    (1,045)   124    4,131    7    215    (16)   5    211 
Commercial and industrial   583    (295)   (69)   464    683    14    (24)       34    24 
Municipal   61                61                     
Consumer   117    71    (82)   18    124        (8)       8     
Unallocated   409    73            482                     
Totals  $5,337   $734   $(1,196)  $606   $5,481   $21   $183   $(16)  $47   $235 

 

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

Business Activities Loans

  (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
March 31, 2016         
Residential 1-4 family  $266,482   $1,534   $8,399   $474   $274,881   $2,008 
Residential 5+ multifamily   6,330    45    1,765        8,095    45 
Construction of residential 1-4 family   9,332    75            9,332    75 
Home equity lines of credit   33,511    309    818    21    34,329    330 
Residential real estate   315,655    1,963    10,982    495    326,637    2,458 
Commercial   132,084    1,377    4,231    80    136,315    1,457 
Construction of commercial   10,025    127    120    1    10,145    128 
Commercial real estate   142,109    1,504    4,351    81    146,460    1,585 
Farm land   2,983    24    1,024    1    4,007    25 
Vacant land   5,125    120    3,073    19    8,198    139 
Real estate secured   465,872    3,611    19,430    596    485,302    4,207 
Commercial and industrial   92,019    780    509    1    92,528    781 
Municipal   9,364    59            9,364    59 
Consumer   5,806    114            5,806    114 
Unallocated allowance       412                412 
Totals  $573,061   $4,976   $19,939   $597   $593,000   $5,573 

 

18
 

Acquired Loans

(in thousands)  Collectively evaluated  Individually evaluated  ASC 310-30 loans   Total portfolio 
    Loans    Allowance    Loans    Allowance    Loans    Allowance    Loans    Allowance 
March 31, 2016                                        
Residential 1-4 family  $6,664   $   $779   $69   $   $   $7,443    $69 
Residential 5+ multifamily   5,927        123                6,050     
Construction of residential 1-4 family                                
Home equity lines of credit                                
Residential real estate   12,591        902    69            13,493    69 
Commercial   79,134    19    2,585    27    4,781    44    86,500    90 
Construction of commercial   4,645    4    258                4,903    4 
Commercial real estate   83,779    23    2,843    27    4,781    44    91,403    94 
Farm land                                
Vacant land                                
Real estate secured   96,370    23    3,745    96    4,781    44    104,896    163 
Commercial and industrial   34,475    21    414    114    628    6    35,517    141 
Municipal                                
Consumer   60                16        76     
Unallocated allowance                                
Totals  $130,905   $44   $4,159   $210   $5,425   $50   $140,489   $304 

Business Activities Loans

  (in thousands)  Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2015                              
Residential 1-4 family  $253,156   $1,415   $8,339   $610   $261,495   $2,025 
Residential 5+ multifamily   4,640    33    1,771        6,411    33 
Construction of residential 1-4 family   7,998    65            7,998    65 
Home equity lines of credit   34,298    286    719    68    35,017    354 
Residential real estate   300,092    1,799    10,829    678    310,921    2,477 
Commercial   125,173    1,265    4,273    113    129,446    1,378 
Construction of commercial   6,403    87    122    1    6,525    88 
Commercial real estate   131,576    1,352    4,395    114    135,971    1,466 
Farm land   2,162    23    1,031    14    3,193    37 
Vacant land   5,486    122    3,077    29    8,563    151 
Real estate secured   439,316    3,296    19,332    835    458,648    4,131 
Commercial and industrial   74,131    673    526    10    74,657    683 
Municipal   9,566    61            9,566    61 
Consumer   6,115    124    80        6,195    124 
Unallocated allowance       482                482 
Totals  $529,128   $4,636   $19,938   $845   $549,066   $5,481 

 

19
 

Acquired Loans

(in thousands)  Collectively evaluated  Individually evaluated  ASC 310-30 loans   Total portfolio 
    Loans    Allowance    Loans    Allowance    Loans    Allowance    Loans    Allowance 
December 31, 2015                                        
Residential 1-4 family  $7,023   $   $776   $79   $   $   $7,799   $79 
Residential 5+ multifamily   6,136                        6,136     
Construction of residential 1-4 family                                
Home equity lines of credit                                
Residential real estate   13,159        776    79            13,935    79 
Commercial   81,300    19    2,742    107    4,787    2    88,829    128 
Construction of commercial   4,612    4    262                4,874    4 
Commercial real estate   85,912    23    3,004    107    4,787    2    93,703    132 
Farm land                                
Vacant land                                
Real estate secured   99,071    23    3,780    186    4,787    2    107,638    211 
Commercial and industrial   45,650    24            1,114        46,764    24 
Municipal                                
Consumer   61                16        77     
Unallocated allowance                                
Totals  $144,782   $47   $3,780   $186   $5,917   $2   $154,479   $235 

 

 

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

Business Activities Loans

  March 31, 2016 (in thousands) Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans   Allowance 
Performing loans  $569,493   $4,429   $   $   $569,493   $4,429
Potential problem loans   3,568    135            3,568   135
Impaired loans           19,939    597    19,939   597
Unallocated allowance       412               412
Totals  $573,061   $4,976   $19,939   $597   $593,000   $5,573

Acquired Loans

  March 31, 2016 (in thousands) Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans   Allowance 
Performing loans  $133,381   $51   $   $   $133,381   $51 
Potential problem loans   2,949    42            2,949    42 
Impaired loans           4,159    211    4,159    211 
Unallocated allowance                        
Totals  $136,330   $93   $4,159   $211   $140,489   $304 

Business Activities Loans

  December 31, 2015 (in thousands) Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans   Allowance 
Performing loans  $527,905   $4,110   $   $   $527,905   $4,110 
Potential problem loans   1,223    44            1,223    44 
Impaired loans           19,938    845    19,938    845 
Unallocated allowance       482                482 
Totals  $529,128   $4,636   $19,938   $845   $549,066   $5,481 
20
 

Acquired Loans

  December 31, 2015 (in thousands) Collectively evaluated  Individually evaluated  Total portfolio
    Loans    Allowance    Loans    Allowance    Loans   Allowance 
Performing loans  $148,580   $46   $   $   $148,580   $46 
Potential problem loans   2,119    2            2,119    2 
Impaired loans           3,780    187    3,780    187 
Unallocated allowance                        
Totals  $150,699   $48   $3,780   $187   $154,479   $235 

A specific valuation allowance is established for the impairment amount of each impaired loan, calculated using the fair value of expected cash flows or collateral, in accordance with the most likely means of recovery. Certain data with respect to loans individually evaluated for impairment is as follows:

Business Activities Loans

   Impaired loans with specific allowance   Impaired loans with no specific allowance
(in thousands)  Loan balance    Specific    Income   Loan balance    Income 
    Book    Note    Average    allowance    recognized    Book    Note    Average    recognized 
March 31, 2016                                             
Residential  $7,155   $7,787   $8,032   $474   $18   $3,009   $3,230   $2,740   $20 
Home equity lines of credit   488    513    503    21        330    347    296     
Residential real estate   7,643    8,300    8,535    495    18    3,339    3,577    3,036    20 
Commercial   3,095    3,412    3,058    80    13    1,136    1,403    1,195    7 
Construction of commercial   120    126    121    1    2                 
Farm land   11    13    372    1        1,013    1,109    656     
Vacant land   2,870    3,859    2,870    19    1    203    238    205     
Real estate secured   13,739    15,710    14,956    596    34    5,691    6,327    5,092    27 
Commercial and industrial   94    98    95    1        415    468    421    1 
Consumer                               20     
Totals  $13,833   $15,808   $15,051   $597   $34   $6,106   $6,795   $5,533   $28 

Acquired Loans

   Impaired loans with specific allowance   Impaired loans with no specific allowance
(in thousands)  Loan balance    Specific    Income   Loan balance    Income 
    Book    Note    Average    allowance    recognized    Book    Note    Average    recognized 
March 31, 2016                                             
Residential  $602   $716   $645   $69   $   $300   $300   $263   $ 
Home equity lines of
credit
                                    
Residential real estate   602    716    645    69        300    300    263     
Commercial   331    723    547    27    4    2,255    2,853    2,176    13 
Construction of commercial                       258    271    259     
Farm land                                    
Vacant land                                    
Real estate secured   933    1,439    1,192    96    4    2,813    3,424    2,698    13 
Commercial and
industrial
   332    439    83    114                     
Consumer                                    
Totals  $1,265   $1,878   $1,275   $210   $4   $2,813   $3,424   $2,698   $13 

 

21
 

Business Activities Loans

   Impaired loans with specific allowance   Impaired loans with no specific allowance
(in thousands)  Loan balance    Specific    Income   Loan balance    Income 
    Book    Note    Average    allowance    recognized    Book    Note    Average    recognized 
December 31, 2015                                         
Residential 1-4 family  $7,482   $8,094   $6,449   $610   $167   $2,628   $2,770   $3,089   $98 
Home equity lines of credit   535    659    260    68    9    184    199    423    2 
Residential real estate   8,017    8,753    6,709    678    176    2,812    2,969    3,512    100 
Commercial   3,131    3,405    2,850    113    123    1,142    1,393    1,624    49 
Construction of commercial   122    128    9    1    7            116     
Farm land   733    773    400    14    25    298    352    461     
Vacant land   2,870    3,836    3,015    29    3    207    241    72    9 
Real estate secured   14,873    16,895    12,983    835    334    4,459    4,955    5,785    158 
Commercial and industrial   95    98